Moseley 2021 class caldwell

Assumption

Act of transferring a loan from one borrower to another. For example, some lenders may agree to transfer the seller's old loan to the buyer, which could benefit the buyer when the existing mortgage has an interest rate below current interest rates. When a buyer assumes a mortgage, she assumes personal liability for full payment of the debt. This means that if the loan is not paid and a foreclosure sale does not satisfy the debt, the new buyer who assumed the loan could be personally liable to pay the outstanding balance. Such payments are court-ordered through a deficiency judgment. However, in most cases, the lender will hold the seller and the buyer as jointly and severally liable. This means that the lender may pursue either or both parties in order to repay the debt. In effect, the buyer becomes a co-guarantor with the original note maker. An assumption generally requires the lender's approval consistent with the agreement (assumption clause). In the event of a default by the assuming buyer, the original borrower remains jointly and severally liable for the debt (lender may sue either or both parties). See also Foreclosure.

Buyer-Broker Agreement

Agency relationship between a broker and a buyer, often including a salesperson that works under the broker as a subagent. Formal representation of the buyer creates an agency relationship between the buyer and broker, which also carries certain rights and responsibilities. Such formal representation contrasts with the mere informal assistance that a seller's agent may provide to a buyer without creating an agency relationship. Most states require that proper disclosure of this distinction be made to the buyer. Just like the broker and seller, the nature of the relationship between broker and buyer should be established through a written agreement. There are different Buyer broker agreements, but each should clearly specify: the services to be offered; the responsibilities of the parties; and how, when, and by whom the broker is to be compensated. An agreement to represent a buyer is an oral or written, bilateral or executory, personal service agreement (not assignable) that may not require an expiration date. However, in the absence of a specific expiration date, the agreement will be for a reasonable period of time (often set by state law). Common buyer-broker agreements include: Open Buyer Agreements and Exclusive Buyer Agencies (Exclusive Agency Buyer Agency and Exclusive Buyer Agency). Similar to the listing agreement, the buyer broker agreement could be terminated under a number of circumstances short of full performance, including: abandonment by the broker (broker fails to take any steps to find suitable property for the buyer); breach; lapse of time (time specified in agency agreement or by state law expires); mutual agreement; death, insanity, or bankruptcy; revocation. See also Agency; and Listing Agreement.

Buyer-Broker Agreements, Open Buyer Agreement

Agency relationship between a prospective buyer and a real estate broker which, like an open listing agency, permits any number of agents to be compensated depending upon who first brings suitable property to the buyer's attention. In this case, the buyer is only obligated to compensate that broker who produces property that the buyer actually purchases.

Agency, Creation by Implied Agreement (Ostensible)

Agency relationships may also be created by actions or statements that are short of an express agreement. If two people act as if an agency relationship exists, chances are that if called upon to make a decision, a court will rule that an agency relationship exists, even without a formal written agreement.

Agency, Creation by Estoppel

Agency relationships may also be established by estoppel. Judges apply estoppel on a case-by-case basis, which makes things difficult to predict. However, once applied, estoppel prevents (or stops) a person from asserting that there was no agency relationship. Estoppel often involves misleading conduct, or conduct that would otherwise lead any reasonable person to rely on a given set of assumptions.

Agency, Creation by Ratification

Agency relationships may arise by ratification. To ratify means to approve, sanction, or validate. Through ratification, a principal may create an agency relationship where an agent performs for the principal without the principal's consent, but the principal subsequently approves or ratifies the agent's conduct.

Comparative Market Analysis (CMA)

Also known as a competitive market analysis. Informal estimate (prediction) of market value by one who is not an appraiser (real estate salespersons often perform CMAs). A comparative market analysis is the only circumstance in which a broker or salesperson may estimate real estate value for a client. Generally, brokers and salespersons may only advise and assist clients by making a recommended listing price for the real estate. The broker or salesperson makes this recommendation by conducting a comparative market analysis, or CMA. A CMA, like the market data and cost approaches to estimating value by an appraiser, relies substantially on the principle of substitution. A CMA compares the prices of similar properties that recently sold in the same locality. Therefore, the first step in performing a CMA is to locate sufficient comparable properties. A good comparable must not only be similar in location, but it must also be similar in size, age, style, and amenities. If there are no adequate comparable properties (called comparables), the broker or salesperson should recommend that the property be formally appraised. The final step requires the user to make adjustments because real estate is never identical; real estate agents must factor differences between comparables and the subject property in order to arrive at a reasonable opinion. See also Appraisal.

Agency, Creation by Express Agreement

An agency relationship may be created by express agreement, which is clearly stated orally or in writing by the parties. Although listing agreements (which create an agency relationship by express agreement) may be oral, it is preferable to have a written listing signed by both parties. In a listing agreement, a broker (agent) and a client (seller) enter into an agency agreement for the purpose of selling real estate. While brokers may delegate agency authority to a salesperson, the underlying listing agreement is between the broker and the client—not the salesperson and the client. Brokerage relationships begin when a client engages an agent. However, compensation alone does not create a brokerage relationship. Also, merely using common source information, such as a multiple listing service (MLS), does not create a brokerage relationship. That is, an agent who represents a buyer can use a MLS to locate property without creating an agency relationship with a listing seller.

Bilateral Contracts

Contract where both parties make promises to perform. That is, one party makes a promise in terms of an offer, and the other party makes a promise in terms of an acceptance of that offer. The typical real estate sales contract is an example of a bilateral contract (promise to sell and promise to pay). See also Unilateral Contract.

Amortization

Degree to which mortgage payments are required in equal amounts. Payments may be Fully Amortized, or Partially Amortized.

Certificate of Eligibility

Document issued to a veteran who is eligible for a VA Guaranteed Loan by the Department of Veterans Affairs (VA), which establishes a limit on the amount of a VA Guaranteed loan that the VA will guarantee. The certificate of eligibility does not guarantee that the veteran will qualify for a loan; it merely states the veteran's entitlement to participate in the VA Program. See also VA Guaranteed Loans.

Change

Economic principle influencing the amount of value, which states that no physical or economic condition remains forever the same. In addition to changes from weather and natural wear-and-tear, there is also change in the real estate marketplace. In order to predict future change, one must be aware of past happenings and present trends.

Anticipation

Economic principle influencing value, which states that a person will buy based on the expectation or anticipation of a future benefit. See also Value.

Area Preference (situs)

Economic term that refers to a person's preference for one location over another. The phrase "location, location, location" is another way of explaining how a difference in area preference can cause two physically similar parcels of real estate to have very different economic values. Area preference (situs) is often identified as the most important economic characteristic of land.

Civil Rights Act of 1866

Federal law and subsequent Constitutional Amendment, which prohibits any form of discrimination based on race that restricts a person's right to inherit, purchase, lease, sell, hold, and convey real and personal property. The Civil Rights Act of 1866 was incorporated into the 14th Amendment to the U.S. Constitution. As a federal law, and then a constitutional amendment, only federal courts have jurisdiction to enforce the 14th Amendment.

Americans with Disabilities Act (ADA)

Federal law that regulates, among other things, access to public buildings and workplaces for persons with disabilities. Therefore, owners, landlords, and property managers must understand basic ADA concepts such as wheel chair accessibility to parking lots and buildings, handicapped parking requirements, and accessibility accommodations for bathrooms and public telephones.

Closing Disclosure

Form required by both the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) in covered property settlements. The Closing Disclosure is designed to standardize the pre- sentation of settlement charges and payments for buyers and sellers. While the primary purpose of closing is to ex- change the seller's title for the buyer's funds, there are expenses that must be paid, prorated, and allocated among the parties in order to accomplish this result. The Closing Disclosure itemizes and allocates these expenses and fees in a standardized format. The form must be provided at least three days before settlement in order to allow for review. Thus, changing the basic terms of a loan after delivery may trigger a new 3 day waiting period (APR increase, new prepayment penalty, or switching to a different type of loan). Note that lenders may agree for the settlement agent to deliver the Closing Disclosure to the borrower on their behalf. Lenders may also allow the settlement agent to fill out some or all of the information required on the form. The settlement agent must also provide the seller with a Closing Disclosure on or before the settlement date. This requirement may be satisfied by providing: a copy of the buyer's Closing Disclosure (if it contains information related to the seller's transaction); or a separate disclosure which only includes the seller-specific information. See also RESPA.

Appraisal

Formalized procedure that involves collecting and analyzing facts necessary to estimate the value of real property. Appraisers estimate a property's value by following six basic steps: 1) define the problem: The appraiser must select the most appropriate data concerning the subject property, and the most appropriate method of determining value; 2) gather data and inspect the property: The appraiser must obtain information concerning the economic, social, and political conditions of the nation, region, city, and neighborhood, along with data specific to the subject property. It is important that the appraiser personally visit the subject property, as well as the surrounding properties; 3) identify the highest and best use: The Appraiser must determine the use (which may be different from the current use) that gives the subject property its greatest value as of the time of appraisal; 4) estimate value: The appraiser must develop three estimates of value for the subject property by separately applying the market data approach, the cost approach, and the income capitalization approach to appraisal. While it may not always be feasible, it is most desirable to apply all three approaches; 5) reconciliation: The results of the three approaches are weighted according to the appraiser's judgment—the appraiser does not simply average each result. Averaging implies that the data and the methodology are equally valid and reliable for all properties. However, this is not the case. Whenever possible, the appraiser should apply all three approaches to the subject property, but certain approaches are more valid than others for certain types of property; and 6) appraisal report: The appraiser's report contains the appraiser's opinion of value and the factual basis for that opinion. Appraisal reports range from fairly simple, boilerplate reports to lengthy, complicated narratives depending on the type of property being appraised and the client's needs. Many governmental agencies require a report called the Uniform Residential Appraisal Report (URAR) (Freddie Mac Form 70, Fannie Mae Form 1004). The URAR is a government form that the appraiser must complete for specified transactions.

Amortization, Fully Amortized

Full amortization is a systematic method of repaying a loan by making regular, equal repayments (usually monthly) so that the loan itself, and all interest on the loan, is reduced to zero by the loan's maturity. Although the amount of each payment remains the same over the life of the loan, the amount of interest and principal paid each month fluctuates.

Capital Gains Exemption

Income tax exemption for profits realized on non-investment, residential property. The capital gains exemption shields a qualifying homeowner from having to pay an otherwise applicable income tax on qualified profits realized from the sale of a principal residence. A single taxpayer is eligible for the $250,000 capital-gains exemption ($500,000 for married taxpayers) upon the sale of a principal residence owned for two of the preceding five years. Qualifying residences include single family houses, houseboats, mobile homes, cooperative apartments, and condominiums, so long as they are the homeowner's principal place of residence for those with multiple homes. In addition to the amount of time one lives in each home, other factors relevant to determining which home is the principal place of residence include the following: the place of employment; the location of a family member's main home; the mailing address for bills and correspondence; the address listed on Federal and state tax returns, driver's licenses, car registrations, and voter registration cards; the location of banks used by the homeowner; and the location of recreational clubs or religious organizations to which the homeowner belongs.

Appurtenant Rights

Intangible right to use the land of another based in part on how one parcel of land is situated from another. Appurtenant rights grant one land owner the right to use the property of an adjoining land owner for a specific purpose. Appurtenant rights may be formally written or implied without any written transfer. The owner holds an appurtenant right so long as he owns particular real estate.

Buffer Zoning

Land use zone that separates two otherwise incompatible land uses. Buffers can consist of any intermediate use, such as a park situated between commercial and residential use zones. See also Zoning.

Amortization, Negatively Amortized

Lending agreement where the individual loan payments are of unequal amounts and are insufficient to repay all interest charges. Therefore, the loan balance increases rather than decreasing over the life of the loan. Under a negatively amortized loan, payments cover only a portion of the interest and none of the principal. Shortages in interest and/or principal payments are added to the loan balance (principal), causing the balance to increase over time.

Commercial Easements in Gross

Limited property right held by a business entity in the real estate of another. Telephone, electric, and gas company right-of-ways are all examples of commercial easements in gross. These easements are held by the utility company (utility easement), so there is no dominant estate. The servient estate is the property that provides the right-of-way. Unlike personal easements in gross, commercial easements in gross usually provide the holder with the right to sell, assign, or will the easement to others. See also Easements.

Blanket Mortgage

Loan wherein the borrower pledges more than one parcel of real estate as security (collateral) for the debt. Blanket mortgages usually contain a partial release clause, which allows an individual parcel to be released when a certain amount of the loan has been repaid. Builders and developers commonly use blanket mortgages to develop large tracts of land that will later be divided into individual parcels for resale.

Commission

Method of compensation for agency services, which is generally determined by an agreed upon percentage of the selling price. The rate of a broker's commission, and any fees he or she may charge, is always negotiable. It would be a violation of antitrust laws for multiple firms to agree upon or fix a commission rate. A buyer may compensate a buyer's agent, a seller may compensate a buyer's agent in the form of a commission split with the listing broker, or a combination of the two. Other means of compensation for buyer's and seller's agents include: a flat fee of some dollar amount for each transaction, regardless of the value of the deal; and an hourly rate. Traditional real estate brokers perform all necessary actions and services to effectuate a sale and charge a percentage of the sales price as a fee. This is called a bundled fee structure. On the other hand, some states permit a broker to unbundle their services and charge only for specific services, allowing the client to perform certain functions independently (commonly known as limited agency). Salespersons and associate brokers must receive compensation from principal brokers only, who receive compensation from the client. The amount of compensation received by a salesperson or associate broker is negotiated with the principal broker. Although individual commission agreements may vary, a seller's agent usually earns his commission when he has produced a ready, willing, and able buyer who is qualified to buy at the seller's listing price, and who wants to buy the property according to the terms in the listing agreement. See also Ready, Willing, and Able.

Condominium

Method of ownership governed by state law, which consists of single units in a multi-unit real estate development. State condominium laws are often referred to as "Horizontal Property Acts," or "Condominium Acts." An individual or other entity (such as a corporation) holds title to individual units in fee simple. Each condominium owner has exclusive ownership of his individual unit and can therefore mortgage, sell, will, or gift his unit independent of all other units. Units are assessed and taxed separately. The assessment for each unit is based on the value of the unit and the value of that unit's proportionate share of the common areas. If a condominium unit is the subject of a judgment which leads to foreclosure, that foreclosure only affects the individual unit in default. In addition to individual lots, condominiums generally include common areas. Common areas include the land on which the building sits, the shell of the building and each unit's walls, hallways, stairways, elevators, lobby, garages, swimming pools, and tennis courts. Common areas are owned by the individual unit owners as tenants-in-common, which means that all of the unit owners enjoy unity of possession, and they are all responsible for maintenance and care. A common wall is a wall separating two living units in a condominium that is part of the common area.

Concurrent Ownership

Method of real property ownership by two or more persons at the same time (concurrently). Co-ownership or co-tenancy exists in one of the following three forms: joint tenancy, tenancy in common, and tenancy by the entireties.

Bulk Zoning

Method of zoning used to control building density by imposing restrictions on setback lines, building height, and the percentage of open areas. See also Zoning.

Adjustable-Rate Mortgage (ARM)

Mortgage where the interest rate floats up or down according to a specified index. The interest rate is "adjusted" at certain time intervals (such as six months or one year), usually having a "cap rate" or maximum rate of change per adjustment interval (such as 1%, or 4%). Terms such as "one year ARM" generally identify the adjustment interval (interest rate adjusted after one year).

Amortization, Partially Amortized

Partial amortization describes a loan with a series of amortized payments, followed by a "balloon payment" at maturity. The balloon payment is the entire remaining balance. A partially amortized mortgage provides reduced monthly payments at the cost of a balloon payment at the end of the loan's term. Under a partially amortized mortgage, the final payment is larger than any previous payment. The payment amount "balloons" on the last installment.

Agency, Parties

Parties to an agency relationship include the principal and the agent. A principal (also known as a client) is a person that hires an agent to act on his behalf in a legal transaction. An agent is a person that agrees to represent a client in a legal transaction. Generally, the parties in an agency relationship that was created to purchase or sell property are the client and the real estate broker (NOT the salesperson and client). A real estate salesperson working under the listing or buying broker may serve as a sub-agent of his or her broker. The broker is engaged on behalf of the client to procure a seller, buyer, option, tenant, or landlord that is ready, willing, and able to sell, buy, option, exchange or rent real estate. Agency relationships can involve more than one client and more than one agent. See Dual and Designated Agency.

Client

Person, also known as a principal, who has an agency relationship with an agent. A buyer may be the client of a buyer's agent, a seller may be the client of a seller's agent, and a property owner may be the client of a property manager. See also Agency; Customer; Listing Agreement; and Buyer-Broker Agreement.

Bundle of Legal Rights

Phrase that is used to describe the principal intangible legal rights of property ownership. These rights are: the right to Possess property; the right to Control property within legal limits; the right to Enjoy property and use it legally; the right to Exclude others from property; the right to Encumber property by lessening one's rights of ownership in any way; and the right to Dispose of property by sale, will, or other transfer. Along with the physical elements of ownership (land, improvements, fixtures, etc.), these intangible rights pass to the new owner in whole or in part with the sale or transfer of land.

Closing

Point in time when the seller tenders title to the buyer or a neutral third person in exchange for the buyer's payment of the purchase price. Closing usually occurs at least 30-40 days after both parties execute a real estate sales contract. The parties use this time to complete certain mandatory activities before title is exchanged for payment. Real estate closings are conducted by settlement agents. State laws usually specify who may serve as the settlement agent, which may or may not include real estate brokers. Other laws impose reporting, procedural, and disclosure obligations on settlement agents and/or the parties. After both parties execute a sales contract, but before the closing date arrives, the buyer or his agent confirms the status of title and the condition of the property by examining title evidence, conducting a land survey, and confirming any mandatory inspections. State and federal laws may require various inspections before closing. Inspections may be for termites, structural integrity, and/ or appraisal (required by Department of Veterans Affairs, for example). Within a few days of closing, the buyer makes a final walk-through inspection of the property to ensure the property is in the agreed-upon condition. The walk-through is also the opportunity to verify if any items identified in earlier inspections have been sufficiently addressed. On the date of closing, both buyer and seller (or their agents) may be present, or a neutral third person may handle the transaction without the buyer or seller in the case of an escrow closing. Regardless of how the transaction is finalized, the effect is the same—title is tendered to the buyer or a neutral third person in exchange for the purchase price. When both the buyer and the seller are present on the closing date, all closing issues are resolved that day. That is, all the relevant paperwork is signed, funds are disbursed to the seller, and the buyer leaves with the title and the keys to the premises. An escrow closing occurs without the presence of the buyer or seller. In an escrow closing, an escrow agent follows the instructions of the buyer and the seller. An escrow agent is a neutral third person authorized by the parties to hold property or perform specified acts, like closing. Both parties must deposit all documents and money necessary for closing with the escrow agent. When the escrow agent is satisfied that the seller has met her obligations (produced evidence of marketable title), and the buyer has met his obligations (produced the necessary funds), the escrow agent delivers title to the buyer and the funds to the seller. In the event that an escrow agent determines one or the other party failed to meet his obligations, the agreed upon escrow instructions usually provide that the parties be returned to their original position, as if no sale occurred.

Ad Valorem Process

Process by which many state and local governments assess real estate taxes for operating revenue. "Ad valorem" is Latin for "according to value." Ad valorem taxes are based on the unique assessed value of the subject property.

Accretion

Process by which the force of water on land causes land to gradually accumulate over time.

Capital Gains

Profit that is realized upon the sale of a capital asset, as defined by the Internal Revenue Service. Capital gains are subject to a capital gains tax in most circumstances. Capital Gains taxes are either long-term or short-term. See also Capital Gains Exemption.

Conditional Use

See Zoning.

Antitrust

State and federal laws designed to protect consumers by preserving and maintaining competition among businesses. Competition is interpreted by most courts as the economic condition in which prices are determined by market forces without interference from private concerns. The Sherman Antitrust Act (Sherman Act), enforced by the Federal Trade Commission (FTC), is the principal federal antitrust law. Those who violate the Sherman Act may be subject to civil or criminal penalties, including jail time and monetary penalties. Injured parties may collect three times their actual damages (triple damages), plus attorney's fees and court costs under the Sherman Act. Prohibited acts include price fixing and boycotts.

Commingling

The act of mixing or mingling personal or business funds with trust funds, which are required to be held in trust for others in a separate escrow account. For example, Common Law fiduciary duties and state real estate licensing laws require agents to hold escrow money in unique escrow accounts. Such laws prohibit agents from placing escrow money in personal or regular business accounts, and from placing personal or regular business funds in escrow accounts. Either may be a violation of the agent's Common Law duty to account and a violation of state real estate licensing laws.

Air Rights

The bundle of legal ownership rights as they apply to airspace above a parcel of land. Air rights may be sold or leased, but are not unlimited. The Federal Aviation Administration (FAA) controls the flight path of aircrafts over land. In so doing, the Government imposes some restriction on the air rights of land owners. See also Bundle of Legal Rights; Subsurface Rights; and Surface Rights.

Building Codes

Valid exercise of the state's police power, which is intended to protect the public health and safety. Building codes are usually designed to establish minimum standards of construction in areas such as plumbing, electrical wiring, load limits, and building materials. In some cases, building codes are based on national standards. However, certain jurisdictions with special problems have very specialized building codes (such as areas prone to earthquakes, hurricanes, or frequent flooding). Building codes are enforced by issuing building permits and requiring periodic inspections at certain phases of construction. A final inspection is required before the state issues a "certificate of occupancy" (CO), which indicates that the building conforms to the building code. See also Police Power

Interval Ownership

See Time Share.

REV-RUR Glossary National Real Estate Topics Revenue Stamp

See Transfer Tax.

Recording Tax

See Transfer Tax.

Regulation Z

See Truth in Lending Act (TILA).

Heterogeneity

See Uniqueness.

D.U.S.T.

See Value.

Littoral

See Water Rights.

Prior Appropriations

See Water Rights.

Riparian Rights

See Water Rights.

Variance

See Zoning.

Purchase Money Mortgage (PMM)

Seller financing that consists of a mortgage between a seller and a buyer, which the buyer may (or may not) combine with an institutional mortgage.

Easement, Conveying by Express Reservation

Sellers may retain an easement upon transferring property to another, which conveys an easement by express reservation.

Assessed Value

Value assigned to property by a local government as a basis for determining property taxes. See also Ad Valorem Process.

Deed of Trust (DOT)

Voluntary lien on real property, similar to a mortgage. Under a deed of trust, a property owner enters into a contract to borrow money and voluntarily agrees to extinguish his rights in his real property in favor of the lender if he fails to pay the debt according to the terms of the loan agreement. The typical DOT is a contract between three (3) parties—the borrower (trustor), the lender (beneficiary), and a neutral third person (trustee). In a deed of trust, a neutral third party holds title to financed property until the loan is paid in full. If the loan is paid in full, the neutral third party transfers title to the borrower. If the loan is not paid in full, the neutral third party has the power to sell the property on behalf of the lender. The fact that the owner does not retain legal title to the property, that there are three parties, and that there is no foreclosure are the primary differences between a deed of trust (DOT) and a mortgage. Under a deed of trust, the trustee holds a title interest in the property. The title interest that the trustee holds is referred to as bare title because it does not include the rights of possession and use, but only those rights which are necessary to carry out the terms of the trust. The borrower retains the rights of possession and use as long as the conditions of the deed of trust are met. After the note is paid in full, the trustee re-conveys title to the borrower/property owner. Deeds of trust have the following advantages to lenders over mortgage contracts: If the owner of income-producing property defaults on a loan, the lender is authorized to take possession of the property in order to protect it and to collect rents; The time between default and foreclosure is shorter; The foreclosure process under a deed of trust is less expensive and simpler than a court-ordered foreclosure process; Title is already in the name of the trustee, permitting the trustee to grant title to the purchaser after the foreclosure sale; and after the foreclosure, there is usually no statutory redemption period (the period of time following foreclosure that the property owner may pay the debt). See also Mortgage; and Title Theory.

Public Grant

Voluntary transfer of real estate from the government to an individual. See also Dedication.

ECOA, Applying for Credit

When a consumer applies for credit, a covered lender cannot ask borrowers to disclose certain information or engage in certain prohibited conduct. A lender must not discourage a borrower from applying for credit because of their sex, marital status, age, race, national origin, or because they receive public assistance income. A lender must not ask a borrower to reveal their sex, race, national origin, or religion. However, they may ask a person to voluntarily disclose this information (except for religion) if applying for a real estate loan since this information helps federal agencies enforce anti-discrimination laws. Borrowers may be asked about their residence or immigration status. A lender must not ask a borrower whether they are widowed or divorced. When permitted to ask marital status, a creditor may only use the terms: married, unmarried, or separated. A lender must not ask about a borrower's marital status if the borrower is applying for a separate, unsecured account. A creditor may ask a borrower to provide this information if they live in "community property" states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). A creditor in any state may ask for this information if a borrower applies for a joint account or one secured by property. A lender must not request information about a borrower's spouse, except when their spouse is applying with them, the borrower's spouse will be allowed to use the account, the borrower is relying on their spouse's income or on alimony or child support income from a former spouse, or if the borrower resides in a community property state. A lender must not inquire about a borrower's plans for having or raising children. A lender must not ask if a borrower receives alimony, child support, or separate maintenance payments, unless the borrower is first told that they do not have to provide this information if they will not rely on these payments to get credit. However, a creditor may ask if the borrower has to pay alimony, child support, or separate maintenance payments.

TILA, Consumer Credit

"Consumer credit" under TILA may be either closed-end or open-end credit. Regardless, consumer credit is credit that is extended primarily for personal, family, or household pur- poses. The term consumer credit excludes transactions such as: business, commercial, and agricultural loans; and loans not secured by real or personal property which exceed a given threshold amount (adjusted annually for inflation). It also must be extended by a "creditor" (although it may be advertised by someone else, such as a builder, real estate broker, or advertising agency).

Volume

A measure of three-dimensional space that an object occupies. Voluntary Alienation: See Alienation.

TILA, Consumer Lease

A "consumer lease" is a lease of personal property to a private individual. The lease must be for personal, family, or household purposes and must be for a term of more than four months; thus, renting a car for a weekend is not a "consumer lease." The term excludes leases where the customer must pay a total which exceeds a given threshold amount (adjusted annually for inflation). How- ever, the term does include leases though which the customer has an option to buy at the end of the lease term. Note that a "lease" where the payments equal or exceed the value of the property and a consumer may buy the property at the end of the lease term for a nominal payment, or no further payment, is actu- ally a credit sale ("closed-end credit"), not a consumer lease. Consumer lease obligations were originally implemented under the Truth-in-Lending Act, but such sections were later moved to the Consumer Leas- ing Act/Regulation M.

Downzoning

A change in zoning from a higher, more active category to a lower, less active (less profitable) category. Sometimes, governments can be estopped (a legal term which literally means "stopped") from enforcing a new downzoning ordinance against a landowner. Zoning estoppel can occur when a landowner can show that he has incurred substantial costs after relying upon the government's prior assurances that all zoning requirements were met. Note that downzoning DOES NOT result in a taking. The owner's property may lose substantial value, but title does not transfer to the government. Inverse condemnation will likely not apply either, so long as the property retains some value and viable use. See also Zoning; Condemnation; and Inverse Condemnation.

Acceleration Clause

A clause that may appear in a Mortgage or Deed of Trust, which specifies that if the borrower violates the covenants of the mortgage or DOT, the entire loan balance becomes due and payable upon demand. In other words, the life of the loan is shortened, or accelerated, to its end. The lender may only accelerate the note if this clause is expressly included in the loan document. Also, the lender must give the debtor adequate notice (usually prescribed by law) and specify a time period to allow the debtor to cure the default.

Escrow Closing

A closing where an agent completes a real estate transaction on behalf of a buyer and/or a seller. Instead of the seller (grantor) and buyer (grantee) showing up at a specified time and location to physically exchange documents, an escrow agent completes the closing on behalf of the absent buyer and seller. See also Closing.

Correction Deed

A correction deed is recorded to correct a mistake in a deed to property. Usually, correction deeds are used to correct minor errors such as an improper legal description or the misspelling of a name.

Offer, Counteroffer

A counteroffer is a new offer by the offeree. An offeree is a person that receives an offer. By making a counteroffer, the initial offer is terminated by the offeree's rejection and replaced with a new offer. The offeree then becomes the offeror. The offeree and the offeror may switch positions throughout the negotiation process.

Deed Elements, Recording

A deed is valid even if it is not recorded. However, an unrecorded deed offers little protection against competing third party claims to ownership. The act of recording a deed creates a publicly accessible record of all transactions and encumbrances associated with that particular piece of real estate. This provides a method to verify whether title is marketable. Recording the deed protects not only the purchaser by providing constructive notice of ownership, but it also protects others who have an interest in the property (creditors) because it establishes an order of priority to any claims against the property as collateral. Failing to record an interest in property may cause it to be secondary to another person's interest.

Deed Elements, Delivery and Acceptance

A deed must be delivered by the grantor and voluntarily accepted by the grantee. Assuming all other elements have been satisfied, title passes after the deed has been delivered and accepted. If the deed is subsequently lost or destroyed, there is no effect on ownership because the crucial element is the intent of the parties to pass the executed deed—the deed itself is only evidence of ownership. Deeds are sometimes delivered to third persons (known as escrow agents) instead of the grantee. The escrow agent would then only deliver the deed to the grantee upon a specified event.

Gift Deeds

A deed that transfers real property out of love and affection rather than in exchange for money or other valuables. Because the deed is not supported by valuable consideration, the grantee may not be able to enforce certain promises in the deed against the grantor. A gift deed is invalid if it is granted merely to protect land from creditors. See also Consideration and Deed.

Foreclosure, Lien Theory (Mortgage)

A defaulting borrower is subject to either a judicial foreclosure or a strict foreclosure in states that follow the lien theory. Under a judicial foreclosure, the lender must usually file a lawsuit naming the defendants, identifying the debt and the mortgage securing the debt, and present evidence that the loan is in default. The borrower has an opportunity to rebut the lender's evidence and present his own evidence that he is not in default. The lender asks the court to order the sale by public auction and for the proceeds from the sale to be used to pay the debt. After a hearing, and if the court finds reason to foreclose, the judge will order that the property be sold at a public auction. The public auction may occur only after a prescribed period of advertising in public places and in a local newspaper. The sale is conducted at the property or at the county courthouse, depending upon the law of the jurisdiction. Judicial foreclosures are lengthy and expensive. A strict foreclosure, like a judicial foreclosure, requires that notice be properly served to the borrower and that specified paperwork be filed with a court. However, unlike a judicial foreclosure, the court then establishes a deadline for the borrower to repay the delinquent debt. If the borrower fails to meet the deadline, the court awards full title to the property to the lender. In a strict foreclosure, the borrower loses his equity of redemption and any statutory redemption rights.

Percentage

A given part of 100.

Graduated Lease

A graduated lease provides for predetermined rental increases at specified times. For example, an index lease is a type of graduated lease which adjusts the rent up or down periodically based on changes in a specified index, such as the Consumer Price Index (CPI). There is usually a cap set on the maximum change allowed over a specified period (such as 4% or 6%).

Ground Lease

A ground lease (also called a land lease or pad lease) is a rental agreement whereby an owner leases vacant land (or ground) to a tenant, who then builds his own building. A Ground Lease is typically a long- term lease (50-99 years, for example) that enables the builder (lessee) to realize a return on his investment. Ground leases often involve elements of net leases and are most common to commercial property.

Joint Tenancy, Termination

A joint tenancy may terminate by mutual consent of the parties, or by sale. Joint tenants cannot will their ownership interest to others, but they may sell their interest. When a joint tenant sells his interest to an outside party, the outside party does not take ownership as a joint tenant because there is no unity of time or title (two of the four unities required for formation of a joint tenancy). Rather, the outside party takes title as a tenant-in-common with the remaining joint tenants. Most important, because all four unities do not exist, the outside party has fewer rights and cannot occupy the entire property like the joint tenants (the tenant-in-common can only occupy his share).

Condemnation

A lawsuit initiated by a government against a private landowner who does not consent to a government taking of private property pursuant to the government's power of eminent domain. Through condemnation proceedings, the government sues the landowner to obtain title to the land and to determine just compensation based on the market value of the property. While eminent domain is the power to take property, condemnation is the procedure by which the power of eminent domain is exercised. See also Eminent Domain.

Trustee

A party to a Deed of Trust, or a fiduciary who operates a trust. See Deed of Trust; and Trust.

Trustor

A party to a Deed of Trust, or one who conveys property to a trustee. See Deed of Trust; and Trust.

Beneficiary

A party to a deed of trust. See also Deed of Trust.

Capacity

A person's legal and mental ability to contract. See also Incompetency.

Easement, Conveying by Prescription

A prescriptive easement is a right acquired by an adverse user, or a user that is using the land of another without permission and in conflict with the owner's interests. This type of easement is only acquired by the adverse, hostile, exclusive, open, uninterrupted, and continued use of another's property for a certain prescribed length of time (anywhere from seven to

Water Rights

A property owner's entitlement to use and maintain water for agricultural, recreational, or personal use. Water rights are significant in states where water is in limited supply. Most states follow one of the following three legal doctrines to determine who has the intangible right to use or divert water and how much: riparian (reasonable use for those with property bordering moving water); littoral (reasonable use for those with property bordering non-moving water); and prior appropriation (owner who first diverts water has superior rights to all others).

Proprietary Lease

A proprietary lease is a rental agreement between a corporation (owner) and a stockholder (tenant), which is commonly used in cooperative ownership. These rental agreements are proprietary because the tenant is also a stockholder in the corporation that owns the building. Rather than paying a fixed rent, the tenant (stockholder) pays a proportionate share of the carrying charges of the corporation. When a cooperative unit is sold, the proprietary lease is assigned to the buyer along with the seller's stock.

Revaluation Lease

A revaluation lease (also called a reappraisal lease) allows for rent to be adjusted periodically according to the revaluation (reappraisal) of the real estate. See also Lease.

Township Squares

A square area 6 miles per side, which is formed where township tiers and range lines intersect. Township tiers are imaginary lines that run east-west, parallel to base lines. Range lines are imaginary lines that run north-south, parallel to principal meridians. Townships are located by their distance north or south of base lines and east or west of primary meridians. See also Government Survey.

Certificate of Title

A title examiner's opinion, based on a title search, of whether title to property is marketable

Deed

A written document used to convey title to land. The person giving up the deed (seller) is known as the grantor. The person receiving the deed (buyer) is known as the grantee. Generally, the deed replaces the sales contract between the buyer and the seller upon closing. There are four basic types of deeds: the warranty deed, the special warranty deed, the bargain and sale deed, and the quitclaim deed. The major differences distinguishing one from the other are the types of covenants (or promises) made by the grantor (seller). The deed is the source of legal title to property, and notice of any encumbrances on ownership. Any reservations (a right retained by the grantor, such as an easement), exceptions, restrictions, encumbrances, or other limitations to title should be noted in the deed. There are several elements to a valid, legally enforceable deed including: an accurate description of the property, execution of the deed by the parties, and delivery and acceptance of the deed. Recording the deed is wise, but not strictly required. A deed is merely evidence that one holds title to property—it is not irrefutable proof of ownership because a cloud on title could call a property owner's rights into question, despite possession of a deed. See also Closing; and Deed of Trust.

Section

Area within a township square, which measures one square mile, or 640 acres. There are 36 numbered sections within a township. The numbering begins in the northeast corner, which is always section number 1. Sections may be further broken down into halves, quarters, and so on. A physical marker called a survey monument is located at each section corner. See also Government Survey.

PITI

Abbreviation for Principal, Interest, Taxes, and Insurance, or the components of a typical mortgage payment. Borrowers pay a monthly portion of mortgage principal and interest, and pay a monthly portion of taxes and insurance into a reserve account. Collectively, these components comprise the total monthly loan payment. See also Mortgage.

Antitrust, Price Discrimination

Act of charging different amounts to different buyers for identical goods or services. This may violate antitrust, fair housing, and credit laws.

Satisfaction

Act of completing all payments required by a lien, mortgage, or deed of trust. When a borrower pays a mortgage note in full, the lender returns the cancelled note to the borrower along with a "satisfaction of mortgage" document. The borrower should immediately record the satisfaction of mortgage document. When a borrower pays a Deed of Trust in full (title theory states), the lender sends the note, marked "paid," to the trustee along with a request for reconveyance of the title. Upon receiving the note from the lender, the trustee then issues a release deed (also known as a deed of release or certificate of satisfaction) to the borrower, which re-conveys full title to the borrower. The borrower records the release on the public record in order to cancel the lien and clear the title. See also Mortgage; Deed of Trust; and Recording Act.

Unauthorized Practice of Law

Act of practicing law without a license. Almost all states have laws that prohibit the unauthorized practice of law. In the majority of states (national view), practicing law includes drafting contracts on behalf of another, including real estate-related contracts like sales contracts and closing documents, regardless of whether you a fee is charged. However, most states do permit non-attorney brokers to assist and advise clients in completing standard fill-in-the-blank sales contracts. In most states, non-attorney brokers who draft real estate- related contracts (sales contract or otherwise) may be prosecuted for engaging in the unauthorized practice of law. A minority of states deviate from this general rule.

Kickbacks

Act of returning a portion of a payment to a referring person, pursuant to a secret or coercive agreement, for the purpose of compensating such person for the referred business. Kickbacks may violate antitrust laws and RESPA. See also Antitrust; and Real Estate Settlement Procedures Act (RESPA).

Notice, Actual

Actual notice means that an individual has received information or documents. When a person searches the public record, inspects the property, or is shown a legal instrument evidencing title, that person has actual notice of a deed's status.

HUD-1, Additional Settlement Charges

Additional settlement charges include surveys and inspections. The lender may require a survey to protect its interest, as well as the buyer's interest. Usually the buyer pays the surveyor's fee, but this may be paid by the seller. Pest and other inspection fees cover inspections for termites or other pest infestations of the home. Lead-based paint inspection fees cover inspections or evaluations for lead-based paint hazard risk assessments and may appear on any blank line in the 1300 series of the HUD-1.

Improvements

Additions made to land that are intended to enhance its value. Improvements include houses and commercial buildings, as well as sewers, sidewalks, and fences. Not all improvements enhance value, and some improvements may be restricted by government or neighborhood associations.

TILA, Enforcement

Advertisers (lenders) of consumer credit and consumer leases under the FTC's jurisdiction are subject to enforcement actions that could result in remedies such as injunctions and civil penalties of up to $41,484 for each day of violation. In addition, anyone actually harmed by a non-com- plying consumer lease advertisement may sue for: actual damages; 25% of the total amount of monthly payments under the lease (but not less than $200 or more than $2,000); court costs; and reasonable at- torney's fees.

RESPA, Disclosures Due after Settlement

After settlement, loan servicers must deliver an initial escrow statement within 45 days of settlement, an annual escrow statement once a year thereafter, and a servicing transfer statement if the loan servicer sells or assigns the servicing rights for a borrower's loan to another loan servicer.

RESPA, Disclosures Due before Settlement

After the loan application, but at least three days prior to settlement, lenders must provide the borrower with a Closing Disclosure. After delivery, changing certain terms of the loan may trigger a new 3 day waiting period. Lenders must also provide the borrower with an Affiliated Business Disclosure at or before the referral of any affiliate services.

Market Value

An estimate of the most probable price that particular real estate will bring in cash, in an open and competitive market. Market value differs from market price, as the market price could be higher or lower than the market value. An open and competitive market assumes the following conditions: reasonably informed buyers & sellers, unrelated buyers & sellers, property exposed to the market for a reasonable time, payment in cash or equivalent, and seller has marketable title. Some or all of these factors may be lacking in a transaction.

Listing Agreement

Agency agreement between a person attempting to sell real estate and a real estate broker, which also establishes the terms of compensation for arranging the sale of property. State laws may require listing agreements to specify a specific termination date, or impose a reasonable termination date if unstated. Real estate agents (brokers) generally earn payment (commission) upon one of two events: when the agent (broker) produces a ready, willing, and able buyer; and when the agent (broker) is the procuring cause of any sale or purchase. Listing agreements may be oral (the statute of frauds does not apply); however, state laws may vary. Common listing agreements include: Open Listing Agreements, Exclusive Listing Agreements, and Net Listing Agreements (illegal in most states). See also Buyer Broker Agreements; Open Listing Agreement; Exclusive Listing Agreement; Exclusive Agency; Exclusive Right to Sell; and Agency.

Open Listing Agreement

Agency agreement between a seller and any number of brokers, wherein the seller promises to compensate the broker if the broker sells the property. Under an open listing contract, the owner is only obligated to pay a commission to a broker if she successfully sells the property or was the procuring cause of the sale. As an alternative, the owner may sell the property himself and owe no commission to any broker. The open listing contract may be oral or written, but it is unilateral (obligating only one party—the broker—to act), executory (will not arise unless or until a particular broker produces a buyer), and may have an indefinite expiration date. However, many state laws impose an expiration date if one is not explicitly stated. See also Listing Agreement; and Agency.

Net Listing Agreement

Agency agreement between a seller of real estate and a real estate broker, whereby the seller/client hires the broker to locate a buyer and also agrees to compensate the broker with the difference between the actual sales price and some set amount of money. Under a net listing agreement, the broker is free to sell the house for as much as he can get and keep all monies above an amount set by the owner. Net listing agreements are illegal in most states. Net listings include net sales agreements and net lease agreements. See also Agency; and Listing Agreement.

Designated Agency

Agency relationship where a single broker represents both the buyer and the seller in the same real estate transaction. However, the broker appoints one salesperson to represent Client A and another salesperson to represent Client B. Each designated agent acts as a single agent of the assigned client, while both agents work for the same broker who is acting as a dual agent. In this way, designated agency is closely associated with dual agency. Like dual agency, designated agency relationships must be properly disclosed to all parties under applicable state law. See also Dual Agency.

Single Agency

Agency representation where a broker represents only one party in a transaction—either the buyer or the seller, but not both. The party the agent represents is called the client and the other party to the transaction is called the customer. See also Dual Agency; and Agency.

Liquidity

An estimated measure of the ease with which one may convert an asset into cash. Liquid assets are those assets that can be converted into cash quickly and easily. Gold is an example of a liquid asset. On the other hand, real estate is traditionally a long-term investment (non-liquid asset).

Exclusive Listing Agreement

An exclusive listing is a listing agreement between a seller and a single broker (the exclusive agent) which, for a limited time, provides the listing broker with rights to a commission if the property is sold. See also Listing Agreement; and Agency.

Dual Agency

Agency representation where a real estate broker represents both the buyer and the seller in the same real estate transaction. Most states that permit dual agency require for an agent to obtain proper client consent before entering into the relationship. Proper consent usually includes various disclosures about the nature and risks of the dual agency relationship. Generally, these disclosures must be written and signed by all parties in order to acknowledge receipt. Most disclosures must be made before any confidential information is exchanged. Dual agents owe agency duties to both parties. However, it is difficult to carry out these duties because the buyer and seller have opposing interests and are in competition with one another. Escrow agents are examples of dual agents, as they hold money for the benefit of multiple parties. Problems arise when, through careless words or actions, a broker unintentionally creates an implied dual agency without the proper disclosures. In fact, if a broker acts as a dual agent, but fails to formally disclose that he is a dual agent to all parties, he risks losing his commission, his license, and/or jeopardizing the transaction.

General Agent

Agent who is authorized to perform any and all acts associated with a specific service. See also Special Agent and Agent.

Option Contract

Agreement where a buyer (or lessee) contracts with a seller (or lessor) for the exclusive privilege (but not obligation) of accepting an offer at a specified price for a specified period of time. Option contracts must contain the three (3) essential contract elements (offer/acceptance, consideration or money, and lack of any defenses), along with a specified price, the date the option will expire, and a description (legal or non-legal) of the property. If exercised, the option contract becomes the purchase agreement (or lease). Option contracts are unilateral (seller is obligated to sell, but buyer is not obligated to buy). See also Right of First Refusal.

Personal Property

All property that is not real property; also known as personalty and chattel. Personal property may be tangible like cars, boats, jewelry, horses, and cattle or intangible like stocks, bonds, notes, and mortgages. Unlike real property, personal property is moveable. Beyond cars, rings, and investments, there are certain types of personal property that are closely associated with, and often confused for, real property. Personal property includes: trade fixtures, leases, and fructus industriales (emblements). See also Real Property.

Agency, Disclosure

All states require that brokers and salespersons disclose who they represent to potential buyers and sellers. Making a proper and timely agency disclosure is an attempt to avoid misleading or confusing potential buyers and sellers. Proper and timely disclosures will also avoid creating an implied agency relationship, which carries various duties and liabilities for the agent. States require various methods of disclosure and impose various substantive requirements for these disclosures. Generally, such disclosures must occur before the agent and the party have substantive discussions about the property or transaction, and before any confidential information is disclosed to the agent.

Purchase Agreement, Drafting

Almost all states have laws that prohibit the unauthorized practice of law. In the majority of states (national view), practicing law includes drafting contracts on behalf of another, including real estate related contracts like purchase agreements. However, most states do permit non-attorney brokers to assist and advise clients in completing standard fill-in-the-blank purchase agreements. In most states, non-attorney brokers who draft real estate related contracts (sales contract or otherwise) may be prosecuted for engaging in the unauthorized practice of law. A minority of states deviate from this general rule.

Commercial Banks

Banks that make loans to primarily assist commerce, especially in the areas of business loans, home improvement, and short-term construction (interim financing). Demand deposits (checking accounts) are the primary source of funds for commercial banks. Due to this focus, commercial banks must be more liquid

Interest Only Mortgage

Also known as a straight mortgage or a term loan, in which the borrower only pays the interest during the life of the loan (the entire principal is due at the end of the loan term). Interest only mortgages achieve low monthly payments in the early life of the loan.

Uniqueness

Also known as heterogeneity; a principle about the physical characteristics of land, which states that every parcel of real property is distinct since land and improvements are not standard. Parcels of land differ in size, shape, location, and appearance. Uniqueness is the legal basis for specific performance lawsuits, or lawsuits that seek to force the sale of land as agreed upon in a valid contract where the seller refuses to carry through with the sale as promised.

Fixtures, Adaptation (Constructive Annexation)

An adaptation is another factor considered in a fixture dispute. If an object was specially adapted or made to suit a particular or unique feature of a building, then it is classified as a fixture.

Fixtures, Agreement

An agreement between the parties may permit removal of a fixture, or prevent a dispute about whether an item is or is not a fixture. Written agreements are the best way to avoid fixture disputes, as litigation is always uncertain.

Easement, Conveying by Condemnation

An easement by condemnation arises by operation of law through the government's power of eminent domain. An easement taken by condemnation must be necessary for a public purpose. Where private land is taken for public purposes, the government must justly (fairly) compensate landowners for any loss in property value. The United States Constitution guarantees that the Government will not take property without just compensation.

Easement, Conveying by Implication

An easement may arise by implication from the acts or conduct of the parties. An easement by implication does not have to be in writing, and arises where a larger parcel of land is divided into smaller parcels, the use requiring the easement existed before the land was divided, and the easement is reasonably necessary (unlike an easement created by necessity, which requires strict necessity).

Easement, Conveying by Necessity

An easement may arise by necessity only where a particular use is strictly necessary, despite any express grant or reservation. Easements by necessity are created by operation of law rather than by a formal written agreement. The classic example of an easement by necessity is one which arises when a piece of property is landlocked and requires access across another's property. The easement by necessity exists only so long as the necessity exists.

Assemblage

An economic characteristic of real property that describes how combining two or more contiguous parcels of real estate into a single parcel under the same ownership can increase its overall value. Assemblage is viable when the combined property will be more valuable than the sum of the individual parcels. Any increase in value resulting from assemblage is known as plottage value.

Counteroffer

An offer made in response to another offer. The buyer (offeror—one who makes an offer) initially makes an offer to purchase to the seller (offeree—one who receives the offer). If the seller makes another offer in response to the initial offer, the seller's second offer is known as a counteroffer. Under a counteroffer, the roles the initial offeror and offeree are reversed—the seller becomes the offeror and the buyer becomes the offeree with respect to the seller's counteroffer. Often, the offer to purchase is not the only offer exchanged between the buyer and the seller. The seller may make a counteroffer, the buyer may make a counteroffer to the seller's counteroffer,

Offer, Termination

An offeror (the one making the offer) may withdraw his offer at any time prior to its acceptance by the offeree (the one receiving the offer) unless, for example, the offer is contained in a valid option contract. If the offeror withdraws the offer, the offeree no longer has the power to accept and there can be no contract from the rejected offer. An offer also terminates if the offeree rejects it or makes a counteroffer, in which case the roles are reversed and the previous offeree now becomes the offeror with respect to the new offer. Some offers terminate automatically if they are not accepted by a deadline established by the parties. Specifying a deadline for acceptance is one way to control an offer after it is communicated. In addition, the death or insanity of either party prior to acceptance will terminate an offer. This is true because acceptance of an offer, and subsequent formation of a contract, requires a meeting of the minds. A meeting of the minds is another way to say that the parties both understand exactly what they have promised to do or not to do. However, once they arise, contracts survive the death of either party. In such cases, the estate of the deceased party is obligated to perform on behalf of the deceased. While the death of either party does not terminate an existing contract, the death of either party does terminate an offer that has not been accepted. Unlike real estate sales contracts, a personal service contract such as a listing agreement, does not survive the death of either party.

Antitrust, Tying Arrangement

Antitrust violation where a person or firm offers one type of service to a client, but with a requirement that the client contract for a different service at the same time.

Antitrust, Price Fixing

Antitrust violation where people or firms collusively establish uniform prices for products or services, regardless of which company or person actually provides the product or service. A brokerage firm may internally discuss and establish fee and commission policies. However, brokers and salespersons must be careful about discussing fees and commission rates with competing firms.

Antitrust, Boycott

Antitrust violation where two or more companies conspire to exclude a competitor from the marketplace. A boycott is a conspiracy, which has the effect of reducing competition. Examples of boycotts include the allocation of customers or markets among competitors, some restrictions on

Junior Mortgage

Any mortgage loan that is subordinate in priority to another mortgage. Junior mortgages usually carry higher interest rates because they entail greater risk due to their position compared to other liens. Home equity loans are usually junior mortgages.

Common Source Information Company

Any person, firm, or corporation that is a source, compiler, or supplier of information regarding real estate for sale or lease and other data. Generally, common source information companies are known as multiple listing services (MLS), which are available to member firms on a fee or subscription basis.

Trade Fixtures

Articles of tangible personal property that are necessary to a tenant's trade or business. Even if a trade fixture is firmly affixed to real estate, it remains the personal property of the tenant. Contrast a trade fixture with a fixture, where the ability to remove (severe) an item is limited. However, trade fixtures must be removed at or before the expiration of a lease or within an agreed upon reasonable time thereafter in order to remain the tenant's personal property (otherwise, the trade fixture could become the landlord's property). The tenant is responsible for any damage to the premises caused by removing or installing a trade fixture. See also Fixture.

Partnership

Association of two or more persons who carry on a business for profit. Partnerships are often created to hold the title to real estate in severalty (in the name of that partnership). There are two main types of partnerships: general and limited. The individual partners have interests in the partnership that may be bought and sold. The partners' individual interests are classified as intangible personal property.

Covenant, of Seisin

Assurance (promise) made by a grantor of a deed to the grantee of a deed that the grantor has the degree of ownership that the grantor claims he can convey. This covenant is broken, or breached, if good title is actually held by a third party, or if the grantor does not hold the extent of title that he claimed.

RESPA, Escrow Account Statement

At settlement or within the next 45 days, the person servicing the loan must provide the borrower with an initial escrow account statement. That form will show all of the payments which are expected to be deposited into the escrow account and all of the disbursements which are expected to be made from the escrow account during the year ahead. Each year, lenders (or their servicers) must review the escrow account and send the borrower a disclosure, showing the prior year's ac- tivity and any necessary payment adjustments that the borrower will need to make in the forthcoming year.

Zoning, Conditional/Special

Authorization for land use that does not otherwise comply with zoning already in effect. Generally, conditional use zoning authorizes an otherwise prohibited use because it benefits the community as a whole. A conditional/special use zoning is different from a variance. Variances usually issue to remedy case specific hardships, while conditional use zoning is used where no hardship exists and the change will benefit the community as a whole.

Power of Sale Clause

Authorization usually found in a Deed of Trust, which authorizes a trustee to sell financed property if the buyer defaults on his loan. Title theory states often allow lenders to directly sell a defaulting buyer's property at public auction without a court order. See also Deed.

Federal Banks

Bank chartered by the federal government and regulated by the Federal Reserve Board. See also Commercial Banks.

Offer

Basic contract element that consists of a promise from one party to enter into a binding agreement with another party, subject to specified terms or conditions. Once presented, an offer becomes a contract if accepted, supported by consideration, and has a lack of any contractual defenses. See also Counteroffer; and Contract.

Consideration

Basic element of contract formation. Consideration is a legal term of art that has a long history of interpretation and discourse in contract law. However, today it is understood to broadly exist where parties bargain with one another to exchange promises. Without consideration, there is merely a one-sided promise to act out of charity, and courts are reluctant to enforce such charitable promises. Through this bargaining process, both parties agree (promise) to do or not to do something, like deliver goods in exchange for payment. The thing that both parties agree to do or not to do is the essence of consideration. If a person promises to give away property without any consideration (gift promise), but later changes his mind, the one-sided promise could be unenforceable. Once again, courts are reluctant to bind someone to perform a charitable act, even if they so promise. See also Gift Deeds.

Agency, Termination

Because agency representation is a personal service, it may be terminated by either party at any time (courts will not enslave someone to perform). However, if the agency is terminated without agreement and before the stated expiration date, one party may be in breach of the agency relationship. The following acts of the parties can terminate an agency agreement, which may or may not create a claim for damages: mutual consent (no breach); completion of the objectives (no breach); renunciation (may result in breach); abandonment by the Agent (may result in a breach); or revocation by the client (may result in a breach). The following situations can terminate an agency by operation of law: mental incompetence of either party (no breach); death of either party (no breach; however, the death of the salesperson will not terminate the agency agreement because it is with her broker); destruction or disposition of the subject of employment (no breach); bankruptcy of either party (may result in a breach); or expiration of time (no breach).

VA Loan, Qualifying Collateral

Because the loan amount may not exceed the VA's estimate of the value of the property, the first step in securing a VA loan is an appraisal. A Certificate of Reasonable Value (CRV) states the market value of the subject property based on a VA approved appraisal and establishes the maximum amount that the VA will finance for the appraised property.

Purchase Agreement

Bilateral and executory contract, also known as a sales contract or a contract for sale, that specifies the terms and conditions of sale between a buyer and a seller of real estate. Purchase agreements not only obligate a buyer to buy and a seller to sell, but also specify the terms, conditions, and procedures for closing. When signed only by the buyer, the purchase agreement is only an offer (offer to purchase). When signed by both parties, the offer to purchase becomes a purchase agreement.

ECOA, Borrower's Rights

Borrowers have the certain rights regarding their credit. A borrower may have credit in their birth name (Mary Smith), their first and their spouse's last name (Mary Jones), or their first name and a combined last name (Mary Smith-Jones). A borrower may get credit without a cosigner if they meet the creditor's standards. A borrower may also have a cosigner other than their husband or wife, if one is necessary. A borrower may keep their own accounts after they change their name, marital status, reach a certain age, or retire, unless the creditor has evidence that the borrower is not willing or able to pay. A borrower has the right to know whether their application was accepted or rejected within 30 days of filing a complete application. Borrowers have the right to know why their application was rejected. The creditor must provide notice that informs the borrower of either the specific reasons for their rejection or the borrower's right to learn the reasons if they ask within 60 days. Acceptable reasons for rejection include: "Your income was low" or "You haven't been employed long enough." Unacceptable reasons for rejection are: "You didn't meet our minimum standards" or "You didn't receive enough points on our credit-scoring system." Indefinite and vague reasons are illegal—the creditor must be specific. A borrower has the right to find out why they were offered less favorable terms than they applied for, unless they accept the terms. A borrower also has the right to find out why their account was closed or why the terms of the account were made less favorable, unless the account was inactive or delinquent.

HUD-1, Items Required by Lender to Be Paid in Advance

Borrowers may be required to prepay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums, and hazard insurance premiums as follows: (1) Interest: Lenders usually require borrowers to pay the interest that accrues from the date of settlement to the first monthly payment. (2) Mortgage Insurance Premium: The lender may require borrowers to pay the first year's mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement. (3) Hazard Insurance Premium: Hazard insurance protects the borrower and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year's policy or to pay for the first year's premium at settlement. If the lender requires flood insurance, it is also listed in the HUD-1.

Real Property

Broad term that describes the surface of the earth, the space above and below it, and any improvements and fixtures. The term real property also includes the intangible "bundle of legal rights" that accompanies real property ownership. The term "real estate" is virtually synonymous with the term "real property." However, the term "land" has a more narrow meaning. Like real property and real estate, land includes the surface of the earth, and the space above and below it. However, unlike real property and real estate, the term land does not include any improvements or fixtures—it only includes natural items that are attached to it like trees, crops, minerals, and water. See also Personal Property.

Subsurface Rights

Bundle of legal rights in that which is below the surface of the earth (such as gold, coal, oil, gas, and water). See also Air Rights; and Surface Rights.

Surface Rights

Bundle of legal rights in the surface area of land, including any improvements and growing crops. See also Air Rights; and Subsurface Rights.

Property Management

Business of leasing, managing, and maintaining property for others. Some states require that property managers be licensed real estate brokers. Property managers typically have a general agency relationship with the property owner. This contrasts with a listing agreement, which makes the broker a special agent of the owner, as the broker is hired to complete a very specific task. A property manager's duties may include ensuring that managed properties conform to applicable laws, including: Fair Housing Laws, Equal Credit Opportunity Act (ECOA), and the Lead Based Paint Act. See also Agency.

Corporation

Business organization governed by state law, which produces a single legal entity and a fictitious person. Corporations, states, and counties frequently hold title to real property. The corporation is a fictional person that is liable for all debts and obligations. As such, the living persons who lead a corporation are generally not personally liable for the corporation's debts and obligations.

RESPA, Disclosures Due at Settlement

By settlement date, a settlement agent must produce a Closing Disclosure for the seller. This may be a copy of the buyer's Closing Disclosure, or a separate form which only includes the information that is relevant to the seller.

Habendum Clause

Clause in a deed, also known as the "to have and to hold clause," which follows the premises (granting) clause and indicates the type of estate or interest that the deed is conveying (such as a fee simple estate,

Covenant, to Pay Indebtedness

Promise in a Mortgage or Deed of Trust, which contains the borrower's promise to repay the loan according to the terms of the note.

Earnest Money

Cash deposit that commonly accompanies an offer to purchase. Purchase agreements may, but need not, include a pledge or deposit of earnest money. Earnest money is evidence that the offeror intends in good faith to purchase the property, which may enhance the value of his offer. Sales contracts may award the buyer's earnest money deposit to the seller if the buyer breaches the sales contract (fails to purchase). Customarily, the buyer entrusts his earnest money deposit with the listing broker when the parties sign the sales contract. The broker must handle the deposit according to applicable escrow rules.

Equity

Cash value of property after deducting all debts, including any mortgage indebtedness. The term equity also refers to a common law doctrine based in notions of fair treatment.

Federal Reserve

Central banking system, also known as the "Fed", which is run by the U.S. Government. The Fed consists of 12 district banks and a seven member board. All nationally chartered banks must belong to the Fed and must purchase stock in the district reserve bank. The U.S. Government established the Fed to help manage the nation's economy by controlling how much money is printed and influencing the availability of credit and loans in the U.S. The Fed has a tremendous impact on real estate because it regulates banks' reserve requirements (a specified amount of money that the bank must hold in cash), controlling the discount rate (which directly affects interest rates), buying or selling government securities (which can cause an influx of cash into the primary mortgage market to increase the number of home loans available), and supervising federal truth-in-lending and equal credit opportunity laws.

Form 1099-S Exception, Some Principal Residence Transactions

Certain principal residence transactions are exempted with the: sale or exchange of a $250,000 or less principal residence ($500,000 or less for married, filing a joint return), including stock in a cooperative housing corporation, and you received an acceptable written assurance (certification) from the seller. The certification must include information to support the conclusion that the full gain on the sale is excludable from the seller's gross

Contract, Breach

Circumstance where a party fails to perform as agreed upon in a contract and without any recognized legal excuse. The non-breaching party may be entitled to an award of damages. Such an award may consist of monetary damages (for example, liquidated damages) or specific performance (but not both specific performance and monetary damages). Generally, the law does not allow punitive damages (damages imposed solely to punish the breaching party), or damages for "pain and suffering" (intangible harm) for breach of a contract.

Alienation Clause

Clause (also called a due-on-sale clause) that may appear in a Mortgage or Deed of Trust, which provides that upon transfer of ownership, title, or interest of the property by the borrower (collectively known as alienation), the lender may demand the balance of the debt. In effect, this clause makes the loan "non-assumable" by a new buyer without the lender's approval. Some states do not allow due-on-sale clauses, unless the lender actually demonstrates that such a transfer would endanger its security, because they believe it is an unreasonable restraint on alienation (or an unreasonable limitation on the right to sell property). See also Assumption.

Defeasance Clause

Clause that may appear in a Mortgage or Deed of Trust, which provides for the defeat (cancellation) of the mortgage or deed of trust when the borrower has repaid the entire debt. Under such circumstances, the loan is cancelled and the borrower restored to his full rights of ownership. Despite a defeasance clause, the borrower must still record a satisfaction of mortgage or deed of release in order to clear the lien from the public record.

Exculpatory Clause

Clause that may appear in a Mortgage or Deed of Trust, which states that the lender waives any right to a deficiency judgment (court order against a borrower which declares that she is personally liable for a debt because the collateral was insufficient to cover the entire debt).

Escalator Clause

Clause that may appear in a lease, which allows the lessor to adjust payments up or down in response to specified contingencies. See also Landlord Tenant; Lease; Lessee; and Lessor.

Subordination Clause

Clause usually found in a junior mortgage, which provides that if an existing first mortgage is paid or renegotiated, the junior mortgage will remain subordinate and will not become a first mortgage. Junior mortgage holders usually receive higher interest rates in exchange for their subordinate position. A subordinate position means there may be insufficient funds to satisfy the subordinate debt in the event of a default. Do not confuse a subordination clause with a subordination agreement. A subordination agreement is an agreement whereby a superior mortgage, such as a first mortgage, agrees to take a subordinate or junior position with respect to a new or future lien. See also Collateral; and Recording Act.

Agency, Scope of Authority

Clients may authorize agents to act broadly or in a limited capacity. The range of this authority is defined by the parties and may include four major types of agents: special agents, general agents, universal agents, and subagents.

Fair Housing Laws

Collective reference for state and federal laws intended to promote equal and fair opportunities to obtain housing for certain protected classes of persons. While state laws vary, primary federal Fair Housing Laws include: the Civil Rights Act of 1866, the Federal Fair Housing Act of 1968, and the Fair Housing Amendments Act of 1988. These laws prohibit housing related discrimination based on race, color, religion, sex, handicap, familial status, and nationality. The Department of Housing and Urban Development (HUD) administers federal fair housing laws. Both HUD and the Department of Justice enforce federal fair housing laws. Most states have independent fair housing laws, patterned somewhat after federal laws. State laws cannot conflict with federal laws by being more lenient or authorizing fewer protections. However, state laws may impose stricter requirements or authorize greater protections than federal law.

Hypothecation

Common lending arrangement where a borrower retains the right to possess property while it serves as security (collateral) for a loan. A mortgage is an example of hypothecation. As long as the borrower complies with the terms of the mortgage, she retains exclusive use and enjoyment of the property. The lender hypothecates the property to the borrower. See also Mortgage; and Deed of Trust.

Performance

Completion of a promised act. See also Contract; and Partial Performance.

Illegality

Contract defense which, if established, results in a void contract—courts cannot be called upon to enforce contracts that require one to break the law. See also Contract.

Title Abstract

Condensed history of the title to specific real estate, including all relevant documentation regarding transfers, conveyances, encumbrances, and other recorded information that is relevant to the marketability of title. A large portion of the abstract describes the chain of title. The chain of title traces ownership back from the present owner to each previous owner or other interested person. See also Title Insurance.

Equal Protection Clause

Constitutional limitation on government power, which prohibits the government from applying laws in a discriminatory manner. The equal protection clause prevents governments from intentionally regulating private land in a discriminatory manner. See also Eminent Domain.

Takings Clause

Constitutional limitation on government power, which prohibits the government from taking private property without paying just compensation and from taking private property for a non-public purpose. The takings clause permits governments to exercise the power of eminent domain, or the right to take private property for a public purpose. However, the takings clause only authorizes a government taking if the government provides "just compensation" for the property. Issues may arise where property is not formally taken (by eminent domain), but is regulated to such a degree that the owner is deprived of all its reasonable value. In this case, courts may determine that the regulation must be stricken, or that the owner must be compensated for his loss. See also Eminent Domain, Condemnation, and Inverse Condemnation.

Due Process Clause

Constitutional limitation on government power. The due process clause requires that minimum procedures be followed by the government when imposing restrictions on private land (procedural due process). These procedures are designed to provide land owners a fair opportunity to participate in, and be made aware of, restrictions to land. The due process clause also requires that government regulation of private land be rationally related to a legitimate state objective, or be within the scope of the police powers (substantive due process).

Notice, Constructive (Legal Notice)

Constructive notice is a legal concept that charges the public with the responsibility to examine public records and to physically inspect property in order to proactively discover competing interests or claims on real estate. For example, recording a deed at a county courthouse provides constructive notice of ownership in the public record. Therefore, even if one lacks actual notice, they are charged with constructive notice of anything properly recorded the public record.

Oral Contract

Contract arising from spoken promises. A contract does not always need to be in writing—the basic elements of contract formation may be satisfied orally. However, oral contracts may be more difficult to prove in the event that the parties turn to a court for enforcement. In addition, contracts for the sale of real estate and leases that are longer than one year must be written due to the statute of frauds. See also Statute of Frauds; and Contract.

Mistake

Contract defense arising from an error or a misunderstanding about the terms or conditions of an agreement. Contracts are voidable if based on a mutual, unintentional, material mistake. However, ignorance of the law and poor judgment are not valid reasons for claiming a mistake of fact. See also Contract.

Duress

Contract defense where one is coerced into entering a contract by physical or threatening behavior. Such 'gun to the head' behavior does not result in a meeting of the minds. Therefore, such contracts are void from their inception and no action need be taken to render them as such. See also Contract.

Fraud

Contract defense which consists of any form of deceit by which one party intentionally attempts to gain an unfair advantage over another. The key to determine whether an action is fraudulent is whether or not it was intentional. If the deceit was not intentional, it is not fraud, but may be an instance of misrepresentation. Fraud includes intentionally making false statements and/or intentionally concealing material facts about real estate offered for sale. Fraud may result in damage awards by a court, and either a void or voidable contract depending upon whether it is fraud in the inducement or fraud in the factum. See also Contract. See also Fraud in the Factum; and Fraud in the Inducement.

Impossibility

Contract defense which, if established, excuses a party from performing under an otherwise binding contract if the party can no longer legally perform as agreed (performance must be rendered literally impossible, as in destruction of a home under a purchase agreement). See also Contract.

Incompetency

Contract defense which, if established, results in either a void or voidable contract depending upon whether there is a limited capacity or a lack of capacity. Generally, courts assume people are competent enough to enter into contracts with one another. However, some people are legally unable to contract because they lack "capacity." As a result, their contracts are void. People who completely lack capacity to contract include those that are legally insane. Others may only have a limited capacity to enter into contracts. These contracts are voidable, which means that one must take steps to avoid responsibility for the contract. Minors and intoxicated persons are examples of those with a limited capacity to contract. See also Intoxication; Legal Insanity; and Non-legal Insanity.

Intoxication

Contract defense which, if established, states that persons who were intoxicated when entering into a contract have a limited capacity. Such contracts may be voidable by the intoxicated person if they act promptly. If they do not act promptly to cancel the contract, their inaction will be taken as agreement, and the contract will be valid. See also Contract.

Right of First Refusal

Contract for the exclusive privilege to accept an offer if and when an offer is made. Unlike an option contract, a right of first refusal creates no obligation to make an offer. That is, a lessor is not obligated to lease and a seller is not obligated sell, until or unless an offer is made. See also Option Contract.

Express Contract

Contract in which all terms and conditions are specified and agreed to in writing, orally, or both. See also Contract.

Option Clause

Contract term that establishes a right to act or refrain from acting on a future date, under specified circumstances. In the case of rental agreements, an option clause allows a lessee to extend an existing lease, lease additional space, or purchase leased property at a specific price, for a specific period of time, under specific terms and conditions. See also Option Contract.

Implied Contract

Contract that contains terms or conditions that have not been expressly stated or written. Implied contracts contain terms that may be inferred from the nature of a transaction or the conduct of parties. Implied terms in a contract can cause disputes because there is no express written agreement to regulate performance. In the event of a dispute, courts may or may not rule that a term or condition is implied. See also Contract.

Executory Contract

Contract under which one or both parties have yet to perform. For example, a sales contract is executory where a seller has pledged to sell and a buyer has pledged to buy, but neither will perform until the closing. See also Contract; and Purchase Agreement.

Unilateral Contracts

Contract where a single party promises to perform under specified conditions. Technically, the promise or obligation in a unilateral contract is only a unilateral offer because there is no meeting of the minds unless or until the second party decides to accept the offer by performing. A common example of a unilateral contract is the promise to provide a reward in exchange for specified conduct ("$50 reward for the return of my dog"). See also Bilateral Contract.

Contract, Conditions

Contracts may contain various conditions, or contingencies. A condition is an event which may not be certain, but which must occur before performance under a contract is due. The presence of conditions is often indicated by words such as "if," "when," "unless," or "provided." If a condition fails to occur, the parties are not usually entitled to damages because conditions are merely limitations — they do not create obligations. A condition can be almost any event and may be left to either party to execute.

Contract, Formation

Contracts, whether for real estate or other matters, may be created by formal adoption of express terms, or by terms which may be implied. Contracts may also obligate one or more persons to perform a task, depending upon whether it was created unilaterally or bilaterally. For example, contracts may be unilateral (obligating only one party to act) or bilateral (obligating both parties to act). A contract is unilateral when one party promises to perform without first receiving a promise to perform from the other party (promise of a reward for specified action).

Illegal Restrictive Covenant

Contractual provisions in deeds that violate the law (usually fair housing laws); thus, are void and unenforceable. Buyers who discover illegal covenants in documents may choose to buy, ignoring the illegal covenant, or they may choose to insist on the removal of the illegal covenant prior to purchase. Buyers are usually not within their right to completely void the contract, but they can delay the transfer of title until the illegal restriction is removed.

Specific Performance

Court ordered contract remedy that forces the breaching party to perform as promised in a contract (for example, to sell the property at the agreed upon price). Specific performance is an available remedy for breach of a sales agreement because real estate is unique, such that monetary damages may be insufficient to remedy a breach. However, specific performance is not available for other contracts, such as the breach of an agency agreement or other personal service contracts. See also Liquidated Damages.

Liquidated Damages

Damages specifically agreed to by contracting parties in the event of a breach. Liquidated damages are usually the exclusive damages available to a non-breaching party when so indicated in a contract (excludes other types of monetary damages and specific performance). In most purchase agreements, liquidated damages consist of any earnest money or accumulated payments made under the contract. See also Contract; and Monetary Damages.

Quitclaim Deeds

Deed in which the grantor makes no promises about the status of title. Rather, the grantor passes title "as is" (including any encumbrances). The grantor does not agree to warrant or defend the quality of title in any way, and also does not promise that he has any interest or rights to convey at all. Quitclaim deeds are frequently used to clear clouds on title (one conveys any interest he has in a potential lien, for example). See also Marketable Title and Clouds on Title.

Deed in Lieu of Foreclosure

Deed that voluntary transfers property from a delinquent borrower to the lender who has encumbered his property with a mortgage (also known as a friendly foreclosure). Both the delinquent borrower and the lender must agree to transfer property by a deed in lieu of foreclosure. A borrower may agree to a deed in lieu of foreclosure in order to avoid the expense and publicity of a foreclosure proceeding, or the possibility of a deficiency judgment. In return for the deed, the borrower receives a cancellation of the entire debt. A lender may agree to a deed in lieu of foreclosure in order to escape the expenses and uncertainty of a judicial foreclosure, and the resulting public auction. A deed in lieu of foreclosure also eliminates redemption periods imposed by state law. If the property is worth more than the debt, the lender must pay the difference to the defaulting borrower. Also, a deed in lieu of foreclosure does not eliminate junior liens—the lender assumes responsibility for any junior liens. See also Foreclosure.

Warranty Deed

Deed where the grantor makes one or more promises about the status of title (for example, whether there are encumbrances). A warranty deed offers the greatest possible protection to the grantee and is the most common type of deed used to transfer title to real estate. Title protection is guaranteed (warranted) by either expressed or implied covenants. Covenants are warrants or unconditional promises contained in contracts. Covenants are found in many real estate documents, including leases, mortgages, contracts for deed, and deeds themselves. In some deeds, the covenants of title are clearly stated. However, in other deeds, the covenants are implied by the use of certain language, such as "convey and warrant," "warrant generally," or "warrant specially." See also Deed.

Bargain and Sale Deed

Deed which contains no explicit promises by the grantor about the status of title to be conveyed. Instead, the bargain and sale deed merely implies that the grantor has an interest to transfer.

Sheriff's Deed

Deed, similar to a deed in foreclosure, which is presented to a buyer by the courts after a property is sold to satisfy a judgment. When anyone other than the delinquent borrower buys property at a public auction, they receive a sheriff's deed (also known as a referee's deed). A sheriff's deed functions to eliminate all unpaid junior liens against the property so that the purchaser may receive marketable title. However, if the original borrower buys the property at auction, junior liens remain in place. See also Foreclosure.

Investment Permanence

Economic characteristic of real property that describes the permanence of investment in infrastructure improvements. Infrastructure improvements include sewage, drainage, and electricity systems. Combined with the immobility of the underlying land, these types of improvements produce relatively stable and long-term returns. Infrastructure improvements offer greater options for future development than a specific improvement (like a residential home or a commercial building). See also Improvements.

ILSA, Developer Registration

Developers of qualifying developments must register with the Consumer Financial Protection Bureau (CFPB). Registration requires information such as: a copy of the corporate charter and financial statement; information about the land, including title policy or attorney's title opinion; copies of deed and mortgages; information on local ordinances and health regulations; information about facilities available in the areas such as schools, hospitals, and transportation systems; information about availability of utilities and water and plans for sewage disposal; development plans for the property, including information on roads, streets, and recreational facilities; and supporting documents such as maps, plats, and letters from suppliers of water and sewer facilities. This information is retained by CFPB and is available for public inspection and copying.

Cloud on Title

Discrepancies in the chain of title that make a past owner's rights in a property questionable. Once the rights of an owner in the chain of title are suspect, then all other owners from that point forward also have questionable interests as well. A cloud on title is any document, claim, unreleased lien, or encumbrance that makes clear title doubtful. Some clouds are minor, while others can derail the entire transaction. However, while the cloud remains, the current owner cannot transfer marketable title to a prospective purchaser. See also Title Search.

Special Warranty Deed

Document to convey real property wherein the grantor guarantees (warrants) title only against defects arising during the tenure of his ownership and not against any previous defects in title. This type of deed is commonly identified with the language "by, through, or under the grantor, but not otherwise." Special warranty deeds contain at least the covenant against grantor's acts. The covenant against grantor's acts is used in special warranty deeds in which the grantor is a fiduciary such as an executor, trustee, or guardian. In this case, the grantor promises that he has done nothing to injure or adversely affect the title while he has been in control of the property. In other words, executors and trustees will warrant a deed against their own acts, but will give no further assurances against, or assume liability for, the acts of others. See also Deed.

Reduction Certificate

Document, also known as an estoppel certificate, which certifies the status of a loan as of a certain date, including the amount of the loan that remains outstanding, the interest rate of the loan, and the date that the loan matures. Mortgagees must generally furnish a reduction certificate to prospective purchasers when they assume payments of a loan or take title subject to an existing loan. As a result, the purchaser can confirm key information as of a certain date.

Estoppel Certificate

Document, also known as certificate of no defense or estoppel letter, which clarifies the amount of debt owed by one party to another, and/or the legal status between parties, as of a specified date. Lenders use estoppel certificates to establish the mortgage amount owed as of a certain date. Landlords and tenants use estoppel certificates to establish the amount of rent owed (or not owed) as of a certain date. All parties to a valid estoppel certificate are thereafter estopped (prevented) from claiming any position to the contrary.

Fiduciary Duty

Duty which arises from a fiduciary relationship based on trust and confidence. A fiduciary duty is a duty imposed on a fiduciary by the common law of agency. Some state laws have replaced common law fiduciary duties with duties created by state legislation (laws), which are often similar to the common law. In such states, the applicable law and not the common law controls. Agents owe fiduciary duties to clients (either buyers or sellers), and to some duties to customers as well (honesty, fair dealing). The common law imposes fiduciary duties on agents

Regression and Progression

Economic principle influencing the amount of value, which addresses how property is affected by the quality of neighboring properties. According to the principle of regression and progression, a very luxurious house in a modest neighborhood tends to be valued down towards the more modest range of values. Conversely, a modest home located in a neighborhood of more expensive homes tends to be valued up. See also Value.

External Obsolescence

Economic principle influencing the amount of value, which describes a loss of value caused by outside factors like environmental, social, or economic events that an owner cannot control. Economic obsolescence is a category of external obsolescence where reduced value is caused by a local adverse economic situation. See also Cost Approach.

Unearned Increment

Economic principle influencing the amount of value, which describes an increase in property value caused by external factors that the property owner cannot control (such as favorable rezoning or the building of a new expressway).

Functional Obsolescence

Economic principle influencing the amount of value, which describes the situation where an improvement loses value because it becomes functionally inadequate. This may be caused by poor design or merely the improvement's age. See also Cost Approach.

Highest and Best Use

Economic principle influencing the amount of value, which identifies the legal and reasonable use that, at the time property is appraised, is most likely to produce the greatest net return. The highest and best use is that use which gives the property its greatest current value.

Increasing and Diminishing Returns

Economic principle influencing the amount of value, which states that after a certain point, money spent on improvements will no longer increase the value of a property. The principle of increasing returns applies where spending money on improvements causes property value to increase. The principle of diminishing returns applies where spending money on improvements no longer produces a proportionate increase in value.

Contribution

Economic principle influencing the amount of value, which states that an improvement to real

Substitution

Economic principle influencing the amount of value, which states that an informed buyer will pay no more for property than the cost to acquire equally desirable real estate. In other words, value is influenced by the cost an equal substitute. Substitution is the basis of the market data approach to appraisal. See Value; Market Data Approach to Appraisal; and Competitive Market Analysis (CMA).

Competition

Economic principle influencing the amount of value, which states that increased or excessive profits will attract competitors. As similar competitors move into a market, profits decrease unless the increased number of competitors attracts more customers (which, for example, can happen with a shopping center).

Plottage

Economic principle influencing the amount of value, which states that merging or combining separately owned parcels of real property under a single owner will increase the value of the separate parcels.

Growth, Equilibrium, and Decline

Economic principle influencing the amount of value, which states that properties and neighborhoods may experience three distinct economic stages. Growth is the development stage when improvements are made and demand and property values typically increase. Equilibrium exists where vacancies are few and the property enjoys a stable period of high value. Decline exists when the property experiences increasing deterioration. In decline, the need for upkeep increases, while demand and value decrease.

Scarcity

Economic principle stating that there is a limited supply of land on earth. The concept derives from the fact that the supply of land on earth is fixed and can never be increased. Scarcity can produce an increase or a decrease in the economic value of land depending upon the local supply and demand for land—as available land becomes scarce its value tends to rise. See also Value.

Cost Approach, Estimating the Value of Land

Estimating the value of land is a special task because land is not "built," and there is no reproduction or replacement cost associated with it. Thus, the appraiser must use the market approach to estimate land value. The estimate is performed as if the land were vacant (whether this is true or not) and available to be put to its highest and best use.

Lien

Encumbrance on property that functions to guarantee payment of debts by using property as collateral. If a borrower defaults on a loan secured by a lien, the creditor can seek his share of the collateral to satisfy the borrower's debt. As such, liens always create an impediment to clear title. Liens always arise from a debt, either through agreement (like a mortgage) or by operation of law (unpaid taxes), and from a variety of sources including mortgages, work on the property (mechanics liens), and court orders (judgment liens). There are two types of liens: voluntary (created through an agreement) and involuntary (created by operation of law). A lien does not transfer title to property, and does not prohibit the owner from conveying his interest in the property to another (although the property may be less marketable with the lien in place). However, once properly established, the lien is said to "attach" to the property until or unless it is released (the debt is satisfied). If a lien is not released prior to sale, the buyer buys the property along with the existing lien. Satisfying a lien implicates three basic concepts: priority, satisfaction, and enforcement. See also General Liens and Specific Liens.

HUD-1, Escrow Account Deposits

Escrow account deposit entries on the HUD-1 identify the payment of taxes and/or insurance, and other items that must be made at settlement to set up an escrow account. The lender is not allowed to collect more than a certain amount. The individual item deposits may overstate the amount that can be collected. However, the aggregate adjustment makes the correction in the total amount. It will be zero or a negative amount.

Freehold Estates

Estate in land in which one has both possession and ownership rights in real property. Persons holding freehold estates are said to be "seized" of the land. Seisin is a concept carried over from feudalism and English law. Seisin is defined as the possession and ownership of a freehold estate. There are two types of freehold estates: fee estates and life estates. A freehold estate can be set up so that it exists forever (a "fee simple estate"), or it can be based on the lifetime of the present owner or occupant or a third party ( a "life estate"). See also Fee Simple Estate; and Life Estate.

Non-Freehold Estate

Estate in real property, also known as a leasehold estate, which conveys the right of possession without the right of ownership. Non-freehold estates are for a definite duration, unlike a freehold estate which is for an indeterminable duration. The landlord tenant relationship is the most common example of the non- freehold estate. With a lease, the tenant possesses a leasehold and therefore has the exclusive use (or possession) of the property for a specified period of time. However, the landlord retains ownership of the property and a reversion estate (future right to regain possession). In addition to the lack of ownership, the leasehold estate differs from the freehold estate in that the lease itself is generally classified as personal rather than real property. The four principal types of leasehold estates are: the estate for years; the estate from year to year; the estate at will; and the estate at sufferance. See also Estate; Freehold Estate; and Future Estate.

Contract, Void/Voidable Distinction

Even when there is an offer and acceptance that is supported by consideration, there may not be a contract. Certain defenses may exist that prevent a contract from being formed in the first place. Other defenses permit a party to escape liability from the contract, even though the contract is valid. In either case, these two types of defenses result in a contract that is void (a theory that the contract was never properly formed) or voidable (a theory that a contract is valid, but fairness dictates that one may avoid liability to perform if the defense is proven). Common defenses that render a contract void or voidable include: incompetency, misrepresentation, mistake, illegality, and duress.

Appraised Value

Estimate (prediction) of market value made by an appraiser.

Gross Rent Multiplier (GRM)

Estimate of the rate of return on an investment that does not utilize a capitalization rate or net operating income (NOI), which may be used by an appraiser applying the income approach to appraisal. GRM is the estimated annual or monthly percentage of return on an income-producing property, determined by dividing the sales price with the gross income (amount of income before subtracting expenses & vacancies); or the ratio between the sales price of a property and its gross rental income. A GRM is a less accurate means of estimating a rate of return than a capitalization rate because a GRM relies on less data. In order to develop a GRM, an appraiser must obtain comparable rental rates and analyze the strengths and weaknesses of each to develop a multiplier that adequately reflects the income-generating ability of the subject property. This ratio is applied to the estimated income for the subject to conclude an indication of value by the income approach. Note that gross rent multipliers provide only a rough estimate—gross rent multipliers do not account for variations in vacancies, uncollectible rents, property taxes, and other factors. The formula for calculating the GRM ratio may be expressed as: Sales Price divided by Gross Rent = GRM. See also Income Approach to Appraisal; and Appraisal.

Cost Approach, Estimating Construction Costs

Estimating construction costs requires the appraiser to compute the reproduction or the replacement cost. The reproduction cost is the cost to reproduce the improvements using the same or similar materials, but at today's prices. The replacement cost is the cost to construct a new building at today's prices and with the same functional utility, but not necessarily the same size, shape, design, or materials. Appraisers frequently estimate the construction costs of older structures by computing the replacement cost, as it allows for the replacement of out-dated features and takes advantage of current construction materials. There are three methods of estimating reproduction and replacement costs: the square foot method, the unit-in-place method, and the quantity survey method. The square foot method multiplies the per square foot cost of building a comparable structure by the number of square feet in the subject building (occasionally appraisers use cubic feet, as with a storage warehouse). The unit-in-place methods computes the total construction cost of the subject building by adding the cost of the building's component parts such as plumbing, labor, electrical, and builder's built-in profit with other building costs. The quantity survey method prices all raw materials separately (lumber, bricks, plaster, etc.) and estimates installation costs. Because it is detailed and time-consuming, the quantity survey method is primarily used on properties being restored for historical reasons.

Income Approach, Estimating the Annual Rate of Return

Estimating the annual rate of return is the most difficult step in the income approach. An appraiser's experience and judgment are critical in selecting an appropriate capitalization rate for the subject property, or determining whether to apply a gross rent multiplier. An appraiser may estimate the annual rate of return by choosing a capitalization rate (cap rate). A cap rate is determined by comparing the relationship of net operating income (NOI) to the sales price (SP) of similar properties that have sold in the current market. Once the appraiser selects a capitalization rate that is appropriate for the market and the type of property involved, she must then apply the capitalization rate to the subject property to determine its estimated value. A gross rent multiplier is a rough estimate of the rate of return that does not utilize a capitalization rate or net operating income. GRM is the estimated annual or monthly percentage of return on an income-producing property, determined by dividing the sales price with the gross income (amount of income before subtracting expenses & vacancies). A GRM is less accurate than a capitalization rate because it relies on less data.

Procuring Cause

Event which is directly responsible for producing a particular effect. An agent (broker) earns a commission if the agent (or his subagent, the salesperson) is the procuring cause of a real estate sale. Under most state laws, whether the broker is the procuring cause rests upon whether the broker "set in motion a chain of events which, without break in continuity, resulted in a sale or lease." See also Agency; and Commission.

Buyer-Broker Agreement, Exclusive Agencies

Exclusive buyer agencies usually appear in two types: the exclusive agency buyer agency and the exclusive buyer agency. An Exclusive Agency Buyer Agency is an agency relationship between a prospective buyer and a real estate broker where the buyer is only obligated to compensate the agent if that agent locates suitable property—the buyer is not obligated to compensate the agent if the buyer finds suitable property on his own or through another agent. Exclusive agency buyer agency is the counterpart to the listing agreement known as the exclusive agency listing agreement. An Exclusive Buyer Agency is an agency relationship between a prospective buyer and a real estate broker, which obligates the buyer to compensate the agent if the buyer purchases property similar to that described in the contract, regardless of whether the buyer discovers the property on her own or through another agent. Exclusive buyer agency is the counterpart to the listing agreement known as the exclusive right-to-sell contract.

Easement, Conveying by Express Grant

Express easements must be conveyed in writing, usually through a deed, with a description of the easement and the subject property that is signed, acknowledged, and recorded. An attempt to orally create an easement may result in a license, which is revocable at will and without a dominant estate.

government backed loans include

FHA loans, VA Guaranteed Home Loans, and Rural Development and Farm Service Agency loan programs. See also Federal Housing Administration; VA Guaranteed Home Loans; and Rural Development and Farm Service Agency.

Federal Housing Administration, Qualifying Borrowers

FHA only insures loans when the home, lender, and borrower meet specified criteria. FHA criteria covers items such as: building structure, the method of construction, qualified appraisers, determining the credit worthiness of the borrower, and minimum standards for lenders. It also sets the maximum loan amounts that it will guarantee for various regions of the country. There is no minimum income requirement to obtain an FHA mortgage loan; however, one must prove steady income for at least two years. Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as income as long as they are steady. The FHA limits borrowers' debt-to-income ratio to 31% for housing costs and 43% for housing expenses and other long-term debt. Conventional loans commonly impose a debt-to-income ratio of 28% toward housing and 36% towards housing expenses and other debt. In some cases, borrowers may qualify to exceed the FHA debt-to-income ratio if they meet certain compensation factors. This may include: (1) A demonstrated ability to pay more towards housing expenses; (2) A large down payment; (3) A demonstrated conservative attitude toward using credit and the ability to accumulate savings; (4) Acceptable credit history; (5) Compensation not reflected in the qualified income calculation, like food stamps or similar government assistance; (6) A minimal increase in monthly housing expenses; (7) Substantial cash reserves; (8) Substantial net worth sufficient to pay the mortgage regardless of income; (9) Potential for increased earnings, as indicated by job training or education levels; and/or (10) Relocation of the primary wage earner.

Misrepresentation

False statement or a concealment of a material fact that is unintentionally asserted. Unlike fraud, misrepresentations may be innocent and unintentional. However, depending on the circumstances and magnitude, even an unintentional misrepresentation may be sufficient basis to render a contract void or voidable. A primary consideration in determining the effect of a misrepresentation is a person's degree of knowledge, skill, and experience. Persons are held to various standards depending on their profession or experience. See also Contract; and Fraud.

Fair Housing Act, Enforcement

Federal Fair Housing Laws are administered by the Office of Fair Housing and Equal Opportunity (FHEO) under the direction of the Department of Housing and Urban Development (HUD). HUD may prosecute violations in its administrative forum. The Department of Justice may prosecute complaints in federal court. Both HUD and the Department of Justice may prosecute violations on their own motion, and without receiving any formal complaint. The burden of proof in a public action is always on the government (the complainant). Alternatively, individuals may litigate privately in federal court. An aggrieved party must file a complaint within one year to HUD or within two years in federal district court. Missing these deadlines may extinguish an aggrieved party's right to sue. Jurisdiction for violations of the Civil Rights Act of 1866 lies exclusively in federal court. The burden of proof in a private action is always on the victim (plaintiff). Penalties for Federal fair housing violations range from compensatory damages to victims for actual damages suffered as a result of the violation (including pain and suffering), to injunctive relief (order to correct violations), to attorney fees and costs. If a pattern of discrimination is found in an administrative hearing, the discriminating party is subject to civil penalties up to $20,111 for first time violations and up to $100,554 for third violations within seven years. In federal court, if the Attorney General finds that the discriminating party is engaged in a pattern of discrimination, the discriminating party is subject to civil penalties of up to $102,606 for the first offense or up to $205,211 for subsequent violations.

Fair Housing Act

Federal Law, also known as the Federal Fair Housing Act of 1968 and Title VIII of the Civil Rights Act of 1968, which bans all preference, limitations, or discrimination based on race, color, religion, sex, or national origin in connection with the sale or rental of most residential dwellings and vacant land intended for residential construction. Congress amended the Fair Housing Act in 1988 to increase penalties for violators, provide an administrative enforcement mechanism, and expand protections to persons that are handicapped and for familial status. The Fair Housing Act applies to the sale or lease of residential housing, which the Department of Housing and Urban Development (HUD) defines as a dwelling. Dwellings include all buildings, structures, or vacant land that is occupied or designed or intended to be occupied as a residence by one or more families. Dwellings also include any vacant land that is offered for sale or lease to build or locate a building or structure. Therefore, a dwelling does not include commercial property.

Rural Development and Farm Service Agency

Federal agencies, which administer rural development and conservation programs under the U.S. Department of Agriculture. The Office of Rural Development loans funds directly and also guarantees loans by conventional lenders under certain circumstances.

Ginnie Mae (GNMA)

Federal government sponsored corporation, known as the Government National Mortgage Association (GNMA), without capital stock, which was organized to operate the federal subsidy housing loan programs. During times of financial difficulty, high discount rates (imposed by the Fed), and high interest rates, Ginnie Mae and Fannie Mae work together to provide special assistance programs for low-yield, high-risk loans (primarily FHA and VA). This helps to stabilize national real estate financial markets. The Ginnie Mae guaranty allows mortgage lenders to obtain a better price for their mortgage loans in the secondary market. The lenders can then use the proceeds to make new mortgage loans available. Ginnie Mae does not buy or sell loans, or issue mortgage-backed securities (MBS). Therefore, Ginnie Mae's balance sheet does not use derivatives to hedge or carry long-term debt. What Ginnie Mae does is guarantee investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly, loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible as collateral for Ginnie Mae MBS include the Department of Agriculture's Rural Housing Service (RHS) and the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH). Ginnie Mae Mortgage Backed Securities are fully modified pass-through securities, guaranteed by the full faith and credit of the United States government. Regardless of whether the mortgage payment is made, investors in Ginnie Mae Mortgage Backed Securities will receive full and timely payment of principal as well as interest. See also Mortgage Backed Securities.

Real Estate Settlement Procedures Act (RESPA)

Federal law administered and enforced by the Consumer Financial Protection Bureau (CFPB), that regulates closing procedures to ensure that lenders fully inform buyers and sellers of all settlement costs, and that lenders do not engage in unfair practices. RESPA does not set prices for settlement services. Instead, RESPA limits who may conduct a real estate closing (settlement agent) and imposes obligations on settlement agents, which are intended to alleviate buyer confusion over the real estate closing process and its costs. RESPA covers loans secured with a mortgage placed on a one-to-four family residential property, including most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. RESPA does not apply to: business purpose loans; temporary financing; loans to purchase vacant land; loan con- versions; secondary market transfers; transactions financed solely by the seller; an assumption that doesn't require lender approval; a residential property consisting of more than four family units; or cash sales. RESPA requires that borrowers receive disclosures at various times and identifies certain prohibited acts. However, the full list of dis- closure requirements is not applicable to: home equity lines of credit (HELOCs); reverse mortgages; mortgages for mobile homes or dwellings not attached to land; and loans made by a person that is not a creditor. In such situations, a Good Faith Estimate must be provided in place of the Loan Estimate form, and a Uniform Settlement Statement (HUD-1) must be provided in place of the Closing Disclosure Form. See also Loan Estimate; Closing Disclosure; Good Faith Estimate; and HUD-1.

Lead Based Paint Hazard Reduction Act (Lead Act)

Federal law that imposes a disclosure obligation onto persons who sell or lease property that was built before 1978. Sellers and lessors must disclose whether or not they have knowledge that lead-based paint is present on the property. Sellers and landlords must also provide a disclosure pamphlet to all purchasers and lessees of pre-1978 property, and at least ten (10) days for them to inspect subject property for lead-based paint.

Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)

Federal law which authorizes minimum licensing standards (education, exam, and experience) which states must follow in order to license "certified" appraisers. FIRREA established the Appraisal Subcommittee of the Federal Financial Institution's Examination Council (the "ASC"). The ASC consists of representatives appointed by: the five financial institution regulatory agencies (Federal Reserve, Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, and National Credit Union Administration); the Federal Housing Finance Agency; and the Department of Housing and Urban Development. For federally insured financial institutions, Title XI of FIRREA mandates that a state certified real estate appraiser perform all appraisals in connection with federally related transactions having a value of $1 million or more or unusually complex one to four unit single family residential appraisals. All federally related transactions involving $250,000 or more not requiring the services of a state certified appraiser may be performed by either a state certified appraiser or a licensed appraiser. Under the current federal regulatory scheme, an appraisal performed by a state certified or licensed appraiser is required for all real estate related financial transactions except that no appraisal is required: for a transaction in which the value is $250,000 or less; for a transaction in which a lien on real estate has been taken as collateral in an abundance of caution; if the real estate is not a meaningful part of the financial transaction; if the transaction is not secured by real estate; if the lien on the real estate has been taken for purposes other than the real estate's value; if the transaction is a business loan that has a transaction value of $1 million or less and is not dependent upon the sale or rental income derived from real estate as a primary source of payment; for a lease of real estate; or if the transaction involves an existing extension of credit, provided there has been no obvious and material change in market condition or there is no advancement of new money or the transaction involves pools of mortgage securities or other government involvement. See also Appraisal and Appraiser.

Foreign Investment and Real Property Tax Act (FIRPTA)

Federal law which authorizes the U.S. to tax property transfers by foreign persons. With the increasing globalization of trade and investments, foreign owner- ship of U.S. real estate continues to grow. Consequently, U.S. real estate agents and rental agents/ property manag- ers are encountering an increasing number of situations that involve foreign persons acquiring U.S. real estate as a part-time residence, for investment, or (in some cases) to conduct a U.S. business. The U.S. tax rules that apply

Truth in Lending Act (TILA or Regulation Z)

Federal law with the primary purpose to promote the mean- ingful disclosure of consumer credit and lease terms in order to facilitate choice. The Truth in Lending Act, or TILA, was passed in 1968 as part of the Consumer Credit Protection Act, and is implemented under the Federal Reserve Board's Regulation Z. Before passage of the Act, an advertiser might have used only the most attractive credit or lease terms, which might distort the true cost of the credit or lease. TILA applies to advertisements that promote "consumer credit" or a "consumer lease" as defined in the Act. Thus, advertisers must comply (not just creditors and lessors), including associations, manufacturers, real estate brokers, builders, and government agencies. However, there is no liability under the Act for the media in which advertisements appear. See also RESPA.

Equal Credit Opportunity Act (ECOA)

Federal law, which prohibits lenders and others who grant or arrange credit to consumers from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant is of legal age), or dependence on public assistance. Lenders must

Federal Interstate Land Sales Full Disclosure Act (ILSA)

Federal law, which protects consumers from fraud and abuse in the sale or lease of land. In 1968, Congress enacted the Interstate Land Sales Full Disclosure Act, which is patterned after the Securities Law of 1933. The Act requires land developers to register subdivisions of 100 or more non-exempt lots with the Consumer Financial Protection Bureau (CFPB) and to provide each purchaser with a disclosure document called a Property Report. The Property Report contains relevant information about the subdivision and must be delivered to each purchaser before signing a contract. See also Subdivision.

Tax

Fee charged and collected by government for public purposes. There are four primary real estate-related taxes: property tax, special assessments, transfer taxes, and capital gains. Property tax is assessed annually and is usually based on the value of property (ad valorem). Special assessments are taxes collected to fund specific and localized improvements, like sidewalks and sewer hookups. Transfer taxes are local taxes payable when property transfers. Transfer taxes are also known as excise taxes, and are based on the sales price. Finally, a capital gain is a profit

Property Tax

Fee imposed on real estate by state authorities for the purpose of raising operating revenue. State and local governments have the power to tax, seize, and force the sale of real property to satisfy unpaid taxes. The two principal methods of assessing real estate taxes are the ad valorem and special assessment processes. Tax benefits are a significant incentive to invest in real estate. Real property taxes are tax deductible on Federal returns against ordinary income for all homeowners who itemize. Additionally, interest payments on a mortgage may also be deducted against ordinary income. Owners of income producing property include property taxes as operating expenses, and as an expense to reduce taxable gain or increase business loss deductions. See also Ad Valorem Process; and Property Tax Lien.

Qualified Fee (Defeasible) Estate

Fee simple estate, also known as a fee simple defeasible or a defeasible fee, that carries certain conditions of ownership. The owner of a qualified fee holds fee simple title subject to specified conditions. Like a fee simple absolute, one who has a qualified fee estate both possesses and owns the land. However, unlike a fee simple absolute, one's ownership of a qualified fee estate can end if a prohibited use or event occurs. Defeasible means capable of being voided, annulled, or defeated. There are two types of defeasible (defeatable) fee estates: fee simple determinable and fee simple subject to a condition subsequent. See also Fee Simple Estate; and Estate.

Discount Points

Fees charged to borrowers by lenders in exchange for below market interest rates. Discount points are paid in a lump sum at the time of closing, and one point is generally 1% of the loan amount. Generally, lenders must charge eight discount points in order to raise an interest rate yield by one percent. In other words, if a lender must get a 10% yield on a loan, but the buyer wants a 9% interest rate over the life of the loan, the lender will charge eight points that are due at closing. As a result, the lender's effective yield on the loan is 10% and the buyer pays 9% interest over the life of the loan.

Referral Fees

Fees or incentives paid to another for solely referring a potential client, which are restricted in certain circumstances. For example, most states require that a person be a broker in order to accept a listing referral fee. However, most states prohibit salespersons from accepting referral fees because, in general, salespersons may only be compensated by brokers. Also, RESPA prohibits anyone from paying or receiving referral fees or kickbacks in connection with settlement services. See also Commission; and Real Estate Settlement Procedures Act (RESPA).

Transfer Tax

Fees, also known as excise taxes or revenue stamps, charged to grantors and grantees by local jurisdictions for the privilege of buying or selling real estate in the jurisdiction. Transfer taxes are generally paid by the seller, grantor, or lessor, and are due when the deed is recorded. Transfer taxes are generally paid by purchasing a stamp from the official in charge of recording deeds. This stamp is affixed to the deed as evidence the tax was paid in full. Transfer taxes are usually based on the sales price of the property (such as $3.00 tax per $1,000 of sales price). Commonly exempted transfers include: mortgages, correction deeds, and transfers between husband and wife or parent and child.

Fiduciary Duty, Loyalty

Fiduciary duty imposed on an agent during client representation. The duty of loyalty is the most fundamental duty owed by an agent to his client. The duty of loyalty requires that the agent promote the client's interests above all interests, including his own. For example, the duty of loyalty is breached where a real estate agent profits to the disadvantage of the client.

Fiduciary Duty, Confidentiality

Fiduciary duty that prohibits an agent from disclosing information given to him by a client if such disclosure would be harmful to the client or the client's interests. Exceptions to the duty of confidentiality include the disclosure of material defects in property. The duty of confidentiality also prohibits agents from disclosing such things as: the client's financial status, whether the client is willing to pay or sell for more or less than the asking price, and whether the client has certain anxieties to buy or sell that may cause her to sell more or less quickly. The duty of confidentiality guards client information during and after the agency concludes (or terminates). However, the client may authorize disclosure. The duty of confidentiality also guards information regardless of its source (client, third party, public information).

Fiduciary Duty, Accounting

Fiduciary duty that requires an agent (broker) to protect and account for all money and property held on behalf of the client. This includes any documents such as deeds, title policies, abstracts, or mortgages given to the agent by the client. The duty of accounting applies both during and after the agency concludes (terminates).

Fiduciary Duty, Reasonable Care and Due Diligence

Fiduciary duty that requires an agent to act as a competent professional and to make reasonable efforts to keep the client informed. Essentially, the agent must act with the same degree of competence that a reasonable agent would exercise under similar circumstances. This means that the agent diligently represents the client with all the customary tools and available information. However, while brokers and salespersons must be more knowledgeable than the average person, they are not required to have the knowledge of other professionals such as lawyers, engineers, or accountants. Agents should advise clients to seek the advice of such professionals whenever necessary in order to avoid a heightened standard of care or a violation of state law.

Fiduciary Duty, Disclosure

Fiduciary duty which requires that an agent disclose all material facts, rumors, and other information that might implicate the transaction to her client. The agent must only disclose material information that she knew or should have known. Material information includes: any offer (or potential offer), any information suggesting that a buyer is willing to increase an offer, any arrangements concerning the sharing of compensation, financial conditions of the other party to the transaction, and sales of comparable properties.

Fiduciary Duty, Obedience

Fiduciary duty which requires that an agent follow all lawful client instructions. An agent may propose alternative action, but the client must have final approval. However, an agent cannot carry out any illegal request; to do so would violate the duty of loyalty. Agents who cannot comply with lawful client instructions must withdraw from the agency relationship.

Reserve Account

Financial account used by lenders to hold, or reserve, a borrower's money for future payment of items such as real estate taxes, hazard insurance, and deferred maintenance. Reserve accounts are also known as customer trust funds. Commonly, borrowers must pay a lump sum to the lender at closing to establish a reserve account. After the lump sum payment at closing, the borrower pays a monthly portion of estimated taxes and insurance costs into the reserve account. See also RESPA; and Escrow.

Savings and Loan Association (S&L)

Financial institution that promotes home ownership and private savings. S&Ls often offer higher interest rates on deposits than commercial banks. All savings and loan associations must be chartered by the federal government or by the state in which they are located. Federally chartered associations are regulated by the Office of the Comptroller of the Currency (OCC), and their accounts are insured through the Federal Deposit Insurance Corporation (FDIC). The FDIC insures depositors up to $250,000 per individual account and per institution. State chartered associations may, but are not required to, subscribe to the federal insurance program. S&Ls make both conventional loans and loans involving government backing, like the FHA and VA Programs. However, the majority of S&L loans are conventional loans made on residential dwellings with one to four units. Conventional loans are those loans that do not involve government programs. In addition to originating mortgages, S&Ls also buy and sell mortgages on the secondary market. See also Federal Reserve.

Buydown

Financing technique used in times of high interest rates. In a buydown, the lender is "prepaid" a portion of the interest rate in order to reduce the buyer's monthly payments during the initial years of the loan. In times of very high interest rates, builders sometimes use a buydown to qualify buyers for loans. At the end of the bought down time period, the interest rate reverts to the original amount.

RESPA, Good Faith Estimate

For certain loans, RESPA requires lenders to provide a Good Faith Es- timate, or GFE, in place of the Loan Estimate form. The GFE is an estimate of settlement service charges that the borrower will likely have to pay. If the borrower does not receive a good faith estimate upon ap- plication, the lender or mortgage broker must mail or deliver it within the next three business days. The amounts listed on the Good Faith Estimate are only estimates. Actual costs may vary. Changing market conditions can affect prices.

RESPA, Uniform Settlement Statement

For certain loans, RESPA requires lenders to provide a Uniform Settlement Statement, or HUD-1, in place of the Closing Disclosure Form. When applicable, bor- rowers have the right to inspect the HUD-1 one business day before the settlement This statement itemizes the services provided and the fees charged. This form is filled out by the settlement agent who will conduct the settlement. The completed HUD-1 Settlement Statement generally must be delivered or mailed to the borrower at or before the settlement. In cases where there is no settlement meeting, the escrow agent will

Joint Tenancy, Right of Survivorship

Generally, when one joint tenant dies, the shares of the surviving joint tenants increase. When there is only one surviving joint tenant, she takes title as the sole owner (in severalty), and can convey the property by deed or leave it to her heirs.

Like-Kind Exchange, Like-Kind Property

For the exemption to apply, there must be an exchange of like-kind property. Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. The exchange of real estate for real estate and the exchange of personal property for similar personal property are exchanges of like-kind property. Real properties generally are of like- kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties. An exchange of city property for farm property, or improved property for unimproved property, is a like-kind exchange. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties. Finally, an exchange of personal property for real property does not qualify as a like-kind exchange.

Cooperatives

Form of property ownership governed by state law, which is composed of single units in a multi- unit real estate development. In physical appearance, cooperatives and condominiums often resemble one another; however, the methods of ownership differ substantially. In a cooperative, a corporation, partnership, or land trust holds title to the land and improvements. The corporation, partnership, or trust that holds title (units and common areas) manages the property according to its articles of incorporation, by-laws, covenants, restrictions, and house rules. When a purchaser pays the agreed upon price for a particular unit, he receives stock in the corporation (personal property) and a proprietary lease to a particular unit (again, personal property). The proprietary lease gives the stockholder the right to occupy and use a particular unit for the life of the corporation. In the case of a corporation, the governing body is usually the corporation's board of directors. The board of directors is empowered by its by-laws to set a price on each unit in the building. Proprietary means "owner," and leases in a cooperative are called proprietary leases because the tenant is also an owner by virtue of his stock ownership in the corporation (or partnership or trust). Under this type of lease, there is no fixed rental amount. Rather, the tenant (stockholder) pays a monthly assessment, which is his proportionate share of the carrying charges of the corporation (taxes, insurance, principal and interest payments, management fees, maintenance and repairs). When a unit is sold, the proprietary lease is assigned to the buyer along with the seller's stock. In a cooperative, real estate taxes and mortgages are liens against the entire parcel of real estate. Therefore, in the event of foreclosure, the entire property is threatened. See also Condominium.

Loan Estimate

Form required by both the Real Estate Settlement Procedures Act (RESPA) and Truth in Lend- ing Act (TILA) in covered property settlements. The Loan Estimate is designed to standardize the presentation of settlement charges and payments that buyers and sellers will likely have to pay. If the borrower does not receive the Loan Estimate upon application, the lender or mortgage broker must mail or deliver it within the next three busi- ness days. The amounts listed in the Loan Estimate are only estimates; actual costs may vary. In addition, changing market conditions can affect prices. See also RESPA.

Good Faith Estimate

Form required by the Department of Housing and Urban Development in covered prop- erty settlements, which is designed to standardize the presentation of estimated settlement charges and payments for buyers and sellers. The Good Faith Estimate, or GFE, is now only required for: home equity lines of credit (HELOCS); reverse mortgages; mobile homes and dwellings not attached to land; and loans made by non-creditors. In these situations, the GFE is presented to the borrower in place of the Loan Estimate Form. If the borrower does not receive a good faith estimate upon application, the lender or mortgage broker must mail or deliver it within the next three business days. The amounts listed on the good faith estimate are only estimates. Actual costs may vary. Changing market conditions can affect prices. Some of the fees included in a Good Faith Estimate (GFE) include: loan fees, fees to be paid in advance (such as interest), reserves (such as hazard insurance), title charges (such as notary fees and closing/escrow fees), government charges (such as city/county stamps), and any other additional fees. See also RESPA; and Loan Estimate.

HUD-1

Form required by the Department of Housing and Urban Development in covered property settlements, which is designed to standardize the presentation of settlement charges and payments for buyers and sellers. The Uniform Settlement Statement, also known as the "HUD-1," is now only required for: home equity lines of credit (HELOCS); reverse mortgages; mobile homes and dwellings not attached to land; and loans made by non-creditors. In these situations, the HUD-1 is presented to the buyer and seller in place of the Closing Disclosure Form. See also RESPA; and Closing Disclosure.

Trustee Sale

Public sale of property under a deed of trust. See Foreclosure; Deed of Trust.

Life Estate

Freehold estate conveyed to a person for the duration of someone's life. The duration of the estate can be tied to life of any person, including the life tenant. The holder of a life estate has all the rights of property ownership (all the sticks in the bundle of legal rights), including the right to possess, own, mortgage, and sell the property, but only for the duration of the life estate. In addition, the life estate holder has certain obligations to care for the property and any future interest in it (cannot commit waste). Following the idea that one may not transfer more than the interest that he possesses (a basic principle of property law), a life estate owner may not obligate the property beyond his ownership period. Upon expiration of a life estate, the interest transfers to another person. See also Freehold Estate; Fee Simple Estate; and Waste.

Fee Simple Estate

Freehold estate, also referred to as "fee" or "fee simple absolute," which is the highest and most unrestricted type of estate under American law. All other estates are less complete and more restricted than the fee simple. Unlike all other estates, fee simple estates exist for an indefinite duration (i.e., not limited to a particular time frame such as six months or three years), and can be sold, given away, and passed to others after death. Even though it is the least limited estate possible, it is still subject to some government and private limitations on title such as zoning and deed restrictions. See also Estate; and Freehold Estate.

Future Estate

Freehold estate, which includes fee estates and life estates, that consists of ownership rights without possessory rights. That is, some day, the future estate will become a present estate such as a fee simple absolute or life estate. However, until that time, one merely owns an interest in the land without the right to possess it. Principal types of future estates include the remainder estate, and the reversion estate.

Pur Autre Vie

French phrase meaning "for another's life," commonly used to identify a life estate measured by the life of a third party, rather than by the life of the life tenant (life estate pur autre vie). See also Life Estate; and Life Tenant.

Remainder Estate

Future interest in real estate created at the same time and by the same instrument as another estate. The remainder estate automatically converts from a future estate to a possessory estate upon the termination of the prior estate. The term "remainderman" describes the person who holds the remainder of the estate, or the person designated to take title upon the termination of the prior estate. See also Estate.

Judgment Lien

General, equitable, involuntary lien that attaches to a debtor's real and personal property. Usually, judgment liens only cover real property located in the county where judgment is rendered. However, a creditor can file notice in other counties if he wishes to extend the lien's coverage. Judgment liens are enforced when the court issues a writ of execution directing the sheriff to seize and sell as much of the debtor's real and personal property as is necessary to pay the debt and cover the expenses of the sale.

Tax Lien

General, statutory, and involuntary lien imposed for non-payment of federal estate taxes, federal income taxes, or payroll taxes. General liens attach to all real and personal property of the debtor. In order of priority, real estate tax and special assessment liens are superior to federal tax liens. However, some federal tax liens (such as liens involving federal estate taxes) are superior to most other liens, regardless of the date of recording.

Police Power

Government authority to create laws, including those that promote legitimate land use objectives, so long as such laws further public health, safety, morals, and aesthetics. The United States Constitution delegates police power to individual states. In turn, individual states delegate this authority to counties and municipalities. Governments exercise the police power in a variety of activities, often referred to as "public controls." See also Zoning.

Appraisal, Transactions Requiring Formal Appraisal

Government loan programs under HUD and the VA often require that an appraisal be performed by licensed and/or certified appraisers. Additionally, a Federal law known as the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) regulates the appraisal profession and mandates that certain real estate transactions include appraisals.

Escheat

Government power to obtain title to private property where an individual dies without a will (intestate) and without any known heirs, or where property is abandoned. In these situations, property escheats (reverts) back to the state. Escheat solves the problem of property becoming ownerless.

Fannie Mae (FNMA)

Government sponsored private corporation formally known as the Federal National Mortgage Association, which was originally organized as a federal agency that purchased FHA-insured loans. Fannie Mae stock was previously traded on the public stock market, but has since been delisted from the New York Stock Exchange. Fannie Mae does not loan money directly, but instead generates funds for its secondary mortgage market operations by buying and selling FHA, VA, and conventional mortgages, and also by selling securities, mortgage-backed bonds, and discount notes in the money market. When mortgage funds are in short supply, Fannie Mae buys mortgages; when there is a surplus of funds, Fannie Mae sells mortgages. See also Secondary Mortgage Market.

Freddie Mac (FHLMC)

Government sponsored private corporation, known as the Federal Home Loan Mortgage Corporation (FHLMC), which operates under the supervision of the Federal Housing Finance Agency (FHFA) Freddie Mac was organized to borrow money from pension and trust funds, to purchase mortgages and pool them together, and to sell bonds on the open market with mortgages as security. However, FHLMC does not guarantee payment of Freddie Mac mortgages. To accomplish its mission, FHLMC purchases conventional mortgages, FHA and VA mortgages, GNMA mortgages, and conventional mortgage-backed securities from S&Ls and banks in the secondary market.

Taxable Income

Gross income minus allowable expenses and deductions.

Fructus Industriales

Growing crops, also known as emblements, that are produced annually through labor and industry such as corn, wheat, fruits, and vegetables. Fructus industriales is a Latin phrase meaning the "fruits of industry" or "labor." These items are personal property even before harvest, despite the fact that they are affixed to the land. Note the difference from other types of personal property that are affixed to the land, which become real property (such as non-trade fixtures). Here, special rules were created to protect farmers who lease or sell land.

Puffing

Harmless exaggeration that is not likely to mislead a reasonable person. Statements that may be classified as puffing include: "This is the most beautiful house in the city" and "You will never find a buy like this again." Puffing is not misrepresentation or fraud because it is a statement of personal opinion. However, the difference between puffing, misrepresentation, and fraud can be difficult to distinguish. See also Fraud; and Misrepresentation.

Foreclosure, Title Theory (Deed of Trust)

If a borrower defaults on a deed of trust in a title theory state, the lender (beneficiary) presents conclusive evidence to the trustee that the borrower (trustor) has defaulted on the terms of the note, and instructs the trustee to sell the property. The resulting sale is known as a Trustee Sale. A notice of default is recorded on the public record. After a prescribed waiting period (usually 90-120 days) the property is advertised in a public newspaper and in public places for a prescribed period of time. After the prescribed waiting period, the property is then sold at a public auction, which is generally held in the county where the property is located. Unlike Lien Theory states (mortgages), there is generally no right of redemption in a title theory state. One who purchases property at a Trustee Sale receives a Trustee's Deed.

Lien, Enforcement

If a landowner defaults on a loan that is secured by a lien on his property, enforcement of the lien usually requires a court order. That is, a creditor must take legal action and request the court of proper jurisdiction to order a sale of the property in question. When a court orders that an encumbered property be sold to satisfy unpaid debts, liens are paid from the proceeds of the sale, in order of priority.

ILSA, Contract Rights

If a lot is subject to the Interstate Land Sales Full Disclosure Act, the contract or purchase agreement must inform the buyer of certain contractual rights. The purchase agreement must state that the buyer has a cooling-off period of 7 days following the day that the contract is signed (or longer if extended by state law) to cancel the contract, for any reason, by notice to the seller, and receive his or her money back. Unless the contract states that the seller will give the buyer a warranty deed within 180 days after the contract is signed, the buyer has a right to cancel the contract for up to 2 years from the day that the contract is signed, unless the contract contains the following provisions: Description of Lots—a clear description of the lot so that the buyer may record the contract with the proper county authority; Notice of Defaults—the right of the buyer to a notice of any default (by the buyer) and at least 20 days after receipt of that notice to cure or remedy the default; and a Limitation on Damages—a limitation on the amount

Usury

Illegal act of charging an interest rate in excess of what the law permits.

Blockbusting

Illegal act under the Fair Housing Act of inducing the sale of property or properties by overtly creating the impression that a neighborhood is about to undergo an undesirable change. Examples of blockbusting include: suggesting that minorities are changing the balance of a neighborhood, suggesting that persons of other nationalities are degrading the quality of the school system serving a neighborhood, or to otherwise frighten people into selling their house for a prohibited reason. See also Fair Housing Act.

Redlining

Illegal act under the Fair Housing Act where a mortgage loan or insurance policy is unfairly denied based on where the property is located rather than the economic qualifications of the person seeking the loan or policy. Redlining not only violates fair housing laws, but also violates Federal Housing Finance Agency (FHFA) regulations. Lenders cannot attempt to limit risk by setting loan limits on particular geographic areas. See also Fair Housing Act.

Steering

Illegal act under the Fair Housing Act where an agent discourages protected classes of persons from purchasing property in certain neighborhoods, often motivated by the ethnic or cultural composition of the neighborhood in question. See also Fair Housing Act.

Waste

Improper use or abuse of property by one who possesses less than fee ownership (such as a tenant, life tenant, mortgagor, or vendee). Those with an ownership interest, such as a landlord or the owner of a future interest (reversion or remainder) may sue the person in possession (life tenant, for example) to remedy waste. Waste is remedied by seeking an injunction or filing suit for damages. See also Life Tenancy.

Replacement Fixtures

Improvements installed by a tenant to replace worn or damaged items that were already in place before the start of the lease. Unlike trade fixtures, replacement fixtures do not become the personal property of the tenant. See also Fixtures; and Trade Fixtures.

Gross Lease

In a gross lease (also called a fixed lease or a flat lease), the lessee pays rent at a fixed rate. In turn, the lessor pays taxes, insurance, and all other expenses such as maintenance and repairs. The Gross Lease is the most common type of rental agreement.

Net Lease

In a net lease, the lessee pays a base rent (a fixed amount) and also pays a pro-rated share of expenses associated with the building, such as taxes, insurance, and other specified operating expenses. The agreed upon expenses and operating costs to be paid by the lessee must be specified in the lease. The lessee's pro-rata share is usually based on the amount of square footage leased. The base rent plus the pro-rata share of all other expenses is referred to as the effective rent. Net leases are most common with commercial or industrial properties. See also Lease.

Listing Agreement, Termination

In addition to full performance, listing agreements may terminate upon: abandonment by the broker (broker fails take reasonable steps to sell the property); breach (a party fails to perform as promised); lapse of time (time specified in the listing agreement or state law lapses); mutual agreement; revocation; death, insanity, or bankruptcy; change in ownership of the subject property; and destruction of the subject property.

RESPA, Prohibited Acts

In addition to mandatory disclosures, RESPA prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed. Violations of Section 8's anti-kickback, referral fee, and unearned fee provisions are subject to criminal and civil penalties. In a criminal case, a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private lawsuit, a person who violates Section 8 may be liable to the person who was charged for settlement service, in an amount equal to three times what the client paid for that service. Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance, and other charges related to the property. RESPA does not require lenders to impose an escrow account on borrowers; however, certain government loan programs or lenders may require escrow accounts as a condi- tion of the loan. If the lender collects escrow payments, RESPA prohibits a lender from charging excessive escrow amounts. Lenders who collect escrow payments cannot collect more than 1/12 of the total of all disbursements payable during the year (a month of payments), plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year (2 months of payments). The lender must perform an escrow account analysis once during the year and notify borrowers of any shortage. Any excess of $50 or more must be returned to the borrower. Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

HUD-1, Adjustments to Costs Shared by the Buyer and Seller

In addition to the fees and expenses incurred by the borrower at settlement, it is usually necessary to make an adjustment between the borrower and the seller for property taxes and other expenses. Adjustments between the borrower and the seller are shown in Sections J and K of the HUD-1 Settlement Statement.

Joint Tenancy, Creation

In order to create a joint tenancy, four elements (called "unities") must occur simultaneously with all owners. The four unities are: Title, Time, Interest, and Possession. The unity of title describes how joint tenants must acquire title from the same instrument (same deed or same will). The unity of time describes how all joint tenants must be named at the same time so that their interests vest at the same time. New names cannot be added later. If joint tenants wish to add to their number, they must form a new joint tenancy through a new instrument to establish unity of title. Otherwise, the new tenant will be a tenant in common. The unity of interest describes how all joint tenants own one single interest in the land together, equally. That is, they must have the same share in the land for the same duration. If joint tenants create individual interests, they become tenants-in-common because they lack unity of interest. Finally, the unity of possession describes how joint tenants must have undivided possession of the whole property. That is, they must have equal use of the entire property, and no individual tenant may own any particular portion of the property.

Material Facts, Disclosure to Client

In the case of a broker representing a seller, material facts generally include: all offers (even where the seller has already accepted another offer); the identity of the purchaser and any relevant interest that the buyer may have in the property; the identity of outside interests (including any fee sharing or commission splitting agreements that the broker may have with another person, and any interest that the broker may have in the subject property or in the buyer); and financial information about the buyer or the transaction (including financial information about the buyer's ability to complete the sale, the buyer's intent to resell the property for profit, and the market value of the subject

Fixtures, Method of Attachment

In the event of a dispute, the permanence with which an object is attached to real property is a factor in determining whether it may be removed.

Fixtures, Relationship of the Parties

In the event of a dispute, the relationship between the parties is also a factor used to determine whether an item is a fixture and whether it may be severed.

Appreciation

Increase in the worth or value of property. Investors who buy land solely for its appreciation value usually plan to hold it for long periods of time. Most investors buy real property primarily for its income production, and secondarily for its appreciation potential.

Sole Ownership

Individual ownership of real property, also known as an estate in severalty or several ownership. Under sole ownership, the owner holds title in one of the estates (fee simple, life estate, etc.) or a life estate in the name of one natural or artificial person (such as a corporation or partnership). Real property owned in a tenancy in severalty passes to heirs and is subject to probate upon the death of the owner. Real property may be owned individually by: natural persons, corporations, and partnerships. See also Joint Ownership.

Material Facts

Information that is sufficiently relevant to influence a decision. Most state license laws require brokers and other agents to disclose material facts which they know or should know to their clients and customers. This obligation may be in addition to, or in lieu of, any state mandated Property Disclosure Forms. Failing to disclose material facts could be a violation of a state's license law or an instance of common law fraud. Whether a fact is material depends upon whether it pertains to the buyer, the seller, or the property, and whether the broker or agent knew the fact or should have known the fact. For example, material facts requiring disclosure by an agent include any knowledge that the seller's agent has about a buyer's financial situation.

Fraud in the Inducement

Instance of fraud where a party to a contract is induced to sign the contract because of fraudulent statements or facts. If established, such agreements are voidable by the injured party. See also Contract; and Fraud in the Factum.

Fraud in the Factum

Instance of fraud where a person has no knowledge or intention of becoming a party to a contract, yet is tricked into signing one. In such circumstances a meeting of the minds does not occur and any resulting agreement is void (as if it never existed). See also Contract; and Fraud in the Inducement.

Lease

Instrument that transfers the rights of exclusive use and possession (but not ownership) of real estate from the landlord (lessor) to the tenant (lessee), for a specified period of time. By transferring the right of use, a lease creates a legal interest in real property. However, because a lease does not convey ownership, it is classified as personal instead of real property. Contracts for lease may be written or oral (oral so long as they are for one year or less—see Statute of Frauds), bilateral, executory, and sometimes assignable contracts that can be for a definite or indefinite period of time, depending upon the type of tenancy. Like any contract, a lease must satisfy the basic contract elements—offer/acceptance, consideration, and a lack of any defenses. The parties to a lease are the lessor (owner/landlord) and the lessee (renter/tenant). If a lessee leases part of his interest—either a portion of the lease term or a portion of the leased premises—to another, he is subletting the premises to a sublessee. The sublessee pays rent to the lessee and has no contractual obligation to the lessor. Most leases contain clauses prohibiting subletting without prior consent of the lessor. Assigning a lease contract transfers all rights and interest that a lessee/assignor possesses to the lessee/assignee. The assignee usually becomes primarily liable to the landlord, while the assignor remains secondarily liable.

Condominium Instruments

Instruments, which must be recorded by a condominium developer in order to create a condominium, as a matter of state condominium or horizontal property laws. Condominium instruments include, but are not necessarily limited to, the declaration (or master deed), plats and plans, and by-laws providing for self-government by a unit owners' association.

Intellectual Property

Intangible personal property that is often recognized and protected through copyright and patent laws. Examples of intellectual property include: software, inventions, pharmaceuticals, music, books, and periodicals. See also Personal Property.

Encumbrance

Interest in land held or asserted by someone other than the landowner, which may diminish its value. Encumbrances can affect rights to use, as well as rights to convey property. These limitations may be created by both individual and government action. In order to protect the purchaser of property and the person benefiting from the encumbrance (mortgagor, lienholder, etc.), encumbrances should be noted in deeds and in the public record.

Financial Institutions

Intermediary that obtains funds from depositors and lends those funds to borrowers for the purpose of earning a return. Common financial institutions include: commercial banks, savings and loans, insurance companies, and credit unions. See also Federal Banks.

Mortgage Broker

Intermediary who arranges and closes loans in the name of a lender. Unlike mortgage banks, a mortgage broker does not loan funds or service loans. Borrowers usually contact mortgage brokers directly. Mortgage brokers qualify borrowers and real estate before contacting a lender. If the mortgage broker is successful in arranging a loan, she charges the borrower a fee, usually in the form of a percentage of the loan. See also Mortgage Bank.

Form 1099-S

Internal Revenue Service (IRS) form for reporting residential real estate transactions to the Federal Government. Generally, a real estate transaction must be reported on Form 1099-S if it consists in whole or in part of the sale or exchange for money, indebtedness, property, or services of any present or future ownership interest in any of the following: improved or unimproved land, including air space; inherently permanent structures, including any residential, commercial, or industrial building; a condominium unit and its appurtenant fixtures and common elements, including land; and stock in a cooperative housing corporation. Generally, the person responsible for closing the transaction (usually a settlement agent) must file Form 1099-S. If a Uniform Settlement Statement, prescribed under the Real Estate Settlement Procedures Act of 1974 (RESPA), is used, the person responsible for closing is the person listed as the settlement agent on that statement. If a Uniform Settlement Statement is not used, or no settlement agent is listed, the person responsible for closing is the person who prepares the closing statement, including a settlement statement or other written document that identifies the transferor, transferee, the real estate transferred, and that describes how the proceeds are to be disbursed. If no one is responsible for closing the transaction, the person responsible for filing is, in the following order: (a) the mortgage lender, (b) the transferor's broker, (c) the transferee's broker, or (d) the transferee. The following is a list of transactions that need not be reported to the IRS.

RESPA, Prohibited Fees

It is illegal under RESPA for anyone to pay or receive a fee, kickback, or anything of value because they agree to refer settlement service business to a particular person or organi- zation. It is also illegal for anyone to accept a fee or part of a fee for services if that person has not actually performed settlement services for the fee. However, RESPA does not prevent title companies, mortgage brokers, appraisers, attorneys, settlement/closing agents, and others who actually perform a service in con- nection with the mortgage loan or the settlement, from being paid for the reasonable value of their work.

Fixtures

Items that were once moveable (personal property), such as fences, buildings, trees, or bricks in a wall, but which have been affixed to real estate. Once affixed, such items become real property. When an owner sells her real property, she retains the right to remove her personal property (cars, cloths, jewelry, etc.), but the real property (including fixtures) passes to the new owner. Severance is the act of removing a fixture. Through severance, a fixture can once again become personal property. However, some items cannot be severed. Fixtures are real property unless they can be severed. To help settle disputes between buyers and sellers about what is a fixture and which fixtures may be severed, there is four-part common law analysis as follows: method of attachment, adaptation, agreement, and the relationship of the parties. See also Trade Fixtures.

Attachment Liens

Judicial action causing a defendant's real and personal property to be seized by a court and held as collateral pending a lawsuit. Real property is "attached" by recording a copy of the writ of attachment in the public record, thereby creating a lien against the property. This puts the world on notice and assures the plaintiff that, if necessary, the property will be available to satisfy the judgment. The process of attachment does not apply to a secured obligation like a mortgage. The lender must first attempt to satisfy the debt by seeking the sale of the mortgaged property. Then, if part of the debt remains unpaid, the lender may seek to attach the rest of the debtor's property.

Latent Defects

Known, material, and damaging property conditions that a reasonably prudent buyer cannot easily and readily discover. Failing to disclose latent defects may expose a seller and his agent to a potential lawsuit for fraud and/or violating state license laws. Defects that are readily apparent like cracked concrete in the driveway are not generally considered to be latent defects (because they are not hidden). Therefore, it is not practical or required that the agent provide the buyer with a laundry list of every quality of the property. Examples of latent defects include, but are not limited to: insect damage; wear and tear, like rotted floor boards; cracked foundations, or other structural defects that impact the structural integrity of the property; and violations of law or regulations, including building code and zoning regulations. See also Material Information.

Servient Estate

Land burdened by an easement. See also Easement Appurtenant; Easement in Gross; and Dominant Estate.

Dominant Estate

Land owned by a person who has the right to use the land of another (the person who "benefits" from an easement). See also Easement Appurtenant; and Servient Estate.

Private Controls

Land use controls imposed by private individuals. The principal private control of land use is accomplished through the restrictive covenant. Private covenants, conditions, and restrictions (sometimes abbreviated as CCRs) may be imposed on real property by owners or developers through deeds, leases, and condominium declarations. Some private controls may enhance property values by promoting uniformity. Residential restrictive covenants commonly address lot size, acceptable architecture or building materials, and other exterior issues. See also Restrictive Covenant; Illegal Restrictive Covenant; and Zoning.

Lis Pendens

Latin phrase meaning "action pending," which describes the concept of providing notice of a possible future lien. A lis pendens provides constructive notice that an action affecting particular real estate has been filed and that the real estate is, or is about to become, involved in a lawsuit. If the suit is successful, the priority of the lien dates back to date the lis pendens was filed.

ECOA, Evaluating Borrower Income

Lenders are prohibited from engaging in certain acts when evaluating a borrower's income. Lenders cannot refuse to consider public assistance income in the same way as other income when evaluating a borrower's income. Lenders cannot discount income because of a borrower's sex or marital status when evaluating income. Lenders cannot discount or refuse to consider income because it comes from part-time employment or pension, annuity, or retirement benefits programs. Lenders cannot refuse to consider regular alimony, child support, or separate maintenance payments. However, a creditor may ask a borrower to prove they have received this income consistently.

RESPA, Homeownership Counseling

Lenders must ensure that borrowers understand what they are agreeing to before taking on the loan. Therefore, RESPA requires that lenders provide the borrower with a list of federally-approved homeownership counseling organizations within 3 days of application. Reverse mortgages and time share loans are exempt from this disclosure requirement. Note that for most transac- tions, it is still the borrower's choice on whether or not to actually take the counseling.

Lease, Termination

Leases may terminate in a variety of ways, depending upon the type of leasehold and the terms of the lease agreement. Leases that specify a definite time period (tenancy for years) expire automatically on the date specified. Periodic leases (tenancy from year to year), which renew at set intervals, will not expire automatically. Instead, periodic leases require proper notice, usually written, in order to terminate. Most states impose a minimum amount of notice to terminate a lease. However, if in writing, most periodic leases may lawfully specify a time period for proper notice that exceeds the minimum state law requirement. A lease may terminate due to the destruction or condemnation of the property because possession, use, and quiet enjoyment are the basis of, and reason for, a lease. The parties may terminate a lease by agreement. If a lessee offers to surrender the lease and the lessor accepts, then the lease will terminate and the lessee will no longer be liable for rent. Oral surrender agreements are usually valid and enforceable if the unexpired lease term is for one year or less. However, if the unexpired term is longer than one year the agreement must be in writing to be enforced (see Statute of Frauds). The parties may also agree to include a cancellation clause in a lease at the time of contracting. Such clauses may be in commercial and residential leases, as well as sales contracts. In commercial or industrial leases, cancellation clauses grant either party the right to terminate the lease upon specified conditions or the payment of specified sums of money. The money paid for a cancellation is usually sufficient to cover any damages or losses that would otherwise be incurred by the non-cancelling party (such as brokerage fees, amortization, and loss of rental income). Residential leases may contain cancellation clauses, which permit landlords to cancel residential leases upon the sale of the property. This allows a new owner to take the property without the existing lease. However, without a cancellation clause, the mere sale of the property will not terminate the lease (property transfers subject to an encumbrance). If a lessee abandons the leased premises without formal surrender and acceptance, the lease terminates and the lessor regains full possession and control of the premises. However, the lessee remains liable for any past or future rent until the lease expires. Finally, the lease may terminate upon a breach of the lease terms, including eviction or constructive eviction. A breach is any violation of the terms or conditions of a lease without legal excuse. If the tenant is in breach, the landlord may sue for rent, damages, and may move to evict the tenant. If the landlord is in breach, the tenant may sue for damages and may claim "constructive eviction" if applicable.

Trust

Legal arrangement whereby property is committed to the care of another, subject to specific rules and instructions. Property is conveyed by a "trustor" (grantor) to a "trustee." The trustee holds title to the property and must manage it for the benefit of another, called the beneficiary. The trustee is a fiduciary and has a duty to protect, preserve, and enhance the value of property in her care. A trustee can be an individual or a corporation such as a bank. A trust can be established by will, by a trust agreement, or by a deed in trust.

Estoppel

Legal doctrine that stops, or prevents, a person from canceling a contract, despite certain deficiencies. Estoppel relies on the judicial interpretation of notions of fairness (Equity). As such, it can be difficult to predict whether a court will apply the doctrine of estoppel. Generally, estoppel arises where a party to a contract is aware that the other party is relying on them to perform as agreed, even though there may be deficiencies which otherwise prevent a valid contract from being formed (such as a lack of consideration or failure to reduce the agreement to writing). Where a party relies on such a promise and suffers some harm as a result, a court may apply the doctrine of estoppel and rule that a contract exists despite deficiencies with the basic elements. See also Contract.

Substantial Performance

Legal doctrine which states that a party who substantially, but not completely, performed may be entitled to payment as agreed to in a contract. Substantial performance commonly applies in the construction context. This doctrine protects people, such as builders, who perform with only minor defects. While the general rule would declare the builder in breach of the contract, which would allow the buyer to terminate the contract, the doctrine of substantial performance requires payment less the cost of any defects. See also Partial Performance; Performance; and Contract.

Title by Estoppel

Legal principle, also known as deed by estoppel, whereby a person obtains title to real estate over the apparent owner, because the apparent owner failed provide proper public notice of his ownership interest. Title by estoppel protects innocent purchasers where the true owner fails to follow recognized recording procedures.

Relation-Back Doctrine

Legal rule, which establishes that when an executed deed is formally deposited in escrow along with proper instructions, the death of the grantor does not terminate the escrow, and the escrowee has the authority to deliver the deed as instructed. In other words, the delivery of the deed relates back to the date it was originally deposited with the escrow agent and allows the escrow agent to complete the transaction without the living grantor, but according to the agreed upon instructions. See also Deed of Trust; and Escrow Closing.

Contract

Legally enforceable agreement between competent parties who agree to perform, or refrain from performing, specified acts. A legally enforceable contract represents the exact meeting of the minds (the agreement) of the parties involved. Real estate is a business of contracts—listing contracts, sales contracts, option contracts, leasing contracts, development contracts, installment sales contracts, and financing contracts to name a few. In addition to elements specific to certain real estate contracts (such as a clear description of the subject property), there are three basic elements to any enforceable contract: an offer/acceptance, consideration (exchange of promises to perform), and a lack of any defenses that would otherwise cancel a contract or prevent it from being formed. These elements are intended to ensure there is an understanding, or a "meeting of the minds," between two or more parties.

Interest Rate Lock

Lender's promise to offer a specified interest rate to a borrower for a specified period of time, usually while the lender processes the borrower's loan application.

HOEPA, Prohibited Acts

Lenders are banned from imposing: balloon loans, except in limited cir- cumstances; negatively amortizing loans; non-amortizing payment schedules; higher interest rates upon default; prepayment penalties after 3 years or higher than 2% of the amount prepaid; due-on-demand (ac- celeration) features, except in limited circumstances; and less than favorable refunds of interest if a loan is accelerated after a default. Lenders also cannot: sell or assign the loan without notifying the borrower; refinance loans into another HOEPA loan in the first 12 months, unless it benefits the borrower; extend credit without considering the borrower's ability to repay; extend credit without confirming that the bor- rower has received homeownership counseling; recommend that the borrower default on an existing loan; roll discount points and fees into the loan amount; charge fees to extend, modify, or renew the loan; charge fees for payment statements, except in limited circumstances; or impose excessive late fees. Finally, lend- ers may not purposely structure a loan in order to evade HOEPA regulations.

Homeownership Counseling

Lenders must ensure that borrowers understand what they are agreeing to before taking on the loan. Therefore, RESPA requires that lenders provide the borrower with a list of federally-approved homeownership counseling organizations within 3 days of application. Reverse mortgages and time share loans are exempt from this disclosure requirement. Note that for most transactions, it is still the borrower's choice on whether or not to actually take the counseling. However, TILA requires lenders to confirm that a first-time borrower has actually taken homeownership counseling before originating a loan with negative amortization. See also RESPA; and TILA.

TILA, Principal Requirements for Real Estate Financing

Lenders must provide a Loan Estimate of settlement service charges that the borrower will likely have to pay (within three (3) days of applica- tion). Actual charges may vary. Lenders must provide borrowers with a Closing Disclosure at least three days before settlement, which contains an itemized list of the actual fees charged. After delivery, changing certain terms of the loan may trigger a new 3 day waiting period. The settlement agent must also provide the seller with a Closing Disclosure on or before the settlement date. Note that the Loan Estimate and Closing Disclosures are not applicable for: home equity lines of credit (HELOCS); reverse mortgages; mobile homes and dwellings not attached to land; and loans made by non-creditors. In such situations, lenders must instead provide an initial TILA statement within three (3) days of application, and a final TILA statement at closing. This statement discloses information about the cost of financing the loan. How-

HOEPA, Disclosures

Lenders must provide the borrower with written disclosures at least 3 business days before consummation or opening of the account. This must include a shortened TILA disclosure and a statement that: the borrower is not obligated to complete the loan by signing an application or receiving disclosures; obtaining a loan will place a mortgage on the home; and the borrower could lose the home if he fails to make the required mortgage payments. For variable rate loans, the lender must inform the bor- rower of the maximum monthly payment based on the terms of the loan.

Federal Housing Administration, Qualifying Collateral

Lenders must use FHA qualified appraisers to estimate the value and condition of real estate financed with FHA insurance. FHA appraisers must satisfy minimum professional criteria and follow FHA appraisal standards.

Shared Appreciation Mortgage (SAM)

Lending arrangement where a lender loans money at below market interest rates in return for a profit share from a future sale of the financed real estate. The specific terms of the shared appreciation agreement must be clearly stated in the mortgage or Deed of Trust.

Reverse Annuity Mortgage (RAM)

Lending arrangement, commonly used by retired homeowners, where the borrower receives monthly payments secured by accumulated equity in real estate. The loan comes due on a specified date or upon an occurrence, such as the sale of the property or death of the homeowner. See also Equity; and Home Equity Loan.

General Liens

Lien against all of an individual debtor's property, both personal and real. General liens result from some court orders (Judicial Liens) and some taxes (Federal Tax Liens).

Involuntary Lien

Lien created by operation of law, such as a tax or mechanics lien. Involuntary liens may either be statutory (legislated), or equitable (arising out of English common law). See also Lien.

Voluntary Liens

Lien entered into by agreement, like a mortgage voluntarily given to secure a loan for real estate. See also Tax Lien.

Statutory Lien

Lien established by law. Lienholders must take steps to enforce claims within a certain period of time. Mechanic's and vendor's liens (when they are created by statute), property taxes, and special assessments are examples of statutory liens. See also Lien.

Equitable Liens

Lien that results from a private, written contract which specifies an intention to pledge property as security for a debt, or a court decision based on English common law and a sense of "fairness." See also Liens.

Specific Liens

Lien, also known as a special lien, against particular property, as opposed to all of a debtor's property. Specific liens do not attach to people. Therefore, if a buyer purchases a piece of property subject to a specific lien, the new buyer does not become personally responsible for payment of the debt. However, if a court decides to order the sale of the property to repay the previously filed lien, the new owner could lose his newly purchased property. Specific liens include mortgage liens, property tax liens, special assessment liens, utility liens, and mechanic's liens. See also General Liens; and Liens.

Purchase Agreement, Enforcement

Like any contract, either party may breach a purchase agreement. For example, the buyer breaches a purchase agreement by failing to purchase the real estate as agreed. Generally, purchase agreements specify available remedies in the event of a breach. The most common remedy for the buyer's breach is the forfeiture of her earnest money deposit. The buyer's earnest money deposit usually represents agreed upon liquidated damages. Where a remedy is not specified in the contract or the remedy is not limited to liquidated damages alone, the seller may sue the buyer for actual damages or for specific performance. Specific performance forces the buyer to carry through with the sale as agreed. If the seller defaults on the contract, the buyer can terminate the contract and force the seller to return his earnest money. If there are no provisions for liquidated damages, the buyer may also sue for any actual damages or for specific performance, which forces the seller to sell the property as agreed. While specific performance is not an available remedy for a breach of personal service contract, specific performance is common with real estate transactions because all real estate is unique (thus, money may be inadequate to remedy a breach). Finally, the death of a party to a purchase agreement will NOT cause it to terminate. In the event of a death, the deceased party's estate is obligated to perform under the terms of the sales contract. See also Offer.

Restrictive Covenants

Limitations, also called deed restrictions, imposed on real property by owners (usually a developer), which are commonly used by private persons to prohibit certain property uses like raising livestock or running a business in a residential neighborhood, or regulating aesthetics, like landscaping and trim colors. Restrictive covenants "run with the land," or like easements, remain with the property as it passes from owner to owner. However, unlike easements, restrictive covenants restrict what a property owner may do with his land, where easements only permit access to land. Because restrictive covenants restrict the use of real property, they must be contained in a deed or lease agreement to be enforceable. Both restrictive covenants and zoning laws impose restrictions on the use of private property. However, in the event of a conflict, zoning laws must be followed over deed covenants. Note that there is no conflict where a deed covenant is more restrictive than a zoning law—there is only a conflict where a deed covenant is less restrictive (more permissible) than a zoning law. All owners of property affected by deed restrictions have enforcement power (usually through home owner's associations). Enforcement consists of seeking an injunction from court, which orders the offender to stop violating the restriction. As long as restrictive covenants are reasonable and beneficial to all affected properties, they are enforceable. However, if restrictions are too broad, selectively enforced, or in violation of the law (such as fair housing laws), then courts may find them illegal and unenforceable. Common illegal covenants include those that unreasonably restrain alienation (restrict the ability to sell or transfer), and those imposing restrictions based on race, religion, family status, and the like. See also Illegal Restrictive Covenant; and Subdivisions.

Easement Appurtenant

Limited right of one landowner to use the adjoining land of another for a specific purpose. An appurtenant easement requires two adjoining parcels of land that are owned by different parties. These parcels of land are known as the "dominant estate," which carries the benefit of the easement, and the "servient estate," which carries the burden of the easement. Both the benefit and the burden of an appurtenant easement conveys with the land.

Easement in Gross

Limited right of one person to use the land of another. Easements in gross (sometimes called "personal easements in gross") are property rights held by specific persons. Unlike easements appurtenant, personal easements in gross have a servient estate, but no dominant estate. Thus, the primary distinction between an easement appurtenant and an easement in gross is that the burden does not transfer with the land and the benefit cannot be transferred by the holder of the easement.

Easement

Limited right to use the land of another, which may be voluntarily or involuntarily conveyed. An easement is an encumbrance to land. A landowner who conveys an easement diminishes his ownership rights in the subject property. There are two broad categories of easements: easements appurtenant and easements in gross. The primary difference between both depends upon whether the easement is enjoyed by an owner of particular piece of real estate (easement appurtenant) or whether the easement attaches to a particular person (easement in gross). Both private citizens and government entities may hold easements. Easements may arise by agreement, by adverse and hostile use, or by government action. Finally, because some easements attach to land and not to people, a buyer may take purchased real estate subject to an easement. An easement may be conveyed: expressly (by agreement and in writing), by implication (no writing, based on acts of parties), by necessity (particular use must be strictly necessary), by prescription (use acquired by an adverse user), and by condemnation (government takes the easement by operation of law). Easements by necessity commonly terminate when the underlying necessity no longer exists. Easements Appurtenant commonly terminate when there is a merger of the estates (The dominant and servient estates are merged and come under common ownership), there is a release from the dominant estate owner in writing, there is an abandonment of the dominant estate (requires an intent to abandon along with conduct manifesting such intent), or the servient estate is destroyed by an act of God. A court may also terminate an easement under proper circumstances (as with a quiet title suit).

Exclusive Agency

Listing Agreement where the seller agrees to pay a commission to the exclusive agent if he or she sells the property, and if any other broker sells the property as well. However, similar to the open listing agreement, the owner may sell the property himself and not be obligated to pay a commission to the broker. Unlike open listing agreements, exclusive listing agreements must be written, are bilateral (obligating both parties), for a personal service (it cannot be assigned), and must have a definite expiration date. Exclusive listing agreements are also executory (will not arise unless or until a particular broker produces a buyer). See also Listing Agreement; and Agency.

Exclusive Right-to-Sell

Listing agreement that extends the greatest benefit to the broker. This is true because the seller/client agrees to list the property with a single broker (exclusive agent), and also agrees to pay that broker his commission regardless of who sells the property (whether it's another broker or even the seller him or herself). An exclusive right-to-sell must be written, bilateral, executory, for a personal service, and must have a definite expiration date. See also Listing Agreement; and Agency.

VA Guaranteed Home Loans (VA Loan)

Loan guaranteed by the Department of Veterans Affairs for eligible veterans that purchase, build, or refinance homes. VA loans are part of a government mortgage assistance program established under the Servicemen's Readjustment Act of 1944. Under normal circumstances, the VA does not lend money. Instead, the VA guarantees loans made by VA approved lenders. However, unlike FHA programs, the VA can lend money through its direct loan program. This only happens in extreme cases where local mortgage money is not available to a qualified veteran. Primary market lenders qualify eligible veterans and property according to VA standards. Primary lenders then enter into mortgage agreements with qualified veterans (fixed rate, adjustable rate, etc.). The VA guarantees it will pay a portion of the mortgage if the veteran defaults (lender pursues borrower for the balance). VA loans permit eligible veterans to mortgage property with little or no down payment, and without purchasing mortgage insurance. The amount of guaranty on the loan depends on the loan amount and whether the veteran has previously used some of his VA entitlement. Loan limits and basic entitlements are subject to change. While there is no maximum loan amount established by the VA, lenders will generally lend up to 4 times the amount of a veteran's entitlement without requiring a down payment.

Government Backed Loans

Loan originated by primary market lenders, but backed by government insurance (FHA) or guarantees (VA). In addition to conventional loans made by private lenders, there are government lending programs available to qualified borrowers. Government lending programs may insure and/or guarantee funds borrowed from a private lender. In limited circumstances, government programs may fund loans as well. Common

Mortgage

Loan secured by a voluntary lien on real property, where a property owner enters into a contract to borrow money and voluntarily agrees to extinguish his rights to real property in favor of the lender if he fails to pay the debt according to the terms of the loan agreement. Either the borrower (mortgagor) holds title to the mortgaged property during and after repayment (lien theory—majority of states) or a third person (trustee) retains title until the mortgage is paid (title theory—minority of states). A mortgage consists of a promissory note and a mortgage contract. A promissory note is a written promise signed by the borrower (maker) to repay the lender (bearer), which specifies the amount of the debt, the interest rate, and the time and method of repayment. A promissory note is signed by a maker (borrower) who promises to repay the bearer (the lender). The words "or bearer" makes the note negotiable. If the note is negotiable, the original lender may sell the note to another person. That person then replaces the initial lender with the legal right to demand repayment. The mortgage contract is a security instrument, which establishes that real property is collateral (hypothecation) for repayment of a debt. A promissory note without a mortgage contract is merely a personal obligation (unsecured by any collateral). Mortgage contracts should be recorded because they create liens on real property. On the other hand, the note need not be recorded because it only establishes a personal obligation. See also Lien Theory; Title Theory; and Lien.

Package Mortgage

Loan secured by personal as well as real property (collateral).

Open-End Mortgage

Loan secured by real property in which the lender sets a maximum amount a borrower may borrow, and the borrower may borrow up to the maximum as needed at various times. Under an open-end mortgage, the borrower only pays interest on the actual amount borrowed. Open-end mortgages are commonly used to finance construction where the builder borrows money as he completes portions of the project. See also Home Equity Loan.

Home Equity Loans

Loan that may be either a first, second, or third mortgage with either a fixed or adjustable interest rate, which is secured (collateral) by equity in real estate. The lender may make a single payment to the borrower or the borrower may draw payments from a line of credit. Home equity loans are often used to consolidate consumer debt because mortgage interest is tax deductible, unlike the interest on consumer debt. See also Equity; and Mortgage.

Secondary Loans

Loans that include, or are subordinate to, other loans. See also Junior Mortgage.

Conventional Loans

Loans which are neither insured nor guaranteed by the government. As such, conventional loans represent a greater risk to lenders than government-backed loans. Most conventional lenders require at least a 20% down payment (80% LTV) in order to avoid private mortgage insurance. See also Government Loan Programs; and Private Mortgage Insurance.

Zoning, Enforcement

Local building departments enforce most zoning through the issuance of building permits, which are required prior to specified construction. If the proposed structure does not conform to permitted zoning and local building codes, the building permit will not issue and the development may not occur. Failing to obtain a building permit is itself a violation of most zoning ordinances.

Renegotiable Rate Mortgage (RRM)

Long-term mortgage with short-term renewal periods (such as 3-5 years), where interest rates are renegotiated. The long-term mortgage amount remains the same and the mortgagor has the option to renew. See also Mortgage.

Form 1099-S Exception, Manufactured Structures

Manufactured structures are exempt from 1099-S reporting if they are used as a dwelling that is manufactured and assembled at a location different than where it is used, but only if such structure is not affixed to a foundation on the closing date. This exception applies to an unaffixed mobile home.

Market Data Approach to Appraisal

Method of appraising real estate, which analyzes comparable property sales to determine market value. The market data approach relies substantially on the principle of substitution, which states that property value will not exceed the cost of an equal substitute. The market data approach is considered the most reliable of the three approaches for appraising residential property. However, the market data approach is most effective when the property is located in a fairly active market. Even with an active market of comparable properties, no two properties are identical. Therefore, appraisers must follow three basic steps in order to arrive at a meaningful comparison between the subject property and the comparables: locate comparables; make comparisons (known as the adjustment process); and value the property. All comparables must be similar in size, shape, design, and location. They must also have sold fairly recently in an arms-length transaction, where a buyer and a seller deal from equal bargaining positions, in a formal manner, and without trusting solely to the other's fairness and integrity. The adjustment process, or comparison process, is accomplished by adjusting the sales price of three to five (3-5) comparables, based on their differences from the subject property. Adjustments are based on the following four factors: market conditions, location, physical characteristics, and financing. Relevant changes in market conditions since the sale of the comparable property include economic changes, zoning changes, availability of financing, and interest rates. An appraiser may need to make locational adjustments between similar properties that are located in different neighborhoods or even between similar properties within the same neighborhood. Relevant physical characteristics include: lot size, the age of improvements, the number of square feet, construction quality, landscaping, pools, garages, and the number of bathrooms. All these differences make a property more or less valuable than a comparable property. Therefore, adjustments must be made in order to compensate. Finally, after locating comparables and making necessary adjustments, appraisers determine value by reconciling the adjusted sales price of each comparable. Again, reconciliation requires the appraiser's judgment, based upon her knowledge and experience. See also Income Approach to Appraisal; and Cost Approach to Appraisal.

Income Approach to Appraisal

Method of appraising real property, also known as the income capitalization approach, which is based on a property's potential to generate income. The income approach is based on the theory that the market value of real estate is equal to the present worth of whatever future income it can produce over its remaining economic life. This approach assumes that the income derived from real estate will control its value. The income capitalization approach is used for valuation of income-producing properties such as apartment buildings, office buildings, shopping centers, and industrial parks. The income approach uses the following seven basic steps to determine value using the income capitalization approach: estimate the annual gross income; make allowances for vacancy and collection losses; calculate the effective gross income; estimate the total operating costs; calculate net operating income; select a capitalization rate; and apply the capitalization rate.

Collateral

Money or property pledged to a lender by a borrower as security for the payment of debt. Mortgage lenders minimize the risk of loaning money by requiring borrowers to pledge collateral. Should the buyer fail to pay the loan, the lender may recoup the loss by exercising its right to force the sale of the pledged collateral (the property). See also Foreclosure.

Fixed-Rate Mortgage

Mortgage for which the interest rate remains the same for the entire duration of the loan (30 years, 15 years, etc.). See also Adjustable Rate Mortgage (ARM).

Graduated Payment Mortgage (GPM)

Mortgage where payments begin low, but gradually increase over the life of the loan.

Seller Financing

Method of financing the purchase of real property whereby the seller lends money directly to

Escrow

Method of holding money or documents on behalf of another until specified terms and conditions have been satisfied. An escrow agent (escrowee) is the special and impartial agent of all interested parties. In many states, brokers may act as escrow agents. As an escrow agent, the broker has an equal fiduciary responsibility of loyalty and confidentiality to both the seller and buyer with respect to the escrow money and/or documents. Every escrow agent must keep escrow funds completely separate from non-escrow funds, and cannot commingle personal and business funds with escrowed funds. Generally, salespersons may not act as escrow agents, although they may accept money and documents for escrow on behalf of their employing broker (firm). See also Agency; Deed of Trust; and Escrow Closing.

Metes and Bounds

Method of legally describing real property, which identifies the outer edges of a parcel by establishing a well-marked starting point (called a point of beginning or POB), then describing in which direction and how far the property boundaries run from the POB. For easier locating, POBs are usually marked by permanent artificial monuments, like a survey stake. A legal metes and bounds description must start and finish at the POB or the description is defective. Metes and bounds is well suited for identifying irregularly shaped parcels because one can navigate in any direction from the POB, unlike other methods that rely on regular shapes, like the government survey method. A mete is an old term for "measure," and a bound is a term for "boundary." Metes are measured in inches, feet, yards, and sometimes miles, and usually require reference to a compass setting. Bounds can be established using: artificial monuments (iron pipes, brass disks set into concrete, road intersections, and highways); and natural monuments (lakes, large boulders, and noteworthy trees). A surveyor uses both precision instruments and known natural and artificial bounds to measure the exact angles and distances in order to establish the boundaries of a parcel. Surveyors define direction through the use of compass angles. See also Government Survey; and Lot, Block, and Subdivision.

Legal Description of Property

Method of locating real estate that is sufficiently accurate for a deed, mortgage, or other formal instrument. A property description is legally sufficient if it can be reasonably identified by a typical surveyor. The three principal methods of legally describing real property are: metes and bounds; government survey; and lot, block, and subdivision. Note that in some cases, land is described by referring to another publicly recorded document such as a deed or a mortgage. Such a reference can only be legally valid if the referenced document contains a valid legal description. See also Government Survey; Metes and Bounds; and Lot, Block, and Subdivision.

Joint Tenancy

Method of property ownership where title is held by multiple persons, but as if all the owners were a single person. Each joint tenant has identical rights in the property and can occupy the entire premises (right of possession). A principal aspect of a joint tenancy is that when one joint tenant dies, the joint tenant's interest will automatically pass to the remaining joint tenants by right of survivorship. See also Tenancy in Common; and Tenancy by the Entirety.

Wraparound Mortgage

Mortgage whose balance includes newly borrowed funds along with the balance owed on an older, previously existing mortgage. The older mortgage is not paid off, but the new mortgage "wraps around" the older one, producing a single payment to satisfy both loans. The new mortgage is junior to the older one. The borrower pays the new lender and the new lender makes payments on the original loan, protecting the new lender's junior position. See also Mortgage.

Land Contract

Method of seller financing in which the buyer receives equitable title upon closing and the seller retains legal title until the buyer completes all installment payments. Unlike a mortgage, the buyer who purchases property under a land contract receives fewer protections in the event of a default than with a traditional mortgage. A land contract, also known as an "Agreement for Deed," a "Land Contract," or a "Contract for Deed," is similar in some ways to the typical sales contract (purchase agreement). Land contracts are written, bilateral, executory, and assignable contracts to transfer property that bind the parties to perform as agreed. However, unlike sales contracts where the purchase price is paid in full (usually through a mortgage) and title is transferred at closing, a land contract defers payment of all or a portion of the sales price, and title remains with the seller unless or until the buyer completes all payments. The purchase price is often paid in installments over the period of the contract, with the final balance due at a later date (maturity). Only after the buyer (also known as the vendee) completes all payments is the seller (also known as the vendor) obligated to deliver title. Thus, land contracts contain elements of both a sales contract and a financing instrument (like a mortgage). Because land contracts act as sales contracts, a financing instrument, and a promise of a deed, land contracts should be recorded in order to protect the buyer. If the seller defaults on a land contract, the buyer may sue for specific performance, damages, or rescission. If the buyer defaults, the seller may evict the buyer and repossess the property. While the seller retains legal title to the property unless or until the buyer completes all payments, many states require the seller to go through foreclosure proceedings to collect money from a defaulting buyer and to regain possession of the property.

Government Survey

Method of surveying land adopted by the United States in 1785 to facilitate the government's sale of large tracts of land as the population rapidly expanded westward. The government survey method is also known as the geodetic or rectangular survey system and it is used in more than 30 states, mostly in the mid-west. This method employs the use of imaginary lines running north and south (principal meridians) and east and west (base lines). These lines form a checkerboard pattern as they intersect, which are further divided into smaller units. This method works well for identifying large parcels, but not so well for describing small or irregularly shaped lots. See also Principal Meridians; Base Line; Checks; Townships; and Sections.

Rescission

Method of terminating a contract by mutual consent and without a breach, which returns contract parties to pre-contract positions. Rescission requires the agreement of both parties or a court order to cancel the contract without a breach. Under some state and Federal laws, purchasers have a mandated right to rescind a contract for any reason whatsoever for a limited time period. These rescission periods, commonly referred to as "cooling off periods," usually run from 3 to 10 days after contracting. See also Truth in Lending Act (TILA).

Like-Kind Exchange

Method to avoid the capital gains tax by exchanging qualified property. Generally, a person may avoid capital gains taxation under IRS Code § 1031 by exchanging business or investment property solely for other business or investment property of a like-kind. If, as part of such an exchange, one also receives other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized. Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, and certain other assets. In a like-kind exchange, both the property given up and the property received must be held for investment or for productive use in a trade or business. Land, machinery, buildings, trucks, and rental property are examples of property that may qualify.

Tax Rate

Method to calculate the amount of tax owed to a taxing authority. Each taxing body arrives at its tax rate separately. The amount of money needed by each taxing district is divided by the total assessment for all real estate located within the jurisdiction in order to arrive at that district's percentage. In most states, the taxpayer is presented with one tax bill. However, in some areas of the country, separate bills are prepared by each taxing district (school districts, water districts, and the like). Due dates for taxes are set by statute. See also Ad Valorem Process.

Non-Legal Description of Property

Method to describe real property for convenience only, and not for the purpose of a deed, mortgage, or other instrument that requires a legal description. While deeds and titles require legal property descriptions, consumers often use less formal descriptions to discuss and characterize real property. The most common example of such informal methods is the street address. The street address is useful to locate real property, but it is insufficient to locate the real property borders by survey. Instead, surveyors rely on one of the three methods of legal property description. However, the simple street address of a parcel is a sufficient description in a sales contract. Front footage is another example of a non-legal description of property. See also Legal Description of Property.

Lot, Block, and Subdivision

Method to legally describe property, which begins with a large tract of land known as a subdivision plat. Subdivision plats are initially located by either metes and bounds or government survey. A subdivision plat is a large map which notes the layout of lots and their numbers. Once established and named, subdivision plats are further divided into blocks and lots. Before they may be recorded subdivision plats must be pre-approved by local governmental units in charge of zoning. Each recorded plat receives a book and page reference number, and all plat books are available for public inspection. If a parcel of real property is part of a recorded plat, the legal description need only include the lot and block number, tract name, map book reference, county, and state. In order to have any legal effect, all subdivision plats must be recorded in the public recorder's office, clerk's office, or land records office of the locality in which it is situated. A block is a group of contiguous lots, which are usually divided by an access road. A lot is generally the smallest unit of measure in this system, intended to be conveyed in its entirety. Subdivisions may be further subdivided or altered after the initial plat is recorded. This requires creating and recording new plats, usually partial plats reflecting changes to the initial plat. When this occurs, the legal description may need to refer to all of the plats, reflecting the history of the description of the parcel at issue.

Cost Approach, Estimating Accrued Depreciation

Most buildings are not new. While land does not depreciate, buildings usually lose value as they age. Depreciation is defined as the loss in value for any reason, such as age, use, deterioration, and obsolescence. Accrued depreciation describes the total loss of value during the life of a building. Only improvements depreciate—land does not. Also, depreciation for appraisal purposes is different than depreciation for tax purposes. For appraisal purposes, depreciation is divided into three categories according to its cause: physical deterioration, functional obsolescence, and external (economic) obsolescence. Physical deterioration and functional obsolescence may be "curable" or "incurable." External obsolescence is always incurable. Physical deterioration includes settled foundations, cracking walls, leaking roofs, peeling paint, or any loss of physical integrity, including termite damage. Physical deterioration is only curable if the property value is equal or in excess of the cost of repairs. Physical deterioration is incurable if the property value would not increase sufficiently to cover these costs. The test is not whether a physically deteriorated building "can" be repaired, but rather, whether repairs make economic sense. Functional Obsolescence is the loss in value that a building suffers due to out-dated design or materials, as such buildings no longer satisfy the needs and demands of users (consumers). This happens not only in older buildings, but can, on occasion, occur in a brand new building that has "missed the market" due to poor design or market planning. Such obsolescence is curable if the deficiency is economical to correct, and incurable if it is not. External obsolescence, also referred to as economic obsolescence, is caused by factors external to the property. Therefore, external obsolescence is never curable. It is caused by changes in the surrounding environment which make the subject property less attractive to users and reduce its market value.

Tenancy in Common

Most common form of co-ownership, which is assumed unless some other form of tenancy is clearly identified. Co-tenants in a tenancy in common generally hold title to property in fee simple and in their own names. Each co-tenant may have equal or unequal ownership interests, but each co-tenant has a unity of possession. While a joint tenancy requires all four unities, the tenancy in common requires only one—the unity of possession. The unity of possession means that no co-tenant can exclude another co-tenant, and no co-tenant may claim ownership of any specific part of the property. Therefore, even if tenants-in-common own unequal shares, their percentage of ownership is a percentage of the whole. Tenants-in-common have an undivided interest in the whole property. The primary difference between a tenancy in common and a joint tenancy is that there is no right of survivorship. That is, each tenant-in-common can pass title to an outside person upon his death. Because there is no right of survivorship, an owner can transfer his interest in a tenancy in common by will. See also Joint Tenancy.

Income Approach, Estimating Net Operating Income (NOI)

Net operating income is determined by taking the effective gross income (EGI), then subtracting all fixed and variable operating costs. To determine net operating income, first subtract the vacancy and collection losses from the gross income; this provides the EGI. From that sum, subtract the operating expenses. The difference is the net operating income (NOI). Annual gross income means the "potential" annual gross, or the income that "could be" produced if all units were rented at full market value. This includes all income from all sources, such as sales, rental income, concessions, garage rentals, laundry operations, and vending machines. In order to determine potential gross rental income, an appraiser might use contract rent, market rent, or a combination of both. Contract rent is the rent called for in a lease contract. The appraiser uses this approach for long- term leases and good quality tenants. Market rent is the most probable rent the property could demand in the open market (determined by considering comparables using the market data approach). Appraisers use this approach when lease contracts are non-existent or not a controlling factor. The predicted vacancy and collection loss is calculated by analyzing the past record of the subject property and of comparable properties in the market. Operating costs include real estate taxes, insurance, utilities, management fees, janitorial, garbage removal, and yard maintenance. Not included in operating expenses are financing costs, costs of capital improvements, corporate income tax, depreciation, and any other business expenses not directly involved in operating the property.

Primary Mortgage Market

Network of direct lenders, also known as prime lenders or originators, who make mortgage loans directly to borrowers. Some primary lenders retain the mortgages they originate, but most sell loans to other investors. By selling loans, they liquidate their investment and receive additional funds to make more loans. Primary market participants provide cash (originate loans) directly to borrowers. Many conventional lenders continue to service loans even after they sell them. Servicing a loan includes: collecting monthly payments; disbursing funds to pay property taxes and insurance; supervising the loan; and handling delinquencies, early payoffs, and mortgage releases. For this service, they charge a collection fee. Primary market lenders originate both conventional and government-backed loans. Sources of direct loans include savings and loan associations (S&Ls), commercial banks, mortgage bankers, mortgage brokers, and life insurance companies. See also Secondary Mortgage Market.

Secondary Mortgage Market

Network of institutions that purchase and sell existing mortgages. Two different, but complementary, forces led to the creation of the secondary market: business entities with cash reserves in real estate and primary market financial institutions in need of cash to originate loans. Whereas primary markets originate loans to eligible buyers, the secondary mortgage market purchases loans from primary lenders. Secondary market participants receive a return on their investment in primary loans, and primary participants receive cash for additional loans. Investors on the secondary market purchase mortgages for long-term investment. Investors on the secondary market may purchase individual loans, but usually purchase mortgage-backed securities. When mortgage holders package up a group of mortgages, they issue securities, and each security represents a share in the package. The primary institutions in the secondary mortgage market are Fannie Mae (FNMA), Ginnie Mae (GNMA), and Freddie Mac (FHLMC). See also Primary Mortgage Market.

Fair Housing Act, Construction Requirements

New multi-family dwellings must be designed and built to meet certain adaptability and accessibility requirements for persons with a handicap. Real estate brokers must display HUD equal opportunity posters in all places of business, model home sites, and other related locations. Posters must contain the Equal Opportunity slogan, statement, and logo. Developments financed under the FHA must undertake an affirmative marketing program to attract a cross-section of the community. Finally, landlords leasing covered existing units are subject to certain rules, depending upon the year leased units were built. These rules include a handicapped tenant's right to make reasonable modifications to the dwelling unit (at the tenant's expense) and a landlord's duty to make reasonable accommodations to rules, policies, and services to allow handicapped persons equal opportunity to use and enjoy the premises. For covered leased units built after March 13, 1991, covered landlords must make the public and common areas usable by the handicapped and install doors that allow passage of wheelchairs. Covered persons must also install accessible handicapped routes (at least one building entrance must be an

Estate at Sufferance

Non-freehold (leasehold) estate that is also known as a tenancy at sufferance. An estate at sufferance exists only in a limited circumstance—when a tenant occupies real estate after his lawful rights have expired. This estate carries the fewest rights, and therefore is the lowest, most encumbered estate in land that one

Estate at Will

Non-freehold estate (leasehold) that is also known as a tenancy at will, which exists when a tenant is in lawful possession of real estate with no definite time specified as to when he will vacate, and no particular recurring period (such as month-to-month). That is, the estate may be terminated at any time by either party. It may be terminated, for example, by sale of the property, by death of either party, or by notice of either party. See also Estate.

Estate for Years

Non-freehold estate, also known as a "tenancy for years", with a definite beginning and a definite ending date that does not automatically renew. The term "years" is a misnomer. An estate for years can be for any definite period of time (one week, one day, or 10 years). An estate for years does not terminate upon the sale of the leased property. Notice is not required from either party to terminate an estate for years because it already contains its own termination date. Beware of exam questions that ask you to identify what happens to a lessee when leased property is sold or the owner dies. Because the lease is personal property belonging to the lessee, the lease remains valid and the lessee may remain in possession. However, this is not the case with an estate at will and an estate at sufferance. See also Landlord Tenant; Estate; and Lease.

Multiple Listing Service (MLS)

Organization of brokers who formally exchange listing information about real estate. The MLS exposes listed real estate to a variety of brokers, who in turn may present the listing to a variety of buyers. The seller lists his home with one broker who assumes primary agency responsibility for selling the

Estate from Year to Year (Periodic)

Non-freehold estate, also referred to as "tenancy from year to year" or "periodic estate", which runs for a specified period of time and automatically continues from one period to the next unless either party terminates it. Note the difference between an estate for years, which automatically terminates at the end of the specified period. The term "year" is deceiving—the term of the lease can be less than a year. A month- to-month or week-to-week rental that automatically extends to the next period is an example of an estate from year to year. A periodic tenancy requires proper notice to terminate, and renews automatically at the end of the time period unless properly terminated. See also Estate.

Federal Housing Administration (FHA)

Office within the Department of Housing and Urban Development, which provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family homes, multifamily homes, manufactured homes, and hospitals. FHA loans are assumable and there are no prepayment penalties.

Contract, Performance

Once a contract arises (offer/acceptance, consideration, lack of defenses), the obligation to do (or perform) what was agreed upon may be controlled by additional factors. Additional factors that may govern one's obligation to perform include: whether the contract is executory, whether the contract may be transferred or assigned to a person other than an original party to the agreement, and whether the contract contains various conditions or restrictions.

Cost Approach

One of three principal methods of appraising real property (also known as the cost depreciation approach) which is based on land value, plus reproduction or replacement costs of improvements, minus depreciation. The cost approach, like the market data approach to appraisal, relies substantially on the principle of substitution. The cost approach is best suited for determining the value of non-income producing, special purpose properties such as churches, schools, and civic centers. The Cost approach has four basic steps: estimating the value of the land; estimating construction costs; estimating accrued depreciation; and analyzing the data from the previous steps to compute the total value. An appraiser computes the total value by subtracting the accrued depreciation from the total reproduction costs and adding the land value. See also Appraisal; Market Data Approach to Appraisal; and Income Approach to Appraisal.

Title Theory

One of two state legal theories regarding the status of title to financed property, which determines the borrower's rights in the event of a default. In the typical title theory state, title to financed property transfers through a deed of trust, in which the borrower conveys legal title to the lender who holds it until the loan is paid in full by the borrower and the borrower retains equitable title. Upon satisfaction of the debt, the lender transfers legal title to the borrower. Traditionally, if the borrower defaults in a title theory state, there is no foreclosure because the lender already has legal title. However, most states that follow title theory have enacted laws which extend rights to borrowers in default, similar to those afforded by lien theory states. See also Lien Theory.

Appraiser

One who estimates the value of property through the process of formal appraisal. An appraiser may be both licensed and/or certified. A state certified appraiser is an individual who has satisfied the requirements for state certification when the criteria for certification meet the minimum requirements issued by the Appraiser Qualifications Board of the Appraisal Foundation. A certified appraiser must satisfy various examination, education, and experience requirements. A state licensed appraiser means a person holding a state license, whether or not the licensing criteria are certified by the Appraiser Qualification Board of the Appraisal Foundation. State requirements

Legal Insanity

One who has been adjudicated incompetent or insane by a court. Such persons have no capacity to contract, and may not be a party to a contract because legally incompetent individuals cannot be expected to understand the terms of a contract. Therefore, a legally incompetent person cannot agree because an agreement requires understanding. Without agreement, there is no meeting of the minds. See also Non-Legal Insanity; Contract; and Incompetency.

Principal

One who has conferred authority on an agent to act on his behalf (may include authority to execute legal decisions); or the total amount of money borrowed from a lender.

Universal Agent

One who is authorized to perform a variety of acts necessary to effectuate a variety of transactions on behalf of another. Universal agency is a much broader grant of authority than either the special (authorized to complete a specific act) or general agent (authorized to complete any and all acts necessary for a specific transaction). An unlimited power of attorney is an example of universal agency. Courts do not have a favorable view of universal agency due to the broad scope of power vested in the agent. See also Agency; and General Agent.

Offeree

One who is presented with an offer. See also Offer; and Contract. Offeror: One who makes an offer. See also Offer; and Contract.

Minor

One who is under 18 years of age (in most states). In terms of contracting, minors have a limited capacity. As such, contracts by minors are generally voidable. This means that a minor may enter into a contract, but he may escape liability for the contract if he subsequently rejects it. The minor must reject the contract within a reasonable time of becoming an adult, or the contract will be binding. However, contracts with minors for certain necessities like food or clothing are neither void nor voidable, and the minor will be held to such contracts. See also Contract; and Incapacity.

Trustee's Deed

One who purchases property through a trustee sale receives a trustee's deed, which conveys all the rights, titles, and interests that the original borrower had at the time he deeded the property to the trustee. See also Foreclosure; Deed of Trust.

Employee

One who works under the direct supervision of another, and with limited discretion. Employers may require employees to hold a certain number of office hours. Employers establish the tasks the employee must perform, and usually dictate how the tasks must be accomplished. Employers must carry liability insurance, pay worker's compensation, withhold social security and income tax from wages, and pay unemployment compensation tax. Under the common law of agency, employers (brokers) may be liable for the wrongful conduct of their employees and independent contractors (salespersons) when they act within the scope of their authority or employment. However, state laws may vary. See also Independent Contractor.

Agent

One with authority to act on behalf of, and to obligate, another. See also General Agent and Special Agent.

Time Share

Ownership interest in real estate, also known as interval ownership, where possessory rights are divided into fixed, variable, or rotating time periods (weeks, months, or years). Time share ownership is most commonly used in the sale or lease of vacation properties. Time-share ownership may be acquired by lease, license, or deed of interval ownership. Time share purchasers gain fee simple title as a tenant-in-common with other time share owners, or a tenancy for years with a future tenancy in common. Because time-share owners are tenants-in- common, each has an undivided interest in the entire property. However, the owner's use of the property is restricted to specified time periods and units. As with condominiums, state laws govern the development, marketing, sales, ownership, and management of time-share property.

Tenancy

Ownership of an interest in land. Just as there are different interests (estates) one may hold in real property, there may be more than one person with an estate in the same property. There are three primary methods of ownership (tenancies) as follows: sole ownership (Tenancy in Severalty); concurrent ownership (Joint Tenancy, Tenancy in Common, Tenancy by the Entireties); and trusts. See also Estate.

Statutory Redemption

Period of time following a foreclosure in which a defaulting borrower may pay his debt and reclaim his property. Statutory redemptions, if applicable, are created by state law. See also Redemption, Right or Equity of.

Lucid Intervals

Period of time in which a legally incompetent person is judged by a court to have been temporarily of sound mind (lucid). If an otherwise legally insane person contracts during a lucid interval, then the resulting contract remains valid even if the person subsequently returns to insanity. See also Legal Insanity; and Non-legal Insanity.

Fructus Naturales

Permanent plantings (perennials) such as flowers, grasses, trees, and bushes are classified as real property and are referred to as "fructus naturales." Fructus naturales is a Latin phrase meaning the "fruits of nature." Because they are classified as real property, these items may not be removed from the land absent an agreement (unlike personal property). Do not confuse fructus naturales with fructus industriales, which is personal property.

Special Agent

Person authorized to perform a particular act or transaction pursuant to an agency agreement. In most brokerage transactions, the broker acts as a special agent. Special agency limits the broker to certain activities specified in the listing agreement. See also General Agent; and Agency.

Independent Contractor

Person hired to perform a specific task, who uses independent discretion and judg- ment to select a method of completion. An independent contractor is not an agent, and is therefore not subject to the default fiduciary duties. Some states permit real estate brokers to represent clients as independent contractors (sometimes referred to as transaction brokerage). In such states, there must be a written contract with their client stating that the broker is acting as an independent contractor and not as an agent. The broker and her associated agents will only have the obligations agreed to by the parties in the contract—Agency Law will not otherwise ap- ply. This type of limited representation usually allows a licensee to facilitate the transaction by assisting the buyer, the seller, or both in a real estate transaction. However, since the broker does not represent the client in a fiduciary capacity, the parties to the real estate transaction are giving up their rights to the undivided loyalty of the licensee. In the context of a business, the Internal Revenue Service (IRS) allows persons to work as either an independent contractor or employee. Salespersons often work for brokers as independent contractors within the real estate firm. As compared to an employee, independent contractors are personally responsible for acquiring any liability insur- ance, making social security payments, making income tax payments, and obtaining health insurance, retirement, and vacation benefits. See also Employee; and Agency.

Fiduciary

Person holding a position of trust and confidence by virtue of his representation of another (agent representing a principal). See also Agency.

Non-Legal Insanity

Person who is actually insane, but has not been declared insane by a court. Persons who are insane without a court declaration possesses a limited capacity to contract. Such contracts are therefore voidable and not void. See also Legal Insanity; Incompetency; and Contract.

Grantee

Person who is entitled to accept a deed in the transfer of real property. See also Deed.

Customer

Person who is not in a brokerage relationship with respect to a particular broker but for whom a real estate agent may perform ministerial acts in a real estate transaction. See also Agency; and Agent.

Grantor

Person who tenders a deed in the transfer of real property. See also Deed.

Mortgage Bank

Person, firm, or corporation that originates and services mortgage loans. Unlike traditional banks, mortgage banks do not take in deposits. Unlike Banks and Savings and Loans who use the money of others for mortgage financing, mortgage bankers usually borrow funds for mortgage financing. Mortgage bankers frequently borrow funds from commercial sources, make loans, and then package and sell mortgages at a discount to investors on the secondary mortgage market. Mortgage bankers close loans in their own name, assume risks, and may continue to service loans even after they are sold on the secondary market. Mortgage bankers differ from mortgage brokers in that Mortgage brokers are true intermediaries who represent investors. Mortgage bankers make commercial real estate loans and are also major originators of FHA and VA loans. See also Primary Market; and Secondary Market.

Deficiency Judgment

Personal judgment against a defaulting borrower and/or against any additional parties responsible for repayment of a debt (such as endorsers or guarantors and any subsequent purchaser who "assumed" the loan), where a foreclosure sale does not produce enough money to cover the cost of the foreclosure process and to pay the entire debt. See also Foreclosure.

License

Personal, non-assignable privilege granted by one person to another. Typically, a license authorizes the use of or attendance on real property. Because a license issues from a specific person to another specific person, a license is not an encumbrance on real property (is not transferred to new owners like an easement). Also, a license may be revoked at any time (revocable at will).

Ready, Willing, and Able

Phrase describing a buyer who has made an offer consistent with the terms of a listing agreement, and who has the motivation and financial ability to perform. Such offers trigger the listing broker's right to a commission. If a broker hired by a seller obtains a buyer who makes an offer, and has sufficient financing to carry through with the transaction, that broker earns a commission regardless of whether the seller carries through with the sale. In event of a dispute over who produced a ready, willing, and able buyer, it is important to determine which broker was the procuring cause of the sale. A broker is the procuring cause of the sale if that broker set events in motion that led to the sale, or the discovery of a ready, willing, and able buyer. Determining which broker is the procuring cause of a sale can be difficult to determine. However, the procuring cause is irrelevant if the listing agreement is an exclusive right-to-sell listing because an exclusive right-to-sell listing promises a commission to the broker regardless of who sells the property. See also Commission; and Agency.

Subject To

Phrase describing a buyer who purchases a home with an existing mortgage. Unlike assumption, taking property subject to an existing mortgage means that the new buyer is not personally liable for payment of the debt. In the event that the loan is not repaid and the property is put through foreclosure, the "subject to" buyer may lose the property, but will not be personally liable to satisfy any remaining debt. That is, if the sale of the property does not produce enough money to satisfy the entire debt, the lender may sue the original mortgagor/seller, but cannot sue the buyer who purchased the property subject to the existing loan. See also Assumption.

Time is of the Essence

Phrase that may appear in a contract, which means that the parties have agreed on a definite time for performing and that a party will breach the contract unless performance is rendered by the exact time specified. For example, if the parties specify a closing date and time as "November 3, 2009, at 12:00pm," and further specify that "time is of the essence," then a party who arrives to the closing at 12:05pm is in breach of the sales contract. However, if a contract does not contain the phrase "time is of the essence," the law will impose some reasonable time. "Reasonable" is what may be fairly allowed and required considering the nature of the act to be performed. See also Contract.

Subdivisions

Planned communities that often mix residential, retail, and commercial uses through special zoning. Subdivisions are often designed to produce a high density of dwellings on small lots to maximize open space. A subdivision developer must record a subdivision plat and declarations containing covenants and restrictions, and provide for a non-profit community association to oversee any common areas. The process of subdividing land is governed by local regulations that specify the look and feel of a large project, including the precise placement of lots, streets, sidewalks, curbs, gutters, sewers, storm drains, street lighting, open spaces, and drainage and erosion controls. Subdivision regulations generally require that the developer submit a plat map to the local government for approval. The plat map includes the location of all elements required by subdivision regulations. A subdivision must be consistent with local zoning laws, but subdivision regulations add greater control of a subdivision project than zoning alone. Subdivisions may also be subject to the Federal Interstate Land Sales Full Disclosure Act. Like a condominium, subdivisions have community associations that manage the common areas and enforce the covenants, conditions, and restrictions of the development. Individual properties in subdivided neighborhoods often include deed restrictions (restrictive covenants, covenants, conditions, and restrictions—CCRs) that run with the land (bind subsequent owners). Often, deed restrictions are more restrictive than local zoning, although they cannot be less restrictive. Subdivision associations are usually non-profit corporate entities. Subdivision unit owners are members of the corporate association and each pays monthly membership dues which the corporation uses to maintain common areas and for other expenses. The association generally has the power to enforce any private controls that run with the land on behalf of unit owners. See also Restrictive Covenant; and Federal Interstate Land Sales Full Disclosure Act.

Deed Restrictions

See Restrictive Covenants.

Mortgage Backed Securities

Pools of mortgages, also known as "MBS", which are used as collateral for the issuance of securities in the secondary market. MBS are commonly referred to as "pass-through" certificates because the principal and interest of the underlying loans is "passed through" to investors. The interest rate of the security is lower than the interest rate of the underlying loan to allow for payment of servicing and guaranty fees.

Insurance Companies

Primary market lender concerned with risk and long-term stability. Accordingly, insurance companies tend to mostly invest in large real estate projects and commercial properties such as multi-use office parks, apartment complexes, and shopping malls. Life insurance companies are some of the largest groups of investors in commercial and industrial real estate markets. Life insurance companies also play a role in residential real estate markets. Traditionally, the involvement of life insurance companies in residential mortgage loans was only as a buyer of large blocks of packaged loans on the secondary market. However, life insurance companies are increasingly originating residential mortgage loans on the primary market through mortgage brokers.

Federal Housing Administration, Loan Programs

Primary market lenders qualify borrowers and property according to FHA standards (less stringent than conventional loan standards) and enter into various mortgage agreements (fixed rate mortgage, adjustable rate mortgage, etc.). The borrower pays FHA mortgage insurance. In the event of a default, the lender makes a claim against the FHA insurance policy for a portion of its loss (thereby reducing the risk of lending to certain borrowers). FHA loans permit borrowers to make lower down payments (higher LTV) than typically permitted by conventional loans (as little as 3.5% down or 96.5% LTV). Such low down payments are possible because FHA insurance allows borrowers to finance approximately 97% of the value of their home purchase through their mortgage, in some cases. Borrowers pay an up-front mortgage insurance premium at the time of purchase (which may be financed), as well as monthly premiums that are added to the regular mortgage payment. For most homes, an up-front mortgage insurance premium of 1.75% of the loan amount must be paid at closing. This amount may be financed. Thereafter, a monthly insurance premium is due along with the monthly mortgage payment. For all loans made after January 26, 2015, the monthly premium depends on the base loan amount, length of the loan (in years), and the LTV. Monthly premiums range from 0.45% of the

Immobility

Principle about the physical characteristics of land, which describes how property cannot be moved from one geographical location to another. Due to its immobility, the value of real property is directly affected by its external surroundings. However, small bits of land may erode over time. See also Accretion; Indestructibility; and Uniqueness.

Indestructibility

Principle about the physical characteristics of land, which states that land cannot be destroyed. The concept of indestructibility is the legal basis for neither insuring land nor being able to depreciate it. Its value may be destroyed by changing conditions, but land exists forever. See also Immobility; and Uniqueness.

Judicial Foreclosure

Procedure in lien theory states that lenders must follow in order to force the sale of real estate financed by a mortgage in which the buyer defaults. Under a judicial foreclosure, the lender must usually file a lawsuit naming the defendants, identifying the debt and the mortgage securing the debt, and present evidence that the loan is in default. The borrower has an opportunity to rebut the lender's evidence and present his own evidence that he is not in default as the borrower alleges. The lender asks the court to order the sale by public auction and for the proceeds from the sale to be used to pay the debt. After a hearing, and if the court finds reason to foreclose, the judge will order that the property be sold at a public auction. The public auction may occur only after a prescribed period of advertising in public places and in a local newspaper. The sale is conducted at the property or at the county courthouse, depending upon the law of the jurisdiction. Judicial foreclosures are lengthy and expensive. See also Foreclosure; and Trustee Sale.

Eviction

Process by which a landlord seeks a court order to remove a tenant from leased premises due to a material breach of a rental agreement (lease). Eviction is also the proper process to regain possession from an adverse possessor or tenant at sufferance. See also Landlord Tenant.

Intermediation

Process by which financial institutions (intermediaries) invest deposited funds. That is, the bank's customers deposit money into checking and savings accounts, and banks invest such funds in money markets, mortgages, government securities, and other investments.

Tax Assessment

Process of calculating a tax. For example, property tax assessment begins at the local tax assessor's office in each community, which appraises all real property within its jurisdiction. This is known as the assessed value and it is established for the sole purpose of computing real property taxes. Property owners have the right to contest assessed values to local authorities, such as a local appeals board or a board of equalization.

Title Search

Process performed by an individual known as an abstractor (or title examiner), who physically examines the public record in order to create a title abstract. In most states, the seller and buyer agree on the status of title based on the abstract of title, or title commitment. Sometimes, an abstractor performs two title searches; the second occurring after closing. The second search may involve obtaining an affidavit of title from the seller, which assures the buyer that there have been no additional judgments, bankruptcies, divorces, or other material events affecting the property since the title was last examined. Public record sources include the grantor-grantee index for deeds, the will index for wills, and other sources. The grantor-grantee index is a book in which deeds are listed, while the book in which a will is listed is called a Will Index. Title examiners in most states must research the public record at least 40 years prior to the date of examination.

Financing

Process through which a person purchases property without paying the entire purchase price in cash. Financing usually involves a Financial Institution that loans a borrower the purchase price, less any down payment. Lenders take risks when lending money to finance real estate. A variety of lending procedures and criteria help to minimize a lender's risk that a borrower will default on his loan, including the borrower's pledge of Collateral, the lender's Qualification of the borrower, and a lender's control of Loan-to-Value ratios. Lenders are rewarded for incurring such risk through Interest assessed on a loan's outstanding balance. There are various lending agreements that may be classified according to how the lender calculates Interest and how/when the borrower makes payments. Most real estate loans carry either a fixed rate of interest for the life of the loan, or an adjustable rate of interest over a specified period of time. In addition, loan payments may be made in equal amounts over the life of the loan (Fully Amortized), or in varying amounts over the life of the loan (Partially Amortized or Negative Amortization). See also Conventional Loan; Mortgage; and Amortization.

Qualifying Borrowers and Collateral

Process used by lenders to reduce the risk of lending money. Even with collateral, lenders take risks when they loan money. There are legal and regulatory costs associated with a forced sale (foreclosure), and inherent uncertainties in market prices. However, lenders further minimize risk by qualifying borrowers. Banks qualify a borrower's ability to repay debt by analyzing a borrower's credit history,

Unintentional Dedication

Process, similar to adverse possession, which results in a public transfer of land, rather than a transfer to a private individual. Unintentional dedication can occur where a landowner permits the public to use her land without providing notice of her ownership or otherwise protecting her ownership rights.

Covenant, of Further Assurances

Promise contained in a deed by the grantor to do any further acts that might be required in the future to guarantee or perfect the title of the grantee. This covenant is not common, but can be used to force a grantor to execute a correction or quitclaim deed if needed to correct an error in the original deed. This covenant is breached when the grantor refuses to take required action or pay proper expenses or charges.

Covenant, Against Encumbrances

Promise contained in a deed in which the grantor guarantees that there are no encumbrances against property, except those specifically disclosed. As such, encumbrances should be listed in the deed following the property description. However, a covenant against encumbrances is not breached by simply failing to list an open, visible encumbrance such as a power line or a drainage ditch. The grantor will be liable for any encumbrance which is neither stated in the deed nor open and visible.

Covenant, to Pay Insurance

Promise in a Mortgage or Deed of Trust, which contains the borrower's promise to maintain insurance coverage against damage or destruction of financed property in the amount specified by the lender, with the lender named as the beneficiary.

Covenant, to Pay Taxes

Promise in a Mortgage or Deed of Trust, which contains the borrower's promises to pay real estate taxes and other assessments levied against property. This is particularly important to the lender because unpaid real estate taxes become a lien on the financed property that is superior to the lender's position. In other words, in the event of foreclosure, taxes are paid from the proceeds of the property sale before the principal.

Covenant, of Good Repair

Promise in a Mortgage or Deed of Trust, which obligates the borrower to maintain mortgaged property and keep it in good repair. The borrower also promises not to remove or demolish any buildings or other improvements without first obtaining the lender's consent.

Covenant, of Quiet Enjoyment

Promise in a deed arising from the grantor's assurance that the grantee shall enjoy possession of the property in peace and without disturbance from hostile claimants. This covenant does not promise that title is perfect (like seisin), but merely that the buyer's possession of the land will be defended against hostile claims. For example, the covenant of quiet enjoyment would be breached if someone evicts the grantee by reason of a superior title. Most leases transfer the exclusive right of possession and use for a specified period of time through a covenant of quiet enjoyment. While a landlord must guarantee a tenant the right of quiet enjoyment, the landlord retains fee title (referred to as leased fee title) and a reversionary estate. That is, the landlord retains ownership and the right to repossess the property after the lease term expires.

Covenant, of Warranty Forever

Promise in a deed that forever assures the grantee of possession and continuance of title. Words such as "the grantee will forever warrant the title to said premises" generally identify a covenant of warranty forever. This covenant also promises the grantee that the grantor will bear the expense of defending title against third party claims (similar to quiet enjoyment).

Warranty Forever

Promise in a deed that forever assures the grantee of possession and continuance of title. Words such as "the grantee will forever warrant the title to said premises" generally identify a covenant of warranty forever. This covenant also promises the grantee that the grantor will bear the expense of defending title against third party claims. See also Deed.

Stigmatized Properties

Property where an event or condition occurred that does not affect the physical nature of the property (murder, suicide, haunting), but which may affect its value to some people (psychological effect). There is no common law or federal requirement to inspect for, investigate, or verify whether a property is stigmatized. Some state laws explicitly exempt (or require) disclosures about stigmatized property and specifically define covered and excluded stigmas. There is no federal law that covers stigmatized property directly. However, the Fair Housing Act, for example, prohibits disclosure of a person's HIV/AIDS status. See also Material Facts.

Fair Housing Act, Protected Classes

Protected persons are known as protected classes, or those specific persons who occupy a dwelling who are the victim of discrimination based on their race ("Caucasian," "African American," and "Latino", etc.); color (black, white, etc.); religion ("Islam", "Christianity," "Buddhism", etc.); national origin ("Chinese," "German," "Brazilian," etc.); gender ("Male" or "Female"); familial status (at least one family member is under 18, pregnant, or has applied for custody of a minor); or handicap (those with a disability, including physical impairments, mental impairments, and certain diseases).

Premises Clause

Provision appearing in a deed, also known as the granting clause (because it contains words of conveyance), which names the parties to the transaction, the extent of ownership, the consideration, and a legal description of the property. See also Habendum Clause; and Testimonium Clause.

Prepayment Clause

Provision in a Mortgage or Deed of Trust, which specifies whether the borrower must pay a penalty if he repays the entire loan amount prior to the maturity date. FHA and VA mortgages prohibit such penalties. See also Deed.

Testimonium Clause

Provision that appears at the conclusion of a deed, which contains the statement "In witness whereof the parties to these present have hereunto set their hands and seal." See also Premises Clause; and Habendum Clause.

Reappraisal Lease

See Revaluation Lease.

Estate in Severalty

See Sole Ownership.

RESPA, Servicing Disclosure Statement

RESPA requires the lender or mortgage broker to inform borrowers in writing, when they apply for a loan or within the following three business days, whether it expects that someone else will service the loan (collect payments). This information is now included at the end of the Loan Estimate Form.

Loan-to-Value Ratio (LTV)

Ratio between a mortgage loan amount and the sales price or appraised value of real estate, whichever is lower. Lenders analyze LTV and establish maximum ratios in order to reduce the risk that a borrower will default on his loan. The higher the LTV, the less money down a purchaser pays because the lender is lending a greater amount of the purchase price. Conversely, the lower the LTV, the higher the down payment for the purchaser because the lender lends a lesser amount of the purchase price. Higher LTV means greater risk for the lender because, as lenders theorize, the more equity one has in a home (created by the down payment), the less likely one will default. See also, Collateral; and Qualifying Borrowers and Collateral.

Sale-Leaseback

Real estate sale and financing technique whereby an owner sells property to an investor or lender, then leases that same property back from the buyer for a period of time. Sale-leasebacks are commonly used to assist homeowners who sell one home, but must remain in the home while awaiting the purchase or completion of another home.

Chain of Title

Record of historical ownership and competing interests in real estate. See also Title Search.

Property Condition Disclosure or Disclaimer

Reference to state laws that require residential property sellers to either disclose material information about property offered for sale, or to sign a disclaimer stating that property will transfer "as is." Often, these laws apply regardless of whether a real estate agent is involved in the transaction. Such laws may also include mandatory forms that must be completed and signed by the parties. Should a seller choose to disclose material information, most states provide a standard disclosure form. The standard disclosure form lists mandatory disclosures about the physical condition of the property that the owner has actual knowledge

Listing Agreement, Fiduciary Duties

Regardless of the type of agency relationship or the type of agent, the parties owe various rights, responsibilities, and duties to each other and to the relationship in general. These duties promote a relationship of confidence and trust, which are essential to an effective agency representation. Violating a fiduciary duty could subject the agent to a legal action for damages from the breach of trust, or in the case of a real estate agent, disciplinary action by the State licensing authority. An agent owes certain duties during the course of representing the client, and other duties after the representation concludes.

Master Plan

Regional land use planning tool, which broadly depicts current and projected zoning patterns within a city or county. Most cities and many counties adopt master plans to guide and control the long-term use and development of land in a logical fashion, according to an overall concept or goal. See also Zoning.

Reversion Estate

Remaining estate that returns, or reverts, to the grantor after a grantor has conveyed a lesser estate (less than a fee interest) to someone else (grantee). Because a reversion estate is created by operation of law, no express words of creation are necessary. See also Estate.

Monetary Damages

Remedy for breach of contract that is limited to either an amount that the parties agree upon (liquidated damages) or "benefit of the bargain" damages (difference between contract price and Fair Market Value). See also Contract; and Specific Performance.

Protective Covenant

Restriction that may appear in a commercial lease, which promotes and protects a lessee's interests.

Redemption, Right or Equity of

Right commonly recognized in states following the lien theory of mortgage, which sets a limited period of time following a judicial sale for an owner to pay his outstanding debt and reclaim title to his property. This period may run from one month to more than a year. During this period, the high bidder receives a certificate of sale that entitles him to a deed if the original owner fails to redeem the property within the statutory time period. See also Foreclosure; and Lien Theory.

Right of Survivorship

Right of a joint tenant to receive the ownership interest of another joint tenant upon such person's death. A joint tenant's interest can only be severed by a valid conveyance or by death—it cannot be transferred by will. When one joint tenant dies, the shares of the surviving joint tenants increase. When there is only one surviving joint tenant, she takes title as the sole owner (in severalty), and can convey the property by deed or will it to her heirs. See also Joint Tenant.

Equitable Title

Right to receive legal title upon satisfying specified terms and conditions. For example, when signed by both parties, a purchase agreement transfers equitable title to the buyer. Only after closing does the buyer receive legal title. See also Title.

Tenancy in Severalty

See Sole Ownership.

Several Ownership

See Sole Ownership. Severance: Act of removing a fixture. See Fixture.

Title Insurance

Risk management tool that offers policy holders limited protection against title defects or encumbrances that are discovered after real estate transfers. A title insurance policy promises to reimburse the policy holder for the loss of such defects, if applicable. However, before issuing title insurance, title insurance companies examine public records and conduct property surveys to minimize the risk of any future claim. If a title company determines that it will insure title, the resulting policy will insure the property owner against losses arising from title defects such as forged documents, undisclosed heirs, misfiled documents, confusion arising from similarity of names, and defective transfers from mental incompetence. Title insurance policies include exclusions, which are particular title defects that the policy will not insure. Exclusions generally include rights of parties in possession (including unrecorded easements), any facts that an accurate survey would reveal, taxes and assessments not yet due or payable, and zoning and government restrictions that may arise after the policy issues. Title insurance companies generally require a recent survey of the property. A survey measures the boundaries of land and locates all improvements such as buildings, fences, and driveways. Surveys may also discover the existence of easements, encroachments, and setback requirements. Most title insurance policies contain subrogation clauses. If the owner makes a claim on the policy, a subrogation clause grants the insurer the same rights and remedies that the owner has. That is, if the owner could sue a third party for damages arising from a hidden cloud on the title, the title insurance company has the same right as well.

Private Mortgage Insurance (PMI)

Risk management tool used by lenders to hedge against the risk that a borrower will default on a mortgage. Conventional lenders reduce the risk of default by requiring borrowers to purchase private mortgage insurance (PMI) under specified circumstances, such as loans with greater than the standard 80% loan-to-value ratio. For loans requiring PMI, lenders charge the borrower an insurance premium that is due at closing, plus a small charge during each year that the insurance is in force. Often, the borrower may terminate PMI once the loan-to-value ratio drops to an acceptable percentage. Under federal law, borrowers with good payment histories are entitled to request cancellation of PMI upon reducing a mortgage balance to 80 percent of the original purchase price or initial appraised value (whichever is less). Under the same laws, lenders must automatically cancel PMI coverage (on most loans) once the borrower reduces a mortgage to 78 percent of the value (77% for high risk loans), regardless of whether the borrower so requests. See also Primary Mortgage Market.

Ministerial Acts

Routine acts that do not involve discretion or the exercise of significant independent judgment. Many state real estate license laws permit real estate agents to perform ministerial acts for non-clients in real estate transactions, without creating an agency relationship. See also Agency; Listing Agreement; and Buyer Broker Agreement.

Rural Development, Direct Loans

Rural Housing Direct Loans are administered by the Rural Hous- ing Service (RHS), a sub-agency in the Office of Rural Development, in order to directly fund loans to low- and very low-income households for homeownership. Applicants may obtain financing to: purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas. Mortgage payments are based on the household's adjusted income. Applicants for direct loans from RHS must have very low or low incomes. Very low-income is defined as below 50% of the area median income (AMI); low-income is between 50% and 80% of AMI; moderate income is no more than $5,500 above the low-income limit. The applicant's income must be low- or very low-income at approval and must not exceed moderate income at closing. Families must be without adequate housing, but must be able to afford mortgage payments, including taxes and insurance (which are typically within 22% to 26% of an applicant's income). However, a payment subsidy is available to applicants in order to en- hance repayment ability. Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories. Rural Housing Direct Loans have up to a 33 year term (38 for those with incomes at or below 60 percent of AMI, who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by the RHS based on current market rates. However, that interest rate may be modified by a payment assistance subsidy. Houses purchased through Rural Housing Direct Loans must be modest in size, design, and cost. Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain pro- hibited features. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state, as well as the RHS thermal and site standards. Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Stan- dards, as well as the RHS thermal and site standards.

Rural Development, Guaranteed Loans

Rural housing guaranteed loans are administered by the Rural Housing Service (RHS) to help low-income individuals or households purchase homes in rural areas. Applicants may obtain 100% financing from approved lenders, and in return, RHS provides a 90% guarantee to lenders in order to reduce the risk of extending such loan. Funds can be used to build, repair,

Lien, Satisfaction

Satisfaction refers to the process of removing a lien upon full payment of the underlying debt. Because a lien is an encumbrance on a title, the lienee (owner) should make certain that the lienor (creditor) executes and records a satisfaction of lien as soon as the lien has been paid in order to remove the cloud on title. Evidence of satisfaction is usually in the form of an instrument called a "quitclaim deed."

Fully Amortized Mortgage

See Amortization.

Partially Amortized Mortgage

See Amortization.

Boycott

See Antitrust.

Price Discrimination

See Antitrust.

Price Fixing

See Antitrust.

Sherman Act

See Antitrust.

Tying Agreement

See Antitrust.

Certificate of Occupancy

See Building Codes.

Open Buyer Agreement

See Buyer-Broker Agreement.

Settlement

See Closing.

Compensation

See Commission.

Common Area

See Condominium.

Story Loans

See Construction Loans.

Physical Deterioration

See Cost Approach.

Exclusive Right of Possession

See Covenant, of Quiet Enjoyment.

Curtesy

See Dower and Curtesy.

Dwelling

See Fair Housing Act.

Geodetic

See Government Survey.

Rectangular Survey System

See Government Survey.

Fixed Lease

See Gross Lease.

Flat Lease

See Gross Lease.

Land Lease

See Ground Lease.

Pad Lease

See Ground Lease.

Uniform Settlement Statement

See HUD-1.

To Have and to Hold Clause

See Habendum Clause.

Capitalization Approach to Appraisal

See Income Approach to Appraisal.

Straight Mortgage

See Interest Only Mortgage.

Term Loan

See Interest Only Mortgage.

Rate Lock

See Interest Rate Lock.

Fixity

See Investment Permanence.

Survivorship, Right of

See Joint Tenancy.

Writ of Execution

See Judgment Lien.

Agreement for Deed

See Land Contract.

Contract for Deed

See Land Contract.

Property Description

See Legal Description of Property and Non-Legal Description of Property.

Description

See Legal Description of Property; and Non-Legal Description of Property.

Insanity

See Legal Insanity; and Non-Legal Insanity.

Federal Tax Liens

See Liens.

Subdivision Plats

See Lot, Block and Subdivision.

Recorded Plat

See Lot, Block, and Subdivision.

Comprehensive Plan

See Master Plan.

Leasehold Estate

See Non-Freehold Estate.

Actual Notice

See Notice.

Constructive Notice

See Notice.

Inquiry Notice

See Notice.

Legal Notice

See Notice.

Acceptance

See Offer.

Chattel

See Personal Property.

Personalty

See Personal Property.

Sales Contract

See Purchase Agreement.

Defeasible Fee

See Qualified Fee.

Fee Simple Defeasible

See Qualified Fee.

Remaindermen

See Remainder Estate.

Cancellation Agreements

See Rescission.

Base lines

Series of imaginary lines that run east-west, established by the Government under the Government Survey Method of property description. Base lines intersect with principal meridians, forming a grid of rectangles. The rectangles formed by the intersecting base lines and principal meridians may be further divided into smaller units of measure, including checks, township squares, and sections.

Principal Meridian

Series of numbered imaginary lines running from north to south across the United States, created by the government for the purpose of surveying land. Land surveyors using the government survey method depend on principal meridians to survey land. See also Survey; and Government Survey.

HUD-1, Settlement Costs

Settlement services are costs that a borrower may be required to pay or receive. These services are itemized in Section L of the HUD-1 Settlement Statement. Sales/Broker's Commission: This is the total dollar amount of the real estate broker's sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.

Construction Loans (Story Loans)

Short-term loan used by builders, developers, and contractors to finance new construction. Under a construction loan, lenders disburse periodic payments at various stages of construction, with interest payments (interest only) due based on the amount of money disbursed until construction is complete. Construction loans are typically converted to traditional mortgages upon project completion.

HUD-1, Other Adjustments

Similar adjustments are made for homeowner association dues, special assessments, and other utilities (gas, electricity), although the billing periods for these may not always be on an annual basis. It is wise for the borrower and seller to work out these cost sharing arrangements or "prorations" prior to settlement.

FIRPTA, Basic Requirement

Since 1985, disposition of a U.S. real property interest by a foreign corporation or nonresident alien individual generally is subject to a withholding tax regime under the FIRPTA. Under the withholding tax regime, most purchasers of a U.S. real property interest from a foreign seller must withhold fifteen percent (15%) of the gross purchase price and remit such amount to the IRS within 20 days of the closing. However, purchasers are only required to withhold ten percent (10%) for personal residences valued between $300,000 and $1 million. Note that the purchase price includes cash plus the fair market value of any other property transferred to acquire the real estate. A purchaser failing to withhold is liable for any uncollected withholding tax, as well as penalties and interest charges.

Foreclosure

Situation where a borrower defaults on a loan, and in order to satisfy the outstanding debt, the lender seeks to auction the collateral (property) that was used to secure the loan. Generally, the foreclosure process is quicker in states that follow Title Theory than in states that follow Lien Theory. If auctioned property sells for more than the claims against it, the delinquent borrower receives the excess money. If the property sells for less than the claims against it, the unpaid junior liens against the property are eliminated unless the buyer is the delinquent borrower—if the original borrower re-purchases the property at auction, the original buyer remains liable for all junior liens.

Breach of Contract

Situation where a party fails to perform as agreed in a contract and without any recognized legal excuse. A breach of contract may occur where the failure to perform involves only a minor defect, regardless of whether the defect is intentional. Where there is a breach of contract, the non-breaching party may terminate the contract and seek a remedy for the breach. Remedies for breach of contract may consist of monetary damages or, in some cases, an action for specific performance. See also Contract.

Constructive Eviction

Situation where a tenant vacates leased premises without liability for rental payments because the landlord's action, or lack of action, renders the leased premises uninhabitable. In order to avoid liability, the tenant must vacate the premises promptly and must be able to prove that the premises were indeed rendered uninhabitable (such as lack of heat, electricity, water, fire, or floods). The tenant's duty to pay rent is not terminated if the tenant remains in possession of the premises, unless a court determines otherwise.

Novation

Situation where contracting parties agree to substitute one agreement in part or in full for another agreement. Through novation, the old agreement terminates and is replaced by the new agreement. See also Assignment; and Contract.

Conversion

Situation where entrusted funds have been misappropriated (stolen), or where an escrow agent has used or allowed escrow funds to be used for personal or regular business purposes. Such conduct violates the Common Law duty of accounting as well as state real estate licensing laws. See also Commingling.

Inverse Condemnation

Situation where government regulation is so pervasive that it eliminates any economically viable use of one's property. When this happens, the landowner can argue that the government has effectively taken his property without paying just compensation. The owner does this by initiating an "inverse condemnation" proceeding. Inverse condemnation is the opposite of condemnation. See also Eminent Domain; and Condemnation.

Disintermediation

Situation where private individuals invest their own money rather than depositing it into a bank (intermediary). Disintermediation usually occurs when money markets, government securities, and other investments offer significantly higher yields than bank accounts. Such direct investment disrupts the normal flow of money in the financial marketplace.

Partial Performance

Situation where the contract parties mutually agree to terminate a contract without fully completing their promised acts. This "good enough" approach only avoids a breach where both parties agree. See also Contract; Substantial Performance; and Performance.

Spot Zoning

Situation where the zoning for a relatively small area differs significantly from the zoning of adjoining areas. Spot zoning usually arises where zoning ordinances are changed in order to accommodate a particular non-conforming use. Spot zoning rarely survives a legal challenge because it is difficult to fairly implement and often results in arbitrary and discriminatory application. See also Zoning.

HUD-1, Paid Outside Of Closing ("POC")

Some fees may be listed on the HUD-1 to the left of the borrower's column and marked "P.O.C." Fees, such as those for credit reports and appraisals, are usually paid by the borrower before closing/settlement. Other fees, such as those paid by the lender to a mortgage broker or other settlement service providers, may be paid after closing/settlement. These fees are usually included in the interest rate or other settlement charge. They are not an additional cost to the borrower.

RESPA, Affiliated Business Arrangements

Sometimes, several businesses that offer settlement services are owned or controlled by a common corporate parent. These businesses are known as "affili- ates." When a lender, real estate broker, or other participant in settlement refers borrowers to an affiliate for a settlement service (such as when a real estate broker refers a client to a mortgage broker affiliate), RESPA requires the referring party to provide borrowers with an Affiliated Business Arrangement Disclo- sure. This form reminds borrowers that they are generally not required, with certain exceptions, to use the affiliate and are free to shop for other providers.

Tenancy by the Entirety

Special joint tenancy that places title to property in the marital unit. As such, a tenancy by the entireties can exist only between a husband and wife. Tenancy by the Entirety is derived from the common law premise that a husband and wife are a single legal entity. This method of property ownership is recognized in less than one-third of states. The primary difference between a tenancy by the entirety and a joint tenancy is that unlike a joint tenant, a tenancy by the entirety exists so long as each spouse is alive and they remain husband and wife. Each spouse owns the entire estate. Therefore, a spouse cannot sell his own individual interest (as would be possible in a joint tenancy). However, a husband and wife can terminate a tenancy by the entirety by mutual agreement, divorce, or joint conveyance (such as a sale). This type of ownership is often used to escape probate—if one spouse dies, by law, the survivor automatically succeeds to sole ownership (like a joint tenancy). Also, creditors of one spouse may not force the sale of property where ownership is held by the entireties.

Property Tax Liens

Specific (attaches to a specific parcel of real estate), statutory (arising from legislation), and involuntary (created by operation of law) liens filed against real property at the beginning of each tax year (usually January 1). The effective date of property tax liens is the date taxes are assessed. Property tax liens are superior liens, meaning that they take priority over other types of liens regardless of when they were recorded. Overdue Property taxes become liens automatically, and without a requirement to file or record the lien. See also Liens; and Tax Liens.

Vendee's Lien

Specific, equitable, involuntary lien filed by a buyer where the buyer purchases property, but has not yet received title. This occurs when property is purchased under a contract for deed, also known as an installment sales contract or an agreement for deed. If the seller does not, or cannot, deliver good title after all terms of the contract have been satisfied, then the vendee's lien covers all monies paid toward the property plus the value of any improvements made by the buyer. See also Vendor's Lien.

Vendor's Lien

Specific, equitable, involuntary lien filed by a seller (vendor), against the property sold, in the amount of any unpaid purchase price. Vendor liens are not a direct interest in the property, but an equitable right in case all of the purchase money is not paid. See also Vendee's Lien.

Special Assessment Lien

Specific, statutory, and usually involuntary lien filed against properties that will benefit from a proposed public improvement.

Mechanic's Lien

Specific, statutory, involuntary lien against real property by material men or mechanics (laborers) for the value of materials or labor for improvements, repairs, or maintenance of real property. Mechanic's liens can only secure payment for work and materials that have actually become a permanent part of the building or the land (fixture). The effective date of a mechanic's lien varies from state to state, but is usually the day that work visibly commences. Mechanic's liens can be filed after settlement and some states require that notice of this possibility be provided in sales contracts. See also Liens.

Public Offering Statement

Standardized disclosure that must be presented to all initial condominium

Statute of Frauds

State laws based on the common law, which require that certain contracts be in writing in order to be enforceable. The statute of frauds requires all real estate contracts for the sale or transfer of land, or the transfer of any ownership interest in land for longer than one (1) year, to be in writing and signed in order to be enforceable. As a result, courts will not enforce oral contracts for the sale of land even if otherwise valid (that is, even if they contain the essential contract elements). All real estate leases for more than one year must also be in writing and signed in order to be enforceable. Finally, oral real estate leases for a period of one year or less are enforceable and need not be written under the statute of frauds. See also Contract.

Recording Acts

State laws designating procedures for recording title records and establishing priority among competing interests. Such procedures describe which documents must be recorded, how they must be recorded, and where they must be recorded. Priority refers to the order in which individual competing claims will be honored (paid). Priority may be determined in part by the date a document is recorded and the nature of the interest.

Condominium, Creation

State laws govern the development, marketing, sale, ownership, and management of horizontal slices of airspace. Horizontal property and condominium acts impose several requirements on developers and owners.

Homestead Exemption

State laws or state constitutional guarantees that are intended to protect surviving spouses of homeowners from real estate taxes, general creditors, and other circumstances arising from the death of a spouse. States vary in the extent of homestead exemptions, including the amount of acreage and value of homes covered by the exemption.

Statute of Limitations

State laws that establish time limits on one's ability to bring a legal action, including an action to enforce a contract. If a lawsuit is filed to seek enforcement of a contract beyond the limitations period, courts will not hear the suit. These laws are intended to facilitate commerce by limiting liability. Time periods differ by state and topic.

Landlord/Tenant Act

State laws that govern the duties, rights, and obligations of residential landlords and tenants who lease residential property. Landlord/tenant acts typically address such issues as: requirements for fit and habitable conditions; collection, use, and repayment of security deposits; and tenant obligations such as the payment of rent, maintaining the premises in good condition, and abiding by rules and regulations applicable to the dwelling. See also Lease.

Lien Theory

States follow one of two differing legal theories regarding the status of title to financed property. Similar to the difference between a mortgage and a deed of trust, the difference between these theories determines the degree of a borrower's rights in foreclosure. However, there is little practical difference for today's borrower as to which theory a state recognizes. Most states follow the lien or mortgage contract theory. In these states, the mortgage is treated as a lien on the borrower's title to the financed property. In lien theory states, the buyer holds legal and equitable title to the financed property during the loan repayment period. If the borrower defaults in a lien theory state, the lender must follow foreclosure procedures in order to extinguish the borrower's rights in the property, and to sell the property in order to satisfy the borrower's debt.

Title

Status of owning all 6 rights in the bundle of property ownership (possession, control, enjoy, exclude, encumber, and dispose) for specific real estate, along with the physical evidence of such ownership (deed). See also Deed; Cloud on Title.

Common Law

System of law, with origins in England, that is recognized by American courts unless replaced by statutory law. American property law has deep roots in English common law. Today, there are state and Federal statutes that replace much of the law carried over from England, but the common law still controls many basic property law concepts and theories.

Zoning

Systematic division of a city or county by legislative regulation (ordinances) into various districts or zones of use. These zones define permissible uses of land, thereby excluding certain uses or activities from certain zones. Zoning ordinances regulate such things as use of land and buildings, structural and architectural designs, permissible improvements, height and bulk of buildings, density, lot sizes, setbacks, and business activities. Zoning ordinances are the primary tool for implementing master plans. The zone in which a property sits may influence its value, depending on the permitted and surrounding uses.

Special Assessment

Tax collected for local improvements, but only from those properties that benefit from the improvement (sidewalks, sewers, etc.). Street paving, sidewalks, curbs, sewers, drainage and recreational facilities are all examples of improvements that may trigger a special assessment. Only those properties directly affected by the improvement are required to pay the special tax. Therefore, special assessments differ from property taxes in that property taxes are levied for the support of general functions of government, while special assessments are levied to cover the cost of specific local improvements. However, special assessments and property tax liens are superior to other liens, regardless of the date of recording. See also Tax; Tax Assessment; and Tax Lien.

Estate

Term used to describe the degree, quantity, nature, and extent of an ownership interest in real property. Everyone who holds title to real property has an estate, which simply describes his or her legal interest in the property. One does not necessary "own" land, but instead owns an "estate" in (or interest) in land that may be bought and sold. There are four broad categories of estates: freehold estates, non-freehold (leasehold estates), future estates, and statutory estates. There are multiple variations on each category of estate.

Front Footage

Term which refers to that portion of a parcel of land that abuts a street or waterfront. Front footage is insufficient to legally describe property, as required in a deed or survey. Generally, if a lot measurement is given (200' x 300' for example), the first number represents the front footage. The value of front footage may be calculated by dividing the property's cost by the number of front feet.

RESPA, Special Information Booklet

The Special Information Booklet is also called the Settlement Costs Booklet. It contains a guide on how to get the best possible mortgage, information about closing costs and procedures, and general advice about homeownership. The Special Information Booklet must be provided to the borrower within 3 business days from the date they apply for a loan.

ILSA, Property Reports

The Act requires the seller to give the report to a prospective lot purchaser prior to the time a purchase agreement is signed. The seller is also required to have the prospective buyer sign a receipt acknowledging that they received the property report. Property Reports contain the following information: distances to nearby communities over paved or unpaved roads; existence of mortgages or liens on the property; whether contract payments are placed in escrow; availability and location of recreational facilities; availability of sewer and water service, or septic tanks and wells; present and proposed utility services and charges; the number of homes currently occupied; soil and foundation conditions that could cause problems in construction or in using septic tanks; and the type of title the buyer may receive and when it should be received. If the developer fails to either register the development with CFPB or provide a copy of the current property report before the buyer signs a contract, the buyer has up to 2 years to cancel the contract and get his or her money back. This fact must be clearly stated in all purchase agreements.

Fair Housing Act, Prohibited Conduct

The Fair Housing Act and its amendments prohibit covered owners, lessors, and real estate agents from engaging in the following conduct: steering; blockbusting; redlining; refusing to sell, rent, finance, or insure, refusing to deal or negotiate with any person; discriminating in quoting terms or conditions of sale or rental; misrepresenting availability; denying MLS

Fair Housing Act, Exemptions

The Fair Housing Act permits otherwise discriminatory behavior under limited circumstances. Racial discrimination is never exempted and some exemptions are not available when there is a real estate agent involved in the transaction. Private individual owners of single- family housing are exempt from the non-racial protections of the Fair Housing Act provided they: 1) do not own more than three single-family houses at any one time; 2) do not sell more than one single family house in any two year period; 3) do not employ a real estate agent; and 4) do not use discriminatory advertising. Owners who occupy their homes, but sell or rent rooms or units, are exempt from the non-racial aspects of the Fair Housing Act provided their home contains four (4) or fewer units. The owner must actually maintain one of the units as his legal residence. This is intended to exempt small rooming houses, people who take boarders in order to make ends meet, and duplexes. Religious organizations may restrict dwellings they own to members of the same religion. However, the religious organization must be non-profit and cannot discriminate on race, color, gender, familial status, handicap, or nationality. Private membership clubs that are not open to the public may restrict housing in their own facilities to members only, provided they are non-profit clubs. Housing for the elderly is exempt from the familial status protection if it falls into either one of the following two categories: (1) Housing that requires all of its residents (excluding employees) to be 62 years of age or older; and (2) Housing that requires at least one person per unit to be 55 years of age or older, and 80% of all units are so occupied. In order to qualify for this exemption, the housing must also provide services specifically designed to meet the needs of elderly people (such as common dining halls, bus service, and recreational facilities), and the landlord must only rent any units that become available to those who qualify under this exemption. Finally, the Fair Housing Act does not require that a dwelling be made available to an otherwise protected individual whose occupancy of the dwelling would constitute a direct threat to the health or safety of others, or whose occupancy of the dwelling would result in substantial physical damage to the property. Nothing in the Fair Housing Act prevents states from reasonably restricting the maximum number of people permitted to occupy a dwelling.

Home Ownership and Equity Protection Act (HOEPA)

The Home Ownership and Equity Protection Act was enacted in 1994 as part of the Truth in Lending Act (TILA). HOEPA regulates loans secured by a principal dwelling for: most closed-end home equity mortgages, home equity lines of credit (HELOCs), purchase money mortgages, and refinances. Transactions exempt from the Act include: reverse mortgages, most construction loans, loans originated and financed by a housing finance agency, and loans originated under the Rural Housing Service's Direct Loan Program. Under HOEPA, additional consumer protections are imposed if a covered transaction is clas- sified as "high cost." See also TILA.

VA Loan, Qualifying Borrowers

The VA imposes standards to determine which persons qualify for VA Guaranteed loans. Borrowers must serve a minimum amount of time (90 days in war time; 181 days in peacetime) in the U.S. armed forces without a dishonorable discharge. The VA sets a limit on the amount of the loan that it will guarantee by issuing a Certificate of Eligibility to an eligible veteran. The certificate of eligibility does not guarantee that the veteran will qualify for a loan; it merely states the veteran's entitlement to participate in the VA Program.

VA Loan, Lending Restrictions

The VA regulates a veteran's closing costs. Although some addi- tional costs are unique to certain localities, authorized closing costs generally include VA appraisal, credit report, survey, title evidence, recording fees, a 1% loan origination fee, and discount points. The closing costs and origination charge cannot be included in the loan, except in VA refinancing loans. Under a VA Guaranteed Loan, there are no mortgage insurance premiums. The VA does not require a down payment if the purchase price or cost is no more than the reasonable value of the property, as determined by VA, but the lender may require one. If the purchase price or cost is more than the reasonable value, the difference must be paid in cash by the veteran. The VA charges a first-time funding fee of 2.15% for most veterans (2.40% for reservists). If the veteran has previously obtained a VA home loan, the funding fee increases to 3.30% for the loan and for subsequent use thereafter. This is payable at closing or may be financed with the purchase price (fee may be reduced based on the amount of down payment). If the veteran makes a down payment of at least 5 percent, but less than 10 percent of the purchase price of the property, the funding fee is reduced to 1.50% of the loan amount (1.75% for reservists). If the veteran makes a down payment of at least 10 percent, the funding fee is reduced to 1.25% of the loan amount (1.50% for reservists). VA Guaranteed Loans are assumable, even by non-veterans, and may be prepaid without penalty. Like FHA loans, interest rates are set by the lender, NOT the VA.

Market Price

The actual amount paid by a buyer to a seller for particular piece of real estate. Market price may be different from the property's market, appraised, and assessed values, or from a competitive market analysis. See also Value.

Effective Gross Income

The actual rental income received after deducting any rental losses and vacancies. See also Income Approach to Appraisal.

Subagent

The agent of an agent. Agents may appoint subagents where the client expressly authorizes or where the law otherwise permits. The subagent may then perform tasks for the primary agent's clients. A subagent, lawfully appointed by a listing broker, must represent the client (the seller) in the same manner as the primary agent (in the real estate context, the listing broker). Because an agency relationship exists between the broker (agent) and the seller (client), both parties have duties to one another. See also Agency; and Fiduciary Duty.

Net Operating Income

The net operating expenses are derived by subtracting all other operating expenses from the effective gross income.

HUD-1, Other Issues

The borrower may wish to notify utility companies of the change in ownership and ask for a special reading on the day of settlement, with the bill for pre-settlement charges to be mailed to the seller at his or her new address or to the settlement agent. This will eliminate much confusion that can result if the borrower is billed for utilities used when the seller owned the property.

Vendee

The buyer, in a purchase agreement.

Annual Percentage Rate (APR)

The cost of credit expressed as a yearly percentage rate. The APR of a mortgage includes the interest rate, points, mortgage broker fees, and certain other credit charges. See also Truth in Lending Act (TILA).

Interest

The cost to borrow money. A lender charges a fee to the borrower for use of the borrowed money based on a certain percentage of the unpaid loan balance. The total amount of borrowed money is called the principal. Simple interest is the most common method to calculate interest. Simple interest is based on the remaining principal. In other words, the borrower only pays interest on the remaining amount of unpaid money. As the borrower pays the principal down, he owes less interest. Some states have Usury Laws the set maximum interest rates on borrowed funds.

Depreciation

The decrease in value of an asset. For appraisal purposes, depreciation refers to a loss in actual property value due to any natural or economic cause. However, for tax purposes, depreciation is an allowable expense deduction that can be taken even if the property in question increases in value. The purpose of depreciation tax deduction is to allow investors to recover the cost of their investment over a certain period of time. A tax deduction for depreciation is allowed only on income-producing property, and not on personal residences. The useful life of an income-producing property is the period of time that it is expected to remain economically profitable to its owner. The amount of permissible depreciation is directly related to the expected useful life of the improvement. The shorter the useful life, the greater the annual deduction.

Economic Life

The estimated time period during which an improvement yields a return over and above that which is attributable to the land. Although similar in concept to useful life, economic life is a term more commonly used by appraisers in determining property value, and useful life is a concept used by investors for tax depreciation purposes.

Form 1099-S Exception, Other Exclusions

The following are also not reportable if the transaction is not related to the sale or exchange of reportable real estate: interest in crops, surface, or subsurface natural resources (timber, water, ores, and other natural deposits, whether or not such crops or natural resources are severed from the land); and burial plots or vaults.

Deed Elements, Execution

The grantor must sign the deed, but the grantee does not need to sign the deed so long as the grantee is identified. Some states require that two persons witness a deed's signing and/ or that deeds be notarized. The process of witnessing a signing is called acknowledgement. In most states, the signee must make a sworn statement in the presence of an officer of the court (usually a notary public) in order to record the deed.

Acknowledgement

The process of witnessing a signature. An acknowledgement is a declaration, made by a notary, which affirms that a signature is voluntary and that the person signing is known to him, or has produced sufficient identification. See also Deed.

Notice, Inquiry

The law presumes notice when factors exist that would make a reasonable person inquire further, whether or not a person actually does inquire further or discover such information.

Agency

The legal relationship between two or more persons where Person 1 (principal) provides Person 2 (agent) with the authority to act on Person 1's (principal's) behalf and in a manner that promotes Person 1's best interests (fiduciary duties). The relationship between a client and an agent usually arises by an express agreement, wherein the client confers authority upon the agent to act for him or her in dealing with third parties in exchange for a fee. Either the Common Law or state law (where the Common Law is supplemented or replaced) establishes the rights, responsibilities, and duties between a principal and an agent.

Dower and Curtesy

The legal right or interest recognized by some states that a spouse has in the property of his/ her husband or wife. Most states have eliminated dower and curtesy. See also Community Property.

ECOA, Extending Credit

The lender must not consider certain borrower characteristics in deciding whether to extend credit. A lender cannot consider a borrower's sex, marital status, race, national origin, or religion when deciding whether to extend credit. A lender cannot consider whether a borrower has a telephone listing in their name when deciding whether to extend credit. However, a creditor may consider whether a borrower has a phone. A lender cannot consider the race of people in the neighborhood where the borrower wants to purchase, refinance, or improve a house with borrowed money. A lender cannot consider a borrower's age, unless a borrower is under 18 years of age, the lender is using age to determine the meaning of other factors important to creditworthiness, or the lender is using age in a valid scoring system that favors applicants 62 years of age or older.

RESPA, Mortgage Servicing Statement

The lender or mortgage broker to inform borrowers in writing, when they apply for a loan or within the next 3 business days, whether it expects someone else to service the loan (collect payments). This information is now included at the end of the Loan Estimate Form.

RESPA, Closing Disclosure

The lender or mortgage broker to provide a Closing Disclosure at least three days before settlement. This disclosure itemizes the services provided and the actual fees charged. Thus, changing the basic terms of a loan after delivery may trigger a new 3 day waiting period (APR in- crease, new prepayment penalty, or switching to a different type of loan). Note that lenders may agree for the settlement agent to deliver the Closing Disclosure to the borrower on their behalf. Lenders may also

RESPA, Loan Estimate

The lender or mortgage broker to provide a Loan Estimate of settlement ser- vice charges that the borrower will likely have to pay. If the borrower does not receive the Loan Estimate upon application, the lender or mortgage broker must mail or deliver it within the next three business days. The amounts listed in the Loan Estimate are only estimates; actual costs may vary. In addition, changing market conditions can affect prices. Some of the fees included in the Loan Estimate include: loan fees; fees to be paid in advance (such as interest); reserves (such as property taxes and homeowner's insurance); government charges (such as transfer and recording taxes); and any other additional fees.

Potential Gross Income

The maximum potential rental income a rental property could produce if all units were occupied, also known as projected gross income and scheduled gross income. See also Income Approach to Appraisal.

Area

The measure of a bounded region, as in the square footage of carpet required for a square room.

Deed Elements, Parties

The parties to a deed are the grantor and the grantee. The grantor is the person(s) or entity who is conveying title. The grantor must be identified, and must be of legal age and of sound mind. The grantee is the person(s) or entity that is receiving title. Grantees must also be of legal age and of sound mind. Additionally, grantees must be identified and cannot be the grantor (a person may not deed a piece of property to himself).

Purchase Agreement, Parties

The parties to a purchase agreement are the buyer and the seller, also known as the vendee and vendor. The vendee is the buyer and the vendor is the seller. The buyer begins the contracting process by making an offer. The seller then must determine whether to accept that offer and enter into a contract (purchase agreement) with the buyer.

Percentage Lease

The percentage lease requires a fixed minimum rent, regardless of the tenant's business income. In addition to that fixed amount, the tenant must also pay a percentage of any business income that exceeds an agreed upon gross income. Percentage leases permit landlords to participate in the business success of tenants. Both a gross lease and a net lease may be percentage leases, as an additional method of determining monthly rent. See also Lease.

Seisin

The possession and ownership of a freehold estate. See also Freehold Estate; and Estate.

Value

The power of a good or service to command other goods or services in exchange. There are many types of value, including: market value, assessed value (for tax purposes), book value, insurance value, par value, rental value, and replacement value. Appraisers (through a formal appraisal) and brokers or salespersons (through a competitive market analysis) estimate the value of real property. An item only has value if it satisfies four essential elements: demand, utility, scarcity, and transferability. Remember the four essential elements of value by the acronym D.U.S.T.: Demand (for an item to have value, there must be a desire to buy it coupled with an ability to pay for it); Utility (for an item to have value, it must satisfy a human need or desire, such as shelter, income, or recreation); Scarcity (for an item to have value, it must be in limited supply; value increases where demand is high and supply is limited); Transferability (for an item to have value, its ownership must be capable of being transferred from one person to another).

Lien, Priority

The priority of a lien describes the lien's position in line compared to other liens, or the order in which a creditor will be paid if the property is sold (usually by foreclosure). The priority of a lien is determined by law (tax lien), the date it was recorded, or by the date it attached to the property (collateral). It is important for a creditor to record the appropriate document as soon as the lien is created in order to establish the lien's priority. Liens generally receive first-in-line, first-in-time treatment. However, real estate property tax liens and assessments take priority over other types of liens, regardless of their date of recording. Generally, lien priority follows the following order: tax liens, mortgages, mechanic's liens, other liens in the order they were recorded, and unrecorded liens.

Eminent Domain

The right of government (both state and federal) to take ownership of private property so long as it is taken for a legitimate public use and just compensation is paid to its owner. Quasi-public organizations, such as utility companies and railroads, are also permitted by state law to take land for utility lines, pipes, and tracks. Through eminent domain, the state may acquire land for streets, parks, public buildings, right-of-ways, and other uses. No private property is exempt from this exercise of government power. See also Condemnation; and Inverse Condemnation.

Title, Equitable

The right to receive legal title after completing specified performance, like payment in full on a mortgage. Unless otherwise agreed to, equitable title itself may be transferred from one person to another.

Like-Kind Exchange, Exclusions

The rules for like-kind exchanges do not apply to exchanges of the following property: Property used for personal purposes, such as homes and family cars; Stock in trade or other property held primarily for sale, such as inventories, raw materials, and real estate held by dealers; Stocks, bonds, or notes; Other securities or evidences of indebtedness, such as accounts receivable; Partnership interests; Certificates of trust or beneficial interest; Choses in action.

Proceeds

The seller's profit, or the amount of money received from selling a home. Net proceeds are the amount of money received from selling a home after deducting expenses, such as commissions and closing costs.

Vendor

The seller, in a purchase agreement.

HUD-1, Total Settlement Charges

The sum of all fees in the borrower's column entitled "Paid from Borrower's Funds at Settlement" is placed here. This figure is then transferred to line 103 of Section J, "Settlement charges to borrower" in the Summary of Borrower's Transaction on page 1 of the HUD-1 Settlement Statement and added to the purchase price. The sum of all of the settlement fees paid by the seller is transferred to line 502 of Section K, Summary of Seller's Transaction on page 1 of the HUD-1 Settlement Statement.

Alienation

The transfer of property from one person or entity to another. Alienation may be voluntary or involuntary. Voluntary alienation occurs most often by deed, but it may also occur by will, gift, dedication, or public grant. Involuntary alienation occurs most often by eminent domain or foreclosure.

Assignment

The transfer of the contractual right, title, or interest of one person ("assignor") to another ("assignee"). Some contracts may be assigned to another person and some may not. Whether a contract is assignable depends on the subject of the contract and whether or not the parties, despite the subject, have specifically agreed to permit assignment.

Leverage

The use of borrowed funds to finance an investment. The more borrowed funds are used, the more "highly leveraged" an investor is. The investor hopes to realize a profit over the initial purchase price and the cost to borrow funds.

Business Reputation

The value of a business name and public perception, which is an intangible personal property right. For example, a car sold under the brand name "Honda" is likely to be more valuable than a car sold under an unknown or less reliable name. When an owner sells a business, the owner may receive monetary compensation for this intangible personal property right.

Community Property

Theory of property ownership applicable to husbands and wives in certain jurisdictions. Instead of dower and curtesy, these states rely on the doctrine of community property. Community property is based on the theory that each spouse has an equal interest in property acquired by the efforts of either spouse during marriage.

Appraisal, Licensing and Certification

There are important distinctions between a "certified" and "licensed" appraiser. States (not the Feds) issue appraiser licenses. However, "licensed" appraisers may also be "certified" if the state follows minimum federal standards established by the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA).

FIRPTA, Exceptions

There are several total or partial exceptions to the FIRPTA withholding requirement. One of the more commonly encountered exceptions is If The Seller Is Not A Foreign Person. Under FIRPTA, there is a presumption that every seller is a foreign person subject to the withholding tax unless proof to the contrary is provided to the purchaser. Usually, this proof is furnished in the form of a "non-foreign certification," signed by the seller under penalties of perjury, certifying that the seller is not a foreign person and setting forth the seller's name, address, and taxpayer identification number. The purchaser can rely on the certificate unless the purchaser has actual knowledge that it is false or receives a notice from an agent involved in the transaction which states that the certification is false (an agent knowingly involved in a closing where a non-foreign certificate is false is subject to a penalty if he/ she fails to give the purchaser a written notice that the certificate is false). In the case of multiple sellers, including spouses holding property jointly, the regulations contain rules for allocating the purchase price among the sellers for purposes of withholding and tax liability. Where multiple sellers include U.S. and foreign parties, withholding only applies (subject to receiving the non-foreign certification from the U.S. parties) to the amounts allocated to the foreign parties under rules set forth in the regulations under the FIRPTA. The purchaser should retain the non-foreign certification for at least five years. Another common exception is with Withholding Certificates. An exception applies if the seller or the purchaser obtains a qualifying statement (a withholding certificate) from the IRS providing that the seller is entitled to a reduced (or zero) withholding amount, has provided adequate security, or made other arrangements with the IRS for payment of the tax. The application for the withholding certificate has to be filed before closing and if the seller applies for the certificate, the seller must give the purchaser a written notice at closing which states that the application has been filed with the IRS. The purchaser still must withhold the required percentage at closing, but the withheld amount may be held by the purchaser and not remitted to the IRS until the IRS sends the purchaser its determination on the amount required to be withheld and paid over. The purchaser has 20 days from receipt of the notice from the IRS to pay over the amount required by the IRS. An exemption also applies if the purchaser intends to use the real property as a residence and the purchase price is not more than $300,000. In order to qualify for this residential use exception, at the time of sale, the purchaser (or any member of his immediate family) must have definite plans to reside at the property for at least 50 percent of the number of days that the property is to be used during each of the first two twelve-month periods following the date of sale. So long as the foregoing requirement is met, the property does not need to be the purchaser's primary or principal residence. However, purchasers should be made aware that they will be liable for the tax not withheld if their intention does not factually materialize and they cannot prove that the failure to use the property was due to a change of circumstances

HUD-1, Items Payable in Connection with the Loan

These are the fees that lenders charge to process, approve, and make the mortgage loan, including: (1) Loan Origination: This fee is usually known as a loan origination fee, but sometimes is called a "point" or "points." It covers the lender's administrative costs in processing the loan. Often expressed as a percentage of the loan, the fee will vary among lenders. Generally, the buyer pays the fee, unless otherwise negotiated. (2) Loan Discount: Also called "points" or "discount points," a loan discount is a one-time charge imposed by the lender or broker to lower the rate at which the lender or broker would otherwise offer the loan. Each "point" is equal to one percent of the mortgage amount. (3) Appraisal Fee: This charge pays for an appraisal report made by an appraiser. (4) Credit Report Fee: This fee covers the cost of a credit report, which shows the borrower's credit history. The lender uses the information in a credit report to help decide whether or not to approve the loan and how much money to lend. (5) Lender's Inspection Fee: This charge covers inspections, often of newly constructed housing, made by employees of the lender or by an outside inspector. (6) Mortgage Insurance Application Fee: This fee covers the processing of an application for mortgage insurance. (7) Assumption Fee: This is a fee which is charged when a buyer "assumes," or takes over, the duty to pay the seller's existing mortgage loan. (8) Mortgage Broker Fee: Fees paid to mortgage brokers would be listed here. A CLO fee would also be listed here.

HUD-1, Government Recording and Transfer Charges

These fees may be paid by borrowers or sellers, depending upon the agreement of sale. The buyer usually pays the fees for legally recording the new deed and mortgage. Transfer taxes, which in some localities are collected whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county, and/or state tax stamps may have to be purchased as well.

Form 1099-S Exception, De Minimus Transfers

This exclusion includes a de minimus transfer for less than $600. A transaction is de minimus if it can be determined with certainty that the total money, services, and property received or to be received is less than $600, as measured on the closing date.

Form 1099-S Exception, Debt Secured by Property

This exclusion includes a transfer in full or partial satisfaction of a debt secured by the property. This includes a foreclosure, a transfer in lieu of foreclosure, or an abandonment.

Form 1099-S Exception, Corporate & Government Transferors

This exclusion includes any transaction in which the transferor is: a corporation; a governmental unit, including a foreign government or an international organization; or an exempt volume transferor. Under this rule, if there are exempt and non-exempt transferors, you must file Form 1099-S only for the non-exempt transferors.

Form 1099-S Exception, Non Sales and Exchanges

This exclusion includes any transaction that is not a sale or exchange, including a bequest, a gift, and a financing or refinancing that is not related to the acquisition of real estate.

Title Records

Those documents which affect an owner's title, interest, or rights in or to real estate, including deeds, mortgages, deeds of trust, liens, zoning, and building ordinances. Generally, state laws provide that relevant documents be recorded in the city or county where real estate is located. Recording acts create a local public record available to property owners, prospective purchasers, and the general public. Following the requirements of a recording act creates "constructive notice" of properly documented encumbrances to any interested party. Constructive notice imposes notice on all interested persons, regardless of whether they actually examine the public record or not. See also Actual Notice.

HUD-1, Title Charges

Title charges may cover a variety of services performed by title companies and others. Some settlements may not include all of the items below or may include others not listed. Title charges include: (1) Settlement or Closing Fee: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee should be negotiated between the seller and the buyer. (2) Abstract of Title Search, Title Examination, Title Insurance Binder: These charges cover the costs of the title search and examination. (3) Document Preparation: This is a separate fee that some lenders or title companies charge to cover their costs to prepare of final legal papers, such as a mortgage, deed of trust, note, or deed. (4) Notary Fee: This fee is charged for the cost to have a person who is licensed as a notary public swear that the persons named in the documents did, in fact, sign them. (5) Attorney's Fees: Borrowers may be required to pay for legal services provided to the lender, such as an examination of the title binder. Occasionally, the seller will agree in the agreement of sale to pay part of this fee. The cost of the borrower's attorney and/or the seller's attorney may also appear here. If an attorney's involvement is required by the lender, the fee will appear on this part of the form. (6) Title Insurance: The total cost of the owner's and lender's title insurance is shown on the HUD-1. (7) Lender's Title Insurance: The cost of the lender's policy is shown on the HUD-1. (8) Owner's (Buyer's) Title Insurance: The cost of the owner's policy is shown on the HUD-1.

Bare Title

Title interest held by a trustee pursuant to a deed of trust. The title interest that the trustee holds is referred to as bare title because it does not include the rights of possession and use, but only those rights necessary to carry out the terms of the trust. The borrower retains the rights of possession and use as long as the conditions of the deed of trust are met. After the loan is paid in full, the trustee re-conveys title to the borrower/property owner. See also Deed of Trust.

Marketable Title

Title that is reasonably free of defects. See also Title; and Cloud on Title.

Title, Marketable

Title, also known as merchantable title or perfect title, that is reasonably free from significant title defects. Title defects include competing claims or interests.

Sublease

Transfer of a leaseholders interest—either a portion of the lease term or a portion of the leased premises—to another. The sublessee pays rent to the lessee and has no contractual obligation to the lessor, unless the parties otherwise agree. That is, the lessee remains entirely responsible under the original lease. See also Lease; and Landlord Tenant.

FIRPTA, Reporting Forms

Transferees must use IRS Forms 8288 and 8288-A to report and pay to the IRS any tax withheld on the acquisition of U.S. real property interests. These forms must also be used by corporations, partnerships, estates, and trusts that must withhold tax on distributions and other transactions involving U.S. real property interests.

Encroachment

Unauthorized physical intrusion that encumbers the land of another. An encroachment is a trespass if it encroaches on the land (a fence or driveway), and is a nuisance if it violates a neighbor's airspace (as in the case of overhanging tree branches, loud noises, or bright lights). A survey will identify some encroachments. See also Encumbrance.

Check

Unit of measure, established by the Government under the Government Survey method of property description. Base lines intersect with principal meridians, forming a grid of rectangles. The rectangles formed by the intersecting base lines and principal meridians may be further divided into smaller units of measure, including checks, township squares, and sections. A check is a square area that is 24 miles per side, formed within intersecting meridians and base lines.

Offer, Acceptance

Unless otherwise specified by its terms, an offer may be accepted by any reasonable manner—a party may accept an offer through a face-to-face conversation or through formal written documents, such as a real estate purchase agreement. Absent a specified method of acceptance, an offer may be accepted orally, in writing, or by mail. Where acceptance is properly submitted by mail, the law states that the acceptance becomes effective when it is deposited into a mailbox, not when it is received by the offeror. Other forms of acceptance do not become binding on the offeror until they are actually received.

Non-Conforming Use

Use that is inconsistent with, or does not conform to, a zoning ordinance. A legal non- conforming use is one that existed prior to an amended zoning ordinance (a condition known as "grandfathering"). Legal non-conforming uses are allowed to continue, despite the zoning ordinance change to prohibit them. Generally, if a non-conforming improvement is destroyed, the owners can only rebuild if they receive a variance. An illegal non-conforming use that is not allowed to continue because it arose after the zoning ordinance was changed to ban it. See also Zoning.

Material Facts, Disclosure to Customer

When representing a client (generally the seller), the broker and the broker's agents must disclose certain material facts to the customer (generally the buyer). Disclosing material information to the customer may seem to violate the broker's fiduciary duty to the client. However, failing to make the disclosures identified below could result in liability for fraud and/or misrepresentation as a result of the broker's concealment. Material customer information includes (but is not limited to): structural defects (leaky roof, flooding basement); and health hazards (toxic mold, lead based paint, radon gas, asbestos, contaminated soil, and other environmental hazards). Failing to disclose certain material facts could result in the broker committing fraud or misrepresentation. Fraud and misrepresentation could be the basis of a legal action for damages from the broker's concealment. Additionally, fraud or misrepresentation could be grounds for the buyer to rescind the sales contract because depending on the circumstances, fraud and misrepresentation can render a contract void or voidable. Finally, brokers could be subject to disciplinary action by state licensing authorities for failing to disclose material facts.

Mailbox Rule

Where it is proper to accept an offer by mail (the contract does not so prohibit), the mailbox rule states that an offer accepted by mail is effective when deposited into a mailbox, not when received by the offeror. Other forms of acceptance do not become binding on the offeror until they are actually received. See also Contract.

Zoning, Variances

While state and Federal constitutions require that laws (such as zoning ordinances) be uniformly and fairly applied, there is relief for case-specific hardships. A variance allows deviation from existing zoning in unique circumstances and according to rules established by state law. A zoning board may grant a variance if a property owner can prove that local zoning creates an undue hardship because of unique circumstances, and can also show that granting the variance will not greatly alter the character of the affected locality.

RESPA, Disclosures Due after Application

Within three business days of receiving a loan appli- cation, mortgage brokers and/or lenders must provide the following disclosures to the borrower: Special Information Booklet, Homeownership Counseling References, Loan Estimate, and Mortgage Servicing Statement. If the lender rejects the loan within three business days of receiving the loan application, then the lender is not required to provide these documents to the borrower at all.

Power of Attorney

Written document in which one person appoints another to be their attorney-in-fact, authorizing the attorney-in-fact to act on their behalf. The death of either party automatically revokes the power of attorney because it is a personal authorization. Thus, when an attorney-in-fact is conveying property on behalf of a grantor, proof is usually required that the grantor is alive at the time of the signing.

Zoning, Administration

Zoning ordinances are generally created, implemented, and regulated locally by a number of different governmental bodies, including building departments, zoning commissions, and zoning appeals boards. Like other government actors, the power of zoning authorities is limited by state and Federal constitutions (Police Power, Due Process, Equal Protection, and Takings Clauses).