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Glossary of Real Estate Terms

Abstract of Title A summary or digest of the conveyances, transfers, and any other facts relied on as evidence of title.

Acceleration Clause A clause in a mortgage giving lender the right to call all sums owed him to be immediately due and payable upon the happening of a certain stated event.

Ad Valorem Taxes In Alabama the fiscal year runs from October 1 to September 30. Taxes for each fiscal year become due and payable in arrears on the property of the taxpayer as of October 1 of the next fiscal year.

Addendum Something added. An amendment list, or other material added to a document, letter, contractual agreement, escrow instructions, etc.

Annual Percentage Rate (APR) The total cost of credit expressed as a yearly rate. Includes interest, loan discount fee (points), and other credit costs.

Amendment A change, either to correct an error or alter a part of an agreement without changing the principal idea or essence.

Amortization The gradual repayment of a mortgage by installments.

Appraisal A professional opinion of the value of your home.

Appreciation An increase in value of real estate.

Assign To transfer over to another a claim, right or title to property.

Assumption of Mortgage Taking of title to property wherein the grantee assumes liability or payment of an existing note secured by a mortgage or deed of trust against the property.

Balloon Payment A final payment of a note which is greater than the preceding installment payments. generally, any final payment that is twice as great as the smallest installment payment.

Bridge Loan A short term loan made until a longer term loan can be arranged. Most often used when a person needs to purchase a home before their present home is sold.

Broker

Affiliate Broker is an agent who is licensed to list and sell real property.

Associate Broker is an agent who, in addition, is licensed to run his or her own real estate company.

Principal Broker is the agent in each office who is responsible for the training and supervision of all agents, staff and personnel of a real estate office.

Buydown Amount seller pays to lender so buyer gets lower interest rate. Inflated or non-negotiable selling price covers buydown.

Cap The maximum amount a payment or interest rate can change either at adjustment time or over the life of the loan.

Caveat Emptor "Let the Buyer beware." The buyer must rely on his own judgment in so far as the obvious advantages and disadvantages of a product, including real estate, are considered. Alabama is a Caveat Emptor state.

Certificate of Title Type of title evidence commonly used in Alabama is a certificate of title issued by the purchaser's attorney. Before issuing the certificate, the attorney should examine the public records for mechanics' liens, real estate taxes, utility easements, and other liens on the property, and note all encumbrances on the certificate.

Closing The final settlement of a real estate transaction between buyer and seller. Normally coordinated by a title agent or an attorney acting as closing agent.

Closing Costs The costs associated with selling a home and allowing the property to legally change hands. Includes fees for the appraisal, title search, credit report, origination of the loan, discount points, recording the documents and survey, etc.

Closing Statement Documents given to buyer and seller at the time of closing itemizing the terms and associated costs for the sale. Also known as HUD-1 form.

Cloud on Title Any condition revealed by a title search that affects title to the property. Usually relatively unimportant but cannot be removed without a quitclaim deed or court action.

Counteroffer A rejection by the seller of an offer along with an agreement to sell the property to the potential buyer under different terms than the original offer.

Credit Report A report requested by the lender on the credit standing of a prospective borrower. (Buyer pays for this and must sign permission for the lender to request this report).

Deed A legal document conveying title to a property.

Deed Of Trust A document that pledges property as security for a loan. It defines the rights and procedures that protect the lender in case the borrower defaults on the loan. Rarely used in Alabama.

Discount Points A point is equal to 1% of the total loan amount (not sale price). Discount points are used to buy down the interest rate on the loan by paying a onetime discount fee up front. (Some loans require the seller to pay any discount points).

Dual Agency The real estate company serving as agent for both the buyer and seller in the same transaction.

Earnest Money Deposit Down payment made by a purchaser of real estate as evidence of good faith intention to purchase. This amount is held in escrow until closing and becomes part of the down payment at closing.

Easement Right, privilege or interest which one party has in the property of another. This is created by a grant or agreement for a specific purpose. A utility company may have an easement to ensure access to power or sewer lines.

Escrow Account Payments made to the lender in addition to principal and interest for the purpose of paying property taxes and insurance.

FHA (Federal Housing Authority) A division of the Department of Housing and Urban Development, the FHA’s main activity is the insuring of residential mortgage loans made by private lenders.

Fiduciary The real estate broker in Alabama, and in the nation as a whole, occupies a unique position. As a fiduciary agent of the principal, the broker must, at times, make decisions independent of his or her client. however, the broker must never exceed the authority or disregard the instructions given by the client.

Home Equity The difference between the present market value of a home and the amount of any outstanding mortgage or mortgages.

Home Protection Plan From builder of a new home to protect against faulty materials or workmanship; on pre-owned home, first-year protection against unexpected major repair expense.

Interest The cost paid by a borrower for use of money borrowed to purchase a home. Also referred to as Annual Percentage Rate (APR) when points paid upfront are added into the cost of the loan.

Homeowners' Insurance is a policy purchased to protect the interest of the buyer in the event of fire or the damage to the house or its contents or injury to a person on the premises.

Mortgage Insurance is a policy provided by the purchaser to protect the interest of the lender in the event of default by the purchaser. Not all loans require mortgage insurance.

Title Insurance is a policy provided by the purchaser in either a lender's policy or a lender's and an owner's policy are purchased for a onetime fee covering the life of the loan (lender's policy) and/or the time you own the property (see What is Title Insurance?)

Joint Tenancy The "four unities" of time, title, interest and possession must exist in order to create a joint tenancy in Alabama. The destruction of any one of these unities will end the joint tenancy and the owners will hold the property as tenants in common. These unities may be implied by the wording of the deed; they do not actually have to be present. Alabama law requires that an instrument creating a joint tenancy clearly and unequivocally states the parties' intent to create a joint tenancy.

Land Contract A real estate contract in which the buyer makes a down payment and agrees to pay the remainder of the price, usually with interest, over a stated period of time. Upon completion of the payment the contract requires the seller to convey the title to the buyer.

Legal Description A description recognized by law by which property can be definitely located by reference to government surveys or approved recorded maps.

Lien A form of encumbrance which usually makes the property security for the payment of a debt or discharge of an obligation including judgments, taxes, mortgages, or deeds of trust.

Lock-In-Rate A commitment made by lenders on a mortgage loan to a certain interest rate pending the loan closing.

Market Value The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Mortgage A security instrument for the payment of a debt or obligation (eg, FHA, VA, Conventional, RECD, THDA)

Multiple Listing Service A service performed by the Local Association of Realtors providing necessary information to aid in the sale of homes.

Non-Disclosure Failure, on the part of the agent, to disclose certain Latent Defects known by the agent, to the third party. These are defects in a property which cannot be readily seen or discovered by an "arms length" inspection of the property by the third party. Examples include: termite infestation, faulty plumbing, faulty wiring, leakage of roof or basement which has been covered over, etc. AN AGENT IN ALABAMA IS BOUND TO DISCLOSE EVERY LATENT DEFECT OF WHICH HE/SHE HAS KNOWLEDGE THAT COULD AFFECT THE SAFETY OR HEALTH OF BUYER. Failure to disclose such defects constitutes Fraud and is grounds for suit for damages, recision of contract, and disciplinary action.

Offer and Acceptance Brokers in Alabama are required to inform both the buyer and seller, at the time that the offer is signed, of approximate closing costs that will have to be paid at the closing. Failure to do so may result in the suspension or revocation of the brokers' license.

Origination Fee A fee usually expressed as a percentage of the loan amount that is paid by the borrower to the lender for processing the mortgage.

PITI (Principal, Interest, Taxes and Insurance) The principal and interest payment on most loans is fixed for the term of the loan; the tax and insurance portion may be adjusted to reflect changes in taxes or insurance costs.

Percolation Refers to the ability of the soil to absorb water.

Points Charged in both fixed and adjustable rate mortgages to increase mortgage yield and cover closing costs. A “point” is 1% of the mortgage.

Promissory Note A formal promise to repay the mortgage loan that contains information on the interest rate, timing and amount of payments, late charges and rights of the lender as well as obligations of the borrower(s). The note is secured by a Deed of Trust that pledges the property as collateral for the loan.

Quiet Title Suite The right of an owner or lessee to remove a defect, cloud, or suspicion regarding legal rights of an owner to a certain parcel of real property.

QuitClaim Deed A quitclaim deed in Alabama is not considered a conveyance but rather a release of all right, title, or interest of the grantor. it is usually employed to cure defects in title rather than to vest title in someone. However, if the grantor does, in fact, hold title to the property, the grantee will acquire good title.

RESPA (Real Estate Settlement Procedures Act) Federal law designed to provide disclosure of settlement (closing) costs to the borrower with the primary purposes being to: (1) take the mystery out of the closing process, and (2) give the borrower the opportunity to shop for settlement services more intelligently.

Real Property Land and whatever is naturally or artificially attached to it.

Reserves Funds usually required by the lender to be held in the borrower(s) account after closing. Usually one to three months of mortgage payments.

Restrictive Covenants or restrictions pertaining to the property being purchased. Define the use of the property and itemize the protections made for the benefit of all owners in a subdivision.

Sales Agreement An agreement between a buyer and a seller for the purchase and sale of real property.

Sweat Equity Equity created in property by the performance of work or labor by the purchaser or borrower. It directly increases the value of the property.

Temporary Buydown (or 1-2-3- buydown) When an interested party (buyer or seller or lender) subsidized the mortgage by lowering the interest rate during the first few years of the loan. This lower interest rate makes it easier for the borrower(s) to qualify for the loan, but the payments typically increase as the subsidy expires.

Trust Account (or Escrow Account) A separate account physically segregated from the broker's own funds in which broker is required by law to deposit all funds collected for and on behalf of clients or customers.

VA (Veterans Administration) An independent agency of the federal government. The Veterans Administration Home Loan Guaranty Program is designed to encourage lenders to offer long term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss.

Warranty Deed A deed used to convey real property. It contains warranties of title, quiet possession and defense by grantor against the lawful claims of a third party.