Helpful Title Glossary
Acceleration Clause – Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
Adjustable Rate Mortgage – Mortgage loans under which the interest rate is periodically adjusted, in accordance with some market indictor, to more closely coincide with the current rates. The extent and number of these adjustments are agreed to at the inception of the loan.
Amortization – Equal periodic loan payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Appraisal – An estimate of the value of property, made by a qualified professional.
Assessment – (1) The valuation of real estate for purposes of taxes or special improvement charges. (2) The amount of taxes or special improvement charges. Special improvement charges are usually for the costs of streets, sidewalks, sewers, etc.
Assignment – A written transfer of one’s interest in something, such as a promissory note or a deed of trust.
Closing – Process of completing a real estate transaction during which all required instruments are signed and/or delivered, money is disbursed, and all other details such as payment of outstanding liens and transfer of hazard insurance policies are attended to.
Closing Costs – The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the costs.
Cloud on Title – An irregularity, possible claim, or encumbrance, which, if valid, would adversely affect or impair the title.
Deed – A written document by which the ownership of land is transfered from one person to another.
Documentary Stamps – A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
Equity – The value of a homeowner’s unencumbered interest in real estate. Equity is computed by subtracting from the property’s fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner’s equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his or her property.
Escrow – Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly-anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.
Foreclosure – The legal process by which an owner’s right to a property is terminated, usually due to default. Typically involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt.
Lien – A legal claim against an asset which is used to secure a loan and which must be paid when the property is sold.
Mortgage – A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government- insured or loan- guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.
Mortgage Commitment – A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
Mortgage Insurance – Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price.
Mortgage Insurance Premium – The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one- half of one percent paid by the mortgagor on a monthly basis.
Mortgage Note – Note that offers a mortgage as proof of a debt and describes the terms under which the mortgage is to be repaid.
Note – A legal document that obligates a borrower to repay a mortgage loan at a specified interest rate during a specified period of time or on demand.
PMI – Mortgage insurance provided by non-government insurers that protects a lender against loss if the borrower defaults. (Private Mortgage Insurance)
Points – Sometimes called “Discount Points”. A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans’ Administration guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them.
Quitclaim Deed – A deed which transfers whatever interest a maker of the deed may have in a particular parcel of land. A quitclaim deed is often given to clear the title when the grantor’s interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.
Restrictive Covenants – Restrictive covenants are private restrictions limiting the use of real property. They are created by deed and may “run with the land,” binding all subsequent purchasers of the land, or may be “personal” and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal, is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area.
Subordination – The act or process by which a person’s rights are ranked below the rights of others. For example, a second mortgagee’s rights are subordinate to those of the first mortgage.
Survey – A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.
Title – (1) A combination of all the elements that constitute the highest legal to right to own, possess, use, control, enjoy and dispose of real estate or an inheritable right or interest therein. (2) The rights of ownership recognized and protected by law.
Title Defect – (1) Any possible or patent claim or right outstanding in a chain of title that is adverse to the claim of ownership. (2) Any material irregularity in the execution or effect of an instrument in the chain of title.
Title Insurance Policy – A contract of title insurance under which the insurer, in keeping with the terms of the policy, agrees to indemnify the insured against loss arising from claims against the insured interest.
Trust Deed – An instrument in the nature of a mortgage which secures the payment of a debt. Distinguished from a mortgage in that the title is transferred to, and held by, a trustee for the benefit of the holder of the debt.
Warranty Deed – A deed which conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it, such as mortgage claims, tax liens, title claims, judgments, or mechanic’s lien.