The potential home buyer will find this glossary helpful for understanding words and terms used in the real estate industry. There are, however, some factors that may affect these definitions:
- Terms are defined as they are commonly understood in the mortgage and real estate industry. The same terms may have different meanings in another context.
- The definitions are intentionally general, non-technical and short. They do not encompass all possible meanings or nuances that a term may acquire in legal use.
- State laws, as well as custom and use in various States or regions of the country, may modify or completely change the meanings of certain terms defined.
Land—In a legal sense it is the solid part of the surface of the earth (as distinguished from water), everything affixed to it, by nature or by man, or anything on it or in it, such as minerals and water.
Landlocked—A parcel of land without access to any type of road or highway. The owner of landlocked land can obtain an easement by necessity from the court.
Landlord—A lessor; a landowner who has leased his or her property.
Landmark—A monument, natural or artificial, set up on the boundary line of two adjacent estates, to fix the boundary.
Latent Defects—Defects in property that are not visible or apparent.
Lease—A contract for the possession and profits of real estate in return for rent. The property owner is the lessor, the tenant is the lessee.
Leasehold Estate—A tenant's right to occupy real estate during the term of the lease.
Legal Description—A method of describing a parcel of real estate that is recognized by law. Property can be legally described by (a) Lot, Block, and Subdivision (also called maps and plats or recorded map); (b) Government Survey (also called Township and Range or Rectangular Survey Systems); or (c) Metes and Bounds.
Lessee—The party to a lease known as the tenant.
Lessor—One who has leased property to another. The party to a lease known as the landlord.
Leverage—The effective use of borrowed money to finance an investment such as real estate.
Lien—A charge upon property for the payment or discharge of a debt or duty. The right which the law gives to have a debt satisfied out of a particular thing. A charge or claim upon property which encumbers it until the obligation is satisfied.
Lien, General—A lien against all the property of a debtor.
Lien, Involuntary—A lien placed against property by operation of law without consent of the owner. Mechanic's liens, judgments and I.R.S. liens are involuntary.
Lien, Judgment—A legal claim on all of the property of a judgment debtor, making it possible for the judgment creditor to have the property sold to satisfy the debt.
Lien, Mechanic's—A statutory lien against property by those who provide labor or materials for construction relative to that property who have not been paid.
Lien, Mortgage—A specific lien that attaches only to the particular piece of property offered as security for a loan.
Lien, Notice—A written notice form contractors and subcontractors informing owners that a lien could be enforced against a property if those who provide material or labor are not paid. Must be given within 10 days of their agreement to perform the work.
Lien, Property Tax—A lien on property to secure payment of property taxes.
Lien, Specific—A lien which attaches only to a particular piece of property, as opposed to a General Lien which attaches to all of the debtor's property.
Lien, Statutory—Liens which are created by law, rather than by contract, such as tax liens.
Liens, Tax—Liens on property to secure the payment of taxes.
Lien, Voluntary—A lien placed with the consent of the owner.
Limited Broker—An owner selling his or her own property who is involved in five or more transactions in one year; must obtain a limited broker's license.
Limited Common Element—Any common element or area of condominium property that is reserved for the use of one or more units.
Liquidated Damages—An amount agreed to in advance by the parties to a contract that will serve as compensation in the event of default. In real estate transactions, the buyer's earnest money deposit is often treated as liquidated damages.
Listing—An employment contract between a real estate broker and a landowner authorizing the broker to find a ready, willing and able buyer to purchase the property. Must be in writing for broker to receive a commission. The three types are: open, exclusive agency, and exclusive right to sell.
Loan, Conventional—Loan with only the property as security, without the government insuring (FHA) or guaranteeing (VA) the loan.
Loan Fee—A fee charged by lenders in return for the issuance of a loan; also called a loan origination fee.
Loan, Guaranteed—A loan which is guaranteed by the V.A. or any interested party, other than the borrower.
Loan-to-value Ratio—This refers to the maximum loan the lender is willing to make in relation to the appraised value.
Lock-in Clause—A clause in a note or installment sales contract prohibiting full payment of the debt before the date set in the contract.
Lot—A parcel of land in a subdivision.
Lot, Block and Subdivision—A form of legal description; land is described by reference to a lot, block and subdivision appearing on the maps and plats recorded in the Office of the County Auditor or Recorder. Also called Maps and Plats Description.
Manufactured Home—A structure that is transportable, is not affixed to real estate, is built on a permanent chassis, and is designed to be used as a dwelling with or without a permanent foundation.
Market Data Approach—One of the three standard methods of appraisal; based on comparing similar properties. Also called the Comparison or Comparative Analysis Approach.
Market Price—The price actually paid for property. Not the same as Market Value.
Marketable Title—A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.
Master Plan—An overall plan for the development of a city or county, which is used as a guide for the development of zoning regulations.
Meeting of Minds—Another term for Mutual Consent.
Monument—A visible marker, natural or artificial, used to establish the lines and boundaries of a survey. Natural monuments can include boulders, marked trees, streams or rivers; artificial (man made) monuments might take the form of stakes, wood or steel posts, or a cement slab.
Mortgage—A document that details the terms of a real estate loan agreement and serves as the lender's security for the debt. Parties to the agreement are the mortgagor (Borrower) and mortgagee (lender).
Mortgage, Adjustable'Rate (ARM)—A mortgage with an interest rate that is adjusted at specific intervals.
Mortgage, Assumption of—Taking over the primary liability on an existing mortgage.
Mortgage, Balloon—A mortgage that provides for payments that do not fully amortize the loan by the loan's maturity date. The balance of the mortgage is then due in one lump sum (balloon payment) at the end of the term.
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. Insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.
Mortgage, First—The mortgage or deed of trust that is superior in right to any other on a property. Without a subordination agreement, this will normally be the one that is recorded first.
Mortgage Insurance Premium (MIP)—(Also known as mutual mortgage insurance premium). A one-time mortgage insurance required for FHA loans.
Mortgage, Junior—A second mortgage (or third, fourth, etc.) that is subordinate to a first mortgage in terms of priority. Priority refers to the order in which the liens will be paid in the event the property is sold. With certain exceptions, priority is established by the date a lien is recorded: the first to record is first in priority.
Mortgage Package—A mortgage or deed of trust used in home financing that is secured by both the real property and certain items of personal property, such as appliances, drapes, carpeting, etc.
Mortgage Registration Tax—A Minnesota tax charged on all new mortgages of real property.
Mortgage, Reverse Annuity—A mortgage where the lender pays the loan proceeds to the borrower in monthly payments.
Mortgage, Senior—A mortgage or deed of trust which has a higher lien priority than other liens.
Mortgagee—The receiver of the mortgage; the lender of the money secured by the mortgage.
Mortgagor—A person who mortgages his property to another; the maker of a mortgage.
Mutual Agreement—When all parties approve or assent to the terms of a contract freely. One of four essential elements to any valid contract; the others include capacity, lawful objective and consideration.
Multiple Listing Service—An organization of brokers who share their exclusive listings.
Net Proceeds—The actual amount of money a seller will receive from the sale after costs and expenses have been paid.
Nonconforming Use—A property use that does not conform to current zoning requirements, but is allowed because the land was being used in that way before the present zoning ordinance was enacted.
Notary Public—An appointed officer whose primary function is to attest and certify the acknowledgment made by another when signing documents such as deeds, mortgages and land contracts.
Note, Promissory—A written unconditional promise to pay a certain sum of money to order or to bearer, on demand or at a specified time in the future.
Note, Straight—A promissory note in which only interest payments are made during the term of the note, and the entire principal is due in one lump sum at maturity.
Notice of Default—A notice sent by a secured creditor to a debtor, informing the debtor of a breach of the loan agreement.
Notice of Sale—A notice sent to a borrower informing him or her that foreclosure proceedings have been started against the property.
Novation—The substitution of a new party for one of the original parties to a contract or of a new obligation for an old one.
Obsolescence—Any loss in value due to reduced desirability and usefulness. There is functional obsolescence (factors within the property itself) and economic obsolescence (factors outside the property).
Offer—The terms of a potential contract as communicated by one party to another showing the willingness of the person making it to enter into a contract under the stated terms.
Offeree—One to whom an offer is made.
Offeror—One who makes an offer.
Option—A right, given for valuable consideration, to purchase or lease property at a future date for a specified price and on specified terms.
Optionee—The person to whom an option is given.
Optionor—The person who gives an option.
Orientation—The placement of a house on its lot with regard to its exposure to the sun and wind, privacy form the street, and protection from outside noise.
Over improvement—An improvement to land that is more expensive than necessary.
Ownership—The rights of an owner. Title to property, dominion over property. The right of possession and control including the right to protect and defend such possession against intrusion or trespass.
Ownership, Concurrent—Ownership by more than one person.
Ownership in Severalty—Ownership by an individual person.
Parcel—A specified lot or tract of real estate, particularly a specified part of a larger tract.
Partial Performance—A remedy in contract law used when one party has not completely accomplished all of the terms of the agreement. The other party agrees to accept the incomplete performance and consider the contract discharged.
Party Wall—A wall located on the boundary line between two adjoining parcels of land which is used or intended to be used by the owners of both properties.
Payee—A party to a promissory note; the lender.
Per Annum—Annual rate of an expense.
Percolation Test—A test to determine the ability of the ground to absorb or drain water; used to determine the suitability of the site for construction, particularly for installation of a septic tank system.
Per Diem—Daily rate of an expense.
Personal Property—Any property which is not real property; movable property not affixed to land; also called chattels.
Physical Deterioration—Loss in value (depreciation) resulting from wear and tear, deferred maintenance, etc.
Physical Life—Estimated time a building will remain structurally sound and capable of being used.
Plat—A detailed map of a large tract (usually a subdivision) recorded in the county where the land is located.
Plat Book—A public book of maps of subdivided land, showing the blocks, lots and parcels.
Plot Plan—A plan showing lot dimensions and the layout of improvements (such as buildings and landscaping) on a property site.
Plottage—The consolidation of several parcels of land into one, resulting in greater utility and consequent higher value.
Point of Beginning—A landmark used as the initial reference point in a metes and bounds description.
Points—A "point" is one percent of the principal amount of a loan, paid to the lender at the time the loan is made to give the lender an additional yield above the interest rate. Because of the points paid at the outset, the lender is willing to make the loan at a lower interest rate.
Police Power—The power of the state and local governments to enact and enforce laws for the general welfare of the public. Since the exercise of the police power is merely regulating and not taking private property, no compensation is paid to the owner.
Possession—The holding and peaceful enjoyment of property. In the case of a lease, the tenant is in actual possession; the owner has constructive possession by right of title.
Potable Water—Water that is safe to drink.
Power of Attorney—A written instrument authorizing one person (the attorney in fact) to act as another's agent to the extent stated in the instrument. If it authorizes action in a real estate transaction (such as signing a deed on behalf of the principal), the power of attorney must be recorded.
Power of Sale Clause—A clause in a deed of trust which gives the trustee the right to sell the debtor's property without a court action, following default by the borrower.
Prepayment—Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.
Prepayment Penalty—The amount the debtor must pay the creditor as a penalty for paying off a debt before maturity. Not permitted in FHA or VA loans.
Prime Rate—The interest rate a bank charges its largest and most desirable customer.
Principal—1. One of the parties to a transaction, such as the buyer or seller of a home. 2. One who employs and agent in a principal agent relationship. 3. The basic amount of a debt, as opposed to the interest.
Principal Residence Property—Any real estate an owner actually lives in as his or her principal swelling. A person can only have one principal residence at any one time.
Private Deed Restrictions—Restrictions on the use of land which are contained in private deeds or contracts; the restrictions apply only to the parties to the particular agreement and their successors in interest.
Proration—The process of dividing or distributing proportionately.
Purchase Agreement—A contract for the sale of real property, wherein the buyer promises to purchase and the seller promises to convey title. A buyer generally deposits and amount of money as evidence of a good faith intent to purchase.