GLOSSARY OF TERMS
BALANCE SHEET: A financial statement that shows assets, liabilities, and net worth as of a specific date.
BANKRUPT: A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
BANKRUPTCY: A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
BEFORE-TAX-INCOME: Income before taxes are deducted.
BENEFICIARY: The person designated to receive the income from a trust, estate, or a deed of trust.
BILL OF SALE: A written document that transfers title to personal property.
BINDER OR OFFER TO PURCHASE: A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See Real Estate Broker)
BLANKET INSURANCE POLICY: A single policy that covers more than one piece of property (or more than one person).
BOND: An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.
BORROWER: One who receives funds with the expressed or implied intention of repaying the loan in full.
BRIDGE LOAN: A form of second trust that is collateralized by the borrowers present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.
BROKER: An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
BUILDING CODE: Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.
BUILDING LINE OR SETBACK: Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
BUY DOWN: Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.
CALL OPTION: A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
CAPITAL EXPENDITURE: The cost of an improvement made to extend the useful life of a property or to add to its value.
CAPITAL IMPROVEMENT: Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
CAP: A provision of an ARM limiting how much the interest rate or mortgage payments may increase.
CASH OUT: A loan transaction in which the borrower receives funds at the time of closing.
CASH-OUT REFINANCE: A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.
CERTIFICATE OF DEPOSIT: A document written by a bank or other financial institution that is evidence of a deposit, with the issuers promise to return the deposit plus earnings at a specified interest rate within a specified time period. Certificate of Eligibility A document issued by the federal government certifying a veterans eligibility for a Department of Veterans Affairs (VA) mortgage. Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
CERTIFICATE OF TITLE: A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
CHAIN OF TITLE: The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
CHANGE FREQUENCY: The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
CHATTEL: Another name for personal property.
CLAIM: An amount requested of an insurer, by a policyholder or a claimant, for an insured loss.
CLEAR TITLE: A title that is free of liens or legal questions as to ownership of the property
CLOSING: The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called settlement.
CLOSING COST: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs.
CLOSING COST ITEM: A fee or amount that a home buyer must pay at closing for a single service, tax, or product.
CLOSING DISCLOSURE: This document replaced the HUD Settlement Statement that the industry has used for years. The same information will be represented on this document as far as the total transaction and will mirror the “Loan Estimate”. This document will have to be sent to the borrower three days prior to the consummation of the loan.
CLOSING DAY: The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.
CLOUD ( ON-TITLE): An outstanding claim or encumbrance, which adversely affects the marketability of title.