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| The increase in value of an asset. |
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| The actual dollar value that an owner holds in her property (as opposed to market value) |
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| Special business entities formed to share the cost, risk, and profit of real estate investing. |
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| Statutes designed to provide regulation and supervision of securities, offerings and sales. Protect ordinary citizens from from giving monies to fraudulent companies. |
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| A fee charged on the value of a personal or real property that is owned by a taxpayer. |
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The worth of a property including all land and improvements:
Tax Rate x Assessed Value = Tax |
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| A category of property tax levied on a property according to specific benefits it receives. Paid off at closing. |
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| Homeowners Principal Residence Exemption |
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Relieves principal homeowners a portion of the responsibility for funding public schools.
(Propsal A 1994) |
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| Calculation of Principal Gain |
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| When property is sold or exchanged by the owner, the property's adjusted cost basis is subtracted from the recent sale price. |
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| The orginal purchase price. |
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| Capital improvements made by the owner during his ownership are added to the basis to arrive at the "adjusted cost basis". |
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| The "Universal" Exclusion |
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| Married homeowners filing a joint tax return may exclude up to $500,000 of capital gains. |
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| Section 1031 "Like-Kind" Exchanges |
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| Mutual transfer of properties of equal interest. |
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| A policy obtained by a homeowner to insure against certain risks of loss to one and two-family dwellings. |
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| Homeowner's Warranty Policy (HOW) |
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| Offers limited protection to a buyer against certain defects in the structure or mechanical items. |
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| Available in certain areas to indemnify property owners against losses caused by flood damage. Required by lenders in flood zones/added to borrowers monthly mortgage. |
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| Errors and Omissions Insurance |
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Definition
| Purchased by brokers to cover liability for errors, mistakes, and negligence that may arise from the customary practice of real estate. |
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| Latin for "according to value" real estate taxes are assessed on an ad valorem, or in proportion the the value of the real estate being taxed, basis. |
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| A device used by a taxpayer to reduce the amount of income tax he must pay. For example: deductions allowed for ownership of income producing property. |
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| A contractual lien. Technically: a written instrument that creates an interest in real property as security for payment of a debt. |
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| A transfer of personal property to a creditor to be held as security for a debt or obligation. |
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| The one who gives the mortgage to the lender; the borrower. |
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| The person or business entity who receives and holds the mortgage as security; the lender.The mortgagee provides the loan funds used to buy the property in exchange for a lien right on the property. |
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| The mortgage is regarded as a mere lien and does not convey an ownership interest to the mortgage. Michigan law. |
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| Two written instruments acting together. The mortgage and the promissory note. The mortgage does not automatically include a promissory note. A mortgage by itself does not guarantee the lender that all sums will be paid. |
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| The debter is not personally liable for the repayment of debt. Under a mortgage alone, a debters only recourse is to foreclose or sell. The NOTE contains the actual promise to repay. |
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| A clause that allows the lender to accelerate the entire unpaid principal balance and declare it immediately due. (ex: borrower destroys property/lender can accelerate the debt and foreclose.) |
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| Mortgagee can accelerate the debt if mortgager sells or transfers the property to a new buyer. Rather than accelerating, the mortgagee can allow an assumption by a new buyer and adjust the interest rate to current guidelines. |
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| Signed statement certifying that a statement is correct as of the date issued. (ex: If a note is sold before full payment, the investor may require verification that loan is current a w/o defaults.) |
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| Party who gives the note and has obligated himself to repayment under the note; the borrower (mortgagor under the mortgage). |
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| The party who receives the note and the one whom the obligor must make payments; the lender (mortgagee under the mortgage) |
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| Payments due at the beginning of each payment period. Property taxes are paid in advance. |
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| Payments due at the end of each pay period. Interest is paid in arrears. |
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| Interest calculated as a straight percent of the principal loan balance and treated as separate from the principal. Each month one-twelfth of the annual interest for the principal balance is charged. |
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| Interest that merges with the principal and becomes part of the base on which future interest is calculated. Interest rate is calculated then subtracted from the total monthly payment. |
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| A one time fee collected by a lending institution at the time a loan is orginated and closed. One point equal one percent of the principal amnt. |
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| When a mortagee sells a mortage and note, the rights and responsibilities are assigned (transferred) to the purchasing investor. |
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| Release from liability for a mortgage. |
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Definition
| When a buyer takes title subject to the mortgage, no formal acknowledgement of the existing debt under the note takes place.The buyer must continue to make payments because the mortgagee can still foreclose. |
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| Buyers who purchase a property with an existing debt must take care since the property is encumbered by a superior interest. When the mortgager sells the property and assigns the mortgage, the buyer acquires the property either subject to the mortgage or he assumes it. |
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Definition
| Security instrument whereby legal title to financed property is conveyed to a trustee to secure repayment of the loan. Operates like a mortgage. Turns the mortgage into a 3 party relationship as opposed to 2 party. |
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Definition
| The borrower. The person who gives the deed of trust to the trusteeas security for repayment of the debt. |
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| The one who receives the deed of trust and holds it in trust. Ex: public officers, attorneys, and title insurance companies. |
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| The lender. The holder of the note. The party for who's benefit the trustee acts. |
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| An agreement for the sale of land that calls for a down payment at closing, with the balance of the purchase price made in installments. |
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| The seller (land contract or otherwise) |
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| The buyer (land contract or otherwise) |
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| A guaranteed right a mortgager has to free the property from foreclosure and to recover the title. |
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| The mortgagee brings a formal lawsuit into a court of law. |
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| Conventional Mortgage Loan |
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Definition
| Any loan by which a a person transfers to a lender a lien in exchange for part of the purchase price. Not insured or guaranteed. |
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| Mortgage laon in which funds are used to purchase a parcel of real property. The property, in turn, secures the full amt of the loan. |
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| The relationship between the amount borrowed and the appraised value of the property. At 80% the borrower puts 20% down. |
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| Refers to the repayment of financial obligation over a period of time in periodic installments. Includes principal and interest. End balance is zero. |
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| Only part of the principal is paid down, resulting in the principal balance not returning to zero at maturity. |
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| When interest rates increase over time without a corresponding increase in monthly payment. Debt can actually increase as payments are made. |
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| Interest rate does not vary. |
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| Loan that contains no prepayment penalty. |
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| Lender has the right to assess a prepayment penalty, but cannot legally prevent early payment of the principal balance. |
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| Penalty assessed by a lender to recover unearned interest when the borrower pre-pays the principal. |
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Graduated Payment Mortgage
GPM |
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Definition
| Reduced monthy payments in the initial years. Gradually increases over time. |
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| Loan desigend to cover more than one parcel of property under a singel security package. Multipal properties. |
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| Any loan issued for a short duration until more permanent financing can be obtained. |
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| The seller/grantor of a property immediatey becomes a lessee. The pruchaser/grantee becomes a lessor. Also known as a leasehold mortgage. |
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