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abstract of title
A condensed version of the history of title to a piece of land that lists any transfers in ownership, as well as any liabilities attached to it, such as mortgages.
acceleration clause
A provision in a written mortgage, note, bond or conditional sales contract that, in the event of default, the whole amount of principal and interest may be declared to be due and payable at once.
acknowledgment
A declaration made by a person to a notary public, or other public official authorized to take acknowledgments, that the instrument was executed by him and that it was his free and voluntary act.
additional principal payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
adjustable rate mortgage (ARM)
A mortgage loan whose interest rate fluctuates according to the movements of an assigned index or a designated market indicator--such as the weekly average of one-year U.S. Treasury Bills--over the life of the loan. To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.
adjusted basis
The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
adverse possession
The right of an occupant of land to acquire title against the real owner, where possession has been actual, continuous, hostile, visible, and distinct for the statutory period. The requirements for adversely possessing property vary between states, but usually include continuous and open use for a period of 15 or more years and paying taxes on the property in question.
agency
The legal relationship between a principal and an agent. In real estate transactions, usually the seller is the principal, and the broker is the agent: however, a buyer represented by a broker (i.e., buyer as principal is a growing trend. In an agency relationship, the principal delegates to the agent the right to act on his or her behalf in business transactions and to exercise some discretion while so acting. The agent has a fiduciary relationship with the principal and owes to that principal the duties of accounting, care, loyalty, and obedience. Also see buyer's broker.
alienation Clause
A clause in a mortgage, which gives the lender the right to call the entire loan balance due if the property is sold; due-on-sale clause.
ammendment
A modification to an existing contract, mutually agreed to by all parties. Examples might include a change in the pruchase price due to a low appraisal, or a change in the closing date.
amortization schedule
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
annual percentage rate (APR)
This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.
appraisal
A determination of the value of something, such as a house, jewelry or stock. A professional appraiser--a qualified, disinterested expert--makes an estimate by examining the property, and looking at the initial purchase price and comparing it with recent sales of similar property. Courts commonly order appraisals in probate, condemnation, bankruptcy or foreclosure proceedings in order to determine the fair market value of property. Banks and real estate companies use appraisals to ascertain the worth of real estate for lending purposes. And insurance companies require appraisals to determine the amount of damage done to covered property before settling insurance claims.
appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
asset
Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
assignee
A person to whom a property right is transferred. For example, an assignee may take over a lease from a tenant who wants to permanently move out before the lease expires. The assignee takes control of the property and assumes all the legal rights and responsibilities of the tenant, including payment of rent. However, the original tenant remains legally responsible if the assignee fails to pay the rent.
assumption of mortgage
The transfer of title to property to a grantee wherein he assumes liability for payment of an existing note secured by a mortgage against the property; should the mortgage be foreclosed and the property sold for a lesser amount than that due, the grantee-purchaser who has assumed and agreed to pay the debt secured by the mortgage is personally liable for the deficiency. Before a seller may be relieved of liability under the existing mortgage, the lender must accept the transfer of liability for payment of the note. Also known as simple assumption. Contrast with subject to mortgage.
