Commonly Used Terms2018-09-12T14:47:14+00:00

Commonly Used Terms

American Home Title Group realizes that purchasing or buying a home, business, or real estate can seem overwhelming. For more than 25 years, we have been helping clients with their title services, escrow services, purchases, sales, refinances, for sale by owner assistance, deed preparation and more.

This list of commonly used terms has been provided by the team at American Home Title Group as a resource for anyone involved in the process of buying or selling real estate.

If you have any questions about the terms on this page, or would like to discuss your real estate transaction with a knowledgeable professional, call us today at 410-750-8500.

A B C D E F G H I J L M N O P Q R S T

A

abstract of title – A condensed version of the history of a title to a particular parcel of real estate as recorded in the county clerk’s records; consists of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property.

agent – One who represents or has the power to act for another person (called the principal). The authorization may be express, implied, or apparent. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be her or his agent.

agreement of sale – A written agreement by which the purchaser agrees to buy certain real estate and the seller agrees to sell, on the terms and conditions set forth in the agreement.

amortization – The liquidation of a financial burden by installment payments, which include principal and interest.

amortized loan – A loan in which the principal and interest are payable in monthly or other periodic installments over the term of the loan.

appraisal – An estimate of the quantity, quality, or value of something. The process through which conclusions about property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

appraised value – An estimate of a property’s present worth.

attorney-in-fact – The holder of a power of attorney.

attorney’s opinion of title – An instrument written and signed by an attorney who examines the title, stating her or his opinion as to whether a seller may convey good title.

B

balloon payment – The final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

beneficiary – 1. The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. 2. A lender who lends money on real estate and takes back a note and deed of trust from the borrower.

bequest – A provision in a will providing for the distribution of personal property.

breach of contract – The failure, without legal excuse, of one of the parties to a contract to perform according to the contract.

bridge loan – A loan that bridges the sale of property. For example, a homeowner borrows from the bank the equity from her current home to use as a down payment on a new home. Then, when her current home sells, she uses her equity to repay a bridge loan.

broker – One who buys and sells for another for a commission. See also real estate broker.

C

certificate of title – The statement of opinion on the status of the title to a parcel of real property, based on an examination of specified public records.

chain of title – The succession of conveyances from some accepted starting point by which the present holder of real property derives her or his title.

codicil – A testamentary disposition subsequent to a will that alters, explains, adds to, or confirms the will, but does not revoke it.

condominium – The absolute ownership of an apartment or a unit, generally in a multiunit building, based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned together with the other condominium unit owners.

consideration – Something of value that induces one to enter into a contract.

contingencies – A provision or condition in the purchase of real estate requiring a certain act to be done or an event to happen before the contract becomes binding.

contract – An agreement entered into by two or more legally competent parties by the terms of which one or more of the parties, for a consideration, undertakes to do or to refrain from doing some legal act or acts.

contract for deed – A contract for the sale of real estate under which the sale price is paid in periodic installments by the purchaser, who is in possession and holds equitable title although actual title is retained by the seller until final payment. Also called an installment contract or land contract.

contract for exchange of real estate – A contract for sale of real estate in which the consideration is paid wholly or partly in property.

conveyance – A written instrument that evidences transfer of some interest in real property from one person to another.

corporation – An entity or organization created by operation of law whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until dissolved according to legal procedures.

D

deed – A written instrument that when executed and delivered conveys title to or an interest in real estate.

deed of trust – An instrument used to create a lien by which the mortgagor conveys her or his title to a trustee, who holds it as security for the benefit of the noteholder (the lender); also called a trust deed.

deed restriction – The clauses in a deed limiting the future uses of the property. Deed restrictions may impose a variety of limitations and conditions, such as limiting the density of buildings, dictating the types of structures that can be erected, and preventing buildings from being used for specific purposes or from being used at all.

default – The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

delivery in escrow – Delivery of a deed to a third person until the performance of some act or condition by one of the parties.

devise – A transfer of real estate by will or last testament. The donor is the devisor and the recipient is the devisee.

discount points – An added loan fee charged by a lender to make the yield on a lower-than-market-value loan competitive with higher-interest loans. See also point.

E

earnest money deposit – An amount of money deposited by a buyer under the terms of a contract. In the event that the buyer, for no valid or legal reason, backs out of the transaction, earnest money is sometimes used as liquidated damages.

easement – A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporated interest in land. An easement appurtenant passes with the land when conveyed.

encroachment – A fixture or structure, such as a wall or fence, that invades a portion of a property belonging to another.

encumbrances – Any lien that may diminish the value of the property, such as a mortgage, tax, or judgment lien; easement; or restriction on the use of the land.

equity – The interest or value that an owner has in a property over and above any mortgage indebtedness.

escrow – The closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered on the performance of certain conditions in the escrow agreement.

exchange – A transaction in which all or part of the consideration for the purchase of real property is the transfer of like-kind property (that is, real estate for real estate). See IRS 1031.

execution – The signing and delivery of an instrument.

executor – The person designated in a will to handle the state of the deceased. The probate court must approve any sale of property by the executor.

F

fee-simple estate – The maximum possible estate or right of ownership of real property continuing forever. Sometimes called fee or fee-simple absolute.

fiduciary relationship – A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, principal and agent.

foreclosure – A legal procedure by which property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property either to the holder of the mortgage or to a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

franchise – A private contractual agreement to run a business using a designated trade name and operating procedures.

fraud – A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth and that actually does deceive.

G

general warranty deed – A deed that states that the title conveyed therein is good from the sovereignty of the soil to the grantee therein and that no one else can successfully claim the property.

good faith estimate – A written estimate of closing costs which the lender must provide to the borrower in advance of settlement.

grant – The act of conveying or transferring title to real property.

grantee – A person to whom real estate is conveyed; the buyer.

grantor – A person who conveys real estate by deed; the seller.

ground lease – A lease of land only, on which the tenant usually owners a building or is required to build her or his own building as specified in the lease. Such leases are usually long-term net leases; a tenant’s rights and obligations continue until the lease expires or is terminated through default.

H

habendum clause – The deed clause beginning “to have and to hold,” which defines or limits the extent of ownership in the estate granted by the deed.

heir – One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will.

I

insurable title – A title to land that a title company will insure.

insurance – The indemnification against loss from a specific hazard or peril through a contract (called a policy) and for a consideration (called a premium).

interest – A charge made by a lender for the use of money.

interim financing – A short-term loan usually made during the construction phase of a building project, often referred to as a construction loan.

intestate – The condition of a property owner who dies without leaving a will. Title to such property passes to his or her heirs as provided in the state law of descent.

invalid – Having no force or effect.

J

joint tenancy – The ownership of real estate by two or more parties who have been named in one conveyance as joint tenants. On the death of a joint tenant, her or his interest passes to the surviving join tenant or tenants by the rights of survivorship.

joint venture – The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.

L

land – The earth’s surface extending downward to the center of the earth and upward infinitely into space.

lease – A contract between a landlord (the lessor) and a tenant (the lessee) transferring the right to exclusive possession and use of the landlord’s real property to the lessee for a specified period of time and for a stated consideration (rent).

leasehold estate – A tenant’s right to occupy real estate during the term of a lease.

legacy – A disposition of money or personal property by will.

legal description – A description of a specific parcel of real estate sufficient for an independent surveyor to locate and identify it. The most common forms of legal description are rectangular survey, metes and bounds, and subdivision lot and block (plat).

lessee – The tenant who leases a property.

lessor – One who leases property to a tenant.

life estate – An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person.

life tenant – A person in possession of a life estate.

liquidated damages – Liquidated damages occur when, by contractual agreement, defaulted earnest money becomes the personal property of the seller.

lis pendens – A public notice that a lawsuit affecting title to or possession, use, and enjoyment of a parcel of real estate has been filed in either a state or federal court.

loan modification – A change in one or more of the terms of the loan, such as interest rate, monthly payment, payback period and/or principal balance with approval of all parties.

lot and block description – A description of real property that identifies a parcel of land by reference to lot and block numbers within a subdivision, as identified on a subdivision plat duly recorded in the county recorder’s office.

M

marketable title – A good and clear salable title reasonably free from risk of litigation over possible defects; also called a merchantable title.

metes-and-bounds description – A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using direction and distances around the tract, back to the point of beginning.

mortgage – A conditional transfer or pledge or real estate as security for a loan. Also, the document creating a mortgage lien.

mortgagor – One who, having all or part of title to property, pledges that property as security for a debt; the borrower.

N

notarize – To certify or attest to a document, as by a notary public.

notary public – A public official authorized to certify and attest to documents, take affidavits, take acknowledgements, administer oaths, and perform other such acts.

note – An instrument of credit given to attest a debt.

O

option – The right to purchase property within a definite time at a specified price. No obligation to purchase exists, but the seller is obligated to sell if the option holder exercises the right to purchase.

optionee – The party that receives and holds an option.

optionor – The party that grants or gives an option.

ownership – The exclusive right to hold, possess or control, and dispose of a tangible or intangible thing. Ownerships may be held by a person, corporation, or governmental entity.

P

partnership – An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals rather than as a single entity. A general partnership is a typical form of joint venture in which each general partner shares in the administration, profits, and losses of the operation. A limited partnership is a business arrangement by which the operation is administered by one or more general partners and funded by a limited or silent partners, who are by law responsible for losses only to the extent of their investment.

plat – A map of a town, section, or subdivision indicating the location and boundaries of individual properties.

plat book – A book containing recorded subdivisions of land.

power of attorney – A written instrument authorizing a person (the attorney-in-fact) to act on behalf of the maker to the extent indicated in the instrument.

prepayment penalty – A charge imposed on a borrower by a lender for early prepayment of the loan principal to compensate the lender for interest and other charges that would otherwise be lost.

principal – 1. A sum lent or employed as a fund or investment, as distinguished from its income or profits. 2. The original amount (as in a loan) of the total due and payable at a certain date. 3. A main party to a transaction – the person for whom the agent works.

probate – The formal judicial proceeding to prove or confirm the validity of a will or proof of heirship and to settle the affairs of the deceased.

proration – The proportional division or distribution of expenses of property ownership between two or more parties. Closing statement prorations generally include taxes, rents, insurance, interest charges, and assessments.

public utility easement – A right granted by a property owner to a public utility company to erect and maintain poles, wires, and conduits on, across, or under her or his land for telephone, electric power, gas, water, or sewer installation.

purchase-money mortgage – A note secured by a mortgage or deed of trust given by a buyer, as a mortgagor, to a seller, as a mortgagee, as part of the purchase price of the real estate.

Q

quitclaim deed – A conveyance by which the grantor transfers whatever interest he or she has in the real estate without warranties or obligations.

R

real estate – Land; a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached thereto, whether by nature or by man.

real property – Real property consists of land, anything affixed to it so as to be regarded as a permanent part of the land, that which is appurtenant to the land, and that which is immovable by law, including all rights and interest.

recording – The act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each county. Until recorded, a deed or mortgage generally is not effective against subsequent purchases or mortgage liens.

release – To relinquish an interest in or claim to a parcel of property.

remainder – The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another.

rent – A fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties.

rescission – The termination of a contract by mutual agreement of the parties.

reservation in a deed – The creation by a deed to property of a new right in favor of the grantor. Usually involves and easement, a life estate, or a mineral interest.

restriction – A limitation on the use of real property, generally originated by the owner or subdivider in a deed.

reverse annuity mortgage – A mortgage loan that allows the owner to receive periodic payments based on the equity in the home.

right of first refusal – A person’s right to have the first opportunity to either lease or purchase real property.

S

sales contract – A contract containing the complete terms of the agreement between buyer and seller for the sale of a particular parcel or parcels of real estate.

self-proving will – A will in which the witnesses give their testimony at the time of signing. This testimony is preserved in a notarized affidavit to eliminate the problem of finding the witnesses at the maker’s death to assist in the probating procedure.

short sale – When a sale of property is for less than the outstanding loan balance and the lender agrees to accept a lesser amount in exchange for releasing the property from the lien of the mortgage.

special assessment – A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

special warranty deed – A deed in which the grantor warrants or guarantees the title only against defects arising during the period of his or her tenure and ownership of the property and not against defects existing before that time, generally using the language “by, through, or under the grantor but not otherwise.”

subdivision – A tract of land divided by the owner, known as the subdivider, into blocks, building lots, and streets according to a recorded subdivision plat that must comply with local ordinances and regulations.

subordination agreement – An agreement that changes the order of priority of liens between two creditors.

survey – The process by which boundaries are measured and land areas are determined; the on-site measurement of lots lines, dimensions, and positions of buildings on a lot, including the determination of any existing encroachments or easements.

T

tenancy by the entirety – The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. On the death of one spouse, the survivor becomes the owner of the property.

tenancy in common – A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were the sole owner. Each individual has the right to partition. Unlike joint tenancy, there is no right of survivorship between tenants in common, and owners may have unequal interests.

tenant – One who holds or possesses lands or tenements by any kind of right of title.

testate – Having made and left a valid will.

testator – A will maker.

“time is of the essence” – A phrase in a contract that requires the performance of a certain act within a stated period of time.

title insurance – Insurance designed to indemnify the holder for loss sustained by reason of defects in a title, up to and including the policy limits.

trust – A fiduciary arrangement by which property is conveyed to a person or institution, called a trustee, and held and administered on behalf of another person, called a beneficiary.

trust deed – An instrument used to create a lien by which the trustor conveys his or her title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.

trustee – One who as agent for others handles money or holds title to their land.

trustee’s deed – A deed executed by a trustee conveying land held in a trust to the beneficiary or to some other third party.