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GLOSSSARY AND LEGAL DEFINITIONS
Acceleration clause- This is a portion/clause contained in your mortgage that allows the bank to call in the whole balance due on the loan in the event of missed payments. Without this clause, the bank must declare a separate default for each missed payment as the payment is missed. An acceleration clause allows a missed payment to be considered a default of the whole note and mortgage, and allows the bank to call the full balance due. (http://www.youtube.com/watch?v=hTPgAtaY5a8 )
Accrued Interest – The amount of interest earned on a note, but not yet received in payment. An example would be a straight note (no payments). At the end of the first year the balance owed would be the original principal plus one year’s interest.
Ad Valorem Taxes– is a Latin term meaning “based on value,” which applies to property taxes based on a percentage of the county’s assessment of the property’s value. The assessed value is the standard basis for local real property taxes, although some place “caps” (maximums) on the percentage of value or “parcel taxes”, which establish a flat rate per parcel. Ad valorem taxes may also be applied to personal property, such as a duty on imported items and motor vehicles.
Add-On Interest – The interest is applied to the loan amount to get yearly interest. This is multiplied by the number of years. This total interest is added on to the loan balance. The monthly payment is calculated by dividing this number (principal plus add-on interest) by the number of payments. This method contrasts with charging interest on the remaining principal balance.
Adjustable Rate Mortgage (ARM) – A mortgage or other real estate loan wherein the interest rate and payments that correspond to the interest are adjustable from year to year according to some index such as the rate paid by the government on Treasure Bills.
Adversary– The bankruptcy rules consist of nine distinct parts with Part VII governing adversary proceedings. Under Bankruptcy Rules Rule 7001, an adversary proceeding may be filed in a debtor’s bankruptcy action for certain specific reasons. An adversary proceeding may be filed to recover money or property of a debtor, for the sale of a debtor’s property by a co-owner, to object or revoke a discharge, to revoke the confirmation of a reorganization plan, to determine the dischargeability of a debt, to obtain an injunction or other equitable relief, and for other matters.
Affirmative Defense– is a type of defense in which the defendant seeks to avoid liability by introducing new evidence not addresses in the claims of the plaintiff’s complaint. Such a defense must be raised in the defendant answer, and because affirmative defenses require the assertion of facts beyond those claimed by the plaintiff, the defendant has the burden of proof for the defense. The burden of proof is typically lower than beyond a reasonable doubt. It can either be clear and convincing or preponderance of the evidence. An affirmative defense must be timely made by the defendant in order for the court to consider it, or else it is considered waived by the defendant’s failure to assert it. SEE http://www.youtube.com/watch?v=zfp1LQ_YPNk and http://www.youtube.com/watch?v=mizeLdLOBEM and http://www.youtube.com/watch?v=bm26tleKJWg
Algebraic Logic – The calculator logic of putting the operation sign (plus, minus, times or divided by) before the number is entered.
All-Inclusive Deed of Trust – A note secured by deed of trust that “wraps around” a smaller senior loan. See also “Wraparound Mortgage”.
Allonge– A paper attached to a negotiable instrument to enable writing endorsements when the back of the bill is full. An allonge is rare because bills of exchange are no longer very common. Limited case law regarding this matter exists because of its rarity, but there is some.
Amendment Of A Note – Changing the interest, payment schedule, or due date on an existing note without writing a new note.
Amortization – The payments on an amortized loan are established to contain both principal and interest so that the loan will be paid off in full by the end of the amortization period.
Annual Percentage Rate (APR) – The true cost of a loan to a borrower as required by the Truth in Lending Laws.
Arrears – 1) Behind in making payments, as in “The payments were 3 months in arrears.” 2) Later than earned, as in “Loan interest is paid in arrears. The interest for May is paid in the June payment.
Assignee – The person acquiring a note from a previous holder.
Assignment – Transfer of the right of a note from one holder to another.
Assignor – The person giving up ownership of a note to a new holder.
Automatic stay– is a freeze imposed on the lender as soon as you file for bankruptcy. The stay prevents lenders from moving forward on debt collections. Bankruptcy automatically triggers the stay, but in some situations lenders can convince the bankruptcy court to lift the stay.
Bankruptcy- Chapter 7– A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Not dischargeable in bankruptcy are alimony and child support, taxes, and fraudulent transactions. To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. Filing a bankruptcy petition automatically suspends all existing legal actions and is often used to forestall foreclosure or imposition of judgment. After 45 or more days a creditor with a debt secured by real or personal property can petition the court to have the “automatic stay” of legal rights removed and a foreclosure to proceed. When the court formally declares a party as a bankrupt, a party cannot file for bankruptcy again for seven years.
Bankruptcy Chapter 13– Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. The philosophy behind the law is to allow the debtor to make a fresh start, not to be punished for inability to pay debts. Bankruptcy law allows certain debtors to be discharged of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full. Chapter 13 allows individuals who have reliable incomes to pay all or a portion of their debts under protection and supervision of the court. Under Chapter 13, you file a bankruptcy petition and a proposed payment plan with the U.S. Bankruptcy Court. The law requires that the payments have a value at least equal to what would have been distributed in a Chapter 7 liquidation case. An important feature of Chapter 13 is that you will be permitted to keep all your assets while the plan is in effect and after you have successfully completed it
Bankruptcy remote is a term that describes the relative position of one company as it relates to bankruptcy vis-a-vis others within a corporate group, whereby the insolvency of the bankruptcy remote entity has as little economic impact as possible on other entities within the group. A bankruptcy remote entity is often a single-purpose entity. In practice, due to the concept of limited liability, most companies in developed legal systems will be de facto bankruptcy remote from other members of the group (except in limited circumstances where creditors are permitted to pierce the corporate veil). However, in financial structuring, references to bankruptcy remoteness usually imply additional steps being taken to protect group members from attendant liability, such as by using an orphan structure to remove the legal ownership of the bankruptcy remote vehicle from the group, whilst retaining the economic benefits of it. Such structures are used where the vehicle’s activities may give liability to the group as a whole, for example, under certain environmental protection legislation, or in relation to tax liabilities in certain countries.
Commercial mortgage loans often require that the properties financed be placed in special limited liability companies (LLCs) or corporations which are bankruptcy remote from their owners, to allow the lender to seize the property in the event of loan payment failures and not be stopped by the owner’s filing bankruptcy.
Balloon Payment – A large payment on a note, usually due at the end of the payment schedule. There can also be partial balloon payments during the note term.
Beneficiary – The person entitled to receive the payments on a note.
Bifurcation -Splitting something into two pieces. For example, an investor might wish to run portfolio analysis under different market conditions, such as if an interest rate cut occurs or does not occur. See http://www.youtube.com/user/consumerwarningnet#p/a
Blended Rate – The overall interest rate when two or more loans are on a property. It is higher than the rate on the lowest rate loan and lower than the rate on the highest interest loan. Also called Overall Rate (OAR).
Boiler Plate – Slang for standardized legal language or template format writing often used in loan forms, real estate closings, and legal contracts.
Buy Down – In order to reduce the interest and payments on a loan for the buyer, the property seller may pay the lender some money up front to “buy down” the interest and payments for a certain period of time. Example – The seller buys down on a 30-year loan at 14% interest so that the buyer of the property only pays 11% interest for the first 2 years.
Calculator – An electronic machine, programmed to perform specific computations. It has a “mind of its own” which was developed by the programmer and manufacturer. Different calculators are designed for performing different jobs.
Callable – Able to be redeemed prior to maturity. The term usually applies to bonds and convertible securities. The issuer of a callable security has to state the conditions under which the security may be called at the time of issue. For most securities, there is a certain initial time period in which the security cannot be called. A bond will usually be called when market interest rates fall below the yield being paid on the bond (bonds are usually called when the price rises to a certain point). To reflect this risk, a callable security is usually priced lower than a non-callable security
Carry Paper – For a property seller to take part of the entire sale price of the property in the form of a secured note. Example – The seller carried $20,000 in paper to facilitate the sale of his property.
Cash Flow Diagram – A graphic representation of a series of cash flows, in or out or both, showing how much and their timing.
Cause of Action– is a right to bring a lawsuit. A person or entity may have a cause of action limited by the time frame set forth by statute for bringing a lawsuit. A cause of action may exist under the common law (judge made law) or granted by statutes. In order to have a valid cause of action, all the legally defined elements of a claim must exist.
CDO.- An investment-grade security backed by a pool of various other securities. CDOs can be made up of any type of debt, in the form of bonds or loans, and usually do not deal with mortgages. CDOs, like CBOs and CMOs, are divided into slices, each slice is made up of debt which has a unique amount of risk associated with it. CDOs are often sold to investors who want exposure to the income generated by the debt but do not want to purchase the debt itself.
. A general term used to refer to collateralized bond obligations (CBO), collateralized loan obligations (CLO), and collateralized mortgage obligations (CMO).
Certified Mail– is a method of delivery used for important mailings that require proof of receipt, such as legal notifications. Certified mail provides the sender with a mailing receipt and a delivery record that is maintained by the Postal Service. A return receipt that provides the sender with proof of delivery can also be purchased for an additional fee. Certified mail service is available for First-Class Mail and Priority Mail. Certified Mail using Priority Mail is not yet available through this service.
Chargeoff- A chargeoff of a debt occurs when, after a certain period of time, credit card or loan issuers consider an unpaid credit card or loan account as a loss and therefore charge it off their books. Often, the account is then turned over to collection firms or attorneys for handling. A chargeoff for debts can be collected several years later unless it was discharged in a bankruptcy procedure.
Civil Procedure– is the body of law governing the methods and practices used in civil litigation. It can be enacted by the legislature or the courts. It can be the rules that are used in handling a civil case from the time the initial complaint is filed through the pretrial discovery, the trial and any subsequent appeal. In a nut shell it can taken as the methods, procedures, and practices used in civil cases.
Clear – Remove previous instructions and data from the calculator so they will not interfere with the next calculations. You can clear the program, the financial registers, the storage registers, and the display.
Clear Title– refers to the uncontested and unencumbered ownership of real property. A property lacking clear title is said to have a cloud on its title. A cloud on title may arise, for example, by a lien for nonpayment of a note secured by the property. Clouds on title may be removed by bringing an action to quiet title in a court of equity.
Closed-End Mortgage– is a loan in which the lender is given a security interest in real estate and the borrower may not repay the loan before the maturity date. The loan amount may not be increased or extended over the life of the loan. The borrower must also seek permission from the lender to incur additional debt, using the same collateral as security for the debt. It is the opposite of an open-end mortgage.
Closing – Completion of a transaction, including details like preparation and recording of legal documents, procurement of applicable insurance coverage, and transfer of fund.
Closing Costs – Closing costs are the expenses associated with buying real estate. Some of the items that may be included, among others, are:
– the loan origination fee or a point, charged for the lender’s costs of processing the loan. The fee is usually a percentage of the loan amount and the percentage varies among lenders the loan discount, called point or discount point, which is a one-time charge imposed by the lender or broker to lower the interest rate credit report fee, used by banks to determine the borrower’s credit rating. The Real Estate Procedures Closing Act, RESPA, requires lenders and mortgage brokers to give you a Good Faith Estimate of the loan-related expenses that are due at closing. However, this is only an estimate and actual costs may be significantly higher. Certain costs are prorated between the buyer and seller, such as property taxes. Closing costs may be negotiated between the buyer and seller. State and federal laws, which vary, apply to determine whether the seller or buyer may negotiate at the time of contract who pays certain closing costs. For example, FHA loans and 90% LTV (Loan to Value) typically allow a 6% seller contribution.
Collateral – Property pledged as security for performance of an obligation.
Collection Service – A neutral third party, other than the borrower or lender. The collection agency or collection service collects the payments due on a note and forwards the proceeds to the proper recipients.
Complaint– In foreclosure, a complaint is the initial document filed with the court or other authority by a person or entity claiming legal rights against another. The party filing the complaint is usually called the plaintiff and the party against whom the complaint is filed is called the defendant or defendants. Complaints must properly state the factual as well as legal basis for the claim. A complaint also must follow statutory requirements, which vary by jurisdiction. When the complaint is filed, a copy of the complaint and the summons must be served on a defendant before a response is required
Compounding – The situation where interest accrues and then gathers interest. Example – A $310,000 straight note (no payments) with 12% compound monthly interest earns $91,200 the first year. Adding that to the original principal gives the next year starting balance of $401,200. This sum will earn 12% interest. The process repeats each year.
Compound Interest – See Compounding.
Constant (Loan Constant) – The yearly payment on a loan divided by the remaining principal balance. As amortized loans are paid down, the Loan Constant increases.
Continuance– is a postponement of a date of a trial, hearing or other court appearance. An order for a continuance may be requested from the court by one of the parties, or the parties may agree to stipulate to a continuance. A court is more likely to decline a continuance if there have been other previous continuances. A continuance may be requested for various reasons, such as unavailability of an attorney or interested party, necessity of extra time to prepare for the matter, and others
Contract for Deed – A contract for deed allows the seller and purchaser to elect specific requirements concerning purchase price, interest, and payment terms. Also, fees related to insurance and taxes can be set in the direction of seller or the purchaser at their option before the signing of the agreement. A deed is the written document which transfers title (ownership) or an interest in real property to another person. The deed must describe the real property, name the party transferring the property (grantor), the party receiving the property (grantee) and be signed and notarized by the grantor. To complete the transfer (conveyance) the deed must be recorded in the office of the County Recorder or Recorder of Deeds. There are two basic types of deeds: a warranty deed, which guarantees that the grantor owns title, and the quitclaim deed, which transfers only that interest in the real property which the grantor actually has. The quitclaim is often used among family members or from one joint owner to the other when there is little question about existing ownership, or just to clear the title. A quitclaim deed conveys only such rights as the grantor has. A warranty deed conveys specifically described rights which together comprise good title.
Core Proceedings– In bankruptcy law, a proceeding is core if it invokes a substantive right provided by the Bankruptcy Code or by nature could arise only in the context of a bankruptcy case
Court Costs– include filing fees, charges for serving summons and subpoenas, court reporter charges for depositions, court transcripts and copying papers and exhibits. Court costs are often awarded to the successful party in a lawsuit. Attorneys’ fees can be included as court costs only if there is a statute providing for attorneys’ fee awards in a particular type of case, or if the case involved a contract which had an attorneys’ fee clause. Some statutes provide that costs may be waived upon the petition of an indigent person in certain cases where otherwise a person would be deprived of their due process rights of access to the judicial system.
Courthouse – Place where deeds and real estate paper are recorded. See also Recorder’s Office and Registrar of Deeds.
Counter-Claim– is made by the defendant to a civil proceeding, in a main action against the plaintiff or against the plaintiff and other people. This claim may be an attempt to offset or reduce the amount/implications of the plaintiff’s original claim against the defendant, or it may be a different claim.
Credit Report – The report on a person’s credit standing issued by a credit information bureau such as Experian. It shows what credit a person has been granted and what their payment record is.
Creditor – The person to whom money is owed.
Current – Payments are current when they are up to date.
Current Principal Balance – The balance currently owed on a note, which may be smaller or larger than the original principal balance.
Dead Equity – Equity in property, not earning interest, not being used to acquire more property.
Debt – An obligation owed by a borrower to a creditor.
Debtor – One who owes money to another.
Debt service – The monthly payments required to keep the loans on a property current.
Decimal – The period between numbers designating the difference between whole numbers and parts thereof. Example – 1,1, wherein the first 1 is a whole number and the second 1 represents 1/10th. In this case there is on number to the right of the decimal.
Deed in Lieu of Foreclosure– is a method sometimes used by a lienholder on property to avoid a lengthy and expensive foreclosure process, With a deed in lieu of foreclosure (DIL), a foreclosing lienholder agrees to have the ownership interest transferred to the bank/lienholder as payment in full. The debtor basically deeds the property to the bank instead of them paying for foreclosure proceedings. Therefore, if a debtor fails to make mortgage payments and the bank is about to foreclose on the property, the deed in lieu of foreclosure is an option that chooses to give the bank ownership of the property rather than having the bank use the legal process of foreclosure.
Deed of Trust – A deed of trust is a document which pledges real property to secure a loan, used instead of a mortgage in certain states. A deed of trust involves a third party called a trustee, usually a title insurance company or escrow company, who acts on behalf of the lender. When you sign a deed of trust, you in effect are giving a trustee title (ownership) of the property, but you hold the rights and privileges to use and live in or on the property. The trustee holds the original deed for the property until you repay the loan. When the loan is fully paid, the trustor requests the trustee to return the title by reconveyance. If the loan becomes delinquent the beneficiary can file a notice of default and, if the loan is not brought current, can demand that the trustee begin foreclosure on the property so that the beneficiary may either be paid or obtain title. Unlike a mortgage, a deed of trust also gives the trustee the right to foreclose on your property without taking you to court first.
Default (legal meaning) – default refers to a failure to fulfill a legal obligation or duty. For example, a default by a borrower under a loan agreement permits a lender to take certain actions in response to the default. Also, refers to the failure of a party to do something that the law required him to do. A default occurs when a person who is required to be present before the court of law for some proceedings before it, fails to appear in court.
Defective Title– Defective title refers to a title to real property which is invalid because a claimed prior holder of the title did not have title, or there is an inaccurate description of the property, or some other “cloud” over it, which may or may not be learned from reading the deed. To avoid a defective title problem, a purchaser will often research the chain of title.
Chain of title refers to the history of passing of title ownership to real property from the present owner back to the original owner. A record of title documents may be maintained by a registry office or civil law notary. Chains of title include notations of deeds, judgments of distribution from estates, certificates of death of a joint tenant, foreclosures, judgments of quiet title, and other recorded transfers of title to real property. Before purchasing property, the purchaser will usually hire a title companies or abstractors to search out the chain of title and provide a report so that a purchaser will be assured the title is clear of any claims. In many real estate transactions, insurance companies issue title insurance based upon the chain of title to the property when it is transferred.
Delinquent – When payments are overdue, they are said to be delinquent.
Delta – A Greek symbol shaped like a triangle, which stands for change between two numbers. Example – Delta % from 100 to 125 is 25% increase.
Deposition– The sworn testimony of a witness taken before trial held out of court with no judge present. The witness is placed under oath to tell the truth and lawyers for each party may ask questions. A deposition is part of pre-trial discovery (fact-finding), set up by an attorney for one of the parties to a lawsuit demanding the sworn testimony of the opposing party, a witness, or an expert intended to be called at trial by the opposition. If the person requested to testify, called the deponent, is a party to the lawsuit or someone who works for an involved party, notice of time and place of the deposition can be given to the other side’s attorney, but if the witness is an independent third party, a subpoena will be served on that person to appear to testify.
Discount – A purchase price less than the remaining principal balance of a note.
Discounted Paper – Real estate paper bought or sold at a price less than the principal balance.
Discounting – The practice of adjusting the price of a note to compensate for other factors such as terms, payments, interest rate, security, and needs of the seller. The discount raises the yield to the buyer.
Discount Points – A point is one percent of the principal amount.
Discount Rate– refers to the interest rate that banks pay on loans to them from the Federal Reserve. Banks whose reserves dip below the reserve requirement set by the Federal Reserve’s Board of Governors must take immediate action to make up their shortfall. The Federal Reserve will usually make a short-term loan to a bank in this situation to give the bank an opportunity to make adjustments in its loan and investment portfolio that will permit it to raise its reserves.
Discovery– is a fact-finding process that takes place after a lawsuit has been filed and before trial in the matter, in order to allow the parties in the case to prepare for settlement or trial. It is based upon the belief that a free exchange of information is more likely to help uncover the truth regarding the facts in issue. Court rules and state rules of evidence govern the discovery procedure. Some discovery methods include written questions called interrogatories, requests for admission which can be only admitted or denied, oral questions at depositions, requests for inspection of property impossible or impractical to move, and requests for production of papers and other physical items to be delivered to the requesting party. http://www.youtube.com/watch?v=xyecWBmGqfU
Double Escrow – Two separate but related escrows or closings, each contingent or dependent on the other. Example – You are buying a note and reselling it immediately for profit. The buy and resale escrows are contingent on each other and close at the exact same time. See Simultaneous Closing.
Due Process– Due process generally requires fairness in government proceedings. A person is entitled to notice and opportunity to be heard at a hearing when they have property at stake. Laws should be applied to persons equally, without discrimination on prohibited grounds, such as gender, nationality, handicap, or age. For example, when a person’s home is in danger of tax foreclosure, the notice of delinquency is required to be sent within a certain time period and the person must be allowed to pay the full amount owed before it is sold to a third party. If there is an error in taxation or the person wishes to contest the appraisal, an appeals process is available.
Due on Sale Clause– Due on sale clauses are provisions in a contract, typically a loan against property, which is an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent.
Durable Power of Attorney– is a legal document that enables the grantor (Principal) to designate another person called the agent or attorney-in-fact to act on behalf of the Principal, even in the event the individual becomes disabled or incapacitated. Therefore a “durable” power of attorney stays valid even if the Principal is not able to handle his or her affairs (incapacitated). Usually a power of attorney becomes ineffective if its grantor dies or becomes incapacitated. If the grantor does not specify that that the power of attorney is to be durable, it will automatically end when the principal becomes incapacitated.
Effective Interest Rate – The overall yield earned on an investment, taking into account the discount and all existing loan terms.
Encumbered– means to burden with debts or legal claims. For example, an interest in real property may be encumbered by mortgages. When property is jointly owned, signatures of all owners is usually required to encumber the property.
End Buyer – The person who purchases the real estate note you find.
Enlargement of Time– refers to extension of time during which a party may plead a case, file a requisite document in court etc. The party seeks the court’s leave for granting such time when he or she files a motion for Enlargement of time.
Enter – Putting a number or other information into the calculator. An entry starts in the display and then is entered into the calculator inner workings for use.
Equity – The amount left over after subtracting the loans from the value of the property.
Equity Cushion – The margin of safety over and above a specific loan on a property. A $100,000 property with $65,000 in loans would have a $35,000 equity cushion to protect the loans.
Escalation – Rising loan payments as time goes on.
Escrow – A neutral third party stakeholder that receives the instruments, contracts, documents and funds in a transaction as needed from both parties. Escrow sees that the terms and conditions of the contract are fulfilled according to the escrow instructions.
Escrow Instructions – Written instructions to an escrow officer, signed by both parties to a transaction. This tells the escrow officer exactly what to do to complete the transaction.
Escrow Officer – The person responsible for administration of the transactions in an escrow office.
Execution – The legal signing of a document. In order to record an instrument, a Notary Public must witness its execution.
Existing Financing – The financing on a property before making any changes. Example – When looking for a property to buy, you are first interested in the existing financing. See also Proposed Financing.
Extension Agreement – A written agreement giving a debtor more time to pay on an obligation.
Face Amount – The original principal balance appearing on the face of the note. Be sure to check the current principal balance of a seasoned note because it may be drastically different than the face amount.
Fannie Mae– is another name for the Federal National Mortgage Association. Fannie Mae is a private, shareholder-owned company that aims to assist Americans become homeowners. Rather than lending money directly to home buyers, Fannie Mae works with lenders to ensure they have sufficient money to lend to those trying to obtain mortgages.
Final Judgment -. the written determination of a lawsuit by the judge who presided at trial (or heard a successful motion to dismiss or a stipulation for judgment), which renders (makes) rulings on all issues and completes the case unless it is appealed to a higher court. It is also called a final decree or final decision. http://www.youtube.com/watch?v=MkDTeW5-Sh8
Financial Calculator – A calculator designed for dealing in computations involving money, loans, payments, and time.
First Loan – (Note, Mortgage, Trust Deed) – The first loan to be recorded as a lien against a specific property (first in time and security).
Flipping – Slang for referring a note to an investor and making a quick cash profit.
Foreclosure – A judicial foreclosure is the means of enforcing one’s right to payment under a Mortgage. The judge orders the property to be sold at auction and the proceeds used to pay the creditor. A Trust Deed can be foreclosed by having the Trustee auction the property via Trustee’s Sale.
Free and Clear – Property that has no loans on it whatsoever is free and clear.
Full Disclosure– is a legal requirement in various situations, such as real estate transactions and prenuptial agreements, that seeks to balance the negotiating power of both parties to a transaction through equal possession of relevant information. It is a requirement that the whole truth must be told before a purchase is made or a contract is signed, so that the purchaser or signer is fully informed about the consequences of his/her decision.
Fully Amortized – A loan whose payments include both interest and principal and will eventually be paid in full during its term with no balloon payment.
FV – Future Value – The balloon payment of a loan or the loan balance as of some future date.
Ginnie Mae– is a nickname for the Government National Mortgage Association, which guarantees investors the timely payment of principal and interest on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).
Good Faith Estimate– provides the borrower with the information needed to shop for a loan effectively. A Good Faith Estimate sets out all the costs associated with the mortgage, and often experts recommend seeing it before committing to a loan. When a person applies for a mortgage, the government requires the lender to give a “Good Faith Estimate” within three days of the application. A Good Faith Estimate helps to compare the real costs of competing mortgage offers. It may be tricky if different lenders list the same costs in different way, or if the same costs are incomplete or inaccurate. A Good Faith Estimate covers every expense associated with a home loan, including interest rate and discount points, lender’s fees, title and transfer charges, prepaid interest, insurance, and expected increase in fees. A person can protect himself/herself from nasty surprises by asking the lender to “lock in” its fees. Along with the Good Faith Estimate, the lender also provides a Truth in Lending disclosure form which gives the Annual Percentage Rate on the mortgage.
Grantee– in the context of real property law is a person to whom an estate or interest in real property passes, in or by a deed. The person who passes the property is called a grantor. Laws affecting the rights and obligations of grantees are primarily governed by state laws, which vary by state.
Grantor– in the context of real property law is a person from or by whom an estate or interest in real property passes, in or by a deed. The person to whom the property passes is called a grantee. Laws affecting the rights and obligations of grantors are primarily governed by state laws, which vary by state.
Green Note – A note that is created in the sale of property for the specific purpose of immediate resale to a prearranged investor. In this case it might be construed to be a direct loan of money from the investor to the property Seller; and therefore subject o usury and truth in lending laws. See also Usury and Truth in Lending.
Hard Money – New money loaned against a property without a change in ownership. Example – A property owner puts a new second loan on the property to get cash. This is a hard money loan. Hard money loans generally involve personal liability in addition to the lien on the property. See also Purchase Money.
Hard Paper – Paper that has good strong terms and commands a good resale value in the paper marketplace. It would sell for a relatively small discount.
Holder – The current owner of a note.
Hypothecation – Pledging assets for a loan. In the case of a real estate loan, the property is pledged or hypothecated as security for the loan. When you borrow against a note you own, you assign the note to the lender as security for the money you are borrowing. The income from the note you assigned pays the payments on the money you borrowed. When the lender is paid in full, the note is assigned back to you. Though title to the property is not transferred, hypothecation creates a right by the creditor to liquidate the property to satisfy the debt in the event of default. If the debt isn’t paid, the creditor may have the property seized to satisfy the debt, although the person hypothecating the property is not personally liable if the collateral doesn’t pay off the debt
I – The interest rate or yield on a note.
Imputed Interest – In seller carry-back financing, when the interest is below a certain rate determined by the IRS, the IRS imputes or charges the property seller tax on the higher rate of interest. (See your tax advisor on this).
Imputed Principal – In seller carry-back financing, when the buyer or the property gets an interest rate below a certain rate specified by the IRS, the IRS may impute or declare that the actual property sales price was lower than stated in the purchase contract. (See your tax advisor on this).
Insolvency means the inability to pay one’s debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts
Installment – One of a series of payments on a note.
Installment Note – A note that is payable in several individual payments called installments.
Instrument – The legal document used as evidence of debt, title, lien, etc.
Interest – “Rent” paid on a debt. See also Add-On Interest, Compound Interest, and Simple Interest.
Interest Extra – The loan payment terms wherein the payment goes to principal and not to interest.
Interest Included – The loan payment terms wherein the payment goes to interest first and any surplus goes to reducing the principal.
Interest Only – The loan payment terms wherein the payment is exactly equal to the monthly interest, not more and not less.
Interrogatories– Part of the pre-trial discovery (fact-finding) process in which a witness provides written answers to written questions under oath. The answers must be returned within a specified time, usually 30 days, and often can be used as evidence in the trial. Objections as to relevancy or clarity may be raised either at the time the interrogatories are answered or when they are used in trial. Most states limit the number of interrogatories, which vary by state, that may be asked without the court’s permission to keep the questions from being a means of harassment rather than a source of information.
Internal Rate of Return (IRR) – The yield or rate of return, used when working with a series of uneven cash flows; as contrasted to regular uniform payments.
Investment to Value (ITV) – The measure of the percentage ratio between the total loans on the property plus your investment cost, and the value of the property.
Jumbo Loan– is also known as a non-conforming loan. It is a mortgage where the loan amount exceeds the limit set by Office of Federal Housing Enterprise Oversight (OFHEO) and therefore, not eligible to be purchased or guaranteed by Fannie Mae or Freddie Mac. Jumbo loans are often securitized by institutions other than Fannie Mae or Freddie Mac.
Junior – Recorded at a later date (than the senior loans). The security instrument recorded next after the first loan would be a second. It is junior to the first.
K Factor – The Loan Constant. See Constant.
Land Contract – A security instrument where in the seller (Vendor) gives the buyer (Vendee) possession of the property, but retains legal title (the deed) as security for a loan until specific payment has been made. The buyer of the property gets “equity title” and the right to use and enjoy the property and tax benefits prior to actually receiving the deed.
Late Charges – Fees or penalties owed to a lender when payments are late.
Less Than Interest Only – The loan payment terms wherein the payments are less than the monthly interest. This means the total debt grows with time. See Negative Amortization.
Level Payments – The loan payment terms wherein payments stay the same each period, neither increasing nor decreasing with time.
Leverage – Buying property with Other People’s Money (OPM). This allows one to acquire much more property by putting as little down payment on each piece as possible. High leverage means low equity.
Liabilities – Debts and obligations owed on.
Lien – An encumbrance or charge recorded against a property. Recorded loans are liens.
Limited Liability Company (LLC), also known as a company with limited liability (WLL), is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions. LLCs do not need to be organized for profit. Often incorrectly called a “limited liability corporation” (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.
Line of Credit – A prearranged loan from a lender wherein when you want the money, all you have to do is write a check. The check is deposited with the lender and becomes a loan at that time. Instant loan!
Liquidate – Go out of title, or turn into cash.
Loan – The granting of the use of money or equity in return for payment. The loans includes the right of one party to collect from another according to the loan agreement or note. There are existing loans (already there) and new loans (ones just being created).
Loan Constant – See Constant.
Loan Modification – The process of changing the terms and conditions of a loan agreement by the issuer of the loan. This action may be initiated by the borrower or the lender. Loan modifications are typically requested by the borrower in order to lower their monthly payment or interest rate. If the loan modification is accepted by the lender and the borrower, the new terms and conditions supersede the previous contract. The lender has the ability to accept or deny a request for a loan modification after evaluating the borrower’s application and financial history. Loan modifications may reduce the interest rate, but extend the duration of loan; these types of modifications may end up costing the borrower more money in the long run. SEE
Loan Servicer– is a financial institution which reports loan payment, collects the monthly payment and penalties on late payment, releases liens, makes certain that insurance and taxes are paid and initiates foreclosure proceedings for loans in default. A loan servicer is also called a mortgage servicer. Mortgage servicers receive fee income. The loan servicer can also be a lender, who owns the loan. Most often, the investors hire loan servicers to collect payments.
Loan to Value Ration (LTV) – The measure of the security of a given loan. It is calculated by taking the amount of the loan and any senior loans and dividing that by the property value. The standard “safe” ration is 80%.
Loan Value – The maximum of loans that most lenders would lend on a property. Assuming and 80% loan to value ration, the Loan Value on a $100,000 property would be $80,000.
Long-Term – In private party carry-back notes, long-term depends on the viewpoint of the parties, but generally, long-term would be over 3 years for discount paper.
Lost Instrument– is a written document that cannot be found after careful and thorough search. The term covers an instrument that has been stolen, burned, or otherwise destroyed. Loss of a written instrument, as a general rule, does not change the obligation of the parties, since the writing is only evidence of the right it represents.
Maker – The person who signs a note, agreeing to pay it.
Marketable – A not is marketable when there are a large number of potential buyers for it, based on note, size, security, yield, and terms.
Market Value – What a normal buyer would pay and a normal seller would sell for in terms of price.
Maturity – The time when and obligation becomes due and payable in full.
MLS – A database of real estate listings for sale. The MLS (Multiple Listing Service) is commonly used by realtors to research what properties are available. Each property listed in the MLS is assigned an eight-digit ID number. The MLS can be useful for finding simultaneous close owner financing note deals.
Moratorium – A suspension of payments and possibly interest.
Mortgage – A security instrument, which pledges a property to insure payment of a note. In case of default, it is foreclosed in the courts.
Mortgage Broker – A party who joins borrowers and lenders for loans, earning a placement fee. Also, an intermediary who buys and sells secured notes.
Mortgage Deed – See Deed of Trust.
Mortgagee – The party who is the beneficiary of a mortgage. The seller of the property who receives the monthly payment and holds the mortgage contract as security.
Mortgage Release – A release of a mortgage by the lender when the loan has been paid in full.
Mortgagor – The party who has pledged the property as security for the mortgage and note. The owner of the real estate. Also the borrower making payments to the mortgagee.
Motion to Dismiss– is a party’s request to a court to dismiss a case because of settlement, voluntary withdrawal, procedural defect or claim is one for which the law provides a remedy
Negative Amortization – A loan payment that is less than interest only. This means the obligation grows with time.
Negative Cash Flow – Cash going out, outflow of money.
Negotiable Instrument – In relation to a written instrument it means capable of being transferred by delivery or endorsement when the transferee takes the instrument for value, in good faith, and without notice of conflicting title claims or defenses. A document such as a mortgage or note. It must meet certain legal requirements that allow it to be transferred (negotiated) from one holder to another.
Net Present Value (NPV) – The value of a series of uneven cash flow discounted to a present value figure.
Nominal Interest Rate – The interest rate stated in a note. This may be quite different from the yield to an investor who buys the note at discount.
N – The number of payments or compounding periods on a loan.
Non-Judicial Foreclosure- Non-judicial foreclosure is only available for deeds of trust with power-of-sale clauses. They are not available for traditional mortgages. Where available, non-judicial foreclosures are heavily regulated. Generally, before foreclosing, lenders must give special notice to the property-owner. Afterwards, lenders must wait a specified time before auctioning off the property.
THE NON-JUDICIAL FORECLOSURE PROCESS
There are many states that use Deeds of Trust rather than mortgages. An example of a non-judicial foreclosure is as follows:
1. The Notice of Default (NOD) starts the non-judicial foreclosure process. The lender forwards a Declaration of Default and an Instruction to the Trustee to proceed with the NOD, the Trustee will sign and cause to be recorded the NOD in the Office of the County Recorder of the appropriate county.
A copy of the NOD is mailed to all parties entitled to its receipt. The Trustee will order a Trustee’s Sale Guarantee (TSG) from a title company. The TSG assures the priority of each lien or encumbrance recorded against the property and provides the mailing information for the parties entitled to receive the NOD.
2. The Three (3) Month Reinstatement Period. This is the minimum period, required by law, to wait before a Notice of Sale can be published and recorded. Throughout the foreclosure process, up until five (5) days prior to the Trustee’s Sale date, or postponed sale date, the borrower can fully reinstate the loan.
The lender may endeavor to negotiate workout and forbearance agreements.
3. The Notice of Trustee’s Sale – 21 Day Publication Period. No sooner than three (3) months from the recording date of the NOD, a Notice of Trustee’s Sale, indicating the place, date and time of the sale, must be published in a local newspaper.
Twenty-one (21) days thereafter the property may be eligible to be sold at public auction to the highest bidder.
The borrower has the right to reinstate the loan up until five (5) days prior to the published sale date, or postponed sale date. In the event the NOD was filed due to a balloon payment and/or maturity date, the lender(s) may require the loan be paid in full at any time during the foreclosure. Otherwise, in the five (5) days preceding the sale or postponed sale, the lender(s) may accept reinstatement, or require that the loan be paid in full.
4. The Trustee’s Sale. The Notice of Trustee’s Sale will designate the date, time and location of the auction. The property is typically sold along with other properties auctioned by the Trustee.
Full Credit Bidding. The lender(s)’ opening bid for the property (also known as the “Credit Bid”) may be the total amount due on the loan, including principal, accrued interest to the date of the sale, late charges, legal fees, foreclosure fees, advances, interest on advances, etc. (referred to as a full credit bid).
Under Bidding. The opening bid requested by the lender(s) may be less than the total amount due. These circumstances may require the advice of an attorney, an accountant or other professional. Specific bidding instructions to the Trustee are required if under bidding is elected by the lender(s).
Bidding Instructions. While full credit bidding may not be appropriate, unless otherwise instructed in writing, no later than three (3) days prior to the sale date, or postponed sale date, the lender will direct the Trustee to proceed with a bid usually in the amount of the unpaid principal balance of the loan, directing the Trustee to increase the Lenders’ bid to the unpaid debt if a third party is bidding at the sale.
The property is sold to the highest bidder. If no one bids at the sale, the property is sold to the foreclosing lender(s) for the opening bid, whatever it may be. The Trustee conveys title by signing and recording a Trustee’s Deed Upon Sale.
QUESTIONS AND ANSWERS
When Can a Lender Foreclose? To exercise a non-judicial foreclosure against a borrower’s property, the lender(s) must follow certain statutory
procedures set forth in the Civil Code. A lender can begin a non-judicial foreclosure (without proceeding with a lawsuit to foreclose) when a borrower defaults under the terms, covenants and conditions contained in the Note and/or Deed of Trust. Most often a non-judicial foreclosure is begun because a borrower has not paid one or more of his/her/their regular installment payments.
How can a Lender Try to Collect from the Borrower? The Lender may begin following up with borrowers if their payments are not received within the normal 10 day grace period.
The first contact is attempted by telephone with a follow up letter. If the borrower fails to respond to both telephone and/or written notice of the late payment, a letter is written letting them know of the Lenders intention to foreclose.
What are the Costs Associated with a Foreclosure?. The Lender may use a specialist company to provide foreclosure services, from filing the NOD through conducting the Trustee’s Sale.
Acting as the Trustee, the company can charges fees as allowed by law. In addition, the Trustee passes along their mailing, posting, recording and other related costs and expenses of the foreclosure. The Trustee purchases a Trustee’s Sale Guarantee, described above, from a title company. Required publication of the Notice of Sale in newspapers or other publications local to the property result in additional costs and expenses. Depending upon where the property is located and the length of the legal description of the property, the publishing and posting fees vary.Who Pays For the Foreclosure? If the borrower reinstates the loan, or enters into a Forbearance Agreement, the foreclosure fees, costs and expenses are collected from the borrower. The lender(s) is/are otherwise responsible for the payment of all foreclosure fees, costs and expenses.
Note – A written promise to pay, with all the terms and conditions of the obligation, signed, and in the proper legal format. A note can be secured or unsecured.
Note Holder – The person currently in ownership and possession of a note and entitled to collect all its remaining payments. The holder might not be the original beneficiary.
Note Owner – See Note Holder.
Note Payment Book (Record) – A simple record of all payments made on a note showing how much was paid each payment. It breaks each payment down to principal and interest, and shows the current principal balance.
Nothing Down – Acquiring property with no cash out of pocket by the buyer. This does not mean that the seller and/or real estate agent did not receive cash. Cash comes from more places than just the buyer.
Notice of Default – A written legal notice of junior lien holders from a senior lien holder, notifying them that the senior lien is foreclosing.
Notice of Trustee’s Sale – Notice published in the newspaper, stating that a property in foreclosure is to be sold at auction.
Novation – Rewriting an old document and replacing it with the new one.
Obligee – The person to whom payments are owed according to the terms of a note.
Obligor – The person obligated to make the payments on a note.
Offset Statement – A written statement by a lender or a borrower concerning the current status of a loan. It includes the current principal balance, whether payments are current or not, and terms and conditions of the loan.
Option – The right to buy something for a stated price and terms within a certain time period. Something must be paid for this right. This is called option consideration. The option will either be exercised (used) or abandoned (not used).
Optionee – The person who has the right to buy under an option.
Optionor – The person who has agreed to sell property under an option.
Original Principal Balance – The principal owed on a note the day it started. This is contrasted to the current principal balance, which may be different.
Origination – The creation of something, in this case a note and security instrument.
“Or More” Clause – A clause in a note stating that the monthly payments are to be so many dollars “Or More”. This eliminates any kind of prepayment penalty.
Or Order – A clause in a note, such as “Pay to Joe Jones or order”. The “or order” would be an assignee or future owner of the note.
Overall Rate (OAR) – See Blended Rates.
Owner – The person having title to something such as property or a note.
Owner Financing – When the seller of a property takes a note secured by the property as part of the payment.
Paper – In our usage, a promissory note secured by real estate.
Partial Amortization – Loan payments that cover principal and interest for a certain period of time, but then the remaining balance is due in a balloon payment at the stop date.
Pause – In running a program, the calculator will pause at certain points so you can write down the answer before it resumes processing.
Payee – The person to who payments are due on a note.
Payment – The amount of money paid in each installment on a note.
Payment Book – See Note Payment Book.
Payment Schedule – The specifics of how much each payment is and when each payment is due.
Payor – The person obligated to make the payments on a note. It is also the mortgagor with a mortgage contract or a trustor with a trust deed.
Percentage – A fraction expressed in one-hundredths. This is used for interest rates, for example 0.09 is 9%. 9% simple interest on $100,000 is $9,000 per year.
Personal Note – An unsecured note. The maker has personal liability on a personal note.
PITI – Principal, Interest, Taxes, and Insurance. On an amortized loan that has an impound or escrow account for taxes and insurance, the monthly payment consists of Principal, Interest, Taxes and Insurance (PITI).
PMT – The payment on a loan.
Points – A point is 1% of the principal. See also Discount Points.
Positive Cash Flow – Cash coming in, inflow of money.
Ponzi Scheme– A pyramid scheme
Predatory Lending– Predatory” is a term used in lending contracts. Lenders following predatory lending practices target vulnerable consumers like women or those who do not qualify for conventional loans. Predatory lending has one of the following characteristics:
The target group will be mainly the elderly or those with very low income. The cost or loan terms at closing are not what you initially agreed to. Aggressive sales tactics. Repeated refinancing options over short periods of time enabling the lender to collect additional/penalty fees. This strips the homeowners’ equity from their homes. The lending will not be in tune with the borrower’s ability to repay. The lender’s focus will be foreclosure. The borrower is blind to many underlying truths. There may be a lot of misrepresentations on the nature of loan, the amount of payment. The transaction will be packed with high fees which will be hidden from the borrower’s eyes. The aggressive sales tactics trick borrowers, mostly the uninformed groups, into accepting unfair loan terms. The federal remedies available to victims of predatory lending are: the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), the Home Ownership and Equity Protection Act (HOEPA), which is a 1994 addition to TILA, the Equal Credit Opportunity Act (ECOA), the Fair Housing Act, and the Federal Trade Commission Act. State remedies can be found in State Unfair and Deceptive Trade Practices Acts, common law fraud and unconscionability, and Special State Anti-predatory Lending Statutes.
Prepayment – Paying on a loan before the payment is due, especially paying the loan off in full before its due date.
Prepayment Penalty (PPP) – An amount or percentage of a loan that you must pay the lender if you pay off the loan earlier than the date specified in the mortgage/note. Lenders often use prepayment penalities to discourage borrowers from refinancing with another lender. See also “Or More” Clause.
Present Value (PV) – Money has a time value. Money is now worth more than money later. The worth of a future amount of money is less than having that same amount of money now. Example – You might only be willing to pay $2,500 now in order to receive $10,000 payable in 10 years. The Present Value of that $10,000 is $2,500 in you mind.
Principal – The amount of money loaned out or carried back on property sale. The principal amount of the note is at first equal to the face amount. It then may vary according to how payments are made.
Principal Balance – The remaining amount of principal due on a note as of a certain date. This may be more or less than the original face amount of the note. See also Amortization, Negative Amortization, and Interest Only.
Private Party – The normal “guy next door” that sold his property and carried back paper to make the sale. Not a loan broker or real estate agent dealing in notes for profit.
Private Party Financing – See Seller Carry-Back Financing.
Pro-se– acting as your own attorney
Program – As a noun it means the detailed instructions given to a computer or calculator telling it what steps to do and in what order to do them. As a verb it means to tell the calculator what steps to do.
Promissory Note – A legal written promise to pay a certain amount according to its terms and conditions. See also Secured Loan, Unsecured Loan.
Property Owner – The person who owns the property that is the security for a note. The property is the one who owes and pays on the note.
Proposed Financing – How we intend to have the financing look after we are done with our current transaction. See also Existing Financing.
Protective Equity – The excess “equity cushion” left over after subtracting the loan we are considering and any senior loans from the property value. Example – A $100,000 property with $65,000 in loans against it would have a $35,000 protective equity over and above the loans.
Purchase Money – Money that is loaned for the purchase of real property. This can be in the form of seller carry back financing or a new bank loan. It is contrasted to Refinance Money or Hard Money. In certain cases it may carry no personal liability and may not be subject to deficiency judgments.
PV – Present Value or current principal balance on a loan. Present value can be the worth of a stream of future payments discounted to today’s dollars or to an amount of money today.
Rate of Return – See Yield.
Real Estate Paper – Notes secured by real estate and held by private parties; not banks, professional loan finders, or real estate agents in the business of dealing in notes for profit. Real estate paper can include: Mortgages, Deeds of Trust, Security Deeds, and Land Contracts.
Recall – Retrieving data stored in the calculator memory.
Recast – To decide new terms for an existing loan. This may be associated with the situation wherein a debtor cannot pay according to the original terms, but can pay some other way.
Recovery – When a trust deed is paid off, the trustee reconveys his title back to the property owner and releases the lien from the property. It means to convey title back to the owner of the property.
Reconveyance – See Reconvey.
Recordation – The formal recording (filing) of a legal document such as a security instrument. Recordation with the County Recorder’s Office or other appropriate governmental office serves constructive notice to the world that the document exists.
Recorder’s Office – The local governmental agency responsible for maintaining official records or documents filed therein, such as deeds and security instruments (real estate paper). See Courthouse, Registrar of Deeds.
Recourse – When signing (endorsing) a note from one party to another, you do so either with or without recourse. With recourse means that you still have contingent liability to the buyer of the note. In the event the maker doesn’t pay as promised, you have to pay. See Without Recourse.
Recourse Debt– A loan in which the lender has the legal right to pursue any of your assets to collect on the balance of the loan.
REO – Real Estate owned by Mortgage Holder. After a foreclosure sale/auction has taken place the property, if no one else bids on it, reverts back to the Mortgage Holder.
Redemption – In a foreclosure situation, redemption means the right to pay off the loan in full plus foreclosing fees and either stop the foreclosure while it is in progress or get the property back after it has been sold. See Redemption Period.
Redemption Period – The period of time during a foreclosure when the debtor has the right to make payment in full and stop the proceedings. Also a period after the property has been sold through foreclosure in which the foreclosed owner can pay the loan amount plus applicable charges and get the property back. This varies according to state law.
Refinance – Paying off an old loan on the property by putting a new, usually larger loan on it. Any remaining funds go to the property owner. See also Hard Money, Personal Liability.
Registers – Storage pockets in the calculator memory. You can store information in the appropriate register and then recall it later.
Registrar of Deeds – See Recorder’s Office, Courthouse.
Reinstatement – In the beginning of a foreclosure, the debtor has the right to catch up the payments plus foreclosure fees and reinstate the loan. This means to make it current and stop the foreclosure, just as it was before. During reinstatement it is not necessary to pay the loan in full unless the loan was due anyway.
Reinstatement Period – The period specified by local law, within which the debtor has the right to catch up the payments plus foreclosure fees and stop foreclosure.
Release of Liability – The appropriate documentation from a creditor to a debtor, releasing the debt and any liens associated with it.
Release of Mortgage – A written instrument releasing a mortgage lien from a property. Also called a Certificate of Discharge.
Renegotiate – To change the terms and conditions of an existing note by mutual agreement of Payor and Payee. Either party can ask the other to renegotiate. Asking for a discount for early payoff is a form of renegotiation.
Request for Reconveyance – An instrument executed by a trust deed holder, directing the trustee to convey his title lien on the property back to the Trustor (property owner). The Request for Reconveyance is usually printed on the back of the trust deed.
RESPA– The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute dealing with home buying transactions which is administered by HUD. RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD’s Office of RESPA and Interstate Land Sales is responsible for enforcing RESPA. (http://www.youtube.com/watch?v=NmdttNrwa2c )
Reverse Polish Notation (RPN) – Calculator logic or way of thinking in which the number is entered before the operation (plus, minus, times, divided by). The Hewlett Packard HP12c uses RPN.
Risk – A determination of how safe or dangerous something is. An unsecured note generally involves more risk than a well-secured note.
Rollover Note – A relatively short-term (5 year) note that renews each time at some new interest rate pegged to the cost of money at that time.
Rule of 72 – A banker’s interest computation invention that allows for greater than normal interest in the early part of the loan. Also a rule of thumb for determining how long it takes to double your money at a certain interest rate. Divide 72 by the interest rate and this is close to the number of years it will take to double the money.
Satisfaction of Mortgage – Completion of the terms of repayment release from liability on a mortgage.
Seasoned Note – A note that has been in existence for a while and has a proven record
of satisfactory payments being made. Seasoned notes are typically safer investment than newly created notes. See Green Note.
Second – The lien immediately junior to the First. Recorded second in time.
Second Mortgage– is a mortgage made subsequent to another mortgage and subordinate to the first one. Second mortgage loans are different from first mortgages in several ways. They often carry a higher interest rate, and they usually are for a shorter time, 15 years or less. In addition, they may require a large single payment at the end of the term, commonly known as a balloon payment.
Secured Loan – A loan (note), which has specific collateral, pledged to secure its payment. In the event payment is not made, the collateral will be sold to provide funds to pay the note.
Security Deed – See Deed of Trust.
Secured Loan– a loan that has some sort of collateral attached that the lender can take and sell if you don’t repay the debt. Home mortgages and car loans are two examples.
Security Instrument – The official legal document which, when properly recorded, places a lien on the property to secure the payment on a note. The most common security instruments are mortgages and trust deeds.
Seller Carry-Back Financing – refers to a home financing method in which the seller of the property carries a second trust deed and note against the property. It is a transaction in which the seller of real property defers collection from the buyer of some portion or the entire price of the real property and takes a promissory note from the buyer for the amount due, secured by a mortgage or deed of trust on the real property.
It is typically used when the buyer can’t afford the down payment or is unable to obtain another loan. One advantage may be that the seller will usually go at or below market interest rate and no closing costs are involved. It benefits the seller by producing an income that is usually higher than the rate banks offer. See also Owner Financing.
Seniority – The order in time in which documents are recorded. The first lien recorded is the “First,” the next is the “Second,” etc. Recording, not when notes were created, is what counts. In the event of foreclosure, the lien foreclosing is paid first and the leftover funds, if any, go to the juniors. Senior liens are more secure than junior liens.
Senior Lien – A lien recorded before others. A lien can be senior to some and junior to others. Example – A second is a senior to the third but junior to a first.
Service Provider– is the company that handles the financial transactions between you and the mortgage holder, i.e., your mortgage payment, escrow, insurances, etc, for the Mortgage Holder. They are not, in most cases, the Mortgage Holder or the holder/owner of your Note and Mortgage.
Short Sale– A short sale in the context of real estate refers to when a lender agrees to release the lien that is secured to the property upon receipt of less money than is actually owed. A short sale may occur when the current owner is unable to meet the mortgage payments. By forgiving the balance of the debt, the lender may avoid the expenses and efforts involved in foreclosure.
Short-Term – In private financing, a note having 3 years or less remaining.
Sign – The plus or minus sign before a number as used in mathematics of addition or subtraction. Also indicating whether a cash flow is positive (in) or negative (out).
Signature Loan – An unsecured personal loan from a bank or credit union.
Simple Interest – Interest based on the principal balance of the loan only. It doesn’t add on to the principal. It does not compound. It is less than compound interest.
Simultaneous Closing – Two transactions or two parts of a transaction that are completed at the same time. Such transactions are often dependent and contingent upon each other. One cannot happen without the other. See Double Escrow.
Soft Paper – Paper with low interest, a long term, low or no payments, and perhaps questionable security. It has little or no marketability for cash and is used mainly in trade. One would like to borrow on soft paper and sell on hard paper.
Special Appearance– is made in court by an attorney representing a client on behalf of their regular attorney of record or for a particular session of court. An attorney may make a special appearance to protect the interests of a potential client but before a fee has been paid or arranged because the attorney has not committed to represent the client in all future matters.”
Stop Date – The date of the last payment on a note. It may be fully amortized or there may be a balloon payment. Also referred to as Call Date.
Storage – Placing a number in a regi8ster or memory unit of the calculator for later recall and use.
Statute of Limitations– is a law which sets the maximum period which one can wait before filing a lawsuit, depending on the type of case or claim. The periods vary by state and by type of claim. Federal statutes set the limitations for federal lawsuits. If the lawsuit or claim is not filed before the statutory deadline, the right to sue or make a claim is lost forever.
Straight Note – A note having no payments during its term, with a balloon payment at the end. It may have either simple or compound interest.
Stipulation– is an agreement made by parties or by their attorneys in a judicial proceeding before the court. Stipulations are often made on procedural matters. Stipulations are also sometimes made regarding factual matters not in dispute in order to save time required in producing evidence in court. Some stipulations are oral, but are often required to be put in writing, signed and filed with the court. Stipulations save time and promote judicial efficiency.
Sua Sponte– is a Latin term meaning “of one’s own accord.” It refers to when the court addresses an issue that has not been presented for consideration by the litigants. A common situation is when the court dismisses an action, for example by determining that jurisdiction is not proper even though both parties have agreed to appear in the court.
Subject Matter Jurisdiction– is the authority of a court to hear the type of case brought before it. It is jurisdiction over the type of claim brought by the plaintiff. For example, a small claims court only has subject matter jurisdiction of claims up to a certain dollar amount. Federal courts have jurisdiction over claims involving federal laws.
Submortgage– is an agreement in which a mortgage lender uses a mortgage held by him/her as collateral for his/her own loan. The original lender uses a borrower’s property rather than his/her own property for getting loan for his or her personal use.
Subpoena– is an order directed to an individual commanding him to appear in court on a certain day to testify or produce documents in a pending lawsuit. The power to subpoena a person is granted officers of the court, such as clerks of courts, attorneys and judges. A person may be subpoenaed to appear in court or any designated location to provide testimony for trial or deposition or produce documents or other evidence. A subpoena which requests items be brought with the person is called a “subpoena duces tecum.
Substitute Service– is service of legal papers on someone other than the named party when the named party is unable to be served personally. A court will generally allow substituted service when it is proven that all reasonable efforts in the circumstances have been made to effect personal service: and an alternate method of substituted service is proposed that will likely result in the matter coming to the attention of the party sought to be served. The order for substituted service may include instructions for service on relative, service by ordinary mail, postage pre-paid and where appropriate, registered mail, addressed to the party to be served at the last known address, or other manners of service.
Summary Judgment– is a decision made on the basis of statements and evidence presented in the legal pleadings and documents filed, without a trial. It is used when there is no dispute as to the facts of the case, and one party is entitled to judgment as a matter of law. Summary judgment is properly granted when the evidence in support of the moving party establishes that there is no genuine issue of material fact to be tried. A material fact is one which tends to prove or disprove an element of the claim. The motion for summary judgment may be brought by any party to the case and supported by declarations under oath, excerpts from depositions which are under oath, admissions of fact and other discovery, as well as case law and other legal authority, that argue that there are no triable or unresolved issues of fact and that the settled facts require a summary judgment for the moving party. If the motion for summary judgment is denied, the case proceeds in the court system until settled or concluded after trial. http://www.youtube.com/watch?v=JAIkfmTsgww
Tax Deed– Transfers the ownership of the property to the person who pays the deliquient or back property taxes due on the property.
Temporary Injunction– is a court order prohibiting an action by a party to a lawsuit until there has been a trial or other court action. The purpose of a temporary injunction is to maintain the status quo and prevent irreparable damage or preserve the subject matter of the litigation until the trial is over. After the trial the court may issue a permanent injunction or dissolve the temporary injunction.
Tenancy By The Entirety– has some characteristics different than other joint tenancies, such as the inability of one joint tenant to sever the ownership and differences in tax treatment. It is similar to joint tenancy because when a spouse dies the surviving spouse takes the entire estate in fee simple. Unlike joint tenancy, there is no unilateral right to division of property. Divisions can me made only in a divorce action or by mutual agreement. A major advantage of this type of tenancy is that the creditors of an individual spouse cannot reach the entireties property.
Tenants in Common– hold title to real or personal property so that each has an “undivided interest” in the property and all have an equal right to use the property. Tenants in common each own a portion of the property, which may be unequal, but have the right to possess the entire property. There is no “right of survivorship” if one of the tenants in common dies, and each interest may be separately sold, mortgaged or willed to another. A tenancy in common interest is distinguished from a joint tenancy interest, which passes automatically to the survivor. Upon the death of a tenant in common there must be a court supervised administration of the estate of the deceased to transfer the interest in the property.
Term – The length or duration of time a loan runs. Example – A 5-year term.
Terms – The main feature of a loan: principal amount, interest rate, payment schedule, and due date.
Title Examination– is a close examination of all public records that affect the title to the real estate you are purchasing. The search involves reviewing past deeds, wills, and trusts to make sure the title has passed correctly to each new owner. The examiner tries to verify that all prior mortgages, judgments, and other liens have been paid in full. Defective title refers to a title to real property which is invalid because a claimed prior holder of the title did not have title, or there is an inaccurate description of the property, or some other “cloud” over it, which may or may not be learned from reading the deed. To avoid a defective title problem, a purchaser will often research the chain of title. Chain of title refers to the history of passing of title ownership to real property from the present owner back to the original owner. A record of title documents may be maintained by a registry office or civil law notary. Chains of title include notations of deeds, judgments of distribution from estates, certificates of death of a joint tenant, foreclosures, judgments of quiet title, and other recorded transfers of title to real property. Before purchasing property, the purchaser will usually hire a title companies or abstractors to search out the chain of title and provide a report so that a purchaser will be assured the title is clear of any claims. In many real estate transactions, insurance companies issue title insurance based upon the chain of title to the property when it is transferred.
Title Guaranty/Insurance– is also referred to as title insurance. Title insurance is a policy issued by an insurance company guaranteeing that the title to a parcel of real property is clear of any claims or liens and properly in the name of the title owner and that the owner has the right to sell or otherwise transfer the property to another. The insurance company will pay the damages to the new title holder or secured lender or take steps to correct the problem if a problem with the property ownership is later discovered, such as an incorrect boundary description. Title insurance covers problems that did not show up during the title search or were missed by the examiner and errors in public records. Title insurance does not cover defects that occur after you purchase the property. Policies often exclude problems having to do with easements, mineral and air rights, and liens. Title insurance policies are paid in-full with a one-time fee which is usually part of closing costs. Payment is usually made by the buyer, unless the state requires the seller to purchase title insurance or the seller agrees to pay for it.
Transcript– is an official recording of a legal proceeding. It may be the transcript of a proceeding in court or out-of-court proceeding, such as a deposition. A transcript is usually prepared by a court reporter and copies of the transcript are typically available to be purchased by the parties, usually on a per-page cost basis.
Treasury Bond– A negotiable, coupon-bearing debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of more than 7 years. Interest is paid semi-annually. Treasury bonds are exempt from state and local taxes. These securities have the longest maturity of any bond issued by the U.S. Treasury, from 10 to 30 years. The 30-year bond is also called the “long bond.” Denominations range from $1000 to $1 million. Treasury bonds pay interest every 6 months at a fixed coupon rate. These bonds are not callable, but some older Treasury bonds available on the secondary market are callable within five years of the maturity date. also called U.S. Treasury bond or T-bond.
Tri-Merge Credit Report– a document showing your credit history as reported by the three major credit reporting agencies.
Triple Damages– Triple (treble) damages are a tripling of an award in a lawsuit against a defendant who is subject to punitive damages. Punitive damages are awarded when a defendant’s conduct was malicious, or in reckless disregard of plaintiff’s rights. Punitive damages are designed to deter such wrongful conduct by the defendant in the future, rather than compensate the plaintiff for a particular loss or injury. Such damages are an exception to the rule that damages are to compensate not to punish. Punitive damages are often awarded in cases of fraudulent acts by the defendant.
Trust Deed – Or Deed of Trust – is the written document which transfers title (ownership) or an interest in real property to another person. A trustee’s deed is a deed to be executed by a person serving as a trustee in their appointed capacity. A trustee’s deed is often used, for example, by a trustee in bankruptcy to sell real property of the debtor. The deed must describe the real property, name the party transferring the property (grantor), the party receiving the property (grantee) and be signed and notarized by the grantor. To complete the transfer (conveyance) the deed must be recorded in the office of the County Recorder or Recorder of Deeds. There are two basic types of deeds: a warranty deed, which guarantees that the grantor owns title, and the quitclaim deed, which transfers only that interest in the real property which the grantor actually has. The quitclaim is often used among family members or from one joint owner to the other when there is little question about existing ownership, or just to clear the title. A written document for the transfer of land or other real property from one person to another. A quitclaim deed conveys only such rights as the grantor has. A warranty deed conveys specifically described rights which together comprise good title.
Trustee – One who holds property in trust for another to secure the performance of an obligation. The person who manages a trust, the trustee, has a legal duty to manage the trust’s assets in the best interests of the beneficiary or beneficiaries. Typical trustee duties include managing rental properties, investing funds or paying income to the beneficiary. An example of a trustee would be a title company or attorney.
Trustee in Bankruptcy– is a person appointed by the United States Department of Justice or by the creditors involved in a bankruptcy case. Under Chapter 7 of the Bankruptcy Code, the trustee duties are gathering the debtor’s non-exempt property, managing the funds from the sale of those assets, paying expenses and distributing the balance to the owed creditors. The trustee is responsible for receiving the debtor’s monthly payments and proportionally distributing those funds to the bankrupt’s creditors. The Bankruptcy Trustee acts on behalf of the debtor to guarantee that both the creditors’ and the debtor’s interests are maintained in accordance with the bankruptcy laws. The trustee in bankruptcy is often required to act as a negotiator between the two parties.
Trustor – The person who conveys property in trust. One who deeds his property to a trustee to be held as security until he has performed under the terms of a deed of trust.
Truth in Lending Laws – Legislation that pertains to fair dealing and full disclosure in making new loans. It does not apply to the sale of existing notes. Also known as TILA. http://www.youtube.com/watch?v=NmdttNrwa2c
Unclean Hands Doctrine- The clean hands doctrine is a rule of law that someone bringing a lawsuit or motion and asking the court for equitable relief must be innocent of wrongdoing or unfair conduct relating to the subject matter of his/her claim. It is an affirmative defense that the defendant may claim the plaintiff has “unclean hands”. However, this defense may not be used to put in issue conduct of the plaintiff unrelated to plaintiff’s claim. Therefore, plaintiff’s unrelated corrupt actions and general immoral character would be irrelevant. The defendant must show that plaintiff misled the defendant or has done something wrong regarding the matter under consideration. The wrongful conduct may be of a legal or moral nature, as long as it relates to the matter in issue. Robo-Signing is a good example of “unclean hands”
Uncontested– means not disputed or that all issues are agreed upon by both the parties. When a law suit is not actively defended by the responding party it is referred to as uncontested.
Usury– is a civil or criminal violation involving charging more than the maximum interest rate allowed by law. The rate of interest legally allowed is governed by state statutes. If a court finds that the rate of interest on a loan is usurious, the interest due becomes void and only the principal of the loan needs to be repaid.
Vacate– In the context of a court order or decision, vacate means to overrule or void. A decision may be vacated for error, however, the error must be significant enough that it affected the outcome. In the context of landlord-tenant law, vacate means to leave the premises, either voluntarily or involuntarily. A landlord generally may not evict a tenant from a rental unit for any reason, other than for nonpayment, unless he or she has served the tenant with a valid written notice to vacate. Local laws, which vary, govern the notice requirements for a landlord seeking a tenant’s vacancy.
Verified Petition– is a formal written request to a court for an order of the court (1) under oath taken before a notary public or other officer authorized to take affidavits and to administer oaths or (2) under a declaration stating in substance “I declare under penalty of perjury that the foregoing is true and correct” and further stating the date and place of execution. Verification, in the legal context, refers to a declaration under oath or upon penalty of perjury that a statement or pleading is true. The verification is located at the end of a document. False information given in a verified legal pleading is subject to penalties for perjury.
Voluntary Dismissal– refers to the termination of a suit at the request of the plaintiff in a suit. The plaintiff is the party who initially filed a law suit with the court. In a voluntary dismissal, the plaintiff voluntarily withdraws the action or claim it brought before the court. Voluntary dismissal procedure is discussed under the Federal Rules of Civil Procedure, Rule 41(a). Voluntary dismissal may be made by the plaintiff alone or by both the plaintiff and defendant jointly making a stipulation for the dismissal. The plaintiff can make a voluntary dismissal of a suit only before the defendant makes any formal court action. If the defendant has made a formal court action, the plaintiff can dismiss the suit only if the defendant signs an agreement with the plaintiff to dismiss the case or by seeking a court order for the dismissal. The plaintiff may bring the suit once again to the court unless the order for dismissal denies it in cases where a court order was sought for the dismissal. A voluntary dismissal again in that case will mean that the plaintiff shall loose their right to bring a same action again to court.
Voir Dire– is a Latin term meaning “to see or speak”. Voir dire is a legal procedure conducted before trial in which the attorneys and the judge question of prospective jurors to determine if any juror is biased and/or cannot deal with the issues fairly, or if there is cause not to allow a juror to serve. Some of the reasons a juror might not decide a case fairly include knowledge of the facts, acquaintanceship with parties, witnesses or attorneys, occupation which might lead to bias; prejudice against the death penalty, or previous experiences such as having been sued in a similar case.
Unconscionable– in legal terms refers to a contract or bargain which is so unfair to a party that no reasonable or informed person would agree to it. In a suit for breach of contract, a court will not enforce an unconscionable contract. The court in such a case will determine that to enforce the contract would be grossly unfair to one of the parties based upon their being misled, lacking information or signing under duress or misunderstanding, often due to the acts of the person seeking enforcement.
Uneven Payments – The payments of a loan vary from time to time, they are said to be “uneven” payments. Example – $100/month the first year, then $200/month the second year, and then $300/month thereafter. See IRR.
Unmarketable Note – A note which has such soft terms that it cannot be sold for cash. It might be used in trade as part of the down payment on real estate however.
Unsecured Loan – An unsecured note or personal note and is not backed up by collateral. It is secured only by the maker’s written promise to pay. No specific security has been pledged to back up the promise to pay. Credit card debt and medical expenses are examples.
Unsecured Note – See Unsecured Loan.
Usury – There are “usury” laws, which specify the maximum rate private parties can charge each other on loans. Above that rate, it is “usury” and the loan would be “usurious.” This involves stiff legal penalties. There is absolutely no limit as to how much yield a person can get when they buy a note at discount, however.
Value – What one party is willing to pay for something. There are as many values for something as there are parties considering owning it. When there is widespread agreement of value, we have a market value (generally agreed -upon price such as the price of gasoline). On the other hand, notes have a less well-defined market. Therefore negotiation has a large part in determining value or price.
WAC – Weighted Average Coupon – this formula is used to weigh the average yield on a portfolio of two or more notes. To calculate WAC, multiple each note’s coupon (interest) rate by its individual remaining balance. That gives you the approximate existing yield for a package of notes with varied interest rates.
WAM – Weighted Average Maturity – Allows you to calculate the overall maturity rate of a note portfolio, reflecting a truer measure of where the weight falls on a time line. More accurate than an average maturity, calculation when dealing with many notes, or where you have the bigger notes for longer terms and a couple of smaller notes on real short terms. A simple average would be extremely distorted in bias toward the low side in remaining months to maturity.
Walking Backwards – A note whose payments are less than Interest Only. This means the amount owed increases with time. See also Negative Amortization, Straight Note.
Without Recourse – The way of endorsing a note to an assignee. This protects the assignor from any further liability on the sale, even in the event the Maker fails to pay on the note. This is the way to sell a note to protect yourself. See also Recourse.
Wrap-Around Contract – A Land Contract that wraps around earlier existing financing. See Wrap-Around mortgage.
Wrap-Around Mortgage – A larger Mortgage that “wraps around” a smaller senior lien. The debtor pays to the holder of the “Wrap-Around” and the holder of the “Wrap” pays on the included senior lien.
Yield – In a financial context, it is the annual rate of return on an investment, expressed as a percentage. It may be calculated according to various methods. For bonds and notes, it may be calculated with the coupon rate divided by the market price. For securities, it is the annual dividends divided by the purchase price. However, these methods do not factor in capital gains, The true rate of return on investment on a note bought at discount, taking into account the actual amount invested and the remaining payments and their timing. The yield is often far greater than the interest rate specified in the note itself when the note is bought at discount.