A one-percentage-point fee applied by a lender to the principle loan amount.
A general term for a percentage of the principal amount of a conventional loan; a rate adjustment factor. For making a loan, a lender will often charge the borrower some service charge points. One percent of the loan amount is equal to one point. In the beginning of a loan application, when the lender doesn’t know how much of a loan will be approved, it’s easier to say that the fee is a set percentage of the loan amount. Points are sometimes necessary to cover the costs the lender has to pay to get the loan started and to make up for any losses when the mortgage is sold on the secondary mortgage market. Points can be used to “buy down” the rate or raise the lender’s yield. In traditional financing, the buyer or the seller can pay the points.
In everyday use, the word “points” can mean many different things, which can lead to confusion. Points and discount charges are often used interchangeably, but they are not the same thing. Technically, a point is a unit of measurement. It measures not only the amount of “discount,” but also other costs like mortgage insurance premiums and origination fees. The borrower should make sure that each cost item is clearly labeled.
In the sales agreement, it should be clear who pays the points. Sellers who pay points should know that they may have to pay more than they thought because of things like an appraisal that shows the home is worth less than the sellers thought, repairs that are required by the FHA and require building permit fees and other costs, and changes in the market that may cause the point structure to go up.
Points are like a one-time fee for using money. Different things can be deducted under federal tax law. When it comes to taxes, points paid as payment for using borrowed money are treated as interest, not as payment for the lender’s services. The prepaid interest rule says that these points should be treated as if they were paid over the life of the loan. This is because they are similar to paying interest ahead of time. This also applies to charges that are similar to points, like a loan processing fee or a premium charge. Note, though, that discount charges paid by the seller for an FHA loan are not interest, so they are not tax-deductible.
Homeowners who refinanced their loans only to get a lower interest rate can’t deduct all of the points they paid when paying off their loans. Over the life of the loan, the points must be paid off.
Under federal “truth-in-lending” laws, the borrower’s payment of points must be included in the APR and given to the consumer in full.
The authority of a municipality to enact laws that promote health, safety, morals, and general well-being. Building rules, planning goals, and zoning ordinances are all enforced by the use of police force.
The right of the government to control personal conduct and the use of property in order to safeguard the population’s health, welfare, and safety.
A state’s constitutional authority and inherent power to enact and enforce laws and regulations that promote and support public health, safety, morals, and general welfare. Such laws must be applied consistently and without discrimination, and they cannot benefit any one person or group in particular. It is, in essence, a power derived from individual state constitutions, which also grant counties, cities, and municipalities the authority to adopt and enforce appropriate local ordinances and regulations that do not conflict with general laws. The right to tax, the right to regulate land use through a general plan and zoning, the right to require persons selling real estate to be licensed, the right to regulate pollution, environmental control, and rent control are all examples of police power.
Traditional notions of police power have recently been expanded to include the enhancement of the community’s aesthetic beauty. Courts, for example, have upheld an ordinance restricting advertising in state parks, as well as the regulation of a community’s appearance through design review boards.
Police power also includes the authority to damage or destroy private property (without compensation to the owner) when doing so is necessary to protect the public interest. This may occur, for example, if a condominium unit catches fire and the fire department is forced to destroy an adjacent unit in order to extinguish the fire and save the rest of the building. Although the government is not required to compensate an owner for such destruction, a valid claim against the insurance policy covering the burning unit or the owner’s own policy may be filed. Although the state has the authority to regulate the use of an individual’s property in order to protect public health, safety, and welfare, such regulation has its limitations. If it goes too far, it is considered a “taking,” which requires the state to compensate the individual affected.
Previously employed in the construction of electrical connections and equipment were cancer-causing substances.
The complete universe of data from which samples are drawn in statistics.
Portable loans let you sell your home and move to a new one without having to change your loan. When you can move, you can use stamp duty and avoid paying break costs if you’re on a fixed rate. You don’t need to refinance, and you don’t have to pay break costs.
A roofed structure that extends from a building’s entrance over an adjacent driveway to provide shelter for people getting into or out of vehicles.
Income from interest, dividends, rents, and royalties, gain from disposition of investment property, passive activity income regarded as portfolio income under the Tax Reform Act of 1986 phase-in provisions, and income from a trade or company in which the taxpayer does not engage meaningfully (unless the activity is a “passive activity” under the passive loss rules).
Income derived from securities such as stocks and bonds is classified as such by the IRS. Income derived directly from rental real estate operations does not qualify as portfolio income.
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Banks and other financial entities that fund mortgage loans and then keep the loans as investments.
A loan that was made by the lending institution and is still being managed by it. It is not sold on the secondary mortgage market. The qualifications set by the secondary mortgage market do not limit the lender. After the loans have “aged,” they are eventually sold.
A person or organization in charge of a portfolio of investments.
A manager in charge of several key initiatives.
Considering real estate investments in light of an owner’s other assets and overall status.
The overall risk of owning a collection of assets. When one investment is coupled with another that has balancing risk patterns, the risks associated with the first investment may be reduced.
The amount of money left over after deducting rental income and paying operating expenses and mortgage payments. Negative cash flow, also known as an alligator, occurs when more money is owed than is earned.
When a property’s income (typically rent) is adequate to cover the costs of ownership - such as loan repayments, upkeep, rates, and management fees - the owner receives a net return.
Possession or occupation of property, whether actual or constructive. Possession serves as constructive notice that the party in possession may be entitled to certain rights. As a result, when someone is in possession of property under a claim of ownership and a buyer purchases the property from the owner of record for value, the purchaser is not protected under the recording laws, because possession imparts constructive notice in the same way that recording a deed does. According to legend, the purchaser should have investigated the claims of the person in possession (sometimes called inquiry notice). Furthermore, possession of a property frequently cures an indefinite description in deeds, leases, sales contracts, and the like. When a sales transaction is completed, the buyer typically gains the right to possess real property.
The right of a property owner to inhabit it. By right of title, the owner enjoys constructive possession of the property when it is inhabited by a renter.
When a life estate expires, a residual interest in the property becomes effective.
Property granted under a deed may revert to the grantor if the grantee breaches a condition under which the property was granted. For example, Napoleon Baker transfers his farm to Steve Stowe and his heirs on the condition that Stowe prohibits the consumption of alcohol on the property. If Stowe violated the condition by allowing alcoholic beverages on the property, the property would revert to Baker. According to current thinking, a reverter possibility is a land estate that can be sold and devised.
A check that appears to be dated later than the date of signing and is thus not negotiable until the later date arrives, because a bank cannot make payment before the stated date. Such a check is legal as long as it was not postdated for illegal purposes. The person who receives a postdated check is deemed to acquire title as of the date of delivery, not the date of the check. Accepting a postdated check as a deposit is bad form for a broker. It is preferable to draught a promissory note that provides for the prevailing party to recover costs and attorney fees if the deposit is not paid on time. When a broker accepts a check or promissory note, he or she must inform the principal of this fact. An escrow company will usually not accept a postdated check, but it may hold a properly dated check for one day before cashing it.
Water that can be consumed safely and comfortably. The availability of potable water must be disclosed in a public offering statement used in the sale of subdivided land.
The greatest amount of money that a property might generate if it were completely rented at market rates.
The property’s entire yearly income if it were fully rented and there were no collection losses.
The amount of rental income a property would earn if there were no vacancies.
An instrument that authorizes another person to serve as the grantor’s agent.
A written instrument authorizing a person, the attorney in-fact, to act as agent for another to the extent specified in the instrument." A warrant of attorney is also known as a letter of attorney. The following are some highlights of relevant general practise regarding the use of powers of attorney for the sale or purchase of real estate:
- A real estate license may not be required for an attorney-in-fact to sell the owner’s property. An exception to this rule would be if the attorney-in-fact is engaged in real estate development or brokerage and is purposefully avoiding licensing requirements.
- Good title practice necessitates the recording of the power of attorney; otherwise, the document signed by the attorney-in-fact, such as a deed, is ineffective against third parties. To be recorded, the power of attorney must be acknowledged. To revoke a recorded power of attorney, a notice of revocation is required.
- Good title practice requires that the parties use a “special” or limited power of attorney to convey real estate rather than an all-inclusive general power of attorney. Because the power of attorney is strictly construed, it must expressly authorize the attorney-in-fact to carry out the entire transaction. The time limit must also not have expired. A power to sell does not imply a power to convey.
- Any power of attorney instrument should be executed as follows: “John Frank by John Neil, his attorney-in-fact.” The agent’s name should never be the first to be signed. The principal’s name can be typed in by the agent.
- One spouse may act as the other spouse’s attorney-in-fact for the purchase of property, but this may conflict with homestead, dower, or courtesy rights in the sale of property. If the agent has a vested interest in the transaction, the agent cannot act legally.
- Normally, the power of attorney is automatically revoked upon the death of either the principal or the attorney-in-fact. Because of the revocation-by-death rule, most title companies are extremely cautious with power of attorney documents. A durable power of attorney continues to be valid even if the principal becomes incompetent or disabled.
- The power of attorney must be in writing under the equal dignities rule, because the real estate documents to be signed under the power of attorney must be in writing.
- When the transaction is to be closed in escrow, the power of attorney should be forwarded to escrow along with an original and three copies.
A mortgage clause that gives the lender or a trustee the ability to carry out a foreclosure. Allows for nonjudicial foreclosing.
In the event of a borrower’s default, a clause in a mortgage authorizing the mortgage holder to sell the property at public auction without resorting to legal action. The proceeds of the public sale are used first to pay off the mortgage debt, with any surplus going to the mortgagor. Trust deeds also include a power-of-sale clause, which gives the trustee the authority to sell trust property under certain conditions. In some states, powers of sale are not used.
The power of sale is a contractual right that cannot be exercised unless all of the terms of the mortgage are met.
In general, when dealing with Torrens-registered land, the certificate of title must state that the mortgage contains a power of sale. Otherwise, no subsequent document, such as a power of sale deed or lease assignment, will be accepted for registration.
A mortgage clause that allows the lender to sell the property if the borrower defaults.
Three or more hard goods retailing behemoths are usually found in these shopping malls (for example, Walmart and Home Depot). The high ratio of anchor tenants to lesser tenants is a power center’s defining trait.
Providing services unique to the legal profession, such as preparing legal documents, providing legal advice and counsel, or drafting contracts that secure legal rights. Whether or not fees are charged, a broker’s license can be suspended or revoked for the unlawful practice of law. The broker also has an ethical obligation to recommend that legal counsel be obtained when either the buyer or seller’s interests require it.
There is widespread uncertainty about whether the broker’s use of certain forms constitutes legal practice. While it is permissible for the broker to assist in the completion of certain standard forms, such as a sales contract, the broker is required to do so with accuracy and certainty. Form completion is permitted only when it is incidental to the broker earning a commission and not when the broker charges a separate fee for filling out the form. The broker may not prepare documents such as contracts for deed, deeds, options, mortgages, and certain leases in most states, but may assist with the completion of an attorney-approved document.
You get a written offer from a lender that says how much money they will give you, if you meet certain conditions.
A loan that is almost ready to close because all the paperwork is in order and there is a good chance that credit or income problems won’t stop it. It doesn’t always mean that the file has been approved by the lender, who has promised to pay for the closing.
A pre-closing meeting where documents are prepared, reviewed, and signed, and estimated prorations are made well in advance of the closing date. Because there may be hundreds of separate units to close finally within one day, pre closings are common in the conversion of entire apartment buildings to condominiums.
A run-through of the ending.
Building parts are sent to the construction site unassembled and marked with codes that show how to put them together step by step. Precuts require skilled work on-site, and building them can cost more than building a home in a factory.
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There are many unethical ways for a lender to make loans that are secured by a home or car. The lender does this so that if the borrower can’t pay back the loan, the lender can take back the home or car and sell it for a profit. The practices, which are somewhere between fair risk-based pricing and outright fraud, are meant to take advantage of borrowers who don’t know what they’re doing—often people with low incomes, little education, or who are older. These schemes shouldn’t involve people who have real estate licenses.
A provision sometimes inserted in a deed of subdivided land retaining the developer’s right of first refusal or granting that right to the owner of an adjacent lot, who may exercise it when the property is offered for sale. Some condominium documents also state that any condo owner has the right of first refusal upon the resale of another unit in the building.
A legal doctrine that states that one law is superior to another. Federal lenders, for example, argue that, under the Supremacy Clause of the United States Constitution, federal laws governing the validity of due-on-sale clauses preempt any state laws or court cases to the contrary. Under certain conditions, the OCC and the FHLBB have adopted regulations that preempt state usury laws.
A senior equity position that is structured similarly to a mezzanine loan but is structured as a senior equity position rather than a loan. A stated preferred return and control powers equivalent to, or higher than, those of a mezzanine lender are characteristic of a preferred equity position.
After the initial capital investment has been refunded, the second kind of cash flow distribution in a fund is payable. A preferred return is similar to a preferred stock dividend, and it is paid before any other claims on the underlying property cash flows.
Prior to receiving a certificate of occupancy, secure a lease commitment.
The first cost estimates, which are sometimes referred to as “ballpark” values. Prior to a more in-depth investigation, these data were calculated.
Those costs that were incurred along with the main project, but before it started. For example, there are costs for feasibility studies, soil tests, financial commitments, and preliminary legal matters.
Memorandum containing complete disclosure of all things relevant to a public security offering. Prior to advertising the offering, a preliminary prospectus must be filed to and authorized by the Securities and Exchange Commission.
A report on the title that is done before a title insurance policy or escrow is opened. A preliminary report or title insurance policy only tells you about the documents that affect the title. You shouldn’t use them as if they were an abstract. On the other hand, an abstract of title lists all documents that have changed the title since the original grant and gives a brief description of each one. It doesn’t try to figure out which documents currently affect record title. The “preliminary” is not a contract or promise that the title company will then insure the property’s title, though this can be done for an extra fee.
The part of a deed that lists the names of the parties, the amount of money being exchanged, and the legal name of the property.
The property in question, such as the one you own or the one you rent. This usually includes the house, all of its parts, the land, any facilities that are set aside for the use of the tenant, and any other area or facility that the tenant is promised to be able to use. Land and premises are sometimes the same thing.
Amount paid for an asset (or the par value of a security) in excess of the ordinary price, frequently as an enticement or incentive.
The price of a policy of insurance.
The thing that is given in exchange for a loan or a deal, like the money that the new owner of a lease or contract, like an option, pays to the person who gave them the lease or contract. Part of the rent is sometimes paid as a lump sum when the lease is signed. This is called “capitalizing” the rent.
The amount of money paid for insurance. The part of the premium that must be given back to the insured when the policy is canceled is the unearned premium.
Prepaid expenses are expenses that are paid before they are due. The majority of fire insurance premiums are paid a year in advance. Normally, rent is paid one month in advance. Normally, the seller is credited for prepaid expenses and charged for prepaid income, such as rent received, at closing.
Expenses that have been paid in advance of the period they are supposed to cover.
Interest paid before the due date. When money is provided on a real estate loan, prepayment interest is frequently subtracted from the loan amount.
The payment of interest before the due date. Prior to 1975, prepayment of interest was a tax-saving strategy because the IRS allowed a taxpayer to deduct interest prepayment under certain conditions. However, the Internal Revenue Code now states that interest cannot be deducted as prepaid but must be deducted when and as earned over the life of the loan. Prepayment rules apply to mortgage service points as well. Mortgage service points paid in connection with the financing of a primary residence, on the other hand, may be deducted in the year paid if the payment of points is an established business practices in the area and the amount paid does not exceed the amount generally charged in the area.
A one-time payment that is used to set up a reserve or impound account. This payment includes the first year’s mortgage insurance, the first year’s hazard insurance, and taxes and insurance that are spread out over the year.
A payment made by the borrower that is larger than and/or sooner than the repayment plan.
Debt repayment in advance.
A condition in a mortgage that specifies penalties to be paid by the borrower if a loan is prepaid.
A mortgage clause that specifies the parameters of a mortgage loan’s early repayment.
Charges incurred when a mortgage is repaid before its maturity date in order to discourage prepayment.
The amount set by the creditor as a penalty to the debtor for repaying the debt before it matures; also known as an early-withdrawal charge. The lender charges a prepayment penalty to recoup a portion of the interest that the lender expected to earn when the loan was made. It reimburses the lender for the initial costs of establishing the loan, servicing it, and carrying it during the early years of high risk. This punitive device may also represent the lender’s loss of income during the time the mortgage is paid off and the funds remain uncommitted. Most lenders are willing to allow prepayment without penalty after five years because much of the total interest on the note has been paid in by that time.
“Additional principal payments may be made with any monthly installment, but prepayments made in any calendar year in excess of 20% of the original amount of this note shall be subject to a charge of 1% of such prepayments,” is typical prepayment language. Some states limit the amount of prepayment penalties that a lender can charge, while others outright prohibit them. Some loans include a prepayment and coasting clause, which allows the buyer to pay before the money is due and then “coast” for as long as there is a surplus. The penalty amount varies, but it is frequently equal to the interest that would have been paid on the balance for a specified period of time, such as 90 days.
Real estate loans with savings and loan institutions can be prepaid at any time, and the penalty is limited by state law to a certain percentage of the prepayment amount. Prepayment penalties are typically specified in the promissory note. The current trend is to consider excessive prepayment penalties usurious and thus unenforceable. A reasonable prepayment charge, on the other hand, is not considered interest because it is paid only in connection with the borrower’s exercise of a lender-provided option. On FHA, VA, or conforming loans, prepayment penalties are not permitted.
If the borrower refinances with the same lender, some lending institutions will waive the penalty. Others may waive it if the funds to pay off the loan come from personal sources rather than refinancing with another lender. Some lenders, on the other hand, do enforce their penalty provisions even in the event of an involuntary payment, such as the receipt of condemnation or insurance proceeds.
Prepayment penalties are not permitted on conforming loans purchased by Fannie Mae and Freddie Mac. The trend is to eliminate the prepayment penalty, as is the case with certain federal credit union rules.
A penalty imposed by a lender when a loan is repaid early.
To discourage prepayment on a mortgaged loan, a charge is applied on prepayments.
Having the ability to pay off a debt before it is due, without penalty or additional fees, such as in a mortgage or sale agreement. Lenders are legally allowed to use the prepayment in a variety of ways, some of which are more advantageous to the borrower than others. For example, if a debtor prepays a portion of the loan, the payment may be applied to the remaining payments. Thus, if the debtor prepays for six months in January, she must still make the February payment, and the large payment is applied to the loan’s final six monthly installments.
There is no right to prepay unless agreed to, such as when monthly payments are stated as “or more” or “not less than,” such as “$200 or more per month.” A closed mortgage is one that does not have a statement granting the right to prepay. An open mongage is a statement that grants the right to prepay. If there is no right to prepay stated in the contract and the seller refuses to consent to a prepayment, the buyer cannot force a prepayment by purposefully defaulting on several installments, tendering the balance due with interest to the date of payment, and claiming that the mortgage default automatically triggered the acceleration clause. Courts have ruled that an acceleration clause is for the creditor’s benefit, and the creditor has the option of enforcing it or not.
An increasingly common practice is to specify a time period in the first part of the mortgage during which no prepayment is permitted. This is commonly referred to as a “lock-in.” Prepayment penalties are not permitted on any FHA-insured or VA-guaranteed loan.
The possibility that an investment’s return may be harmed if some or all of the money invested is returned ahead of schedule. Lock-out periods, prepayment charges, and/or yield maintenance are common features of commercial mortgages that help to mitigate this risk. Prepayment risk also includes extension risk, which refers to the repayment of debt at a slower rate than anticipated.
It’s possible that the borrower’s pre-interview and credit report indicate that, if they are telling the truth about their financial situation and income status, they will meet the loan requirements.
A developer’s pre-construction sales programme. Before a lender will commit to financing the construction of a condo project, a developer is frequently required to presell a certain percentage of units. Pre-sales in a condominium project are permitted in some states only after the developer obtains a preliminary public report. Such presales are not binding on the purchaser until the final public report is received. The more recent marketing trend is away from the presale programme and toward selling under a final public report during the construction period, particularly if the lender is a joint venturer in the project’s profits.
The selling of a property before it is finished.
Adverse possession is the process of acquiring property rights.
Acquiring a property right, usually in the form of an intangible property right such as an easement or right-of-way, through continuous and uninterrupted adverse use of property for the prescriptive period established by state statute. Land use is harmful when it is made under a claim of right. As a result, if the owner has granted permission, the user has paid for the use, or the user has admitted that the owner has a superior right in the property, there is no adverse use.
Prescription is frequently used interchangeably with the term adverse possession, which refers to the acquisition of title to land. The essential elements in adverse possession are that the prescriptive right be adverse; under claim of right; continuous and uninterrupted; open, notorious, and exclusive; with the knowledge and acquiescence of the servient owner; and continuing for the entire prescriptive period. The term “constant” denotes that the property is used on a regular basis. Generally, there is no prescription against the state or Torrens-registered property.
The present worth of expected future income or payments.
At time zero, the worth of future cash flows.
The current worth of an income-generating asset as determined by discounting all expected future cash flows over the holding period.
A sum of money that would be equivalent to a certain amount of money in the future if invested today at a set interest rate.
Adjusting for the opportunity cost of capital, this technique is used to depict predicted future cash flows in terms of their current worth.
The present value of a sequence of even-numbered level payments. The cumulative opportunity cost of capital is reflected in current value.
The current value of the $1.00 component multiplied by the estimated future selling price.
Real Estate Glossary P [Part 4]