Title Terminology
Title Terminology was provided by the California Land Title Association (
CLTA.org) (818) 501-7438
ABSTRACT OF
JUDGMENT: A summary of the essential provisions of
a court judgment. When recorded, an abstract of judgment creates
a general lien on all of the real property of the judgment debtor
in the county in which it is recorded.
ACKNOWLEDGEMENT: A
formal declaration made before a duly authorized officer (usually
a notary public) by a person who has executed an instrument that such
execution is his or her act and deed.
ADJUSTABLE RATE MORTGAGE (ARM): A
mortgage in which the interest rate is adjusted periodically according
to a preselected index. The terms, adjustment schedule and index to
be used can vary based on the particular lender.
AGENCY: A relationship created
when one person (the principal) delegates to another (the agent) the
right to act on his or her behalf in business transactions.
AMORTIZATION: The process
of paying off a debt in installments over a given period of time without
a final balloon payment.
ANNUAL PERCENTAGE
RATE (APR): An expression of the
percentage relationship of the total finance charges to the total
amount to be financed, as required under the federal Truth-in-Lending
Act.
APPRAISAL: An opinion of
the value of property resulting from an analysis of facts affecting
market value.
ASSESSED VALUATION: The
value that a taxing authority places upon real or personal property
for the purpose of taxation.
ASSUMABLE: A mortgage loan
which can be transferred to another person without a change in the
terms of the loan.
BALLOON PAYMENT: The
unpaid principal amount of a loan due on a specific date in the future.
Usually the amount that must be paid in a lump sum at the end of the
term.
BENEFICIARY: The person
who is entitled to receive funds or property under the terms and provisions
of a will, trust, insurance policy or security instrument. In connection
with a mortgage loan, the beneficiary is the lender.
BENEFICIARY'S STATEMENT: The
statement of a lender which gives the remaining principal balance
due on a note and other information concerning the loan. It is usually
obtained in escrow when the owner wishes to sell or refinance.
BILL OF SALE: An
instrument by which title to personal property is transferred or conveyed.
BONA FIDE PURCHASER (BFP): One
who buys property in good faith, for fair value, and without notice
of any adverse claim or right of third parties.
BROKER: A person licensed to
act as an agent for another in negotiating the sale, purchase, of
real property in return for a fee or commission.
BUYDOWN: A financing technique
used to reduce the monthly payment for the home buying borrower during
the initial years of ownership. Under some buydown plans, a residential
developer, builder, or the seller will make subsidy payments (in the form of points) to the lender that "buydown," or lower, the
effective interest rate paid by the home buyer, thus reducing monthly
payments for a set period of time.
CHAIN OF TITLE: A chronological
list of recorded instruments tracing title to land, from the original
owner to the present owner.
CAP: The maximum which an adjustable
rate mortgage may increase, regardless of index changes.
CLEAR TITLE: Title
to property which is free from liens, defects of other encumbrances.
CLOSING: The process of completing
a real estate transaction during which the seller delivers title to
the buyer in exchange for payment of the purchase price. Called a "settlement" in
some areas.
CLOSING COSTS: Expenses,
beyond the selling price, such as loan fees, title fees, etc. Paid
when documents are executed and/or recorded and the sale is complete.
CLOSING STATEMENT: A
summary, in the form of a balance sheet, showing the amounts of debits
and credits to which each party to a real estate transaction is entitled
upon closing.
CLOUD ON TITLE: Any
document, claim, unreleased lien or encumbrance which, if valid,
would affect or impair title to a property.
COMMISSION: Compensation
due a real estate broker for acting on behalf of the principal.
COMMUNITY PROPERTY: Property
acquired during a marriage by either a husband or wife, or both, which
is not separate property.
COMPARABLES (COMPS): An
abbreviation for comparable properties used for comparative purposes
in the appraisal process.
CONSIDERATION: A required
element in all contracts by which something of value, including a
promise, is exchanged for the act or promise of another.
CONTINGENCY: Action conditioned
upon a certain event. Acceptance of the terms of a contract based
on something else happening or certain conditions being met.
CONVEYANCE: The transfer
of title or an interest in real property by means of a written instrument
such as a deed of trust.
DEED OF TRUST: A
security agreement creating a lien by which title to real property
is transferred to a third-party trustee as security for an obligation
owed by the trustor (borrower) to the beneficiary (lender).
DEMAND: The lender's statement
of the amount due to pay off a loan.
DOCUMENTARY TRANSFER TAX: The
tax, based on sales price, less loans which are being assumed, which
is charged by the city and/or county on the transfer of real property.
DUE-ON-SALE-CLAUSE: A
clause in a mortgage loan which gives the lender the right to demand
payment in full when the property changes ownership. Not applicable
to FHA or VA loans.
EARNEST MONEY: The
cash deposit paid by a prospective buyer as evidence of good faith
to bind a sale of real estate.
EASEMENT: A limited right
or interest in land of another that entitles the holder of the right
to some use, privilege or benefit over the land.
ENCUMBRANCE: A claim,
right or lien upon real property, held by someone other than the owner.
ENDORSEMENT: A rider attached
to an insurance policy to expand or limit coverage. Also spelled endorsement.
EQUITY: The value of a person's
interest in real property after all liens and charges have been deducted.
ESCROW: The process in which
a disinterested third party holds money and documents for delivery
to the respective parties in a transaction on performance of established
conditions.
EXCEPTION: A provision in
a title insurance binder or policy which excludes liability for a
specified title defect or an outstanding lien or encumbrance.
FAIR MARKET VALUE: An appraisal
term for the price which a property would bring in a competitive market
given a willing seller and willing buyer, each of whom has a reasonable
knowledge of all pertinent facts, with neither being under any compulsion
to buy or sell.
FEE SIMPLE: An estate under which
the owner owns a complete interest in the property and is entitled
to the unrestricted use and enjoyment of the property, including the
right to dispose of the property.
FEDERAL HOUSING ADMINISTRATION (FHA): A
division of the Department of Housing and Urban Development (HUD).
Its main activity is the insuring of residential mortgage loans by
private lenders.
FINANCE CHARGE: A total of
all costs imposed directly or indirectly by the creditor and payable
either directly or indirectly by the customer, as defined by the federal
Truth-in-Lending laws.
FIRST MORTGAGE: A
mortgage on property that is superior in right to any other mortgage.
FIXED RATE LOAN: A loan on which
the same rate of interest is charged for the life of the loan.
FIXTURE: Personal property
which is permanently attached to real property and, as such, becomes
part of the real property.
GRANTEE: One to whom a grant
is made. The purchaser of real property.
GRANTOR: One who has made
a grant. The seller of real property.
HIDDEN DEFECT: An encumbrance
on a title that is not apparent in the public records, for example,
unknown heirs, secret marriages and forged instruments.
IMPOUND ACCOUNT: An account
held by a lender for the payment of taxes, insurance or other periodic
debts against real property.
JOINT TENANCY: A
means of ownership in which two or more persons own equal shares in
real property. Upon the death of one tenant, his/her share passes
to the remaining tenant(s) until title is vested in the last survivor.
LEGAL DESCRIPTION: A
description by which property can be definitely located by reference
to surveys or recorded maps. Sometimes referred to simply as the legal.
LIEN: A recorded document which
claims an interest in real property as security for a debt owed. Such
liability may be created by contract, such as a deed of trust, or
by a court judgment.
LIS PENDENS: Legal
notice that a lawsuit is pending. Also called a notice of action.
LOAN-TO-VALUE RATIO: The
ratio of the mortgage loan's principal to the property's appraised
value or its sales price, whichever is lower.
MARKETABLE TITLE: Title
which is free from defects which would allow a purchaser to be released
from his obligation to purchase.
MARKET VALUE: An
appraisal term denoting the highest price that a buyer, willing but
not compelled to buy, would pay, and the lowest a seller, willing
but not compelled to sell, would accept.
MECHANIC'S LIEN: A
lien on real estate which secures the payment of debts due to persons
who perform labor or services or furnish materials incident to the
construction of buildings and improvement on real estate.
METES AND BOUNDS: A
form of land description in which boundaries are described by courses,
directions, distances and monuments.
MORTGAGE: A legal document
used to secure the performance of an obligation.
NOTARIZATION: The certification
by a Notary Public that a person signing a document has been properly
identified. Notarization does not certify the content of a document,
only validity of signature.
PERFECTING TITLE: Process
involving the elimination of any adverse claims against a title.
PITI: Refers to principal, interest,
taxes and insurance, the four major components of a usual monthly
mortgage payment.
PITI RATIO: The
principal, interest, tax and insurance payment to income ratio. Used
in mortgage lending decisions.
POINTS: A fee charged by the
lender to fund a loan, in addition to and separate from other fees
charged. One point equals one percent of the amount of the loan.
PRINCIPAL: The sum of money
outstanding upon which interest is payable. Also refers to one who
is served by an agent.
PRIVATE MORTGAGE INSURANCE (PMI): Insurance
written by a private mortgage insurance company protecting the mortgage
lender against loss occasioned by a mortgage default and foreclosure.
PRORATION: The method used
in dividing charges into that portion which applies only to a party's
ownership up to a particular date.
QUALIFICATION: The process
of reviewing a prospective borrower's credit and payment capacity
prior to approving a loan.
QUITCLAIM DEED: A
deed relinquishing all interest, title or claim in a property by a
grantor. Accomplished without representing that such title is valid,
nor containing any warranty or covenants of title.
RECONVEYANCE: The conveyance
to the landowner of the title, held by a trustee under a deed of trust,
when the performance of the debt is satisfied.
RECORDATION: Involves
filing for record in the office of the county recorder for the purpose
of giving constructive notice of title, claim or interest in real
property.
RECORD OWNER: The
owner of property as shown by an examination of the public record.
STATEMENT OF INFORMATION
(SI): A confidential information
statement completed by the buyer, seller and borrower in every
transaction where a policy or policies of title insurance are
requested. Allows the title company to competently search documents
affecting the property to be insured, documents which may not
refer to stated property. Allows title companies to differentiate
between parties with similar names when searching matters such
as liens and court decrees.
"SUBJECT TO" CLAUSE: A
clause in a contract of sale setting forth any contingencies or special
conditions of purchase and sale, such as an offer made and accepted
subject to financing, securing certain zoning or similar requirements.
SUBORDINATION AGREEMENT: An
agreement under which a prior or superior lien is made inferior or
subject to an otherwise junior lien.
TAX LIEN: A statutory lien imposed
against real property for nonpayment of taxes.
TENANCY IN COMMON: Co-ownership
in a property by two or more persons, each of whom has an undivided
interest in the whole property.
TITLE PLANT: The
information warehouse of a title company in which it has accumulated
and is constantly updating title records of properties in its area
which it can use to search title to real property.
TRUSTEE: A person who holds
title in trust for the benefit of another. In a deed of trust, the
trustee is the person named to hold title in trust for the benefit
of the lender until the loan is paid off.
TRUSTOR: The borrower under
a deed of trust. One who deeds their property to a trustee as security
for repayment of a loan.
UNIFORM SETTLEMENT STATEMENT: The
standard HUD Form 1 required to be given to the borrower, lender and
seller at, or prior to, settlement.
UNMARKABLE TITLE: Title
which contains defects that would allow a purchaser to be released
from his obligation to purchase.
VESTING: Denotes the manner in which
title is held. Examples of common vestings are: Community Property,
Joint Tenancy and Tenancy in Common.
VETERANS ADMINISTRATION
(VA): VA has power and authority
to guarantee or insure payment of loans made to veterans by private
lending institutions. This function is similar to that of FHA.
VA also makes direct loans to veterans in non-urban areas where
private loan funds are not available.