Making Sense of Confusing Real Estate Terms
If you are buying, selling or refinancing a home you will come across real estate terms and industry lingo that may sound foreign to you. To help address this issue, below you will find definitions for the most common real estate terms that you are likely to come across when buying, selling or refinancing a home. If you have other questions about title insurance, or the role of the title company in these transactions, please contact me and I’ll be happy to help.
1031 Exchange: IRS tax code stating that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
Amortization: a payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
Clear Title: a property title that has no defects. Properties with clear titles are marketable for sale.
Closing Protection Letters (CPL): A document issued by the title insurance company to insured lenders and, in some unusual cases, to insured owners. The letter indicates the title insurer’s responsibilities for negligence, fraud, and errors that might be made when their agents or approved attorneys handle the closing.
Deed-in-Lieu: to avoid foreclosure (“in lieu” of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Escrow: funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.
Escrow Account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Good Funds: Closing funds where the checks have cleared (cashier’s checks or certified checks).
HUD1 statement: a form used by the closing agent to itemize all charges imposed upon a borrower and seller for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds.
Lien Waiver: A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.
Probate assets: Real estate and other assets held in the name of a decedent. Commonly, the assets owned under joint-tenancy or the asset whose beneficiary is clearly determinable (such as a life insurance policy) are not included.
RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships
Recording: the recording in a registrar’s office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.
Recording Fees: charges for recording a deed with the appropriate government agency.
Tenants in common (TIC): A way of two or more persons to own property. Tenants in common may own equal or unequal shares of the property, and there are no rights of survivorship. That is, when one of the co-owners dies, his/her share of the property becomes part of his/her estate and passes on to heirs. This is an arrangement common in joint business ventures: if two persons own an apartment complex and one of them dies, the decedent?s share of the complex passes to his/her beneficiaries and does not pass to the other co-owner.
Tenants for the Entirety: A type of concurrent estate in real property held by a Husband and Wife whereby each owns the undivided whole of the property, coupled with the Right of Survivorship, so that upon the death of one, the survivor is entitled to the decedent’s share.
Title Defect: an outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.
Title Insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner’s policy and requires an additional charge.
Title Search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.
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