Glossary of Legal Terms

Agent
An authorized person who manages or transacts business for another. Laws governing real estate, especially relating to agents, vary considerably from state to state. While some standardization has been achieved, it is best to check the particulars in each state.
 
Appraisal
An appraisal is the estimate of value of real property made by a third party not involved in the transaction. Appraisals usually involve comparing the sales price to the value of similar properties in the area. Mortgage lenders typically require an appraisal before they will make a loan.
 
Assessment
An assessment is a charge for improvements made by the local government that are beneficial to adjoining property. Sidewalks and roadwork are common examples of improvements which give rise to an assessment charge. Property owners who receive a benefit from the improvement are assessed a proportional share of the cost of the improvement.
 
Attorney in Fact

One who holds a power of attorney from another allowing him or her to execute legal documents such as deeds, mortgages, etc., on behalf of the grantor of the power.
 
Bill of Sale
An invoice signed by the seller reciting that he has sold to the buyer the personal property therein described.
 
Breach
To break or violate an agreement.
 
Broker
A real estate broker is a licensed person or organization who negotiates real estate contracts, mortgages, leases, and other agreements between the parties in a real estate transaction. Real estate agents (or realtors) are also licensed representatives who work for brokers.
 
Buyer Agent
An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all parties consent.
 
Certified Check
A personal check drawn by an individual which is certified (guaranteed) to be good. The bank holds the funds to pay the certified check and will not pay any other checks drawn on the account if such payment would impede payment of the certified check. The bank also will not honor a stop payment of a certified check.
 
Certificate of Title
A certificate issued by a title examiner stating the condition of a title.
 
Chain of Title
The successive ownerships or transfers in the history of title to a tract of land.
 
Clear-to-Close
Loan is ready to be closed with no additional conditions.
 
Clear Title
A marketable title, free of clouds and disputed interests.  Most lenders require a clear title prior to closing.

Closing
A closing (sometimes called a settlement), is the last stage of a real estate transaction. At the closing, the buyer finalizes his or her mortgage and pays any closing costs for which he or she is responsible, while the seller finalizes and hands over the deed and the keys to the property.
 
Closing Agent
At the final stage in a real estate transaction, or the closing, a closing agent assures that all documentation, including sale related documents and loan/mortgage documents for the entire transaction, are completed and signed properly, including the title search and title insurance.
 
Closing Costs
Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the total mortgage amount. Or any costs being charged to facilitate granting of the credit request.
 
Cloud on Title
Any conditions revealed by a title search which affect the title to property; usually relatively unimportant items but which cannot be removed without a quitclaim deed or court action.
 
Commercial Property
Property intended for use or occupancy by businesses, rather than as a dwelling.
 
Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
 
Comparables
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
 
Counter Offer
A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.
 
Deed
The legal document conveying title to a property.
 
Deed-in-Lieu
Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
 
Deed of Trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
 
Default
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Deficiency Judgment
A personal judgment against the borrower for the remaining balance on the loan after a foreclosure sale.
 
Delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
 
Demand Letter
It is a document served by one party to another, stating their version of the facts, and making a legal claim for compensation to resolve the dispute.
 
Dismissal with Prejudice
When a court dismisses a case and will not allow any other suit to be filed on the same claim in the future.
 
Dismissal without Prejudice
When a court dismisses a case, but will allow other suits to be filed on the same claim.
 
Dual Agent
An agent representing both parties in a transaction. In almost every state, dual agency is illegal and unethical without the written consent of both the buyer and the seller.
 
Due Process
The regular way that the law is administered through the courts. The U.S. Constitution says that everyone has to have a day in court, has the right to be represented by a lawyer, and the right to benefit from court procedures that are speedy, fair, and impartial.
 
Easement
An easement is a right annexed to land. It is the right held by a person to use the land belonging to another person for a special purpose.
 
Eminent Domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
 
Encroachment
An improvement that intrudes illegally on another's property.
 
Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
 
Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
 
Escrow Account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.
 
Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
 
Estoppel
A legal restraint that stops or prevents a person from contradicting or reneging on his previous position or previous assertions or commitments.
 
Et Al
In Latin, this means "and others." Refers to parties not included in the formal name of a court case.
 
Fair Market Value
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.
 
Financial worksheet
Spreadsheet that indicates all household income less all household expenses. Often savings and other assets are indicated as well. Documents to support the calculations may be required, such as bank statements, savings accounts, investments, cash, or receipts and invoices from copies of late bills, various papers to pawned items.
 
Foreclosure
When a homeowner defaults by failing to make payments on his or her mortgage, the bank or financial institution that holds the mortgage note may foreclose on the property. Foreclosure gives the legal ownership of a property to the bank to allow the bank to recoup its investment. Foreclosure
proceedings vary by state but usually involve court appearances to ensure the foreclosure is warranted.
 
Free & Clear
Ownership of property free of all indebtedness.
 
Garnishment
A legal process that allows part of a person's wages or property to be withheld for payment of a debt.
 
GFE HUD
Good Faith Estimate of Buyers Loan Charges.
 
Good Title: A title to a property that is free from any reasonable doubt, valid in law and does not hold a considerable chance of litigation.
 
Guaranty
A pledge made by one person (the guarantor) to ensure that another person (the obligor) will fulfill an obligation to a third party (the obligee).
 
Hardship Letter
A letter submitted to a lender (as part of a short-sale package) indicating the precise reasons why the borrower can no longer afford to make mortgage payments.
 
Hearing: The entire process of the trial before a tribunal, judge or jury, beginning with the examination of witnesses, presenting evidence and argument until the final decision or order of the court is termed as a hearing.
 
Heir
One who inherits the estate or property of another.
 
Homestead
The dwelling (house and contiguous land) of the head of the family.  Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions are also available in some states.
 
Homeowner Association
A group of homeowners within a community, neighborhood or complex who make decisions, pay to maintain and repair land and common areas and/or enforce community rules and covenants.
 
HUD-1 Statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."
 
Investor
Money source for a lender.
 
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
 
Junior Mortgage
A mortgage that is subordinate to claims of a prior lien or mortgage.
 
Legal Description
A formal description of real property sufficient to locate it by reference to government surveys or approved recorded maps.
 
Lien
A legal claim on a property whereby the property serves as collateral for a debt or other obligation owed by the property owner to a creditor, service provider, or other entity.
 
Lis Pendens
A recorded notice of pending lawsuit.
 
Listing Agent
The agent who represents the seller.
 
Living Trust
Otherwise known as trust inter vivos (between the living), a living trust is created during the lifetime of the trustor. Read more on living trust and will.

Living Will
A document executed by a person regarding the life support and other medical treatment, that he/she prefers, in case of sudden debilitation due to some fatal illness that leads ultimately to death. Read more about living wills.
 
Loan Modification
Process where original terms of mortgage are changed, such as reduction of interest rate, or how adjustable rate is calculated, principal reduction, reduction of late fees or penalties, change in loan term (usually longer), cap monthly payment as percentage of household income.
 
Lot
Generally, any portion or parcel of real property. Usually refers to a portion of a subdivision.
 
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
 
Mediation
A process in which people that are having a dispute are helped by a neutral person to communicate so they can reach a
settlement acceptable to both.
 
Metes & Bonds
A means of describing land by directions and distances rather than reference to a lot number. Generally used when land has not been subdivided into lots
 
Mortgage Commitment
A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
 
Motion
A proposal or application to the court by a litigant or his counsel, seeking some order or ruling. Motions can be made orally or written, either on notice or ex-parte. The applicant is known as the movant or the moving party.
 
Motion to Quash
A request to make something null or ineffective, such as to "quash a subpoena."
 
Multiple Listing Service (MLS)
A database of information on properties for sale that is accessible to all subscribing real estate brokers and their agents.
 
Non-Jury Trial
A case tried by a judge.
 
Notary Public
A person, designated by the state, which can certify the identity of a person when signing various documents.
 
Note
Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.
 
Offer
An offer is an explicit proposal to an agreement, which, if accepted, completes the agreement and ties both the person who made the offer and the person accepting the offer to the terms of the agreement.
 
Owners Policy
A policy of the title insurance which protects the buyer against problems with the title.
 
Owner of Record
The person named in the public record as the owner of a property or mortgage.
 
Partnership
It's an affiliation of two or more people who agree to share in the profits and losses of a business venture. There are different types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
 
Piggy Back Loan
Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.
 
Plea
Defendant’s answer to the charge.
 
Plea Bargain
An agreement between the prosecutor and the defendant. It lets the defendant plead guilty to a less serious charge, if the court
approves.
 
Plea Negotiations
Negotiations between the State and the defense for a fair disposition of the case, and requiring approval of the court.
 
Power of Attorney
An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.
 
Pre-Qualified Buyer
Has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. Pre-Qualification is only an indication of what the buyer should qualify for.
 
Principal
The amount of debt, not counting interest, left on a loan.
 
Principal and Interest

This refers to the principal and interest portions of the monthly mortgage payment.
 
Principal, Interest, Taxes and Insurance
The complete monthly cost associated with financing a property.
 
Profit and Loss
A statement of a business’s gross income, cost of goods, operating costs and net profit or loss.
 
Pro-Rate
Usually at time of closing, it is the proportionate division of expenses based on days or time occupied or used by the seller and/or buyer, such as taxes, insurance, rent, or other items.
 
Purchase Agreement
The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.
 
Quiet Title
The right to possess and use a property free from claims of other persons.
 
Quit Claim Deed
Transfers only the rights that the transferor has, with no promise that the transferor has full title or that there are no liens against the land.
 
Real Estate Settlement Procedures Act – RESPA
A federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.
 
Real Property
Land, and generally whatever is erected or affixed to the land, such as buildings, fences and including light fixtures, plumbing and heating fixtures or other items which would be personal property if not attached.
 
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
 
Selling Agent
The agent who obtains a buyer. A selling agent may represent the buyer, or may be a subagent of the seller.
 
Short-Sale Package
Forms and instructions provided by a lender to a borrower interested in winning the lender's approval for a short sale. Also, the collection of documents, including financial statements, hardship letter, sales contract, etc.  Submitted to a lender as a request for short-sale approval.
 
Specific Performance

Specific performance can be considered as an equitable remedy in case of breach of contracts, where monetary damages are deemed to be inadequate and compels the party to comply with the contractual obligation.
 
Stipulate
To agree to something.
 
Subpoena
An official order to go to court at a certain time. Subpoenas are commonly used to tell witnesses to come to court to testify in a
trial.
 
Summary Judgment
When the judge decides a case without going to trial. The decision is based on the papers filed by both sides.
 
Survey
A survey is a mapping of land boundaries, improvements, and easements on real property. A lender will frequently require a survey of property, especially commercial or un-platted property, and will require the parties to address any irregularities that show up on the survey.
 
Tenants in Common
A percentage interest in a property by two or more individuals without rights of survivorship.
 
Title
A document that gives evidence of an individual’s ownership of property.
 
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
 The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Any claim arising from a lien other than that disclosed is payable by the title insurance company.
 
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
 
Transfer of Ownership
Any legal method by which the ownership of property changes hands.
 
Trust
A legal device used to manage real or personal property, established by one person (the Grantor or Settler) for the benefit of another (the Beneficiary). A third person ( the Trustee) or the grantor manages the trust. In Traffic - Trust is an account into which bail is posted to insure appearance or compliance until the case is settled.
 
Under water (also, Upside Down)
When the mortgage loan balance is greater than the home's value.
 
Underwriting
The decision whether to make a loan to a potential homebuyers based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
 
Walk-Through
A final inspection of a property before it changes ownership.
 
Warranty Deed
A deed in which the seller promises that the title to the land is good and complete.
 
Will
A legal document created by an individual that names an executor (the person who will managed the estate) and beneficiaries (persons who will receive the estate at the time of death).