Real Estate Glossary and Definition

Plain Language Glossary of Real Estate Terms

Adjustable Rate Mortgage (ARM): The adjustable rate mortgage is a mortgage that begins with a stated interest rate that is linked to an economic index. Each ARM changes at a specified time and is adjusted up or down depending on the performance of the index.

Appraisal: In real estate, an appraisal is an estimate of value performed by a licensed appraiser with knowledge of home values in the area. When a purchaser applies for a mortgage, an appraisal is required by the bank but paid for by the applicant.

Broker Price Opinion (BPO): A Broker Price Opinion is not an appraisal. Banks require a BPO performed by an independent third party broker in certain transactions such as a short sale or a foreclosure. The purpose is to advise the bank of a market price range for a specific property.

Comparative Market Analysis (CMA): The CMA is not an appraisal. The CMA is a tool real estate agents use to advise buyers or sellers of the market value of real estate. The agent gathers information such as recent sales in the area, number of days needed to sell certain properties and current listings in the area. By comparing this information with another property, the agent can identify a price range for the real estate.

Deficiency Judgment: According to the mortgage document and the state where a short sale or foreclosure takes place, the bank has the right to file a deficiency judgment. In a short sale or foreclosure, the deficiency is the difference between the short sale or foreclosure and the principal balance of the loan. The lender has the right to waive the deficiency judgment. If necessary, the borrower can appeal to the court for relief from the deficiency.

Down Payment : In real estate transactions, the down payment is the amount of money that the buyer gives to the seller at closing. The earnest money deposit is considered part of the down payment. The down payment is equal to the purchase price of the property less the principal amount of the mortgage.

Earnest Money: Earnest money is money that the purchaser provides in a show of good faith in a real estate transaction. Typically, this money is held in escrow with the broker or with an attorney. The money is released to the seller at closing. If the contract in not accepted or if the contract falls apart due to unforeseen problems, the earnest money is returned to the buyer.

Fixed Rate Mortgage: A fixed rate mortgage is a loan secured by real estate. The fixed rate mortgage offers an interest rate that will not change for the life of the mortgage. 20 and 30-year fixed rate mortgages are the most popular mortgages.

Forbearance: Forbearance is an agreement between the borrower and the lender that details the terms for the borrower to bring the mortgage current. In a forbearance agreement, the lender totals the late payments and spreads the new payments over a time period agreed upon between the two parties. Meanwhile, the borrower must keep the original mortgage current. The lender agrees to suspend foreclosure. Today, forbearance agreements are effective if the borrower was laid off of injured and has now returned to work or found other employment.

Foreclosure: A foreclosure is the vehicle used by lenders to take title to real estate that is secured by a mortgage. The lender has the right to pursue foreclosure if the loan is in default. There are different types of foreclosures, but the two most commonly used foreclosures are the judicial foreclosure and the power-of-sale foreclosure. Different states determine the type foreclosure. In foreclosure, the bank places the home in a public auction. If there is no buyer, the bank takes title to the real estate.

Full Disclosure: In compliance with the new Truth in Lending guidelines, the lender must provide the prospective borrower with a list of all fees relating to the loan. This includes all closing costs, recording fees, processing fees and fees for services required by the lender but paid for by the borrower. In some cases, the lender will clarify that a charge is an estimate only.

Hardship Letter: With high unemployment, many homeowners are suffering from unemployment or reduced income. These hardships and others may help the borrower renegotiate a loan modification or short sale. The hardship is explained in a document called the hardship letter.

Letter of Authority: Banks cannot discuss personal financial information, including mortgage details, with any person not approved by the borrower. When considering a short sale, the underwater seller can authorize a real estate agent to talk with the lender about the loan or loans. To enable the agent to negotiate with the lender, the seller can sign a letter of authority, which the agent can present to the bank.

Loan Modification: Any borrower can apply for a loan modification. In today's market, homeowners who are in pre-foreclosure can apply for a loan modification. Borrowers who are upside down and are experiencing a hardship can apply under the Home Affordable Foreclosure Alternative (HAFA). Under HAFA guidelines, lenders can suspend foreclosure action and offer the borrower a loan modification for a stated trial period. If the borrower does not comply with the new terms, the bank can move forward with foreclosure. The lender can reduce the interest rate, extend the life and possibly reduce the principal balance in order to give the borrower a chance to keep their home. HAMP provides financial incentives to both the borrower and lender if the modification is successful.

Mortgage Contingency: If a purchaser will require a mortgage to complete the purchase and sale of real estate, the offer should contain a mortgage contingency. This clause provides the buyer the opportunity to procure a mortgage within a defined time frame. The purchaser must obtain a mortgage commitment by the date cited in the contract. If the buyer cannot obtain the commitment by the due date, the contract will be nullified and the seller may put the property back on the market.

Multiple Listing Service (MLS): The multiple listing service is a marketing system devised by real estate brokers who pool their listings into a single place. Participating mls real estate agents have access to all current listings, past and present sales and information and photography connected to a property for sale. Most multiple listing services also provide oversight and resolve issues concerning brokers or agents.

National Association of Realtors (NAR): The NAR is the largest trade organization in the country. The NAR provides training and educational courses to brokers and agents who join the association. The NAR advises members about changes in real estate law and develop the ethical standards with which members must be compliant. The NAR furnishes monthly, quarterly and annual reports about the housing market and consumer confidence.

Pre-foreclosure: Pre-foreclosure is the period of time between when the loan was defaulted and the actual foreclosure. During the pre-foreclosure stage, the homeowner can remain in the home. During pre-foreclosure, the borrower can halt the process by repaying the loan in full or by working with the lender to determine the best option. The bank can halt the foreclosure process at any time.

Real Estate Owned (REO): Real Estate Owned (REO) is real estate for which the lender has taken title. REO is real estate obtained by the bank through foreclosure. The bank will attempt to liquidate REO by selling the property.

Short Sale: A short sale is a transaction to purchase and sell real estate prior to foreclosure. The owner and the lender must agree to terms. The two characteristics for a short sale are the mortgage is underwater and the borrower has a verifiable hardship, such as unemployment, serious illness and other unexpected events that prevent the borrower from making monthly mortgage payments.

Underwater Mortgage: An underwater mortgage is also called an upside down mortgage. An underwater mortgage is created when the market value of the secured real estate is less than the amount of the mortgage.