Abatement: A reduction or decrease in property taxes granted by the city/town Assessor’s office based upon a reassessment of a property's fair market value.
Adverse Possession: A law that enables one party to acquire another party's property through physical occupation of their property for an extended period of time. In order to acquire a title through adverse possession in Massachusetts, one must physically occupy another's property for a continuous period of 20 years in addition to fulfilling several other specific requirements.
Appraisal: An estimation of a property’s value conducted by a licensed property appraiser.
Assessed Value: The value placed on a property by a city/town Assessor’s office for the purpose of determining how much the property should be taxed.
Assessor: A city/town official who is responsible for placing a value on a property, typically for the purpose of property taxation.
Assignment of Mortgage: A document that proves that ownership of a mortgage loan has been transferred from one lender or loan servicer to another.
Automated Underwriting: An automated process performed by a loan originator’s computer software that indicates to the lender or mortgage broker whether or not a loan request will be approved. The approval recommendation is calculated by evaluating the purchase price, borrower’s credit history, debt/income ratio, amount of down payment, and other relevant information.
Balloon Mortgage: A mortgage loan with monthly payments calculated based on a certain amortization schedule (typically 30-years for a residential loan), but that is actually due in a shorter term, such as five, ten or fifteen years. At the end of the term, the remaining balance of the mortgage must be paid in a lump sum at the end (called a “balloon” payoff or payoff). The Balloon Mortgage may contain an option to “reset” the interest rate to the current market rate and to extend the balloon payment due date if certain conditions are met.
Bankruptcy: Legal declaration made in federal Bankruptcy court of a debtor’s inability to pay off certain types of debt obligations.
Biweekly Payment Mortgage: A mortgage in which payments are made every two weeks as opposed to monthly. Some borrowers will do this in order to pay off a loan quicker and ultimate pay less interest over the loan term.
Breach of Contract: Failure to abide by the terms of a legally binding agreement.
Bridge Loan: Also known as a “swing loan” is a short term loan that is secured to the borrower’s current home (which is usually for sale) and enables the buyer to put a down payment or quickly close on a new home before their current home is sold.
Closing: The final stage of a real estate transaction in which the seller is paid, a mortgage is granted from the buyer to the lender, title is transferred, and the deed (and mortgage) is recorded.
Closing Date: The date on which the transfer of title of a property is completed.
Co-borrower: Any borrower, other than the original borrower, whose name appears on a loan document and who shares the obligation to repay the loan.
Collateral: An asset that is identified as a security for a loan. According to the terms of the loan agreement, the borrower will forfeit the asset pledged if the loan is not repaid. In the case of a mortgage, the collateral pledged is the real estate property being purchased by the buyer/borrower.
Commitment Letter: A binding letter from a mortgage lender that informs the borrower that the loan has been approved, and informs the borrower of the amount of the mortgage, interest rate, payment terms, and any outstanding conditions.
Common Area: A portion of a property that is owned by a collective group of owners, such as a condominium or home owner’s association, who share in its operation and maintenance expenses (e.g. roofs, swimming pools, elevator maintenance and parking areas).
Comparable Sales (Comps): Sold real estate in a particular property’s surrounding area that can be used as a gauge to appraise or assess the fair market value of the subject property by comparing/contrasting to other similar properties sold.
Concession: Something a buyer or seller gives up or agrees to when negotiating the sale of a property; e.g. seller concession for closing costs.
Condominium (or Condo): A single property unit within a multi-unit condominium association. A condominium owner has complete ownership of the unit as described in the Master Deed as well as a proportionate share of ownership in the condominium association’s Common Areas; however, a condominium owner does not own the common elements of the building such as exterior walls and structural systems outside of the unit.
Condominium Association: The entirety of Condominium units that are defined in a master deed and governed by a declaration of trust, which will typically include bylaws and rules and regulations. Responsible for maintenance of the condominium’s common areas.
Construction Loan: A loan given for the purpose of funding the cost of construction or improvements to a property.
Contingency: Either a condition that must be fulfilled before a contract becomes legally binding or a set of circumstances that if not properly met would allow one party to cancel a contract. Common contingencies in real estate transactions are home inspection, mortgage financing, home sale, and short sale contingencies.
Conventional Mortgage: A mortgage loan that meets the standards of Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Company (Freddie Mac).
Cooperative Project (Co-op): A multi-unit building or development in which residents own shares in a cooperative corporation that actually owns the multi-unit property and gives each resident the right to occupy a specific unit via an ownership lease, which the cooperative corporation grants as evidence of title.
Counter-offer: An offer that is made in response to a previous offer. For example a buyer makes an offer on a home, and then the seller makes a counter-offer with a higher price. By its nature, a counter-offer is a rejection of an offer.
Covenants, Conditions, and Restrictions (CC&Rs): A legal declaration of rules and regulations set forth by a developer or a group of property owners to create uniformity in the appearances and uses of buildings across plots of land, or restrict some type of undesirable land use. This is often referred to as private zoning and is used by common interest developments such as condominium and home owners’ associations.
Credit Bureau: A company that gathers information on consumers who use credit and then sells that information to lenders in the form of credit reports so that lenders can make informed decisions on whether or not to grant a loan or extend credit.
Credit History: A record of a consumer’s current debts, past borrowing and loan repayment practices. This information is kept in the files of a Credit Bureau and says whether or not a given consumer has paid their debts on-time or as agreed.
Credit Report: Information provided by a Credit Bureau that enables a lender or other business to examine a given consumer’s history of debts and debt repayment.
Credit Score: A numerical value that ranks a consumer’s potential to repay loans. The score is based on a statistical evaluation of the consumer’s Credit History.
Creditor: A party that extends loans or other forms of credit to consumers.
Debt-to-Income Ratio: The percentage of one’s gross monthly income that goes towards servicing debt such as mortgages, car payments and credit cards.
Declaration of Trust: Governs the maintenance and operation of a condominium association; usually contains bylaws and rules and regulations.
Deed: A written document that serves to transfer the title to or the interest in a property from one party to another. There are many kinds of deeds and each has various limitations and conditions that apply to different circumstances. See Types of Deeds in Massachusetts for additional information.
Deed-in-Lieu of Foreclosure: The transfer of a property’s title from a borrower to the property’s mortgage lender or loan servicer, which then discharges the mortgage debt without the need for any foreclosure process. This may also known as a voluntary conveyance.
Delinquency: Failure to make a payment when it is due. Generally used to refer to a mortgage loan for which payment is thirty (30) or more days past due.
Discount Point: A fee paid by the borrower at the closing of a mortgage loan to reduce the interest rate. One point equals one percent (1%) of the total amount of the loan.
Down Payment: The portion of the price of a property that is not borrowed that the buyer pays to the seller upfront in cash when the title is transferred.
Earnest Money Deposit: A sum of money given by a buyer to a seller or seller’s agent, which is held in escrow and binds the buyer to the property. If the buyer breaches the agreement, the seller can usually keep the deposit as liquidated damages. However, if the agreement is cancelled by either party due to a valid contingency, the deposit is returned to the buyer. Earnest money deposits are sometimes referred to as “good faith deposits,” because the deposit, though a common item negotiated in real estate transactions, is not required to make a valid contract. The deposit is usually applied to the buyer’s down payment at the Closing. In the case of a 100% financed transaction, the deposit would be returned to the buyer at closing.
Easement: A deeded property right that allows its holder limited use or access of another party’s private property for a specific purpose. Common examples are driveway easements (allowing one owner to use another person’s property for use/maintenance of a driveway) and utility easements (allows utility companies and cities/towns access property to maintain common utilities).
Encroachment: An intrusion onto another’s property without right or permission; e.g. one party’s detached garage is actually partly on another person’s property.
Encumbrance: A type of right or claim on a piece of real estate that is held by someone other than the title holder (e.g. mortgage, liens, easements and other restrictions).
Equity: The fair market value of a property minus any liens or encumbrances placed on the property. For example a home valued at $100,000 with a $30,000 mortgage and a $20,000 tax lien has a total of $50,000 in equity.
Escrow: An arrangement in a real estate transaction in which a third party acts as a neutral holder of documents, funds or other items of value pending the completion of the transaction. Upon the fulfillment of all contractual obligations, escrowed items (most commonly the Earnest Money Deposit) are delivered to their respective parties.
Escrow Account: An account that a mortgage lender sets up to hold a portion of the borrower’s money in order to ensure that the borrower’s property taxes, insurance premiums and/or other charges are paid when they are due.
Eviction: The legal act of a property owner removing a tenant from his or her rental property or of a lender removing the property owner (or tenant) after a home has been foreclosed.
Executor: A person who is named in a will and approved by a probate court to administer an estate’s deposition in accordance with the instructions of the will. For example the executor would be in charge of selling a decedent’s home if it is instructed in the will.
Federal Home Loan Mortgage Company: Also known as “Freddie Mac”, a government-sponsored entity that insures mortgages made by private lenders. Freddie Mac sometimes will purchase the mortgage as a security on the stock market if the loan meets Freddie Mac’s guidelines.
Federal Housing Administration (FHA): An agency within the U.S. Department of Housing and Development that provides insurance on loans made by private lenders. FHA-insured loans typically have broader guidelines than Conventional Mortgages, usually allowing for a higher debt-to-income and lower credit scores, but require an upfront mortgage insurance premium.
Federal National Mortgage Association, a/k/a “Fannie Mae” (FNMA): Also known as “Fannie Mae”, a government-sponsored entity that insures mortgages made by private lenders. Fannie Mae sometimes will purchase the mortgage as a security on the stock market if the loan meets Fannie Mae’s guidelines.
FHA-Insured Loan: A loan that is insured by the Federal Housing Administration.
Fixed Rate Mortgage: A mortgage loan in which the interest rate remains the same for the life of the loan.
Flood Certification Fee: A fee paid to independent mapping companies that determine whether a property is located in a FEMA-defined flood zone and whether flood insurance is needed.
Flood Insurance: Insurance that protects against physical damage done to a property as a result of certain types of flooding. This is required for properties located in flood hazard zones.
Foreclosure: The process in which a property is sold to fulfill a debt to a lender or lien holder after the owner of the property (the mortgagor) has defaulted on the loan payments or otherwise breached the terms of the Note.
Fully Amortized Mortgage: A mortgage in which the monthly payments are designed to pay off the mortgage completely by the end of the mortgage term.
Grantee: The person buying or receiving the title (or other interest) to a property.
Grantor: The person selling or transferring the title (or other interest) to a property.
Homestead: In Massachusetts, a Homestead declaration, sometimes referred to as Estate of Homestead, protects the possession and enjoyment of a property owner's home, and his/her/their family, against the claims of certain creditors by preventing the property from execution and forced sale, as long as such person(s) occupy or intend to occupy such property as their principal place of residence. See Article on Massachusetts’ Homestead Law.
Interest: The cost that a borrower pays for a loan, less the principle.
Late Charge: A monetary penalty imposed by the lender when a borrower fails to make a scheduled payment on time.
Lease: A contract that calls for the tenant of a property to pay the owner/landlord for the possession and usage of the property.
Lien: A form of security interest on the title of a property. The owner of the property grants the lien, and the beneficiary of the lien is ensured payment by having a stake in the property. The beneficiary has protection by having a lien because a property owner cannot sell a property and deliver marketable title without removing all liens. The lien follows the title.
Loan Origination: The process by which a borrower applies for a new loan, the lender processes the loan application and funds are ultimately disbursed when it clears underwriting.
Loan Origination Fees: Fees paid to a mortgage lender or broker to process the mortgage loan application.
Loan-To-Value (LTV) Ratio: The relationship between a property’s loan amount and a property’s fair market value as expressed in a percentage. For example a $70,000 mortgage for a property valued at $100,000 with will have an LTV of 70%.
Lock-In Rate: A written agreement from a lender guaranteeing a set mortgage interest rate for a certain amount of time.
Master Deed: Defines and describes a condominium association’s units, boundaries and common areas.
Mechanics’ Lien: A lien that, in Massachusetts, can be filed by contractors and construction material suppliers that ensures that the contractor (or material supplier) receives payment from the property owner for work done and/or the materials supplied.
Mortgage: A loan in which a home is used as the collateral. In Massachusetts, a “mortgage” may also refer to the actual document that is signed by the borrower which grants the lender a lien on the borrower’s property and spells out the borrower’s obligations and grants the lender or loan servicer the right to foreclose to secure payment in the event of default. A “mortgage” may also refer to the amount of money borrowed – including principle and interest.
Mortgagee: The party that receives a Mortgage on a property as collateral; i.e. the lender.
Mortgagor: The party that grants a Mortgage; i.e. the borrower.
Mortgage Broker: An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker usually both takes loan applications and processes them. Sometimes a mortgage broker will underwrite the loan as well.
Mortgage Insurance (MI): Insurance that protects mortgage lenders against losses incurred from borrowers who default on their loans. Mortgage insurance is usually required when the borrower makes a down payment that is less than 20% of the property’s purchase price. Mortgage insurance is also known as private mortgage insurance (PMI) and/or lender’s mortgage insurance (LMI).
Note: A written contract to repay a specified amount of money between a borrower and a lender; e.g. a buyer’s promise to repay a lender in exchange for a mortgage loan.
Power of Attorney: A legal document that gives authorization to a person to act as an agent on another’s behalf in order to perform certain acts or duties. The document may grant complete authority to the agent, or it may limit the authority to certain acts and/or periods of time.
Pre-Approval: A process in which a mortgage broker or lender reviews a prospective borrower’s finances, credit history and other relevant information and preliminary approves a certain amount of money the buyer will be able to borrow when applying for a mortgage loan.
Pre-Approval Letter: A letter from a mortgage broker or lender that indicates to the borrower the specific amount of money that he or she is preliminarily qualified to borrow to purchase a property.
Prepayment: Any amount of money that is paid into the principle to reduce the balance of a loan in excess of the loan’s required payments.
Principal: The amount of money owed on a loan minus the amount that has already been repaid, i.e. the outstanding balance on a loan. A principle balance does not include the interest paid to borrow the money.
Private Mortgage Insurance>: See definition for Mortgage Insurance (MI), above.
Purchase and Sale Agreement: A contract that details the price, terms and conditions of a real estate transaction. Often referred to as the P&S, or P&S Agreement, in Massachusetts, it usually replaces a shorter offer or contract to purchase previously signed by the buyer and seller.
Quiet Title: A lawsuit that has the purpose of establishing ownership of a piece of real estate against the claims of everyone and anyone. If established the plaintiff becomes the clear and single owner of title to the property in question, which quiets any other potential claims on ownership rights to the property.
Quitclaim Deed: A deed that offers limited protection against potential flaws in a property title that is being transferred. It states that the grantor of the title has not made any encumbrances on the property other than those specifically mentioned. It also guarantees that the grantor will defend against any legal claims made against the title that arise from the time of the grantor’s ownership but not prior to the grantor’s ownership. See Types of Deeds in Massachusetts for additional information.
Radon: A toxic gas that is emitted from the soil beneath a home and that can contribute to cancer and other illnesses. See What is Radon? for additional information.
Rate Lock: An agreement with a lender to secure a specific interest rate on a loan for a specified period of time prior to the closing of the loan.
Real Estate Settlement Procedures Act (RESPA): A federal law designed to provide transparency to the mortgage loan process by requiring lenders to provide information about all transaction-related costs prior to the loan settlement and by eliminating illegal referral fees and kickbacks that could occur within the mortgage loan business.
Refinance: Getting a new mortgage loan with different terms and conditions, that is usually used in part to pay off all or part of a previous mortgage loan.
Release Deeds: A Massachusetts deed that offers the least amount of protection for real estate transactions. A release deed does not guarantee anything and merely serves to transfer a title or whatever rights the Grantor holds to a specific property. With a release deed the grantor does not need to assure that the title is valid; thus, it ultimately provides no assurances whatsoever. See Types of Deeds in Massachusetts for additional information.
Renovation (or Rehabilitation) Loan: A loan given at the time of purchase by a lender to a purchaser that allows the buyer to add the costs of repairing/updating a property to the loan, thus allowing the buyer to finance the costs of the repairs and/or updates.
Right of Way: Legally granted access through a piece of land regardless of who owns that property. For example if one owns a piece of property that is inaccessible without crossing other people’s land, a right of way would be needed to legally provide property access. When the right of way is a permanent property right, it is an Easement. If it is temporary or does not run with the land's title, it is called a license.
Squatter: One who illegally occupies another party’s property without title, legal rights or any tenancy or occupancy agreement.
Subdivision: The act of dividing on or more pieces of land into smaller, more numerous parcels for the purpose of development and real estate sales; e.g. a housing development.
Title: The combined legal rights and interest a homeowner has in particular piece of property.
Title Insurance: Insurance that protects lenders (or borrowers in the case of owners’ title insurance) against losses that arise from particular defects in a property’s title. At purchase, or refinance, a borrower is required to purchase lender’s title insurance.
Title Report: A written analysis of the status of a particular property’s Title that includes a description of the property, the title holders and chain of title (usually going back fifty years), how the title is held (i.e. type of ownership), and any encumbrances.
Title Search: An investigation performed to show the quality of title, which would reveal any outstanding encumbrances, liens, unpaid mortgages, back taxes, or defects in title.
Underwriting: The process performed by a lender to determine whether a loan request should be approved. This is done by reviewing all the relevant documentation to a real estate transaction and mortgage loan application, including the Purchase & Sale Agreement, property appraisal, and a final review of the borrower’s credit history, income and asset statements, tax returns, and mortgage application. The culmination of underwriting will result in a mortgage loan Commitment Letter and then a “clear-to-close”, or a loan denial letter.
Uniform Residential Loan Application: A standard mortgage application that requests information such as the income, assets, and liabilities of the borrower and a description of the property that the lender will finance.
VA Guaranteed Loan: A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).
Warranty Deed: A deed that in Massachusetts offers the greatest amount of protection against potential flaws in a property title that is being transferred. It offers four basic assurances – that the seller owns the property in fee simple, that the property is free from any encumbrances except for those specifically stated in the deed, that the grantor of the title has the legal right to sell or transfer the property to grantee, and lastly that the grantor promises to defend against any legal claims regarding problems with the title that arose not only during the grantor’s ownership of the real estate, but also any problems that arose prior to the grantor’s ownership. See Types of Deeds in Massachusetts for additional information.
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