Glossary of Business Terms
Find common terms your Scottsdale real estate agent and other parties use to guide you through the entire process of acquiring your new Scottsdale home. Our handy glossary helps you easily find out what things mean when you're searching for your new home in Scottsdale or the surrounding area.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Abstract – Summary of transactions affecting a piece of property that a title examiner generates based on his review of land records. Information from the abstract is used by the title agency to create a binder.
Acceleration Clause – A condition found in mortgages that allows the lender to demand immediate payment of an outstanding loan balance in the event of a sale or delinquency in payments.
Acknowledgement – Confirmation made by an individual to an officer of the Court or notary public that their signature appears on the document and that it is a voluntary act.
Acre – Unit of measure for land. One acre consists of 43,560 square feet of land.
Adjustment Interval – Amount of time between changes in the interest rate and/or monthly payment on an adjustable rate mortgage. Typically occurs in one, three or five year intervals.
Agency – An institution where an agent receives the authority from another person (the principal) to act on their behalf. For example, your Scottsdale real estate agent may act on your behalf when you ask him/her to.
Amortized Loan – A loan that is to be repaid, interest and principal, by consecutive payments that are equal, or nearly equal. These loans come without any special balloon payment prior to maturity.
Amortization – Periodic pay down of a loan’s principal.
Annual Percentage Rate (A.P.R.) – An interest rate that reflects the cost of a mortgage on a yearly basis. A loan’s APR is generally higher than advertised mortgage rates because the APR factors in points and other credit costs. Home buyers can use the APR to compare different types of mortgages based on the annual cost for each loan.
Appraisal – An estimation of a property’s value that is made by a qualified, licensed professional known as an “appraiser.”
Approved Attorney – An attorney authorized by a title insurance company that handles closings and renders their opinion on a title.
Appurtenance – Any item passed along to a new owner that is attached to a piece of land or used with it.
Assessment – Taxes levied by a local municipality against a piece of property for a specific purpose like sewers, roads or other public services.
Balloon (payment) mortgage – Short-term, fixed-rate loan involving small payments for a certain period of time followed by one large payment for the remaining principal at a time specified in the contract.
Bankruptcy – A federal law provision in which a debtor gives up his assets to a bankruptcy court and is relieved of the future obligation to repay his unsecured debts. A trustee of the court manages and sells the assets to pay as much of the debt as possible. After the process is complete, the debtor is relieved of any further pursuit by his creditors.
Benchmark – A marker on a piece of property that serves as a permanent reference point for surveyors.
Beneficiary – A person named in a will to receive benefits from a trust. Someone who is a contingent beneficiary has conditions attached to his rights, usually meaning someone else must die first.
Bid – A buyer’s offer for a piece of property, etc.
Binder – A document committing a title insurance company to insure title to the property per conditions and exclusions shown in the document.
Breach of Contract – A party’s failure to honor a contract’s provisions
Broker – A person who assists in arranging a loan or negotiating a contract but who does not loan the money themselves. Brokers typically charge a fee or receive a commission for their efforts.
Buy-Down – A mortgage subsidy from a lender and/or home builder where the interest rate is lower during the first few years of the note. Initially, payments are low but increase as the subsidy expires. Buy-downs are used to qualify borrowers for a loan they would otherwise not qualify for but will be able to pay in the future as their income increases.
By-Laws – Rules and regulations that govern the activities of an association or corporation. In real estate, by-laws generally apply to condo and homeowners associations.
Capital Gains – Profits gained from the sale of a piece of land, home, stock or any other asset.
Capitalization – Estimating the value of a piece of property based on the investment’s rate of return.
Cashflow – Amount of money earned over a period of time from a rental property, which should be large enough to pay the property’s expenses (mortgage, maintenance, utilities, taxes, etc.)
Caveat Emptor – An expression meaning “buyer beware.” It is incumbent on a buyer of a home in Scottsdale to thoroughly inspect the property and be satisfied that it will meet his needs. A seller is under no obligation to disclose defects but cannot actively conceal or lie if asked about any defects.
Certificate of Eligibility – A government document given to qualified veterans of the Armed Forces granting them access to guaranteed loans from the Veterans Administration for a home, business or mobile home in Scottsdale (or anywhere in the U.S.). Veterans may obtain a certificate of eligibility by filing VA form 1880, or a file request for a certificate of eligibility.
Certificate of Occupancy – Certificate issued by a local governing authority that certifies a building is safe enough to be occupied.
Certificate of Satisfaction – A document from a property’s lien holder releasing a deed of trust, mortgage or other lien on a particular piece of property.
Certificate of Title – An attorney’s written opinion detailing the status of title as shown on the public records of a piece of property. This certificate does not certify matters not of record and provides no protection unless the author was negligent.
Closing – A meeting where funds and ownership of a piece of property officially changes hands. Participants include the buyer, seller and lender or his designee. Common closing costs include an origination fee, discount points, appraisal fee, title search/insurance, survey, taxes, deed recording fee, credit report and fees for a notary public.
Collateral – Property pledged by an owner trying to obtain a loan for something.
Condemnation – Taking of property through Eminent Domain by a local (Scottsdale), state or federal government for public use. The U.S. Constitution protects against this taking without fair compensation.
Condominium – A multi-unit structure where individuals own their respective units and jointly own common areas like parking lots, pools and recreation areas. Condos represent a system of individual fee simple ownership. Individuals can sell their individual units but have no right to sell common areas.
Conservator – A court appointed designee who protects and preserves the property of someone who cannot manage their own affairs. Also known as a Committee or Guardian, a conservator is generally appointed for the elderly, mentally incompetent, minors or individuals who are incarcerated.
Contract – An agreement between two or more parties that is legally enforceable.
Contract for Deed – A form of financing where the owner retains title of the property until the buyer has paid the full purchase price - also known as a Land Contract or Land Installment Contract.
Conventional Loan – A standard mortgage loan not insured or guaranteed by the federal government.
Cost Approach – An estimation of replacement costs by an appraiser for improvements, minus depreciation.
Cotenancy – A single piece of property that has two or more owners.
Covenant – A written agreement signed by owners restricting/governing the use of land or structure. Often used by Homeowners Associations to govern architectural controls and maintenance responsibilities.
Credit Report – An individual’s credit report details their credit history and current liabilities and is used by creditors to determine the applicant’s creditworthiness.
Debt-to-Income Ratio – A ratio that equals a person’s monthly payments on long-term debts divided by their monthly gross income, usually expressed as a percentage.
Deed – A written document conveying real property that must be signed, acknowledged and delivered to the Grantee. A landowner does not need the original document once it is recorded at their local (Scottsdale) courthouse.
Default – Failure on the part of a homeowner to fulfill the legal obligations of a contract. Specifically, default is the failure to make monthly payments on a mortgage.
Deferred Interest – Unpaid interest added to the loan balance. Some mortgages are written with a monthly payment that is less than what is required to satisfy the note rate. See negative amortization for more.
Deficiency Judgment – In the event of foreclosure, a loan holder may obtain a judgment against the former owner if the sale of their property doesn’t pay the note in full.
Down Payment – Money paid by the buyer to close the gap between the purchase price and the mortgage amount. A standard down payment is 20% of the purchase price.
Due-on-Sale Clause – A provision found in many mortgages where the note holder reserves the right to immediately call in the loan upon the sale of a piece of property.
Earnest Money – A good faith deposit from a buyer signaling their intent to purchase the property for sale.
Easement – Parts of one’s property where a utility or adjacent owner (driveway access) is allowed to use it for a specific, limited purpose.
Eminent Domain – Powers granted to local (Scottsdale), state and federal government(s) to take private property for public use, provided the owner(s) receives just compensation as required in the U.S. Constitution.
Encroachment – A structure or land improvement that intrudes a neighboring property owner. Common examples include a fence or driveway over the property line.
Encumbrance – Any liability, charge or lien against a piece of property.
Equal Credit Opportunity Act (ECOA) – Federal law requiring creditors to not discriminate against potential borrowers based on race, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity – Also referred to as the owner’s interest in a piece of property, or more specifically, the difference between the fair market value and current indebtedness.
Equity Sharing – A form of joint ownership where two owners divide the profit upon the sale of a piece of property.
Escheat – Property that the state (Arizona) takes ownership of if the original owner dies without heirs or a will.
Escrow – An independent third-party that holds funds or documents on behalf of others, executing actions per their instructions (typically used for paying a home’s insurance premium and property tax).
Executor – A person appointed in one’s will to execute the terms and administer their estate. An executrix is the female form of an executor.
Federal Home Loan Mortgage Corporation – Affiliate of the Federal Home Loan Bank that creates a secondary money market in conventional residential loan, FHA and VA loans by purchasing mortgage loans from member banks of the Federal Home Loan and Federal Reserve System.
Foreclosure – Situation where a lender will sell property to recoup funds it loaned to an individual who could not repay the loan for said property.
Fully Indexed Note Rate – Index value of an adjustable rate mortgage at the time of application plus the gross margin stated in the note.
Grantee – A person receiving interest in a piece of property.
Grantor – The person selling, granting or giving up interest in a piece of property.
Graduated Payment Mortgage (GPM) – A flexible payment mortgage where payments increase for a specific period of time then level off.
Gross Income – One’s income before taxes, benefits, etc. are deducted.
Gross Margin – An amount expressed as percentage points in an adjustable rate mortgage that is added to the current index value on the rate adjustment date to establish a new note rate.
Hazard Insurance – Insurance a homeowner purchases to protect themselves from specific losses stemming from fire, high winds, floods and more.
Hiatus – Gaps or spaces between two parcels of land that is not included in either parcel’s legal description. Other terms are gaps and gores.
Homestead Deed – Declaration of “homestead exemption” that is filed in the land records that allows one to protect assets against the claims of creditors.
Housing Ratio – A ratio expressed as a percentage that results when a borrower’s housing expenses are divided by their gross monthly income.
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Impound – Part of a borrower’s monthly mortgage payment that is set aside to pay for property taxes and insurance and other items as they become due. Other terms include reserves or escrow.
Income Approach – One method used by an appraiser to determine the value of a piece of property by calculating its generated income.
Indemnity – Protection from losses or damage resulting from an event mentioned. Document states the terms under which a loss will be compensated. Events around Scottsdale include high winds, fire and even rockslides.
Index – An interest rate lenders use to measure the difference between current rates on an adjustable rate mortgage and rates earned on other investments like one-, three-, and five-year U.S. Treasury securities.
Ingress and Egress – Term applied to an easement which grants the right to enter one’s property by crossing over someone else’s but not granting the right to park on the other person’s property.
Insurable Title – Land title that is subject to a defect or claim in which a title insurance company is willing to insure against.
Insured Closing Letter – Indemnity given to a lender by a title insurance company who agrees to be held responsible if the closing agent does not follow instructions from the lender or misappropriates funds from the loan. Lenders generally will not move forward with closing unless they receive an insured closing letter.
Joint Ownership Agreement – Agreement between different owners that defines their rights, ownership, financial obligations and responsibilities. These agreements usually occur between an investor and a property’s occupant(s).
Joint Tenants – Two or more owners of a property with common law right of survivorship. Meaning, the survivor inherits the property without mention of it in the deceased’s will. Creditors have the ability to sue to have the parcel divided to settle debts of one of the owners.
Judgment Lien – Lien against a debtor’s property in the county the judgment is recorded, or docketed.
Jumbo Loan – Loans that, as of 2009, are above $417,000 in an average area. This is above limits of and cannot be funded by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Jumbo loans usually carry a higher interest rate.
Lien – A claim from an individual or creditor against property. Property is considered ‘encumbered’ by a lien and cannot have a clear title until it is resolved.
Loan-to-Value Ratio (LTV) – Expressed as a percentage, the LTV is a relationship between a mortgage loan’s outstanding balance and the appraised value of said property.
Lis Pendens – Document recorded in a court that shows pending litigation has been filed. This recorded document is a required part of transferring ownership or refinancing.
Loan Application – Form an applicant completes to obtain a loan for a home, car, credit card, etc. The lender uses information in this application to base lending decisions. Loan applications define the terms of a loan, gives name(s) of the borrowers, their employment, salary, bank accounts and references. It also describes the property to be mortgaged and stipulates the amount, interest and repayment terms.
Majority – In terms of a contract, it’s the age at which a person can handle his own affairs. (Age 18 in most places)
Margin – What a lender adds to the index rate on an adjustable rate mortgage to establish the adjusted interest rate.
Marketable Title – Title to a piece of property that is readily acceptable without fair or reasonable doubt.
Market Value – Price at which a seller is willing to sell and a buyer is willing to buy. Market values are constantly changing and do not indicate the price a property could actually be sold for at a given time.
Mechanic’s Liens – Rights granted to contractors or suppliers to file a lien against property to recover monies for unpaid work.
Mortgage – Voluntary lien against real property that is used to secure a loan for said property.
Mortgage Insurance – An insurance policy paid for by the borrower when their down payment is less than 20%.
Mortgagee – A term meaning “the lender”
Mortgagor – A term meaning “the borrower” or “home owner.”
Negative Amortization – Condition where a monthly payment is not large enough to pay the interest due on the loan. Unpaid interest is added to the loan’s unpaid balance which over time can result in a disastrous situation where the borrower ends up owing more than the original loan.
Net Effective Income – A borrower’s income after federal income taxes are paid.
Net Worth – A person’s net worth is the difference between their total assets and total liabilities.
Non-Assumption Clause – Statement included in many mortgage contracts that forbids the assumption of the mortgage without the lender’s prior approval.
Note – A written promise from a borrower pledging to pay a certain amount of money at a certain time.
Notary Public – A state authorized individual who acknowledges and certifies documents and signatures.Offer – A proposal to a seller. Once the seller accepts an offer, it becomes a contract.
Pay-Off Amount – Full amount of a loan or lien’s outstanding balance, or the total balance.
Plat – A map or document that shows divisions (lots), streets and common areas on a piece of land.
PITI – An acronym that stands for Principal, Interest, Taxes and Insurance that represents a homeowner’s monthly housing expense.
Points (loan discount points) – Prepaid interest assessed by the lender at closing. One point equals 1% of the loan amount. Therefore, 2 points on a $100,000 loan equals $2000.
Power of Attorney – Designation authorizing someone to act on the behalf of someone else who cannot. One is not required to be an attorney to have Power of Attorney but it should only be used under advice of a licensed attorney at law.
Prepayment Penalty – Financial penalty imposed by a lender for paying a loan before its due date.
Prime Rate – Lenders’ lowest, most favorable rate they charge on short-term loans to qualified customers.
Private Mortgage Insurance (PMI) – If you pay less than 20% down for a home, most lenders will require you obtain a PMI policy, which itself requires an initial down payment and monthly premiums depending on your loan’s structure.
Promissory Note – An unsecured, transferable note that promises to pay a specified amount of money on demand.
Public Sale – Auction or sale of property that is open to the general public.
Purchase Money Mortgage (PMM) – Situation where the seller finances all or a portion of the property’s purchase price.
Realtor – Term describing a person who has membership in the National Association of Realtors.
Recision – The act of cancelling a contract. In regards to mortgage refinancing, this law gives a home owner three days to cancel a contract once it is signed if home equity is used as security for the transaction.
Recording Fees – Fees charged by a lender to record a home’s sale with the local authorities, making it part of the public records.
Refinance – The act of obtaining new financing on property already owned which often replaces existing loans on the property.
Remainder – An interest in land that is postponed until some other interest, such as an estate, is terminated.
RESPA – A federal law allowing consumers to review information on settlement costs once after filing their loan application and once prior to or during a settlement. RESPA is short for the Real Estate Settlement Procedures Act.
Reversion – A provision found in a conveyance that states how a piece of land will return to the grantor upon occurrence of a certain event or contingency.
Riparian Rights – Rights of a landowner who is adjacent to a body of water such as a river or lake.
Second Mortgage – A mortgage that ranks second in priority and is recorded after a First mortgage.
Special Assessment – A special tax imposed by a local government (Scottsdale) for a specific purpose like paving a road, building a park or fixing a school.
Special Warranty Deed – A seller affirms that nothing has been done during his ownership to impair title but makes no affirmation prior to his ownership.
Specific Performance – A legal action that completes the performance of a contract.
Statute of Limitations – The span of time a law suit can be filed or claim be enforced before it is barred by law.
Subdivision – A large piece of land that is divided into lots and streets. The land’s owner signs a PLAT and Deed of Resubdivision that is filed in their county’s land records.
Subject to – Accepting title to property that has a lien but not accepting to be personally responsible for the lien. If the holder of the lien forecloses, they can take possession of the property but cannot collect any money from the owner who took “subject to.”
Tenants by the Entirety – A husband and wife own property with common law right of survivorship meaning if one dies, the other automatically inherits the property. One cannot sue the other to partition the property and a creditor may not claim the property or proceeds of its sale.
Tenants in Common – Two or more persons who own property that have no right of survivorship. If an owner dies, his interest passes to his heirs, not to the co-owners necessarily. Either party or a creditor can sue to partition the property.
Title – Document giving evidence of an individual’s ownership of property.
Title Insurance – Insurance providing indemnity against losses or damages resulting from defect in the land’s title. A title insurance policy covers mistakes and matters that were not discovered before closing such as missing heirs, fraud and forgery.
Title Search – A close examination of public records, including court decisions, that seek out facts concerning the ownership of real estate. A title examiner prepares an abstract then a title agent prepares a binder but legal questions and interpretations have to be resolved by a licensed attorney.
Trust – A right to or in property held for the benefit of another person, which can be written or implied. An implied trust is called a constructive trust.
Trustee – A person who holds property in Trust on someone else’s behalf.
Truth-in-Lending – Also known as Regulation Z, it’s a federal law requiring disclosure of the Annual Percentage Rate to a loan applicant.
Two-Step Mortgage – A special mortgage where the borrower receives a low interest rate for a specified time (usually 5-7 years) and then receives a new interest rate adjusted to market conditions. Some two-step mortgagees have the option to call the loan due with 30 days’ notice at the end of five or seven years.
Underwriting – Process of deciding whether to make a loan to a potential home buyer based on their credit history, employment, assets and other factors and the matching of this risk to an appropriate rate and term.
Usury – Act of charging more interest than what is legally allowed.
VA Loan – Long-term loans requiring low- or no-down payment that are guaranteed by the U.S. Department of Veterans Affairs. Applicants must have served in the Armed Forces.
Verification of Employment (VOE) – Document signed by an employer verifying a loan applicant’s employment status.
Warranty Deed – Document conveying title to a property guaranteeing a clean and clear marketable title.
Yield - The percentage rate of return of dividends paid on a stock, or the effective rate of interest paid on a bond.
Zoning – Local government regulations concerning land use and development.
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