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Abstract of Title: A summary of the public records relating to the title for a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects that must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause: Condition in a mortgage that may require the balance of the loan to become due immediately in the event regular mortgage payments are not made or for breach of other conditions of the mortgage.
Adjustable Rate Mortgage Loans (ARM): Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index, such as (but not always) Treasury bill rates. If interest rates rise, your monthly payments will rise. An interest rate cap limits the amount by which the interest rate can change; look for this feature when you consider an ARM loan.
Ad Valorem: Designates an assessment of taxes against property in a literal sense according to its value.
Adverse Possession: A possession that is inconsistent with the right of possession and the title of the true owner. It is the actual, open, notorious, exclusive, continuous, and hostile occupation and possession of the land of another under a claim of right or under color of title.
Affidavit: Written statement made under oath before an officer of the court or notary public.
Agency: The relationship that exists by contract whereby one person is authorized to represent and act on behalf of another person in various business transactions.
Agreement of Sale: Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. Amortization A payment plan that enables the borrower to reduce a debt gradually through monthly payments of principal, thereby liquidating or extinguishing the obligation through a series of installments.
Appraisal: Expert judgment or estimate of the quality or value of real estate as of a given date. The process through which conclusions of property value are obtained. It also refers to the formalized report that sets forth the estimate and conclusion of value.
Assessed Value: An official valuation of property most often used for tax purposes.
Assignment: The method or manner by which a right, a specialty, or a contract is transferred from one person to another.
Assumption of Mortgage: An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption. The mortgagee’s consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mort gage fails to make the monthly payments. An assumption of mortgage is often confused with “purchasing subject to a mortgage.” When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee’s consent is not required for a sale subject to a mortgage. Both assumption of mortgage and purchasing subject to a mortgage are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.Automatic Stay: A bankruptcy provision that stops any act that can be construed to be an act against the interests of the debtor or the debtor’s property.
Using this Glossary: Real estate investors and homeowners selling their own property will find this Glossary helpful for understanding words and terms used in real-estate transactions. There are, however, some factors that may affect these definitions. Terms are defined as they are commonly understood in the mortgage and real estate industry. The same terms may have different meanings in another context. The definitions are intentionally general, nontechnical, and short. They do not encompass all possible meanings or nuances that a term may acquire in legal use. State laws, as well as custom and use in various states or regions of the country, may, in fact, modify or completely change the meanings of certain terms defined. Before signing any documents or depositing any money preparatory to entering into a real estate contract, the purchaser should consult with an attorney of his or her choice to ensure that his or her rights are properly protected.