A Short Glossary of Terms

Amortization  The gradual, systematic payment of a debt, such as a mortgage and note, by installment payments of the principal and accrued interest at stated periods for a definite time. At the expiration of that time, the debt will be fully liquidated.

Balloon  The principal amount representing the remaining balance due and owing in its entirety at an earlier point in time than would normally be required under the amortization period creating the payment schedule. For example, a $100,000 mortgage amortized at 10% over thirty years would have monthly payments of $877.57. If the terms required a balloon at the end of five years, the principal balance of the mortgage at that time would be $96,579.32 and that would be the balloon amount due. The payor would be required to pay the entire balloon amount at that time. Note: a balloon payment terminates the note obligation, as distinguished from a principal payment, which only reduces the balance even if it is in excess of regular monthly payments.

Closing Statement  When real estate is bought and sold, there are usually some expenses involved. The closing statement is an accounting of all monies involved in the transaction and to whom and by whom they were paid.

Collateral  An asset (such as property) pledged as security to ensure payment or performance of an obligation.

Easement  The legal right a person has in the limited use or enjoyment of real property of another. It is considered an interest in real property.

Encumbrance  Any claim, lien, charge, liability, encroachment, easement, etc., attaching to real property which may cause the title to be clouded and may affect the value of the property.

Equity  The value or interest an owner has in real property over and above any mortgage indebtedness or other liens against the property.

Escrow  The system by which money, documents, personal property or real property are held in trust for others by a disinterested third party until the terms and conditions of the escrow instructions made by the parties to the escrow are completed or otherwise terminated.

Grant Deed  A warranty deed in Trust Deed states. See “Warranty Deed.”

Lien  A claim against property that makes it security for the payment of a debt.

Market Value  The price at which a ready, willing and informed seller would buy, neither party being under any pressure to act. The price the property would command in the market.

Mortgage  A written instrument that creates a lien by pledging real property as security for a debt. A contract by which specific property is pledged for the performance of an act without the necessity of a change of possession.

Mortgage Deed  Same as a Mortgage.

Mortgage Note  A negotiable promissory note secured by a mortgage on specific real estate. The legal and negotiable evidence of the debt created by the sale of a property on credit as a written promise to repay. It states the rate of interest, repayment schedule and other terms associated with the debt and its repayment.

Mortgagee  The lending party under the terms of a mortgage. The lender of money or the creditor and the owner (holder) of the mortgage. Referred to as the “seller” of the private mortgage note.

Mortgagor  The borrowing party who pledges property as collateral. The owner of the real estate and the borrower or debtor. Referred to as the “payor” on the private mortgage note.

Partial  Any part of the payment stream that is less than the full amount due under the terms of the mortgage note. A partial purchase is the purchase of this portion of the payment stream.

Promissory Note  The document stating a promise to pay the debt. The actual promise that someone makes to pay a certain amount of money at a certain interest rate over a certain period. A Mortgage Note is a type of Promissory Note.

Quit Claim Deed  A no-warranty deed in Mortgage Deed states.

Real Estate Contract  A contract for the purchase or sale of real property, which may or may not include personal property. The Statute of Frauds dictates that, to be enforceable, any contract for the purchase or sale of real estate must be in writing.

Recording  The placing on the public records of the county in which the property is located any instrument that affects the title of that property.

Seasoned  Seasoning relates to the length of time payments have been made on a mortgage note. A mortgage and note are seasoned if many payments have been received in a timely manner. Buyers will have their own ideas as to how many payments make for a seasoned mortgage, but a year’s worth is fairly well seasoned. In that time, the payor will have established his/her financial ability to make the payments on a consistent basis.

Second Mortgage  A subordinate or junior mortgage to a first mortgage.

Seller Carry-Back Mortgage  A mortgage held by the seller of a property and created as a result of the seller of the property financing only a portion of that sale.

Silent Second  Financing in addition to a first mortgage, generally used secretly to fund the mortgagor’s required down payment. It is not recorded on the closing statement and sometimes not even recorded in public record for up to six months. This is misrepresentation at best and, if intentional, can be fraudulent with severe penalties.

Simple Deed  A no warranty deed in Trust Deed states.

Simultaneous Closing or Table Funding  A real estate owner agrees to accept a private mortgage note in order to speed up the sale of the property. Then, during the closing process, the real estate seller immediately sells the private mortgage note for cash. The result is the same for the seller as a cash sale.

Split Funding  An optional purchase structure in which the funding source pays a portion of the purchase price at closing and the remaining portion(s) at a later date(s).

Split Payment  An optional purchase structure in which the funding source buys a specified portion of the seller’s monthly mortgage payments. The seller continues to receive income from the remaining portion.

Title Insurance  Title insurance can benefit either a mortgagor or a mortgagee. Should the beneficiary suffer any damages due to clouded or false title to real estate, title insurance will recompense the damaged party to the extent of the damages, usually to the extent of money owed or already paid.

Title Search  Research conducted in public records from the distant past to the present to ensure that title to a property has passed cleanly, legally, and without dispute from owner to owner. A title search also uncovers any existing liens on the property and any other claims third parties may have to the property researched.

Trust Deed  In some states, as well as in the District of Columbia, a trust deed or deed of trust is a security resembling a mortgage, being a conveyance of lands to trustees to secure the payment of a debt, with a power of sale upon default, and upon a trust to apply the net proceeds to paying the debt and to turn over the surplus to the grantor. Also referred to as a T.D.

Warranty Deed  A deed to property in Mortgage Deed states that includes a confirmation by the grantor that they have sole title to the property and will guaranty that.

Wraparound  A mortgage loan in which a lender places a new mortgage on a parcel of real estate which already has an existing mortgage. The lender’s new mortgage is in a secondary or subordinate position to the existing first mortgage. The new mortgage wraps around the existing first mortgage and includes both the unpaid principal balance of the first mortgage and whatever amount the lender advances on the wraparound mortgage to the borrower above the first mortgage. Also known as a wrap mortgage or all-inclusive trust deed (ATTD).