Below please find definitions of some terms you may hear during the settlement process:


Abstract: The accumulation of recorded documents relating to a piece of real property or land from which an attorney or licensed agent will give an opinion of the status of the title.

Adjustable Rate Mortgage (ARM): A mortgage in which interest and payment rates vary periodically, based on a specific index, such as 30-year Treasury bills or the Cost-of-Funds index.

Adjustments: Money credited to either/both buyer and seller at closing, including real estate taxes, price adjustments based on disclosures in the inspection, etc.

Amortization: A method by which monthly mortgage payments are equalized over the life of the loan despite the fact that the proportion of principal to interest changes.

Appraisal: Professional and unbiased written opinion of property's value based on recent, comparable sales, quality of construction, current condition and style of architecture.

Assessed Value: The value placed on property by the County Property Appraisers Office as a basis for taxation.

Assessor: A municipal or county official who determines the value of properties for the purpose of taxation.

Assignment: A transfer of real or personal property and all rights to said property to another.

Assumption of Mortgage: Agreement by a buyer to assume an existing mortgage or deed of trust.

Balloon Payment: A loan in which the final installment payment is greater than the preceding payments, and pays the note in full.

Chain of Title: A history of conveyances and encumbrances affecting the title of real property.

Closing: The final method in which documents are signed and recorded, and the sale is completed. Also called Settlement.

Closing Costs: All fees, taxes, charges, commissions and other costs paid by buyer and/or seller at the closing.

Commission: A previously agreed upon percentage of the home's sale price paid to the listing and selling agent(s).

Commitment: The written report of the title company showing status of title and pledging to issue a title insurance policy when the requirements shown therein are met.

Conventional Mortgage: A mortgage securing a loan made by banks, lenders or investors without government underwriting by the Fair Housing Administration or the Veterans Administration.

County Clerk: The county authority with whom all real estate documents are filed.

Courier Fee: Charges for delivery.

Deed: A document which, when properly executed and delivered, conveys title of real property from the seller or grantor to the buyer or grantee.

Deed in Lieu of Foreclosure: An alternative to foreclosure wherein the lender agrees to halt foreclosure activities in exchange for a deed executed by the owner / borrower in favor of the lender. Typically only applicable where the owner / borrower has some equity in the property that would cover the lender's expenses, including expenses incurred by the lender because of the borrower's default, legal fees and the cost to re-sell the property.

Disclosure: To make known or public. When dealing with real property, all disclosures should be in writing.

Earnest Money: Money deposited by a Buyer as evidence of intention to demonstrate the good faith of the buyer to complete the purchase. Earnest money applied against the purchase price; however, it may be forfeited if the buyer fails to complete the purchase under the terms of the sales contract.

Easement: A recorded right of use affecting real property. An easement could be for utility purposes or for ingress or egress, for example. All easements of record would be shown originally on the title insurance commitment.

Encumbrance: Anything that affects or limits the ownership of real property, such as mortgages, liens, easements or restrictions of any kind.

Equity: The difference between the sale price of a property and the mortgage on the property.

Escrow: The deposit of documents and / or funds, with instructions to a neutral third party (Title Company), to carry out the provisions of an agreement or contract.

Escrow Account: A third party account used to retain funds including the property owner's real estate taxes, buyer's earnest money or hazard insurance premiums.

Exclusive Right to Sell: A written agreement between the Seller and their real estate agent, giving the agent the right to sell a property and collect a fee for a set term.

Executor: The person chosen in the will to carry out, or execute, the will's terms, now often called the Personal Representative.

Fair Market Value: The price a willing buyer and a willing seller would arrive at after an arm's length bargaining where there is no compulsion to buy or to sell and where both parties are aware of all relevant facts.

Federal Tax Lien: Nonpayment of any federal tax, including income tax, can result in a Federal Tax Lien being attached to taxpayer's property.

Final Decree: An order from a court of competent jurisdiction documenting the final decision of all pending matters in a case before it.

Fixed-Rate Mortgage: A mortgage that has a set interest rate and is basically unaffected by interest rate changes.

Foreclosure: The selling of a property in order to satisfy a lien against it, ending all rights, interests, or title of owners.

Gap: The common title industry name for the period from the effective date on the commitment to the day of closing and recording of documents. A "Gap Check" is the title company's search of the public records for this time period.

Heir: One who receives the estate, or partial estate, of a deceased person by law.

Home Inspection: A formal survey of a home's structure, mechanical systems and overall condition, generally performed by a licensed professional inspector.

Homeowner's Policy: A hazard insurance policy covering at the very least the appraised value of a house and property.

HUD-1 Settlement Statement: Is a summary of the financial portion of the real estate transaction. The HUD-1 will list the purchase price, loan amount, closing costs for both buyer and seller and all sums to be disbursed by the title company to all parties.

Indemnity Agreement: Agreement between two or more parties wherein one party agrees to protect, reimburse and / or assume the liabilities of another for damages or losses suffered by that person.

Instrument: Legal documents, such as deeds, mortgages, assignments, wills, etc., are also known as instruments.

Joint Tenancy: Ownership of property by two or more people in which the survivors automatically gain ownership of a decedent's interest.

Judgment: The final decision in a court of law.

Junk Fees: The pejorative name sometimes used to identify the reasonable, customary and sometimes excessive fees charged to the borrower by the lender against the borrower by the lender at closing for the privilege of borrowing money.

Legal Description: The description of a parcel of land, identifiable by metes and bounds, or designated as a Lot and/or Block number.

Lien: An encumbrance for money against property.

Living Trust: A living trust (revocable living trust or inter vivos trust) is a type of trust created for the purpose of holding ownership to an individual's assets during the person's lifetime and for distributing those assets after death.

Marketable Title: A title which is free from any encumbrance that would limit or prevent its sale; a title that free to be used in transactions.

Mortgage: A legal document that provides security for repayment of a promissory note.

Mortgagee: The party lending the money.

Mortgagee's Title Policy: Also called Lender's Policy. An insurance policy required by the mortgagee to protect the mortgagee's interest against loss caused by title defects. It does not protect the Buyer. It is also required for 2nd mortgages.

Mortgage Broker: One who may carry on the business of dealing in real estate loans via license by the state.

Mortgagor: The party borrowing the money.

Notary Public: A person legally empowered to witness or certify the validity of signatures on documents.

Owner's Title Policy: A policy that insures the Buyer against loss due to any defect of the title, not excepted to or excluded from the policy.

Partial Release: A partial release of property covered by a mortgage.

Payoff: Full payment of an existing loan.

Power of Attorney: Enables one person to act for another.

Probate: The legal term for the process of administering a deceased person's estate or property through the state courts.

Points: A point is equal to one percent of the loan amount, and can be paid by either Buyer or Seller.

Quit Claim Deed: A deed passing any interest, claim or title the grantor may have in the property to the grantee, without warranty of defects in title.

Recording: This is the act of filing all documents that affect property for public record for the use of future reference and public notices.

Release: A document releasing property from lien or judgment.

Re-recording: If an error occurred on the original recorded document and is in need of correction, the corrected document must be re-recorded with the County Clerk's office to show the correction.

Rescind: To cancel a transaction or agreement is to "rescind" it. In title terms, it most often refers to the right of rescission given individuals to cancel home loans when refinancing.

Restriction: As to title, this would mean any limitation on the right of use of a property. A restriction could be created by deed, covenants, or court order.

RESPA (Real Estate Settlement Procedures Act): RESPA is a consumer protection act aimed at making consumers better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. For more information visit HUD's RESPA web site.

Recording Fee: A fee charged by the County Clerk's Office to record documents in the public record. The charges are based upon the type of document to be recorded and on the number of pages to be recorded.

Refinancing: The process of applying for a new mortgage to gain better terms or use of equity.

Second Mortgage: A mortgage that ranks behind the first mortgage in lien priority due to its later filing of record.

Short Sale: An alternative to foreclosure wherein the lender agrees to accept some amount less than the outstanding principal owed on real property so that the owner / borrower can sell the property.

Survey: A survey of property required by the Lender, which shows the boundaries of a parcel of land and any easements, encroachments (if applicable) and location of improvements.

Tax Exemption: Not having to pay property tax or other taxes, granted to religious, educational and governmental organizations.

Tax Lien: Lien recorded against a property for nonpayment of taxes.

Tenants by the Entireties: The default ownership interest for married couples, automatically includes the right of survivorship in the surviving spouse.

Tenants in Common: Some times referred to as "TIC." A type of joint tenancy of property without right of survivorship; each tenant's portion of ownership is separately owned and each owner may do with their share as they see fit without regard for the other tenants.

Termite Inspection: An inspection required by the Lender to show that the property is free and clear of active termites.

Title: Evidence of ownership of real property.

Title Insurance: Generally, the form of insurance that guarantees title to a real property against claims that may arise related to matters occurring prior to the effective date of the policy.

Title Report: A report detailing the condition of title to real property. A title report is generally used to determine a property's marketability by identifying outstanding liens, judgments and / or other clouds on title in preparation of sale of the property.

Tract: A parcel of land.

TILA (Truth In Lending Act): Was originally enacted as part of the 1968 Consumer Protection act and was designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs.

Underwriting Fee: A fee charged by the Lender to underwrite the loan.

Uniform Commercial Code: The set of laws regulating commercial transactions or transaction between merchants, especially ones involving the sale of goods and secured transactions.

VA Funding Fee: A fee charged by the Veteran's Administration for originating a VA loan.

Walk-Through Inspection: The final inspection by the buyer, usually in the company of the buyer's real estate sales agent, to ensure that all conditions noted in the offer-to-purchase, and all seller-related contingencies have been met. This inspection is most often completed immediately prior to the official act of closing, after the seller has vacated the premises.

Warehouse Fee: A fee charged by the Lender to hold the loan locally before selling it in the secondary market, to an investor.

Warranty: Protection provided to the purchaser regarding the condition of appliances and pictures. Often, new homes have more extensive warranties also covering the overall structure.

Warranty Deed: A deed used to convey title of property from one party to another, whereby the seller guarantees title to be free from encumbrances.

Zoning: An act by municipality authorities specifying the type of use for which a property may be used.