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  C

California Environmental Quality Act:
The Act allows local governments to require environmental impact reports for private or government projects that may have a significant impact on the environment. (See environmental impact report, National Environmental Policy Act)

California Housing Financial Discrimination Act of 1977:
Also known as the Holden Act. A California act prohibiting discrimination by a lender for any reason unrelated to the creditworthiness of the loan applicant.

California Residential Mortgage Lending Act:
An act administered by the Commissioner of Corporations which provides licensing authorizing mortgage lending and brokering.
  CRMLA pages at the Department of Corporations

CAL-FIRPTA:
California's version of the federal FIRPTA. It is a tax act which became effective in 1988 and was subsequently amended in September, 2002 to become a withholding tax for residents and non-residents who sell California real estate. Assembly Bill 2065 requires that all sales closing after December 31, 2002 in California withhold 3 1/3% of the sales price for certain California real property transactions. (See FIRPTA)

Cal-Vet:
A program to help eligible California Veterans finance the purchase of farms and ranches within the state.
  Cal-Vet Loan Programs

canceling escrow:
Providing written notification that an escrow is to be terminated; must be done by mutual consent of all parties to the escrow and in accordance with governing agreements.

capacity of parties:
The legal ability of people or organizations to enter into a valid contract. A person entering into a contract will have full, limited or no capacity to contract.

No capacity to contract: The inability of a person to enter into a valid contract under any circumstances. Such inability can arise when a person has been adjudicated insane or is an officer of a corporation who is not authorized to execute a contract in behalf of a corporation.

capital gain:
Profit earned from the sale of an asset, where the sales price was greater than the adjusted basis. (See adjusted basis, deferred capital gain, excluded capital gain, realized capital gain (loss), recognized capital gain)

capital loss:
Loss sustained from the sale of an asset, where the sales price is less than the adjusted book basis. (See adjusted basis)

capitalization:
A mathematical process for converting net income into an indication of value, commonly used in the income approach to value. The net income of the property is divided by an appropriate (capitalization) rate of return to give the indicated value. (Income ÷ Rate = Value)

capitalization rate:
The rate of return a property will produce on the owners investment.

capping:
The process at of laying two to four feet of soil over the top of a landfill site and then planting vegetation to prevent erosion and enhance the landfill's aesthetic value. (See landfill)

caps:
Yearly and/or life-of-loan limitations on the amount of variation allowed when adjusting interest on variable-rate loans. (See adjustable rate mortgage (ARM), rate cap)

caravan:
A group tour by a real estate office's sales agents to view listed properties. (See agent property evaluation)

carbon monoxide (CO):
A colorless, odorless gas that occurs as a byproduct of burning such fuels as wood, oil and natural gas due to incomplete combustion.
  National Safety Council on Carbon Monoxide

care:
The agent must exercise a reasonable degree of care while transacting the business entrusted to him or her by the principal. The principal expects the agent's skill and expertise in real estate matters to be superior to that of the average person. The most fundamental way in which the agent exercises care is to use that skill and knowledge on the principal's behalf. The agent should know all facts pertinent to the principal's affairs, such as the physical characteristics of the property being transferred and the type of financing being used. (See agent, law of agency, principal)

carcinogen:
A cancer producing substance. (See asbestos, radon)

carry-back:
Financing where the seller takes back a note for part of the purchase price secured by a junior mortgage, wraparound mortgage or contract for deed. (See wraparound, junior mortgage)

cash flow analysis:
A cash flow analysis shows the effect an investment property has on an owner's income in terms of tax benefits. Analyzes the return on investment after taxes on an income producing property. Measures the property manager's performance from period to period by comparing income and expenses for a given property.

cash now:
The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results.

cash-out:
When a seller of a property wants to receive the entire sales price in cash with no carry-back financing. (See carry-back)

"cash-out" scheme:
Where a buyer offers a large cash downpayment and asks the seller to carry-back the balance as a subordinate trust deed. (See carry-back, subordination clause)

cash rent:
In an agricultural lease, the amount of money given as rent to the landowner at the outset of the lease, as opposed to share cropping.

casualty:
Casualty insurance policies include coverage against theft, burglary, vandalism and machinery damage as well as health and accident insurance. Casualty policies are usually written on specific risks, such as theft, rather than being all-inclusive.

caveat emptor:
Latin for "let the buyer beware." A buyer should inspect the goods or realty before purchase.

CC&Rs:
Covenants, conditions and restrictions are limitations on land use, which are imposed by deeds, usually when land is subdivided. CC&Rs are a means of regulating building construction, density and use. May be referred to simply as restrictions. (See deed restrictions, restrictive covenants)

centers of influence:
Influential people in a community. Real estate agents cultivate relationships with these "centers of influence" as a method of locating prospects in the community where the person has influence. Also known as "bird dogs," indicating that these people "point the way" to new prospects.

certificate of eligibility:
A certificate issued by a Veterans Administration regional office to veterans who qualify for a VA loan. The Veteran Housing Act permits regional administrators to restore a veteran's entitlement to loan-guarantee benefits after his or her property purchased with an existing VA-guaranteed loan has been disposed of and 1. this loan has been paid in full; 2. the administrator is released from liability under the guarantee or 3. any loss suffered by the administrator has been repaid in full. It is no longer required that property ownership was transferred for a compelling reason.

The act also authorizes regional administrators to restore a veteran/seller's entitlement to loan-guarantee benefits and release the veteran from liability to the VA when another veteran has agreed to assume the outstanding balance on the veteran/seller's existing VA-guaranteed loan and consented to the use of his or her entitlement to the same extent that the veteran/transferor had used the original entitlement. This is not a release from the lender, however. The veteran/transferee and the property must otherwise meet the requirements of the law. Reinstatement of eligibility is never automatic but must always be applied for, preferably at the time of the sale of property purchased with an existing VA-guaranteed loan.

Many veteran/sellers presume that they are eligible for a new VA loan after selling their property by way of a loan assumption. In a loan assumption, the broker should point out that for the seller to have complete VA entitlement restored, the buyer must be a veteran and must agree in the sales contract to substitute his or her entitlement for the seller's. (See VA loan)

certificate of occupancy (CO):
A certificate issued by a governmental authority indicating that a building is ready and fit for occupancy and that there are no building code violations. Some condominium developers insert language into the sales contract to the effect that upon notification that the units are ready for occupancy, the buyer must accept the unit despite any construction defects that may exist, although acceptance will not bar the buyer from obtaining redress for such defects. Once the building has been certified for occupancy the developer can then close the individual sales, transfer title to the buyers and, most important, begin to pay off the construction loan and eliminate the interest payments.

certificate of reasonable value (CRV):
A certificate insured by the Veterans Administration setting forth a property's current market value estimate, based on a VA-approved appraisal. The CRV places a ceiling on the amount of a VA-guaranteed loan allowed for a particular property. (See VA loan)

certificate of sale:
The document generally given to the purchaser at a tax foreclosure sale. A certificate of sale does not convey title: normally it is an instrument certifying that the holder received title to the property after the redemption period passed and that the holder paid the property taxes for that interim period.

certificate of title:
A statement of opinion prepared by a title company, licensed abstracter or an attorney on the status of a title to a parcel of real property, based on an examination of specified public records. This certificate of title should not be confused with the certificate of title that is issued to a titleholder of land registered under the Toreens system, or with a title insurance policy.

A certificate of title does not guarantee title, but it does certify the condition of title as of the date the certificate is issued, on the basis of an examination of the public records maintained by the recorder of deeds, the county clerk, the county treasurer, the city clerk and collector and clerks of various courts of record. The certificate also may include records involving taxes, special assessments, ordinances, zoning and building codes.

Note that a certificate of title does not offer protection against "off -the-record" matters such as undisclosed liens, rights of parties in possession and matters of survey and location. Nor does it protect against "hidden defects" in the records themselves, such as fraud, forgery, lack of competency or lack of delivery. A title insurance policy, not a certificate of title, protects against certain off-the-record and hidden defects risks.

cessation of work:
A period of 60 days where no work is being conducted. (See notice of cessation)

chain of title:
The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title. (See conveyance)

change:
The appraisal principle that holds that no physical or economic condition remains constant. (See appraisal)

chattel:
See personal property.

civil action:
An action where an issue, formed by some kind of complaint, is presented for trial. Proceedings are for declaration, enforcement, protection of a right, redress, or prevention of a wrong.

civil law:
A system of law codified by statutes. (See common law, constitutional law, Roman Civil Law, statutory law)

Civil Rights Act of 1866:
The Civil Rights Act of 1866 prohibits racial discrimination in the sale and rental of housing. (See Federal Fair Housing Law)

Civil Rights Act of 1870:
The Voting Rights Act of 1870 (aka, Civil Rights Act of 1870) includes a clause reaffirming the remedies of the Civil Rights Act of 1866.

Civil Rights Act of 1964:
The first modern civil rights act made into law by President John F. Kennedy's Executive Order 11063 prohibiting discrimination in housing where federal funds were involved. (See Federal Fair Housing Law)

Civil Rights Act of 1968:
In 1968, Congress enacted Title VIII of the Civil Rights Act, called the federal Fair Housing Act, which declared a national policy of providing fair housing throughout the United States (Reference Sections 3601-3631 of Title 42, United States Code). This law makes discrimination based on race, color, sex, familial status, handicap, religion or national origin illegal in connection with the sale or rental of most dwellings and any vacant land offered for residential construction or use. (See Fair Housing Act, Federal Fair Housing Law)

classified ads:
Advertisements purchased by the line and placed in the classified ad section of newspapers or real estate magazines. Used primarily for advertising residential properties and rentals. (See display ads)

client:
The person who employs an agent to perform a service for a fee. In traditional real estate brokerage, the client is the seller, and the buyer is the prospect or customer. In modern practice, more and more buyers are seeking representation as a client. Dual agency occurs when a broker represents the seller and the buyer as clients.

close-of-escrow/closing:
The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment by the buyer of the purchase price. Closing in some areas may not occur until the documents are recorded; however, under general rules of real estate law, transfer of title takes place upon delivery of the deed to the grantee.

closing costs:
Expenses of the sale (or loan refinancing) that must be paid in addition to the purchase price (in the case of the buyer's expenses) or be deducted from the proceeds of the sale (in the case of the seller's expenses). Some closing costs result from legal requirements; others are a matter of local custom and practice.

closing statement:
A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.

cloud on title:
Any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful: usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

CLTA policy:
A standard coverage title insurance policy protects real estate buyers in matters of record and specific risk. (See standard coverage policy, title insurance)

clustering:
The grouping of homesites within a subdivision on smaller lots than normal, with the remaining land used as common areas.

CMO:
Securities (a series of bonds) issued backed by mortgages.

code of ethics:
A written system of standards of ethical conduct. Because of the nature of the relationship between a broker and a client or other persons in a real estate transaction, a high standard of ethics is needed to ensure that the broker acts in the best interests of both his or her principal and any third parties.

codicil:
A supplement or an addition to a will, executed with the same formalities as a will, that normally does not revoke the entire will.

coinsurance clause:
A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.

collateral:
Something of value given or pledged as security for a debt or obligation. The collateral for a real estate mortgage loan is the hypothecated mortgaged property itself.

combination trust:
A trust that participates in real estate investments as both financier and investor.

combustion gases
The gasses that are emitted from a flame upon the combustion of a flammable material.

commercial acre:
A commercial acre is that portion of an acre of newly subdivided land remaining after dedication for streets, sidewalks, parks and so on.

commercial bank:
A financial institution designed to act as a safe depository and lender for many commercial activities (usually short-term loans or lines of credit). Commercial banks rely heavily on demand deposits--checking accounts--for their basic supply of loanable funds, although they also receive capital from savings accounts, loans from other banks, short-term loan interest and the equity invested by their owners. (See line of credit)

Commercial Investment Real Estate Institute (CIREI):
A professional organization of real estate practitioners specializing in commercial real estate. CIREI, affiliated with the National Association of REALTORS®, confers the designation CCIM (Certified Commercial Investment Member).
  CCIM Commercial Real Estate Network

commercial leasehold insurance:
Insurance that covers payment of rent in the event the insured (tenant) cannot pay it.

commercial real estate/property:
A classification of real estate that includes income-producing property such as office buildings, gasoline stations, restaurants, shopping centers, hotels and motels, parking lots and stores. Public accommodations.

commercial waste:
All solid waste from businesses. This category includes but is not limited to, solid waste originating in stores, markets. office buildings, restaurants, shopping centers, and theaters.

commingling:
The illegal act of mixing deposits or monies belonging to a client (trust funds) with one's personal money. By law brokers are required to maintain a separate trust or escrow account for other parties' funds held temporarily by the broker. (See trust funds)

commission:
Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

commitment:
1. A pledge to do a certain act, such as a promise by a lender to loan a certain amount of money at a specific rate of interest to a qualified borrower, provided the loan is made by a certain date. 2. Also refers to an agreement by a title insurance company to issue a policy in favor of a proposed insured upon acquisition of a specific property.

common areas:
Land or improvements in a condominium development designated for the use and benefit of all residents, property owners and tenants. Common areas frequently include such amenities as corridor or hall areas, elevators, parks, playgrounds and barbecue areas, which are sometimes called green belts. In shopping centers, the common areas are parking lots, malls and traffic lanes.

common elements:
Parts of a property that are necessary or convenient to the existence, maintenance and safety of a condominium or are normally in common use by all of the condominium residents. Each condominium owner has an undivided ownership interest in the common elements. (See condominium ownsership)

common interest:
The percentage of undivided ownership in the common elements belonging to each condominium apartment, as established in the condominium declaration.

common interest subdivision:
A subdivision in which the owners own or lease a separate lot or unit together with an undivided interest in the common areas of the subdivision. (See common areas, subdivision)

common law:
The body of law based on custom, usage and court decisions. (See civil law, constitutional law, stare decisis, statutory law)

community property:
A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. This system stemmed from germanic tribes and, through Spain, came to the Spanish colonies of North and South America.

In states that maintain a community property system, such as California and other states with laws of Spanish origin, there are two classifications of property - separate property and community property. Separate property is property that either the husband or wife owned at the time of marriage or that was acquired by one spouse during marriage by inheritance, will or gift. Separate property is considered all community property and is automatically owned equally by each spouse regardless of whose name the record title is held under.

Community Reinvestment Act of 1977 (CRA):
Community reinvestment refers to the responsibility of financial institutions to help meet their communities' needs for low- and moderate-income housing. In 1977, Congress passed the Community Reinvestment Act of 1977 (CRA). Under the CRA, financial institutions are expected to meet the deposit and credit needs of their communities, participate and invest in local community development and rehabilitation projects, and participate in loan programs for housing, small businesses and small farms.
  Community Reinvestment Act of 1977—Full Text

company dollar:
The term "company dollar" is the amount left over after all commissions have been paid out.

comparables:
Properties that are substantially equivalent to the subject property.

comparative market analysis (CMA):
This is a term often used by real estate brokers in preparing a report for prospective sellers and buyers, indicating market trends in various neighborhoods, based on computer statistics generated from multiple-listing service data. Generally, these analyses are used for clients to determine a listing price for the sale of a home or for buyers to determine if a list price is reasonable for a given location.

compensating factors:
Positive factors in an individual's credit history which offset negative factors. "Compensating factors" increase the possiblity that a borrower's loan application will be approved. (See credit score)

compensation:
The source of compensation does not determine agency. An agent does not necessarily represent the person who pays his or her commission. In fact, agency can exist even if no fee is involved (called a gratuitous agency). Buyers and sellers can agree, whichever way they choose, to compensate the broker, regardless of which is the agent's principal. For instance, a seller could agree to pay a commission to the buyer's agent. The written agency agreement should state how the agent is being compensated and explain all the alternatives available.

compensatory damages:
Monetary damages paid to compensate an injured party for a loss. (See exemplary damages, nominal damages)

competition:
The appraisal principle that states that excess profits generate competition. (See appraisal)

completion bond:
A surety bond posted by a landowner or developer that guarantees a proposed development will be completed according to specifications and free of mechanic's liens.

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA):
A federal law administered by the Environmental Protection Agency that establishes a process for identifying parties responsible for creating hazardous waste sites, forcing liable parties to cleanup toxic sites, bringing legal action against responsible parties and funding the abatement of toxic sites. (See Superfund)
  EPA—CERCLA Overview

comprehensive zoning:
A broad zoning plan over a large area. (See general plan, zoning)

compound interest:
Interest computed on the principal sum plus accrued interest. At the beginning of the new interest period, all interest is added to the principal, forming a new principal figure on which interest is then calculated. This process repeats itself each interest period—interest may be compounded daily, monthly, semiannually or annually.

computerized loan origination (CLO) system:
An electronic network for handling loan applications through remote computer terminals linked to various lenders' computers.

concession:
Discount given to prospective tenants by landlords to induce them to sign a lease. Concessions are frequently encountered in commercial leases, where landlords may give the first two months' rent free or provide an allowance to the tenant for renovating or customizing the demised space. A purchaser of a commercial or income-producing property should check all existing leases to see if there are any lease concessions that would reduce the amount of rent receivable in the future (such as free cable TV or one month's free rent per year for the term of the lease). If so, the value of these concessions should be computed to reduce the amount of contract rent specified. An estoppel certificate should also be obtained from the tenant. Some state laws require concessions to be noted on a lease by special wording. Concessions are negotiable points in a lease that are resolved in favor of the prospective tenant. Another example in leasing a new office building is the owner's assumption of the lessee's remaining obligation under the lessee's existing lease in another building.

concurrent ownership:
Ownership by two or more persons at the same time, such as joint tenants, tenants by the entirety, tenants in common or community property owners. (See joint tenancy, tenants in common)

concurrent performance:
Occurring simultaneously; real estate exchanges often must be recorded concurrently.

condemnation:
A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner. (See eminent domain).

condition precedent:
A condition that requires a certain action or a specified event to take place before an estate granted can take effect. For example, most installment real estate sales contracts require all payments to be made by the time specified before the buyer can demand transfer of title.

condition subsequent:
A fee simple estate, may be qualified by a condition subsequent. This means that the new owner must not perform some action or activity. The former owner retains a right of reentry so that if the condition is broken, the former owner can retake possession of the property through legal action. Conditions in a deed are different from restrictions or covenants because of the grantor's right to reclaim ownership, a right that does not exist under private restrictions. (See fee simple, restrictive covenant).

conditional public report:
An interim report that allows a subdivider to enter into a binding contract with a buyer prior to the issuance of the final public report.

conditional-use permit:
Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area. (See zoning)

condominium:
A subdivision providing an exclusive ownership interest in the airspace of a particular portion of real property, as well as an interest in common in a portion of that property.

condominium ownership:
An estate in real property consisting of an individual interest in an apartment or commercial unit and an undivided common interest in the common areas in the condo project such as the land, parking areas, elevators, stairways, exterior structure and so on. Each condominium unit is a statutory entity that may be mortgaged, taxed, sold or otherwise transferred in ownership, separately and independently of all other units in the condo project. Units are separately assessed and taxed based on the combined value of the individual living unit and the proportionate ownership of the common areas. The unit also can be separately foreclosed upon, in case of default on the mortgage note or other lienable payments. In effect, the condominium permits ownership of a specific horizontal layer of airspace as opposed to the traditional view of vertical property ownership from the center of the earth to the sky. Typically, the unit, the percentage of common interest and the limited common elements are appurtenant to each other and cannot be sold or transferred separately.

conduits:
A party that purchases loans from one lender and resells the loans to investors.

confession of judgment clause:
Permits judgment to be entered against a debtor without the creditors needing to institute legal proceedings.

conforming loan:
A mortgage loan that meets all Fannie Mae and Freddie Mac underwriting guidelines. (See Fannie Mae, Freddie Mac)

conformity:
The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value. (See appraisal)

conservator:
A guardian, protector, preserver or receiver appointed by a court to administer the person and property of another (usually an incapable adult) and to ensure that the property will be properly managed. A conservator may not need a real estate license to sell the protected real estate, although the sale does require court approval.

consideration:
An act or the promise thereof, which is offered by one party to induce another to enter into a contract; that which is given in exchange for something from another; also the promise to refrain from doing a certain act, like filing a justifiable lawsuit (the forbearance of a right). Consideration, which distinguishes a contractual obligation from a gift, is usually something of value, such as the purchase price in and paid for a promise or it may be a return promise. Thus, the mere promise to pay money is sufficient consideration, so an earnest money deposit is not necessary for purposes of creating a binding contract.

constitutional law:
Law set forth in federal or state constitutions. (See civil law, common law, statutory law)

construction loan:
See interim financing.

constructive eviction:
Actions of a landlord that so materially disturb or impair a tenant's enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent. (See eviction, actual eviction, lease)

constructive fraud:
Breach of a legal or equitable duty that the law declares fraudulent because of its tendency to deceive others, despite no showing of dishonesty or intent to deceive. A broker may be charged with constructive fraud for failing to disclose a known material fact when the broker had a duty to speak—for example, if a listing broker failed to disclose a known major foundation problem not readily observable upon an ordinary inspection. (See material fact)

constructive notice:
Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

constructive receipt:
Control of the cash proceeds in a delayed exchange without actual physical possession by the exchanger or his or her agent.

contingency:
A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.

continuing education:
A requirement in most states that real estate and appraiser licensees complete a specified number of educational offerings as a prerequisite to license renewal or reinstatement.

contract:
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed. (See valid contract)
  FindLaw Contract Law Web Guide

contract for deed:
The contract for deed is used extensively in many areas, where it may be called a land contract, agreement of sale, installment contract, articles of agreement, conditional sales contract, bond for deed or real estate contract.

A contract for deed is an agreement between the seller (vendor) and buyer (vendee) for the purchase of real property in which the payment of all or a portion of the selling price is deferred. The purchase price may be paid in installments (of either principal and interest or interest only) over the period of the contract, with the balance due at maturity. When the buyer completes the required payments, the seller must deliver good legal title to the buyer by way of a deed or assignment of lease (if the property is leasehold property). Under the terms of the contract for deed, the buyer is given possession of the property and equitable title to the property, while the seller holds legal title and continues to be primarily liable for payment of any underlying mortgage. The features of the buyer's equitable title and obligation to purchase are what distinguishes a contract for deed from a lease-option.

The contract for deed document usually contains the names of the buyer and seller, the sales price, the terms of payment, a full legal description and a lengthy statement of the rights and obligations of the parties, similar to those under a mortgage, including use of premises, risk of loss, maintenance of premises, payment of taxes and insurance and remedies in case of default. Specific rights, such as acceleration or the right to prepay without penalty, must be expressly written into the agreement. The contract is usually signed by both parties, acknowledged and recorded.

In a dynamic and rapidly appreciating real estate market, the contract for deed enables buyers to purchase property on reasonable financial terms and thereby benefit from the appreciation of the property values. Many buyers then sell the property at a profit before their final payment becomes due. In a tight money market where it is difficult to qualify prospective buyers for conventional financing, the contract for deed is frequently the best method to sell or purchase a property. Especially benefited by the contract for deed are young couples, who would have difficulty qualifying for a bank loan at the time of entering into the contract for deed, but whose incomes will increase before maturity of the agreement, enabling them to refinance and pay off the contract for deed.

Some sellers prefer to sell on a contract for deed because it can create an installment sale, which will enable them to defer payment of a portion of tax. In addition, if the buyer defaults the seller can sue for strict foreclosure, something he or she cannot do with a mortgage. However, a seller who chooses this remedy is rescinding the contract and cannot seek a deficiency judgment for the unpaid balance.

Some contracts for deed provide that seller and/or buyer can convert the contract into a conventional security transaction. For example, upon payment of 40 percent of the purchase price, the seller may be required to deliver a deed and take back a purchase-money mortgage from the buyer for the balance of the purchase price.

Use of a contract for deed is not without some disadvantages.

From the buyer's viewpoint:

  1. Because the seller need not deliver good marketable title until the final payment, the buyer must, at the risk of default, continue to make payments even when there may be a doubt whether the seller will be able to perform when all payments are made. This can be especially serious when the seller is a corporation, because its directors and shareholders have only limited liability. Some attorneys try to minimize this problem by inserting a clause to the effect that "the property is to be conveyed free and clear of all encumbrances except (those specified herein) and to remain free and clear except for the above-stated encumbrances." The seller is then discouraged from placing further mortgages and encumbrances on the property during the period of the contract for deed.

  2. The buyer may have difficulty getting the seller to deed the property upon satisfaction. By withholding a large enough final payment, the buyer often can persuade a seller to pay the costs of drafting the deed. In addition, at the time of final payment, the seller might be suffering a legal disability or may be missing, or may be bankrupt or dead. The property might then be tied up in probate.

  3. The buyer might be restricted from assigning his or her interest in the contract for deed by covenants against assignment.

  4. Liens that arise against the seller could cloud the title.

  5. Unless a collection account is used, problems could arise if the seller does not apply the buyer's payments to the underlying mortgage.


From the seller's viewpoint:

  1. If the buyer defaults, the process of clearing record title may be time consuming and costly, especially if the buyer is under a legal disability or is bankrupt, is a nonresident or has created encumbrances in favor of persons who might have to be joined in any quiet title action.

  2. The seller's interest in the contract for deed is less salable than a mortgagee's interest would have been had the seller sold under a purchase-money mortgage.

  3. By its very nature, the contract for deed is a contract, and all contracts are subject to differing interpretations with the possibility of disputes and litigation.


contract of sale:
A contract for the purchase and sale of real property in which the buyer agrees to purchase for a certain price and the seller agrees to convey title by way of a deed or an assignment of lease (for leasehold property). In addition to binding the parties to the purchase and sale of the property during the period of time required to close the transaction, the contract frequently serves as the initial directions to the closing agent or escrow company to process the mechanics of the transaction. In essence, the contract of sale is an executory contract to convey property, serving as the vehicle to get to the deed, which finally conveys title; it is the blueprint for the entire transaction. Some of the many names for this contract are sales contract, purchase agreement, deposit receipt, offer and acceptance, agreement of sale, offer to lease or purchase and sale agreement.

contract rent:
The rental income as stipulated by the parties in a lease.

contribution:
The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value. (See appraisal)

controlled business arrangements:
As defined under the Real Estate Settlement Procedures Act (RESPA), an arrangement or combination in which an individual or a firm has more than a 1 percent interest in a company to which the individual or firm regularly refers business. Such arrangement is permitted provided that written disclosure of the affiliation is made; an estimated charge for the service is provided; consumers are free to obtain the services elsewhere; and referral fees are not exchanged among the affiliated companies. (See Real Estate Settlement Procedures Act (RESPA))

conventional life estate:
A conventional life estate is created intentionally by the owner. It may be established either by deed at the time the ownership is transferred during the owner's life or by a provision of the owner's will after his or her death. The estate is conveyed to an individual who is called the life tenant. The life tenant has full enjoyment of the ownership for the duration of his or her life. When the life tenant dies, the estate ends and its ownership passes to another designated individual or returns to the previous owner. (See life estate)

conventional loan:
A loan made with real estate as security and not involving government participation in the form of insuring (FHA) or guaranteeing (VA) the loan. The mortgagee can be an institutional lender or a private party. The loan is conventional in the sense that it conforms to accepted standards and the lender looks solely to the credit of the borrower and the security of the property to ensure payment of the debt. Conventional loans include those loans insured by private mortgage insurance companies.

Because the lender is not subject to the more stringent government regulations of the FHA and VA, conventional loans are frequently more flexible with respect to terms and interest rates, although they do reflect a higher interest rate and larger down payment requirements due to the higher risk involved. Nonconventional loan interest rates (VA loans) are fixed by federal regulation. Conventional loans are subject to institutional regulation, which may be statutory (federal, state) or self-created. (See FHA, VA loan)

conversion:
The appropriation of property belonging to another. The conversion may be illegal (as when a broker misappropriates client funds), or it may be legal (as when the government condemns property under the right of eminent domain). (See eminent domain)

convertible loan:
An adjustable-rate loan that the borrower can convert to fixed-rate at any time during the life of the loan. (See adjustable-rate mortgage, hybrid financing)

converted-use properties:
Factories, warehouses, office buildings, hotels, schools, churches and other structures that have been converted to residential use. Developers often find renovation of such properties more aesthetically and economically appealing than demolishing a perfectly sound structure to build something new. An abandoned warehouse may be transformed into luxury loft condominium units, a closed hotel may reopen as an apartment building, and an old factory may be recycled into a profitable shopping mall.

conveyance:
A term used to refer to any document that transfers title to real property. The term is also used in describing the act of transferring. (See title)

cooperating broker:
A broker who assists another broker in the sale of real property. Usually the cooperating broker is the selling broker who found a buyer for the listing broker. (See listing broker)

cooperating broker fee agreement
An agreement between brokers specifying the commission split should the cooperating broker sell a property listed by the listing broker. (See cooperating broker, listing broker)

cooperative:
A residential multiunit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each possessing a proprietary lease.

co-ownership:
Title ownership held by two or more persons.

coping:
1. The tile around the outer edge of a swimming pool at the water line. 2. The flat portion at the top of a parapet wall rising above the roof line of a building.

corporation:
An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.

corporation franchise tax lien:
State governments generally levy a corporation franchise tax on corporations as a condition of allowing them to do business in the state. Such a tax is a general statutory involuntary lien on all real and personal property owned by the corporation.

correction lines:
Provisions in the rectangular survey (government survey) system made to compensate for the curvature of the earth's surface. Every fourth township line (at 24-mile intervals) is used as a correction line on which the intervals between the north and south range lines are measured and corrected to a full six miles. Range lines are only parallel in theory. Due to the curvature of the earth, range lines gradually approach each other. If they are extended northward, they eventually meet at the North Pole. The fact that the earth is not flat, combined with the crude instruments used in early days, means that few townships are exactly six-mile squares or contain exactly 36 square miles.

correlative water rights:
A modern law in some states that holds that a riparian owner who has rights in a common water source is entitled to take only a reasonable amount of the total supply for the beneficial use of land (such as irragation). (See appropriative water rights, riparian rights)

correspondent:
A mortgage banker. (See mortgage banker)

corrosion:
The dissolving and wearing away of metal caused by a chemical reaction such as between water and the lead pipes or solder in a home's plumbing.

corrosive:
A substance that eats or wears away materials gradually by chemical action.

cosigners:
Additional signers of a financial agreement that add their personal guarantees to that of the borrower.

cost approach:
The process of estimating the value of a property by adding to the estimated land value. The appraiser's estimate of the reproduction or replacement cost of the building, less depreciation. (See appraisal)

cost basis:
A cost basis of real property is usually based on the purchase price of the property plus the buyer's capitalized closing costs. (See closing costs)

cost recovery:
An Internal Revenue Service term for depreciation.

cost-plus:
A method of paying construction contractors when the contractor is paid the actual costs of the job plus a percentage for profit. (See fixed-fee)

counteroffer:
A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter, unless revived by the offeror.

covenant:
A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed.

covenant against encumbrances:
The grantor warrants that the property is free from liens or encumbrances, except for any specifically stated in the deed. Encumbrances generally include mortgages, mechanics' liens and easements. If this covenant is breached, the grantee may sue for the cost of removing the encumbrances. (See encumbrances, liens)

covenant of further assurance:
The grantor promises to obtain and deliver any instrument needed to make the title good. For example, if the grantor's spouse has failed to sign away dower rights, the grantor must deliver a quitclaim deed (discussed later) to clear the title.

covenant of quiet enjoyment:
The covenant implied by law by which a landlord guarantees that a tenant may take possession of leased premises and that the landlord will not interfere in the tenant's possession or use of the property. The grantor guarantees that the grantee's title will be good against third parties who might bring court actions to establish superior title to the property. If the grantee's title is found to be inferior, the grantor is liable for damages.

covenant of seisin:
The grantor warrants that he or she owns the property and has the right to convey title to it ("seisen" simply means "possession").

covenant of warranty forever:
The grantor promises to compensate the grantee for the loss sustained if the title fails at any time in the future. These covenants in a general warranty deed are not limited to matters that occurred during the time the grantor owned the property: they extend back to its origins. The grantor defends the title even against himself/herself and all those who previously held title.

covenants that run with the land:
Convenants that become part of the property rights and benefit or bind successive owners of the property.

crawl space:
1. The space between the ground and the first floor, often found in homes with no basement. 2. The space found between the top floor and the roof, often found in the place of an attic.

creative financing:
Structuring the financing of a real estate transaction based on the cash positions of the buyer and seller. It involves working in conjunction with the existing financing to create a financing package that enables the buyer to purchase the property at better interest rates or terms than a conventional loan.

credit:
1. Obligations that are due or are to become due to a person. 2. In closing statements, that which is due and payable to either the buyer or seller--the opposite of a charge or debit. The credit appears in the right-hand column of the accounting statement.

credit loan:
A mortgage issued upon the financial strength of a borrower, without regard for collateral.

credit rating:
The Dun & Bradstreet credit rating system. Rating the financial strength of commercial and industrial companies.
  Dun & Bradstreet Website

credit report:
A document, obtained from a credit repository, indicating an individual's credit circumstances. Used to derive credit scores for borrowers seeking a real estate loan. (See credit repository, credit score)

credit repository:
Organizations that maintain and make available public credit history records; lenders use information from credit repositories to derive credit scores for potential borrowers. (See credit report, credit score)
  Equifax
  Experian


credit score:
A snapshot of a borrower's credit worthiness; a numerical score based on statistics showing the risk of default on a loan; takes into consideration available credit, management of existing credit, and any detrimental credit information. (See FICO)
  Fair, Isaac and Company on Credit Scoring

credit unions:
Credit unions are cooperative organizations whose members place money in savings accounts. In the past, credit unions made only short-term consumer and home improvement loans. Recently, however, they have branched out to originating longer-term first and second mortgages and deed of trust loans. (See noninstitutional lenders)

creditor:
The person to whom a debtor owes a debt or obligation; a lender.

creosote:
A potentially flammable oily byproduct of wood burning. Often builds up in the chimney of wood burning fireplaces.

cross-default:
A provision of many junior mortgages stipulating that a default in one mortgage also triggers a default in the mortgage in which the clause appears. (See junior lien/mortgage)

crunch down:
A form of recasting where the lender rewrites an existing mortgage loan to a lower balance to avoid a foreclosure. (See foreclosure, recasting)

curtesy:
A life estate, usually a fractional interest, given by some states to the surviving husband in real estate owned by his deceased wife. Most states have abolished curtesy.

cumulative zoning:
Zoning that allows more restrictive uses. For example, a lot zoned for a multi-family dwelling would allow a single-family home if the zoning were cumulative. (See zoning)

customer:
A prospective buyer of real estate. Not to be confused with a property seller, who is the listing broker's client.

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