Mortgage Note and Deed of Trust Difficult Terms Lexicon
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To help note holders out we’ve compiled a list of the more difficult terms used in real estate and their definitions.
Abstract or Abstract of Title: Some states use this collection of documents and an attached summary to detail the history of a title dating from its origin. Most states have replaced this with title insurance.
Acceleration Clause: This mortgage note or deed of trust clause requires the buyer to pay the remaining principal if he violates the contract in certain ways. These typically include failure to pay an installment by a certain date, nonpayment pf taxes and other events that threaten the loan’s integrity.
Add-Back Escrow: This arrangement adds property taxes and other such ancillary fees to the property contract’s monthly fees. The buyer pays the additional cost, but the holder arranges to pay the actual taxes/fees.
Adjustable Mortgage Loans (AMLs), Adjustable Rate Mortgages (ARMs) or Flexible Rate Loans): Mortgage notes and similar arrangements that are periodically adjusted to match market conditions, within a time frame and parameters set at the time of signing.
ALTA: American Land Title Association. ALTA issues title insurance to lenders.
Amortize: To pay both principal and interest monthly, reducing the total debt.
Apportionment: Calculated real estate expenses that are the responsibility of the seller up to the time of conveyance. After the deed is conveyed, the buyer assumes any additional expenses.
Appurtenance: A property feature or privilege that is considered an essential part of it, such as waterfront access rights.
Assumption of Mortgage: The act of taking title to a property and assuming its assets and liabilities.
Balloon Note: A mortgage note that allows payment below amortization rates for a time, but requires eventual amortization for that time by a specified date, when the remainder is due.
Bene Statement: A statement from a deed of trust holder listing unpaid principal and other information about the deed.
Buydown: Paying above the typical amortization rate to decrease the mortgage’s interest rate. This is typically available for the first five years of some loans.
Capital Gain/Loss: The difference between a capital asset’s cost and its sale price.
Carrying Charges: The cost of maintaining property that is intended to, but has not yet generated income.
Chattel: Tangible assets other than real estate.
Clear Title: Ownership without mortgages, unpaid taxes or liens. “Free and clear” ownership.
Codicil: Alteration to a will.
Commingling: Illegally combining funds in trust with other funds. This can happen due to fraud or incompetence.
Conveyance: A document that transfers title.
Deed of Trust: An agreement that may replace the mortgage in certain states (notably California). Title belongs to a third party trustee. Deeds of trust allow for rapid foreclosure proceedings.
Deed Restrictions: A limit placed on the use of the property, no matter who holds the title. For example, historically significant buildings may possess deed restrictions that prevent owners from altering the exterior.
Devise: Real estate given through a will.
Due-On-Sale Clause: A property contract clause that requires payment in full, should the borrower sell the property to a third party.
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