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Principles of RE 2
Texas Real Estate License Exam Section 2 of 6: Principles of Real Estate 2
| Question | Answer |
|---|---|
| Whole Number | any number between zero and infinity; not fractions or negative numbers |
| Fraction | part of a whole; not a whole number |
| Numerator | the number on top of a fraction’s division line or the number of the parts with which you are working; also called the divisor |
| Denominator | the number below the fraction’s bottom line or the number of equal parts in total; also called the dividend |
| Improper Fractions | when the value of the numerator is greater than the denominator |
| Mixed Numbers | a number consisting of a whole number and a fraction. |
| Decimal | a fraction whose denominator is a power of ten and whose numerator is expressed by figures placed to the right of a decimal point. |
| Ratio | the quantitive relation between two numbers |
| Percentage | a fraction with a denominator of 100; usually written as just the numerator and a % symbol |
| Profit | a financial gain; making more money selling a product than buying or producing the product |
| Loss | a financial loss; making less money selling a product than buying or producing the product |
| Interest | money repaid regularly at a specified rate as compensation for money lent. |
| Principal | the amount lent to a borrower to purchase a house |
| Mortgage | a secured loan that is tied to real estate, where the borrower has to pay the money back to the lender on a set schedule and amount of payments; also “liens against property” or “claims on property” |
| Down Payment | the initial payment made when buying something on credit; paid directly by the buyer to the seller; minimum down payment required by mortgage lenders is 3% of the house’s price |
| Amortization | repayment of a loan principal over time based on a predetermined schedule of payments |
| Whole Number | any number between zero and infinity |
| Fraction | a number that represents a part of a whole |
| Numerator | the number of parts indicated in the fraction; located above the fraction line |
| Denominator | the number of equal parts in total; located below the fraction line |
| Proper Fractions | when the numerator (the number on top) is smaller than the denominator |
| Greatest Common Divisor | the largest number that divides both the denominator and the numerator to reduce fractions to their simplest form |
| Decimal | a fraction whose denominator is a power of ten and whose numerator is expressed by figures placed to the right of a decimal point |
| Percentage | a rate or amount in each hundred (3/4 is 75% written as a fraction) |
| Part | a portion of the total amount; the numerator (3 of 3/4) |
| Total | the “final” or “end result” number; the denom- inator (4 of 3/4) |
| Profit | a financial gain or the increase in value |
| Loss | a financial decrease or reduction in value |
| Interest | money paid regularly at a rate by a borrower to a lender in exchange for money lent (principal) |
| Principal | the sum of money lent to a borrower |
| Amortization | the repayment of a loan principal over time |
| Arrears | payment for an item or service after it is received |
| Mortgage | a legal agreement between a creditor & borrower in which the creditor lends money with interest to the borrower for the purchase of property w/ the condition that the creditor takes ownership of the title if the borrower defaults in repayment of the loan |
| Down Payment | the initial payment made when buying something on credit; a down payment is paid directly by the buyer to the seller |
| Proration | the allocation or distribution of an annual expense across smaller chunks of time |
| Square Footage | a unit of area measurement used to compare the size of buildings (length x width) |
| Acreage | a unit of area measurement used to determine the size of land; 1 acre = 43,560 square feet |
| Appraisal | the value of a property, based on factors determined by the opinion of a certified appraiser |
| General data | information about the area surrounding a property; this could include the city, region, and neighborhood in which the property is situated |
| Specific data | information regarding the property itself |
| Limited appraisal | a simpler, abbreviated version of a regular appraisal. |
| Market Value | the price for which a property will sell if offered openly under normal conditions. This refers to the economic principle; it’s the price that a buyer and seller would probably accept |
| Appraised Value | refers to the value given by a licensed appraiser during the mortgage origination process. Appraisers are chosen by lenders but paid for by the homebuyer. |
| Assessed Value | refers to the value placed on a property by a governmental unit for use in levying annual real estate taxes |
| Loan-to-value ratio (LTV) | the limit on the value of a loan, usually a certain percentage of the home’s appraised value or sales price, whichever is lower |
| Subject Property | the property that is being evalu- ated in any given appraisal |
| Highest and best use | what is achieved when the property is used for the most appropriate purpose with the highest returns |
| Principle of Anticipation | the present value of a property is affected by the anticipated income or utility that property will give its property owner. |
| Principle of Contribution | A property’s overall value is made up of the combined value of each of its parts |
| Principle of Substitution | the value of something is affected by the cost of getting a similar (substitute) item elsewhere |
| Principle of Change | the condition of a property, the desirability of its location, and the market in which it exists can always change. |
| Principle of Conformity | values are highest when the houses in a neighborhood look roughly the same. |
| Principle of Regression | lower-value properties surrounding a subject property can drag down the value of the property |
| Principle of Progression | higher-value properties surrounding a subject property can bump up the value of the property |
| Principles of Suppy and Demand | when supply is low (not many available houses) and demand is high (lots of people who want to buy houses), prices increase. When supply is plentiful and demand is low, prices drop |
| Sales Comparison Approach | determining value by comparing the subject property to similar properties (“comps”) that have sold recently. It’s most common- ly used for single-family residences. |
| Cost Approach | determining value by considering how much the same property would cost to build brand new at current prices (replacement cost), then adjusting for depreciation |
| Income Approach | determining value by consider- ing how much income the property could generate when used as rental property |
| Depreciation | the loss of value because of obsoles- cence (becoming obsolete) or deterioration |
| Functional obsolescence | loss of value because a property’s function or appearance has gone out of style or has been replaced by a more appealing version |
| External obsolescence | loss in value caused by negative forces outside the property which are be- yond the control of the owner (unfavorable changes in the environment or market) |
| Deterioration | loss of value caused by physical wear and tear over time |
| Chronological age | the literal age of the property; a home built 30 years ago has a chronological age of 30 |
| Effective age | an estimated age that is influenced by the updates and quality of maintenance of the property; a 30-year-old house that has been well cared for might have an effective age of 15. |
| Reconciliation | when an appraiser compares estimates made using different techniques (cost approach, sales comparison approach, and/or income approach) and come to a single number for value |
| Appraisal Report | a report from a licensed appraiser that sums up a property’s market value based on collected data |
| Appraisal Review | a review of the appraisal report to make sure the appraisal meets the lender’s standards |
| Desk Review | when the lender carries out an appraisal review at their desk (as opposed to sending someone out into the field) to make sure the original appraisal is accurate |
| Field Review | when a third-party appraiser is sent back out to the property to check the validity of the first appraisal |
| Comparative Market Analysis (CMA) | also known as a CMA, this is a report generated by a license holder that compares the prices of recently sold homes (“com- parables”) in order to estimate the fair market value of a similar property (the “subject property”) |
| Fair Market Value | the price for which a property will sell if offered openly under normal conditions |
| Subject Property | the property that is the “subject” of the CMA |
| Comparables | the recently sold homes that are compared to the subject property in a CMA |
| Primary Mortgage Market | the arena in which borrowers and lenders meet up for the purposes of negotiating loans terms of a mortgage transaction |
| Secondary Mortgage Market | the marketplace where home loans and their servicing rights are bought and sold between lending institutions (that originated the loans) and investors |
| Government-Sponsored Enterprises | publicly traded institutions that were created by Congress to provide liquidity, stability, and affordability to the mortgage market |
| Federal Agricultural Mortgage Corporation | a government-sponsored enterprise (GSE) providing a secondary market for agricultural and rural mortgage loans; also known as Farmer Mac |
| Depository Lenders | institutions that make mortgage loans from funds derived from their customers’ savings accounts |
| Savings Associations | specialize in long-term residential loans; primary function is to promote thrift and home ownership |
| Federal Home Loan Bank System | eleven private, wholesale regional U.S. banks chartered to regulate member organizations, set reserve requirements, establish discount rates, and provide insurance for depositors |
| Federal Deposit Insurance Corporation | created by Congress in 1933 to insure deposits, supervise financial institutions, make large financial institutions resolvable, and manage receiverships |
| Commercial Banks | designed to be safe deposito- ries and lenders for a multitude of commercial bank- ing activities, relying mainly on demand deposits (checking accounts) for their basic supply of funds |
| Credit Unions | provide members with a source of funding for personal property and, more recently, real estate mortgage loans |
| Savings Banks | play an active and important role in local real estate financing activities, providing long-term mortgage loans with funds derived from customer savings accounts |
| Life Insurance Companies | prefer investments in large projects such as shopping centers as opposed to smaller loans for home mortgages and construction loans |
| Mortgage Bankers | not bankers in the traditional sense, but as private entrepreneurs, their income is derived from fees received for originating and servicing real estate loans |
| Mortgage Brokers | bring together borrowers and lenders and earns a fee for that service |
| Fannie Mae | a government-sponsored enterprise created to act as a secondary mortgage market facility that could purchase, hold, and sell FHA-insured loans |
| Freddie Mac | a government-sponsored enterprise created in 1970 to further support the secondary mortgage market, specifically to support smaller thrift banks |
| Ginnie Mae | a gov.-owned entity that supports the secondary mortgage market by guaranteeing timely payment of principal and interest on privately issued mortgage-backed securities (MBS) collateralized by FHA, VA, or other government-insured or guaranteed mortgages |
| Balloon Payment | a payment made at the mortgage term’s end that is comparatively much larger than the payments that preceded it |
| Pre-qualification | the first step in the loan application process where lenders take prospective borrow- ers at their word and give borrowers a general esti- mate of the amount for which they will be approved |
| Pre-approval | the second step in the loan appli- cation process where lenders thoroughly review the borrower’s qualifications and, if approved, offer a pre-approval letter indicating the borrower’s ability to obtain financing. |
| Loan Approval | the final step in the loan application process, here lenders review the borrower’s credit- worthiness and the value of the property. |
| Amortization | refers to the process of allocating the cost of an asset or the repayment of loan principal over time |
| Fixed-Rate | when the interest rate does NOT change over the life of a loan |
| Adjustable-Rate | when the interest rate can change over the life of a loan; adjustable-rate mortgages are known as “ARMs” |
| Flexible-Payment Loan | a specific type of adjustable rate mortgage that starts with a lower payments for the first several years then shifts to larger payments for the remainder of the term |
| Balloon Payment Loan | employs periodic payments that will not fully amortize the the loan, thereby requiring a final payment that is larger than previous payments |
| Interest-Only Loan | a type of balloon payment loan that calls for periodic payments of interest with the principal is to be paid in full at the end of the term as a balloon payment |
| Conventional Loan | a loan that is not underwritten by any agency of the federal government |
| Government-backed Loan | a loan that is insured, guaranteed, or provided by any government agency |
| Loan-to-value Ratio | the loan-to-value ratio (LTV) is a ratio of debt to value of the property. |
| Nonconforming Loan | loans that do not meet Fannie Mae/Freddie Mac guidelines |
| Texas Veterans Land Board (VLB) | a division of the General Land Office of Texas that administers three programs to assist Texas veterans in purchasing a principal residence and/or land and in financing home improvements |
| Texas Bootstrap Loan Program | a self-help housing construction program that provides very low-income families (owner-builders) an opportunity to purchase or refinance real property on which to build new housing or repair their existing homes |
| Veterans Land Loan Program | a program that gives Texas veterans the opportunity to borrow up to $150,000 to purchase land at competitive interest rates while typically requiring a minimum 5% down payment for tracts of one acre or more, only one of its kind in the nation |
| Targeted Area | a census tract in which 70% or more of the families have incomes that are 80% or less of the statewide median income or an area of chronic economic distress |
| Federal Reserve | the nation’s central bank operates to maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate |
| Federal Funds Rate | rate banks charge other banks to lend money — the Fed indirectly controls this rate |
| Discount Rate | rate the Fed charges banks to lend money — the Fed directly controls this rate |
| Prime Rate | rate banks charge their most credit- worthy customers — this rate is strongly influenced by the rates above |
| Open market operations (OMOs) | the purchase and sale of securities in the open market by a central bank |
| Graduated Payment Mortgage | a fixed-rate mortgage that has a lower initial interest rate in its first years, but includes gradual increases each year |
| Bridge Loan | short-term loans used to transition from one loan to another, can connect borrower from their current construction loan to their eventual mortgage loan (or present home to their new home) |
| Wraparound Loan | like a bridge loan, enables a borrower to obtain additional financing from a sec- ond lender without paying off the first loan — gives borrower new, increased rate at higher interest rate and assumes payment of existing loan |
| Subprime Mortgage | a mortgage with an interest rate higher than the rates of prime mortgages due to the higher risk associated with a less qualified bor- rower |
| Predatory lending | the act of a lender putting their welfare above that of their borrowers |
| Three-Day Right of Rescission | the right of a borrower via Regulation Z of the Truth in Lending Act to rescind the transaction within three days by merely notifying the lender |
| Equal Credit Opportunity Act (ECOA) | law prohib- iting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance |
| Usury Laws | laws that limit interest rates |
| Real Property | land from the surface to the center of earth and upward into space, including everything attached by man or nature as well as the bundle of legal rights of the ownership |
| Police Power | a government’s constitutional right to regulate an individual’s conduct or property to protect the health, safety, welfare, and morals of the community |
| Zoning | the division of land within a jurisdiction into separate districts within which uses are permitted, prohibited, or permitted with conditions |
| Variance | permission granted by the government so that property may be used in a manner not allowed by the current zoning |
| Building Codes | sets of regulations pertaining to building design, materials, safety, sanitation, and structure |
| Eminent domain | the power of government or public entity to take private property for public use without consent of the property’s owner |
| Condemnation | the governmental act of seizing private land through exercise of power of eminent domain |
| Escheat | the legal doctrine by which the decedent’s property will pass to the state without their consent if that individual dies without a will, a surviving spouse, lineal descendants, or other known heirs |
| Intestate | describes someone who dies without a will; their estate will be distributed to surviving heirs according to the law of descent |
| Deed Restrictions | non-governmental limitations that control the land’s use |
| Property Report | doc. that contains all essential info. about a property (distance over paved roads to nearby communities, # of homes currently occupied, soil conditions affecting foundations & septic systems, type of title a buyer will receive, and existence of liens) |
| Remediation | the reversing or stopping of environ- mental damage, such as mold remediation |
| Comprehensive Environmental Response, Com- pensation, and Liability Act (CERCLA) | 1980 act that created a process for identifying potential respon- sible parties of environmental damage and ordering them to take responsibility for the cleanup action |
| Property Manager | a real estate license holder who oversees the day-to-day operation of a property for its owner |
| Resort Homes | a home in which the owner usually does not live in on a full-time basis, and the length of ownership as compared to a residential home is usually much shorter |
| Investment Property | a property purchased pri- marily or exclusively for investment purpose rather than as a place to live |
| Improvements | any permanent attachment to land that increases its value or increases its useful life. That would include buildings, private roads, planted trees, etc. |
| Ranch | land that has been designated for raising grazing livestock |
| REO (Real Estate Owned) | a property that is owned by a lender as result of a foreclosure and a failure to find a third-party buyer at a foreclosure auction |
| Short Sale | the sale of a property, with permission of the lender, for less than the balance of the mortgage -- loan; normally occurs when the borrower is no longer able to make their mortgage payments and hopes to avoid foreclosure proceedings |
| Reserve Auction | an auction in which a seller reserves the right to accept or reject the highest bid within a predetermined time |
| Absolute Auction | also known as a no-reserve auction, it is an auction in which there is no reserve or restriction on price |
| Minimum Bid Auction | an auction in which a minimum acceptable sale price (reserve), disclosed or not, is set |
| Foreclosure | the legal process by which a lender takes possession of a property when a borrower (mortgagor) fails to make their obligated mortgage payments |
| Acceleration clause | a clause that allows the lender to require full payment of the loan under certain conditions |
| Investment | the implementation of money to real- ize profit or gain, usually with an understanding that some degree of risk may be involved |
| Appreciation | the increase in value of a property |
| Cash Flow | refers to the cash that an investment generates after accounting for the operating expenses, debt service, and taxes associated with the enterprise |
| Rate | a percentage ratio of the amount of profit or loss to the original cost of investment |
| Return | the numeric amount of profit |
| Rate of Return | the percentage gain (loss) on the cost of investment over a period of time |
| Gross Rent Multiplier (GRM) | the ratio of the price of investment property to its annual rental income before considering expenses like taxes and insurance, etc. |
| Liquidity | the ease and speed with which an asset can be bought or sold without significantly diminishing the asset’s value |
| Time Value of Money | a concept that states today’s money is worth more now than the same amount will be in the future because of its present earning capacity |
| Leverage | the use of debt as a tool to stretch an available pool of money farther by using it to mortgage many properties rather than purchase one or a few outright |
| Loan to value ratio | the ratio between a loan amount and the value of the asset purchased by the loan |
| Operating Statement | used to determine the cash flow potential of a property by providing a clear picture of the rental income stream (cash inflow) and the various expenditures (cash outflow), concluding with a bottom-line, after-tax cash flow |
| After-tax cash flow | a financial performance measure that reflects a property’s ability to generate positive cash flow |
| Gross domestic product (GDP) | the total value of goods produced and/or services provided by a country in a year |
| Risk-reward Ratio | the degree of risk tolerance willingly taken on in exchange for a potential reward |
| Feasibility study | a detailed analysis of the viability of an idea |
| Capital gain | the increase in the value of an asset |
| Depreciation | the reduction property value over time |
| Capital improvement | the addition, restoration, or remodel of a property in a way that increases property value and/or extends its useful life |
| Section 1031 Exchange | allows investors to sell a property and defer payment of capital gain taxes on those sales |
| Syndication | when two or more individuals pool their financial resources to participate in a transaction they could not afford to undertake individually |
| Real Estate Investment Syndicate | a method of pooling forces and resources of individual investors |
| Partnership | made up of general partners with unlimited personal liability for the actions, debts, and obligations of the partnership |
| Limited partnership | the limited liability of a limit- ed partner is confined to the extent of their individual investment in the partnership |
| Joint venture | business arrangement that a partnership will use when joining forces for a single business objective |
| Limited liability company (LLC) | a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partner |
| Real Estate Investment Trust (REIT) | a company that owns – and typically operates, income-producing real estate or real estate-related assets such as office buildings, shopping malls, apart- ments, hotels, resorts, self-storage facilities, ware- houses, and loans |
| Equity REIT | a REIT that earns income for its investors through rent collection or the sale of the properties in their portfolio |
| Mortgage REIT | a REIT that generates income for its investors from the interest earned through origination or purchase of mortgage loans and mortgage-backed securities (MBS) |
| Hybrid REIT | a REIT that combines the income-earn-ing efforts of both the equity and mortgage trust |
| Special Purpose Vehicle | a limited corporate entity created with a specific objective |
| Mortgage-backed Securities | asset-backed securi- ties, where the underlying asset is a single mortgage or a bundle of mortgages that serve to back the securities |
| Secondary Mortgage Market | the environment in which mortgage lenders sell home loans they originate to government agencies or investment bankers |
| Collateralized Mortgage Obligations (CMOs) | collateralized debt obligations (CDOs) that are made up of bundles or pools of mortgage-back securities (MBS) created by government agencies or investment banks and issued as investment-grade bonds; almost all CMOs are REMICs |
| Tranches | mortgage-backed securities that are sold to investors at different risk levels and classes |
| Real Estate Mortgage Investment Conduit (REMIC) | a REMIC is a (SPV) that holds commercial and residential mortgages in trust, assembles said mortgages into pools based on risk, & then issues bonds (securities) on these pools to sell to investors on the secondary mortgage market |
| Lease | a contract in which one party conveys prop- erty to another for a specific predetermined period of time, generally in return for periodic payment |
| Landlord | the party granting the lease, a.k.a. the lessor |
| Tenant | the party to whom the lease is granted, a.k.a. the lessee |
| Illegal Target Marketing | advertisement by a housing provider in niche publications that target specific ethnic or religious groups to the exclusion of the general public |
| Redlining | the illegal act of an lender denying mort- gages in certain areas of town |
| Blockbusting | the illegal practice of causing owners to sell their homes by creating fear that minorities are moving into the area; also known as panic peddling |
| Steering | an illegal act of channeling buyers or ten- ants to certain areas, either to keep or change the the area demographically |
| Leasehold Estate | a type of property interest allow- ing tenants to occupy and use a property they do not own; contains a reversionary right |
| Freehold Estate | an estate in land in which owner- ship will last for an indeterminate duration |
| Reversionary Interest | refers to an estate wherein, upon the death of the life estate owner, full ownership reverts to the original fee simple owner; also known as a revisionary right |
| Estate for Years | a leased possession of property for a certain, specific period of time; also known as a tenancy for years |
| Periodic Estate | has a fixed lease period, meaning that the lease is automatically renewed at the end of each lease period until the landlord or tenant acts to terminate it; also known as periodic tenancy |
| Estate at Will | when a tenant is occupying a property with the landlord’s knowledge and con- sent, but without a formal lease agreement |
| Tenancy at Sufferance | occurs when a tenant remains in possession of the property beyond their lease’s terms, without the consent of the landlord |
| Holdover Tenant | tenant in a tenancy at sufferance |
| Competent | having the mental capacity to participate in legal proceedings or transactions, including being of lawful age to enter into a contract |
| Offer and Acceptance | the mutual agreement of all parties to a lease to consent to all terms contained with- in the contract and to perform according to those terms |
| Consideration | the benefit that one party bestows upon the other, such as rent |
| Lease Term | the initial rental period from com- mencement to expiration; the duration of the lease |
| Covenant of Quiet Enjoyment | the right of a tenant to possession and quiet enjoyment of the premises without any disturbance from the landlord |
| Discharge | to terminate the lease agreement |
| Sublease/sublet | occurs when the tenant of a property leases to a subtenant either in place of or in addition to the tenant |
| Actual Eviction | the process by which a tenant is expelled from a property |
| Constructive Eviction | termination of the lease in circumstances where the landlord intentionally failed to provide required repairs or maintenance to such a degree that the premises are considered unusable |
| Normal Wear and Tear | deterioration that results from the intended use of a dwelling, not including deterioration that results from negligence, carelessness, accident, or abuse of the premises |
| Gross Lease | lease in which the tenant pays a simple, flat rent every month |
| Net Lease | lease in which the (usually commercial) tenant pays a base rent rate plus property taxes |
| Double-Net Lease | any net lease that requires a tenant to pay a base rent, property taxes, and insurance |
| Triple-Net Lease | any leasehold that requires a tenant to pay a base rent, property taxes, insurance, and maintenance expenses |
| Percentage Lease | type of (usually commercial) lease in which the tenant pays a base rent amount and a percentage of their business profits to the landlord |
| Variable Lease | a leasehold agreement in which the base rent changes |
| Graduated Lease | variable lease agreement in which the amount of rent increases at fixed future dates |
| Index Lease | variable lease agreement that allows for a graduated increase of rent at periodic intervals, with increases relative to some economic indicator, such as the Consumer Price Index |
| Ground Lease | lease of bare, undeveloped land |
| Oil and Gas Lease | grants the exclusive right to ex- tract any oil or gas from the ground beneath a property |
| Lease Purchase Agreement | lease in which part of a tenant’s rent is applied to the purchase price of the property, and the title to the property transfers upon full payment of the stated sale price |
| Sale and Leaseback Agreement | agreement in which a business owner sells their interest in a property and then leases it back at the same month- ly rate, usually from an investor owner and, in doing so, frees up capital for other business ventures |
| Property Managers | licensed real estate profession- als who manage all types of property; from homes and duplexes to office and industrial complexes, shopping centers, apartment buildings, and condo- miniums |
| REO Property | short for “Real Estate Owned”; refers to bank-owned properties that have been through the foreclosure process |
| Rent Roll | a report of all the data about a rental property, including tenant identities, rent rates, lease terms, and outstanding balances |
| Operating Budget | a budget created from taking anticipated revenues and expenses and then planning for the long-term goals of the property owner |
| Capital expenditures | funds used by a company to acquire or upgrade physical assets like property, industrial buildings, or equipment |
| Noncompeting Clause | section of commercial lease that gives a tenant the exclusive right to operate their business without any competition in the same property |
| Occupational Safety and Health Administration (OSHA) | the government agency charged with the task of ensuring that employers are responsible for providing safe and healthful workplaces for their employees |
| Deed | the legal document that transfers a title of real estate from one party to another |
| General Warranty Deed | deed that provides the greatest protection for the buyer |
| Special Warranty Deed | a deed where the grantor warrants only that the property was not encumbered during the time they held title, except as noted in the deed, and that they have done nothing during ownership to cloud or damage the title |
| Bargain and Sale Deed | a deed without any warranty against encumbrances; only implies that the grantor holds title and possession of the property |
| Quitclaim Deed | provides the grantee with the least protection of any deed, while imposing the least liability on the grantor |
| Deed in Trust | a method of delivering a deed into a trust from a trustor to a trustee |
| Title | a bundle of rights with regards to a piece of property in which a party may own a legal or equitable interest |
| Abstract of Title | an abbreviated history of a property, including info on any transfers, grants, wills, conveyances, liens, and encumbrances |
| Title Policy | insurance that protects homeowners (and, likewise, their lenders) from potential financial losses due to title issues, such as encumbrances, liens, and defects in the title |
| Recording | the process of placing documents into the public record per state law |
| Chain of Title | the record of a property’s ownership |
| Title Search | an examination of all public records in the county to determine who has rights in the proper- ty and whether any defects exist in the chain of title |
| Abstract of Title | an abbreviated history of a property, including info on any transfers, grants, wills, conveyances, liens, and encumbrances |
| Marketable Title | title that is so free from significant encumbrances or defects that might otherwise pre- vent a purchaser from enjoying or eventually selling the property |
| Evidence of Title | proof of ownership of the property |
| Title Defect | anything that can cause a title to be considered invalid or defective in some way |
| Torrens System | title process in which a property owner obtains a certificate that is recorded in the public records; not used in Texas |
| Alienation | the transfer of title to real estate |
| Conveyance | the transfer of real estate by use of a written instrument |
| Acquisition | the process of gaining ownership or control of real property or an interest in real property |
| Appraisal | an impartial, qualified appraiser’s written opinion of value of a specific property as of a specific date, supported by relevant market information |
| Condemnation | the governmental act of seizing private land through exercise of power of eminent domain |
| Easement | an interest in real property that affords a person the right to make limited use of another per- son’s real property |
| Estate | the degree, quantity, nature, and extent of one’s interest in property |
| Statutory Estate | an estate that is created as a matter of state law |
| Freehold Estate | an estate in land in which ownership will last for an indeterminate duration |
| Leasehold Estate | a type of property interest allowing tenants to occupy and use a property they do not own; contains a reversionary right |
| Fee Simple Estate | maximum ownership of real prop- erty; a.k.a fee or a fee simple absolute; it is of indefinite duration, freely transferable, and freely inheritable |
| Defeasible Fee Estate | type of freehold estate in which the person who has possession of the property is only able to hold the property until an event takes place o does not occur |
| Fee Simple Subject to Condition Subsequent | a defeasible fee estate in which a grantor conveys a parcel of real estate subject to a condition of ownership; the grantor must go to court to assert their right to retake ownership (right of re-entry) |
| Fee Simple Determinable Estate | a defeasible fee estate that will come to an end automatically and immediately upon the occurrence of a designated event, the time of such occurrence being uncertain |
| Life Estate | an interest in real estate that will end upon the death of the life tenant or the pur autre vie life |
| Conventional Life Estate | a type of freehold life estate created by a deed or will that lasts for the duration of the tenant’s life |
| Legal life estate | a type of freehold life estate created by an act of law; e.g. a Texas homestead |
| Pur Autre Vie | “For the life of another”; a type of freehold life estate that grants someone ownership of a property for the duration of another person’s life |
| Remainder | refers to the estate that will pass to an- other party at the death of the person upon whom the life estate is based |
| Reversion | the portion of an estate that will return to the original grantor when a life estate has ended |
| Reversionary Interest | refers to an estate wherein, upon the death of the life estate owner, full ownership reverts to the original fee simple owner; also known as a revisionary right |
| Remainderman | refers to recipient of the remainder, either the grantor who set up the life estate or a designated third party |
| Estate for Years | a leased possession of property for a certain, specific period of time; also known as a tenancy for years |
| Hereditament | any property, whether real or personal, that is capable of being inherited |
| Testate | describes the state of having an existing will at an individual’s time of death |
| Intestate | describes the state of NOT having a will at an individual’s time of death |
| Testator | a party who makes a will |
| Devise | the gift of real property by will |
| Devisee | a person who receives real property by will |
| Legacy/Bequest | a gift of personal property |
| Legatee | the person receiving a gift of personal property |
| Alienation | the process and act of transferring property from one party to another |
| Voluntary Alienation | the method by which prop- erty is transferred from the current owner to another party either by sale or gift |
| Involuntary Alienation | transfer of title to property without the owner’s consent, usually carried out by operation of law |
| Eminent Domain | the power of government or pub- lic entity to take private property for public use |
| Inverse Condemnation | when the government has over-regulated a property (via restrictions, permitting, etc.) so that it can’t be fairly used and has virtually eliminated any use of the property |
| Adverse Possession | involuntary transfer of title from an owner who does not use or inspect their land for a number of years to another person who has some claim to the land and takes possession |
| Closing | the final step in executing a real estate transaction in which consideration is paid and own- ership of the property is transferred |
| Option money | a payment that the prospective buy- er makes to the seller in exchange for the exclusive op- tion to terminate the sales contract within a specified period of time (known as the “option period”) without penalty; also known as the option fee |
| Closing Costs | fees paid at the closing of a real es- tate transaction |
| Promissory Note | agreement to repay per the terms of the loan |
| Escrow | a process in which funds and/or financial documents are held by a third party on behalf of the other two parties in the real estate transaction |
| Closing agent | the representative of the title insurance company; usually conducts closing |
| Doctrine of Relation Back | the principle that something done today will be treated as if it were done earlier |
| Real Estate Settlement Procedures Act (RESPA) | an act designed to protect consumers from predatory lending and educate them about closing and settle- ment services |
| Closing Disclosure | also known as the closing state- ment, it is a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan |
| Deceptive Trade Practices Act (DTPA) | the primary consumer protection law in Texas, designed to prevent service providers from using false and misleading statements or deceptive practices |
| Earnest money | a deposit made to a seller showing the buyer’s good faith in regards to the future performance of a sales contract |
Created by:
jamesowens
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