 Acceleration Clause |
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| a loan clause that gives the lender the right to declare the entire amount immediately due and payable upon violation of another specific loan provision. This is also often referred to as the Due on Sale Clause. |
| Capitalization Rate (Cap Rate) |
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| Net Operating Income divided by Market Value. If the net operating income is $100,000 and the market value of the property is $1,000,000 then the cap rate is 10%. This is one of the most commonly heard real estate investing term. |
| Cash Flow |
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| Net Operating income minus the total of all debt service payments. (See definition of "net operating income" below.) Another popular real estate investing term. |
| Chain of Title |
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| a history of conveyances and encumbrances affecting a title from the time that the original patent was granted or as far back as records are available. |
| Clear Title |
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| a marketable title that is free of clouds and disputed interests. Conditions, Covenants, and Restrictions (CCR's) - promises written into deeds and other instruments agreeing to performance or non-performance of certain acts, or requiring or prohibiting certain uses of the property. |
| Conforming Loan |
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| A loan which has underwriting criteria that conforms to the strict guidelines of Fannie Mae, Freddie Mac, FHA or VA. |
| Contingency |
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| A condition that must be met before a contract is legally binding. |
| Conventional Loan |
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| A conforming loan with no government guarantee; that is, a Fannie Mae or Freddie Mac loan. (See definition of "conforming loan" above.). |
| Debt Coverage Ratio (DCR) |
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| A ratio used in underwriting loans for income properties. Divide Net Operating Income by total debt service. Ratios of 1.20 and higher considered the norm. This is a real estate investing term commonly used by lenders. |
| Debt to Income Ratio |
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| Also known as debt ratio. Divide total of monthly debt payments to gross monthly income. Another popular real estate investing term with lenders. |
| Debt Service |
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| mortgage payments of principal and interest. |
| Discount Points |
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| One point equals one percent of the loan amount. Two points on a $200,000 mortgage would cost $4,000. |
| Due Diligence |
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| The act of carefully reviewing, checking and verifying all of the facts. |
| Gross Rent Multiplier |
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| the sales price divided by the gross annual rental income. Another common real estate investing term. |
| Loan-to-Value (LTV) |
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| The ratio of the loan to the value of the property. If the loan is $160,000 and the value of the property is $200,000, the LTV is 80%. |
| Negative Amortization |
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| Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all the interest that is due at the current interest rate, resulting in the borrower deferring the interest payment.The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller. This is called negative amortization. |
| Net Operating Income (NOI) |
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| Gross income minus all Operating Expenses except for debt service. Cash flow is defined as NOI minus the total of all debt service payments. |
| Non-conforming Loan |
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| A loan not meeting the underwriting requirements of Fannie Mae and Freddie Mac. e.g. the vast majority of loans. |
| PITI |
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| acronym for Principal (P), Interest(I), property taxes (T) and insurance (I). |
| Prepayment Penalty |
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| fee charged by lender for paying off a loan within a specified period of time after the loan has closed. |
| Quitclaim Deed |
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| a deed that conveys only the grantor's rights or interest in a property, without stating the nature of the rights or interest and with no warranties of ownership. |
| Triple Net Lease |
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| lease in which the tenant pays all operating expenses of the property e.g. taxes, insurance, and maintenance in addition to normal operating expenses. |
| Bait & Switch |
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| Bait and switch is one of the methods used by predatory lenders. The loan officer sells you a loan over the phone and you haven't signed anything yet but agree to the terms. You go ahead and start all the rest of the process, which takes time. You stop looking elsewhere for a loan. Valuable hours have been wasted when you find out that the terms are now different and worse. Sometimes it's just a little sometimes a great deal. You sign off on the deal but you know you we're not wrong with your orginal understanding. The loan officer tries to convince you that you didn't understand or possibly did understand but remembered it different. What's a point or two? A lot. |
| Cash Flow Mortgage |
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| Used with rental properties. It is a debt instrument where nearly all the cash that comes in from the rental property is paid directly to the lender and this is without an interest rate. This is important if the lender is facing foreclosing on the property and you typically see this more with commercial office buildings however it is also used with other rental properties. This type of mortgage usually not for the original term of the loan and rarely goes to the full term from the time of modification. It has limitations as to the time and the net operating income of the property. |
| Deed-in-lieu |
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| Otherwise known as a "DIL" cannot be used by people who can afford their mortgage. It is a way to dispose of a property by the mortgage holder as an exchange from the obligations of the money owed on the loan. Instead of the lender foreclosing, this is a way to just give up but DIL's are usually only an option if it is in the banks favor. |
| Distressed Property |
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| Real Estate that is currently under foreclosure proceedings or may be facing foreclosure because it is not bringing enough money to the lender to satisfy the mortgage obligation. |
| Elder Abuse |
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| Simply stated, "elder abuse" is taking advantage of the elderly. Most of our senior citizens have problems understand complex issues and shady lenders take advantage of this fact. Seniors usually have a good amount of money set aside as far as either money in the bank or equity in their investment property. These unscrupulous lenders convince them to take a loan out that they do not need or possibly with terms that can lead them to lose their equity or their savings, usually with a commission to the seller far exceeding the normal rate. This happens so much that the industry has even given it a name. It's called equity skimming and equity theft. It is a federal crime to abuse the elderly and federal laws that carry criminal and civil fines. |
| Forbearance |
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| There is General Forbearance and Special Forbearance (for FHA and VA loans). Forbearance by definition means to hold back enforcing something, typically an action. Lenders may allow you to suspend payments for a short period of time while you seek out other options to your situation. Of course, the forbearance is based on bringing your loan current. Forbearance options usually are coupled with a reinstatement of the normal terms of the loan when you have been able to bring your loan current. |
| Foreclosure Bailout Loan |
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| A foreclosure bailout is a loan. Its purpose is to replace your current loan (everything including balance, back payments and fees). Because the new lender has paid off the old lender the foreclosure is stopped. This option is used when you are encountering a difficult lender who will not work with you. But these loans come with a heavy price. First, you must have enough equity in your property because bailout loans are based on 60-75% of the current market value. If you owe more than the property is worth, then this is not the option for you. On the other hand, if you do meet that qualification, it is a good time to not only do a bailout loan but also pull some cash out of the property as well. |
| Loan Reinstatement |
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| The first thing you have to prove is that you have found a solution to your financial hardship and can prove it. If you are about to receive money and that money will allow you to bring the note current, you can get a loan reinstatement plan from the lender. Loan reinstatements are warranted when you can pay back all your missed payments, late fees, legal fees, foreclosure fees and of course the principal and interest on a regular basis. |
| Mortgage modification |
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| This is why you are here because mortgage modifications, also known as loan modifications are the permanent change in one or more substantial terms of your loan. It will allow the loan to be reinstated. A mortgage modification has but one main purpose. To allow you to continue to make payments on the loan but now under terms you can afford to make. |
| Partial Claim |
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| Partial Claims are used on FHA and VA loans. This option is used where the mortgagee will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The mortgagor will execute a promissory note and subordinate mortgage payable to HUD. Currently, these promissory or "Partial Claim" notes assess no interest and are not due and payable until the mortgagor either pays off the first mortgage or no longer owns the property. |
| Pre-foreclosure sale |
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| Knowing when to lie down sometimes is the wisest of all. Your lender knows this and if you agree to dispose of the property, your lender will typically agree to give you a specific time to find a purchaser and pay off the total amount owed. This option is very hard because this also means that your home may be on the market for an extended period of time and your lender may not agree so you may in fact be delaying a full foreclosure. Use this option only if you have a buyer in mind. You also need to consider that the price you sell must cover all your old costs as well and with the Real-estate market at an all time low, this may not happen. Your lender, knowing you want to do this, may ask you to do a short sale. See short sale in this list. |
| Predatory lending |
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| Predatory lending is a common phrase but is not a legal term. It describes the practices used by some lenders to specifically target certain races or the less educated, elderly and even certain geographic areas. These lenders usually charge high interest rates, abusive or unfair lending practices, and marginal legal terms. The loans are usually backed by collateral of some sort such as a car or house. If the borrower defaults on the loan, which happens a great deal because the borrower was not clearly explained or was in a pressured state of mind, the collateral is repossessed and the collateral sold. Additionally there is usually fees associated with the sale that are unreasonable and seek to acquire all the value of the collateral, leaving the borrower with nothing more than a memory. |
| Real Estate Settlement Procedures Act ("RESPA") |
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| It was created because various companies associated with the buying and selling of real estate, such as lenders, realtors, construction companies and title insurance companies were often engaging in providing undisclosed kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics. |
| Recasting |
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| Recasting is the term used for the process of adjusting the loan arrangement. |
| Repayment Plan |
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| A repayment plan is a new plan outlined for you to repay the loan on your home. It includes provisions for all the missed payments and fees including the fees associated with foreclosure. |
| Short Sale |
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| Say your commercial property is worth $4,000,000 on today's market but your loan amount is $4,500,000. Say you get an offer for $3,500,000? The lender may forgive the difference. This is known as a short sale. The new buyer will most probably make a deal with the lender to buy the property at a discounted amount. Then the new buyer will show the bank how much money it will save the lender (because of other costs such as foreclosure expenses). If the lender agrees, then you will have a short sale. The bad news is that the money goes directly to the lender, not you. You walk away with nothing including the equity. |
| Truth In Lending Act ("TILA") |
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| The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to protect consumers in credit transactions, by requiring clear disclosure of key terms of the lending arrangement and all costs. The statute is contained in Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. ?? 1601 et seq.). The regulations implementing the statute, which are known as "Regulation Z", are codified at 12 CFR Part 226. Most of the specific requirements imposed by TILA are found in Regulation Z, so a reference to the requirements of TILA usually refers to the requirements contained in Regulation Z, as well as the statute itself. |
| Workout |
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| A work out agreement is the lender and the borrower agree to work together to reduce the outstanding lean principal and extend the maturity date of the loan. A work out agreement is usually used where there is a potential to make money on the property in the future by allowing the current owner to retain the property and both share in the income of the property. You usually see work out agreements |
