Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.

Default
Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

Deficiency Judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.

Delinquency
A loan in which a payment is overdue but not yet in default.

Deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Depreciation
A decline in the value of property; the opposite of "appreciation."

Discount Points
See Points.

Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Dower
The rights of a widow in the property of her husband at his death.

Down Payment
The part of the purchase price, which the buyer pays in cash and does not finance with a mortgage

Due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Due-on-transfer provision
This terminology is usually used for second mortgages.

Earnest Money
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement Rights
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Effective age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Eminent domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Employer-assisted housing
A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Endorser
A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity
The difference between the market value of a property and the homeowner's outstanding mortgage balance.

Equity Loan
A loan based on the borrower's equity in his or her home. Prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

Escrow account
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.Escrow analysis. The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance. Escrow disbursements. The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow payment
The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Estate. The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction
The lawful expulsion of an occupant from real property.

Examination of title
The report on the title of a property from the public records or an abstract of the title.

Exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

Executor
A person named in a will to administer an estate

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair-market-value
The highest price that a buyer, willing but not compelled to buy would pay, and the lowest a seller, willing but not compelled to sell, would accept.

FDIC
(Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC).

Fee simple
The greatest possible interest a person can have in real estate.

Fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA
(Federal Housing Administration). A division of the Department of Housing and Urban Development. The FHA's main activity is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting. FHA neither lends money, nor plans, nor constructs housing.

FHA Loan
Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

FHFB
(Federal Housing Finance Board). It oversees the credit functions of the twelve regional Federal Home Loan Banks.

FHLBB
(Federal Home Loan Bank Board). A regulatory and supervisory agency for federally charted savings institutions, which oversees the operations of the FSLIC and FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. (See FIRREA.)

FHLMC
(Federal Home Loan Mortgage Corporation, Freddie Mac). A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into the housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.

Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

FIRE
(Financial Institutions Reform, Recovery and Enforcement Act of 1989). An act signed into law in August 1989, by President Bush that restructured the thrift regulatory an insurance system.

Firm commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage
The mortgage that has first claim in the event of default.

Fixed installment
The monthly payment due on a mortgage loan.

Fixed-Rate Mortgage
(FRM) A mortgage in which the interest rate does not change during the entire term of the loan.

FNMA
(Federal National Mortgage Association, Fannie Mae). A government-sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages.

Fixture
Personal property that becomes real property when attached in a permanent manner to real estate.

Flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Forfeiture
The loss of money, property, rights, or privileges due to a breach of legal obligation.

Foreclosure
The process by which a mortgage property may be sold when a mortgage is in default.

Fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Full Recasting
Setting the P&I payments to the level that will fully amortize the loan's outstanding balance over the remaining term using the fully indexed accrual rate at the recasting point.

Fully Indexed Accrual Rate
The interest (accrual) rate resulting from the index at closing (or at another point in the loan) plus the lender's full spread, rounded as prescribed in the loan documents (often to the nearest 1/8th of 1%).

General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Good Faith Estimate
An estimate of charges, which a borrower is likely to incur in connection with a loan closing.

Graduated Payment Mortgage
(GPM) A mortgage where the payments are scheduled to increase, usually annually, for a set number of years, and then level off. GPM can be used with either a fixed or adjustable interest rate, and usually has a 30-year term.

Grantee
That party in the deed who is the buyer or recipient.

Grantor
That party in the deed who is the seller or giver.

Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Growing Equity Mortgage
(GEM) A fixed rate, graduated payment mortgage with small initial payments that increase each year so that the loan pays off in a shortened term, usually 15 years.

Hazard Insurance
Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's Insurance
An insurance policy that combines liability coverage and hazard insurance.

Homeowner's Warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

HUD
(Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs.