GLOSSARY
U.S. REAL ESTATE TERMS
American Land Title Association or ALTA, is a trade organization representing the title insurance industry. ALTA title insurance policies offer Homeowners with comprehensive protection against unexpected title defects and liens. ALTA policies are often required by Lenders as mortgage condition.
ATLA
BLIND OFFER
An offer to purchase a property without physically inspecting it in-person.
CAPITAL GAINS
A capital gain is the profit realized from selling a capital asset for more than its purchase price. In real estate, a capital gain occurs when a property is sold for more than the total of its adjusted cost base (original purchase price plus any improvements) and the outlays and expenses incurred to sell the property. Capital gains are generally taxable, but there are some exceptions, such as the sale of a principal residence. Capital gains tax rates vary based on the amount of profit achieved and an individual's taxable income level.
Covenants, Conditions and Restrictions or CC & Rs are a set of rules governing a Homeowner’s Association (HOA) community. The guidelines help maintain property values and protect Homeowner rights and interests.
CC & RS
California Land Title Association or CLTA, is a trade organization that represents title companies throughout the state of California. CLTA title insurance policies, also referred to as a “Standard Coverage” policy, provide basic title protection at a lower cost.
CLTA
CONTINGENCIES
Conditions written in a Purchase Agreement that outline specific actions or requirements that must be satisfied by the Buyer or the Seller before the contract can become legally binding. Home inspection and mortgage financing are examples of contingencies.
DEED OF TRUST OR TRUST DEED
A security instrument, similar to a mortgage, that secures a lender’s loan on a piece of property. The lender holds legal title to the property until the borrower has repaid their debt in full. If the borrower defaults on their loan repayment, the lender can foreclose on the property.
DISCOUNT POINTS
Fees paid upfront to a Lender in exchange for lower interest rates. Charging points allows Lenders to increase their overall return on the loan. Each point equals 1% of the mortgage amount.
EARNEST MONEY
A deposit given by a Buyer to a Seller as a demonstration of good faith when entering into a real estate purchase contract. Typically held in escrow, earnest money is a percentage of the purchase price applied to the Buyer’s down payment or closing costs upon successful completion of the sale.
EQUAL CREDIT OPPORTUNITY ACT
​A federal law prohibiting creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.
ESCROW
A contractual arrangement in which a neutral third party holds funds, property, and documents until specific conditions are met.
FAIR CREDIT REPORTING ACT
A federal law that regulates the collection, use, and dissemination of consumer credit information by credit bureaus. It mandates accuracy, fairness, and privacy in consumer credit reports, while granting consumers specific rights to access and dispute their information.
FANNIE MAE
The Federal National Mortgage Association, commonly known as Fannie Mae, is a government-sponsored corporation that purchases residential mortgages from large commercial Lenders, packages them into securities, and sells them to investors in the secondary mortgage market. By purchasing mortgages, Fannie Mae provides Lenders with funds to originate new loans, thereby expanding the mortgage market and making homeownership more accessible to borrowers. Fannie Mae is a leading source of mortgage financing for residential mortgage lenders in the United States.
FHA LOANS
Federal Housing Administration or FHA loans are government-insured mortgages issued by a bank or private lender approved by the agency. By insuring Lenders against loss, the FHA makes it easier for borrowers with lower credit scores and smaller down payments to afford homeownership. FHA loans are valuable tool for First-Time Homebuyers and those with limited financial resources.
FICO SCORE
Is numerical representation of person’s creditworthiness, it is used by Lenders to assess the risk of lending money to an individual. FICO scores are based on a payment history, credit utilization, length of credit history, credit mix, and new credit. They range from 300 to 850, the higher the score usually indicating the lower the risk of default.
FIRPTA
The Foreign Investment in Real Property Tax Act or FIRPTA, is a U.S. tax law that imposes income tax on foreign individuals and entities disposing (sale or exchange, liquidation, gift, transfer, or redemption) of U.S. property. To ensure the U.S. government receives the tax due upon any future disposition of the property, buyers of U.S. real estate from foreign sellers are required to withhold 15% of the sale price and remit it to the I.R.S. If the amount withheld exceeds the actual tax due, the seller call apply for a refund. FIRPTA is often referred to as in real estate transactions as Withholding Tax.
FORECLOSURE
A legal process initiated by a Lender that forces the sale of a property to recover the balance of a loan from a borrower who has defaulted on their mortgage payments.
FREDDIE MAC
Like Fannie Mae, the Federal Home Loan Mortgage Corporation, known as Freddie Mac, is a government-sponsored corporation that provides liquidity, stability and affordability to the mortgage market. Freddie Mac purchases loans from smaller Lenders, pools them, and then sells them as mortgage-backed securities to private investors. It allows Lenders arrange more loans to qualified borrowers and keeps capital flowing into the housing market.
HOA
IMPOUND ACCOUNT
LAND LEASE
MELLO-ROOS OR COMMUNITY FACILITIES DISTRICT
ORIGINATION FEE
PENDING
PLANNED UNIT DEVELOPMENT
A private governing organization that manages and maintains a planned community or condominium building. Homeowners with a Homeowner's Association (HOA) agree to abide by the HOA’s rules and regulations and pay a monthly or annual fee in exchange for amenities, services, and property maintenance.
An account established by a Lender to collect and disperse a Borrower’s property tax and insurance payments on their behalf. Often required for high loan-to-value mortgages, impound accounts protect both the Homeowner and Lender from tax liens and insurance lapses.
A contractual agreement in which an individual or entity owns the improvements, such as a home, on a piece of land but leases the land itself from a Landlord for a specific term. Most land leases are for a term of 50 to 99 years with the option for renewal.
A special tax assessment district in California created to finance local public infrastructure and services through additional property taxes. The tax is only levied on residents in the district who benefit from the project. See Special Assessment Tax.
A fee charged by a Lender to cover the administrative costs incurred processing a borrower’s loan application.
A property listed as pending indicates that the Seller has accepted an offer, all of the contingencies have been satisfied, and the sale is moving forward to closing.
A Planned Unit Development or PUD housing community of single-family residences, townhomes, and condominiums governed by a Homeowners Association (HOA). PUD developments offer more flexibility in land use compared to traditional zoning, allowing for a mix of residential, commercial, and recreational areas within a single development.
PRIMARY MORTGAGE MARKET
Where borrowers connect with primary mortgage lenders such as banks, mortgage brokers, mortgage bankers, and credit unions to finance the purchase of a new home or investment property. The primary mortgage market is where home loans originate. The secondary mortgage market is where home loans are sold to investors.
PROPOSITION 13
An amendment to the California Constitution that limits property taxes to 1% of a property’s assessed value (plus any vote-approved special assessments or bonds) and annual increases to the assessed value to 2%. or the percentage growth in the state’s Consumer Price Index (CPI), whichever is less. However, when a property is sold, it’s assessed value is reassessed to the current market value, which can result in a significant increase in property taxes for the new owner.
QUITCLAIM DEED
A legal document transferring a grantor’s ownership interest in a property to a grantee without warranty or guarantee of the title’s condition. Due to its lack of protections, quitclaim deeds are typically used to transfer ownership between family members.
RADON
A colourless, odourless, radioactive gas formed from the natural breakdown of uranium in soil and rock. Radon gas can seep into homes through cracks in floors, walls and the foundation, building up in basements and the lower levels of a home. Exposure to high levels of radon can significantly increase the risk of lung cancer.
RESPA
Real Estate Settlement Procedures Act (RESPA) is a consumer protection law that requires Lenders to provide Borrowers with clear and accurate information about closing costs throughout the real estate transaction. Key RESPA disclosures include the Good Faith Estimate and Closing Disclosure.
RECORDATION OR RECORDING
Officially registering a legal document into a public registry or records office. Recordation establishes an individual’s legal interest in a property and protects them from future disputes.
RECORDING FEE
Amount charged by the local County Clerk’s office to officially record a real estate sale, making it public record. In Southern California, recording fee ranges from $75 to $225 depending on the type and amount of documents registered.
SHORT SALE
When a Lender allows a Borrower facing financial hardship to sell their property for less than their outstanding mortgage balance. The Lender agrees to accept the proceeds from the sale, forgive the remaining debt, and release the Borrower from their mortgage obligation. Short sales are an alternative to the foreclosure.
SECONDARY MORTGAGE MARKET
A financial marketplace where primary mortgage lenders sell home loans and servicing rights to investors. The secondary market provides liquidity for lenders to originate more new loans.
SPECIAL ASSESSMENT TAX
A local tax levied on property owners in a specific area to fund public infrastructure projects and community services that benefit their assessed community. Special assessment taxes are paid in addition to county property taxes. See Mello Roos.
TITLE INSURANCE
Protects homeowners and lenders against financial loss caused by title defects and from issues resulting from liens and encumbrances. In California, there are two types of title insurance policies, CLTA (California Land Title Association) and ALTA (American Land Title Association). CLTA title insurance policies provide homeowners with basic title coverage; ALTA title polices, typically required by lenders, provide broader protection against unrecorded risks, including survey issues and zoning violations. Title insurance is a one-time premium that provides coverage for the entire ownership period.
TRANSFER DISCLOSURE STATEMENT OR SELLER DISCLOSURE
Provides information about the property’s condition that could affect a Buyer’s decision to purchase the property. Sellers are legally required to disclose any known material facts that may affect the property’s value or desirability. Willfully concealing information can result in legal action. Selling a property “as is” does not exempt a Seller from disclosures.
TRUTH IN LENDING ACT OR
REGULATION Z
A federal law that requires lenders to fully disclose the terms and fees associated with mortgages, loans and credit lending so that consumers can make an informed decision.
UNDER CONTRACT
A property is under contract when a Seller accepts a Buyer’s offer, however the sale is contingent upon the fulfillment of specific conditions (contingencies).
VA LOAN
A home loan benefit available to active-duty service members, veterans, reservists, and eligible surviving spouses that offers exceptional terms: no downpayment required, competitive interest rates, limited closing costs, and there is no need for private mortgage insurance (PMI). Backed by the U.S. Department of Veterans Affairs, VA loans are provided by private lenders and help military service members achieve affordable homeownership.