This Glossary is especially designed and focused to assist seller/beneficiaries and buyer/borrowers to better understand the terms generally used in the Note and Trust Deed Industry. It is not “all inclusive” in content. If you need assistance in determining the definition of a word or the meaning of a clause in your note or contract, we welcome your questions.
Addendum: Something added to a document, escrow instructions, contracts etc.
Adjustable Rate Mortgage (ARM):Also know as a variable rate mortgage. A mortgage where the interest rate will adjust based on changes in a preselected index.
Agent: The person who is acting on behalf of the principal or client.
Agreement of Sale: In some states it is synonymous with a purchase agreement (Purchase Agreement). In other states, it is synonymous with a land contract (Land Contract).
AITD or All-Inclusive Deed of Trust: The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment to the existing note holder. Often used to avoid a prepayment penalty or a due on sale clause. Same as a wraparound deed of trust.
Alienation Clause: A clause calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property.
Amortization: Repayment of a loan through scheduled installment payments.
Amortized Mortgage: A mortgage loan where the periodic payments include a portion being applied to the accruing interest on the loan, and the remainder being applied to the principal. As the loan balance decreases, the interest portion will decrease and the amount applied to principal will increase resulting in the loan paying off in the specified time.
Appraisal: A report made by a qualified person indicating the value of a property at a given date.
Appreciation: Increase of property value.
Assessed Value: The taxable value placed upon property by the tax assessor.
Assignment: A document that transfers the beneficial interest in a Note and Deed of Trust or Mortgage. When ownership is transferred, it is referred to as an assignment.
Assumption of Mortgage: Agreement by a buyer to assume the liability of an existing mortgage or deed of trust.
Balloon: A final payment due on a loan where the periodic payments did not satisfy the debt. It is the final payment due at the end of a balloon mortgage where the remaining principal must be paid at the end of a specified time.
Balloon Payment: The final payment on a note that is much larger than any specified installment.
Bankruptcy: A court proceeding to relieve the debts of an individual or business unable to pay its creditors. The insolvent debtor’s assets are liquidated and the debtor is relieved of further liability.
Beneficiary: The entity, also known as a Lender or Investor, to whom an obligation is owed.
Blanket Mortgage: A mortgage secured by more than one parcel of property.
BPO: See Broker’s Price Opinion.
Broker: In the real estate industry a Broker is usually licensed and authorized to arrange loans, sell properties, and service loans. A Realtor is referred to usually as an Agent who works under a Broker. A Broker in the mortgage industry arranges loans that are funded by other lenders.
Broker’s Price Opinion (BPO): An opinion of a property’s sale value from a licensed real estate agent or broker.
Call: To demand full payment of a loan due to default.
Chain of Title: The chronological order of conveying of a property.
Closing: Also called a Settlement or an Escrow in some states. Refers to a meeting between the buyer, seller, lender and/or agents where the funds and the ownership of a property are exchanged. Also refers to a settlement service that handles the final procedures in the closing of a loan. In some states a loan may not be officially closed until the relevant documents are recorded.
Closing Costs: Expenses incidental to closing a real estate transaction, such as loan fees, title fees, appraisal fees, commissions, etc.
Collateral: Security, commonly real estate, in addition to the personal obligation of the borrower. If the loan is not repaid according to the terms of the agreement, the borrower may lose the property.
Credit Report: History of the use of credit and the ability of a party to pay debts as agreed.
Deed: Instrument used to convey property.
Deed In Lieu: Refers to taking a deed in lieu of foreclosure. The deed to a property given by the borrower to the lender usually to stop a foreclosure. The lender may or may not accept a deed in lieu, and the non payment of the debt may still be listed on the borrower’s credit report.
Deed of Trust: A document identifying real property that is given as security for the repayment of an obligation. Is essentially the same as a mortgage, and is used in certain states.
Default: In real estate it is the failure to perform according to the terms of the commitment. Basically refers to the failure to make mortgage payments when they are due. A loan is considered in default when the payment is 30 days past due.
Default: Failure to meet an obligation when due.
Depreciation: Loss in value from any source including physical deterioration, economic conditions, or functional obsolescence.
Discount Points: An amount charged to the borrower by the lender, the effect of which increases the effective yield of the loan, or generates fee income to the lender.
Down Payment: That portion of a loan which the borrower pays from his own funds, reducing the amount of the loan. It is the portion of the purchase price that is not financed.
Due Diligence: In real estate the process of examining data related to a loan and its collateral. It could include researching public records concerning the current ownership of a loan or property, any liens or encumbrances on the property, as well as determining the current market value of collateral.
Equity: The difference between the fair market value (appraised value) of your home and the outstanding mortgage balance, i.e. the portion of property you own.
Equity Loan: A loan based solely on the equity in the property as collateral for the loan.
Escrow: A neutral third party that acts upon the written instructions of the parties for the receipt and disbursement of funds and documents relating to a real estate transaction.
Escrow Account: Also referred to as Impounds in some states. Refers to the amount paid by the borrower beyond principal and interest and held in an impound or escrow account. Money is used most commonly for the payment of property taxes and hazard insurance on their respective due dates.
Escrow Encumbrance: A claim, lien, or liability that has been attached to the property.
Extension Agreement: A document that extends the due date of a loan.
Fair Market Value: The most probable price that would be received for a property in a reasonable time on an open market.
Fixed Rate Mortgage: A mortgage loan where the interest rate stays constant for the life of the loan.
Forbearance Agreement: An agreement reached between a borrower and lender during a foreclosure process that adjusts the payment schedule on a loan for a period of time. The foreclosure process is put on hold for this period of time and will be cancelled if the obligations are met.
Foreclosure: The procedure used to enforce a creditor’s rights when there is a default on an obligation secured by a Deed of Trust or Mortgage. This is a legal process where the borrower will lose his interest in the property through a forced sale with the proceeds applied to the debt owed.
Grace Period: A period of time past the due date for a payment on a loan in which no late charges will be assessed.
Grantee: Buyer of property
Grantor: Seller of property
Hard Money: The cash given from a loan secured primarily by the value of the collateral, usually real estate. It is a specific type of Private Money since the source of the cash is usually private individuals.
Hard Money Lender: A Broker or lender who specializes in Hard Money loans.
Hard Money Loan: A loan made based primarily on the value of the collateral, usually real estate. The loan will be easier to obtain, require less documentation, but have a higher interest rate.
Hazard Insurance: Also referred to as property insurance. In real estate refers to insurance on a property to protect the insured (the lender) from losses due to specific damage such as fire.
HELOC: Home equity line of credit. A normally junior position mortgage loan that allows the borrower to get cash against the equity of his property up to a predetermined amount.
Impounds: Funds collected and held by the lender for the future payment of taxes and insurance on behalf of the borrower.
Interest: A fee for the use of money.
Interest Rate: The periodic charge, expressed as a percentage, for use of credit
Investor: The person supplying the money for a particular venture or investment. In real estate this is the lender.
Judicial Foreclosure: A foreclosure proceeding done entirely through the courts as a civil lawsuit. Process would be handled by an attorney. Some states will use the judicial foreclosure process, and other states will use the non-judicial foreclosure process.
Land Contract: A Real Estate Installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no Deed is given by the seller (so no title passes) until all or a specified part of the sale price has been paid.
Same as contract for deed and installment land contract.
Lease: A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Lease Option: A rental agreement indicating a tenant’s option to purchase a property. Monthly payments consists not only of rent, but an overage that can be applied towards a down payment on an already established amount.
Leasehold Estate: An estate for a fixed length of time, established when a landlord gives up possession of real estate to a tenant, giving the tenant an equitable interest in the property, as defined by lease terms.
Lien: An encumbrance on real property for money owed. It is a legal claim against a property such as a mortgage.
Loan Modification: An adjustment to the original terms of a loan. A borrower and lender often agree to modify the terms of a loan to avoid the foreclosure process when the borrower is having difficulties making payment under the current terms.
Loan Origination: The process whereby a new loan is created, covering the time from loan application to loan closing.
Loan Servicer: The entity that handles loan servicing. Typically an independent party, but could be the lender on a loan.
Loan Servicing: The sending of statements, processing of loan payments, collection efforts on delinquent loans, and the handling of the default process on loans.
Loan-To-Value Ratio: The relationship (percentage), between a property’s mortgage and value. For example, if you owe $50,000 on a $100,000 home, the ratio is 50%.
Loss Mitigation: Actions taken to reduce losses on a delinquent loan using a variety of loan workout alternatives to foreclosure. Most common actions include repayment plans, modification agreements, and forbearance agreements.
LTV (Loan to Value): The relationship of the value of real property to the amount owed, ratio expressed in a percentage. A higher LTV means the borrower has less equity in the property.
MERS Mortgage Electronic Registration System: A national registry system that tracks mortgage ownership. It eliminates the need for preparing and recording assignments when the interest in a loan is transferred. MERS identifies the owner of a mortgage or deed of trust on a subject property.
Mortgage: A legal document where the owner uses the new property as security to guarantee repayment of the loan. The mortgagee is also known as the lender. The mortgagor is known as the borrower.
Mortgage Banker: An individual or company that originates and funds loans. The loans may be kept or resold to the secondary market such as FNMA, FHMC, or private individuals.
Mortgage Broker: An individual or company that originates loans which are placed with a variety of other lenders per established agreements.
Mortgagee: The lender or investor.
Mortgagor: The borrower.
Negative Amortization: An increase in a loan balance as a result of the lender receiving less than the full amount of the interest earned on a loan.
Nominal Rate: The rate stated in the note.
Non Conforming Loan: Refers to any loan that would not normally be made by a regulated institution such as a bank.
Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate: The stated interest rate on a mortgage note
Notice of Default: A formal written notice to a borrower that an obligation is in default and legal action may be taken if the terms of the obligation are not met.
Notice of Trustee’s Sale: In a non judicial foreclosure process, a recorded, published and posted document that sets a specific date, time and place for a Trustee’s Sale.
Partial Reconveyance: A document, when recorded, that eliminates a lien, but not all liens, from the title of a property when an obligation secured by a Deed of Trust or mortgage is paid off.
Preliminary Title Report: A title company’s offer to issue a policy of title insurance. Reflects what the policy would look like.
Prepayment Penalty: A fee charged when a loan is paid off before its due date. Used to compensate the lender for not getting the profits from continued interest payments. Prepayment penalties are subject to regulations by loan type and amount.
Principal: In real estate refers to the amount of a loan, not including interest. The part of the borrower’s monthly payment that reduces the remaining balance of a loan.
Principal Balance: The remaining amount of a loan, not including interest, at a particular time.
Private Money Money: that comes from private sources, usually individuals. Private money loans are typically based on the value of the securing property and have low LTVs.
Promissory Note: Document signed and given to the lender by the borrower. It explains what is owed and how it will be paid.
Quitclaim Deed: A deed that releases without warranty any interest in a property at the time of conveyance.
Reconveyance: A document, when recorded that eliminates a lien from the title of a property when an obligation secured by a Deed of Trust or mortgage is paid off. Could be a partial or full reconveyance.
Reconveyance Clause: The clause in a trust deed that gives the title back to the borrower when the loan is paid in full.
Recording: Filing documents with the county recorder.
Release: A document, when recorded that eliminates the lien from the title of a property when an obligation secured by a Mortgage is paid off.
REO Real Estate Owned: Refers to property held by a lender and usually obtained through foreclosure. Also known as OREO Other Real Estate Owned. REO properties are often distress and are typically sold for less. An abundance of REO’s can depress values in a particular area.
RESPA Real Estate Settlement Procedures Act: A Federal consumer protection law. Among other things it mandates disclosing to consumers the settlement costs after a loan application is made. Also requires specific notification to borrowers of a change in loan servicers.
Sale-Buyback: Financing arrangements in which an investor buys property from a developer and immediately sells it back under a long-term sales agreement, wherein the investor retains legal title.
Sale-Leaseback: A financing arrangement whereby an investor purchases real estate owned and used by a business corporation, then leases the property back to the business.
Second Mortgage: A loan that is backed by collateral.
Security: Something given, deposited, or pledged to make secure the fulfillment of an obligation, usually the repayment of a debt.
Seller Carry: Back Refers to the sale of a property wherein the owner provides all or part of the financing to the buyer.
Senior Loan: A real estate loan in first priority position.
Servicer: An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Subject 2: Acquiring property with an existing mortgage, but not becoming personally liable for the debt.
Subordination Agreement: An agreement that makes a loan subject to another encumbrance. A senior loan may subordinate to another loan and thus become a junior loan.
Substitution of Trustee: A document where the beneficiary designates a successor trustee to the trustee of record. Usually the first step in the non judicial foreclosure process.
Tax Lien: A lien placed against a property for the non payment of real estate taxes. It is usually senior to other private liens.
Title: Evidence that an entity has the right to ownership of property.
Title Insurance: Insurance against defects in title.
Title Search: Report checks all records of a specific piece of real estate to guarantee there are no liens, encumbrances, ownership concerns, etc.
Transfer Tax: In some areas, city, county, or state taxes imposed when property passes from one person to another.
Trustee: The entity that hold title to real property in trust for the benefit of another entity.
Trustor: The borrower on a Deed of Trust.
Underwriting: Assessing the risk of a loan to the lender.
Wraparound: The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment to the existing note holder. Often used to avoid a prepayment penalty or a due on sale clause. Same as a AITD
The Note Servicing Center offers an extensive business support system for Investors, Brokers and Lenders holding Real Estate Notes. We feel confident we can provide the note and loan services necessary to make your business even more successful. To expedite a full transfer of your loans for servicing into our proprietary software, could take as much as 2 weeks depending upon the complexity of the process. Much depends on the fields and format of the program and software you are currently using.
As a company on the “cutting edge” of technology, we may be able to integrate your present servicing portfolio easily and quickly into our system. But you can rest assured that we will do all the work to make the conversion process as seamless as possible for Investors and Borrowers.
Here are the steps:
- When you contact the Note Servicing Center to transfer your entire portfolio of notes into our system for servicing, we will schedule a time to visit with you about your loan servicing needs, the platform you are currently using and special needs you may have.
- We prepare and submit a Loan Servicing Proposal which includes information about what the Note Servicing Center is prepared to do for you to save you money, support your objectives and help you and your company move up to the next level. The proposal will be custom made to fit your needs.
- The Note Servicing Center does not buy or sell notes. Servicing is our only business. However we understand totally the importance of not compromising the integrity of your client base. Therefore, to protect your interest, it is our standard practice to execute a non-circumvent agreement to cover that base as part and parcel of the Servicing Agreement. agreement