Real Estate Glossary

The settlement process includes several key terms that you should familiarize yourself with. Review our list of the most commonly used keywords used in real estate settlement.

Abstract : The accumulation of recorded documents relating to a piece of real property or land from which an attorney or licensed agent will give an opinion of the status of the title.

Adjustable Rate Mortgage (ARM) : A mortgage in which interest and payment rates vary periodically, based on a specific index, such as 30‐year Treasury bills or the Cost‐of‐Funds index.

Adjustments : Money credited to either/both buyer and seller at closing, including real estate taxes, price adjustments based on disclosures in the inspection, etc.

ALTA Settlement Statement : A statement that details the monies paid out and received by the buyer and settlement at closing.

Amortization : A method by which monthly mortgage payments are equalized over the life of the loan despite the fact that the proportion of principal to interest changes.

Appraisal : Professional and unbiased written opinion of property’s value based on recent, comparable sales, quality of construction, current condition and style of architecture.

Assessed Value : The value placed on property by the County Property Appraisers Office as a basis for taxation.

Assessor : A municipal or county official who determines the value of properties for the purpose of taxation.

Assignment : A transfer of real or personal property and all rights to said property to another.

Assumption of Mortgage : Agreement by a buyer to assume an existing mortgage or deed of trust.

Balloon Payment : A loan in which the final installment payment is greater than the preceding payments, and pays the note in full.

Chain of Title : A history of conveyances and encumbrances affecting the title of real property.

Closing/Settlement : The day when buyers and sellers sign the papers and actually swap money for title to the home. The settlement finalizes the agreements reached in the sales agreement.

Closing Disclosure/Previously called HUD‐1 : A statement that itemizes the services provided to you and the fees charged for those services. This form is normally filled out by your lender and you should receive it 3 days prior to settlement.

Closing Costs : ALL of the cost associated with the closing on a piece of property. Closing costs include: points, origination fees, loan service fees, document preparation fees, escrows, title insurance, title company fees, recording fees, real estate taxes, and transfer taxes, etc.

Commission : A previously agreed upon percentage of the home’s sale price paid to the listing and selling agent(s).

Commitment : The written report of the title company showing status of title and pledging to issue a title insurance policy when the requirements shown therein are met.

Consummation/Closing : The time at which the property is formally sold and transferred from the seller to the buyer. It is at this time that the borrower takes on the loan obligation, pays all closing costs and receives title from the seller.

Consummation/Settlement Costs/Closing Costs : The customary costs above and beyond the sales price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower at the time of LE is given.

Conventional Mortgage : A mortgage securing a loan made by banks, lenders or investors without government underwriting by the Fair Housing Administration or the Veterans Administration.

County Clerk : The county authority with whom all real estate documents are filed.

Courier Fee : Charges for delivery.

Deed : the document used to transfer ownership in a property from seller to buyer.

Deed in Lieu of Foreclosure : All alternative to foreclosure wherein the lender agrees to halt foreclosure activities in exchange for a deed executed by the owner/borrower in favor of the lender. Typically only applicable where the owner/borrower has some equity in the property that would cover the lender’s expenses, including expenses incurred by the lender because of
the borrower’s default, legal fees and the cost to re‐sell the property.

Deed of Trust : An instrument similar to a mortgage that gives the lender the right to foreclose on the property if there is default under the note by the borrower.

Default : The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency : Failure of a borrower to make timely mortgage payment under a loan agreement.

Disclosure : To make known or public. When dealing with real property, all disclosures should be in writing.

Down Payment : The portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan.

Earnest Money Deposit : Money you will put down to show that you are serious about purchasing the home. It often becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or may be forfeited if you do not follow through with the deal.

Easement : A recorded right of use affecting real property. “An easement could be for utility purposes or for ingress or egress, for example. All easements of record would be shown originally on the title insurance commitment.

Encumbrance : Anything that affects or limits the ownership of real property, such as mortgages, liens, easements or restrictions of any kind.

Equity : The difference between the sale price of a property and the mortgage on the property.

Escrow : The deposit of documents and/or funds, with instructions to a neutral third party (Title Company), to carry out the provisions of an agreement or contract.

Escrow Account : An impound account in which a portion of your monthly mortgage payment is deposited to cover annual charges for homeowner’s insurance, mortgage insurance (if applicable), and property taxes.

Escrow Agent : A person or entity holding documents and funds in a transfer of real property, acting for both parties pursuant to instructions. Typically the agent is a person (often an attorney), escrow company or title company, depending on local practices.

Exclusive Right to Sell : A written agreement between the Seller and their real estate agent, giving the agent the right to sell a property and collect a fee for a set term.

Executor : The person chosen in the will to carry out, or execute, the will’s terms, now often called the Personal Representative.

Fair Market Value : The price a willing buyer and a willing seller would arrive at after an arm’s length bargaining where there is no compulsion to buy or to sell and where both parties are aware of all relevant facts.

Federal Tax Lien : Nonpayment of any federal tax, including income tax, can result in a Federal

Final Decree : An order from a court of competent jurisdiction documenting the final decision of all pending matters in a case before it.

Fixed‐Rate Mortgage : A mortgage that has a set interest rate and is basically unaffected by interest rate changes.

Foreclosure : a legal process in which mortgaged property is sold to pay the loan of the defaulting borrowers.

Gap : The common title industry name for the period from the effective date on the commitment to the day of closing and recording of documents. A “Gap Check” is the title company’s search of the public records for this time period.

Government Recording, Recordation Taxes, and Transfer : Fees for legally recording your deed and mortgage. These fees may be paid by you or by the seller depending upon the terms of the sales agreement.

Heir : One who receives the estate, or partial estate, of a deceased person by law.

Home Inspection : A formal survey of a home’s structure, mechanical systems and overall condition, generally performed by a licensed professional inspector.

Homeowner’s Insurance or Home Hazard Insurance : An insurance policy that protects your home and your possessions inside from serious loss, such as theft or fire. This insurance is usually required by all lenders to protect their investment and must be obtained before closing on your loan.

Indemnity Agreement : Agreement between two or more parties wherein one party agrees to protect, reimburse and/or assume the liabilities of another for damages or losses suffered by that person.

Instrument : Legal documents, such as deeds, mortgages, assignments, wills, etc., are also known as instruments.

Interest : A fee charged by the lender for the use of its money.

Interest Rate : The charge by the lender for borrowing money expressed as a percentage.

Joint Tenancy : Ownership of property by two or more people in which the survivors automatically gain ownership of a decedent’s interest.

Judgment : The final decision in a court of law.

Junk Fees : The pejorative name sometimes used to identify the reasonable, customary and sometimes excessive fees charged to the borrower by the lender against the borrower by the lender at closing for the privilege of borrowing money.

Legal Description : The description of a parcel of land, identifiable by metes and bounds, or designated as a Lot and/or Block number.

Lien : An encumbrance for money against property.

Living Trust : A living trust (revocable living trust or inter vivos trust) is a type of trust created for the purpose of holding ownership to an individual’s assets during the person’s lifetime and for distributing those assets after death.

Loan Estimate (LE) : An estimate of the settlement charges you are likely to incur; it also contains other information about the loan.

Loan to Value (LTV) ratio : A percentage calculated by dividing the amount to be borrowed by the price or appraised value of the home to be purchased (whichever is less). The loan to value ratio is used to qualify borrowers for a mortgage, and the higher the LTV, the tighter the
qualification guidelines for certain mortgage programs become. Low loan to value ratios are considered below 80%, and carry lower rates since borrowers are lower risk.

Loan Origination Fee : A one‐time fee charged by the mortgage company (lender) to arrange financing for the loan.

Marketable Title : A title which is free from any encumbrance that would limit or prevent its sale; a title that is free to be used in transactions.

Mortgage : The transfer of an interest in property to a lender as a security for a debt. This interest may be transferred with a Deed of Trust in some states.

Mortgagee : The party lending the money.

Mortgagee’s Title Insurance Policy : Also called Lender’s Policy. An insurance policy required by the mortgagee to protect the mortgagee’s interest against loss caused by title defects. It does not protect the Buyer. It is also required for 2nd mortgages.

Mortgagor : The party borrowing the money.

Notary Public : A person legally empowered to witness or certify the validity of signatures on documents.

Owner’s Title Insurance Policy : A policy that insures the Buyer against loss due to any defect of the title, not accepted to or excluded from the policy.

Partial Release : A partial release of property covered by a mortgage.

Payoff : Full payment of an existing loan.

PITI : Principal, Interest, Taxes and Insurance : The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance goes into an escrow account to cover the fees when they are due.

Points : A point is equal to one percent of the loan amount, and can be paid by either Buyer or Seller.

Power of Attorney : Enables one person to act for another.

Pre‐paid items : Lenders often require the prepayment of items such as insurance premiums for private mortgage insurance, homeowner’s insurance, and real estate taxes.

Prepayment Penalty : A fee charged if the mortgage loan is paid before the scheduled due date.

Private Mortgage Insurance (PMI) : Insurance that protects your lender if you default on your loan. With conventional loans, mortgage insurance is usually required if you do not make a down payment of at least 20% of your home’s appraised value. Your lender may require payment of your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan in advance at settlement. The same insurance protection on an FHA loan is called Mortgage Insurance Premium (MIP).

Probate : The legal term for the process of administering a deceased person’s estate or property through the state courts.

Proration : The proportional division of certain costs of home ownership. Usually used at closing to figure how much the buyer and seller each owe for certain expenditures such as real estate taxes, assessments and water bills.

Recording : The process of filing documents at a specific government office. Upon such recording, the document becomes part of the public record.

Recording Fee : A fee charged by the County Clerk’s Office to record documents in the public record. The charges are based upon the type of document to be recorded and on the number of pages to be recorded.

Refinancing : The process of applying for a new mortgage to gain better terms of use of equity.

Release : A document releasing property from lien or judgment.

Re‐recording : If an error occurred on the original recorded document and is in need of correction, the corrected document must be re‐recorded with the County Clerk’s office to show the correction.

Rescind : To cancel a transaction or agreement is to “rescind” it. In title terms, it most often refers to the right of rescission given individuals to cancel home loans when refinancing.

Restriction : As to title, this would mean any limitation on the right of use of a property. A restriction could be created by deed, covenants, or court order.

RESPA (Real Estate Settlement Procedures Act : RESPA is a consumer protection act aimed at making consumers better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. For more
information visit HUD’s RESPA web site.

Sales Agreement : The contract signed by a buyer and the seller stating the terms and conditions under which a property will be sold. It may also be called an “Agreement of Sale” or “Purchase Contract.”

Second Mortgage : A mortgage that ranks behind the first mortgage in lien priority due to it later filing of record.

Settlement/Closing Agent : In some states, a settlement agent, or closing agent handles the real estate transaction when you buy or sell a home. It may  be an attorney or a title agent. He or she oversees all documents, fee payments, and other details of transferring the property to ensure that the conditions of the contract have been met and appropriate real estate taxes have been paid.


Short Sale : An alternative to foreclosure wherein the lender agrees to accept some amount less than the outstanding principal owed on real property so that the owner/borrower can sell the property.

Survey Fee : A fee for obtaining a drawing of your property showing the location of the lot, any structures, and any encroachments. The survey fee is usually paid by the borrower.

Tax Exemption : Not having to pay property tax or other taxes, granted to religious, educational and governmental organizations.

Tax Lien : Lien recorded against a property for nonpayment of taxes.

Tenants by the Entireties : The default ownership interest for married couples, automatically includes the right of survivorship in the surviving spouse.

Tenants in Common : Sometimes referred to as “TIC.” A type of joint tenancy of property without right of survivorship; each tenant’s portion of ownership is separately owned and each owner may do with their share as they see fit without regard for the other tenants.

Termite Inspection : An inspection required by the Lender to show that the property is free and clear of active termites.

Title : Evidence of ownership of real property.

Title Service Fees : Title service fees include charges for title search, closing fee, and title exam if required. This fee also includes the services of a title or settlement agent.

Title Insurance : Insurance that protects your lender against any title dispute that may arise over your property. Through a title search, the lender verifies who the actual property‐owners are and whether the property is free of liens. The title search company then issues title insurance which protects the title of the property against any unpaid mortgages and judgments. In case a claim is made against the property, the title insurance provides legal
protection and pays for court fees and related costs. You may also purchase Owner’s title insurance which protects you as the homeowner.

Title Report : A report detailing the condition of title to real property. A title report is generally used to determine a property’s marketability by identifying outstanding liens, judgments and/or other clouds on title in preparation of sale of the property.

Tolerance Category : The maximum amount by which the charges for a category or categories of settlement cost may exceed the amount of the estimate for such category or categories on a good faith estimate. When the originator selects and identifies the provider of services, these charges may only increase 10% in the aggregate. If the borrower selects a provider that is not on the written list provided by the loan originator, the lender is not subject to any tolerance restrictions for that service.

Tract : A parcel of land.

TILA (Truth In Lending Act) : Was originally enacted as part of the 1968 Consumer Protection act and was designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs.

Underwriting Fee : A fee charged by the Lender to underwrite the loan.

Uniform Commercial Code : The set of laws regulating commercial transactions or transaction between merchants, especially ones involving the sale of goods and secured transactions.

VA Funding Fee : A fee charged by the Veteran’s Administration for originating a VA loan.

Walk‐Through Inspection : The final inspection by the buyer, usually in the company of the buyer’s real estate sales agent, to ensure that all conditions noted in the offer‐to‐purchase, and all seller‐related contingencies have been met. This inspection is most often completed
immediately prior to the official act of closing, after the seller has vacated the premises.

Warehouse Fee : A fee charged by the Lender to hold the loan locally before selling it in the secondary market, to an investor.

Warranty : Protection provided to the purchaser regarding the condition of appliances and pictures. Often, new homes have more extensive warranties also covering the overall structure.

Warranty Deed : A deed used to convey title of property from one party to another, whereby the seller guarantees title to be free from encumbrances.

Zoning : An act by municipality authorities specifying the type of use for which a property may be used.