A

Acceleration Clause
A clause commonly included in mortgages that gives the holder the right to demand the entire outstanding balance be paid in the event of default. Without this clause, the mortgagee may have to file separate foreclosure suits as each monthly mortgage payment falls due and is in default. The most common reason for accelerating a loan is a monetary default by the borrower.

Amortization
A method of apportioning the monthly mortgage payments over the life of the loan. Over time, the interest portion of the loan decreases, and the amount applied to principal increases. Many home mortgages are "fully amortized" in 15, 20 or 30 years.

Appraisal Fee
The cost of an independent evaluation of the possible sale price/value of the property. This is almost always required by a lender.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. An appraisal is based primarily on comparable sales.

Assumption Fee
A charge by the lender for processing transfer of a loan from one party to another.

B

Balloon Mortgage
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

C

Chain of Title
The history of all the documents that have transferred title to a parcel of real property starting with the earliest existing document and ending with the most recent.

Clear Title
Title to property that is marketable by virtue of its being free from demands or claims by other parties and not encumbered in any other manner.

Conforming Loan
A mortgage loan that conforms to regulatory limits such as loan-to-value ratio, term and other characteristics.

Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector, or until the purchaser obtains financing.

County Transfer Tax
The mandatory charge assessed by a county to transfer title to real property. This charge varies from county to county. For example, at the time this Buyers' Guide was printed, in Montgomery County, MD the charge is 1% of the total consideration (sales price) on homes over $70,000.00, 1/2% on homes between $40,000.00 and $70,000.00, and 1/4% on homes under $40,000.00. There is no County Transfer Tax in Frederick County. The Transfer Tax in Prince George's County is 1.4%.

Credit Report Fee
A charge assessed by the lender to obtain and review the borrower's credit report generated by one of the major credit agencies. This allows the lender to ascertain the amount of consumer debt, how frequently the debt in paid off, and whether there are any judgments or liens against the borrower.

D

Deed
A written instrument used to record or transfer property ownership. Recording the deed in the land records is notice to the world of who owns the property. The title may be held in several different ways, each of which have substantial legal meaning.

Deed of Trust or Mortgage
The legal document which creates a security interest in favor of the lender. The borrower is pledging the real property as security for repayment of the amount of money borrowed. It is recorded in the land records to put everyone on notice that the property is security for the debt, and is released in the records each time the loan is paid off, i.e., when the property is sold or when the property is refinanced.

Deposit
An amount of money usually paid by the purchaser with the initial contract offer and held by the seller, broker or the title company until settlement. It is often not refundable if the purchaser decides not to buy the property.

E

Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Equity
In real estate, equity is the difference between the fair market value of a property and the amount of any mortgage debt, or liens against the property, that remain outstanding.

Escrow
The sum of money paid by the borrower over time and held by the lender to be applied toward payment of future taxes and/or insurance. It may also refer to the sum of money set aside at settlement and held by the title company to ensure completion of repairs.

F

Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Fiduciary
Someone who is entrusted with the care of another person's money, property or other items of value.

Fixture
Personal property that becomes part of real property once attached to the real estate, such as a light fixture that is securely fastened to a wall or ceiling.

Feddie Mac
This is the commonly used name for the Federal Home Loan Mortgage Corporation

G

Good Faith Estimate
A disclosure required under the Real Estate Settlement Procedures Act (RESPA) that must be given to all mortgage loan applicants at the time of application. The disclosure is an estimate of all settlement charges likely to be incurred at closing. Grace Period A specified period after the regular due date of a loan payment during which no late charge or other penalty is assessed on tardy payments.

H

Hazard Insurance
Insurance which protects borrower and lender against natural hazards. Typically, the lender is named the "loss payee" in loan documents. Thus, and in the case of a loss to the home, the insurance company pays the lender that sum remaining upon the loan. The home owner receives the difference between the loan payoff and the policy amount.

Homeowner's Association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, the homeowner's association holds title to the common elements.

HUD-1 Settlement Statement
A document, mandated and created by the US Department of Treasury and Urban Development, that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each type of expense goes on a specific numbered line on the sheet. The totals, located at the bottom of the HUD-1 statement, define the seller's net proceeds and the buyer's net payment at closing. The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

I

Interest Rate
The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money.

Interest Adjustment
The buyer must pay a "Per Diem" (per day) interest on the new loan from the date of settlement to the end of the month in which the loan closes. Keep in mind that interest is paid in arrears. For example, if you close on June 25, and the buyer's first mortgage payment is due August 1, the interest includes that owed for the month of July. The "per diem" interest on line 901 would thus cover (a) interest due from the date of settlement through the end of June; and (b) interest due for the month of July.

J

Joint and Several Obligation
A debt entered into by two or more borrowers, each of whom is liable for repaying the full amount of the debt.

Jumbo Loan
A loan that exceeds Fannie Mae's and Freddie Mac's loan limits, currently at $417,000. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans. Because jumbo loans are bought and sold on a smaller scale than conforming loans, they often have a higher rate of interest.

L

Legal Description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Liability Insurance
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.

Loan Origination Fee
A fee sometimes charged by the lender for the administration and processing of a loan. When a "point" is being charged, one "point" is equal to 1% of the loan amount.

Loan to Value Ratio (LTV)
The relationship, expressed as a percentage, between the amount of the proposed loan and a property's appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.

Loan Payoff Amount
The total amount of money needed to meet a borrower's obligation on a loan. It is arrived at by accruing gross interest for one day and multiplying this figure by the number of days that exist between the date of the last repayment and the date on which the loan is to be completely paid off. This amount, known as accrued interest, is combined with the latest principal and escrow balances that are applicable to what is now referred to as the loan payoff amount. In the case where prepaid interest exceeds the accrued interest, the latter is subtracted from the former and the difference is used to reduce the total amount owed.

M

Mechanic's Lien
A legal, enforceable claim for payment to a person who has performed work or supplied materials used in the construction or repair of a building. The building and land is attached as security for payment of the claim. Mechanic's liens are permitted by the laws of most states. Also called a material men's lien.

Mortgage Insurance
Insurance which protects the lender against the possibility that the borrower defaults and the property is foreclosed upon. Typically, mortgage insurance is not required if the borrower pays at least twenty percent of the loan at settlement. If one has mortgage insurance at the beginning of a loan, the mortgage insurance will continue until the borrower has 20% equity in the property.

Negative Amortization
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 of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

N

No Cash Out Refinance
A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage.

O

Origination Fee
On a government loan, the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

P

PITI
This stands for "principal, interest, taxes and insurance." If you have an "impounded" loan, then your monthly payment to the lender includes each of these documents.

Planned Unit Development (PUD)
A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

Power of Attorney
A document that authorizes one person to legally act as the agent for, or in place of, another person in performing various actions under specified conditions. Full power may be granted, or authority may be limited to certain functions, such as a real estate settlement.

Pre-Approval
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.

Pre-Qualification
This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Prepayment
Any amount paid to reduce the principal balance of a loan before the due date and before the loan has been fully amortized.

Prepayment Clause
A provision in a promissory note stating the amount a borrower may repay ahead of schedule without incurring a penalty.

Prepayment Penalty
A fee assessed by a lender on a borrower who repays all or part of the principal of a loan before it is due. The prepayment penalty compensates the lender for the loss of interest that would have been earned had the loan remained in effect for its full term.

Principal Balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Promissory Note
The Promissory Note is an agreement between the borrower and lender whereby the borrower agrees to repay the loan amount over a certain period of time. The note contains all of the terms of the loan, i.e., the principal amount borrowed, the interest rate, the date the loan matures, and any penalties owed by the borrower if a payment is late.

Property Tax Adjustment
Reimbursement by the purchaser to the seller for taxes prepaid by seller from the date of settlement through the end of the tax year. The purchaser will be responsible for the taxes from the date of settlement to the end of the fiscal year.

Prorate
To divide proportionately.

Punch List
A record of incomplete or unsatisfactory construction items covered by a contract, usually prepared by an architect or engineer, before certifying project completion.

R

Recording
The noting in the land record's office in the city and county where the property is located of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Recording Fees
Fees required to be paid to the Clerk of the Court for recording the documents, in the county in which the property is located.

Release
The discharge of property from a mortgage lien, as noted in the land record's in county/city where the property is located.

S

Settlement
The conclusion of a transaction when that which was bought is delivered to the buyer and payment is made to the seller. This is also referred to as the "closing."

Settlement/Closing Fee
The charges assessed by the settlement company for conducting a settlement.

State Revenue Stamps
At the time this Buyers' Guide was printed, the requisite tax on recording of a document of title or security, such as a Deed of Trust. In Montgomery and Prince George's Counties the charge is $4.40 per $1,000.00 of consideration paid, while in Frederick County the charge is $7.00 per $1,000.00 of consideration paid.

State Transfer Tax
A charge of 1/2% of the sales price of property in all Maryland counties to transfer title to real property. If the buyer is a First-Time Maryland Home Buyer, the tax is reduced to 1/4% and must be paid by the seller.

T

Term Mortgage
A mortgage loan with a fixed time period, usually five years or less, during which only interest is paid. At the end of the term, the entire principal is due and payable.

Time is of the Essence
A legal term, which makes a time frame absolute, such that any violation of the stated time is a material breach of the contract.

Title Abstract
A general report issued by a professional title examiner of the land records to ascertain ownership and status of title to real property.

Title Company
A business firm that examines real property titles, reports its findings as to the legal status of such titles, and issues insurance policies to indemnify the owner and lender against financial loss resulting from unknown title defects or prior claims against the property.

Title Insurance
Insurance which protects against defects in the title. One should always keep in mind that when purchasing a home, one is buying the actual building and/or land, and the title to the property, i.e. the right to occupy and use the property. That "title" may be limited to the rights and claims of others, limiting use of the property, and creating financial problems for the new purchaser.

U

Underwriter
A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts and other factors such as loan guidelines.

W

Walk Through
An inspection of a property by the prospective buyer prior to closing on a mortgage.

Wire Transfer
An order to pay or to credit money transmitted electronically rather than by paper check.

Workout Agreement
A plan approved by borrower and lender by which a delinquent borrower can reschedule loan payments so that the entire outstanding principal is eventually repaid.

	Contact Information: Michael Cogan, Esq. Phone: 240.386.0561 e-mail: mcogan@beneficialtitle.com Web site: www.beneficialtitle.com
Gaithersburg Maryland 12 South Summit Ave Suite 250 Gaithersburg, MD 20877	Frederick Maryland 5210 Chairmans Court Suite 2-B Frederick, MD 21703