"Home Buyer's Glossary E-K"

• Terms are defined as they are commonly understood in the mortgage and real estate industry.  The same terms may have different meanings in another context.
• The definitions are intentionally general, non-technical and short.  They do not encompass all possible meanings or nuances that a term may acquire in legal use.
• State laws, as well as custom and use in various States or regions of the country, may modify or completely change the meanings of certain terms defined.

E

Earnest Money Agreement—A contract of purchase and sale wherein the buyer deposits an amount of money as evidence of his good faith intent to purchase; commonly called a purchase agreement in Minnesota.

Easement—A right to use some part of the property of another for a particular purpose, such as for a driveway or for installing and maintaining a water line.

Egress—A passageway leading from property; a means of exiting.  It is the opposite of ingress.  The terms ingress and egress usually refer to easements.

Emblements—Crops which are produced annually through the labor of the cultivator, such as wheat.

Eminent Domain—The power of the government to take (condemn) private property for public use, upon payment of just compensation to the owner.  The power may be delegated to public corporations, such as utilities, or to public service corporations, such as railroads.

Encroachment—Unlawful physical intrusion upon the property of another, usually the result of mistake.  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.

Escalator Clause—A clause in a contract or mortgage providing for the adjustment of payments or interest in the event of certain contingencies, such as changes in taxes or the prime interest rate.

Escape Clause—A clause in a sales contract allowing the buyer to terminate the contract if the appraised value is significantly below the purchase price.  Required for FHA and DVA loans where applicant has signed the contract prior to receiving the appraisal.

Escrow—1. The process in which something of value (such as money or documents) is held by a disinterested third party, a stakeholder called an escrow agent, until certain conditions contained in the escrow instructions have been complied with.  2. A deed or money or piece of property delivered into the keeping of a third party, called an escrow agent, pending compliance by all parties to the real estate agreement.

Exclusive Agency Listing—A Written listing agreement giving one broker the right to sell a piece of property; the broker is entitled to a commission if the property is sold by and one besides the seller.

Exclusive Right to Sell—Written listing agreement giving one agent (broker) the right to sell a piece of property for a specified period of time and giving the broker the right to receive the commission if the property is sold during that time, regardless of who sells it.

Execute—To do, to perform or complete as in executing a deed by signing and acknowledging it.

F

Farmer's Home Administration (FmHA)—A federal agency of the Department of Agriculture that provides or assists in providing credit to farmers and others in rural areas, where reasonable financing from private sources is not readily available.

Fee—An estate of inheritance in real property.

Fee Simple, or Fee Simple Absolute—The greatest estate one can have in real property; of indefinite duration; with no conditions or restrictions on the use of the land other than public ones, such as zoning regulations; freely transferable or inheritable.  Also known as the Fee.

F.H.A.—Abbreviation for Federal Housing Administration.

Fiduciary—A relationship of trust and confidence, often existing where one person is allowed to represent, transact business, or hold or manage property for another.  Also, the person holding such a position.

Finance Charge—All charges assessed a borrower, directly or indirectly, in connection with the credit extended.

Firm Commitment—A definite agreement by a lender to make a loan to a particular borrower on a particular piece of property.  Also, an agreement by the F.H.A. to insure a loan made to a specified borrower on a particular piece of property.

Fixed Term—A period of time which has a definite beginning and ending.

Fixture—Personal property which has become so affixed to real property that it has become real property.

Foreclosure—Legal action instituted by the mortgagee, in the county where the property is located, whereby property used as security for a debt is sold to satisfy the debt following default by the debtor either in payment or other terms of the mortgage.

Forfeiture—Loss of a right or something else of value as a result of failure to perform an obligation or condition.

Free and Clear—Title, or ownership, of real property that is completely free of an encumbrance, such as mortgages, liens and so forth.

Freehold—An ownership estate in real property; can be either a Fee Simple or Life Estate.  The holder of a freehold estate has title, as opposed to the holder of a less-than-freehold estate (leasehold estate), who is a tenant.

Frontage—The distance a piece of property extends along a street or body of water.

Funding Fee—A fee charged in connection with DVA loans; the funding fee can be financed along with the loan.

G

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.

Graduated Payment Loan—A loan providing for lower payments at the beginning of the loan increasing gradually until they level off in five to seven years.

Grant—To transfer or convey real property or an interest therein.

Grantee—1. That party in the deed who is the buyer or recipient.  2. The one who receives a grant of real property, regardless of the type of deed used.

Grantor—1. That party in the deed who is the seller or giver.  2. The one who conveys or transfers real property or an interest therein.

H

HUD—U.S. Department of Housing and Urban Development.  Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

Homestead—A limited exemption against the claims of unsecured creditors for property used as the debtor's residence.  A means of protecting the debtor's home from a forced sale to satisfy certain debts.

H.U.D.—Abbreviation and popular name for the Department of Housing and Urban Development.

I

Income Approach to Value—A method of appraising property basing the value upon the net amount of income produced by the property.  It is calculated by subtracting the expenses of the property from the total income to determine the net profit.  Also known as the Capitalization Method or Investor's Method.

Income,  Gross—Total income before deductions for expenses, depreciation, taxes and so forth.

Income,  Net—Income after deductions for expenses, depreciation, taxes, etc

Income,  Spendable—The money that remains after deducting operating expenses, principal and interest payments, and income tax from the gross income.  Also called Net Spendable income or Cash Flow.

Incompetent—A person not legally qualified to reach proper decisions, such as a minor, insane person or one who is feeble minded.

Ingress—Refers to access to property by a dominant tenant while exercising his use right (easement).  Sometimes refers to the access a tenant has to leased property.  Opposite of egress.

Insurance,  Private Mortgage—Insurance available to conventional lenders who are willing to make real estate loans exceeding the standard 80% loan-to-value ratio.  the excess amount is insured by a private mortgage insurance company.

Insurance,  Title—An insurance policy under which the insured is protected against any loss suffered as a result of the title to land not being as represented in the policy.

Insurance,  Title,  Alta Policy—An extended coverage policy of title insurance issued to lenders, protects against title defects not covered by the standard policy.  ALTA: American Land Title Association.

Interest—1. A charge for the use of another's money, sometimes referred to as rent for the use of money.  2. A right in or share of something.  Partial ownership reflects an interest in real property; a mortgage is evidence of a lender's financial interest in property and a lease expresses the lessee's (tenant's) rights in connection with the demised property.

Interest,  Compound—Interest computed both on the principal and its accrued interest.

Interest,  Prepaid—Interest on a loan which is paid at the time of closing or settlement; sometimes called an interim interest.

Interest,  Simple—Interest that is computed on the principal amount of the loan only.  The type of interest charged in connection with real estate loans.

Intestate—The characterization of a person who has died without leaving a valid will.

Inventory—A detailed list of the stock-in-trade of a business.

Investment Property—Unimproved property that produces no income, but is held for capital growth through increases in price.

J

Judgment Creditor—A person to whom money is owed by virtue of a judgment in a lawsuit.

Judgment Debtor—A person who owes money by virtue of a judgment in a lawsuit.