For your convenience, we’ve compiled a list of real estate terms that may help you as you prepare for your upcoming business venture. These definitions are for reference purposes only, and are in no way a sufficient substitute for actual legal advice. Of course, the skilled team of attorneys at KAPLAN, KAPLAN, DITRAPANI & RABANIPOUR, LLP would love to clarify the meaning of any of these terms, and how they relate to your personal situation, during one of our free consultations.
Appraisal: An appraisal, also known as a property valuation, land valuation or more specifically as a real-estate appraisal, is an estimation of the market value of a given property, as reported by a licensed professional, after he or she has conducted a thorough review. Every property is different, and variables such as location will factor into an appraiser’s decision. Appraisals directly influence the amount a mortgage bank will be willing to loan
Bank Attorney: A bank attorney represents the lending bank’s interests. Often, they’ll appear at closings to oversee the finalization of transactions
Clear Title: A clear title refers to a title free of any encumbrances, liens, judgments and mortgages. Buyers are advised to purchase Closing and Title Insurance to protect them from inheriting any previously undiscovered encumbrances that may present themselves after a contract is signed.
Closing: The “closing” is where a real estate transaction becomes official. With all involved parties (including but not limited to: the buyer, the seller, the attorneys representing both parties, the attorneys representing both parties’ banks [if necessary], the title closer [if necessary], the managing agents [if necessary], and the real estate brokers) on hand, the deed or stock certificate is handed to the buyer and payment is made to the seller,
making the deal official. Any remaining pertinent legal documents are signed at the closing.
Common Areas: In a condominium, the “common areas” refer to all non-personal unit areas, such as hallways, staircases, anterooms, lobbies, elevators, and in some cases, rooftops. Communal spaces used for traversing the grounds or for shared recreation are all considered part of the “common area.”
Condominium: Any specified and individually taxed section of a larger piece of real estate, registered under the Condominium Act is considered to be a condominium, or condo. Each unit is individually owned but owners share communal spaces (e.g. elevators, heating systems, hallways) known as “common areas.” (See above.)
Contract of Sale: When signed by both buyer and seller, the Contract of Sale becomes the document locking both parties into legal agreement, and the agreed upon property changes ownership. A contract of sale is a binding legal document.
Cooperative Corporation: Any corporation, comprised of a shareholding group with vested financial interest in the corporation as a whole, that owns one or more buildings is considered a cooperative corporation.
Cooperative Unit: Also known as a “co-op”. A cooperative unit is any apartment owned by a cooperative corporation. (See above.) Unlike more basic rental agreements, those who buy into a cooperative unit receive a proprietary lease, or owner’s lease, which entitles them to a stock certificate. As long as they retain ownership of their unit, they’re liable to earn a return on the shares they receive as a part of this package.
Deed: The deed is the official name for any written legal instrument specifying the owner of a given piece of real estate. In short, a deed names the owner of interests, properties, rights, etc.
Down Payment: The down payment is the lump sum paid during the closing stage of a real estate transaction. A down payment is subject to forfeit in the event of a breach of contract. This payment is sometimes referred to as a “good faith deposit.”
Dual Agent: In some cases, a real estate agent can represent both the buyer and the seller of a particular property. These agents are referred to as “dual agents.”
Foreclosure: A foreclosure is a legal process in which, in an attempt to recover the balance of a loan from a borrower who has neglected to make payments or is in violation of their promissory note, a seller takes away the property (or asset) used as collateral in an agreement. A court order is often necessary for this specific sort of termination.
HUD-1 Settlement: H.U.D. stands for Housing and Urban Development. The HUD-1 is an itemized form that lays out all fees and services charged to a borrower by a lender during a purchase or refinance. Most residential transactions require that a bank draft a HUD-1 Settlement Statement.
Inspection: Whereas an appraisal is a review meant to gauge a property’s value, an inspection is conducted to expose any previously hidden flaws, malfunctions, or defects in a structure prior to a final sale. Common defects revealed during inspection include: termites, architectural damage, etc. It is prudent to conduct an inspection before signing any binding contracts.
Judgment: Any decision related to a real-estate case by a court of law is considered a judgment.
Lien: Liens are legal claims, encompassing a wide variety of encumbrances, made against a property in order to secure payment of a debt or obligation.
Lien Search: A lien search, a.k.a. a Lien and Judgment Search, seeks to determine whether or not a given property has any outstanding liens against it. A seller is generally obligated to conduct such a search before closing, and must then remove all liens before transferring ownership to the buyer.
Limited Common Areas: Areas outside an individual apartment though still reserved for exclusive use of one owner are referred to as “limited common areas.” Unlike common areas proper, these areas are not necessary for travel within or exit from a particular establishment. Driveways and parking spaces, mailboxes, and balconies are some examples of limited common areas.
Mansion Tax: Larger, more expensive properties are subject to an ancillary tax known as the “mansion tax.” This tax is reserved for properties valued at over $1,000,000. If a real estate holding’s value exceeds this $1,000,000 mark, the buyer is obligated to pay an additional 1% tax.
Mortgage: A mortgage is the shorthand term normally used to refer to a mortgage loan. A mortgage loan is used to pay for real property, and the related mortgage note symbolizes the existence of this loan, which must be repaid. Mortgages are used in lieu of an outright cash sale of a home, due to the high costs involved in such an act. A mortgage, as a legal document, stipulates that a bank may foreclose on the property in question if payments are failed to be made. A mortgage commitment is the official document signifying the commencement of this loan agreement.
Mortgage Commitment Contingency: Most contracts of sales include a deadline clause requiring a buyer to secure a mortgage loan within a specified period of time. Failure to do so, according to the “mortgage commitment contingency,” grants the bank permission to terminate the contract.
Net Proceeds: Handled by the bank attorney, net proceeds refer to the monetary figure given to a borrower after all applicable fees are collected. These fees, including all bank fees, interests and escrows, are deducted before the closing.
Note: A “note” is legal shorthand for the official document that states a borrower is obligated to repay the bank for any and all loans given.
Owner Financing: Owner financing is the overarching term for all such discussed mortgage-type payments, wherein a seller sells property to a buyer, in return for a mortgage and note, usually receiving small term payments until the full sum is recovered.
Payoff Attorney: In order for a bank to recover the fees it is owed from a seller, it will often delegate a payoff attorney to attend the closing to acquire said debt. Among the official documents handled by the payoff attorney are: 1) the seller’s original stock certificate 2) the UCC 3 termination statement and 3) the proprietary lease.
Power of Attorney: The power of attorney (POA), a.k.a. the letter of attorney, is a written document authorizing an agent to act on behalf of the “principal” party.
Pre-Approval: Pre-approval refers to the act of a bank confirming a buyer’s ability to meet a financial obligation. Such an approval either increases the likelihood, else guarantees, a buyer’s eligibility when applying for a loan.
Proprietary Lease: A proprietary lease is the document given to signify ownership of a cooperative unit.
Security Instrument: A co-op’s analog to a mortgage, a security instrument gives a bank the ability to foreclose on a cooperative unit if the borrower or borrowing group fails to make the required payments.
Short Sale: When proceeds from the sale of a property fail to match the debts owed to the bank. When the seller in question owes the bank more money than the buyer is providing the seller.
Sponsor: The original building or development company that sells a condominium or cooperative unit is known as the “sponsor.”
Stock Certificate: An important document in cooperative unit real estate transactions, a stock certificate denotes the shares a co-op owner receives. Along with the proprietary lease, the stock certificate signifies ownership of a cooperative unit.
Termite Inspection: A component of a full inspection, termite inspection is an important pre-sale search which could have implications regarding the title and closing process of a real estate transaction. Termites can cause massive future infrastructural damage to a building, and all prudent prospective buyers should stage a termite inspection at some point during the transactional preliminaries.
Title Insurance: Title insurance is important to both the buyer and the seller of any given real estate property. Title insurance is split into two categories. The first category of title insurance, namely the Lender’s Policy, proves that the bank does indeed hold a valid first mortgage on the property in question. The second category, the Owner’s Policy, ensures that the buyer is a new and legitimate owner and the property in question has clean title, free from any encumbrances, judgments, liens or preexisting mortgages.
Title Search: A title search, similar to a lien search, is a comprehensive search proving that the title is clear.
Transfer Tax: The state charges all sellers a tax equal to a small percentage of the final sale price of a property.
UCC 1: The UCC 1 is an official document signifying the existence of a loan used in the purchase of a co-op.
UCC 3: The UCC 3 is the document used to show termination or transfer of a co-op.