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| You
will find this Glossary useful in understanding words or terms used in Real
Estate transactions. However, there are some factors that may affect the
following definitions: |
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1.
Terms are defined as commonly understood in the mortgage and real estate
industry. The same terms may have different meanings in other context.
2. The definitions are intentionally short and non-technical. They do
not include all possible meanings that a term may acquire in legal
use.
3. State laws may modify or change the meanings of certain terms defined. |
Earnest
Money
The deposit money given to the seller or his agent by the potential
buyer upon the signing of the agreement of sale to show that he is serious
about buying the house. If the sale goes through, the earnest money is applied
against the downpayment. If the sale does not go through, the earnest money
will be forfeited or lost unless the binder or offer to purchase expressly
provides that it is refundable. |
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Easement
Rights
A right-of-way granted to a person or company authorizing access to or
over the owner's land. An electric company obtaining a right-of-way across
private property is a common example.
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Encroachment
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.
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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 convenants. 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.
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Equity
The value of a homeowner's unencumbered interest in real estate. Equity
is computed by subtracting from the property's fair market value the total
of the unpaid mortgage balance and any outstanding liens or other debts
against the property. A homeowner's equity increases as he pays off his
mortgage or as the property appreciates in value. When the mortgage and
all other debts against the property are paid in full the homeowner has
100% equity in his property.
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Escrow
Funds paid by one party to another (the escrow agent) to hold until the
occurrence of a specified event, after which the funds are released to
a designated individual. In FHA mortgage transactions an escrow account
usually refers to the funds a mortgagor pays the lender at the time of
the periodic mortgage payments. The money is held in a trust fund, provided
by the lender for the buyer. Such funds should be adequate to cover yearly
anticipated expenditures for mortgage insurance premiums, taxes, hazard
insurance premiums, and special assessments.
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