Michael Emilio » Commercial Real Estate

Always Analyze the Value of a Triple Net Investment

Michael Emilio — Mon, 19 Nov 2007 14:00:45 +0000

Are you buying or selling a NNN investment?

If so, make sure you analyze the value.

What?

Let me explain.

When buying or selling a NNN property with a credit tenant the value is in the creditworthiness of the tenant combined with the remaining term on the lease. In this case the investment value usually exceeds the market value of the real estate alone. In many cases the investment value FAR exceeds the real estate value.

What about a scenario were the tenant is credit-worthy but the remaining lease term is short? Now our emphasis needs to shift to the remaining term and weigh this against the real estate value.

In this case we need to consider the spread between the “lease value” and the “real estate value”. Another way to say this would be, “How much more am I willing to pay for this lease above the cost of the real estate alone? As the remaining lease term decreases this spread also decreases. Theoretically, the day the lease expires the value of the lease (which is now zero) meets the value of the real estate.

The challenge before us as investors and brokers is to pinpoint the value of our NNN investments by analyzing their position in the value “spread”.

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Major Commercial Real Estate Markets in 2008

Michael Emilio — Sat, 03 Nov 2007 13:00:00 +0000

From REALTOR Magazine:

Keep an eye on commercial real estate markets in metros that position themselves as 24-hour cities with a global pathway to international markets, says the Urban Land Institute (ULI) in a rating of the top commercial real estate markets for 2008.

The hottest commercial real estate market in the country? New York City, where vacancies are in the mid-single digits and rents have skyrocketed. ULI dubs the Big Apple, â€œAmericaâ€™s 24-hour city.â€

Prices for industrial and office space might be at an all time high, but according to the report, â€œthe weak dollar means the cityâ€™s â€˜monsterâ€™ prices look cheap to foreign investors who are â€œpouring and parking money into Manhattan real estate.â€

All the markets to watch have similar attributes to New York. All have a major international airport and/or shipping port and walkable residential neighborhoods. Each also has â€œmade a concerted effort revitalize downtown areas or close in urban hubs that make them magnetsâ€ for corporate headquarters, business elites and a highly educated workforce and also capotes the largest share of investor dollars, says ULI in their annual report, â€œEmerging Trends in Real Estate.â€

Seattle, where a concentration of mixed-use development draws residents to new downtown neighborhoods, is another standout. A strong and highly diversified economy resulting from a large number of corporate headquarters and the cityâ€™s position as an important hub on Asian commerce routes contribute to its top ranking on the commercial markets to watch.

Other top commercial markets to watch, according to ULI, are:

Washington, D. C. â€œThe government never stops and the ever churning Washington real estate market cushions against abrupt downturns,â€ concludes the report.
Los Angeles. Office markets in Orange Country might be softening but ULI says those in West LA have never been stronger. LA/Long Beach remains the nationâ€™s top port.
San Francisco. A resurgence of technology business is propelling the market in this city. View space commands over $1,000 a square foot.
Boston. Investors are keeping a close eye on this market, says ULI, even though new industries recycle office spaces left vacant by recent corporate headquarters departures.
San Diego. â€œA leading indicator for a market correction,â€ says ULI.
Denver. A retooled downtown has created what ULI calls an â€œurban burb,â€ a hip and exciting urban core in the midst of a sprawling suburban area connected to downtown via light rail.

Smaller markets to watch include: San Jose, Calif.; Honolulu, Hawaii; Austin, Texas; Raleigh-Durham and Charlotte, N.C.; Portland, Ore.; Sacramento, Calif.; Las Vegas, N.V.; Orlando and Tampa, Fla; Salt Lake City, Utah, Jacksonville, Fla.; Nashville, Tenn.; and Minneapolis, Minn.

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How To Pay Less Charges in Your Lease

Michael Emilio — Mon, 29 Oct 2007 20:42:29 +0000

When in a commercial lease, tenants are usually required to contribute payments for taxes, utilities, and building operating expenses. They are billed typically during the first or second quarters of the year.

Review the charges

Remember to always revise and review these bills! They often contain errors. One of the reasons why there are many mistakes is that the provisions in the lease are very complex. There are many small details that can add up to big payments a tenant may be paying for unnecessarily. If you’re a tenant, it really pays to learn as much as you can about lease structures and basic contract language and wording. And when I say it “really pays” it really does! You can really save a lot of money you’d be unnecessarily paying by looking over your contracts and the bills you receive to contribute to your lease. As a landlord it also pays to learn as much as you can about lease and contracts or pay someone who really knows to handle it for you! As a landlord you have to do a cost-benefit analysis of the situation. Is it worth you taking the time and look and look and revise and revise a contract? Or is it worth paying an expert in the field that has intimate knowledge of contracts and legal knowledge to revise them for you? Perhaps your time and money is better spent in marketing or developing your business and not with your nose buried in paperwork.

Make sure the items charged are correct

Another reason why these bills may contain errors is that landlords often are unable to devote the proper time to customize the bills to each individual tenant’s particular lease. There may be so many tenants in the office building or retail space that the landlord cannot create a custom lease for each office tenant. As a tenant, take responsibility and look over the lease and see if there’s items in there that may not pertain to your situation. Maybe you’re getting charged for a particular service you’re not using. Maybe you’re paying for parking you’re not utilizing. Maybe there’s a concierge service that is not applicable. Look into the details and make sure everything is detailed correctly. As a landlord, again think of the benefits of your time and money! Is it worth the time involved to do this yourself? You may actually be losing money in the long run (and getting way more headaches in the process) by doing the contracts and billing yourself. You may be overbilling some of your tenants and underbilling others, and it may even be to the point where you’re getting a net loss from the lack of tailoring your bills to each tenant!

30 days to dispute the charges

There are legal restrictions to dispute any erroneous charges on a lease. If you’re a tenant you better be quick with any disputes you want to resolve because often there is a time limit of 30 days or less. There must be a detailed objection given within 30 days that the bill has been issued. There are many legal templates available that you can use as a tenant to submit a bill dispute. You want to customize the template to fit your situation and then submit this, in person if possible since you don’t want the possibility that this may get lost in transit or in the mail (as we know, the post office sometimes has a magical ability to make mail disappear). Make your letter, take it in person, and keep the communication lines open. Call them up and ask them questions. Get the details and use that to your advantage in the letter. Get names of people that have answered questions that pertain to your situation and write down their responses with their full name and department. This is your evidence.

Compare and contrast

In this situation you must compare your charges as a tenant to the lease language. If possible compare them to the landlord’s books and records – a legal profession should help you here. It’s a tricky situation but it’s one that as a tenant and as a landlord you should be on top of.

The money is in the details.

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4 Reasons Why You Can’t Find a Buyer For Your Wholesale Deal

Michael Emilio — Fri, 31 Aug 2007 09:13:12 +0000

It is an honor to write you Mr. Emilio. I am a college student who is interested to pursue real estate investment as a career. I am interested to start with wholesaling real estate in that area to assign contract. The first question I would ask for your assistance is to say, “How do I exit such a real estate wholesaling contract?” For example, if I don’t find an investor… Thank you for your response and looking forward to hear from you. (M.M.)

If I understand correctly, you are asking how to exit a real estate wholesale contract if you don’t find a investor before the contract closes.

Well first things first. You have to say to yourself:

Why can’t you find a buyer for this wholesale property?

1.The property is in an undesirable neighborhood – making it very hard to sell! Even if the numbers add up to a great investment, most potential buyers are very wary of undesirable, or “bad”, neighborhoods. As you may know, “bad apples” in the neighborhood tend to drive down (and keep down!) market values surrounding them. Now, if you have entire blocks of these badly maintained neighborhoods, then you have the makings of a terrible neighborhood! Some investors might not even want to get out of their cars to look at your property because they are literally scared to do so!

2.You didn’t give yourself enough time in the inspection period to find a buyer for your real estate wholesale property. You need to have a bare minimum of 10-15 days to locate a buyer! Of course, many times wholesaling can be done much sooner but you need to give yourself this head room – sometimes just for your own sanity!

3.Your numbers are off. Make doubly sure that your estimates of repair and the value of the home are right. Make sure there aren’t any incurable aspects in the home! If you have a horrendous floor plan in the property then that could be a major sore spot. Does the home stick out like a sore thumb – a run down wooden home surrounded by modern brick-and-mortar homes? All these logistics can affect your potential market value!

4.You have no network. You MUST have a ready list of able buyers that are looking to work with you in wholesaling houses and properties. There’s no way around this – unless you have a professional on your team that has a list of buyers ready to purchase. You want to find properties for buyers, not the other way around! Of course, once you’ve developed a large network, you can go out directly for properties and you have a general idea what your investors like individually.

What can you do if you can’t sell – no matter what!

If it’s a matter of a structural problem with the property that you weren’t aware of then you can speak with the seller and renegotiate or possibly cut the contract by using your partner approval clause or inspection clause. Otherwise, your network contacts come into play here. Contact your partner if you have one or a private lender who can assist you with upfront cash to close on the contract. So you own the property – now what? You can offer it for sale, offering creative financing deals to buyers to entice them to purchase the property.

It’s all about the real estate knowledge

Continue focusing on learning about real estate investing, learning about agreements for wholesaling, and expanding your real estate network. Surround yourself with knowledgeable experts that are on your side. Armed with continued real estate knowledge, whether you’re wholesaling commercial properties or wholesaling houses, your investments will be very lucrative.

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The State of Restaurants in Downtown Miami’s Design District

Michael Emilio — Tue, 22 May 2007 14:12:16 +0000

Ever been to the Design District?

If you want to know where it’s at, it’s divided by NE 36th Street to the south, NE 41st Street to the north, North Miami Avenue to the west and Biscayne Boulevard (US 1) to the east.

If you want to know what it’s about, well it’s home for almost twenty art galleries and more than forty stores and showrooms.

Add home of dining hotspots to that list.

“We wanted to have a place for people to go,” said Michael Schwartz of Michael’s Genuine Food & Drink, a restaurant that opened its doors last month at 130 NE 40th St. “I felt the area was ready for something like what we did.” Mr. Schwartz and his wife Tamara wanted to create “a great neighborhood restaurant with great food” for “people who live here, work here, want an alternative.”

Mr. Schwartz, the former owner of Nemo on Miami Beach, said that the location of the Design District is perfect for a restaurateur that wants something different from the wildness of South Beach while still retaining its appeal for Miami Beach tourists and residents.

Michael Jacobs, former chef at Tantra and current chef at Grass, says that the proximity of downtown Miami’s Design District to South Beach and the hotels along the Biscayne Corridor means “potential growth for business.” “The Design District has so much to offer right now,” says Mr. Jacobs. “A serious dining and nightlife destination.”

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Mayor Manny Diaz Calls for Plan of Green Certification for New Buildings

Michael Emilio — Sat, 24 Mar 2007 12:42:29 +0000

From Miami Today News:

If you’re going to build big in Miami, build green or don’t build at all, Mayor Manny Diaz says.

New buildings of about 50,000 square feet or more would be required to be Leadership in Energy Efficient Design-certified if the city commission approves the mayor’s proposal in May when they review the first phase of Miami 21, the city’s blueprint for growth.

“There may be some initial “Oh my God, what is this?” Mr. Diaz said. “But I think we’ll get over it quickly.”

The response of builders has been “so-far so-good,” he said. “I think they’re all realizing that this is the wave of the future.”

Developers would be offered density incentives to build green, Mayor Diaz said, which could help soften the blow of higher associated costs.

LEED projects are designed to cost less in operation and maintenance, Mr. Diaz said.About $1 billion in green projects are “on the table, on the way to build-out” in Miami, Mr. Diaz said. He said he will take several green-related resolutions to the commission April 12 â€” including one calling for a two- to four-person office to coordinate the city’s greening efforts.

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Warehouse Condominiums a Booming Niche in South Florida

Michael Emilio — Tue, 13 Mar 2007 12:31:03 +0000

From the Palm Beach Post:

Warehouse condos are a little-noticed niche that has boomed in the past few years in Palm Beach County, because of microscopic vacancy rates for industrial space.

West Palm Commerce Park on Haverhill Road is nearly sold out to buyers who took warehouse spaces as small as 2,000 square feet. That’s not the only warehouse condo that’s selling briskly.

The 120,000-square-foot Port Commerce Center in Riviera Beach is 50 percent sold out before breaking ground, said Kerry Jackson, the CB Richard Ellis broker who’s marketing the project.

And Jackson said Wallace Drive Commerce Center in Delray Beach is more than 50 percent sold.

Its 2,900-square-foot warehouses are selling for $500,000 to $600,000, and buyers include a high-end home theater company, a tile company and a construction company.

Developers have built about 2 million square feet of industrial condos in Palm Beach County during the past three years, Jackson says, a trend he calls the result of rising land prices.

When dirt grows more expensive, developers look for ways to charge more for space, and these condos fit the bill.

“It’s a sign that the market is getting built out,” Jackson says. “As a general rule, the smaller the space, the higher the price per square foot.”

Prices have risen from $125 a square foot to $200 a square foot during the past few years, he said.

The office condo market has been a bit spottier. A CB Richard Ellis study reports overbuilding of office condos in Miami-Dade County.

“To a smaller extent, that’s true here,” said Peter Applefield of ApplefieldWaxman in West Palm Beach. “In some places, it’s arguably an overbuilt market.”

Buyers of office condos are especially sensitive to interest rates, which have risen a bit in the past two years.

Applefield isn’t too worried, however. If developers can’t sell office condos, they can always lease them.

And he says the overbuilding doesn’t extend to Lake Worth, where he’s marketing two office condos, including the Promenade downtown and another project at 10th Avenue North and Interstate 95.

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Commercial Real Estate Investing Using Triple-Net Leases

Michael Emilio — Thu, 08 Mar 2007 13:14:46 +0000

Are you a real estate investor that’s getting tired of management headaches? Perhaps you’re tired of constant complaints by your tenants and even property destruction? Commercial triple-net lease property (NNN) is a great vehicle to give you a secure and predictable investment.

Some of the great aspects of investing in commercial triple-net lease property is that it requires very little or no management, low risk, and it gives you a predictable income per month from the lease payments. You can also specify in the lease agreement to have rent increases. This allows you to have a hedge against inflation.

A triple-net lease property is a lease agreement on a property where the tenant (or lessee) is paying all of the real estate taxes (net), building insurance (net), and common area maintenance (net) on the property in addition to any normal fees expected under the agreement, such as rent. The tenant is occupying the property, operating their business on the property, paying rent and all of the property operating expenses.

How is this different from residential real estate investing? Investing in a commercial property under a triple-net lease agreement to tenant is a total management and headache-free investment. In many real estate investments, such as apartments, single family homes, storage facilities, and office buildings, you as the owner of the property must pay operating expenses and perform property management duties. In a triple-net lease agreement, the tenant has agreed to take care of all this for you in return for a long-term lease agreement.

How do commercial tenants differ from residential tenants? With apartment renters, you may run into those tenants that will abuse your property and then move out, leaving you with the task of rehabbing the property and going through the trouble of finding new tenants. Commercial tenants have a vested business interest in making sure that the location they are renting is in constant good condition and attractive to their customers. In commercial investments, your tenants have an economic incentive to make sure your property is maintained and even enhanced over time.

What are some examples of triple-net leased properties? Take a look around most busy intersections. Denny’s, Checkers, Wendy’s, Firestone, Jiffy Lube, Office Max, Lowe’s, and Wal-Mart are excellent examples. The real property where these companies are located are owned by real estate investors and are then leased to these companies through a triple-net lease agreement.

Can I do a real estate exchange for a triple-net leased property? Triple-net leased properties are an increasingly common replacement property for real estate exchanges. Often, real estate investors drop their properties with intense management needs, such as multi-family homes and office buildings for the low management peace of mind of triple-net lease properties.

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Commercial Real Estate Market Growing at Record Pace

Michael Emilio — Sat, 16 Dec 2006 13:57:45 +0000

From National Association of Realtors:

The commercial real estate markets continue to grow with record investment, and individual sectors in many areas are seeing tighter vacancy rates and higher rents, according to the latest Commercial Real Estate Outlook from National Association of RealtorsÂ® (NAR).
â€œThe office and industrial markets continue to shine, supported by job growth and trade, while the rental apartment sector is seeing healthy rent increases,â€ says David Lereah, NARâ€™s chief economist. â€œThe retail sector is essentially flat, but the hotel industry is doing better than at any time since 2001.â€

James Marrelli, NAR vice president of commercial real estate, notes there is a record flow of capital into commercial real estate. â€œInstitutional investors, pension funds and foreign investors have focused on commercial-grade properties to diversify portfolio assets, with expectations of solid long-term gains.â€
Outside of the hotel sector, more than $236 billion in commercial real estate transaction volume was recorded in the first 10 months of 2006, up from $231.9 billion in the same period of 2005. The totals do not include properties valued at less than $5 million.
The NAR forecast for five major commercial sectors includes analysis of quarterly data for various metro areas provided by Torto Wheaton Research and Real Capital Analytics.

Office Market

A reduction in speculative construction of new office space, along with growth in office jobs, means there are positive fundamentals for most market areas.
Office vacancy rates are projected to drop to an average of 12.1 percent in the fourth quarter of 2007, from an estimated 12.9 percent currently â€“ the lowest since 2001; at the end of 2005 they were 13.6 percent. Annual rent growth in the office sector next year is expected to be 5.2 percent, after rising 4.3 percent in 2006.
Areas with the lowest office vacancies currently include New York City; Ventura County, Calif.; Miami; Orange County, Calif.; Honolulu; and Riverside, Calif., all with vacancy rates of 8.9 percent or less.
Net absorption of office space in 56 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to be 71.7 million square feet in 2007, compared with 73.7 million this year.
Office building transaction volume in 2006 has been fueled by portfolio acquisitions, privatization of real estate investment trusts (REITs), and mergers within commercial real estate. Office buildings this year have accounted for 48 percent of the transaction volume in all commercial sectors, with more than $105 billion trading hands during the first 10 months of 2006, a 36 percent increase from the same period last year.
Industrial Market
Trade is continuing to drive warehouse space, creating a landlordâ€™s market in many areas around the country. Available warehouses is the tightest the market has seen since 2001.

Vacancy rates in the industrial sector are forecast to average 9 percent in the fourth quarter of 2007, down from 9.5 percent in the current quarter. Annual rent growth should be 3.8 percent by the end of next year, compared with a 1.7 percent annual increase in the current quarter.
Trade with China in particular is impacting demand on both coasts. Traffic in Southern California is so congested that ships are traveling through the Panama Canal to get their cargo to East Coast markets, notably in Florida.

The areas with the lowest industrial vacancies currently are West Palm Beach, Fla.; Los Angeles; Miami; Orange County, Calif.; Fort Lauderdale, Fla.; and Tampa, all with vacancy rates of 5.5 percent or less.
Net absorption of industrial space in 54 markets tracked will probably total 231.1 million square feet in 2007, up from 191.3 million this year.
Industrial transaction volume during the first 10 months of 2006 totaled $32 billion, placing 2006 on track to set a record. During the same period in 2005, transaction volume was $28 billion.
Retail Market
Vacancy rates in the retail sector should hold at 8.1 percent through 2007, which would be unchanged from the estimate for the current quarter. Average retail rent is projected to grow 1.2 percent next year, after contracting 0.4 percent in 2006.
Much of the lackluster performance is due to persisting vacancies in regional malls, impacted by the merger of Federated Department Stores and the May Co. Department Stores. Strip centers anchored by a grocery store seem to be enjoying the best demand from both a retail rental and investment perspective.
Retail markets with the lowest vacancies currently include Las Vegas; Orange County, Calif.; San Jose, Calif.; Oakland, Calif.; San Francisco; and Honolulu, all with vacancies of 4.2 percent or less.
Net absorption of retail space in 54 tracked markets is likely to total 18.1 million square feet next year, up from 6.8 million in 2006.
Private investors accounted for 64 percent of retail transaction volume during the first 10 months of 2006, with a total retail investment volume of $33.8 billion, down from $41.1 billion during the same period of last year.
Multifamily Market
The apartment rental market â€“ multifamily housing â€“ should see vacancy rates at an average of 5.4 percent in the fourth quarter of 2007, which would be unchanged from the current quarter and down from 6.2 percent at the end of 2005. Average rent is expected to rise 3.9 percent next year, following a 4.3 percent increase in 2006.
The slowdown in home sales this year has kept some people in the rental market, looking for signs of stabilization or waiting for the right time to purchase a home. At the same time, a growing population and household formation is supporting demand for rental housing.
Multifamily net absorption is forecast at 207,400 units in 59 tracked metro areas in 2007, down from 221,900 this year but up from 203,300 in 2005.
The areas with the lowest apartment vacancies include San Francisco, Northern New Jersey, Miami, Los Angeles, San Jose, and Salt Lake City, all with vacancy rates of 3 percent or less.
During the first 10 months of the year, transaction volume in the multifamily sector totaled $68 billion, down from $70.1 billion during the same period of 2005. The slowdown of conversion activity has reduced competition for apartment complexes, with converters accounting for only 12 percent of transaction volume so far in 2006, down from 35 percent during the first 10 months of 2005.
Hospitality Market
Hotel occupancies are expected to average 68.2 percent in 2007, up from 67.6 percent this year. Revenue per available room (RevPAR) is projected at $81.28 next year, up from $77.69 in 2006.
A record 29,200 hotel rooms are expected to be added to the inventory in 52 markets tracked in 2007, compared with 10,600 this year.
Markets with the highest RevPAR currently include New York; Honolulu; San Francisco; Miami; West Palm Beach, Fla.; and Boston, all with RevPAR in excess of $93.
Transaction activity during the first 10 months of this year includes 1,165 hotels with a combined value of $38.7 billion, well above the $30 billion recorded during the same period of 2005.

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Real Estate Legal Terms and Definitions

Michael Emilio — Wed, 29 Nov 2006 12:58:39 +0000

Abstract
A summary; an abridgment. Before the use of photo static copying public records were kept by abstracts of recorded documents. (Not used in Arizona and most Western states.)

Acre
A measure, usually of land, equal to 160 sq. rods (43,560 sq. ft.) in any shape.

Action to Quiet Title
A court action to establish ownership to real property. Although technically not an action to remove a cloud on a title, the two actions are usually referred to as "Quiet Title" actions.

Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARM’s referred to as AML’s or VRM’s.

Agency
An Agency relationship is one in which one person is empowered to act on behalf of another, subject to the control and consent of the person being represented.

Agent
The person who is acting on behalf of the principal or client.

Agreement of Sale
In some states it is synonymous with a purchase agreement (Purchase Agreement). In other states, it is synonymous with a land contract Land Contract).

Alienation Clause
A clause calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property.

Amortize
To reduce a debt by regular payments of both principal and interest, as opposed to interest only payment.

Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

Appraised Value
An option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

Arrears
Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

Assumability
When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to the new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.

Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust.

Balloon Note
A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "Balloon" is due at maturity.

Balloon Payment
The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt.

Binder
A report issued by a title insurance company setting forth the condition of title and setting forth conditions, which, if satisfied, will cause a policy of title insurance to be issued.

Blanket Mortgage
A mortgage covering more than one property of the mortgage.

Bridge Financing
A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing.

British Thermal Unit (B.T.U.)
Unit of heat required to raise one pound of water one degree Fahrenheit.

Buy-down
With a buy-down, the seller pays an amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period of a loan. The seller may increase the sales price to cover the cost of the buy-down.

Cap
A limit on how much the interest rate or monthly payment of an ARM can change, either at each adjustment or during the life of the mortgage. Payment Cap’s don’t limit the amount of interest the lender is earning so they may cause negative amortization.

Certificate of Eligibility
A certificate obtained by a veteran from a Veteran’s Administration office which states that the veteran is eligible for a V.A. insured loan.

Certified Copy
A true copy, attested to be true by the officer holding the original.

Cestui que trust
One having an equitable interest in property, legal title being vested in trustee.

Chain of Title
The chronological order of conveyance of a parcel of land, from the original owner to the present owner.

Chattel
Personal property.

Closing Statement
The statement which lists the financial settlement between buyer and seller, and also the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

Cloud on Title
An invalid encumbrance on real property, which if valid, would affect the rights of the owner.

Co-Maker
Equally responsible for repayment as the borrower.

Commitment
A written promise to make or insure a loan for a specified amount and on specified items.

Comparables
Properties used as comparisons to determine the value of a specified property.

Condominium
A structure of two or more units, the interior space of which are individually owned.

Construction Loan
Short term financing of real estate construction. Generally followed by the long term financing called a "take out" loan, issued upon completion of improvements.

Contingency
The dependence upon a stated event which must occur before a contract is binding.

Contract of Sale
Depending on area of country it may be a Land Contract or a Purchase Agreement.

Closing Cost
Expenses incurred in the closing of a real estate or mortgage transaction.

Conventional Mortgage
A loan neither insured by the FHA nor guaranteed by the VA.

Conversion Clause
A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually the conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed-rate mortgages. The conversion feature maybe available at extra cost.

Cost Plus Contract
A building contract setting the builder’s profit at a set percentage of actual cost of labor and materials.

Contract Sales Price
The full purchase price as stated in the contract.

County
A division within a state, usually encompassing one or more cities or towns.

Certificate of Reasonable Value (CRV)
An appraisal of property for the purpose of insurance by the Veteran’s Administration.

Declaration of Restrictions
A set of restrictions filed by a sub-divider to cover an entire tractor subdivision.

Defective Title
Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer a good title.

Depreciation
Decrease in value to real property improvements caused by deterioration or obsolescence.

Devise
Real estate left by will.

Devisee
One to whom real estate is given by will.

Devisor
A testator who leaves real estate.

Direct Reduction Mortgage
An amortized mortgage. One on which principal and interest being computed on the remaining balance.

Disbursements
Payments made during the course of an escrow or at closing.

Discount
Is an ARM with an initial discount, the lender gives up a number of percentage points of interest to give you a lower rate and lower payments for part of the mortgage term. After the discount period, the ARM rate will probably go up depending on the index rate.

Documentary Tax Stamps
Stamps, affixed to a deed, showing the amount of transfer tax.

Dragnet Clause
A clause in a mortgage or deed or trust which places the real estate as security for existing debts between the parties.

Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

Eminent Domain
A Government right to acquire private property for public use by condemnation, and the payment of just compensation.

Encroachment
Construction onto the property of another, wall, fence, etc.

Encumbrance
A claim, line charge, attached to and binding real property.

Equity
The difference between the market value of the property and the homeowners mortgage debt.

Escrow
Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event.

Escrow Payment
That portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes mortgage insurance, hazard insurance, lease payments, and other items as they become due, also know as "impounds" in some states.

Escrow Reimbursement
An assumptions or wrap loan transactions, the buyer reimburses the seller for the current balance of his escrow (or impounded) funds.

Federal Home Board
The board which charters and regulates federal savings and loan associations, as well as controlling the system of Federal Home Loan Banks.

Federal Tax Lien
A lien attached to property for nonpayment of a federal tax.

Fee Simple
An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited.

Federal Home Loan Board
The board which charters and forbids discrimination in the sale.

Federal Housing Administration
A federal Agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation. A federal Agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System, and the Federal Home Loan Bank System.

Foreclosure
A proceeding in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it.

Full Disclosure
Revealing all the known facts which may affect the decision of a buyer or tenant.

General Lien
A lien such as a tax lien or judgment lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to a specific property.

Ginnie Mac (GNMA)
Government National Mortgage Association. A federal association working with FHA which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Grandfather Clause
The clause in a law permitting the continuation of a use, business, etc., which, when was permissible but, because of a change in the law is now not permissible.

Ground Rent
Rent paid for vacant land. If the property is improved, ground rent is the portion attributable to the land only.

Heir and Assigns
Words usually found in a deed, showing the interest the grantee is receiving.

Home Owner Association
An association of people who own homes in a given area for the purpose of improving or maintaining the quality of the area.

Impound Account
Account held by a lender for payment of taxes, insurance, or other

Index
The index if the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Independent Contractor
The term is most important as used to describe the relationship of broker and salesperson, employee or independent contractor. If employee, the broker must withhold income tax and pay social security, provide workmen’s compensation, and may be liable for some negligent acts of the salesperson while on the job. All of this is avoided by the broker if salesperson is an independent contractor.

Installment Sale
A tax term used to describe a sale which is usually accomplished by use of a land contract.

Insured Mortgage
A mortgage insured against loss to the mortgagee in the event of default and failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.

Joint and Several
A liability which allows the creditor to sue any one of the debtors or sue altogether.

Joint Tenancy
An undivided interest in property, taken by two or more joint tenants. The interests must equal, accruing under the same conveyance, and beginning at the same time. Upon death of a joint tenant the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgment
The decision of a court of law. Money judgments, when recorded, become a lien on real property of the defendant.

Late Charge
A penalty for failure to pay an installment on time.

Legal Description
A description by which property can be definitely located by reference to surveys or recorded maps. Sometimes referred to simply as the legal.

Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

Lender
A general term encompassing all mortgages, and beneficiaries under deeds of trust.

Letter of Intent
A formal method of stating that a prospective developer, buyer or lessee, is interested in property.

Liber
A Latin word for book.

Lien
An encumbrance against property for money, either voluntary or involuntary.

Life Estate
An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party.

Limited Partnership
A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners, contributing capital and liable only to the amount contributed.

Lis Pendens
A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Loan Package
The information given to the lender regarding the borrower and the property necessary to decide to give or not to give the loan.

Loan Ratio
The amount of a loan to the value or selling price of real property.

Loan-to-Value Ratio
The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less).

Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Marketable Title
Title which can be readily marketed to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Mechanics Lien
A lien created by statue for the purpose of securing priority of payment for the price of value of work performed and materials furnished in construction of repair of improvements to land, and which attached to the land as well as the improvements.

Mortgage Broker
One who for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security. Also known as a loan broker.

Mortgage Guaranty Insurance Corporation (MAGIC)
A private corporation which, for a fee, insures mortgage loans similar to FHA and VA insurance, although not insuring as great a percentage of the loan.

Mortgage or Deed of Trust
Written pledge of real property given by the mortgagor to secure a debt. Should be recorded in the County Recorders Office.

Mortgagee
The lender of money or the receiver of the mortgage document.

Mortgagor
The borrower of money or the giver of the mortgage document.

Mortgage Insurance
Insurance required for loans with a loan above 80.01%.

Mortgage Warehousing
A system whereby a mortgage company will hold loans which would ordinarily be sold, in order to sell later at a lower discount. These are used as collateral security with a bank to borrow new money to loan.

Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results if monthly payments not high enough to cover the interest due.

Nonconforming
Use A property which does not conform to the zoning of an area.

Note
A written promise to repay a certain sum of money on specified terms.

Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually, as to the assets of the mortgage.

Origination Fee
A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan.

Owners Policy
Title insurance for the owner of property, rather than a lien holder.

Package Mortgage
Mortgage covering both real and personal property.

Paper
A mortgage, deed of trust, or land contract, which is given instead of cash.

Partial Release
A release of a portion of property covered by a mortgage.

Perc Test (Percolation)
The test to determine the capability of the soil to absorb liquid, both for construction and septic systems.

Permanent Mortgage
A mortgage on completed construction on the same property under one mortgage or trust deed.

PMI Private Mortgage Insurance
Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.

Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point means you pay $1000 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield of the mortgage and to cover loan closing costs. These points are usually collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Property
Tax Generally, tax levied on both real and personal property.

Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other items.

Purchase Money Mortgage
A Mortgage given by the buyer to the seller as part of the purchase consideration, as opposed to a hard money mortgage.

Quit Claim Deed
A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property.

Real Estate
Land and anything permanently affixed to the land, and those things attached to the building.

Recital
Setting forth in a deed or other writing some explanation for the transaction.

Recourse
The right of the holder of a note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment.

Refinancing The repayment of a debt from the proceeds of a new loan using the same property as security.

Reissue rate
A charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

REIT (Real Estate Investment Trusts)
A method in investing in real estate in a group, with certain tax advantages.

Release
An instrument releasing property from the lien of the mortgage, judgment, etc.

Recision of Contract

Annulling a contract and placing the parties to it in a position as if there had not been a contract.

RESPA (Real Estate Settlement Procedures Act)
A federal statute requiring disclosure of certain costs in the sale of residential improved property which is to be financed by a federally insured lender.

Revenue Stamps
Formerly federal tax on a sale of real property. Canceled and replaced by state tax stamps.

Secondary Financing
A loan secured by a mortgage or trust deed, which lien is junior to another mortgage or trust deed.

Secondary Mortgage
The buying and selling of first mortgages of trust deeds by banks, insurance companies, government agencies, and other mortgagees.

Security
Real or personal property pledged by a borrower, as additional protection for the lender’s interest.

Septic System
A sewage system, whereby waste is drained through pipes and a tile field into aseptic tank.

Set Back Ordinance
Regulates the distance from the lot line to the point where improvements maybe constructed.

Settlement Statement
A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.

Sheriff’s Deed
Deed given at sheriff’s sale in foreclosure of mortgage.

Signed Sealed and Delivered
A phrase indicating that everything necessary to convey has been done by the grantor.

Specific Performance
An action to compel the performance of a contract, when money damages for breach would not be satisfactory.

Statutory Lien
An involuntary lien, includes tax liens, judgment liens, mechanic liens, etc.

Substitute of Trustee
A document which is recorded to change the trustee under the deed of trust.

Tax Lien
Lien for nonpayment of taxes.

Tax Sale
Public sale of property at auction by governmental authority, after a period of nonpayment of property taxes.

Tenancy by the Entirety
A form of ownership by husband and wife whereby each owns the entire property. In event of death of one, the survivor owns the property without probate.

Title
Often used interchangeably with the work ownership. It indicates the accumulation of all rights in property, the owner and others.

Title Insurance
An insurance policy which protects the insured (purchaser and lender) against loss arising from defects in title

Vesting
Denotes the manner in which title is held. Examples of common vesting are: Community Property, Joint Tenancy and Tenancy in Common.

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