Mortgage Terms Glossary

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Acreage - a 2 dimensional measure of land equaling 160 square rods, 10 square chains, 4,840 square yards, or 43,560 square feet

Adjustable rate mortgage (arm) - a mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial rate is lower than that of fixed-rate mortgages, but monthly payments can go up or down as the rate is adjusted

Adjustment interval- the period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are 6 months and one year

Amenities - in appraisal, the non-monetary benefits derived from property ownership

Amortization period - the period or length of time over which the principal portion of a mortgage loan is scheduled to be paid down through periodic payments

Anchored- refers to a piece of commercial real estate property, which will serve as the main tenant in a shopping center

Anchors - a long term, credit worthy tenant. The presence of one or more “anchors” enhances the value and the ability to obtain financing for a shopping center

Annual percentage rate (apr) - is an interest reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The apr allows home buyers to compare different types of mortgages based on the annual cost for each loan

Appraisal- an estimate of the value of a property, made by a qualified professional called an appraiser

Assisted living- type of senior housing that is typified by independent living and limited assistance to its renters

Assumability - a mortgage loan which can be transferred to another person without a change in the terms of the loan

Available sf- the square feet available for lease

Average annual occupancy- percentage of currently rented units in a building, city, neighborhood, or complex

Average daily rate- a hotel rate used to evaluate the average daily rate of a hotel inclusive of vacancy and seasonality

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Balloon mortgage- one large payment for the remaining balance of a mortgage, due ata time specified in the contract

Basis point (bp ) - 1/100 th of 1% expressed as a margin over an index rate

Bankruptcy - a provision of federal law whereby a debtor surrenders his assets to the bankruptcy court and is relieved of the future obligation to repay his unsecured debts. secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor. There are different types of bankruptcy chapters, the above is very general

Beneficiary - a person named to receive a benefit from a trust. A contingent beneficiary has conditions attached to his rights; usually someone else must die first

Borrowing entity type- the legal form under which property is owned

Bridge/short term loan- a short-term or interim loan for borrowers who need time to find permanent financing or are repositioning a commercial property

Broker - an individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself

Building permit- a document, issued by government regulatory authority that allows a builder to construct or modify a structure

Building sf- the usable square footage of the building

Buy-down- when the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires

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Cap - the maximum, which an adjustable-rate mortgage may increase, per year and/or the life of the loan regardless of index changes.

Caps (payment ) - consumer safeguards which limit the amount of monthly payments on an adjustable rate mortgage the lender may change

Capital expenditures- line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, etc…

Capitalization rate- the ratio of the first year noi to the asking price (noi/asking price).not the rate of return

Carve out- the definition used for the inclusion of recourse in loan documents for fraud and misrepresentation

Cash-out refinancing- when the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is being converted to cash

Caveat emptor- buyer beware. The buyer must inspect the property and satisfy himself it is adequate for his needs. The seller is under no obligation to disclose defects but may not actively conceal a known defect or lie if asked

Central business district (cbd ) - the downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing

Certificate of eligibility- the document given to qualified veterans which entitles them to va guaranteed loans for homes, business, and mobile homes. Certificate of eligibility may be obtained by sending dd-214(separation paper) to the local VA office with va form 1880 (request for certificate of eligibility)

Certificate of reasonable value (crv ) - an appraisal issued by the veterans administration showing the property’s current market value

Certificate of title- a written opinion by an attorney or title company setting forth the status of title to the property as shown on the public records. The certificate does not certify as to matters not of record and affords no protection unless the author was negligent

Clearance- the distance between the buildings floor and the effective storage ceiling

Climate controlled- an industrial and self-storage term that represents temperature controlled commercial space

Closing - the meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands

Closing costs - the costs and fees associated with the official change in ownership of the property and with obtaining the mortgage, which is associated at the closing

Cmbs (commercial mortgage backed security ) - a bond or other financial obligation secured by a pool of mortgage loans

Cofi (cost of funds index) - index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11 th district of the federal home loan bank

Collateral- property pledged to secure a loan

Commercial land- development and transitional land acquired for investment use: land for lots, site selection, and assemblage of parcels

Commitment - a contract issued by a lender to make a loan on specific terms or conditions to a borrower or builder

Comparative market analysis- an estimate of the value of a property based on an analysis of sales of properties with similar characteristics

Condominium - a system of individual fee simple ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit

Conduit - the financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loan from the third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the cmbs market

Congregate care- a type of senior housing that typified by a central eating facility, smaller rooms, and a higher level of care for its tenants

Constant maturity treasure (cmt) - an index based on the U.S. treasury that is used in the pricing of debt for banks

Construction loan- a short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan

Construction type- the type of construction used for a commercial building (i.e. concrete tilt-up, etc…)

Contingency - an element of an agreement that must be satisfied before the total agreement can be consummated

Coupon- the coupon on U.S. government securities expressed as an annual percentage of face value, is the interest rate the U.S. government promises to pay to the holder on an ongoing basis until maturity

Covenant - a written agreement or restriction on the use of land or promising certain acts. Homeowner associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowners association

Conventional loan- a mortgage not insured by the FHA or guaranteed by the VA or deferred interest: when a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance

Credit report- a report documenting the credit history and current status of a borrower’s credit standing

Credit tenant- a tenant, who has obtained a debt rating by S & P or Moody’s of “BBB”- or better

Credit tenant net lease- a lease with a tenant that has a credit rating of BBB- or better

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Debt service- the periodic payments (principal and interest) made on a loan

Debt service coverage ratio (or debt coverage ratio) - measure a mortgaged property’s ability to cover monthly payments defined as the ratio of net operating income over the periodic payments (principal and interest) made on a loan. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments

Debt-to-income- ratio-the ratio, as expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her net effective income(FHA/VA loans) or gross monthly income(conventional loans)

Deed- the written document conveying real property. Once recorded at the courthouse, the original piece of paper is not needed to convey title in the future

Deed of trust- a voluntary lien to secure a debt deeding the property to trustees who foreclose, sell the property at public auction, in the event of default on the note the deed of trust secures. In many states, this document is used in place of a mortgage to secure the payment of a note

Default- failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage

Defeasance clause- a clause in a mortgage that gives the borrower the right TP prepay a commercial mortgage by purchasing u.s. treasuries in an escrow account to pay off ongoing debt service

Delinquency- failure to make payments on time, this can lead to foreclosure

Density- the number of buildings or persons occupying a certain area of land, generally an acre

Delivery- the final, unconditional and absolute transfer of a deed to the grantee so that the grantor may not revoke it. A deed, signed but held by the grantor, does not pass title

Department of veterans affairs- an independent agency of the federal government which guarantees long-term, low-or-no-down payment mortgages to eligible veterans

Depreciation (accounting) - allocating the cost of an asset over its estimated useful life

Depreciation (appraisal) - a charge against the reproduction cost (new) of an asset for the estimated wear and obsolescence. Depreciation may be physical, functional, or environmental

Discount rate- the rate of interest that the Federal Reserve charges member banks for loans

Distribution warehouse- (also called light industrial) - generally the least intense industrial use. Office use is limited to management tasks for the distribution or warehouse facility, or about 15 percent of total space

Dock high- existence and/or number of dock level doors

Double –wide- a mobile home consisting of two units which have been fastened together along their length

Down payment- money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 to 20 percent of the sales price on conventional

Due diligence- the legal definition: a measure of prudence, activity or assiduity, as is property to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances. In CMBS due diligence is the foundation of the process because of the reliance securities investors must place on the specific expertise of the professionals involved in the transaction

Due-on-sale clause- a provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home

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Easement- the right to use the land of another for a specific limited purpose

Effective gross income- gross income of a building if fully rented, less an allowance for estimated vacancies

Eminent domain- the power of the state to take private property for public use upon payment of just compensation

Encroachment- the physical intrusion of a structure or improvement on the land of another. Examples include a fence or driveway over the property line

Engineering report- report generated by an architect or engineer describing the current physical condition of the property and its major building systems, i.e.- HVAC, parking lot, roof, etc…the report also determines an amount for calculating replacement reserves, if needed

Entitlement- the VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility

Environmental report- report generated by qualified environmental firms to determine potential environmental hazards in a building’s region or within the building itself

Environmental risk- risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB’s radon or leaking underground storage tanks (lusts) on a property

Equal credit opportunity(ecoa)- is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs

Equity- the difference between the fair market value and current indebtedness, also referred to as “owners interest”

Equity loan- a loan for an equity position which represents an ownership position in a property or a loan for the participation in the profits of the commercial property

Equity sharing- a form of joint ownership between an owner/occupant and an owner/investor. The investor takes depreciation deductions for his share of the ownership. The occupant receives a portion of the tax write-offs for interest and taxes and a part of his monthly payment is treated as rent. The co-owners divide the profit upon sale of the property

Ernest money- money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment

Escrow- 1. A special account set up by the lender in which money is held to pay for the taxes and insurance 2. A third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement

Eurodollar- U.S. dollar denominated deposits at commercial banks outside of the United States

Extended stay- a hotel that caters to a business traveler on an extended lodging period

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Fair market value- an appraisal term for the price which a property would bring in an competitive market, given a willing seller and willing buyer, each having a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy or sell

Farm- land dues for agricultural purposes for crop and livestock farming

Farmers home administration (FMHA) - provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere

Federal funds (fed funds) - fed funds are the interest rate charged by those banks with excess reserves on hand (reserves over and above the minimum required by the Federal Reserve) to those banks in need of overnight loans to meet reserve requirements. Since it is set daily, the federal funds rate is the most sensitive indicator of the direction of interest rates

Federal home loan mortgage corporation (FHLMC) - provides a secondary market for saving and loans by purchasing their conventional loans. Also known as “Freddie Mac”

Federal housing administration (FHA) - a division of the department of housing and urban development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages

Federal national mortgage association (FNMA) - secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as “Fannie Mae”

FHA loan- a loan insured by the federal housing administration open to all qualified home purchasers. While there are limits to the size of FHA loans

FHA mortgage insurance- requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of the fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000.00 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid

Firm commitment- a promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan

Fit-out- tenant improvements within a commercial property

Fixed-rate mortgage- a mortgage with an interest rate that remains constant for the life of the loan

Fixtures- personal property for which some reason, such as the manner of attachment, has become realty. Such property is also referred to as chattel real

Flex space- an industrial property, which has both an office and industrial component

Floor-to-area- ratio (FAR) - the relationship between the total amount of floor space in a multi-story building and the base of that building. FAR’s are dictated by zoning leas, in effect, stipulate the maximum number of stories a building may have

Foreclosure- the process by which a lender takes back a property on which the mortgagee has defaulted. A servicer may take over a property from a borrower on behalf of a lender. A property usually goes into the process of foreclosure if payments are more than 90 days past due

Foundation- the concrete slab beneath the property, which holds the property in place

Franchise- a business arrangement undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise for a fee t another party (the franchisee) who in turn sells the product or service in the marketplace

Franchise fees- the fee is usually an initial purchase requirement plus an ongoing percentage of gross sales of the business

Freestanding retail- a building which contains only one retail business. Fast-food franchises and retail stores are often freestanding buildings

Freestanding- one commercial building meant to be occupied by one single user

Full service- a hotel definition that represents services provided to its guests outside of lodging (i.e.-room service, concierge services, and restaurants)

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General business- includes all of business assets and equipment, may include property or land

General partnership- in a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner

Good faith deposit- a deposit made by a purchaser of real estate to evidence and honesty

Government national mortgage association (GNMA) - provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA. Also known as “Ginnie Mae”

Government subsidized- rents that are partly paid by the government (e.g. section 8 residential subsidies)

Grade level door- a door at the ground level at the foundation

Ground level- existence and/or number of ground level doors

Graduated payment mortgage (GPM) - a type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Guaranty- a promise by one party to pay a debt or perform an obligation contracted by another if the original party fells to pay or perform according to a contract

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Hazard insurance- a form of insurance in which the insurance company protect the insured specified losses, such as fire, windstorm, and the like

High rise office- a commonly used expression referring to an office building that is high enough to require an elevator

Housing expenses-to-income ratio- the ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income(conventional loans)

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Impound- the portion of the borrower’s monthly payments held by the lender or service to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as “reserves”

Index- an economic indicator, usually a published interest rate

Industrial- property used for industrial purpose, such as factories

Industrial for lease- industrial space available

Interest- the sum paid for borrowing money, which pays the lender’s costs for doing business

Interest rate- the sum charged for borrowing money, expressed as a percentage

Interest rate cap- limits the interest rate or the interest rate adjustment to a specified maximum. This protects the borrower from increasing interest rates

Interim financing- a construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion

Investor- a money source for a lender

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Joint ownership agreement- an agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between an investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant’s payment is deemed rent for tax purposes

Joint tenancy- two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent’s will. Creditors may sue to have the property divided to settle claims against one of the owners

Joint venture- an agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist

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(None)

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Lease assignment-an agreement between the commercial property owner and the lender that assigns lease payments directly to the lender

Lease type- gross, triple net (NNN), net (NN), hybrid, etc…

Leasehold improvements- the cost of improvements for a leased property, often paid by the tenant

Leasing commissions- an amount earned by a real estate broker or leasing agent for his services

Lessee- tenant in a building

Libor ( London interbank offered rate) - the rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. Rates are quoted in monthly increments out to 1 year

Lien- a claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title

Limited liability Company (LLC) - the restriction of one’s potential losses to the amount invested. The absence of personal liability. Provided to stockholders in a corporation and limited partners of a limited partnership

Limited partnership- one in which there is at least one partner who is passive and limits liability to the amount invested, and at least one partner whose liability extends beyond monetary investment

Limited service- a hotel that offers lodging services only

Loan processing fee- a fee charged by a lender, to prepare all the documents associated with your mortgage

Loan-to-value- ratio (LTV) - the ratio between the principal amount of the mortgage balance, at origination or thereafter, to the current value of the underlying real estate collateral. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic, and varies by lending institution, property type, geographic location, property size, etc…

Lock-out period- a period of time after loan origination during which a borrower cannot prepay the mortgage loan

Lot size- total square footage of the land

Low-rise office- a commonly used expression referring to an office building that is too low to require an elevator

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Mall- (also called super regional center) an enclosed shopping center with three or more major department stores which draws from a large trade area 12 or more miles

Management fee- the agreed-upon compensation paid to a property management company for managing a real estate project. The fee is usually based on a percentage of effective gross income.

Manufacturing- (also called heavy industrial) - auto making, textiles, steel, chemicals, and food processing are typical uses of such properties. Typically zero to five percent office space

Margin- the amount that is added to an index rate to determine the total interest rate

Marketing expenses- expenses accrued to market commercial properties

Market value- the highest price that a buyer would pay and the lowest price that a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time

Mat- monthly average treasury

Maturity- 1. The termination period of a note (e.g. - a 25 year mortgage has maturity of 25 years) 2. In sales law, the date a note becomes due

Max contiguous sf- the amount of available connected square feet

Max lease rate- the highest asking lease rate

Medical office- an office space which offers medical services

Mezzanine/second loan- a loan secured by a mortgage or trust deed, in which the lien is junior, or secondary, to another mortgage or trust deed

Mid-rise- a commonly used expression referring to an office building, that is high enough to require stairs, but too low to require an elevator

Military clause- a clause included in a lease of residential property, which allows the tenant to terminate the lease without penalty if and when the tenant is transferred to another location

Min lease rate- the lowest lease rate available

Min divisible sf- the smallest amount of available square feet

Mixed use- a real estate development that contains two or more different uses all intended to be harmonious and complimentary. An example would be a high-rise building with retail shops on the first to floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor

Mobile home park- a parcel of land zoned and developed for use by occupants of mobile homes

Money market- the market for short-term debt instruments

Mortgage- a voluntary lien filed against a property to secure a debt, usually a loan. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure

Mortgage insurance- money paid to insure the mortgage when the down payment is less than 20 percent

Mortgage insurance premium (MIP) - one half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower’s default. On September 1, 1983, the MIP was changed to a one time premium to the borrowers

Mortgagee- the lender

Mortgagor- the borrower or homeowner

Multi-family property class a- properties are above average in terms of design, construction and finish: command the highest rental rates: have a superior location, in terms of desirability and/or accessibility: generally are professionally managed by national or large regional management companies

Multi-family property class b- properties frequently do not possess design and finish reflective of current standards and preference: construction is adequate: command average rental rates: generally are well maintained by national or regional management companies: unit sizes are usually larger than current standards

Multi-family property class c- properties provide functional housing: exhibit some level of deferred maintenance: command below average rental rates: usually located in less desirable areas: generally managed by smaller, local property management companies: tenants provide a less stable income stream to property owners than class A and B tenants

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Negative amortization- occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan

Negotiable rate mortgage- loan in which the interest rate is adjusted periodically

Neighborhood center- (including community center) - a shopping center anchored by a supermarket and/or drugstore, that provides convenience goods and services to a neighborhood. It is usually between 30,000 and 100,000 square feet, and draws from a one to three mile radius

Net effective income- the borrower’s gross income minus federal income tax

Net effective rent- rental rate adjusted for lease concessions

Net-net lease (NN) - usually requires the tenant to pay for property taxes and insurance in addition to the rent

Net operating income (NOI) - total income less operating expenses, adjustments, etc…but before mortgage payments, tenant improvements and leasing commissions

Non assumption clause- a statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: the signed obligation to pay a debt, as a mortgage note

Non-recourse- a mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. A loan not allowing for a deficiency judgment. The lender’s only recourse in the event of default is the security (property) and the borrower is not personally liable

Note- a written promise to pay a certain sum of money at a certain time. A negotiable note starts “pay to the order of” and is transferable by endorsement similar to a check

Notice of default (nod) - to initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust. The trustee under the deed of trust records a notice of default and election (“nod”) the real property collateral in the public records

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Office- a structure used primarily for the carrying on of business

100% private pay- assisted living designation where senior housing residents pay 100% of the rent versus by welfare or government subsidies

Operating expense- periodic expenses necessary to the operation and maintenance of an enterprise (e.g.-taxes, salaries, insurance, and maintenance). Often used as a basis for rent increases

Origination fee- the fee charged by a lender to prepare loan documents, perform credit checks, inspect and sometimes appraise a property: usually computed as a percentage of the face value of the loan

Origination- securing a completed mortgage application from a commercial or residential borrower

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Percentage lease- commonly used for large retail stores. Rent payments include a minimum or “base rent” plus a percentage of the gross sales “overage”. Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume

Permanent loan- a long term mortgage, usually ten years or more. Also called an “end loan”

Phase I- an assessment and report prepared by a professional environment consultant who reviews the property-both land and improvements-to ascertain the presence or potential presence of environmental hazards

At the property, such as underground water contamination, PCB’s, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This environmental site assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a phase ii environmental site assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken

Piti- Principal, Interest, Taxes, Insurance are also called monthly housing expense

Pledged account mortgage- money is placed in a pledged savings account and this fund plus interest is gradually used to reduce mortgage payments

Points (loan discount points) - each point is equal to 1% of the total amount of a mortgage

Potential gross rent- gross income of a building if fully rented

Power of attorney- a written document authorizing another to act on his behalf as an attorney in fact. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law

Pre-leased %- to obtain lease commitments in a building or complex prior to its being available for occupancy

Prepaid expenses- necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments

Prepayment- a privilege in a mortgage permitting the borrower to make payments in advance of their due date

Prepayment penalty- fees paid by borrowers for the privilege of retiring a loan early

Primary mortgage market- lenders making mortgage loans directly to borrower’s such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage market

Prime rate- the rate at which banks lend to their most creditworthy customers

Principal- 1. The amount of debt, not including interest, left on a loan 2. The face amount of the mortgage

Private mortgage insurance(PMI)- in the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0% to 5.0% of your mortgage amount and may require an additional monthly fee, depending on your loan’s structure

Pro forma- (from Latin pro forma “according to form”). Financial statements showing what is expected to occur

Property administrator- person in broker’s employ who is responsible for updating and renewing a property listing, if it is different from the contact name

Property grade- a stratification of property type that is indicative of the property’s ability to command rental rates

Property subtype- a property description that provides additional information to the lender

Property tax- taxes based on the market value of a property. Property taxes vary from state to state

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Quitclaim deed- a deed releasing whatever interest you may hold in a property but making no warranty what so ever

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R & D- these facilities are generally used in high technology markets and are broadly defined to include wide variations in markets across the country. R & D properties could have lab facilities, offices, warehouse facilities, or services such as carpentry or machine repair. Typically, each property allows a variable combination of office and other uses. The percentage of office space ranges from 20 to 100 percent, depending on the market and individual needs of the user

Rail served- whether the building is served NY railroad

Ranch- land devoted to rosining livestock under range conditions with forage grass as main source of feed

Rate index- an index used to adjust the interest rate of an adjustable mortgage loan (e.g.-the change in U.S. treasury securities (T-bills) with 1-year maturity. The weekly average yield on said securities, adjusted to a constant maturity of 1 year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve statistical release h.15 (519). This change in interest rate is the “index” for the change in a specific adjustable mortgage loan)

Real estate settlement procedures act (RESPA) - RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only

Realtor- a real estate broker or an associate holding active membership in a local real estate board affiliated with the national association of realtors

Recession- the cancellation of a contract- with respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract, in some cases once it is signed if the transaction uses equity in the home as security

Recording fees- money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records

Recourse- personal liability

Recreational land- land devoted to commercial outdoor sporting activity and relaxation

Refinance- to replace an old loan(s) with a new loan(s)

Regional center- a shopping center with one or two department store and a variety of smaller stores. It is larger than 300,000 square feet and draws from an 8 mile radius or more

Rent roll- a list of tenants leasing property, which detail terms of lease, area leased, and the amount of rent being paid

Rent step-up- a lease agreement in which the rent increases every period for a fixed amount of time or for the life of the lease

Rentable square feet (same as net lease area) - in a building or project, floor space that may be rented to tenants. The area upon which rental payments are based. Generally excludes common area and space devoted to the heating, cooling, and other equipment of a building’

Replacement reserves- an amount set aside from net operating income to pay for the eventual wearing out of short-lived assets. Monthly deposits that a lender may require a borrower to a reserve in an account, along with principal and interest payment for future capital improvements of major building systems;(i.e.-HVAC, parking lot, carpets, roof, etc…)

Reserve funds- in CMBS, portion of the bond proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement (also referred to as “reserve account”

Retail- a property type which sells goods to consumers

Reverse annuity mortgage- form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as satisfaction of mortgage: the document issued by the mortgagee when the mortgage loan is paid in full. Also called “release of mortgage”

Reversionary value (RV) - the value of property at the expiration of a certain time period. In transportation, recreational vehicle

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Sales broker- commercial real estate broker that represents client in the sale or purchase of commercial real estate property

Second mortgage- a mortgage that is second in priority because of the time recording the mortgage or of the subordination of the mortgage

Secondary mortgage market- the buying and selling of first mortgaged or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep inadequate supply of money for new loans

Self-amortizing mortgage- one that will retire itself through regular principal and interest payments. Contrast with balloon mortgage or interest-only loan

Self-storage- (also called mini-storage) provides personal storage for lease by consumers

Senior housing- (includes assisted living, congregate care, senior apartments and skilled nursing centers) multi-residential property specifically designed for care of senior citizens and/or physically disabled persons

Servicing- all the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like

Shadow anchored- an unanchored shopping center located near an anchored shopping center

Shared appreciation mortgage- mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrowers share the monthly principal and interest payments with another party in exchange for a part of the appreciation

Simple interest- interest in which is computed only on the principal balance

Single wide- a mobile home consisting of one unit

Site work- the location or place of a plot of ground set aside for a particular type of land use

Skilled nursing- a type of senior housing which offers on-site medical care

Sole proprietorship- ownership of a business, with no formal entity as a vehicle or structure

Spread- number of basis points over a base rate index

Sprinkler- existence of fire suppression systems in the building

Stabilized operating property- the income generated on an annual basis from the commercial property is stable, consistent and reliable

Strip center- a string of stores in a commercial area, totaling 30,000 square feet, without central leasing, management, or theme

Structural/engineering report- a property condition report that outlines the current structural stability or instability of a property. The report will outline immediate costs needed to repair the property, as well as a maintenance program to maintain the property at its current status

Suburban- describes a town or unincorporated developed area in a close proximity to a city. Suburbs, largely residential, are often dependent on the city for employment and support services; generally characterized by low-density development relative to the city

Survey- a measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any building

Sweat equity- equity created by a purchaser performing work on a property being purchased

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Tax & insurance impound- monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance

Tenant- one who is given possession of real estate for a fixed period or at will

Tenants by the entirety- a husband and wife own the property with the common law right of survivorship, if one dies, the other automatically inherits

Tenant improvements (TI) - the expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq.ft.)That the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant

Tenants in common- two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to partition the property

Term- the length of a mortgage

Third party costs- costs resulting from third party reports, whether it be appraisal reports, environmental reports or structural engineering reports

Timberland- land used for production of forest stands for commercial use

Title- the actual legal document conferring ownership of a piece of real estate

Title insurance- an insurance policy that insures you against errors in the title search- essentially guaranteeing your and your lenders, financial interest in the property

Title search- an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company

Total annual operating income- total yearly income less operating expenses, adjustments, etc…but before mortgage payments, tenant improvements and leasing commissions

Total annual room income- a hotel definition that represent the gross annual receipts from room revenue

Traffic count- the amount of incoming and outgoing traffic a retailer or self-storage building generates over a fixed period of time

Triple net lease (NNN) - a lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as “net lease”)

Triple wide- a mobile home consisting of three units which have been fastened together along their length

Truth in lending- federal law requiring disclosure of the annual percentage rate to home buyers shortly after they apply for the loan

Two-step mortgage- mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often 7 to 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at the same time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. (Also called “super seven” or “premier” mortgage)

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Underwriting- the decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of the risk to an appropriate rate and term or loan amount

U.S. treasury bill- treasury bills, or t-bills, are short term securities with maturities of up to one year. They are issued by the U.S. government at a discount from face value. The price is quoted in yield, not dollars. At maturity, t-bills are redeemed for full face value. T-bills are issued in 3 month, 6 month, and 1 year maturities and are backed by the full faith and credit of the U.S. government

Unanchored- a tenant in a shopping center, which doesn’t have an anchored tenant

U.S. treasury bond- treasury bonds are long term securities with maturities greater than 10 years. Treasury bonds are coupon bearing severities that pay interest on a semi-annual basis. Treasury bonds are backed by the full faith and credit of the U.S. government

U.S. treasury note- treasury notes are intermediate term securities issued with 2, 3, 5, and 10 year maturities. Treasury notes are coupon bearing securities that pay interest on a semi-annual basis. Treasury notes are backed by the full faith and credit of the U.S. government

Usury- interest charged in excess of the legal rate established by law

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Vacancy- unoccupied units as a percentage of the total number

Vacancy percent- the percent of all units or space that is unoccupied or not rented. On a pro-forma income statement a projected vacancy rate is used to estimate the vacancy allowance, which is deducted from potential gross income to derive effective gross income

VA loans- long term, low-or no down payment loan guaranteed by the department of veterans affairs. Restricted to individuals qualified by military service or other entitlements

VA mortgage funding fee- premium of up to 1-7/8% (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed

Verification of deposits- document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts

Verification of employment- document signed by the borrower’s employer verifying his/her position and salary

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Warehouse fee- many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee

Wraparound- wraparound results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top. The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment on the existing note holder

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Yield- the rate of return on a security, taking into consideration annual interest payments, purchase price, redemption value, and the time remaining until maturity

Yield maintenance- a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers

Yield to average life- yield calculation used, in lieu of “yield to maturity” or “yield to call”, where books are retired systematically during the life of the issue, as in the case of a “sinking fund”, with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirements if the bonds are trading below par, there is, to that extent, automatic price support for such bonds; they therefore they tend to trade on a yield-to-average-life basis

Yield to maturity (YTM) - concepts used to determine the rate of return an investor will receive if a long-term interest-bearing investment, such as a bond is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount rate at which the present value of all future payments would equal the present price of the bond (also referred to as “internal rate of return”). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM can be approximated using a bond value table (also referred to as a “bond yield table”) or can be determined using a programmable calculator equipped for bond mathematics calculations

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