Reference
Owner-finance glossary.
151 terms across contract-for-deed, land-contract, seller-financing, FSBO, and the underlying real-estate vocabulary. Plain English, with the citation when one exists.
contract
- Articles of AgreementOlder or regional term for a contract for deed, used especially in Illinois and parts of the Midwest to describe an installment land sale.
- Bond for DeedLouisiana's name for a contract for deed; a recorded installment sale where the seller delivers title only after the bond is paid in full.
- Contract for DeedA seller-financed real estate sale where the buyer takes possession and makes installment payments while the seller retains legal title until the contract is paid in full.
- Installment Land ContractA formal name for a contract for deed; a real estate sale paid in periodic installments while the seller holds title as security for the unpaid balance.
- Land ContractCommon name for a contract for deed; an installment sale agreement where the seller finances the purchase and retains legal title until paid in full.
- Land Sale AgreementA broad term for any contract conveying real estate, often used interchangeably with land contract or purchase agreement depending on the state.
- Lease OptionA rental agreement combined with an option giving the tenant the unilateral right, but not the obligation, to purchase the property during or at the end of the lease.
- Lease-PurchaseA lease coupled with a binding obligation to purchase the property at a defined future date and price, unlike a lease option which is voluntary.
- Option FeeNon-refundable consideration paid by a tenant or buyer for the right to purchase property at a specified price during the option period.
- Rent-to-OwnConsumer-friendly umbrella term for lease-option and lease-purchase arrangements where a tenant rents with a path to eventual ownership.
- Right of First RefusalA contract right giving its holder the option to buy property on the same terms as a third-party offer before the owner can sell to that third party.
default
- Acceleration ClauseA loan provision allowing the lender to demand the full unpaid balance immediately upon borrower default, rather than only the missed payments.
- Cure PeriodThe statutory or contractual time during which a defaulting borrower can pay overdue amounts and reinstate the loan to good standing.
- Deed in Lieu of ForeclosureA voluntary transfer of property from a defaulting borrower to the lender, accepted in exchange for cancellation of the debt to avoid foreclosure.
- Equity of RedemptionThe borrower's right to redeem mortgaged property by paying the full debt before the foreclosure sale, recognized in equity courts.
- ForeclosureThe legal process by which a lender forces the sale of mortgaged property to recover the unpaid loan balance after borrower default.
- Foreclosure SaleA public auction of foreclosed property, conducted by a sheriff, trustee, or court-appointed officer to satisfy the defaulted debt.
- ForfeitureA contract for deed remedy in which the seller terminates the contract on default, retains all payments, and recovers possession of the property.
- Judicial ForeclosureA foreclosure conducted as a court lawsuit, required in many states and used when no power-of-sale clause is available in the security instrument.
- Lis PendensLatin for "suit pending"; a recorded notice that litigation affecting the title to specific real property is in progress.
- Non-Judicial ForeclosureA foreclosure conducted without court action, using a power-of-sale clause in a deed of trust to authorize a trustee's public sale.
- Notice of DefaultA formal written notice from a lender or seller declaring the borrower in default and starting the foreclosure or forfeiture process.
- RedemptionThe right of a defaulted borrower or contract for deed buyer to pay the full balance and recover the property, exercised before or after foreclosure depending on state law.
- ReinstatementThe act of curing a default by paying all overdue amounts, restoring a defaulted loan to current and good-standing status.
- Short SaleA sale of property for less than the outstanding mortgage balance, with the lender's approval, accepting the proceeds in full satisfaction of the loan.
- Strict ForeclosureA foreclosure remedy where the court awards title directly to the lender without a sale, available only in a few states like Connecticut and Vermont.
- Surplus FundsMoney left over from a foreclosure sale after paying the foreclosing lender, costs, and junior liens, paid to the former owner.
financing
- All-Inclusive Trust Deed (AITD)The deed-of-trust state version of a wraparound mortgage, where a single trust deed encompasses both the existing underlying loan and new seller financing.
- AssignmentThe transfer of contract or note rights from one party to another, common in note investing and seller financing secondary markets.
- Assumable LoanA mortgage that allows a buyer to take over the seller's existing loan with the lender's approval, preserving the original interest rate and terms.
- EquityThe portion of a property's value owned outright by the holder, calculated as market value minus all liens and encumbrances.
- ITVInvestment-to-Value ratio; the investor's total cash contribution divided by the property's value, used in note investing and seller financing.
- Loan EstimateA standardized form lenders must provide within three business days of a consumer loan application, disclosing estimated costs and terms under TRID.
- Loan Origination FeeA fee charged by a lender for processing a new loan, expressed as points (1 percent of the loan amount) or a flat fee.
- Loan-to-Value RatioThe ratio of a loan amount to the property's appraised value, expressed as a percentage and used to assess lending risk.
- LTVLoan-to-Value ratio; the loan amount divided by the property's appraised value or purchase price, expressed as a percentage.
- MortgageA security interest in real property given by a borrower to a lender to secure repayment of a loan, used in lien-theory states.
- Note ServicerA third-party company that collects payments and manages administrative functions for a privately held real estate note on behalf of the lender.
- Owner FinancingSynonym for seller financing; the property owner finances the buyer's purchase directly instead of requiring a bank or mortgage company.
- Promissory NoteA written promise to pay a sum of money on specified terms, evidencing the debt in seller-financed real estate transactions.
- Purchase Money MortgageA mortgage given by the buyer back to the seller as part of the purchase price, used as a seller-financing alternative to a contract for deed.
- Seller FinancingAny real estate transaction where the seller extends credit to the buyer rather than requiring third-party bank or mortgage financing.
- ServicingThe administration of a loan after origination, including collecting payments, managing escrow accounts, and handling default communications.
- Subject-ToA purchase where the buyer takes title and makes payments on the seller's existing mortgage that remains in the seller's name without formal assumption.
- SubordinationAn agreement by one lienholder to allow another lien to take priority, commonly used when refinancing the senior loan with a subordinate loan in place.
- Wraparound MortgageA seller-financing structure where the seller's new note to the buyer wraps around the existing underlying mortgage that remains in the seller's name.
fsbo
- Closing Disclosure (CD)The TRID-mandated form that outlines all final terms and costs of a federally regulated mortgage loan, given to the buyer at least three business days before closing.
- ContingencyA condition in a real estate contract that must be satisfied for the deal to close, allowing one party to terminate without penalty if not met.
- DisclosureA seller's required statement of known material facts about a property, mandated by most state laws to inform buyers before contract.
- Flat Fee MLSA service where a licensed broker lists a FSBO property on the MLS for a flat upfront fee instead of a percentage commission.
- For Sale By OwnerA property sold directly by the owner without representation by a real estate agent, saving listing commission but requiring more owner effort.
- FSBO ListingA real estate listing offered directly by the property owner on FSBO platforms, by sign, or via flat-fee MLS without a listing agent.
- MLSMultiple Listing Service; a regional database of property listings shared among licensed real estate brokers and used to syndicate listings to consumer sites.
- Open HouseA scheduled period when a property is open for prospective buyers to walk through without an appointment, common during the listing period.
- Pocket ListingA property marketed privately by an agent or owner without being entered into the MLS, limiting exposure to a chosen network.
- Settlement Statement (HUD-1)A standardized closing statement listing all financial details of a real estate transaction, used for cash and seller-financed deals after TRID replaced it for most mortgages.
- ShowingA scheduled appointment for a prospective buyer to tour a listed property, typically arranged through the listing agent or owner.
- Title CompanyA licensed business that performs title searches, issues title insurance, and provides closing and escrow services for real estate transactions.
legal
- Adverse PossessionA legal doctrine allowing a person who openly and continuously possesses property for a statutory period to acquire title against the true owner.
- Affidavit of HeirshipA sworn statement identifying the heirs of a deceased property owner, used to clear title without going through formal probate.
- Deed of TrustA security instrument used in many states where a third-party trustee holds title as security for a loan, allowing non-judicial foreclosure on default.
- Dodd-FrankThe 2010 federal financial reform law that imposes ability-to-repay, disclosure, and licensing rules on residential mortgage lenders, including some seller financiers.
- Due-on-Sale ClauseA mortgage provision allowing the lender to demand full repayment if the property is sold or transferred without lender consent.
- EasementA legal right granting use of another's property for a specific purpose, such as utility access, ingress and egress, or drainage.
- EncumbranceAny claim, lien, easement, or restriction affecting real property and limiting its use, transferability, or value.
- Equitable TitleThe right to obtain full legal ownership of property upon performance of contract obligations, held by a buyer under a contract for deed.
- Fee SimpleThe largest possible estate in real property, conveying full ownership rights, free of conditions and inheritable by heirs.
- Habendum ClauseThe "to have and to hold" clause in a deed defining the extent of the estate granted, such as fee simple or life estate.
- HabitabilityA legal standard requiring residential property to be safe and fit for human occupation, including working utilities, no major hazards, and structural soundness.
- Higher-Priced Mortgage LoanA consumer mortgage with an APR exceeding the average prime offer rate by a defined margin, triggering additional federal compliance requirements.
- Homeowners Association (HOA)A legal entity governing a planned community or condominium, enforcing covenants, collecting dues, and maintaining common areas.
- Homestead ExemptionA state-law protection of a primary residence from creditors and reduced property tax assessment, varying significantly by state.
- Investor PropertyReal estate purchased for income, appreciation, or business use rather than as the buyer's primary residence, exempt from many consumer lending rules.
- Land TrustA title-holding trust that holds real estate for a beneficiary, providing privacy and probate avoidance while keeping the beneficiary in operational control.
- Legal TitleThe formal recorded ownership of property, evidenced by a deed and held by the seller in a contract for deed until full payment.
- Lien TheoryA legal framework where the borrower retains legal title and the lender holds only a lien against the property as security for the loan.
- Life EstateAn ownership interest lasting only for the lifetime of a designated person, after which it passes to the remainderman.
- Marketable TitleA title free from substantial defects, doubts, or encumbrances such that a reasonable buyer would accept it without litigation risk.
- Owner-OccupiedA property used as the buyer's primary residence, triggering specific consumer protection laws and tax benefits.
- Power of AttorneyA legal document authorizing one person (the agent) to act on behalf of another (the principal) in real estate or other matters.
- Quiet TitleA lawsuit to resolve disputed claims to real property and establish clear title in the plaintiff, removing clouds from the chain of title.
- Quitclaim DeedA deed that transfers whatever interest the grantor has, if any, with no warranties about the quality of title.
- SAFE ActThe Secure and Fair Enforcement for Mortgage Licensing Act, requiring residential mortgage loan originators to be state-licensed or federally registered.
- Section 32A federal regulation under the Truth in Lending Act covering high-cost mortgages, imposing extra disclosures and prohibiting certain loan features.
- Special Warranty DeedA deed where the grantor warrants title only against claims arising during their period of ownership, not before.
- Specific PerformanceA court-ordered remedy compelling a party to complete the contract, available in real estate because each parcel is considered unique.
- Title TheoryA legal framework where a mortgage lender holds legal title to the property as security until the loan is repaid.
- Truth in Lending ActA federal law requiring lenders to disclose loan costs and APR clearly to consumer borrowers, primarily implemented through Regulation Z.
- Warranty DeedA deed in which the grantor warrants clear title against all claims, providing the buyer with the strongest level of title protection.
market
- Active ListingA property currently for sale on the MLS or other listing platform, with no accepted offer or contract in place.
- AppraisalA professional opinion of a property's market value, prepared by a licensed appraiser using established methodology and recent comparable sales.
- BPO (Broker Price Opinion)A property valuation prepared by a licensed real estate broker, less rigorous than an appraisal but used for many lender and investor decisions.
- Cap RateCapitalization rate; a property's net operating income divided by its market value, expressed as a percentage to compare investment returns.
- Cash-on-Cash ReturnAn investment metric calculating annual pre-tax cash flow divided by total cash invested, expressed as a percentage.
- ClosedA property listing status indicating the sale has been completed, deeds recorded, and funds disbursed to the seller.
- Comparables (Comps)Recently sold properties similar to a subject property in size, condition, and location, used to estimate market value.
- Comparative Market Analysis (CMA)An estimate of a property's likely sale price based on recent sales of comparable properties in the same market area.
- ConditionThe physical state of a property, including the age, functionality, and maintenance level of its structural and mechanical systems.
- Days on Market (DOM)The number of days a property has been actively listed for sale, used as a market indicator and a signal of pricing strength.
- Gross Rent MultiplierA simple property valuation metric calculated as price divided by gross annual rent, used as a quick screening tool for rental investments.
- InspectionA professional evaluation of a property's physical condition, identifying defects and maintenance issues that may affect value or safety.
- Material DefectA significant physical condition that adversely affects a property's value, safety, or structural integrity, typically requiring disclosure by the seller.
- PendingA property listing status indicating an accepted offer is in place and the parties are working toward closing, no longer accepting backup offers in some cases.
- SurveyA professional measurement and mapping of a property's boundaries, easements, and improvements, used to confirm legal description accuracy.
parties
- BeneficiaryIn a deed of trust, the lender entitled to repayment; in a land trust, the party with operational control and economic benefit of the property.
- GranteeThe party receiving an interest in real estate; the buyer in a deed transaction.
- GrantorThe party transferring an interest in real estate; the seller in a deed transaction.
- Joint TenancyA form of co-ownership where owners hold equal interests with right of survivorship, automatically transferring to surviving owners upon death.
- MortgageeThe lender in a mortgage transaction, holding a lien on the property as security for the loan.
- MortgagorThe borrower in a mortgage transaction, granting a lien on the property to the lender as security for the loan.
- Tenancy by the EntiretyA form of co-ownership available only to married couples, providing right of survivorship and protection from individual creditors.
- Tenancy in CommonA form of co-ownership where each owner holds a separate, devisable interest in the property, with no right of survivorship.
- TrusteeA neutral third party holding bare legal title under a deed of trust as security for a loan, with power to foreclose on default.
- TrustorThe borrower in a deed of trust transaction, granting bare legal title to the trustee as security for the loan.
- VendeeIn a contract for deed or land contract, the vendee is the buyer who holds equitable title and pays installments to the vendor.
- VendorIn a contract for deed or land contract, the vendor is the seller who retains legal title until the contract is paid in full.
payments
- AmortizationThe process of paying off a loan through scheduled periodic payments that include both principal and interest over a fixed term.
- Balloon PaymentA large lump-sum payment due at the end of a loan term, representing the remaining unpaid balance after smaller periodic payments.
- Down PaymentThe portion of the purchase price the buyer pays upfront in cash at closing, reducing the amount financed by the seller or lender.
- Earnest MoneyA deposit made by the buyer at contract signing to demonstrate commitment, typically held in escrow and applied to closing or forfeited on default.
- EscrowA neutral third-party arrangement where funds, documents, or property are held until specified contract conditions are met.
- Escrow AccountAn account held by a lender or servicer to collect and pay property taxes and insurance on behalf of the borrower.
- InterestThe cost of borrowing money, expressed as a percentage rate, charged on the outstanding principal balance of a loan.
- Late FeeA charge assessed when a loan payment is not received by the grace period deadline, typically 4 to 5 percent of the overdue payment.
- Negative AmortizationA loan structure where scheduled payments are insufficient to cover accrued interest, causing the principal balance to grow over time.
- Prepayment PenaltyA fee charged by some lenders if a borrower pays off a loan early, designed to compensate the lender for lost future interest.
- PrincipalThe original loan amount or remaining balance owed, separate from interest, in any financed real estate transaction.
recording
- Actual NoticeDirect, personal knowledge of a fact, such as awareness of an unrecorded interest in real property held by another party.
- Chain of TitleThe historical sequence of ownership transfers for a parcel of real estate, traced through recorded deeds in the public land records.
- Cloud on TitleAny claim, encumbrance, or apparent defect that casts doubt on the marketability of title and may require legal action to remove.
- Constructive NoticeLegal notice imputed to all parties of a recorded document or visible possession, regardless of whether they actually knew about it.
- Memorandum of Land ContractA short recordable document that gives public notice a land contract exists without disclosing the full financial terms in the public record.
- Pure NoticeA recording statute giving priority to a subsequent purchaser without notice of an earlier interest, even if they record after the earlier party.
- Pure RaceA recording statute giving priority to the first to record, regardless of whether they had notice of prior unrecorded interests.
- Race-NoticeA recording statute giving priority to the first to record without notice of an earlier unrecorded interest.
- Recording FeeA government fee charged by the county recorder to enter real estate documents into the public land records.
- Recording StatuteState law governing the priority and effectiveness of real estate documents based on whether and when they are recorded in public land records.
- Title CommitmentA binding commitment from a title insurer to issue a policy upon closing, listing requirements and exceptions to coverage.
- Title InsuranceAn insurance policy that protects buyers and lenders against losses from defects in title that existed but were unknown at the time of purchase.
- Title SearchAn examination of public records to verify a property's ownership and identify any liens, easements, or other title defects affecting it.
taxes
- 1031 ExchangeA tax-deferred exchange of like-kind investment real estate under IRC Section 1031, allowing capital gains tax to be deferred indefinitely.
- AFR (Applicable Federal Rate)The minimum interest rate published monthly by the IRS that must be charged on most seller-financed loans to avoid imputed interest treatment.
- Capital GainsThe profit from the sale of a capital asset such as real estate, taxed at preferential federal rates if held longer than one year.
- Form 1099-SAn IRS information return reporting gross proceeds from real estate transactions, typically issued by the closing agent or title company.
- Form 6252The IRS form used by sellers to report installment sale income, calculating gain recognition for each year payments are received.
- Imputed InterestInterest the IRS treats as paid even when the contract states a lower rate, ensuring deferred-payment sales reflect a market interest rate.
- Installment SaleA sale where at least one payment is received after the tax year of sale, allowing gain recognition over time under IRC Section 453.
- Original Issue DiscountThe difference between a debt instrument's stated redemption price and its issue price, treated by the IRS as interest income over the loan term.
- Property TaxA local government tax on real estate, calculated as a percentage of assessed value, paid annually or semi-annually by the property owner.
- Tax LienA government claim against property for unpaid taxes, taking priority over most other liens including mortgages.
- Transfer TaxA state or local tax imposed on the transfer of real estate, calculated as a percentage of the sale price and paid at closing.