CALL OPTION – A clause in a mortgage which allows the lender to demand payment of the outstanding balance at a specific time; triggered under certain (rare) circ*mstances. Most mortgages are bought and sold on the securities market so that loan owner may vary from originator who, in turn, varies from loan servicer thus breaking the chain of supervision. Caution should be exercised if changing ownership over property however so as not to trigger any such clauses.
CAL–VET LOANS – Real estate loans available to Armed Forces Veterans from California, at low interest rates without mortgage interest payment requirements and low down payment requirements below the customary 20% threshold. Practically not used very much in San Francisco due to (1) longer-than-normal closing times; (2) the extra level of review that purchases for condominiums would require (nearly none of condo buildings are approved nor qualified for these types of programs as there is little incentive for developers and HOAs to do so); and (3) for single-family home purchases, the potential requirement that a seller must clear all Section 1 pest report items (which many sellers will refuse to do).
CENSUS TRACT LOANS – Special government-sponsored loans from selected lenders that allow buyers (regardless of income) purchase homes with less-than 20 percent down payment (e.g., 5%, 10%) for designated census tracts of communities that have a lower-than-desired median income without the need to pay private mortgage insurance (PMI).
CERTIFICATE OF ELIGIBILITY – A document issued by the Veterans Administration that certifies eligibility for a VA loan.
CERTIFICATE OF OCCUPANCY – (aka FINAL CERTIFICATE OF OCCUPANCY, FCO) Issued by an appropriate jurisdictional entity, this document certifies that a building complies with all building codes and is safe for use or habitation. In San Francisco, the year this certificate is issued impacts rent control and condo status greatly. The date to be concerned about is June 13, 1979, the date the Rent Ordinance first went into effect for buildings with FCOs issued prior to that date. Even when properties have essentially been rebuilt from the ground up (or even ones with new foundations) the original FCO date is used (so as to keep more units under the ambit of the Rent Ordinance)
CERTIFICATE OF REASONABLE VALUE (CRV) – Usually based on an independent appraisal, a CRV for a particular property establishes the maximum amount which can be secured by a VA mortgage. There are other requirements for FHA loans, a condo Homeowners Association, for example, must be incorporated and approved independently by HUD. Again, these are very rarely, if ever, used or available in San Francisco due to the fact most properties have values that exceed FHA limits (even for high-value markets).
CERTIFICATE OF TITLE – or simply, TITLE, DEED, The document designating the legal owner of a parcel of real property, which is usually provided by a title or abstract company and recorded with a county assessor/treasurer. The preferred and most commonly used term is TITLE.
CERTIFIED GENERAL APPRAISER – Generally, a professional who has met the local or state requirements to value property objectively, who has otherwise passed the appropriate certification exam(s), and is capable of appraising any type of real property. Practically, most appraisers either do commercial or residential. It is important to ensure the appraiser is local and familiar with our market. Lenders will have little control or contact with the appraiser before an appraisal takes place (due to RESPA regulations). Most appraisals will cost between $800 to $1,600 (more for multi-unit buildings). The latest versions of the standard San Francisco Purchase Agreement (as issued by the San Francisco Association of REALTORs) now requires sellers provide copies or any or all appraisal documents they have in their possession to prospective buyers by including them in their PROPERTY DISCLOSURE PACKAGE.
CERTIFIED RESIDENTIAL APPRAISER – A sub–classification of appraiser who is only licensed to appraise residential property, usually up to a four-unit building.
CHAIN OF TITLE – The complete history of ownership of a piece of property the links one owner to another and so forth. Important for lenders and title insurance purposes to ensure not outstanding ownership interests; settled expectations. For FORECLOSED properties and certain PROBATE PROPERTIES, CHAIN OF TITLE issues will require use of a specialized TITLE COMPANY to write TITLE INSURANCE policies.
CHATTEL – Any personal property which is not attached to or an integral part of real property. Chattel is not commonly taken into consideration when appraising the value of real property and not a factor in San Francisco as it is not necessarily the same as personal property. The term originates from the slave trade and is disfavored.
CLEAR TITLE – Presumptive or actual ownership rights over real property that is not otherwise encumbered (restricted) by a counter–claim, claim, secured claim or lien. This is essential for a lender and it is what title insurance is supposed to assure.
CLOSING – Close of Escrow – this is the stage in the purchase process during which documents are signed and down payment money and mortgage money is collected and transferred. Closing represents the culmination of all of our efforts. By the end of closing you should have had title changed and exchanged, previous loans paid off and new one started, if applicable. You should also have keys in hand. Some areas of the country do not have title escrow companies and periods but use lawyers instead.
CLOSING COSTS – For buyers: These are the fees paid to the lender (see POINTS), third parties like couriers or notaries. Term also encompasses escrow company fees as well as title insurance premiums and recording fees. For sellers: Will include TRANSFER TAX, COMMISSIONS, pro-rated property taxes and any amount in arrears to HOAs or otherwise. In either case, parties will receive an estimate of these costs at various points before and during ESCROW.
CLOSING DISCLOSURE – The updated version of the closing statement, which is a document detailing the final financial arrangements, payouts, and transfers between the buyer, seller, taxes collected and fees paid to brokers. New lending regulations per Dodd-Frank reforms now mandate a mandatory waiting period from when buyers receive their CD to when they can sign loan documents and from when the transaction can close (see TRID or here).
CLOUD ON TITLE – An encumbrance or error actual or purported on real property, which, if valid, would affect the rights of the owner to sell clear title or a buyer to receive as such. For example: Mr. A sells Lot 1, tract 1 to Ms. B. The deed/title is mistakenly drawn to read Lot 2, tract 1. A cloud is therefore cast on Lot 2 by the recording of the incorrect deed. The cloud may be removed by quitclaim deed, or if necessary, by court action through a quiet title action; comparelis pendens,whereby there is a dispute tied to and linked with the property making it unsellable under most common practices. See QUITCLAIM.
CO–BORROWER – A second person sharing obligation on the loan and title on the property. In San Francisco it is common to have parents be co-borrowers. Really.
COLLATERAL – An asset which is placed at risk to secure the repayment of a loan; such as the house. Your home is your collateral in a standard mortgage arrangement.
COLLECTION – The process a lender or creditor takes to pursue a borrower who is delinquent on his or her mortgage payments in order to bring a mortgage current again. Includes documentation that may be used in foreclosure proceedings. For individual buyer borrowers, beware of any unknown accounts that may have been created without their knowledge that are reported to collection or erroneously reported to the credit reporting agencies that will take time to correct which can impact credit scores negatively. For HOAs, be alert if any HOA member’s account is in default, arrears or is otherwise reported as such as purchase lenders may ding the building overall which could impact the ability for other owners to sell.
CO–MAKER/CO-SIGNER – A second party who signs a loan, along with the borrower, and becomes liable for the debt should the borrower default.
COMMON LAW – As opposed to statute law. Laws and legal principles that have been established by custom, usage and judicial precedent over time— stare decisis — i.e., case law and precedent.
CAP – Associated with Adjustable Rate Mortgages. The upper limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage. Used mostly with ARMs that will place the upper limit on the note rate or APR.
CAPITAL – Accumulated goods and money which is most often used to generate additional income, either through property improvements, construction or expansion. Also used in context with commercial real estate or multi-unit sales with respect to the ratio of income, property taxes, maintenance costs, vacancy loss, mortgage obligations, depreciation and insurance costs — CAP RATE.
CAPITAL EXPENDITURE – An outlay of funds designed to improve the income–producing capabilities of an asset or to extend its economic life that may be tax-deductible. Home improvements to primary residences that is ‘remodeling’ arenotgenerally deductible. Consider investment property improvement however.
CASH–OUT REFINANCE – Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash if a property is re-appraised and worth more than the current mortgage amount. A second note is created and recorded against a property. See also, HELOC.
CAVEAT EMPTOR – Literally translated: ‘’Let the buyer beware.’’ A common business tenet whereby the buyer is responsible for verifying any and all claims by the seller of property. In other words, buyers are to do full diligence before completing a purchase, although instances of fraud or misrepresentation are not covered by this proviso. Used more so in commercial transactions as California’s Legislature has implemented wide consumer protection laws that have also been interpreted by various court cases to create a robust body of law. Agents must comply with various ethical and professional standards as overseen and administered by the California Department of Real Estate and, for REALTORs, various guidelines and professional codes of conduct.
CENSUS TRACT LOAN PROGRAM – A fixed rate loan with a low 3 to 5% Down payment, no cash reserve requirement, no mortgage insurance premiums and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 6-hour training course on home ownership as well as geographic location of a qualified census tract that has been determined as a targeted neighborhood in which median incomes are too low.
CERTIFICATE of DEPOSIT – A document showing that the bearer has a certain amount of money, at a particular amount interest, on deposit with a financial institution.
CERTIFICATE OF DEPOSIT INDEX – An index based on the interest rate of a six month CD.
COMMISSION – A percentage of the sales price or a fixed fee negotiated by an agent to compensate for the effort expended to sell or purchase property via LISTING AGREEMENT or MLS AGREEMENT and paid directly by seller or landlord. In rarer cases, buyer will pay this fee as well. Commission fees and rates are not set by law.
COMMON AREA ASSESSMENTS – For TICs and condominiums, assessed fees that are charged to the owners of properties to cover the costs of maintaining common areas shared with other tenants or owners in accord with governing documents like a TIC AGREEMENT or CC&Rs.
COMMON AREAS – For condos and TICs, any area, such as entryways, foyers, pools, yards, building exterior, garage space, laundry rooms, roofs, recreational facilities or the like, which are shared by the tenants or owners of property near by owned by the Homeowner Association or equivalent.
COMMUNITY HOME BUYERS’ PROGRAM – A fixed rate loan with a low 3 to 5% Down payment, no cash reserve requirement, and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 4 hour training course on home ownership.
COMMUNITY PROPERTY – In some jurisdictions like California (and coastal states), any property which has been acquired by a married couple during the marriage with the presumption that the ownership of property is considered equal unless stipulated otherwise by both parties as separate property; consider there is a right to will (devise) property to others than the other spouse.
COMPARABLE SALES – COMPS – An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property who’s value is being determined. The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for determining a comparable property.
COMPOUND INTEREST – Interest paid on the principal amount, as well as any accumulated interest that has been capitalized.
CONCESSIONS – Additional value granted by a buyer or seller (or neighbor) to entice another party to complete a transaction typically granted during an escrow period for discoveries or developments previously unknown. Certain lenders will have an upper limit on seller-based concessions so as not to impact a loan made in a material manner.
CONDOMINIUM – A property within another envelope where an individual three-dimensional space — a unit — is individually owned and titled differently from other units, but common areas and amenities are shared by all owners through a homeowner association. Importantly, condominium homes are exempt from rent control laws in San Francisco; governed by the Davis-Sterling Act, which regulate common interest developments in California.
CONDOMINIUM CONVERSION – The conversion of a property with one title over several individual, contained and discrete living areas (e.g. rental property such as an apartment complex) into several individual-titled properties (condos) through subdivision that are adjacent to each other.
CONSIDERATION – Anything which is, legally, of value, that induces one to enter into a contract. In other words, a buyer offers money to purchase a property. The consideration is the money. I promise to give you my property the consideration is the property.
CONSTRUCTION LOAN – A loan made to a builder or homeowner that finances the initial construction of a property, but is replaced by a traditional mortgage once the property is completed. Usually requires owner to put down a much higher down payment that will become the equity in the completed property that will be worth more, e.g., 40% down payment will become the 20% equity in a completed development.
CONTINGENCY – Some action, event or condition that must occur before something else can take place. In real estate buying the number of conditions/contingencies are contained and defined by the purchase offer contract. The number and extent of conditions may impact an offer’s strength or weakness.
CONTRACT – A legally binding agreement, oral or written, between two parties. Importantly, for any transaction involving real property transfers or obligations greater than 1 year (e.g., annual lease) must be in writing according to the Statute of Frauds.
CONVENTIONAL MORTGAGE – A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.) that conforms to their guidelines.
CONVERTIBLE ARM – A mortgage that begins as an adjustable, that allows the borrower to convert the loan to a fixed rate within a specific timeframe. There should be an upper limit for interest rates.
CONVEYANCE – The transfer of title to land or associated rights related to land. Includes most instruments by which an interest in real estate is created, mortgaged or assigned. It's the formal term of a seller relinquishing their ownership over property or a lender giving up their mortgage lien upon repayment.
COOPERATIVE (CO–OP) – A form of ownership where each resident of a multi-unit property owns a share in a cooperative corporation that in turns owns the building, with each resident having rights to a specific unit within the building. There are only 13 buildings of this kind in San Francisco; much more common in New York City for example.
CORPORATE RELOCATION – A situation where a person’s employer pays all or some of the expenses associated with moving from one location to another, usually over a substantial distance. Relocation expenses often include the amounts, such as brokerage fees, incurred in the selling and buying of the employee’s primary residence.
COST OF FUNDS INDEX (COFI) – An index of financial institution’s costs used to set interest rates for some Adjustable Rate Mortgages.
COVENANT – An agreement that is solemn and serious and seldom changeable absent some effort whereby one party commits and agrees to X; e.g. stipulation in any mortgage that, if not met, can be cause for the lender to foreclose.Covenants also govern condo developments and will ‘run with the land.’
CREDIT – A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured like a line of credit or credit card.
CREDIT HISTORY – A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals. Lenders typically rely on information from the three major consumer credit rating respository or FICO scores.
CREDITOR – A person (or entity) to whom money is owed, like your bank, seller or family.
CREDIT REPORT – A detailed report of an individual’s credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.
CREDIT REPOSITORY – Large companies that gather and store financial and credit information about individuals who apply for credit, like TransUnion, Equifax and Experian.
