F

Four Zero One 401(k) retirement plan: 401(k) retirement plans allow an individual to contribute part of their "pre-tax" income to an investment account. Pre-tax contributions are not tax-free, they are tax-deferred, meaning the person does not pay income tax on this money until they withdraw it from the plan (which should be at retirement). Some companies offer to "match" the individual's contribution as an incentive to join the company's retirement plan.

Depending on the provisions of a company's retirement plan, a person may take a loan from their 401(k) account, however, not all plans allow for loans. The loan is paid back, plus interest (a fixed rate determined at the time of the loan), through after-tax payroll deductions. As long as the individual repays the loan on time, they are not subject to withholding taxes or penalties.

Fair Credit Reporting Act: The Fair Credit Reporting Act gave consumers the right of access to, and correction of, credit reports. (See credit report)

Fair Employment and Housing Act: California's Fair Employment and Housing Act (FEHA) (Sections 13100-13196 of the Government Code) prohibits housing discrimination based on marital status as well as race, color, religion, sex, national origin or ancestry. The Department of Fair Employment and Housing enforces the law, which is based on the former Rumford Fair Housing Act. Fair Employment and Housing Act—Full Text

Example:

Some years ago Len Lessor tried to evict Alice Tenant because Alice, an unmarried woman, was living with an unrelated adult male. Len was unsuccessful because his intended action violated what was then the Rumford Act. Len recently decided to require that each member of an unrelated couple living together in one of his apartments meet his rental financial requirements, even though married couples can aggregate their income to meet the financial requirements. Can Len do that?

No. The Fair Employment and Housing Act bans discrimination based on marital status.

Note: Discrimination under FEHA does not include refusal to rent part of a single-family, owner-occupied dwelling to only one individual. All notices and advertisements must comply with FEHA, except for those expressing a preference for applicants of one sex for the sharing of living in a single dwelling unit.

Fair Housing Act: Pursuant to the federal Fair Housing Act, any offer to sell, rent, buy, or exchange property shall not contain any preference, limitation, or discrimination based on race, color, religion, sex, national origin, handicap, familial status, or an intention to make such preference, limitation or discrimination. (See Civil Rights Act of 1968, federal fair housing law) HUD—Fair Housing Reading Room

Fair Housing Amendment Act of 1988: Extends the Civil Rights Act of 1968 to cover handicapped persons and families with children. (See Fair Housing Act, federal fair housing law, Civil Rights Act of 1968) HUD—Fair Housing Reading Room

familial status: Familial status is defined as one or more individuals who have not obtained the age of eighteen (18) years, being domiciled with a parent or other person having custody, or anyone who is pregnant. It is therefore unlawful to refuse housing to anyone with children under the age of 18 or anyone who is pregnant, except when such housing meets the definition of housing for older persons.

Fannie Mae: See Federal National Mortgage Association (FNMA) Fannie Mae Online

Farm Credit System: A national banking system for financing the activities of farmers and ranchers. Farm Credit Administration Website

farming: Prospecting an area for buyers or sellers. (See geographic farming, nongeographic farming, prospecting)

Farm Service Agency (FSA): Formerly the Federal Agricultural Mortgage Corporation (FAMC or Farmer MAC), the FSA is a federal agency of the Department of Agriculture. FSA offers programs to help families purchase or operate family farms. It also provides loans to help families purchase and improve single-family homes in rural areas. The FSA provides assistance to rural and agricultural businesses and industry through the Rural Business and Cooperative Development Service. Loan programs fall into two categories: guaranteed loans, made and serviced by private lenders and guaranteed for a specific percentage by FSA, and loans made directly by the FSA. Farm Service Agency Website

Federal Deposit Insurance Corporation (FDIC): An independent federal agency that insures the deposits in commercial banks. FDIC Website Federal Deposit Insurance Act—Full Text

federal fair housing law: In 1968, Congress enacted Title VIII of the Civil Rights Act, called the Federal Fair Housing Act, which declared a national policy of providing fair housing throughout the United States (reference Sections 3601-3631 of Title 42, United States Code). This law makes discrimination based on race, color, sex, familial status, handicap, religion or national origin illegal in connection with the sale or rental of most dwellings and any vacant land offered for residential construction or use. The law does not prohibit discrimination in other types of real estate transactions, such as those involving commercial or industrial properties. The law is administered by the Office of Equal Opportunity (OEO) under the direction of the Secretary of the Department of Housing and Urban Development (HUD). (See Civil Rights Act of 1968, Fair Housing Act, HUD)

As amended in 1972, the law instituted the use of equal opportunity posters (11" x 14") for display at brokerage houses, model home sites, mortgage lenders' offices and other related locations. Failure to display the poster constitutes prima facie evidence of discrimination if a broker who does not display the sign is investigated by HUD on charges of discrimination. The poster must show the equal housing opportunity slogan: Equal Housing Opportunity. It must also carry the equal housing opportunity statement:

"We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, familial status, handicap or national origin."

The following equal housing opportunity logo also must be displayed on the poster:

The fair housing law provides protection against the following acts of discrimination, if they are based on race, color, sex, familial status, handicap, religion or national origin:

* Refusing to sell, rent, deal or negotiate with any person.

* Misrepresenting terms or conditions for buying or renting housing.

* Advertising that housing is available only to persons of a certain race, color, sex, familial status, handicap, religion or national origin (such as placing sold signs when the property in fact is not sold).

* Denying that housing is available for inspection, sale or rent when it really is available. (This includes a practice called steering, whereby certain brokers may direct members of certain minority groups away from some of their listings in racially unmixed areas.)

* Blockbusting, a practice whereby a broker hopes to profit through persuading owners to sell or rent housing by telling them that minority groups are moving into the neighborhood; also called panic peddling.

* Denying or requiring different terms or conditions for home loans made by commercial lenders such as banks, savings and loan associations and insurance companies.

* Denying to anyone the use of, or participation in, any real estate service such as broker's organizations, multiple-listing services or other facilities related to the selling or renting of housing.

The Fair Housing Act applies to the following:

* Single-family housing owned by private individuals and sold through a broker or other person who is in the business of selling or renting dwellings is employed (includes use of MLS) and has used discriminatory advertising is used.

* Single-family housing not owned by private individuals, such as those owned by development corporations.

* Single-family housing owned by a private individual who owns more than three such dwellings or who, in any two-year period, sells more than one dwelling in which he or she was not the most recent resident.

* Multifamily dwellings of five or more units.

* Multifamily dwellings containing four or fewer units, if the owner does not reside in one of the units.

Exception: The following situations are exempt from the Fair Housing Act (but covered by the post-Civil War 1866 antidiscrimination civil rights law, if based on race):

* The sale or rental of single-family housing if neither a broker nor discriminatory advertising is used, and no more than one dwelling in which the owner was not the most recent resident is sold during any two-year period.

* The rental of rooms or units in owner-occupied multiple dwellings for two to four families, if discriminatory advertising is not used (the "Mrs. Murphy exemption" in which Mrs. Murphy represents the small investor struggling to earn a living by taking in roomers in a small rooming house).

* The sale, rental or occupancy of dwellings owned and operated by a religious organization for other than commercial purposes to persons of the same religion, if membership in that religion is not restricted on account of race, color, sex or national origin; the religious organization can give preference to its members (e.g., it could levy a surcharge on nonmembers).

* The restriction of lodgings owned or operated by a private club for other than a commercial purpose for rental or occupancy by its own members.

The 1988 amendments to the federal Fair Housing Act bar discrimination based on handicap or familial status of the buyer or renter or anyone associated with the buyer or renter. "Handicap" means a physical or mental impairment, including cancer, AIDS, alcoholism, or a speech, visual or hearing impairment (but not including illegal drug use). The landlord must allow the tenants to make reasonable modifications of existing premises at the tenant's expense. Discrimination also includes the failure to make reasonable accommodation in rules, policies, practices or services to allow a disabled person an equal opportunity to use or enjoy a dwelling.

The law bars discrimination in the sale and rental of housing based on the presence of children (under 18 years of age) in the family, including pregnancy or a pending adoption. The law still permits reasonable limitations on the number of occupants per unit under state and private regulation. Housing for older persons is exempt from the familial status prohibitions if 1. the building is occupied solely by those 62 years of age or older or 2. the housing is specially designed for occupancy by older persons, and at least 80 percent of the dwellings are occupied by at least one person 55 years of age or older.

Two remedial avenues, one administrative and one judicial, are available. An aggrieved person may complain directly to a U.S. District Court within one year of the alleged discriminatory practice, whether or not a verified complaint has been filed with the Secretary of HUD. However, in states with equivalent antidiscrimination judicial rights and remedies, such a suit would have to be brought to the state court. The burden of proof is on the complainant. The court can grant permanent or temporary injunctions, temporary restraining orders or other appropriate relief and may award actual damages and not more than $1,000 in punitive damages. The parties can agree to have the case decided by an administrative law judge.

Criminal penalties are provided for those who coerce, intimidate, threaten or interfere with a person's buying, renting or selling housing; making a complaint of discrimination or exercising any rights in connection with this law. Licensees should keep detailed records of all transactions and rentals in order to defend themselves against possible discrimination complaints. Violations are frequently proved through the use of cases, "testers" and the courts have ruled that there is no requirement that the testers actually be bona fide purchasers or renters. (See blockbusting, familial status, handicap, steering)

Under 1980 regulations, HUD identified certain words that should be avoided because they may tend to convey discriminatory intent. Examples are White, Black, Colored, Catholic, Jew, Protestant, Chinese, Chicano, Irish, restricted, ghetto, disadvantaged, private, membership approval.

Advertising should never state or imply that the rental of separate units in a dwelling is restricted to persons of only one sex unless the sharing of living areas is involved. Even directions to the real estate for sale may be discriminatory, such as references to synagogues or "near Martin Luther King memorial," or close to a specific country club or a private school that caters to particular racial, religious or ethnic groups.

The selective use of advertising media or content based on ethnic considerations could be considered as violating the intent of the law. An example might be the sole use of an English-language newspaper in an area like Miami, Florida, where there are many Hispanic publications. Although an advertiser cannot be forced to advertise in a minority media, such failure will be a consideration in a discrimination hearing, as would be a policy of using as human models members of only one sex, race or other group (it is not necessary, however, to have an exact percentage of the various groups in the local population).

Discrimination in federally subsidized housing projects is prohibited under Title VI, Civil Rights Act of 1964, which states, "No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subject to discrimination under any program or activity receiving federal financial assistance."

Jones vs. Alfred H. Mayer CO.— On June 17, 1968, the United States Supreme Court handed down its opinion in the case of Joseph Lee Jones, et ux., Petitioners v. Alfred H. Mayer Co. et al. On September 2, 1965, the petitioners filed a complaint in the District court for the Eastern District of Missouri, alleging that "the respondents had refused to sell them a home in the Paddock Woods community of St. Louis County for the sole reason that the petitioner, Joseph Lee Jones, is a Negro. From this landmark case, we now have a whole new all-encompassing set of rules prohibiting discrimination on the part of owners of property and their agents.

In Jones vs. Mayer, the Supreme Court interpreted and applied an Act of Congress, first enacted in 1866 (now U.S. Code, para 1982), and rested its constitutionality on the Thirteenth Amendment of the Constitution of the United States, the amendment prohibiting slavery. As so interpreted, Section 1982 applies everywhere, to everyone in the United States. (See Civil Rights Act of 1866) Jones v. Mayer—full text of the court decision

To react to changing social and economic patterns in America, Congress adopted Title VIII in 1968. That law prohibits discrimination based on race, color, national origin, religion and sex. It is the major basis for most current federal fair housing activities. The passage of this statute was a watershed mark in the nation's commitment to equal housing opportunity.

federal funds rate: The interest rate the Federal Reserve charges its member banks on uncollateralized loans.

Federal Housing Administration (FHA): A federal agency established in 1934 under the National Housing Act to encourage improvement in housing standards and conditions, to provide an adequate home-financing system through the insurance of housing mortgages and credit and to exert a stabilizing influence on the mortgage market. FHA was the government's response to a lack of quality housing, excessive foreclosures and a building industry that collapsed during the depression. Federal Housing Administration Website

Federal Home Loan Bank System (FHLB): Regulates the nation's savings and loan associations, much like the Federal Reserve governs the commercial banking industry. Federal Home Loan Bank System Website

Federal Home Loan Mortgage Corporation (FHLMC): Commonly known as "Freddie Mac," a federally chartered corporation established in 1970 for the purpose of purchasing mortgages in the secondary market. Freddie Mac was created as a part of the savings association system and, while it is not so limited, its loan purchase policies are designed to accommodate savings association needs. It functions with an independent board of directors but is subject to oversight by HUD. Freddie Mac Online

Federal National Mortgage Association (FNMA): Popularly known as "Fannie Mae," an active participant in the secondary mortgage market. Fannie Mae was established as a federal agency in 1938 for the purpose of purchasing FHA loans from loan originators to provide some liquidity for government-insured loans in a depression-wracked economy when few lending institutions would undertake this type of loan. Fannie Mae Online

Federal Reserve System ("the Fed"): The nation's central bank created by the Federal Reserve Act of 1913. Its purpose is to help stabilize the economy through the judicious handling of the money supply and credit available in this country. The system functions through a seven-member Board of Governors (appointed by the President) and 12 Federal Reserve District Banks, each with its own president. The system sets policies and works with the privately owned commercial banks. Federal Reserve Website

Federal Water Pollution Control Act: Enacted by Congress in 1972, this federal law administered by the EPA regulates the release of pollutants into navigable waters. Federal Water Pollution Control Act of 1972

fee appraiser: A non-salaried appraiser who is paid a fee for the appraisal assignments performed.

fee simple: The maximum possible estate one can possess in real property. A fee simple estate is the least limited interest and the most complete and absolute ownership in land; it is of indefinite duration, freely transferable and inheritable. Fee simple title is sometimes referred to as "the fee." (See fee title)

fee simple absolute: The maximum possible estate or right of ownership of real property, continuing forever.

fee simple defeasible: An estate in land in which the holder has a fee simple title subject to being divested upon the happening of a specified condition; also called a qualified fee or a defeasible fee. There are two categories of fee defeasible estates--fee simple determinable and fee simple subject to a condition subsequent. The term fee simple determinable implies that the duration of the estate can be determined from the deed itself. This is not true of a fee simple subject to a condition subsequent, in which case the estate's duration depends on the grantor's independent choice of whether to terminate the estate. (See fee simple determinable, fee simple subject to a condition subsequent)

fee simple determinable: A fee simple determinable is an estate in real property that exists "so long as," "while" or "during the period" that a certain prescribed use continues. Such use is described in the grant of conveyance. For example, a conveyance to the University of Knowitall "so long as" the real estate is used for educational purposes would give the university title, provided the granted land is used as prescribed. If, at some future time, the university were to stop using the property for educational purposes, title would revert to the original grantor, if living, or to his or her heirs if the grantor is deceased. A fee simple determinable automatically ends when the purpose for which it has been prescribed terminates. Upon the grant of a fee simple determinable, there remains in the grantor a possibility of reverter.

fee simple subject to a condition subsequent: A fee simple subject to a condition subsequent is an estate conveyed "provided that," "on the condition that" or "if" it is used for a specific purpose. If it is no longer used for that purpose, it reverts to the original grantor or his heirs. This type of estate is much the same as a fee determinable, except that in a fee determinable conveyance, the words are of duration while a fee condition subsequent refers strictly to a specific condition. In addition, unlike a fee determinable, when fee condition subsequent property is no longer used for its prescribed purpose, the original grantor (or heirs) must physically retake possession of the property within a reasonable period of time after the breach (i.e., the grantor must exercise his or her right of reentry). Any transaction involving a fee simple defeasible estate should be referred to an attorney for a professional opinion.

fee title: The maximum possible estate one can possess in real property. A fee title estate is the least limited interest and the most complete and absolute ownership in land; it is of indefinite duration, freely transferable and inheritable. A "fee title" is sometimes referred to as "the fee." (See fee simple)

feudal system: A system of ownership usually associated with precolonial England, in which the king or other sovereign is the source of all rights. The right to possess real property was granted by the sovereign to an individual as a life estate only. Upon the death of the individual title passed back to the sovereign, not to the decedent's heirs.

fictitious business (company) name: A business name other than that of the person under whom the business is registered. Most state license laws require such brokerage offices operating under an assumed name be jointly registered under the supervising broker's name and the fictitious business name.

FICO: Acronym for "Fair, Isaac & Company." FICO is the most commonly used scoring system used by lenders to derive credit scores for borrowers. (See credit score) Fair, Isaac and Company Website

fictitious business name statement (California): A fictitious business name statement must be filed with the county clerk in the county of the broker's principal business address, and a copy sent to the Real Estate Commissioner. The commissioner may refuse to allow the use of a name that may be inappropriate or misleading. (See fictitious business name)

fictitious deed of trust: Comprehensive master deeds of trust are established by lenders to cover all areas of trust deed finance. (See deed of trust)

fiduciary: A relationship that implies a position of trust or confidence wherein one person is usually entrusted to hold or manage property or money for another. The term fiduciary describes the faithful relationship owed by an attorney to a client or by a broker (and salesperson) to a principal. The fiduciary owes complete allegiance to the client. Among the obligations that a fiduciary owes to his or her principal ane the duties of loyalty, obedience and full disclosure; the duty to use skill, care and diligence; and the duty to account for all monies. (See law of agency, principal)

filled land: An area of a property where the grade has been raised by depositing dirt, gravel or rock. Under most circumstances a seller (broker) has a duty to disclose to a buyer the fact that a property is on filled land.

final escrow instructions: Statements prepared by the escrow agent which reflect the final figures and instructions required to close escrow. (See escrow instructions)

financing statement: Security interests in chattels (personal property) are created by an instrument known as a security agreement. To give notice of a security interest, a financing statement must be recorded. (See personal property, Uniform Commercial Code)

Financial Institutions Reform, Recovery and Enforcement Act (FIRREA): Legislation that abolished the FSLIC and established a new deposit insurance fund, SAIF, for savings institutions; appropriated funds and created the Resolution Trust Corporation to dispose of failed thrifts; imposed wide-ranging changes in savings institution investment activities and operations; and created the Office of Thrift Supervision as part of a restructuring of the federal thrift regulatory and supervisory systems. (See Office of Thrift Supervision, Resolution Trust Corporation)

financial intermediaries: A financial institution that accepts deposits and makes loans.

Financial Management Rate of Return (FMRR): A multi-year analysis of rate of return. Used by investors in medium and large properties (occasionally on small properties). Multi-year cash flows and net sale proceeds are analyzed using discounted cash flow techniques to solve for the Financial Management Rate of Return (FMRR).

FMRRs are the best rate of return indicator, because they require an analysis of the investor's entire holding period, not just a single year. The discounting process takes into consideration the time value of money, and thereby produces a more realistic rate of return.

financial statement: A brief summary of a person's assets, liabilities and earnings records.

finder's fee: A fee paid to someone for "finding" either the buyer to purchase or the seller to list a property.

fire insurance requirement form: A statement signed by the "borrower" agreeing to comply with the lender's requirements for fire insurance coverage.

fire rating: A rating of the length of time it takes a fire to penetrate a barrier. Designates the ability of a material to contain a fire in a carefully controlled test setting for a specified period of time. A material tested in a laboratory that adequately contains a fire for two hours and meets other requirements during the laboratory fire test, is given a two-hour fire resistance rating. Fire-resistance ratings are based on full-scale tests under controlled conditions and are generally recognized by building code authorities and fire insurance rating bureaus. Requirements for fire-resistance ratings are usually set by local building code officials based on the expected occupancy of the building.

fiscal policy: The government's policy in regarding to taxation and spending programs. The difference between these two areas determines the amount of money the government will withdraw from or feed into the economy, which can stimulate or restrain economic growth.

fixed expenses: Those recurring expenses that have to be paid regardless of whether the property is occupied; for example, real property taxes, hazard insurance and debt service. These expenses contrast with operating expenses necessary to maintain the production of income from the operation of a property. (See operating expenses)

fixed-fee: A contractor submits a bid proposing a fixed amount to do a job. Most construction bids are made on this basis. (See cost-plus)

fixed-rate loan: A loan with the same rate of interest for the life of the loan.

fixtures: An article that was once personal property but has been so affixed to real estate that it has become real property. Whether an article is a fixture depends on the intention of the parties and may be determined by the manner in which the item is attached, its type and adaptability to the real property, the purpose it serves, and the relationship of the parties.

flashing: Sheet metal or other impervious material used in roof and wall construction as a barrier to water seepage.

flat fee: A property management fee expressed as a dollor amount per year or month. (See percentage fees)

flood hazard areas: Locations specified on Federal Emergency Management Agency (FEMA) maps indicating areas that are subject to flooding. The seller's agent is required to inform potential buyers if the agent has knowledge that a property is located in such an area.

flue: The pipe or conduit that allows combustion gasses to exit the house. (See combustion gasses)

flush: To open a cold-water tap to clear out all the water that may have been sitting for a long time in the pipes. In new homes, to flush a system means to send large volumes of water gushing through the unused pipes to remove loose particles of solder and flux.

forbearance: The act of refraining from taking legal action despite the fact that payment of a promissory note in a mortgage or deed of trust is in arrears. It is usually granted only when a borrower makes a satisfactory arrangement by which the arrears will be paid at a future date.

formaldehyde: A colorless, pungent, and irritating gas, used chiefly as a disinfectant and preservative and in synthesizing other compounds like resins. (See urea-formaldehyde) National Safety Council on Formaldehyde

For Sale By Owner (FSBO): Some owners choose to sell their own property without the aid of a real estate broker. "For Sale By Owner" properties are often a source of listings when the owner is unsuccessful finding qualified buyers.

Fourteenth Amendment to the United States Constitution (1868): Section 1 All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Section 2. Representatives shall be apportioned among the several states according to their respective numbers, counting the whole number of persons in each state, excluding Indians not taxed. But when the right to vote at any election for the choice of electors for President and Vice President of the United States, Representatives in Congress, the executive and judicial officers of a state, or the members of the legislature thereof, is denied to any of the male inhabitants of such state, being twenty-one years of age, and citizens of the United States, or in any way abridged, except for participation in rebellion, or other crime, the basis of representation therein shall be reduced in the proportion which the number of such male citizens shall bear to the whole number of male citizens twenty-one years of age in such state.

Section 3. No person shall be a Senator or Representative in Congress, or elector of President and Vice President, or hold any office, civil or military, under the United States, or under any state, who, having previously taken an oath, as a member of Congress, or as an officer of the United States, or as a member of any state legislature, or as an executive or judicial officer of any state, to support the Constitution of the United States, shall have engaged in insurrection or rebellion against the same, or given aid or comfort to the enemies thereof. But Congress may by a vote of two-thirds of each House, remove such disability.

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article. (See Thirteenth Amendment) Constitution of the United States of America

Foreign Investment in Real Property Tax Act (FIRPTA): Enacted by the United States Congress in 1985, the act requires buyers to withhold estimated taxes equal to 10% of the sale price of a property sold or exchanged by a foreign person. The withholdings must be reported and paid to the Internal Revenue Service within 10 days of closing. The act applies to sales of personal residences with prices of $300,000 or more.

foreclosure: A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgage property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage. There are three general types of foreclosure proceedings: judicial foreclosure, nonjudicial foreclosure and strict foreclosure.

form appraisal report: Any of the relatively brief standard forms prepared by agencies such as the Federal Home Loan Mortgage Corporation and Federal National Mortgage Association and others for routine property appraisals. Narrative appraisal report: A detailed written presentation of the facts and reasoning behind an appraiser's estimate of value.

four unities: Four "unities" are required to create a joint tenancy:

1. Unity of possession - all joint tenants holding an undivided right to possession. 2. Unity of interest - all joint tenants holding equal ownership interests. 3. Unity of time - all joint tenants acquiring their interests at the same time. 4. Unity of title - all joint tenants acquiring their interests by the same document.

The four unities are present when the following requirements are met:

* Title is acquired by one deed. * The deed is executed and delivered at one time. * The deed conveys equal interests to all of the parties. * The parties hold undivided possession of the property as joint tenants.

Because the unities must be satisfied, many states require the use of an intermediary when a sole owner wishes to create a joint tenancy with another party(ies). The owner conveys the property to a nominee, or straw man. Then the nominee conveys it back, naming all the parties as joint tenants in the deed. As a result, all the joint tenants acquire title at the same time by one deed.

fractional basis: Each property in the improvement district is charged a prorated share of the total amount of the special tax assessment. The share is determined either on a fractional basis (four houses may equally share the cost of one streetlight) or on a cost-per-front-foot basis (wider lots incur a greater cost than narrower lots for street paving and curb and sidewalk installation).

fractional section: A parcel of land less than 160 acres, usually found at the edge of a rectangular survey. Undersized or oversized sections are classified as fractional sections. Fractional sections may occur for a number of reasons. In some areas, for instance, the rectangular survey may have been made by separate crews and gaps less than a section wide remained when the surveys met. Other errors may have resulted from the physical difficulties encountered in the actual survey. For example, part of a section may be submerged in water.

franchise: 1. A privilege granted to conduct certain service businesses, such as a franchise real estate brokerage. 2. The private contractual right to operate a business using a designated trade name and the operating procedures of the parent company (the franchisor). Such firms as Century 21 and Coldwell Banker operate national franchise brokerages.

Franchise Investment Law: Administered by the California corporations commissioner, the law requires disclosure from the franchisor to the franchisee and is intended to protect prospective purchasers of franchises. (See franchise)

franchise tax: An income tax, California corporations pay.

fraud: Any form of deceit, trickery, breach of confidence or misrepresentation by which one party attempts to gain some unfair or dishonest advantage over another. Unlike negligence, fraud is a deceitful practice or material misstatement of a material fact, known to be false, and done with intent to deceive, or with reckless indifference as to its truth, and relied on by the injured party to his or her damage.

Freddie Mac: See Federal Home Loan Mortgage Corporation (FHLMC) Freddie Mac Online

freehold estate: An estate in land in which ownership is for an indeterminate length of time, in contrast to a leasehold estate.

friable: The breaking down of a substance into tiny filaments and particles. Asbestos is harmful only if it is disturbed or exposed, as often occurs during renovation or remodeling. Asbestos is highly friable. This means that as it ages, asbestos fibers break down easily into tiny filaments and particles. When these particles become airborne, they pose a risk to humans.

friable asbestos: Any material containing more than one-percent asbestos, and that can be crumbled or reduced to powder by hand pressure. (See asbestos, friable)

frivolous: Void of significance or reason; of little or no worth, or importance; not worthy of serious notice; trivial; unimportant.

front-end zero: Under a conventional loan, a borrower may elect to finance all of the mortgage insurance premium, thus incurring no cash obligation for this charge at closing. (See mortgage insurance premium)

front-end qualification: When qualifying a prospective buyer for financing, the ratio of the borrower's income to monthly debt obligation is a primary consideration. (See back-end qualification, prequalify)

front-end ratio: The ratio of monthly housing cost (PITI) to gross monthly income. (See back-end ratio, PITI)

front footage: The measurement of a parcel of land by the number of feet of street or road frontage.

fructus industriales: Corn, wheat and other crops that are produced annually by labor and industry, and not spontaneously. They are referred to in Latin as "fructus industriales." (See emblements)

fully amortized: Fully amortized mortgages are paid in equal monthly installments, which include interest and amortization of principal, paid over a period of years. The interest is set at a predetermined rate and is charged only on the loan balance. As payments are made, the amount allocated to interest decreases while the amount allocated to principal increases. At the end of the term the mortgage will be paid in full, including interest. No balloon payment is required. (See amortization, balloon payment)

functional obsolescence: A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

funding fee: A percentage of the loan amount charged on VA loans to provide for administrative costs. The fee has increased over time and is higher for subsequent use by veterans, reservists and National Guard.

funding letter: Cover letter prepared by the escrow agent to the lender detailing the documents being forwarded to the lender to complete the borrower's loan and release the loan proceeds to escrow.

future interest: A person's present right to an interest in real property that will not result in possession or enjoyment until some time in the future, such as a reversion or right of reentry.

future worth: The compounding increase in the value of money over time.

G

gap: A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

Garn-St. Germain Bill: Or the Depository Institutions Deregulation and Monetary Control Act of 1980 which authorized the deregulation of banks and savings institutions. Allowed savings and loan associations to offer checking-type accounts; to issue credit cards. Established loan loss reserve requirements. A follow-on bill, The Depository Institutions Act of 1982 (also sponsored by Senators Garn and St. Germain), allowed savings and loan associations to have up to 50% of assets in real estate development; 30% of assets in consumer loans and corporate debt; own real estate development companies; and offer money market deposit accounts. Garn-St. Germain—Full Text

general agent: One authorized by a principal to perform any and all acts associated with the continued operation of a particular job or a certain business of the principal. The essential feature of a general agency is the continuity of service, such as that provided by a property manager of a large condominium project. Most real estate brokers are treated as special agents. (See agent, special agent)

general contractor: A licensed construction specialist who enters into a construction contract with a developer or property owner to construct a building or real estate project. The general contractor often negotiates individual contracts with sub-contractors who specialize in various aspects of the building process, such as electricity, drywall and plumbing.

general index: A county recorder's office index used by title company examiners when searching the chain of title of a property. The examiner uses the index to research all the grantors and grantees in the chain of title. The index lists all the things that apply to a person by name, including liens, judgments and power of attorneys. (See chain of title)

general lien: The right of a creditor to have all of a debtor's property—both real and personal—sold to satisfy a debt. (See lien)

general partner: In a limited partnership, the individual or company aquiring, organizing and managing the investment. (See limited partnership)

general partnership: In a general partnership, all the partners participate in the operation and management of the business and share full liability for business losses and obligations. (See partnership) Uniform Partnership Act—Full Text

general plan: Every city and county is required to develop a general plan of comprehensive zoning. (See comprehensive zoning)

general real estate tax: General real estate taxes are levied to fund the operation of the governmental agency that imposes the taxes.

general warranty deed: A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed.

geographic farming: Farming/prospecting an area defined by specific "geographic" boundaries. The best geographic farms are particular subdivisions with similar demographics, such as: the price of homes, the ages of residents, family composition, etc. (See farming, nongeographic farming)

gift deed: A deed in which the consideration is "love and affection." Because the deed is not supported by valuable consideration, the donee (recipient of the gift) may not be able to enforce against the donor certain promises or agreements contained in the deed.

Ginnie Mae: See Government National Mortgage Association (GNMA) Ginnie Mae Online

goal setting: A planning tool where agents establish, in writing, exact short-term, intermediate-term and long-term goals. Goals should be reasonably attainable and progress should be periodically evaluated.

good-faith estimate: A preliminary accounting of expected closing costs. The Real Estate Settlement Procedures Act (RESPA) requires the lender to promptly give loan applicants a good-faith estimate of closing costs. (See Real Estate Settlement Procedures Act (RESPA))

good funds: Cash, cashier's checks and personal checks that have cleared the bank.

goodwill: An intangible, salable asset arising from the reputation of a business; the expectation of continued public patronage; including other intangible assets like trade name and going concern value. When a business is sold, the sales price often reflects its goodwill value.

Government National Mortgage Association (GNMA): A federal agency created in 1968 when the Federal National Mortgage association (FNMA) was partitioned into two separate corporations. "Ginnie Mae," as it is popularly called, is a corporation without capital stock and is a division of HUD. The GNMA operates the special assistance aspects of federally aided housing programs and has the management and liquidating functions of the old FNMA. The FNMA is authorized to issue and sell securities backed by a portion of its mortgage portfolio, with the GNMA guaranteeing payment on such securities. Ginnie Mae Online

government check: The 24-mile-square parcels composed of 16 townships in the rectangular (government) survey system of legal description.

government lot: Fractional sections in the rectangular (government) survey system that are less than one quarter-section in area. Areas smaller than full quarter-sections were numbered and designated as government lots by surveyors. These lots can be created by the curvature of the earth; by land bordering or surrounding large bodies of water; or by artificial state borders.

government survey system: A system of land description that applies to much of the land in the United States, particularly in the western states; also called the geodetic or rectangular survey system. It is based on pairs of principal meridians and base lines, with each pair governing the surveys in a designated area. (See legal description)

grace period: An agreed upon time after an obligation is past due when a party can perform without being considered in default.

graduated commission splits: Other companies have graduated commission splits based on a salesperson's achieving specified production goals. For instance, a broker might agree to split commissions 50/50 up to a $25,000 salesperson's share; 60/40 for shares from $25,000 to $30,000; and so on. Commission splits as generous as 80/20 or 90/10 are possible, however, particularly for high producers.

graduated-payment mortgage (GPM): A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.

grandfather clause: An expression that conveys the concept that something that was once permissible continues to be so, despite changes in the law.

grantee: The person who receives a conveyance of real property from a grantor. The grantee must be a person, either natural or otherwise (e.g. corporation, public agency, partnership, etc.) existing at the time of the conveyance and is capable of taking title.

grant deed: A type of deed in which the grantor warrants to the grantee, that he has not previously conveyed the estate, that he has not encumbered the property (except as noted in the deed) and that he will convey any title to the property he may later acquire.

granting clause: Words in a deed of conveyance that state the grantor's intention to convey the property at the present time. This clause is generally worded as "convey and warrant," "grant," "grant, bargain and sell" or the like.

grantor: The person transferring title, or an interest in real property. A grantor must be competent to convey title. A corporate grantor must have legal existence and be authorized to hold and convey title to real property. The grantor must be clearly identified in the deed.

gross income multiplier: A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property's value.

gross operating income: The result when other income is added to rental income. (See other income, rental income)

gross lease: A lease of property according to which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance and operating expenses. Most residential leases are gross leases.

gross rental income: Gross receipts for the rental of income property.

gross rent multiplier (GRM): The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.

gross scheduled income: The maximum amount of rent if the property were 100 percent occupied.

ground lease: A lease of land alone, sometimes secured by improvements placed on the land. Also called a land lease, the ground lease is a means used to separate the ownership of the land from the ownership of the buildings and improvements constructed on the land.

ground rents: A perpetual lease where the landowner retains title and the lessee recieves the right of possession and use. Used predominantly in Maryland and Pennsylvania prior to 1885.

groundwater: Water under the earth's surface, regardless of the geological structure in which the water is standing or flowing. It does not include water in underground streams that have identifiable banks and beds.

growing-equity mortgage (GEM): A loan in which the monthly payments increase annually, with the increased amount being used to reduce directly the principal balance outstanding and thus shorten the overall term of the loan.

guardian: A person, appointed by court or by will, given the lawful custody and care of the person or property of another (called a ward). The ward might be a minor, an insane person or even a spendthrift. The guardian may, upon court approval and without necessity of obtaining a real estate license, sell the ward's property if it is in the best interest of the ward.

H

habendum clause That part of a deed beginning with the words "to have and to hold," following the grantor is conveying.

habitability Fit for human habitation. (See implied warranty)

handicap: As defined in the fair housing act, a physical or mental impairment that substantially limits one or more major life activities (walking, seeing, learning, working) or a record of having such an impairment or being regarded as having such impairment. Handicap does not include current, illegal use or addiction to a controlled substance. (See disability)

hard money loan: A loan made in cash by a non-institutional lender.

hazardous waste: A subset of solid wastes that pose substantial or potential threats to public health or the environment and meet any of the following criteria:

* Is specifically listed as a hazardous waste by EPA; * Exhibits one or more of the characteristics of hazardous waster (ignitability, corrosiveness, reactivity, and/or toxicity; * Is generated by the treatment of hazardous waste or is contained in a hazardous waste.

Toxic waste materials jeopardizing the value of real estate. (See asbestos, Environmental Protection Agency, undergound storage tanks, urea-formaldehyde)

hazardous waste disclosure: California Health and Safety Code (§ 25359.7(a)) requires owners of nonresidential properties to disclose to prospective buyers or lessees the existence of hazardous substances on or beneath a property. Both residential and nonresidential tenants are required to notify landlords if hazardous substances have been released on a property.

heat absorbing glazings: A technology that uses heat-absorbing glazing with tinted coatings to absorb solar heat gain through windows. This approach does allow some light to pass through the tinted windows.

heat exchanger: Heat exchange is the method by which the unwanted heat is removed from a system. A heat exchanger is a device by which energy (in the form of heat) is transferred from one fluid or gas to another across a solid surface.

heir: A person who inherits under a will or a person who succeeds to property by the state laws of descent if the decedent dies intestate. (See intestate)

hereditaments: Property capable of being inherited.

HERS score: A number between 0-100 that is used to designate the energy efficiency of a home compared to guidelines established by the Home Energy Rating System Council. The higher the score (number), the greater the energy efficiency of the residence. (See Home Energy Rating System (HERS))

heterogeneity: The quality or state of being heterogeneous; different in kind; unlike; incongruous.

highest and best use: The possible use of a property that would produce the greatest net income and thereby develop the highest value.

highrise developments: Sometimes called mixed-use developments (MUDs), these combine office space, stores, theaters and apartment units in a single vertical community. MUDs usually are self-contained and offer laundry facilities, restaurants, food stores, valet shops, beauty parlors, barbershops, swimming pools and other attractive and convenient features.

hold-harmless clause: A contract provision whereby one party agrees to indemnify and protect the other party from any injuries or lawsuits arising out of the particular transaction. Such clauses are usually found in leases in which the lessee agrees to "indemnify, defend and hold harmless" the lessor from claims and suits of third persons for damage resulting from the lessee's negligence on the leased premises.

holdback: Funds not released under a construction loan agreement due to a failure to lease to the required minimum.

holder in due course: The holder of a negotiable instrument (check or note) purchased for value when the instrument appears complete and regular on its face; is taken before its due date and without notice of previous dishonor; and the holder has no notice of any defects in title of the transferor.

holdover tenancy: A tenancy whereby a lessee retains possession of leased property after the lease has expired and the landlord, by continuing to accept rent, agrees to the tenant's continued occupancy as defined by state law.

holographic will: A will that is written, dated and signed in the testator's handwriting, but not witnessed. Some states consider a holographic will to be valid even though it was not witnessed, presumably on the theory that the handwriting can be analyzed to verify authenticity and demonstrate competency.

home equity loan: A loan (sometimes called a line of credit) under which a property owner uses his or her residence as collateral and can then draw funds up to a prearranged amount against the property.

Home Energy Rating System (HERS): A standardized system for rating the energy efficiency of residential buildings. (See HERS score)

home expense-to-income ratio: A ratio expressed as a percentage that is used by the mortgage industry to determine a borrower's qualification for a loan. It is calculated by dividing the borrower's total monthly housing expenses by his or her gross monthly income.

Home Mortgage Disclosure Act (HMDA): Enacted by Congress in 1975 and implemented by the Federal Reserve Board's Regulation C, a federal law that requires lenders with federally related loans to disclose to the Federal Reserve the number of loan applications and loans made in different parts of their service areas; designed to eliminate the discriminatory practice of redlining. (See Federal Reserve, redlining) Home Mortgage Disclosure Act Website

homeowner instructions: Instructions given to a property owner by a listing broker that advise the owner of cleaning and repairs that will improve the appearance and increase the value of a listed property.

homeowner's association: A nonprofit association of homeowners organized pursuant to a declaration of restrictions or protective covenants for a subdivision, PUD or condominium.

Homeowner's Guide to Earthquake Safety: A document produced by the State of California Seismic Safety Commission intended to help inform homeowners on earthquake safety issues in homes.

homeowner's insurance policy: A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability and other common risks. (See basic form homeowner's policy and broad form homeowner's policy)

homestead: A statutory exemption of real property used as a home from the claims of certain creditors and judgments up to a specified amount; requires a declaration of homestead be completed and filed with the county recorder's office.

homestead exemption: The amount of homestead protection from unsecured creditors—$50,000 for single persons, $75,000 for families, $100,000 for persons 65 years of age, and $100,000 for disabled persons unable to work.

home warranty insurance policy: An insurance policy that insures against plumbing, electrical, heating, and major appliance problems for the term of the policy.

homogeneous: Composed of parts all of the same kind or of the same kind or nature; essentially alike.

housing accommodation: Housing accommodations are any improved or unimproved real property, or portion thereof, used as the home, residence, or sleeping place of one or more human beings. It does not include accommodations operated by non-profit religious, fraternal, or charitable associations or corporations, provided that such accommodations are used in the furtherance of the primary purposes for which the association or corporation was formed.

housing affordability index: A measure of the percentage of the United States population who can afford to purchase a home; based on average income and average home price.

Housing Financial Discrimination Act of 1977 (Holden Act): The Act prohibits financial institutions (banks, savings & loans, or other financial institutions, including mortgage loan brokers, mortgage bankers and public agencies) from engaging in discriminatory loan practices.

household waste (also referred to as domestic waste): Solid waste, composed of garbage and rubbish, which normally originates from residential, private households, or apartment buildings. Domestic waste may contain a significant amount of toxic or hazardous waste from improperly discarded pesticides, paints, batteries, and cleaners.

HUD: A federal cabinet department officially known as the U.S. Department of Housing and Urban Development, HUD is active in national housing programs. Among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA-subsidy programs and water and sewer grants. The Office of Interstate Land Sales Registration is under HUD's jurisdiction, as are the Federal Housing Administration (FHA) and the Government National Mortgage Association (GNMA). HUD Website HUD—Office of Interstate Land Sales

HUD-1 settlement statement: At closing, in conformance with Real Estate Settlement Procedures Act (RESPA) regulations, a HUD-1 settlement statement is prepared showing the exact closing costs to buyer and seller. (See RESPA)

HVAC: The acronym for Heating, Ventilation, and Air Conditioning.

hybrid financing: Mixing forms of conventional financing to create a new approach. (See convertible loan, participation mortgage)

hypothecate: To pledge real or personal property as security for a loan or other obligation without surrendering possession of the property. The borrower retains the rights of control and possession, and the lender secures an underlying equitable right in the pledged property.

I

identification period: The period during which the exchanger must identify replacement property in a 1031 tax deferred exchange. The identification period starts on the day the exchanger transfers the first relinquished property and ends at midnight on the 45th day thereafter.

illusory contract: An apparent contract that is not a contract because the parties have not agreed to be bound.

implied agency: An agency agreement created by the actions of the parties, and not a stated (written or verbal) agreement. (See express agency)

implied agreement/contract: A contract under which the agreement of the parties is demonstrated by their acts and conduct.

implied easement: When the owner of two or more adjacent properties sells a part thereof, he or she grants by implication all those apparent and visible easements which are necessary for the reasonable use of the property granted. (See easement)

implied authority: The authority of an agent to perform acts which are reasonably necessary to accomplish the purpose of the agency.

implied warranty: A theory in landlord/tenant law in which the landlord renting residential property implies quiet enjoyment of the property or that the property is habitable. (See habitability, quiet enjoyment)

impound account: A trust account established to set aside funds for future needs relating to a parcel of real property. Many mortgage lenders require an impound account to cover future payments for taxes, assessments, private mortgage insurance and insurance in order to protect their security from defaults and tax liens. In the case of FHA loans, many lenders require a tax reserve of six months and an insurance reserve of one year. When the property is sold and the buyer assumes the seller's mortgage, the lender does not usually return the escrow account balance to the owner. The sum remains with the lender, and it is the responsibility of the buyer and seller to prorate the balance between them. Impound accounts are required for FHA loans, and although VA regulations do not require an impound account for taxes and insurance premiums on GI loans, many lenders customarily require that such accounts be established and maintained. Under RESPA, the amount of reserves in the impound account is limited to one-sixth of the estimated amount of taxes and insurance that will become due in the 12-month period beginning at settlement. Sometimes, part of the purchase price due the seller may be impounded or put aside by escrow to meet the postclosing expense of clearing title or repairing the structure. The issue of use of interest earned on reserve funds is frequently debated. Typically, lenders do not pay interest to borrowers on money held as reserves.

improvement: 1) Any structure, usually privately owned, erected on a site to enhance the value of the property--for example, building a fence or a driveway. 2) A publicly owned structure added to or benefiting land, such as a curb, sidewalk, street or sewer.

incentive zoning: Zoning that offers incentives to developers, such as retail shops on the first floor of multistory office buildings if a plaza for public use is included. (See zoning)

income and expense report: A financial report generated by a property manager that details the income and expenses from a property and the amount remitted to the owner.

income approach: The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life. (See appraisal)

income ratio: The relationship between a person's total income and the amount needed to make one month's mortgage payment.

incorporeal right: A nonpossessory right in real estate; for example, an easement or a right of-way.

increasing and diminishing returns: The addition of more improvements to land and structures which increases value only to the assets' maximum value. Beyond that point, additional improvements no longer affect a property's value. As long as money spent on improvements produces an increase in income or value, the law of increasing returns applies. At the point where additional improvements do not increase income or value, the law of diminishing returns applies.

independent: A brokerage firm operating on-its-own without an affiliation with a regional or national franchise.

independent contractor: One who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as to how he or she performs the act. The critical feature, and what distinguishes an independent contractor from an employee or agent, is the degree of control the employer has over such a person's activities.

Because many licensing laws make brokers responsible for the activities of their salespeople, ev