K

kickback: Payment made to someone for referral of a customer or business. Unlike a commission, a kickback is made without the customer's knowledge; thus, the referral could have been made without the customer's best interest at heart.

kiosk: A kiosk is a freestanding structure (open sides, usually multi sided) located in a shopping center or mall from which merchandise is sold. A multi-sided structure found in a shopping mall or center.

L

laches: An equitable doctrine used by courts to bar a legal claim or prevent the assertion of a right because of undue delay or failure to assert the claim or right.

land: The earth's surface, extending downward to the center of the earth and upward infinitely into space, including things permanently attached by nature, such as trees and water.

land contract: A land contract is a real property sales contract. (See contract for deed)

landfill: A landfill is an enormous hole, either excavated for the purpose of waste disposal or left over from a surface mining operation. The hole is lined with clay or a synthetic lining to prevent leakage of waste into the surrounding water supply. Waste is laid on the liner at the bottom of the landfill and a layer of topsoil is then compacted into the waste. The layering is repeated again and again until the landfill reaches its full capacity.

landlord: The lessor or the owner of leased premises. The landlord retains a reversionary interest in the property, so that when the lease ends the property will revert to the landlord. (See lease, lessor, lessee) Landlord-Tenant Law Overview

land trusts: A few states permit the creation of land trusts, in which real estate is the only asset. As in all trusts, the title to the property is conveyed to a trustee, and the beneficial interest belongs to the beneficiary. In the case of land trusts, however, the beneficiary is usually also the trustor. While the beneficial interest is personal property, the beneficiary retains management and control of the real property and has the right of possession and the right to any income or proceeds from its sale.

One of the distinguishing characteristics of a land trust is that the public records usually do not name the beneficiary. A land trust may be used for secrecy when assembling separate parcels. There are other benefits as well. A beneficial interest can be transferred by assignment, making the formalities of a deed unnecessary. The beneficial interest in property can be pledged as security for a loan without having a mortgage recorded. Because the beneficiary's interest is personal, it passes at the beneficiary's death under the laws of the state in which the beneficiary lived. If the deceased owned property in several states, additional probate costs and inheritance taxes can be avoided.

latent defect: A hidden structural defect that would not be discovered by ordinary inspection and that threatens the property's soundness or the safety of its inhabitants. Some states impose on sellers and licensees a duty to inspect for and disclose latent defects. Buyers have been able to either rescind the sales contract or receive damages when a seller fails to reveal known latent defects. The courts have also decided in favor of the buyer when the seller neglected to reveal violations of zoning or building codes.

lateral support: The right to have land supported by the adjoining land or soil beneath. (See subjacent support)

latitude: Distance on the earth's surface, measured northward or southward from the equator measured in degrees of the meridian; angular distance reckoned on a meridian. (See longitude, meridian)

law of agency: A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent. (See agent, fiduciary)

leach: Water that collects contaminants as it trickles through wastes, pesticides, or fertilizers. Leaching may occur in farming areas, feedlots, and landfills, and may result in hazardous substances entering surface water, ground water, or soil.

lead: Lead is an element that was once used as a pigment and drying agent in paint. An elevated level of lead in the body can cause serious damage to the brain, nervous system, kidneys and red blood cells. The degree of harm is related to the amount of exposure and the age at which a person is exposed. The Federal government estimates that lead is present in about 75 percent of all private homes in the United States built before 1978. National Safety Council's Lead Poisoning Prevention Outreach Program

lease: An agreement, written or unwritten, transferring the right to exclusive possession and use of real estate for a definite period of time. To create a valid lease, the lessor must retain a reversionary right; that is, the lessor (landlord) must grant the right of possession to the lessee (tenant) but retain the right to retake possession after the lease term has expired. (See landlord, tenant)

leasehold estate: A tenant's right to occupy real estate during the term of a lease; a personal property interest.

leasehold lending: Loans on a leased property with satisfaction dates usually 10 to 20 years prior to the expiration of the lease.

lease option: A lease under which the tenant has the right to purchase the property either during the lease term or at its end.

lease purchase: The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically done for tax or financing purposes.

leasing agent: Real estate salespeople who specialize in leasing rental properties. Skilled at telephone techniques, on-site customer qualifying and closing.

legacy: A disposition of money or personal property by will.

legal description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it. (See government survey system, lot and block system, metes and bounds system)

legally competent parties: People who are recognized by law as being able to contract with others; those of legal age and sound mind.

legal life estate: A legal life estate is not created voluntarily by an owner. Rather, it is a form of life estate established by state law. It becomes effective automatically when certain events occur.

legal title: See fee simple

legatee: A person who receives money or personal property under a will.

lender's escrow instructions: A lender's written instructions to the escrow company stating the conditions which must be met before the deed of trust can be recorded. (See escrow instructions)

lessee: The person to whom property is rented or leased; called a tenant in most residential leases. (See tenant)

lessor: The person who rents or leases property to another. In residential leasing, he or she is often referred to as a landlord. (See landlord)

leverage: Using someone else's money to purchase a property. Refers to the ability to use the investment as collateral for a loan.

levy: To assess, seize or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to officially seize the property of a person in order to satisfy an obligation.

liability: 1. Legal responsibility for an act. 2. A debt. (See joint and several liability, retroactive liability, strict liability)

liability coverage: Insurance coverage for injuries or losses sustained by the public when on an individual's property.

license: 1. A privilege or right granted to a person by a state to operate as a real estate broker or salesperson. 2. The revocable permission for a temporary use of land—a personal right that cannot be sold.

lien: A charge or claim that one person (lienor) has on the property of another (lienee) as security for a debt or obligation. (See general lien, involuntary lien, mechanic's lien, statutory lien, tax lien, voluntary lien)

lien theory: Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

lien waiver: Documents signed by subcontractors and suppliers, indicating they have received payment in full.

life cycle costing: In property management, comparing one type of equipment to another based on both purchase cost and operating cost over its expected useful lifetime.

life estate: Any estate in real or personal property that is limited in duration to the life of its owner or the life of some other designated person. Although classified as a freehold estate because it is a possessory estate of indefinite duration, a life estate is not an estate of inheritance. For example, Bob Smith conveys his home to his son John and reserves a life estate for himself. Bob (the life tenant) has a life estate, and Hohn has a reversionary interest in the property. When Bob Smith dies, the fee simple property reverts to John. (See freehold estate)

life tenant: A person in possession of a life estate.

lifting clause: A provision in a junior mortgage that allows the underlying senior loan to be replaced or refinanced so long as the amount of the new senior loan does not exceed the amount of the first lien outstanding at the time the junior loan was made. (See junior mortgage, senior loan, subordination agreement)

like kind: A term relating to the nature of a property rather than its quality or quantity. Only like kind properties qualify for a real estate exchange and the resulting tax benefit. (See exchange)

limited liability company (LLC): LLCs are a relatively recent form of business organization. An LLC combines the most attractive features of limited partnerships and corporations. The members of an LLC enjoy the limited liability offered by a corporate form of ownership and the tax advantages of a partnership. In addition, the LLC offers flexible management structures without the complicated requirements of S corporations or the restrictions of limited partnerships. The structure and methods of establishing a new LLC, or of converting an existing entity to the LLC form, vary from state to state. (See corporation, partnership)

limited partnership: Consists of one or more general partners as well as limited partners. The business is administered by the general partners and funded, for the most part, by limited or silent partners. Each limited partner can be held liable for business losses only to the extent of his or her investment. (See general partner, partnership, passive income) Uniform Limited Partnership Act—Full Text

line of credit: An amount of money stipulated by a commercial bank to an active customer on an annual basis. The balance normally must be brought to zero on an agreed upon regular date. (See commercial bank)

liquidated damages: An amount predetermined and agreed by the parties to an agreement as the total amount of compensation an injured party should receive if the other party breaches a specified part of the contract. (See damages)

liquefaction: A phenomenon which occurs during an earthquake whereby the ground/soil turns into a highly unstable, jelly-like substance.

liquidity: Refers to the time it takes to convert an asset to cash that is a reflection of its market value. (See market value)

lis pendens: A recorded legal document that gives constructive notice that an action affecting a particular piece of property has been filed in a state or federal court. Lis pendens is Latin for "action pending' and is in the nature of a "quasi lien." A person who subsequently acquires an interest in that property takes it subject to any judgment that may be entered; that is, a purchaser pending a lawsuit is bound by the result of the lawsuit.

listing agreement: A written employment agreement between a property owner and a real estate broker authorizing the broker to find a buyer or a tenant for certain real property. Listing can take the form of open listings, net listings, exclusive-agency listings, or exclusive-right-to-sell listings. The most common form is the exclusive-right-to-sell listing. (See exclusive-agency listings, exclusive-right-to-sell listing, net listings, open listings)

listing broker: The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the cooperating broker, from whose office negotiations leading up to a sale are initiated. The listing broker and the cooperating broker may be the same person.

listing presentation manual: Used by real estate brokerages to make presentations to listing prospects. A visual aid used in combination with a verbal presentation made by a real estate agent.

littoral rights: The rights of a landowner whose land borders a pond, lake or ocean shore-line where the body of water is non-flowing. Littoral rights extend to the mean high watermark of ocean or tidal waters. (See riparian rights, water rights)

living trust: An arrangement in which a property owner (trustor) transfers assets to a trustee who assumes specified duties in managing the asset. After payment of operating expenses and trustee's fees, the income generated by the trust property is paid to or used for the benefit of the designated beneficiary.

loan broker listing: A mortgage loan broker's contract with a buyer to obtain a loan.

loan commitment: A lender's agreement to lend a specified amount of money which must be exercised within a set time limit.

loan constant: The annual payment required per dollar of a mortgage loan, including principal and interest.

loan correspondent: A person or entity that acts for a lender in arranging loans or the sale of loans.

loan documents: Documents prepared by a lender in conjunction with granting the loan to the borrower; may include a promissory note, deed of trust, and required loan disclosure documents.

loan fees: Also called loan origination fees. Costs charged by a lender for giving out a loan; may include points, tax service fees, an appraisal fee, etc.

loan origination fee: The processing of a mortgage application is known as loan origination. When a mortgage loan is originated, a loan origination fee, or transfer fee, is charged by most lenders to cover the expenses involved in generating the loan. These include the loan officer's salary, paperwork and the lender's other costs of doing business.

loan application: A lender's initial sourse of information on a borrower/applicant and the collateral involved; stipulates the amount of money requested and repayment terms.

loan-to-value ratio: The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

lock-in clause: A condition in a promissory note that prohibits prepayment of the note.

longitude: Distance measured east or west on the earth's surface, measured by the angle which the meridian through a place makes with some standard meridian, as that of Greenwich, Great Britain or Paris, France. Longitude may be measured in time (longitude in time) or in degrees (longitude in arc). (See latitude, meridian)

lot-and-block (recorded plat) system: A method of describing real property that identifies a parcel of land by reference to lot and block numbers within a subdivision, as specified on a recorded subdivision plat. (See legal description)

loyalty: The duty of loyalty requires the agent to place the principal's interests above those of all others, including the agent's own self-interest. The agent must be particularly sensitive to any possible conflicts of interest. Confidentiality about the principal's personal affairs is a key element of loyalty.

low/doc or no/doc loan: Loans that require little or no documentation regarding the borrower's income, assets or liabilities. Because of the higher perceived risk, these loans will usually require a larger down payment, higher interest rate and high credit score for borrowers. Conventional qualifying ratios do not apply.

low-e glazings: Low-e glazings have special coatings that reduce heat transfer through windows. This type of window film is inexpensive, lasts 10-15 years, reduces interior fading, and saves energy.

M

M1, M2, M3: Three measurements of the United States money supply. M1, or the basic money supply, consists of cash in public hands, private checking accounts, credit union share accounts and demand deposits at thrifts. M2 includes all of M1 plus money market mutual fund shares, and savings deposits of less than $100,000 at all depository institutions. M3 includes M2 plus large time deposits at all depository institutions.

maker: The maker of a check is known as the drawer. (See payee)

manifest system Tracking of hazardous waste from "cradle to grave" (generation through disposal), with accompanying documents known as "manifests." (See hazardous waste)

maintenance charges: Monthly or annual charges assessed in a condominium, planned united development, or cooperative development to cover operational costs.

management: Refers to the amount of personal or hired time, it takes to run the investment.

management agreement: A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager's authority.

management plan: The financial and operational strategy for the ongoing management of a property. It is based on market analysis, a property analysis and the owner's goals. (See market analysis, property analysis)

manufactured home: A structure (transportable in one or more sections) when in the traveling mode, is eight body feet or more in width, or 40 body feet or more in length, or, when erected on site, is 320 or more square feet. It is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning, and electrical systems contained therein. (H & S Code § 18007) Manufactured Housing Institute

margin: In an adjustable-rate loan, the amount added to the index rate that represents the lender's cost of doing business (including costs, profits and risk of loss of the loan). Generally the margin stays constant during the life of the loan. (See adjustable-rate loan, index rate)

market: A place where goods can be bought and sold and a price established.

market analysis: A regional and neighborhood study of economic, demographic and other factors made to determine supply and demand, market trends, and other factors important to leasing and operating a specific property.

market approach: A method of pricing single-family rental homes and condos using comparable market data. When pricing multiple unit rental properties, the income approach is probably better. (See comparative market analysis, net income approach)

market-data approach: Estimating a property's value based on a comparison of the property with similar properties in the same locale that have sold recently. Also known as the direct sales comparison approach. (See appraisal)

marketable title: Good or clear title, reasonably free from the risk of litigation over possible defects.

market value: The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale. Such such conditions include the assumption that the buyer and seller acted prudently and knowledgeably and that the price is not affected by undue stimulus.

masonry: Any construction material involving bricks/blocks and mortar or related materials.

master deed: The principal conveyance document used by the owners of land on which condominiums are located. (See fictitious deeds of trust)

master plan: A comprehensive plan to guide the long-term physical development of a particular area.

material fact: Any fact that is relevant to a person making a decision. Agents must also disclose to buyers material facts about the condition of the property, such as known structural defects, building code violations and hidden dangerous conditions. Brokers are often placed in a no-win situation of trying to evaluate whether a certain fact is material enough that it needs to be disclosed to a prospective buyer, such as the fact that a murder occurred on the property 10 years ago or the fact that the neighbors throw loud parties. It is sometimes difficult to distinguish between "fact" and "opinion." The statement "real property taxes are low" is different from "real property taxes are $500 per year." Even though brokers act in good faith, they may still be liable for failure to exercise reasonable care or competence in ascertaining and communicating pertinent facts that the broker knew or "should have known." Many state laws provide that the fact that an occupant of property has AIDS is not deemed to be a material fact. A broker who fails to disclose this fact is not liable for concealment of a material fact.

mean: The average of all items included within a group, calculated by dividing the sum of the individual items, or variates, by the number of variates. (See variate)

mechanics' lien: A statutory lien in favor of a building contractor (architects and designers in some states) to secure payment for materials supplied and services rendered in the improvement, repair or maintenance of real property. (See lien)

median: The middle figure in a set of numbers.

mediation: A process where a neutral third party intervenes between the disputing parties to reach a satisfactory solution.

Mello-Roos Bonds: Based on passage of the Mello-Roos Community Facilities Act of 1982, certain housing tracts may be within what are called "community facilities districts" where special taxes are assessed to finance designated public facilities and/or services. Mell-Roos liens are usually municipal bonds issued to fund streets, sewers and other infrastructure needs before a housing development is built. These special assessments are paid by the seller and will be assumed by the buyer.

mentor program: A training program in a real estate office wherein newly-hired agents assist successful, knowledgeable salespersons for a period of time.

merger: The joining of a lesser right with a greater right so that the lesser right is lost.

meridian: One of a set of imaginary lines running north and south used by surveyors for reference in locating and describing land under the government survey method of property description.

metes-and-bounds description: A legal description of a parcel of land that begins at a well marked point and follows the boundaries, using directions and distances around the tract, back to the place of beginning. (See legal description)

military ordinance location: Certain military bases contain live ammunition for various reasons. A seller of residential property located within one mile of such a hazard must give the buyer written notice as soon as practicable before transfer of title.

mill: One-tenth of one cent. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would be $0.052 tax for each dollar of assessed valuation of a property.

minor: Someone who has not reached the age of majority and therefore does not have legal capacity to transfer title to real property.

mineral rights: Rights to subsurface land and profits. Nornally, when real property is conveyed, it includes everything above and below the surface of the land, except where specified by the grantor.

misdemeanor: Offenses less serious than felonies and generally punishable by a fine or imprisonment less than one year.

misrepresentation: A false statement or concealment of a material fact made with the intention of inducing some action by another party.

mistake: An error or misunderstanding. A contract is voidable if there is a mistake that is mutual, material, unintentional and free from negligence, such as both parties honestly contracting for a different lot in a subdivision (mistake of fact). Innocent mistakes seldom serve to void a contract. A party cannot claim "mistake" to get out of a contract on the basis that he or she did not read the contract he or she signed and was therefore mistaken as to its material terms; neither ignorance nor poor judgment is a mistake of fact. Nor can a party claim mistake in not knowing the legal consequences upon signing the contract (mistake of law). When there is an ambiguity known by one party who fails to explain the mistake to the innocent party, the innocent party's interpretation generally will prevail.

mitigation: Measures taken to reduce adverse impacts on the environment. To make less severe, as in the "mitigation" of enviromental hazards.

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

mobile-home: Prefabricated trailer-type housing units that are semipermanently attached to land, which is either the owner's fee land or a leasehold, such as in a mobile-home park. Mobile homes are usually affixed to a concrete foundation and connected to utilities. Although they may not be as mobile as the word implies, they may be removed from such attachments and hauled to a new location. In this respect mobile homes possess the features of both real and personal property. They are like real property when the units are attached to the earth's surface, and like personal property when they are detached and moved. The courts, however, generally consider a mobile home as a fixture and thus treat it as real property.

mobile-home loan: A mortgage loan on a large mobile-home, usually drawn for a shorter term than conventional mortgages.

mobile-home park: An area zoned and set up to accommodate mobile homes by providing water hookups and sewage disposal for each home. The mobile-home park contains all utilities, streets, parking and amenities. Mobile-home parks are also called trailer parks.

mode: The most frequently occurring variate. (See variate)

modular housing: A relatively recent concept in home construction, aimed at producing housing more economically and faster through prefabricating processes; also called prefabricated housing. Modular methods expedite construction because the house itself can be built in the factory while the building site is being prepared, thus potentially eliminating costly delays. Some courts have held that the sale of an unattached modular home is the sale of personal property, and thus no written listing or real estate license is required to earn a commission.

molds: Molds are simple, microscopic organisms that are present virtually everywhere both indoors and outdoors. Molds are fungi and are needed to break down dead material and recycle nutrients in the environment. For molds to grow and reproduce they need only a food source such as leaves, wood, paper, or dirt - and moisture.

monetary policy: Governmental regulation of the amount of money in circulation through such institutions as the Federal Reserve Board. (See Federal Reserve)

month-to-month tenancy: A periodic tenancy under which the tenant rents for one month at a time. In the absence of a rental agreement (oral or written) a tenancy is generally considered to be month to month.

monument: A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description.

moratorium: 1.A temporary suspension of payments due under a financial obligation in order to help a distressed borrower recover from financial difficulties and avoid default and foreclosure. 2. A temporary suspension of issuing building permits. (See workout)

mortgage: A legal document used to secure the performance of an obligation. The term mortgage, which is derived from the French words mort meaning "dead" and gage meaning "pledge," is appropriate in that the pledge is extinguished only after the debt is paid. In the usual real estate transaction, the buyer seeks to borrow money to pay the seller the difference between the down payment and the purchase price. When the lender (mortgagee) lends the money, the buyer/borrower (mortgagor) is required to sign a promissory note for the amount borrowed and to execute a mortgage to secure the debt. The purpose of the mortgage note is to create a personal liability for payment on the part of the mortgagor; the purpose of the mortgage is to create a lien on the mortgaged property as security for the debt.

mortgage-backed security (MBS): A security guaranteed by pools of mortgages and used to channel funds from securities markets to housing markets. Ginnie Mae has a popular MBS program recognized for its low risk and high yield. The Ginnie Mae MBS security is a pool of VA and FHA mortgages put together as a bond. Freddie Mac and Fannie Mae also have MBS programs. (See FHA, Fannie Mae, Freddie Mac, Ginnie Mae, VA loan)

mortgage banker: A person, corporation or firm (not otherwise in banking and finance) that normally provides its own funds for mortgage financing as opposed to savings and loan associations or commercial banks that use other people's money - namely that of their depositors--to originate mortgage loans. Although some mortgage bankers do supply permanent long-term financing, the majority specialize in supplying short-term and interim financing, either through their own resources or by borrowing from commercial sources. Mortgage Bankers Association of America Website

mortgage broker/company: A person or firm that acts as an intermediary between borrower and lender; one who, for compensation or gain, negotiates, sells or arranges loans and sometimes continues to service the loans; also called a loan broker. Loans originated by the mortgage broker are closed in the lender's name and are usually serviced by the lender. This is in contrast to mortgage bankers, who not only close loans in their own names but continue to service them as well. Many mortgage brokers are also licensed as real estate brokers and provide these financing services as supplements to their realty services.

mortgage insurance: A kind of insurance policy that will pay off the mortgage balance in the event of death, and in some policies, disability. Premiums are paid with the regular monthly mortgage payment.

mortgage insurance premiums (MIP): Most FHA loans require the borrower to pay two mortgage insurance premiums: one upfront paid at closing; the second is an annual premium based on the loan balance each year.

mortgage lien: A lien or charge on the property of a mortgagor that secures the underlying debt obligations. (See lien)

mortgage loan disclosure statement: Borrower disclosure mandated by Article 7 of the Real Estate Law. (See Article 7)

mortgage revenue bonds: A type of tax-exempt industrial development bond offered by state and local governments through their housing financing agencies. (See industrial development bonds)

mortgagee: In a mortgage transaction, the party who receives and holds a mortgage as security for a debt, the lender. A lender or creditor who holds a mortgage as security for payment of an obligation.

mortgagee's title insurance: An insurance policy protecting the lender for the amount of the loan in the event of a future title dispute. (See owner's title insurance, title insurance)

mortgagor: In a mortgage transaction, the buyer/borrower is the mortgagor. The mortgagor is required to sign a promissory note for the amount borrowed and to execute a mortgage to secure the debt. The mortgage note creates a personal liability for payment on the part of the mortgagor. (See mortgage, promissory note)

Mrs. Murphy's Exemption: The common description of the exemption that applies to an owner-occupied building with four or fewer units.

multiclass mortgage securities: Short- and long-term mortgage securities, with or without pass-through privileges. (See pass-throughs)

multi-lender rule loans: Loans involving 10 or fewer investors regulated by the Corporation Commissioner.

multiperil policies: Many insurance companies offer multiperil policies for apartment and commercial buildings. Such a policy offers the property manager an insurance package that includes standard types of commercial coverage, such as fire, hazard, public liability and casualty. Special coverage for earthquakes and floods is also available.

multiple-listing clause: A provision in an exclusive listing for the authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.

multiple-listing service (MLS): A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive agency listings from their member brokers.

municipal bonds: Bonds issued to finance public improvements such as parks, schools and urban renewal projects.

must-buy buyers: Buyers looking for properties that meet specific needs.

must-sell sellers: A highly motivated or desperate seller.

mutual consent: A meeting of the minds; a mutual assent of the parties to the formation of the contract.

mutual mortgage insurance: Insurance premiums and other specified FHA revenues are paid into one of four FHA funds. Losses due to foreclosure are met from these funds.

N

naked title: Bare title to the property, lacking the usual rights and privileges of ownership. A trustee in a deed of trust securing instrument may hold the title to a secured property, but only such title as is needed to carry out the terms of the lien document. (See deed of trust)

National Association of Independent Fee Appraisers (NAIFA): A professional association of appraisers with more than 2,000 members nationally. NAIFA offers the specialty designations IFA (member), IFAS (senior member) and IFAC (appraiser-counselor). NAIFA Website

National Association of REALTORS® (NAR): Formerly known as the National Association of Real Estate Boards (NAREB), NAR is the largest and most prestigious real estate organization in the world. Its members include REALTORS® and REALTOR-ASSOCIATES® representing all branches of the real estate industry. The national organization functions through local boards and state associations. Active brokers who have been admitted to membership in state and local NAR boards are allowed to use the trademark REALTOR®. Salespeople are admitted on a REALTOR-ASSOCIATE® active status. NAR members subscribe to a strict Code of Ethics. NAR Website

National Bank Act of 1863: In 1863, President Abraham Lincoln, at the urging of Salmon Chase, the Secretary of the Treasury, signed the National Bank Act. The Act established a national banking system and a uniform national currency to be issued by new "national" banks. The banks were required to purchase U.S. government securities as backing for their National Bank notes. In 1865, a 10-percent tax levied against State Bank notes essentially taxed those notes out of existence. From 1863 to 1877, National Bank notes were printed privately by the issuing banks. After 1877, the Bureau of Engraving and Printing, a division of the U.S. Department of the Treasury, assumed responsibility for printing all notes.

National Environmental Policy Act: The Act requires an environmental impact statement for federal actions that significantly affect the quality of the environment. (See environmental impact statement) NEPAnet Website

negative amortization: A financing arrangement in which the monthly payments are less than the true amortized amounts and the loan balance increases over the term of the loan rather than decreases; an interest shortage that is added to unpaid principal.

negative declaration: A declaration by a developer that a project will not have a negative impact on the environment.

negative easement: An easement where the owner of a servient estate is prohibited from doing something on his or her estate that is otherwise lawful, because it will affect the dominant estate. (See easement)

negligence: The failure to use ordinary or reasonable care under the circumstances.

negligent misrepresentation: A negligent misrepresentation occurs when the broker should have known that a statement about a material fact was false. The fact that the broker may actually be ignorant about the issue is no excuse.

negotiable instrument: A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.

neighborhood information request: A questionnaire used by brokers to obtain information about the neighborhood where a listed property is located. The questionnaire is completed by the homeowner and can provide valuable information that will aid in the sale of the property. The questionnaire should include questions about neighborhood schools, recreational facilities, churches, shopping centers, medical facilities, and other features that may be important to prospective buyers.

net income approach: A method of pricing multiple unit rental properties where the desire to buy is driven by the property's ability to generate cash flow and profit. Most often used to price rental properties of 2 or more units. When pricing single-family rental homes and condos, the market approach is preferable. (See market approach, net operating income)

net lease: A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities and repairs.

net listing: An employment contract in which the broker receives as commission all excess monies over and above the minimum sales price agreed on by broker and seller. Because of the danger of unethical practices in such a listing, its use is discouraged in most states. (See listing agreement)

net operating income (NOI): The income projected for an income-producing property after deducting losses for vacancy, collection and operating expenses.

net proceeds: The cash received after paying all liens and expenses.

networking: Generating prospects through a real estate professional's communications with friends and professional associates. (See prospecting)

net worth: Assets less liabilities (See asset, liability)

no-choice rule: If a real estate transaction qualifies as an exchange, it must be treated as an exchange. An exchanger who qualifies for the 1031 tax-deferred exchange has "no choice," they cannot recognize the gain or loss. (See exchange)

no loan, no commission: A listing agreement requiring that escrow be closed and title transferred before an agent is entitled to a commission. (See listing agreement)

no-loss rule: If a real estate transaction qualifiies as an exchange, "no loss" can be recognized. (See exchange)

nominal damages: Monetary damages of a token amount awarded for a wrongful act where no loss occurred. (See compensatory damages, exemplary damages)

nominal interest rate: The stated interest rate in a note or contract, which may differ from the true or effective interest rate, especially if the lender discounts the loan and advances less than the full amount. (See effective interest rate)

non-agent: An intermediary between a buyer and seller, or landlord and tenant, who assists both parties with a transaction without representing either. Also known as a facilitator, transaction broker, transaction coordinator and contract broker.

non-conforming loan: A mortgage loan that does not meet Fannie Mae and Freddie Mac underwriting guidelines. Non-conforming loans are available as both fixed and adjustable rate mortgages. (See Fannie Mae, Freddie Mac)

nonconforming use: A use of property, legally permitted to continue as such, in spite of the orignial zoning ordinance which prohibited such use for the area.

noncumulative zoning: Zoning that allows only the stated use and not more restrictive uses. (See zoning)

nondisturbance clause: An agreement where the mortgagee agrees to honor a tenant's lease in the event that the mortgage is foreclosed.

nongeographic farming: Farming/prospecting a particular segment of the market such as an ethinic group or nationality, as opposed to a geographic area. (See farming, geographic farming)

nonhomogeneity: A lack of uniformity; dissimilarity. Because no two parcels of land are exactly alike, real estate is said to be nonhomogeneous. (See homogeneous).

noninstitutional lenders: Credit unions, pension funds, private individuals and real estate investment trusts. (See credit unions, institutional lenders, pension funds, real estate investment trusts).

nonjudicial foreclosure: The process of selling real property under a power of sale in a mortgage or deed of trust that is in default. One disadvantage is that the lender cannot obtain a deficiency judgment. Also, some title insurance companies are reluctant to issue a policy unless a court has judicially foreclosed the mortgagor's interest. (See judicial foreclosure, strict foreclosure)

notary public: A person who acknowledges oaths, such as the signing of a grant deed or deed of trust; must be duly appointed by the proper authorities.

note (original note): A document signed by the borrower of a loan and stating the loan amount, the interest rate, the time and method of repayment and the obligation to repay. The note serves as evidence of the debt. When secured by a mortgage, it is called a mortgage note, and the mortgagee is named as the payee. In a trust deed, the note is usually made payable to the bearer or holder. The note may also contain some of the same provisions as in the mortgage or trust deed document, such as prepayment or acceleration.

notice of cessation: A notice that gives subcontractors 30 days and gives prime contractors 60 days to file liens from the date of cessation of work. (See cessation of work)

notice of completion: A document recorded to give constructive notice that a building job has been completed. (See constructive notice)

notice of default: A notice to a defaulting party announcing that a default has occurred. The defaulting party is usually provided a grace period during which to cure the default. Notices of default are frequently provided for in contracts for deeds and mortgages and are sometimes required by operation of law.

notice of deliquency: In junior financing, where the borrower gives the senior lender permission to notify the junior lender in the event of a default. (See default, junior mortgage, senior loan)

notice of nonresponsibility: A legal notice designed to relieve a property owner of responsibility for the cost of improvements ordered by another person (such as a tenant). The owner usually gives notice that he or she will not be responsible for the work done by posting notice in some conspicuous place on the property, and by recording a verified copy in the public records.

novation: Substituting a new obligation for an old one or substituting new parties to an existing obligation.

nuisance: That which annoys and disturbs one in possession of his or her property, rendering its ordinary use physically uncomfortable.

nuncupative will: An oral will declared by the testator in his or her final illness, made before witnesses and then created in legal written form.

O

obedience: The fiduciary relationship obligates the agent to act in good faith at all times, obeying the principal's instructions in accordance with the contract. However, that obedience is not absolute. The agent may not obey instructions that are unlawful or unethical. Because illegal acts do not serve the principal's best interests, obeying such instructions violates the broker's duty of loyalty. On the other hand, an agent who exceeds the authority assigned in the contract will be liable for any losses that the principal suffers as a result.

obligor: A promisor; one who incurs a lawful obligation to another (the obligee). The maker of a promissory note is an obligor. In a performance bond, the contractor is the obligor. One who guarantees the performance of the obligation is a surety; also called a guarantor. (See payor)

obligatory advance: Any advance which, under the terms of the credit line deed of trust or other agreement, the secured party has legally obligated itself to make in the absence of a default, breach, or other such event. Obligatory advances include, but are not limited to, advances which the secured party has agreed to make as a term or condition of the credit line deed of trust or other related agreement; obligations arising out of the occurrence of a condition, event or circumstance contemplated by the agreement; obligations arising on a specified date or time; or advances made upon application therefor by the grantor under the credit line deed of trust or by another obligor whose indebtedness is secured by the deed of trust.

obsolescence: The loss of value due to factors that are outmoded or less useful. Obsolescence may be functional or economic.

occupancy permit: A permit issued by the appropriate local governing body to establish that the property is suitable for habitation by meeting certain safety and health standards.

Occupational Safety and Health Act (OSHA): Congress created OSHA under the Occupational Safety and Health Act, which was signed by President Richard M. Nixon on December 29, 1970. OSHA's mission is to prevent work-related injuries, illnesses and deaths. OSHA Website

offer: An offer is a promise made by one party, requesting something in exchange for that promise. The offer is made with the intention that the offeror will be bound to the terms if the offer is accepted. The terms of the offer must be definite and specific and must be communicated to the offeree.

offer and acceptance: Two essential components of a valid contract; a "meeting of the minds." (See acceptance, offer)

offeree: The person to whom an offer is made - usually the owner.

Office of Thrift Supervision (OTS): Monitors and regulates the savings and loan industry. OTS was created by FIRREA. OTS Website

office property: Income-producing commercial property from which a particular service is rendered.

offeror: The party who makes an offer - usually the buyer.

offsite improvements: Improvements made outside of a property's boundaries, such as sidewalks and streets.

oil and gas lease: A grant of the sole and exclusive right to extract oil and/or gas from beneath the surface of land. Such a lease is generally for a designated term of years and is subject to a payment of royalties in the event of production, the commencement of drilling operations on or before a specified date and the performance within a specified time of a certain amount of development work. Typically, an express or implied easement is granted to enter the property in order to drill.

one-hundred-percent commission plan: Some firms have adopted a 100 percent commission plan. Salespersons in these offices pay a monthly service charge to their brokers to cover the costs of office space, telephones and supervision in return for keeping 100 percent of the commissions from the sales they negotiate. The 100 percent commission salesperson pays all of his or her own expenses.

one stop shopping: An arrangement where settlement and service providers are all available through the broker.

open-buyer-agency-agreement: This agreement is a nonexclusive agency contract between a broker and a buyer. It permits the buyer to enter into similar agreements with an unlimited number of brokers. The buyer is obligated to compensate only the broker who locates the property the buyer ultimately purchases.

open-end loan: A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.

open-end trust deed: An expandable loan in which the borrower is given a limit up to which he or she may borrow, with each incremental advance to be secured by the same trust deed.

open house: The common real estate practice of showing listed homes to the public during established hours.

open listing: A listing given to any number of brokers who can work simultaneously to sell the owner's property. The first broker to secure a buyer who is ready, willing and able to purchase at the terms of the listing earns the commission. In the case of a sale, the seller is not obligated to notify any of the brokers that the property has been sold.

Unlike an exclusive listing, an open listing need not contain a definite termination date. The listing terminates after a reasonable time, usually whatever is customary in the community. Either party can, in good faith, terminate the agency at will. (See listing agreement)

open-market operations: The buying and selling of government securities by the Federal Reserve to control the amount of money in circulation.

operating budget: A projection of income and expenses for the operation of a property over a one year period.

operating expenses: Those recurring expenses that are essential to the continuous operation and maintenance of a property. Operating expenses are generally divided into the following categories: fixed expenses such as real property taxes and building insurance; variable costs such as utilities, payroll, administration and property management fees; and reserves for replacement. Operating expenses do not include items such as mortgage payments, capital expenditures and depreciation.

opportunity cost: Earnings that may be available on alternative investments.

option: An agreement to keep open, for a set period, an offer to sell or lease real property.

opinion of title: An opinion of the marketability of a title given by an attorney based on the abstract of title. (See abstract of title)

option listing: A listing in which the broker also retains an option to purchase the property for the broker's own account. In view of the body of litigation involving breach of fiduciary duties by brokers who conceal offers from buyers until after the broker has exercised the option, full and fair disclosure must be given to the seller. (See listing agreement)

ordinance: A military weapon or item of destruction (e.g. bullets). (See military ordinance location)

original basis: The sum of the purchase price of a property plus buying expenses on acquisition. (See basis)

ostensible agency: A form of implied agency relationship created by the actions of the parties involved rather than by written agreement or document. (See implied agency)

other income: Refers to income other than rent, such as vending and laundry machines, storage or parking space income, and so on.

overriding trust deed: See wraparound mortgage

owner-occupied: A property where the owner physically occupies the property.

ownership: The right to use, possess, enjoy, transfer, and dispose of a thing to the exclusion of all others.

owner's title insurance: An insurance policy protecting the buyer for the amount of the purchase price in the event of a future title dispute. (See mortgagee's title insurance, title insurance)