Glossary of Commercial Real Estate Loan Terms

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ACCELERATED COST RECOVERY SYSTEM (ACRS): The system for figuring depreciation (cost recovery) for depreciable real property acquired and placed into service after January 1, 1981.

ACCELERATED DEPRECIATION: A method of cost write-off in which depreciation allowances are greater in the first few years of ownership than in subsequent years. This permits an earlier recovery of capital and a faster tax write-off of an asset.

ACCELERATION CLAUSE: A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the occurrence of an event, such as a sale of the property, or a delinquency in the repayment of the Note.

ACCRUED DEPRECIATION: The difference between the cost of replacement new as of the date of the appraisal and the present appraised value.

ACRE: A measure of land equaling 4,840 square yards or 43,560 square feet, or a tract about 208.71 feet square.

ACQUISITION AND DEVELOPMENT LOAN (A&D LOAN): This loan provides for the purchase and the preparation of raw land for subdivision use. It usually includes the streets and all of the utilities. The source of repayment is a construction loan or sale.

ADJUSTABLE MORTGAGE LOANS (AML'S): Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARMS), Flexible Rate Loans and Variable Rate Loans.

AD VALOREM: A Latin phrase meaning “according to value.” Usually used in connection with real estate taxation.

ADVERSE POSSESSION: A method of acquiring title to real property through possession of the property for a statutory period under certain conditions by a party other than the owner of record.

AIR RIGHTS: The rights in real property to the reasonable use of the air space above the surface of the land.

AMORTIZATION: The liquidation of a financial obligation on an installment basis; also, recovery over a period of cost or value.

AMORTIZED LOAN: A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

ANNUAL PERCENTAGE RATE: The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth in Lending Act.

APPRAISAL: An estimate of the value of property resulting from an analysis of facts about a property. An opinion of value.

APPRAISER: One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgment, facts, and use of formal appraisal processes.

AREA: The surface (plane) space of land or a building. Also describes a neighborhood, or large land section (such as the Southern California area). The term may also indicate a use, such as a work area, living area, play area, etc.

ARTICLES OF INCORPORATION: An instrument setting forth the basic rules and purposes under which a private corporation is formed.

ARTIST'S CONCEPTION (RENDERING): A drawing of a proposed real estate project. Not necessarily to scale and generally used to promote the sale or vacant land-or the leasing of proposed buildings.

ASSEMBLAGE: The acquisition of contiguous properties into one ownership for a specific use.

ASSESSED VALUE: The value placed upon property for property tax purposes by the tax assessor.

ASSESSMENT: (1) The estimating of value of property for tax purposes; (2) A levy against property in addition to general taxes. Usually for improvements such as streets, sewers, etc.

ASSIGNMENT: A transfer to another of any property in possession or in action, or any estate or right therein. A transfer by a person of that person’s right under a contract.

ASSIGNMENT OF RENTS: A provision in a mortgage (or deed of trust) under which the lender, upon default by the borrower, may take possession of the property, collect income from the property and apply it to the loan balance and costs incurred by the lender.

ASSIGNOR: One who assigns or transfers property.

ASSIGNS, ASSIGNEES: Those to whom property or interests therein shall have been transferred.

ASSUMPTION AGREEMENT: An undertaking or adoption of a debt or obligation primarily resting upon another party.

ASSUMPTION FEE: A lender’s charge for changing over and processing new records for a new owner who is assuming an existing loan.

ASSUMPTION OF MORTGAGE: The taking of a title to property by a grantee wherein the grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against the property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.

ATTORNEY IN FACT: One who is authorized by another to perform certain acts for another under a power of attorney; power of attorney may be limited to a specific act or acts, or be general.

AVERAGE DAILY TRAFFIC: The number of vehicles passing a given point in one day. Usually obtained by finding the number for several days and averaging.

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BALANCE SHEET: A statement of the financial condition of a business at a certain time, showing assets and liabilities.

BALLOON: (1) The final payment of a balloon note; (2) A landlocked parcel of land.

BALLOON NOTE: A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a balloon is due at maturity.

BASE RENT: A specific amount used as a minimum rent in a lease which uses a percentage or overage for additional rent.

BASIS FOR DEPRECIATION: The value of property for purposes of depreciation. For example: A purchased asset, the basis is cost, whether fully paid for or not. The method for determining the basis is different for gift, inheritance, etc.

BASIS POINT: A finance term meaning a yield of 1/100th of 1% annually.

BEDROCK: Solid rock beneath the soil, as distinguished from rocks or boulders.

BLANKET MORTGAGE: A single mortgage or deed of trust which covers more than one property.

BOND: An interest-bearing certificate issued by a government agency or business promising to pay the holder a specified sum on a specific date.

BOOK COST: The actual cost as carried in the account ledger.

BOOK VALUE The value of a property as a capital asset (cost plus additions to value, less depreciation).

BREAK EVEN POINT In income property, when there is neither a positive nor a negative cash flow.

BRIDGE FINANCING: A form of interim loan, generally made between a short term loan and a permanent (long term) loan, when the borrower needs to have more time before taking the long term financing.

BRIDGE LOAN: A loan that spans a gap between two other loans. This loan can arise if a builder wishes to pay off a higher interest construction loan, but not sell the project for few years, when he believes the interest rates will improve. A bridge loan is usually outstanding for two to live years and can be prepaid with little or no penalty.

BUILDING CODE: A systematic regulation of construction of buildings within a municipality established by ordinance or law.

BUILDING RESTRICTIONS: Zoning, regulatory requirements or provisions in a deed limiting the type, size and use of a building.

BUNDLE OF RIGHTS: All of the legal rights incident to ownership of property including rights of use, possession, encumbering and disposition.

BUFFER STRIP (BUFFER. ZONE): A parcel of land separating two other parcels or areas, such as a strip of land between an industrial and residential area.

BUILDER: One whose occupation is the construction of structures (buildings).

BUILDER BOND: (See: Performance Bond).

BUILDING CODE: A comprehensive set of laws which control the construction of buildings, including design, materials used, construction, use repair, remodeling and other similar factors.

BUILDING CONTRACT: A contract setting forth the terms under which construction is to be undertaken. Price may be set, or based on the builder's cost plus a profit.

BUILDING PERMIT: A permit given by a local government to construct a building, or make improvements.

BUILDING RESIDUAL TECHNIQUE: An appraisal method by which building and land are appraised separately, based on potential income. Used to determine if the building is adequate for the land value.

BUILDING RESTRICTIONS: Prohibition by a governmental body (zoning restriction) or a private party (a former owner) against construction of certain structures on a property.

BUILD TO SUIT: A method of leasing property whereby the lessor builds to suit the tenant (according to the tenant's specifications). The cost of construction is figured into the rental amount of the lease, which is usually for a long term. .

BULK SALE: A transfer in bulk, not in the ordinary course of business, of all or substantially all of the inventory and fixtures of a business.

BULK SALES ACT: Laws to protect creditors against secret sale of all or substantially all of a merchant's goods. Requires certain notice before sale, and sets forth methods of voiding improper sales. (See also: Uniform Commercial Code.)

BULK ZONING: Mainly residential zoning which regulates the ratio of improvements to land, setbacks, etc.

BUSINESS OPPORTUNITY: The sale of a business (may or may not include the sale of real estate). Some states require a real estate license.

BUY DOWN: A purchased reduction in interest rates and payments. For example; a developer may pay a lender to bring the interest rates on a home mortgage down three or four points for a period of three years. This allows the buyer to qualify at his income level, although the rate will climb to market revel for him in the fourth year. There are other buy downs as well.

BYLAWS: Rules for the conduct of the internal affairs of corporations and other organizations.

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CC&Rs: Covenants, conditions and restrictions. The basic rules establishing the rights and obligations of owners (and their successors in interest) of real property within a subdivision or other tract of land in relation to other owners within the same subdivision or tract and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.

CAP: The maximum amount to which an interest rate may increase.

CAPITAL ASSETS: Assets of a permanent nature used in the production of an income stream, such a land, buildings, machinery and equipment. Under income tax law, it is usually distinguishable from “inventory” which comprises assets held for sale to customers in the ordinary course of the taxpayer’s trade or business.

CAPITAL EXPENDITURES: Money spent on improvements such as land, buildings, machinery, and similar major expenditures which are not inventory.

CAPITAL GAIN: At resale of a capital item, the amount by which the net sale proceeds exceed the adjusted cost basis (book value). Used for income tax computations. Gains are called short or long term based on the length of the holding period after acquisition. Usually taxed at lower rates than ordinary income.

CAPITALIZATION: Determining a present value of income property by taking the annual net income (either known or estimated) and discounting by using a rate of return commonly acceptable to buyers of similar properties. For example: Net income of a property is $10,000 per year. Capitalizing at a rate of 10%, the property would be worth $100,000.

CAPITALIZATION APPROACH: (See Income Approach).

CAPITALIZATION RATE: The percentage (acceptable to an average buyer) used to determine the value of income property through capitalization.

CAPITALIZE: To determine the present money value of future income, whether estimated or fixed.

CAPITALIZED VALUE: The value of the property after use of the capitalization approach of appraisal.

CAP RATE: An investor's net yield used to determine the value of an income producing property.

CAP RATE (APPRAISAL): (See: Capitalization Rate)

CASH FLOW: In investment property, the actual cash the investor will receive after deduction of operating expenses and debt service (loan payment) from his gross income.

CERTIFICATE OF DEPOSIT: Bank instrument representing the investment of funds for a guaranteed return.

CERTIFICATE OF OCCUPANCY: A certificate issued by a local building department to a builder or renovator, stating that the building is in proper condition to be occupied.

CHATTEL MORTGAGE: A claim on personal property (not real property) used to secure or guarantee a promissory note.

CLOSING: Process by which all parties to a real estate transaction conclude the details of a sale or financing. The process includes the signing and transfer of documents and distribution of funds.

CLOSING COSTS: The miscellaneous expenses buyers and sellers or borrowers normally incur in the transfer of ownership or financing of real property.

CLOSING STATEMENT: An accounting of funds made to the buyer and seller (or lenders and borrowers) separately. Also referred to as a “settlement statement.” Required by law to be made at the completion of every real estate transaction.

COASTAL COMMISSION: A commission set up to control construction in coastal areas.

COLLATERAL: Marketable real or personal property which a borrower pledges as security for a loan.

COMMERCIAL PROPERTY: Property which is zoned "commercial" (for business uses). Property such as stores, restaurants, etc. falling between residential and industrial.

COMMINGLED FUNDS: Accounts set up by lenders to attract pension fund dollars into real estate. These funds are either open-ended (investors can withdraw funds at any time) or closed-end (investors are committed once they invest). Commingled funds are also used to attract foundation and endowment money.

COMMISSION: An agent’s compensation for performing duties in relation to the sale, leasing or financing of real property.

COMMITMENT: A pledge or promise or firm agreement to do something in the future, such as a lender giving a written commitment to make a loan.

COMMUNITY SHOPPING CENTER: An intermediate size shopping center. May contain a small department store and coordinated small shops. Larger than a neighborhood center and smaller than a regional center.

COMPARABLES: Properties used as comparisons to determine the value of a specific property.

COMPARATIVE METHOD: A method of estimating replacement construction cost by comparing the property to be built with the cost per square foot or cost per cubic foot of a similar building.

COMPARISON METHOD: (See: Market Value Approach)

COMPENSATING BALANCE: Funds deposited into a bank, saving and loan association, or other lending institution, to induce the lender to make a specific loan or establish a line of credit. The deposit may be made by the party desiring the loan, or a third party.

COMPOUND INTEREST: Interest paid on original principal and on the accrued and unpaid interest which has accumulated as the debt matures.

CONCRETE TILT-UP: An inexpensive method of constructing walls by pouring concrete into forms flat on the ground, allowing to harden, then raising the forms by a crane or block and lied to a vertical position, thereby forming the wall.

CONDEMNATION: (1) The act of taking private property for public use by a political subdivision upon payment to owner of just compensation. (2) Declaration that a structure is unfit for use.

CONDOMINIUM: An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in a specific space (often called a “unit”), the boundaries of which are described on a recorded final map, parcel map or condominium plan. The areas within the boundaries may be filled with air, earth, water or any combination and need not be attached to land except by easements for access and support.

CONDOMINIUM DECLARATION: The document which establishes a condominium and describes the property rights of the unit owners.

CONSTRUCTION COST: The total cost of building, including overhead and profits as well as land, labor and materials.

CONSTRUCTION LOAN: Short term financing of real estate construction. Generally followed by long term financing called a "take out" loan, issued upon completion of improvements. The lender usually makes portions of the funds available as construction progresses.

CONTIGUOUS: Near or close to, whether actually touching or not. Generally refers to actual touching or bordering on.

CONTRACT OF SALE: (ALSO AGREEMENT FOR/OF SALE) A contract in which the buyer agrees to purchase property from the seller and the seller relinquishes possession of the property but retains title until the loan has been paid.

CONTRACTOR: (See: General Contractor; Subcontractor).

CONTRACTOR'S OVERHEAD: Expenses over and above labor and materials, such as return on money invested, carrying costs of land, office expense, interest on loans, etc.

CONTRACTOR'S PROFIT: Price at which property is sold, less costs of land, labor and materials, and overhead.

CONTRACT RENT: The actual rent paid under a lease, as opposed to the market rent for the property.

CONVERTIBLE MORTGAGE: A mortgage (usually 10 years) where the lender also retains the option to call the loan or assume a percentage of the equity in the property (in some cases it may be 100 percent) at some specified point during the term of the loan. Convertible mortgages are usually used only for commercial properties. The lender is usually a pension fund or other tax exempt entity. The loan usually covers all costs and sometimes includes a cash bonus for the developer.

CONVEYANCE: The transfer of ownership of real property from one person to another or the document by which the transfer is affected.

COOPERATIVE (CO-OP): Where an association (corporation) owns a housing unit and members rent from the association. Members have the right to rent by virtue of the membership in the association. When members leave the unit, they can sell their membership to outsiders, but the outsider usually must be approved by the association.

CORPORATION: An entity established and treated by law as an individual or unit with rights and liabilities, or both, distinct and apart from those of the persons composing it.

COST: Technical1y, the original amount paid for anything. The term is generally used as a synonym for value or the total amount invested, including expenses after the original purchase.

COST APPROACH: An appraisal method, estimating the replacement cost of a structure, less depreciation, plus land value.

COST ESTIMATING: (1) In construction, the expenditure of building based on a detailed cost of materials to be used. (2) In appraisal the term is general, referring to replacement cost, but not limited to a specific method of arriving at said cost.

COST OF LIVING ESCALATION: (See: Escalation Clause)

COST OF LIVNG INDEX: A government indicator of the increase or decrease of living costs for the average person on a monthly basis

COST OF REMODELING: Expense of alterations to raise the value of a property, rather than to make repairs.

COST OF REPAIRS: Expenses to maintain the value of a property by restoring the worn-out or broken parts of the structure.

COST-PLUS CONTRACT: A building contract setting the builder's profit at a set percentage of actual cost of labor and materials.

COUPON RATE: The interest rate or rate of return printed on the face of the loan. This is not the true rate. Loan fees or points must be included to arrive at the true interest rate.

CREDIT COMPANY: A lending organization whose source of funds is the stock market, the commercial paper market, commercial banks and the bond market.

CUSTOM BUILDER: One who builds for a specific owner, designing the building to suit said owner's need, rather than building and then looking for a buyer.

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DCR: (See: Debt Service Coverage Ratio)

DEAD RENT: In commercial percentage leases, usually called minimum rent or base rent.

DEBTOR'S POSITION: Value of property over the amount of mortgages. Commonly called the equity.

DEBT SERVICE: The amount of financing (mortgages or trust deeds) on a property. The principal and interest required annually, quarterly or monthly by the note.

DEBT SERVICE COVERAGE RATIO (DCR): Mathematical equation used by lenders to determine the amount of mortgage payments a building's cash flow can support.

DEBT/EQUITY COMBINATION MORTGAGES: Where the lender requires a share of the equity in a project as well as interest and repayment of principal.

DEED: Written instrument which when properly executed and delivered conveys title to real property from one party (grantor) to another (grantee).

DEED IN LIEU OF FORECLOSURE: A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.

DEED OF RECONVEYANCE: After a loan has been retired the trustee (the holder of a trust deed) prepares a deed of reconveyance and records it. This action clears a trust deed and the trustee no longer claims title to the unleveraged property. (Also see Trust Deed)

DEED OF TRUST: (See: Trust Deed)

DECLINING BALANCE METHOD OF DEPRECIATION: Depreciation by a fixed annual percentage of the balance after deducting each yearly depreciation amount.

DEFEASANCE: A provision that voids a loan when the borrower sets aside cash or bonds sufficient enough to service the borrower’s debt. The borrower sets aside cash or a purchase bond to release the mortgage lien prior to maturity without interrupting the original expected cash flow to the investors in the securities backed by mortgages (CMBS). Defeasance reduces the investor’s risk of reinvesting prepayment proceeds in an uncertain interest rate environment.

DEFERRED MAINTENANCE: Repairs necessary to put a property in good condition. A concern of a purchaser. An owner may have an account for such maintenance.

DEFICIENCY JUDGMENT: A judgment given by a court when the value of a security pledged for a loan is insufficient to pay off the debt of a defaulting borrower.

DEPRECIABLE LIFE: A tax term meaning the number of years used to determine depreciation of an asset (generally a building). The time used is determined by the local IRS office under general guide lines.

DEPRECIABLE PROPERTY: Property on which a useful life can be determined for depreciation. For example: A building is depreciable (has a lifetime) but the land under it is not (lasts forever).

DEPRECIATION: (l) Decrease in value to real property improvements caused by deterioration or obsolescence. (2) A 1oss in value as an accounting procedure to use as a deduction for income tax purposes. (See specific types of depreciation).

DEPRECIATION METHODS: Accounting methods to compute the decrease in value of an improvement.

DEPRECIATION RESERVE: An account for the amount needed for depreciation caused by time and use of equipment, buildings, etc. Common in accounting of public utilities.

DEVELOPER: (1) A builder. (2) One who prepares the raw land for construction and then sells lots to a builder.

DEVELOPMENT: A planned construction project, rather than simply the building of unrelated buildings.

DEVELOPMENT COST (See: Off-Site improvements)

DEVELOPMENT LOAN: A loan for the purchase of land or off-site improvements, rather than building costs. The land involved is used to secure the loan.

DISCOUNTED CASH FLOW: The present value of future cash flow, determined by a given discount rate.

DISCOUNTED INCOME: This is a process by which lenders discount expected future income in order to express the future income dollars back to present value. The purpose is to find the value in today's dollars of the inflated dollars to be received in the future.

DUE ON SALE CLAUSE: An acceleration clause granting the lender the right to demand full repayment of a mortgage loan upon a sale of the secured property.

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EARNEST MONEY: Down payment made by a purchaser of real property as evidence of good faith.

ECONOMIC LIFE: The 'profitable" life of an improvement. Generally shorter than the physical life (before it is worn out).

ECONOMIC OBSOLESCENCE: Loss of desirability and useful life of a property through economic forces, such as zoning changes, traffic pattern changes, etc., rather than deterioration (functional obsolescence).

ECONOMIC RENT: The market rental value of a property at any given time, even though the actual rent may be different.

EFFECTIVE GROSS INCOME: (See: Adjusted Gross Income)

ENVIRONMENTAL IMPACT REPORT (EIR): A report of the probable effect of a development on the surrounding area (environment). The report is prepared by an independent company to federal, state, or local guidelines.

EQUITY: l) The degree of ownership an entity has in a property; 2) The value of a property beyond the amount owed on it in liens; 3) The amount of money raised by investors.

EQUITY PARTICIPATION: (See: Participation)

ESTOPPEL: A legal theory under which a party is barred from asserting or denying a fact because of that party’s previous actions or statements.

EURODOLLARS: Dollars located in banks outside U.S. borders. Interest rates for Eurodollar loans float, based upon supply and demand. Terms are usually three years or less.

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FAÇADE: The front of a building, often used to refer to a false front and as a metaphor.

FAIR MARKET VALUE: The amount of money that would be paid for a property offered on the open market for a reasonable period of time, with both buyer and seller knowing all the uses to which a property could be put and with neither party being under pressure to buy or sell.

FANNIE MAE (FNMA): An acronym for Federal National Mortgage Association.

FAIR RENTAL: (See: Economic Rent)

FEASIBILITY SURVEY: A study of an area before construction of a project, to determine the probable financial success of the project.

FEDERAL RESERVE SYSTEM: The federal banking system of the United States. The Federal Reserve System includes 12 regional reserve banks and a board of governors (The Fed) in Washington, D.C. The Fed supervises its member banks, issues regulations aimed at promoting sound banking practices, makes loans to banks in temporary need and controls the money supply. Reserve banks hold member banks' reserves and issue new currency (Federal Reserve Bank notes).

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): An agency of the federal government which insures accounts contained in member institutions and repays the depositors in the event that the bank or S&L should fail. In the event of a failure, the FDIC will total all of a person's deposits in the institution, including savings accounts, checking accounts, CDs and other deposits and reimburse for loss up to a maximum of $100,000.

FINANCIAL STATEMENT: An accounting statement showing assets and liabilities of a person or company. Used generally for large loans or other instances when the credit report (history of payment of debts) in itself is not sufficient.

FINANCING STATEMENT: An instrument which is filed in order to give public notice of the security interest and thereby protect the interest of the secured parties in the collateral.

FIRST MORTGAGE: A legal document pledging collateral for a loan that has first priority over all other claims against the property except taxes and bonded indebtedness.

FIRST TRUST DEED: A legal document pledging collateral for a loan that has first priority over all other claims against the property except taxes and bonded indebtedness.

FIXED RATE MORTGAGE WITH AN EARLY CALL: This is a traditional fixed rate mortgage, but the lender has the option to call the loan due and payable (usually in less than 10 years). Life companies and some banks offer this program.

FLOATING RATE MORTGAGES: Lenders offer these mortgages with 25 to 30 years amortization. The rate moves with the float of the bank's prime rate. This type is often issued to smaller projects requiring intensive management. Large projects require a very strong borrower and considerable cash.

FORWARD COMMITMENT: A pledge from a lender to provide a loan at a future date. These commitments often are used as takeouts to secure construction loans.

FORWARD EQUITY TAKEOUT (Also FORWARD EQUITY COMMITMENT): Advance purchase commitments. Life Companies write forward commitments to purchase the project upon completion. Often a minimum lease up is required. The commitment can be used to arrange the construction loan just like a forward mortgage commitment. These usually cover all of the developer's costs plus a profit.

FOUNDATION: The part of a building which supports the superstructure, usually below ground level.

FRACTIONAL APPRAISAL: An appraisal of a portion of a property, such as the value of a leasehold interest, value of an improvement without land, etc.

FRAME CONSTRUCTION: Type of construction in which the structural parts are of wood or are dependent on a wooden frame for support.

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GAP COMMITMENT: A commitment to loan the difference between the floor amount of a take out loan and the full amount. The commitment is issued to enable a construction lender to loan the full amount of a take out commitment, rather than only the floor amount. (See also: Floor Loan; Take Out Loan).

GARDEN APARTMENTS: An apartment development consisting of two or more structures, surrounded by an abundance of lawns, plants, flowers, etc. giving a garden-like atmosphere.

GENERAL ACCOUNTS: The accounts into which insurance company cash flow goes. Pension fund cash invested in General Accounts earns the same rate that the life company earns (minus a management percentage for the Life Company).

GENERAL CONTRACTOR: One who contracts for the construction of an entire building or project, rather than for a portion of the work. The general contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the subcontractors.

GENERAL PARTNER: A member of a partnership who has authority to bind the partnership and shares in the profits and losses. A partnership must have at least one general partner and may have more, as well as limited partners.

GENERAL PARTNERSHIP: A partnership made up of general partners, without special (limited) partners. (See also: Limited Partnership: Partnership).

GIC: (See: Guaranteed Investment Contract)

GOOD WILL: A salable asset of a business, based on its reputation rather than its physical assets.

GPM: (See: Graduated Payment Mortgage)

GRADED LEASE: (See: Step-Up Lease)

GRADUATED LEASE: A lease calling for a varying rental, usually based on periodic appraisal or simply the passage of time.

GRADUATED PAYMENT MORTGAGE: A mortgage or deed of trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments. The payments then increase as (theoretically) the buyer's earnings increase.

GRANDFATHER CLAUSE: The clause in a law permitting the continuation of a use, business, etc., which when established, was permissible but, because of a change in the raw, is now not permissible.

GROSS EFFECTIVE INCOME: (See: Adjusted Gross Income).

GROSS INCOME: The scheduled (total) income, either actual or estimated, derived from a business or property.

GROSS INCOME MULTIPLIER: A figure which, when multiplied by the annual gross income, will theoretically determine the market value. A general rule of thumb which varies with specific properties and areas.

GROSS LEASE: A lease which obligates the lessor to pay all or part of the expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.

GROUND RENT: Rent paid for vacant land. If the property is improved, ground rent is that portion attributable to the land only.

GUARANTEED INVESTMENT CONTRACT: The money market instrument issued by life insurance companies to pension funds guaranteeing a fixed rate of interest for a guaranteed time period.

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HEDGING: A complicated procedure which basically allows a borrower to pay what amounts to a fixed rate on a floating rate loan.

HIGHEST AND BEST USE: The use of land which will bring the greatest economic return over a given time.

HIGH-RISE APARTMENT BUILDING: An apartment building considered 'high" in the area where it is built. There is no national height standard.

HOLD OVER TENANT: A tenant who retains possession after the expiration of a lease.

HOTEL: Originally, any place for travelers to spend the night. Any hotel built today would be a multi-stored structure having sleeping rooms with private bathrooms, suites, telephones in each rentable room, at least one restaurant, and many other amenities.

HUNDRED PERCENT LOCATION: An appraisal term referring either to land of the highest value in an area, or land best suited to a specific use.

HYPOTHECATE: Pledging something (a pool of mortgages or a shopping center for example) to secure a loan. Usually over collateralization (where the value of the pledge far exceeds the value of the loan) is involved.

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I-BEAM: An iron or steel structural framing member, in cross-section forming the letter I.

IMPOUND ACCOUNT: Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

IMF: See International Monetary Fund below.

IMPROVED LAND: Land having either on-site improvements, off-site improvements, or both.

IMPROVED VALUE: An appraisal term encompassing the total value of land and improvements (buildings) rather than the separate value of each.

IMPROVEMENTS: Generally, buildings, but may include any permanent structure or other development, such as a street, utilities, etc. (See also: On-site Improvements; Off-Site Improvements).

IMPROVEMENTS-ON-LAND: (See: Off-Site Improvements).

INADEQUATE IMPROVEMENT: (See: Under improvement)

INCOME: Generally, any increase in the assets of a person or corporation caused by labor, sales, or return on invested funds. May be different for tax purposes.

INCOME (CAPITALIZATION) APPROACH: An appraisal method to determine the value of rental property by use of the estimated net income over the life of the structure, discounted to determine its present value.

INCOME PROPERTY: Property which produces income, usually from rental. May also include any property not entirely owner occupied. .

INCREASE CLAUSE: (See: Escalation Clause)

INCURABLE DEPRECIATION: (See: Economic Obsolescence)

INDEPENDENT APPRAISAL: An appraisal by one who has no interest in the property or nothing to gain from a high or low appraisal.

INDEXING: Relating the rate of a loan to the numerical behavior of an index, for example, the 11th District Cost of Funds Index (COFl) or the Consumer Price Index (CPI)

INDEX LEASE: (See: Escalation Clause)

INDIRECT CONSTRUCTION COSTS: Those costs other than labor and materials, such as administrative costs, financing costs, taxes and insurance, loss of interest on money invested, etc.

INDUSTRIAL PROPERTY: (l) Land which is zoned industrial. (2) Real property improved specifically for industrial use.

INDUSTRIAL REVENUE BOND: (IRB): A bond to be used for the construction or rehabilitation of public buildings and installations which is to be retire by the income from the building or installation. IRB income is exempt from federal taxation, some municipals' and states' taxation, and some foreign countries' taxation.

INTEREST: (1) A portion, share or right; partial, not complete ownership. (2) The charge for use of money for a period of time.

INTEREST ONLY LOAN: A non-amortizing loan in which the lender receives only interest during the specified term of the loan and principal is repaid in a lump sum at maturity.

INTEREST RATE: The percentage of a sum of money charged for its use. Rent or charge paid for use of money, expressed as a percentage per month or year of the sum borrowed.

INTEREST RATE CAP: The maximum interest rate increase of an Adjustable Mortgage Loan. For example: a 12% loan with a 5% interest rate cap would have maximum interest for the life of the roan which would not exceed 17%.

INTERIM FINANCING: Temporary financing, usually for construction. A short term real estate loan of any type, payable in two years or less.

INTERIM LOAN: (See: Interim Financing).

INTERMEDIATE LOAN: A loan maturing between six and nine years of origination. Intermediate loans usually require amortization of the principal. The due date is usually shorter than the amortization term.

INTERNAL RATE OF RETURN (IRR, DISCOUNTED CASH FLOW): A forecast designed to estimate the net rate of return over a period of future time by comparing the present value of future benefits to the present value of the investment outlay. The process requires estimates of future inflation and its effects upon income, expenses and future sale capitalization rates. The purpose of the IRR is to compare yields on investments which have different types of returns (bond interest versus real estate appreciation, for example).

INTERNATIONAL MONETARY FUND (IMF): An association of governments to promote international cooperation, the expansion and growth of international trade, and exchange stability. The IMF permits members to adjust a poor balance of payments without resorting to destructive measures.

IRB: See Industrial Revenue Bond above.

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JOINT VENTURE (JV): A financial partner provides capital for a project and shares in the project's profits. Life companies and other institutional or private lenders may fund JVs in which all of the developer's costs are covered. Usually the lender gets 50 percent of the ownership. The real negotiations relate to coverage of the developers' fees and costs. JV lenders often require that their return be a preferred return.

JUNIOR MORTGAGE: A mortgage recorded subsequently to another mortgage on the same property, or made subordinate by agreement to a later-recorded mortgage.

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KICKER: An additional return to a lender from a loan beyond the interest, the fee and the amortization of the principal. Example: the lender shares equity or income or both with the borrower after the project is completed. Kickers usually apply to permanent or term loans only.

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LAND ACQUISITION AND DEVELOPMENT LOAN: (See: Acquisition and Development Loan, above).

LAND LOAN: A loan in which the security is raw land.

LAND SALE/LEASEBACK: A situation where an investor purchases land and then leases it back to the developer for a fixed rent and other considerations. The lender concurrently issues a mortgage on the leasehold at current market rates. This usually induces a kicker. This deal often provides more dollars than a mortgage.

LEASE: An agreement by which an owner of real property (lessor) gives the right of possession to another (lessee), for a specified period of time (term) and for a specified consideration (rent).

LEASEBACK: (See: Land Sale/Leaseback).

LEASED LAND MORTGAGE: A mortgage where the lender retains title to the land while the borrower obtains title to the improvements. The borrower then pays land leasing fees to the lender. Sometimes there is a stipulation that the borrower be given the opportunity to purchase the land at some time during or after the term of the mortgage.

LEASEHOLD: An estate in realty held under a lease; an estate for a fixed term. Considered in many states to be personal property.

LEASEHOLD IMPROVEMENTS: Improvements made by the lessee. The term is used in condemnation proceedings to determine the portion of the award to which the lessee is entitled. (See also: Tenant Improvements).

LEASEHOLD INTEREST: The interest which the lessee has in the value of the lease itself in condemnation award determination. The difference between the total remaining rent under the lease, and the rent lessee would currently pay for similar space for the same time period.

LEASEHOLD VALUE: The value of a leasehold interest. Usually applied to a long term lease when market rental for similar space is higher than rent paid under the lease. Some states allow the lessee to claim the leasehold value against the landlord in eminent domain proceedings, unless specifically prohibited by the lease itself. Other states, by statute, do not allow for such a claim.

LEASE-PURCHASE AGREEMENT (See: Lease with Option to Purchase).

LEASE WITH OPTION TO PURCHASE: A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period.

LESSEE'S INTEREST: In appraising the value of a lessee's interest to determine the value of a potential sublease or assignment (sale) of the lease, the value is the market value of the property, less the interest of the lessor. The lessor's interest would be largely determined by the ratio of the return on the lease to the market value without the lease.

LESSOR: The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).

LESSOR'S INTEREST: The present value of the future income under the lease, plus the present value of the property after the lease expires (reversion).

LETTER OF CREDIT: 1) A letter from a bank asking that the holder of the letter be allowed to withdraw specified sums of money from other banks or agencies, to be charged to the account of the writer of the letter; 2) An order in writing from a banker to his agent abroad authorizing payment of a sum of money to the person named in the letter; 3) An arrangement facilitating early payment for goods dispatched overseas.

LETTER OF INTENT: A formal method of stating that a prospective developer, buyer, or lessee, is interested in property. Not an offer and creates no obligation. However, a builder who wants to build an office building, for example, may influence a lender by showing letters of intent from major prospective tenants.

LEVERAGE: The use of financing to allow a small amount of cash to purchase a large property investment.

LIMITED PARTNER: (See: Limited Partnership)

LIMITED PARTNERSHIP: Used in many real estate syndications; a partnership consisting of one or more general partners who conduct the business and are responsible (liable) for losses, and one or more special (limited) partners, contributing capital and liable only up to the amount contributed. The limited partners simply provide the money when called upon and have nothing to say about the overall operation of the income producing activities. Usually at some specified time, the assets of the partnership are liquidated and the partners share the profits.

LIQUIDATED DAMAGES: A sum of money agreed upon by parties to be full damages if certain events occur.

LIQUIDATED DAMAGES CLAUSE: A clause in a contract by which the parties by agreement fix the damages in advance for a breach of the contract.

LIQUIDATION: 1) To settle the accounts of a bankrupt firm by apportioning assets and debts; 2) To convert holdings or assets into cash. .

LIQUIDITY: The ability to meet current financial liabilities with cash.

LOAN COMMITMENT: A lender’s contractual commitment to make a loan based on the appraisal and underwriting.

LOAN-TO-VALUE RATIO: The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of real property. Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks or government insured loans, is set by statute.

LOCK-IN: A loan provision providing that the loan cannot be paid off for a specified period of time.

LONG TERM FINANCING: A mortgage or deed of trust for a term often years or more, as distinguished from construction loans or interim loans.

LONG TERM LEASE: A general term which may refer to a lease 10 years or longer in term, or, in some areas, 5 years or longer.

LIQUID ASSETS: Cash, or assets immediately convertible to cash.

LIQUIDATION VALUE: (See: Liquidation Price).

LIQUIDITY: Having liquid assets

LIS PENDENS: A legal notice recorded to show pending litigation relating to real property, and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

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M.A.I. (MEMBER APPRAISAL INSTITUTE): The designation given to a member of the American Institute of Real Estate Appraisers. A designation earned through experience, education and examination.

MAINTENANCE: Keeping a property in condition to efficiently serve its intended purpose.

MAINTENANCE FEE: As applied to condominiums and planned developments, the amount charged each unit owner to maintain the common area. Usually a monthly fee paid as part of the budget.

MAINTENANCE RESERVE: Money reserved to cover anticipated maintenance costs.

MANAGEMENT: (See: Property Management)

MANAGEMENT AGREEMENT: (See: Property Management Agreement)

MARINA: A small harbor or basin, having docks, supplies, and maintenance services for boats.

MARKET DATA APPROACH: (See: Market Value Approach).

MARKET PRICE: The price a property brings in a given market. Commonly used interchangeably with market value, although not truly the same. (See also: Market Value).

MARKET RENT: (See: Economic Rent).

MARKET VALUE: The highest price a willing buyer would pay and a willing seller accept, both being fully informed, and the property exposed for a reasonable period of time. The market value may be different from the price a property can actually be sold for at a given time (market price).

MARKET VALUE APPROACH: Appraising the value of a property by comparing the price of similar properties (comparables) recently sold. The degree of similarity of the properties and circumstances of the sale are the important characteristics to consider.

MASTER LEASE: A lease controlling subsequent leases. May cover more property than subsequent leases. For example: "A" leases an office building, containing ten offices, to "B". "B" subsequently leases the ten offices individually. The ten leases from "B" as lessor are controlled by the lease from "A" to "B" (master lease).

MATCHING FUNDS: A procedure used by lenders to make loans. They simply match a loan amount against an amount they have on deposit, often in CDs. They then add a spread to the interest rate to ensure that they get more money from the borrower than they have to pay the depositor. Usually used with short term loans.

MATURITY: The time when a note or mortgage becomes due.

MECHANIC'S LIEN: A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

MECHANIC'S LIEN SURETY BOND: A bond, from a bonding company, indemnifying a title insurer against loss from writing a policy before expiration of the mechanic's lien period.

MECHANIC'S & MATERIALMAN'S LIEN: (See: Mechanic's Lien).

MINIMUM RENTAL: A fixed rental in a lease which contains some formula for a possibly higher rental, such as a percentage lease, overrides, etc.

MINIPERM: A two to five year income property mortgage, usually made in conjunction with a construction loan.

MOBILE HOME: Originally, a trailer pulled behind a car or truck cab. Now includes large homes which are not truly mobile but are constructed in the same manner as trailers, as opposed to conventional on-site construction.

MOBILE HOME PARK: Originally, a trailer park, having electrical hookups, and water. Modernly a park-like area having facilities such as complete plumbing and utilities, a recreation center, security guards at the entrance, and mobile homes which are usually attached to foundations and are permanent structures.

MONTH-TO-MONTH TENANCY: A tenancy where no written lease is involved, rent being paid monthly. Some obligations as to notice of moving or eviction may exist by statute.

MORATORIUM: The temporary suspension, usually by statute, of the enforcement of liability of debt. Temporary suspension of development or utilities connections imposed by local government.

MORTGAGE: Conveyance of property {as security for a loan) on condition that the conveyance becomes void on payment of performance, according to stipulated terms. .

MORTGAGE BACKED SECURITIES: Securities/bonds sold to investors which are collateralized by mortgages. These can be either mortgages from a single builder or from several builders pooled together. Most mortgage-backed bonds are done with residential loans, although they can be done with income property mortgages as well.

MORTGAGEE: A lender or creditor; one to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation.

MORTGAGOR: A borrower; one who give a mortgage on property to secure a loan or assure performance of an obligation.

MOTEL: Originally, a building near a major highway to accommodate travelers, offering a place to sleep and parking. Over the years motels have come to offer most of the features of hotels, such as restaurants, recreation, etc.

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NEGATIVE AMORTIZATION: A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases.

NEGATIVE CASH FLOW: When the income from an investment property does not equal the usual expenses. The owner must come up with cash each month to meet these expenses. (See also: Cash Flow).

NEIGHBORHOOD SHOPPING CENTER: A group of retail stores, usually limited to food and convenience service stores (dry cleaner; barber, etc) serving a limited area (neighborhood), and having common parking and ownership or management.

NET GROUND LEASE: A net lease of unimproved land.

NET INCOME (NET OPERATING INCOME, NOI): The difference between adjusted gross income and operating expenses. May or may not include depredation.

NET INCOME MULTIPLIER: The number which, when multiplied by the net income, gives the selling price. Found by dividing the sales price by the net income. Usually, however, a gross income multiplier is used.

NET LEASE: A lease requiring the tenant to pay, in addition to a fixed rental, the expenses of the property lease, such as taxes, insurance, maintenance, etc. in some states the terms net net, net net net, triple net, and other such repetitions are used. (See also: Gross Lease).

NET NET, NET NET NET: (See: Net Lease).

NET PROFIT: Remainder after deduction of all expenses from income for a given period. Generally classified as either net before taxes or net after taxes.

NET RENTABLE AREA: (See: Rentable Area).

NET RENTAL: Rental over and above the expenses of the property.

NET WORTH: The difference between total assets and liabilities of an individual, corporation, etc.

NOI (NET OPERATING INCOME): See Net Income

NON-RECOURSE LOAN: A loan not allowing for a deficiency judgment. The lender's only recourse in the event of default is the security (property) and the 60rrower is not personally liable.

NONRECURRING EXPENSE: An expense which does not usually repeat itself, such a fire or other natural disaster.

NOTE: A signed written instrument acknowledging a debt and promising payment, according to specified terms and conditions. A promissory note.

NOTICE OF COMPLETION: A notice, recorded to show that a construction job is finished. The length of time in which mechanic's liens may be filed depends upon when and if a notice of completion is recorded.

NOTICE OF NONRESPONSIBILITY: A notice filed by an owner of property to show that work being done has not been contracted for by said owner. If properly done, mechanic's hens will not attach to the property. Often done when a tenant contracts for work on property.

NOTICE TO QUIT: A notice by a landlord to a tenant to vacate rented property. There are two types; for nonpayment of rent or a second type for any other reason. Usually the notice for nonpayment allows less time to vacate.

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OBSOLESCENCE: An appraisal term meaning that the age of a structure may cause it to become undesirable in use or appearance (old fashioned) and consequently lose income and value.

OCCUPANCY: With reference to land, the word has become synonymous with possession.

OFF-SITE IMPROVEMENTS: Development of land to make adjacent property suitable for construction. Includes sidewalks, curbs, streets, sewers, streetlights, etc.

OPEN END: 1) A construction loan without a takeout; 2) A commingled fund from which investors can, at least in theory, remove their funds at any time.

OPERATING EXPENSES: The cost of operating an income producing property, such as management, utilities, and similar day-to-day expenses, as well as taxes, insurance, and a reserve for replacement of items which periodically wear out.

OPTION: A right given for a consideration to purchase or lease a property upon specified terms and conditions within a specified time, without obligating the party who receives the right to exercise the right.

ORIGINAL COST: The purchase price of property, paid by the present owner. The present owner mayor may not be the first owner.

OR MORE CLAUSE: A clause in a note, mortgage, or deed of trust, allowing for additional payments to be made without penalty. The words "or more" come after the specified payment.

OVER PRIME (OP): Frequently, construction loans and other short term loans are negotiated at an interest rate which is a specified percentage over the Prime Rate.

OVERAGE INCOME: Rental from a percentage of the operation of a business in excess of the base rental. (See also: Percentage Lease).

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PARTICIPATING MORTGAGE: Many lenders offer this mortgage, which is similar to a traditional fixed rate mortgage, but which includes a kicker for the lender. The kicker is usually a percentage participation in the increases in gross income above the scheduled gross. Most of the borrower's costs can be covered with these loans.

PAR VALUE: The nominal, or face, value of stocks, bond securities, etc.

PARTY (PARTIES): Those entities taking part in a transaction as a principal (e.g. buyer, seller, lender, borrower, etc.)

PARTNERSHIP: A voluntary association of two or more parties to carry on a business or venture on terms of mutual participation in profits and losses.

PAYMENT CAP: A maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.

PENALTY: An extra payment or charge require of the borrower for deviating from the terms of the original loan agreement. Usually levied for being late in making regular payments (“late charges”) or for paying off the loan before it is due (“prepayment penalty”).

PENSION FUNDS (PFS): 1 )Accumulated capital, investments and other assets held by private corporations, unions, societies, public agencies, etc., for the present and future payment of retirement benefits to employees; 2) The organization within each company; union, society, public agency, etc., which is responsible for these monies, and for their collection, investment and disbursal.

PERCENTAGE LEASE: A lease, generally on a retail business property, using a percentage of the gross or net sales to determine the rent. There is usually a minimum or "base" rental, in the event of poor sales.

PERCENTAGE RENT: (See: Percentage Lease).

PERFORMANCE BOND: A bond posted by a builder to insure completion of a project.

PERMANENT: A permanent mortgage is a loan of 10 years or more. It is the same thing as a long term loan.

PLANNED DEVELOPMENT: A subdivision consisting of separately owned parcels of land together with membership in an association which owns common area. Sometimes the owners of separate interests also have undivided interest in the common area.

PLANNED UNIT DEVELOPMENT (PUD): Planned development of a specified land area in such a way that the land is utilized for residential plus a common area for all of the homeowners. Non-residential projects can also be PUDs.

POOLS: Vehicles created by Life companies, banks, syndicators and others to provide common receptacles of money from pension funds and other investors for the common purchase of real estate property or mortgages.

PORTFOLIO: The collection of securities and other investments, including real estate, held by financial institutions.

PREFABRICATION: The manufacturing of parts of a structure, such as walls, roofs, etc. Which are assembled at the construction site. More recently called modular housing.

PREPAID INTEREST: Interest paid before becoming due.

PREPAYMENT: Paying off a loan before it is actually due.

PREPAYMENT PENALTY: A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it IS due.

PRESENT VALUE: Future currency income or value that would be required to produce today's currency value. The future value if discounted to take into account expected inflation.

PRIME LENDING RATE: The quoted rate on bank loans set by commercial banks and granted only to top borrowers. It is affected by overall business conditions, the availability of reserves, the general level of money rates, and may vary geographically. Most bank loans carry interest rates tied to a spread above or below the quoted prime rate.

PRIME TENANT: The major tenant in a building, shopping center, etc. It may be necessary to have a prime tenant in order to obtain construction financing. The tenant may be considered "prime" because of its financial strength, rather than by the amount of space it occupies.

PROPERTY MANAGEMENT: The branch of the real estate business dealing with the management of property. The property may be a rented house or a large office or industrial complex. The duties may range from merely collecting rents to complete management of all maintenance and may also include being leasing agent or sales agent.

PROPERTY MANAGEMENT AGREEMENT: The contract between an owner and property manager (or management company), setting forth the duties of and payment for said manager.

PROPRIETARY LEASE: Most commonly used in relation to stock cooperatives, whereby the owners of stock lease units (apartments).

PRORATE: To divided in proportionate shares, such as taxes, insurance, rent or other items which buyer and seller share as of the time of closing, or other agreed upon time.

PRORATION: To divide (prorate) property taxes" insurance premiums, rental income, etc. between buyer and seller proportionately to time of use, or the date or closing.

PUD: (See Planned Unite Development, above)

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QUICK ASSETS: (See: Liquid Assets)

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RATE INDEX: An index used to adjust the interest rate of an adjustable mortgage loan. For example: the change in U.S. Treasury securities (T-Bills) With a 1 year maturity, the weekly average yield on said securities, adjusted to a constant maturity of one year which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the "index" for the change in the specific Adjustable Mortgage Loan.

RATE OF RETURN: The annual percentage of return on investment on income property.

REAL ESTATE INVESTMENT TRUST: (REIT): The real estate equivalent of a mutual fund set up to attract individual and institutional dollars into real estate. The stock is called beneficial interests and is traded by stockbrokers.

RECORDING: The process of placing a document on file with a designated public official for public notice. This public official is usually a county officer known as the County Recorder who designates the fact that a document has been presented for recording by placing a recording stamp on it indicating the time of day and the date when it was officially place on file. Document filed with the Recorder are considered to be placed on open notice to the general public of that county. Claims against property usually are given a priority on the basis of the time and the date that are recorded, with the most preferred claim going to the earliest one recorded and the next claim going to the next earliest one recorded, and so on.

RED LINING: The outlining on a map of certain "high risk" areas for real estate loan purposes. This means lenders will not extend credit in these areas for real property loans, regardless of the qualifications of the applicant. Some states have passed laws against this practice. The use of a red pen or pencil for the outlining gave rise to the term.

REFINANCE: (1) The renewing of an existing loan with the same borrower and lender. (2) A loan on the same property by either the same lender or borrower. (3) The selling of loans by the original lender.

REGIONAL SHOPPING CENTER: The largest type of shopping center, having one or more major department stores, a variety of retail stores, banks and restaurants, and common parking and management.

REHABILITATION: The restoration of a property to satisfactory condition without drastically changing the plan, form or style of architecture.

REINFORCED CONCRETE: Concrete strengthened by reinforcing (addition of steel bars, mesh, etc.)

REINFORCED CONCRETE CONSTRUCTION: The use of reinforced concrete in the load-bearing members, such as the frame, foundation, walls, floors, etc.

RELEASE CLAUSE: A stipulation that upon payment of a specific sum of money to the holder of a trust deed or mortgage, the lien of the instrument as to a specifically described lot or area shall be removed from the blanket lien on the whole are involved.

RENEWAL: (1) To cause a lease to begin again for another term. (2) To rebuild, as in urban development (urban renewal).

RENEWAL OPTION: The right of a tenant to renew (extend the term of) a lease for a state period of time and rent which can be determined.

RENT: Consideration paid for the occupancy and use of real property. A general term covering any consideration (not only money).

RENTABLE AREA: The area (square footage) for which rent can be charged. For example: An office building would not rent the space used for stairways, elevators, public washrooms, hallways, etc.

RENTAL AGREEMENT: A lease. The term is mainly used when concerning residential property.

RENTAL VALUE: The fair rental value of a property, the market rental value.

RENT CONTROLS: A legal maximum on rental price. Used extensively during World War ll. A control on housing rents, where the rent may be paid partly by a governmental agency, and a maximum rent is established, not by the landlord, but by the agency.

RENT SUBSIDY: (See: Subsidy)

REPLACEMENT COST: In appraising, the cost of a substitute property, either identical to or of equivalent utility.

REPRODUCTION COST: The cost of reproducing a property (usually one which has been destroyed) at current prices using similar materials.

RESERVE: A setting aside of funds, usually for indefinite contingencies, such as future maintenance of a structure, or to pay future claims, such as insurance claims.

RESIDENT MANAGER: A manager of an apartment project who lives on the property. Some states require a resident manager in apartment projects above a certain number of units. The manager is not required to have a real estate license.

RESORT PROPERTY: Generally, any property where people would go for purposes of fun and vacations. In some states the term may have legal significance, and regu1ations may exist regarding advertising and selling property as resort property.

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SALE-LEASEBACK: A sale and subsequent lease from the buyer back to the seller. Although the lease actually follows the sale, both are agreed to as part of the same transaction.

SANDWICH LEASE: A lease between the primary lease and the lease to the user or party in possession.

SBA (SMALL BUSINESS ADMINISTRATION): A federal agency authorized to make loans to small businesses, including loans for land.

SECOND MORTGAGE: A loan collateralized by equity in a property with a first lien already on it. Also known as a second trust deed in trust deed states.

SECURED PARTY: The party having a security interest.

SECURITY INTEREST: An agreement between the secured party and the debtor which creates the security interest.

SHORT TERM: A short term loan is any loan of five years or less. Most short term loans carry terms of one year or less.

SPECIAL ASSESSMENT: Lien assessed against real property by a public authority to pay costs of public, improvements (sidewalks, sewers, street lights, etc.) which directly benefits the assessed property.

SPECIAL PURPOSE PROPERTY: A building which, by' its design, cannot be used for other than the original purpose intended, without extensive remodeling, such as a hospital or church. Also called a single purpose property.

SPOT ZONING: Zoning on a parcel by parcel basis, rather than a comprehensive general or master plan. Considered poor planning.

SQUARE FOOT COST: The cost of one square foot of floor space in a building or of land. Usually used to determine rental price of a building. When used for land, usually to determine a sale price.

STANDBY COMMITMENT: The lender makes a commitment while not expecting to fund unless the project gets into trouble. Their terms are usually rough. While no actual funding is usually involved, a developer can use a standby commitment to get a construction loan. Some lenders write standbys which are more affordable than others. It is a commitment usually for a term of one to five years, after completion of construction in the event a permanent loan cannot be obtained. The standby loan is usually at a higher interest rate than a permanent loan, and a standby fee is charged.

STANDING LOAN: Loans on improved property for a period not exceeding five years. Usually not amortized. A loan requiring interest payments only, the principal being paid in full at maturity. "Standing "conveys the purpose of the loan. The object is to provide funds to payoff the construction lender or other first mortgage holder.

STEP-UP LEASE (GRADED LEASE): A lease calling for set increases in rent at set intervals.

STRAIGHT LEASE (FLAT LEASE): A lease calling for the same amount of rent to be paid periodically (usually monthly) for the entire term of the lease.

STRAIGHT LINE DEPRECIATION: A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement.

STRAIGHT-TERM MORTGAGE: A mortgage calling for principal to be paid in a lump sum at maturity.

STREET IMPROVEMENT BONDS: Interest bearing bonds, issued by a local government, to secure assessments for street improvements. The owners of the property assessed may pay in a lump sum or pay installments on the bonds, including interest.

STRIP CENTER: Any shopping area, generally with common parking, comprised of a row of stores. Usually does not contain major department stores or grocery chain stores.

SUBCONTRACTOR: One who works under a general contractor (builder), such as an electrical contractor, cement contractor, etc.

SUBDIVISION: Commonly, a division of a single parcel of land into smaller parcels (lots) by filing a map describing the division, and Obtaining approval by a governmental commission (cIty or county). The exception is a condominium, which is sometimes called a "one lot subdivision".

SUBDIVIDER: (See: Developer)

SUBDIVISION MAP: A map submitted by a subdivider to the proper governmental body for approval in order to establish a subdivision. When the map is approved and recorded, it becomes the basis for the legal description of the subdivision.

SUBLEASE: A lease, under which the lessor is the lessee of a prior lease of the same property.

SUBORDINATE: To make subject or junior to.

SUBORDINATION AGREEMENT: An agreement by which an encumbrance is made subject (junior) to a junior encumbrance. For example: A loan on vacant land is made subject to a subsequent construction loan.

SUBROGATION: Replacing one party with another in regard to legal right or obligation. The substitution of another party in place of the creditor, to whose rights that party succeeds in relation to the debt.

SYNDICATE: A partnership organized for the participation in a real estate venture. Partners may be limited or unlimited in their liability.

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TAKE-OUT COMMITMENT (TO): Agreement by a lender to place a long term (take out) loan on real property after completion of construction. The forward commitment for a mortgage; an agreement in advance which will fund a loan to retire, or take out, the construction loan.

TAKE-OUT LOAN: The permanent loan made upon completion of construction to replace the construction loan.

TANGIBLE VALUE: Value in appraisal of the physical value (land, buildings, etc.) as opposed to the value of an intangible, such as a favorable lease.

TAX BASE: The assessed valuation of real property, which is multiplied by the tax rate to determine the amount of tax due.

TENANCY IN COMMON: Co-ownership of property by two or more parties who hold undivided interest, without survivorship. Interests need not be equal.

TENANT: The party who has legal possession and use of real property belonging to another party.

TENANT IMPROVEMENTS: Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling and be paid for the landlord, tenant, or part by each.

TENTATIVE MAP: A map submitted by a subdivider to a planning commission for approval; approval is usually conditioned upon changes. The final map, embodying the changes, is recorded.

TERM: A period of time, such as the term of a lease.

TERM MORTGAGE: (See: Straight-Term Mortgage).

TERMS: The considerations, other than price, in a sale, lease, mortgage, etc. For example: the way the money will be paid, time to take possession, conditions, etc.

TRAFFIC COUNT: The number of pedestrians or vehicles moving past a given point in a given period of time. The counts are used to determine business potential, patterns for redesigning streets, etc. .

TRAFFIC DENSITY: The number of vehicles moving across a portion of a road at a given time. Usually expressed as vehicles per mile of road.

TRAILER PARK: A site containing two or more parking spaces for trailers (mobile homes) with minimum facilities of water, sewer, electricity, laundry and bathing facilities. The more modern are called mobile home parks and have all the conveniences of an apartment complex.

TREASURY BILLS: Interest bearing U.S. Government obligations sold at a weekly sale. The change in interest rates paid on these obligations is frequently used as the Rate Index of Adjustable Mortgage Loans.

TRIPLE NET: (See: Net Lease)

TRUST DEED: Just as with a mortgage, this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan. However, it differs from the mortgage in a number of important respects. For example, instead of there being two parties to the transaction, there are three. There is the borrower who signs the trust deed and who is called the “trustor.” There is a third, neutral party, to whom the trustor deeds the property as security for the payment of the debt, who is called the “trustee.” And finally, there is the lender, who is called the “beneficiary,” the party that benefits from the pledge agreement in that in the event of default the trustee can sell the property and transfer the money obtained at the sale to the lender as payment of the debt.

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UNDERIMPROVEMENT: An improvement which is deficient in size or quality in relation to the site on which it is built.

UNDER-LEASE: A sub-lease for either less than the remaining term on the master lease or less than the total property covered by the master lease.

UNDERLYING FINANCING: A mortgage, deed of trust, etc. Prior to (underlying) a land contract, mortgage, etc. on the same property.

UNDERWRITER: One who insures another. A small title company may buy insurance from a larger one (the underwriter) for all or part of the liability of its policies. A larger title company may buy part of the insurance from another company on high liability policies.

UNDERWRITING: The process of determining whether a loan has proper collateral, guarantees and/or financial backing to be a proper investment.

UNEARNED INCREMENT: An increase in value to real property due to some change in the area rather than an improvement in the property itself.

UNENCUMBERED: Free of liens and other encumbrances. Free and clear

UNFINISHED BUILDING SPACE: Not completed. A general term not specifying how much has not been completed. May need paint, floor covering or other minor completions. May need plumbing, electricity, floors or other major completions.

UNIFORM COMMERCIAL CODE: A code (laws) which regulates the transfer of personal property, it took the place of the various state statutes covering chattel mortgages, conditional sales, trust receipts, etc.

UNIMPROVED LAND: Most commonly land without buildings; it can also mean land in its natural state.

UNINCORPORATED AREA: An area of a county which has not formed a municipal corporation (i.e. become a city).

UNIT COST IN PLACE METHOD: An appraisal method. The cost of construction by estimating the cost of each component part in place, including labor cost and overhead.

UNIT PRICE: (See: Unit Cost)

UPSET PRICE: A legal term signifying the minimum price at which a property can be sold at auction, usually foreclosure.

URBAN: Pertaining to a city or town.

USEFUL LIFE: (1) In appraisal for sale purposes, the true economic value of a building in terms of year of use to the owner. (2) For tax purposes, the life set for depreciation. At any time during that period, a new life could begin for a new owner.

UTILITIES: Public utility companies, under the control of the Public Utilities Commission. such as the telephone, gas and electric companies.

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VACANCY: A place which is empty (vacant). The term is generally used to describe a property available for rent.

VACANCY FACTOR: The estimated percentage of vacancies in a rental project. May be based on past records of the property, or a professional guess if a new project. Surrounding area buildings, if similar, may be used for comparison.

VACANT LAND: Land without buildings. May or may not have improvements, such as grading, sewers, etc.

VALUATION: Process used by real estate specialists to fix the worth and true market value of properties; basically a judgment or appreciation of the worth of a property.

VARIABLE INTEREST RATE: An interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and amount of fluctuation. Also called "flexible interest rate.”

VARIANCE: Change of a portion of zoning requirements without changing the zoning.

VENDEE: Purchaser or buyer, especially on a land contract.

VENDOR: The person who transfers property by sale. Another word for “seller." Commonly used in land contract sales.

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WAREHOUSING: After the lender makes the loan, it temporarily holds the loan documents until the loan is sold. The funds to make the loan come from a commercial bank. These funds are called the warehouse line and the temporary holding period is called warehousing.

WITHOUT TAKEOUT (W/O TO): The absence of a forward commitment for a mortgage at the time a construction loan is granted.

W/O TO: (See: Without Takeout, above)

WRAP AROUND: A mortgage in which the lender assumes the first mortgage. The debtor makes one mortgage payment to the wraparound lender who, in turn, sends the proper portion to the first mortgagee. The wrap lender usually receives a portion of his yield from the amortization of the first mortgage.

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YIELD: The ratio of cash received to cash invested, usually expressed as a percentage.

YIELD MAINTENANCE: A prepayment premium that allows the investor/lender to attain the same yield as if the borrower mad all scheduled mortgage payments until maturity. The premiums are designed to make investors/lenders indifferent to the loan prepayment and to make refinancing unattractive and uneconomical to borrowers.

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ZONE: The area set off by the proper authorities for specific use; an area subject to certain restrictions or restraints.

ZONING: Act of city or county authorities specifying type of use to which property may be put in specific areas.