The following are basic terminology used in rental agreements and Airbnb.
And or assigns – in a contract this gives the writer of the contract the right to assign. It will be written like, Joe Smith and/or assigns. This gives Joe the right to assign the contract or close it himself.
Appraisal – an estimate of a property’s value made by an appraiser who is usually a licensed expert expected to give a professional opinion based on comparative sales in the last 6 months.
Arrearage – back payments that a homeowner owes to their lender. The arrearage usually will include the late amount, plus late fees, and possibly attorney fees.
Assignee- the person accepting assignment of a contract. They are the one purchasing the contract to exercise it.
Assignment – the act of assigning a contract to someone else, usually for a fee.
Assignor- the person doing the assigning of the contract. They are the one selling the contract.
Balloon payment – a clause in a seller’s loan that forces him to pay off the lender within a certain amount of time. For instance, they may be paying a 30-year loan but be required to cash out the lender after 10. In that case, it would be a 10-year balloon.
Bankruptcy – Federal provision to relieve a debtor of insurmountable debt. The two most common ways, are to liquidate a debtor’s property to the creditors, and to set up a payment schedule approved by the court in which the creditors have no choice but to accept.
Cash cow – Slang term for money earner. As in a property is profitable.
Cash flow – a very important part of real estate. You can be rich and have no cash coming in – called cash poor. Or you can have cash flow, which means cash coming in.
Chain of title – the history of the conveyances and encumbrances affecting a title from the time the original title was granted or as far back as records are available.
Clear title when a property can be transferred without any title problems it is said to have a clear title.
Closing costs – closing costs that are incurred when you buy or sell property. They can include title insurance, appraisal fees, loan fees, excise tax etc.
They vary from state to state as to who commonly pays what at closing.
Closing date – the date the buyer takes over a property.
Cloud on the title – something on a title that might prevent the sale, or cause concern and thus, might prevent title insurance from being issued until resolved.
Collateral – security used to secure a loan.
Comps – slang or abbreviated word for “Comparative Market Analysis”. A comparable market study compares the value of similar houses in the area within (usually) the last 6 months. And note, the asking price for a property is NOT the price that is part of the comp. Only the actual sales can be compared.
Consideration – something of value used to bind a contract.
Covenants – agreements written into deeds and other instruments which restrict or enforce certain activities, or restrict or stipulate certain uses, on the property.
Deed – a written instrument when executed and delivered, conveys title to real property.
Deed Transfer- real estate investor’s term for buying a house by taking over the deed of a homeowner. Usually, these are distressed homeowners who need to get rid of their house quickly.
Default – when a seller falls behind on the mortgage payment. They are in default. It can also refer to not living up to an agreement in a contract.
Deposit- Money paid by a tenant that he or she may be entitle to after lease providing they meet conditions stated in their rental agreement.
Some or part may be refundable as outlined in their agreement.
Double closing or Simultaneous closing – This is when you buy a property and then immediately sell the property to someone else. You literally, sign in one room to buy and then another to sell. The purpose is that you do not have to bring money in. The person buying from you is the one bringing in the money.
Due on sale clause – a clause written into loan documents that requires a borrower to pay off the loan if they transfer or sell the property to someone else.
Earnest money – Down payment by a potential buyer to bind a contract of purchase until they can finalize the purchase.
Encumbrance – Any right to or lien on a property interfering with its use or transferability or subject it to an obligation. In connection with foreclosure, the most likely encumbrances are mortgages and tax liens.
Escrow – When money is held in trust by a neutral third party. For instance, when a real estate agent takes the earnest money to the escrow company they put it in escrow until the closing.
Escrow company – The neutral third party that holds money.
Event – Terminology by Airbnb that refers to the event of renting a place to enjoy a rental and/or experience. Example: renting a house is an event, renting a tent out in the woods is also an event.
Fair market value – The price at which a property is valued at on the current market.
First deed- This can have several different names, such as senior note, senior deed, senior lien, first lien, or first note. It is the first loan recorded on a property and is the first mortgage to be satisfied before other mortgages are paid off in the case of foreclosure.
Flip or quick flip – a term used meaning selling a property quickly. It generally denotes selling quickly to another investor at wholesale, but can also be transferring your rights of a contract to an end user.
Forbearance agreement – a forbearance agreement just means a work out payment plan when a seller is behind on their payments. They may accept partial payments until it’s current.
When a forbearance agreement is reached it will stop the foreclosure process. But generally, if they miss one payment, it will begin the foreclosure procedures and no further payment will be accepted.
Foreclosure – A legal procedure by which the lenders take back or sell a property to recoup their money. It is done because the lender has defaulted on payments or terms.
Guest – Terminology by Airbnb to identify the person staying in a property and renting it on a short-term rent.
Host – Terminology by Airbnb to identify the person who owns the property being short-term rented
Installment payments – instead of a property being sold for all cash, it can be sold in monthly, (or quarterly or whatever) payments until the loan is completely paid off.
Judgment a court decree declaring that an individual is indebted to another. The act of recovery can vary from state to state.
Junior deed – all liens after the first mortgage.
Land trust – a means of taking title to a property anonymously. The name that appears on the public records is that of the trustee and not the beneficiary (the person who owns the trust). This adds a small layer of protection in that it would take a court order to find out who the owner of the trust was. In a land trust, the trust owns the property, and the beneficiary owns the trust.
Lease options – The act of renting a house and receiving (or giving) the right to buy the house at a certain price by a certain time.
Leesee – a part of a lease in which the Leesee is the person who is doing the leasing and gets the right to enjoy the asset (the property)
Leesor – a part of a lease in which the Leesor is the legal owner and give the leesee certain right to lease the property.
Lien – a legal right or claim on a property that attaches to the property until a debt is paid off. This can be a court judgement, or a signed loan by the homeowner.
MLS – MLS means Multiple Listing Service. This is a listing service by which real estate agents can list the properties they have for sale so that other agents can sell them.
Mortgagor – the person who is the borrower. It seems like they should be the mortgagee, but they are not. They are the mortgagor because they are the ones who GIVE the mortgage to the bank as collateral.
Mortgagee – this is the lender. It seems like they should be the mortgagor but they are not. The bank is RECEIVING the mortgage from the borrower as collateral for the loan.
Mortgage – the instrument used to pledge real property as a security for a loan.
Non-refundable option consideration – a very important term to use when you are lease optioning. It refers to the “down payment” a tenant buyer gives you for the right to purchase the property at a later date. Never refer to it as a deposit or down payment.
Option – the act of receiving or giving the right to an individual or company to buy the house at a set price within a set period of time. The distinction between an option and lease option is that an option does not contain rental provisions, only the right to purchase the property.
Optionor – the person GIVING the option to buy a property.
Optionee – the person who has the right to purchase the property with an option.
PITI – Stands for principal, interest, tax, and insurance. You would use it in sentence like this, “does $1000 include PITI (sound out the letters – do not call it pity)”.
PMI – Stands for Private Mortgage Insurance. It is insurance purchased from private mortgage insurers to insure lenders against default when the loan to value is over 80%. PMI is paid by the borrower either at closing or included in the borrower’s monthly mortgage payment.
Points – A fee charged by lenders. One point is equal to 1% of the loan amount. So on $100,000 one point would be $1,000.
Prepayment penalty – A penalty charged to a borrower when a loan is paid off before it is due. Some conventional lenders have what is called a “three, two, one”. It means, if the loan is paid off in the first year you pay three points, the second year you pay two points and the third year one point. After the third year there would be no penalty.
Principal – The amount of a debt payment, not including interest. It is also, the face value of a debt.
Quit claim– a quit claim is a deed that transfers interest in a property with out any guarantees. It is most commonly used when couples divorce and one partner deeds it to the other.
Reinstatement – The payment of arrearages owed on a loan to bring it current and in good standings.
REO – stands for Real Estate Owned. It is property that a bank now owns after they have foreclosed on a property.
Retailing – Real estate investor’s term for selling a house to an end user. It generally implies that the investor has done some repairs to the property and then sold it to a homeowner who then lives in it.
Second Mortgage – see junior lien.
Tenant Buyer- term used for a tenant who has the right to purchase a property under a lease option. However, check with your lawyer before using this term in any of your contracts. Most lawyers will have you use the terms optionor (the seller) and Optionee (the tenant buyer).
Title company – A company which provides many services such as, escrow (closing), handling of legal documents, preparing paperwork, and acts as agent for title insurance company.
Title insurance – Insurance given by a title insurance company guaranteeing the marketability of a title against defects. This is usually given at closing.
Title report – A report indicating the current status of a title, such as easements, convenants, and liens. And it would reveal defects on the title as well. The title report may not include the chain of title.
Title search (called title peek and other names as well) – is a search of the title to look at possible defects. It primarily is done to verify ownership and encumbrances on the property. It is NOT insurance against such defects.
Trust deed – the conveyance of real estate to a neutral third party to be held for the benefit of another. It is commonly used in some states in place of mortgages. In a trust deed it is the trustee that will initiate foreclosure procedures rather than in a mortgage state which requires judicial procedures.
VA loan – Loans insured by the Veteran’s Administration.
Wholesaling- Real estate investor’s term for selling a house at wholesale to another investor. Generally, at a discount from that of an end buyer.
Wrap loan or wrap around loan – This is where a homeowner has a first mortgage against their property, they sell their house to someone who makes payments to them and they make payments on their first. The result is a wrap. Just remember that the seller is responsible for making payments on the first regardless of whether the new homeowner makes their payment.