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Key Terms
A
B C D
E F G H
I J K L
M N O
P Q R S
T U V W X Y Z
A
Amortization- The gradual, systematic payment of
a debt, such as a mortgage or other loan, in installments
of principal and interest for a definite time, so that at
the end of that time, the debt will have been paid in full.
Articles of Incorporation- A document filed
with a U.S. state by the founders of a corporation. After
approving the articles, the state issues a Certificate of
Incorporation; the two documents together become the Charter
of Incorporation.
Asset- Anything having commercial or exchange
value that is owned by a business, institution or individual.
A business' assets might include its real estate, equipment
inventory, intellectual assets such as copyrights or trademarks,
and accounts receivable.
Assignee- The person or business entity
who is given, obtains, or buys the right to an asset.
Assignment- The transfer of the rights,
title or interest of any debt instrument or property that
is properly owned by another party.
Assignment of Deed of Trust or Mortgage-
A document that transfers the beneficial interest (ownership)
to another party.
Assignor- The person giving or selling
an asset, and subsequently, forfeiting rights to that asset.
B
Bad Debt- Any debt that is delinquent and has been
written off as uncollectible.
Balance sheet- A financial statement that
shows a business' current financial condition, with assets
on the left side and liabilities and net worth on the right
side.
Balloon- The balance of principal that
is due and owing in its entirety at a specified point in
time, but in any event, less than the time required to fully
amortize the debt.
Bankruptcy- A state of insolvency of an
individual or organization. A legal proceeding that
allows a debtor to discharge certain debts or obligations
without paying the full amount. It gives the debtor time
to recognize his / her financial affairs in order to repay
his / her debts. A bankruptcy does not discharge obligations
secured by a deed of trust.
Beneficiary- The person or party (lender)
entitled to receive the benefits, or proceeds- ( to whom
the obligation is owed).
Bidding Authorization Letter- An authorization
form which, when signed by the beneficiary, authorizes the
trustee to make the initial opening bid at the trustees
sale.
Bill of Sale- A document used to transfer
the title of certain goods from seller to buyer.
C
Cash flow- The flow of cash through a business
or household. In business terms, cash flow involves the
flow of cash into a company in the form of revenues, and
out of the company in the form of expenses.
Chattel mortgage- A mortgage on personal
property, given to secure a debt. Typically used in the
sale of a business. Also called a security agreement.
Collateral- Something of value (land, a
home, a car, etc.) that is pledged as security to ensure
the payment of a debt. Collateral is promised to a lender
until a loan is repaid. If the borrower defaults, the lender
has the right, by law, to seize the collateral.
Collectibility- Refers to the funding source's
ability to collect future income stream payments once they
are purchased.
Commission- Fee paid to a intermediary
for executing a financial transaction. Usually commissions
are payable only to licensees.
Corporation- A legal entity, chartered
by a state or the federal government, and separate and distinct
from the persons who own it. It is regarded by the courts
as an artificial person; it may own property, incur debts,
sue or be sued.
Creditor- One who is owed payments on a
debt by a debtor.
D
Debt to Value Ratio- The ratio between the amount
of all outstanding debts against a property and the current
market value of the property. Measured by dividing
the amount of the debt, by the amount of the valuation of
the property.
Declaration of Default- A document instructing
the trustee to prepare and record a Notice of Default, and,
if necessary, to sell the trust property in order to satisfy
the unpaid obligation.
Deed of Trust- A written document describing
the real property being given as security or the repayment
of an obligation.
Default- The omission or failure to perform
or fulfill a legal duty, obligation, or promise (i.e. to
pay a debt).
Due diligence- Exhaustive research on a
property, person, transaction, income stream, business opportunity.
Due diligence may involve appraisals, title searches, lien
and property tax searches, investigations, property and
neighborhood inspections, broker and contractor opinions.
E
Encumbrance- A recorded document burdening ("encumbering")
the title to real estate. Money encumbrances such as mortgages
and trust deeds are "liens".
Equity- The value or interest an owner has in property
over and above any indebtedness owed on the property.
Escrow- The system by which money documents,
personal property, or real property is held in trust for
another party by a disinterested third party until the terms
and conditions of the escrow instructions are completed
or terminated.
Extension Agreement- An agreement that
extends the due date of a loan.
F
Foreclosure- A popular term used to describe the
procedure for enforcing a creditors rights when an obligation
secured by a deed of trusts is in default. A legal
proceeding in court to seize property given as security
for a debt that is in default.
Funding source- An individual investor
or an investment company that buys income streams.
Full Reconveyance- A document prepared
by the trustee when the obligation secured by a deed of
trust is paid in full. When recorded, the reconveyance eliminates
the lien from the title of the property.
H
Hypothecation- Borrowing funds from a lender, investing
those funds in a debt instrument, and giving the lender
a security interest in the debt instrument as the collateral
for the loan.
I
Institutional lenders- Savings and loan
associations, local and regional banks, mortgage companies,
finance companies, and commercial lenders.
Intangible personal property (not real property)-
Something that has value but is not a tangible asset, for
example, a car, boat, furniture, jewelry.
J
Joint venture- A business entity established for
a specific task, operation, or goal.
Junior Lien- A legal claim upon real property
recorded subsequent to another legal lien (mortgage
lien, tax lien, mechanics lien, judgment, or easement).
The lien with an earlier date of recording is a Senior Lien.
K
L
Leverage- The ratio of debt to total assets.
Limited liability company- A form of business
structure designed to combine the best of corporate and
partnership attributes into one entity.
Loan-to-Value ratio- A measure of how heavily
mortgaged a property is and how likely the owner is to default
on his or her debts. Measured by dividing the amount
of the subject loan, by the amount of the valuation of the
property.
M
Market value- The price at which a ready, willing,
and informed person would buy something; the price property
commands in the current market.
Military Affidavit- A sworn, written statement,
affirming that the property owner is the entitled to any
rights under the Soldiers in Sailors Civil Relief Act of
1940.
Mortgage- A written instrument that creates
a lien by pledging real property as security for a debt.
N
Notice of Default- A written document which gives
notice of public record that a borrower has failed to perform
his / her obligation. The trustee's sale proceeding commences
when the notice is recorded.
Notice of Trustees Sale- A document that
is published, posted and recorded, setting forth the faith,
time and location of the trustee's sale.
O
Owner financing- A type of financing in which the
seller of a tangible item accepts a promissory note as a
portion of the purchase price. Also called seller financing.
P
Partnership- A common form of joint ownership of
a business.
Payee- Person or business receiving a payment.
Payor- The person or entity making a payment.
Partial- Any part of a payment stream that
is less than the full amount due.
Personal guaranty- A contractual agreement
between a funding source and a seller, whereby the seller
assumes personal responsibility and liability for the obligations
of the income stream.
Portfolio- A group or package of income
streams of the same type.
Postponement- A verbal announcement made
at the time at location of the scheduled trustees sale,
extending the sale to a future date and time.
Privately held- Owed to a private individual
or business rather than to a bank or other financial institution.
Profit and loss statement- A financial
statement that shows a historical record of a business'
income and expenses.
Promissory note- A written promise to pay
a specified amount to a specified party over a certain period
of time.
Publication Letter- The letter that, when
signed by the beneficiary, authorizes the trustee to prepare,
publish and record the Notice of Trustees Sale.
Publication Period- The period beginning
after the three-calendar month default period (this period
varies by state) has expired and ending when the trustees
sale has been conducted. During the publication period,
the Notice of Trustees Sale is published, posted and recorded.
R
Real property- Real estate.
Rescission of Notice of Default- After
a default has been cured, this document, when signed by
the lender and recorded by the trustee, will remove the
effect of the previously recorded Notice of Default.
Reinstatement Period- The time period that
commences when the Notice of Default records and ends five
business days before the trustees sale (this period varies
by state). The default may be cured at any time during this
period by paying all delinquent amounts, including the trustees
fees and costs.
Replevin- A legal proceeding in court to
seize property (other than real estate) given as security
for a debt that is in default.
Reserve- An amount a funding source holds
in its account to cover potential payment defaults. After
a certain time period has passed, the funding source rebates
the reserve to the client less any fees or charges for delinquency.
Also called a bad debt reserve.
S
Satisfaction- The discharge of an obligation by
paying a party what is due (i.e., the satisfaction of an
IRS lien or the satisfaction of a mortgage).
Seasoning- The length of time payments
have been made on a note or other debt instrument.
Secondary market- The marketplace where
individuals and businesses can sell privately held income
streams to funding sources for cash.
Security interest:
An interest in property, other than real estate, which is
given as security for a debt or other obligation. A security
interest is created by execution of a security agreement
and one or more financing statements under the Uniform Commercial
Code.
Seller- The person or company that owns
a property, or debt instrument and wants to sell it.
Servicing- The collection of payments of
interest and principal, and trust fund items such as fire
insurance, taxes, etc., on a note by the borrower in accordance
with the terms of the note. Servicing by the lender also
consists of operational procedures covering accounting,
bookkeeping, insurance, tax records, loan payment follow-up,
delinquent loan follow-up and loan analysis.
Soldiers' and Sailors' Civil Relief Act of 1940-
An act passed by Congress for the financial protection for
those individuals serving in the military.
Sole proprietorship- A business owned and
operated by an individual.
Subordination- The act of a creditor acknowledging
in writing that a debt due him or her by a debtor shall
be inferior to the debt due another creditor by the same
debtor.
Substitution of Trustee- A written document
in which the beneficiary appoints a successor trustee to
the trustee of record.
T
Time value of money- Concept that addresses the
way the value of money changes over a period of time.
Title commitment- A commitment on the part
of the insurer, once a title search has been conducted,
to provide the proposed insured with a title insurance policy
upon closing.
Title insurance- Title insurance can benefit
either the Trustor or the Lender. Should the beneficiary
suffer any damages due to clouded or false title to real
estate, title insurance recompenses the damaged party to
the extent of the damages.
Title policy- An insurance policy that
insures a party against loss due to a defective title.
Trustee- The party who holds title to real
property in trust for the benefit of another. The trustee's
most common functions are to process trustees sale proceedings
and to issue a full reconveyance.
Trustor- The borrower / owner at the time
the deed of trust is created.
Trustees Deed Upon Sale- A document signed
by the trustee that transfers ownership of real property
to the purchaser at a trustee's sale.
Trustees Sale- A public auction sale of
property, described in a recorded Notice of Trustees Sale.
U
Uniform Commercial Code (UCC)- Standardized set
of guidelines protected by law that set down how business
transactions must be conducted.
Unseasoned- A lease or note that has had
few, if any, payments made.
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