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Glossary of Real Estate

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partition action
A court judgment ordering the sale of real estate owned jointly by two or more individuals. The action divides the proceeds of a real estate sale among the joint owners - rather than a physical division the real estate into separate undivided interests.

payment change date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.

periodic payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period. See cap.

periodic rate cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. See cap.

personal property
Any property that is not real property. In the common law systems personal property may also be called chattels. It is distinguished from real property, or real estate. In the civil law systems, personal property is often called movable property or movables - any property that can be moved from one location to another. This term is in distinction with immovable property or immovables, such as land and buildings.

PIH (Office of Public and Indian Housing)

PITI
In relation to a mortgage, PITI (pronounced like the word "pity") is an acronym for a mortgage payment that is the sum of monthly principal, interest, taxes, and insurance. That is, PITI is the sum of the monthly loan service (principal and interest) plus the monthly property tax payment, homeowners insurance premium, and, when applicable, mortgage insurance premium and homeowners association fee. For mortgagers whose property tax payments and homeowners insurance premiums are escrowed as part of their monthly housing payment, PITI therefore is the monthly "bottom line" of what they call their "mortgage payment" (although actually, in more precise terms, it is a combined (principal + interest + taxes + insurance) payment).

PITI reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

planned unit development
See PUD.

points
A form of pre-paid interest. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment.

Paying Points represent a calculated gamble on the part of the buyer. There will be a specific point in the timeline of the loan where the monies spent to buy down the interest rate will be equal to the monies saved by making reduced loan payments resulting from the lower interest rate on the loan.

Selling the property or refinancing prior to this break-even point will result in a net financial loss for the buyer while keeping the loan for longer than this break-even point will result in a net financial savings for the buyer. The longer you keep the property financed under the loan with purchased points, the more the monies spent on the points will pay off. Accordingly, If the intention is to buy and sell the property or re-finance in a rapid fashion, buying points is actually going to end up costing more than just paying the loan at the higher interest rate.

As stated, The decision to buy points based on a financial savings point of view should be based on the intended duration of the loan. Selling or refinancing prior to the break-even point render the purchase of points counter productive.

NOTE: Another perfectly valid application for the purchasing of Points is to reduce the monthly payment for the purpose of qualifying for the loan. Loan qualification based on monthly income versus the monthly loan payment may sometimes only be achievable by reducing the monthly payment through the purchasing of points to buy down the interest rate thereby reducing the monthly loan payment.

pre-arranged refinancing agreement
A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

predatory mortgage lending
There is concern in the US that consumers are often victims of predatory mortgage lending. The main concern is that mortgage brokers and lenders, sometimes while operating legally, are dishonestly finding loopholes in the law to obtain additional profit.

Some examples of predatory mortgage lending are:

• Encouraging applicants to include false information.
• Asking borrowers to leave signature lines blank.
• Failing to include Good Faith Estimates, Special Information Booklet, Truth in Lending and Hud-1 Settlement statement.
• Convincing borrowers to refinance a loan several times and each time increasing monthly payments or amounts owed.
• Loaning amounts higher than the value of the home.
• Not explaining unexpected costs at the settlement.
• Balloon loans: after a series of low payments the entire loan balance is due in a large lump sum.

Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice might be within the bounds of the law, depending on the circumstances. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then the consumer is forced to pay all costs. Potential borrowers may even be sued without having legal defense

pre-foreclosure sale (short sale)
A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.

prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

pre-qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

prime rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

principal
The amount borrowed or remaining unpaid. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.

principal balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance. See original balance.

principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

private mortgage insurance (PMI), (MI), (LMI)
Private Mortgage Insurance (PMI), also known as Lenders Mortgage Insurance (LMI), is insurance payable to a lender that may be required when taking out a mortgage loan. It is an insurance in the case that the mortgagor is not able to repay the loan, and the lender is not able to recover its costs after foreclosing the loan and selling the mortgaged property. The annual cost of PMI varies between 0.19% and 0.9% of the total loan value, depending on the loan term, loan type and proportion of the total home value that is financed.

The PMI may be payable up front, or it may be capitalized onto the loan. This type of insurance is usually only charged if the downpayment is less than 20% of the sales price or appraised value (in other words, the LTV or loan to value ratio should be 80% or less). Once the principal reaches 80% of value, the PMI is no longer required. This can occur via the principal being paid down, via home value appreciation, or both. Canceling mortgage insurance can be a difficult process. Sometimes lenders will require that PMI be paid for a fixed period (for example, 2 or 3 years), even if the principal reaches 80% sooner than that. The cancellation request must come from the Servicer of the mortgage to the PMI company who issued the insurance. Often the Servicer will require a new appraisal to determine the Loan To Value (LTV). The cost of mortgage insurance varies considerably based on several factors which include: loan amount, LTV, occupancy (primary, second home, investment property), documentation provided at loan origination, and most of all, credit score.

If a borrower has less than the 20% downpayment needed to avoid a mortgage insurance requirement, they might be able to make use of a second mortgage (sometimes referred to as a "piggy-back loan") to make up the difference . Two popular versions of this lending technique are the so-called 80/10/10 and 80/15/5 arrangements. Both involve obtaining a primary mortgage for 80% LTV. An 80/10/10 program uses a 10% LTV second mortgage with a 10% downpayment, and an 80/15/5 program uses a 15% LTV second mortgage with a 5% downpayment. Other combinations of second mortgage and downpayment amounts might also be available. One advantage of using these arrangements is that under United States tax law, mortgage interest payments may be deductible on the borrower's income taxes, whereas mortgage insurance premiums were not until 2007

Homeowners earning under $110,000 adjusted gross income can deduct, for the 2007 tax year, some or all of the LMI/PMI premium on mortgages closed only in 2007. Congress would need to renew this deduction to be valid for any tax years beyond 2007.

promissory note
A written promise to repay a specified amount over a specified period of time.

property manager
When owners of apartments, office buildings, or retail or industrial properties lack the time or expertise needed for the day-to-day management of their real estate investments or homeowners’ associations, they often hire a property or real estate manager.The manager is employed either directly by the owner or indirectly through a contract with a property management firm.

Property and real estate managers handle the financial operations of the property, ensuring that rent is collected and mortgages, taxes, insurance premiums, payroll, and maintenance bills are paid. Some property managers, called asset property managers, supervise the preparation of financial statements and periodically report to the owners on the status of other financial matters.

Property tax (millage tax)
An ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. There are three species or types of property: Land, Improvements to Land (immovable man made things), and Personalty (movable man made things). Real estate, real property or realty are all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.

public auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD - Planned Unit Development
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

purchase and sale agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

purchase-money mortgage
A home-financing technique in which buyer borrows from the seller instead of, or in addition to, a mortgage lender. Sometimes done when a buyer cannot qualify for a bank loan for the full amount. (Also called seller financing or owner financing.)

purchase-money transaction
The acquisition of property through the payment of money or its equivalent.

purchase "subject to mortgage"
Do not confuse  the so called "Purchase Subject to a Mortgage." with an "Assumption of Mortgage." Both are used to finance the sale of property usually when a homeowner (mortgagor) is in financial difficulty and desires to sell the property to avoid foreclosure.

When a buyer purchases property "Subject to Mortgage", the buyer agrees to assume the remaining debt on an existing mortgage, but the original homeowner does not receive a formal assignment of mortgage from the lender. The original homeowner remains on the loan and therefore, remains personally liable for the debt should the buyer default on making the monthly payments.

For example, a homeowner owes a 30-year mortgage loan of $250,000 against his house. A prospective buyer wants to purchase the house and keep the same mortgage. The buyer pays $50,000 cash for the equity and assumes the mortgage, becoming liable for the debt. However, the original owner remains liable as well.

In a purchase "Subject to Mortgage" since the seller (original mortgagor) remains liable in the event of default, the lender's (mortgagee's) consent is not necessarily required. This is the premise behind the "wrap around mortgage" and carries with it the risk of the lender finding out that title or interest in the property has been transferred to a third party and invoking the note's "due on sale provision."