Call Option
A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

capital gain
Profit earned from the sale of an asset, where the sales price was greater than the adjusted basis.

capital loss
Loss sustained from the sale of an asset, where the sales price is less than the adjusted book basis.

capitalization
A mathematical process for converting net income into an indication of value, commonly used in the income approach to value. The net income of the property is divided by an appropriate (capitalization) rate of return to give the indicated value. (Income ÷ Rate = Value)

capitalization rate
The rate of return a property will produce on the owners investment.

Caps (interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Caps (payment)
Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization.

carry-back
Financing where the seller takes back a note for part of the purchase price secured by a junior mortgage, wraparound mortgage or contract for deed.

cash flow analysis
A cash flow analysis shows the effect an investment property has on an owner's income in terms of tax benefits. Analyzes the return on investment after taxes on an income producing property. Measures the property manager's performance from period to period by comparing income and expenses for a given property.

Cash Out
Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house.The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.
For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out.

Cash-out loans may not be available for all types of property.

Cashier's Check (or Bank Check)
A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.

CC&Rs
Covenants, conditions and restrictions are limitations on land use, which are imposed by deeds, usually when land is subdivided. CC&Rs are a means of regulating building construction, density and use. May be referred to simply as restrictions.

Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans which verifies a veteran's eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).

certificate of occupancy (CO)
A certificate issued by a governmental authority indicating that a building is ready and fit for occupancy and that there are no building code violations. Some condominium developers insert language into the sales contract to the effect that upon notification that the units are ready for occupancy, the buyer must accept the unit despite any construction defects that may exist, although acceptance will not bar the buyer from obtaining redress for such defects. Once the building has been certified for occupancy the developer can then close the individual sales, transfer title to the buyers and, most important, begin to pay off the construction loan and eliminate the interest payments.

Certificate of Title
Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

Certificate of Veteran Status
FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet loan. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

cessation of work
A period of 60 days where no work is being conducted.

Chain of Title
The chronological order of conveyance of a property from the original owner to the present owner.

client
The person who employs an agent to perform a service for a fee. In traditional real estate brokerage, the client is the seller, and the buyer is the prospect or customer. In modern practice, more and more buyers are seeking representation as a client. Dual agency occurs when a broker represents the seller and the buyer as clients.

CLO (Computerized Loan Origination)
A computer network of major lenders that allows agents to initiate mortgage applications in their office. HUD has approved the procedure as long as 1) full disclosure is made of the fee; 2) multiple lenders are displayed on the computer screen to give borrowers a basis for comparison; 3) the fee charged is a dollar amount rather than a percentage of the loan.

Closing (or Settlement)
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

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Closing Costs
Costs for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, and surveying fees.

CMA (Competitive Market Analysis)
A method of determining the value of a property by comparing the prices paid for similar properties.Code of Ethics A written standard of ethical conduct embraced by the NATIONAL ASSOCIATION OF REALTORS®, a trade organization of more than 700,000 members representing all branches of the real estate industry.

Co-operative (Co-op)
An arrangement in which a corporation made up of residents owns a building. The buyer owns a proprietary lease, rather than real property, and a corresponding number of shares in the corporation.

code of ethics
A written system of standards of ethical conduct. Because of the nature of the relationship between a broker and a client or other persons in a real estate transaction, a high standard of ethics is needed to ensure that the broker acts in the best interests of both his or her principal and any third parties.

COFI
See Cost of Funds Index.

Collateral
Assets (such as your home) pledged as security for a debt. Something of value given or pledged as security for a debt or obligation. The collateral for a real estate mortgage loan is the hypothecated mortgaged property itself.

Commission
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.

Commitment
A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.

common elements
Parts of a property that are necessary or convenient to the existence, maintenance and safety of a condominium or are normally in common use by all of the condominium residents. Each condominium owner has an undivided ownership interest in the common elements.

common interest
The percentage of undivided ownership in the common elements belonging to each condominium apartment, as established in the condominium declaration.

common interest subdivision
A subdivision in which the owners own or lease a separate lot or unit together with an undivided interest in the common areas of the subdivision.

common law
The body of law based on custom, usage and court decisions.

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community property
A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. This system stemmed from germanic tribes and, through Spain, came to the Spanish colonies of North and South America.

In states that maintain a community property system, such as California, there are two classifications of property - separate property and community property. Separate property is property that either the husband or wife owned at the time of marriage or that was acquired by one spouse during marriage by inheritance, will or gift. Separate property is considered all community property and is automatically owned equally by each spouse regardless of whose name the record title is held under.

condition precedent
A condition that requires a certain action or a specified event to take place before an estate granted can take effect. For example, most installment real estate sales contracts require all payments to be made by the time specified before the buyer can demand transfer of title.

condition subsequent
A fee simple estate, may be qualified by a condition subsequent. This means that the new owner must not perform some action or activity. The former owner retains a right of reentry so that if the condition is broken, the former owner can retake possession of the property through legal action. Conditions in a deed are different from restrictions or covenants because of the grantor's right to reclaim ownership, a right that does not exist under private restrictions. (See fee simple, restrictive covenant).

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Condominium
A form of property ownership in which the homeowner holds title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project.

Conforming Loan
A mortgage loan which meets all requirements to be eligible for purchase by federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is $240,000 for a one-unit property.

Contingency
A condition which must be satisfied before a contract is legally binding.

contract
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conventional Loan
Loans that are not made under any government housing program; they are not subject to the restrictions of government housing programs, such as loan size limits.

Conversion Clause
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.

Convertible ARMs
A type of ARM loan with the option to convert to a fixed-rate loan during a given time period.

convertible loan
An adjustable-rate loan that the borrower can convert to fixed-rate at any time during the life of the loan.

Conveyance
The document used to effect a transfer, such as a deed, or mortgage. The term is also used in describing the act of transferring.

cooperating broker
A broker who assists another broker in the sale of real property. Usually the cooperating broker is the selling broker who found a buyer for the listing broker. Also known as listing broker.

cooperating broker fee agreement
An agreement between brokers specifying the commission split should the cooperating broker sell a property listed by the listing broker.

co-ownership
Title ownership held by two or more persons.

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cosigners
Additional signers of a financial agreement that add their personal guarantees to that of the borrower.

cost approach
The process of estimating the value of a property by adding to the estimated land value. The appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.

cost basis
A cost basis of real property is usually based on the purchase price of the property plus the buyer's capitalized closing costs. (See closing costs)

Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

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Counter Offer
A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.

covenant
A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed.

covenant against encumbrances
The grantor warrants that the property is free from liens or encumbrances, except for any specifically stated in the deed. Encumbrances generally include mortgages, mechanics' liens and easements. If this covenant is breached, the grantee may sue for the cost of removing the encumbrances.

covenant of further assurance
The grantor promises to obtain and deliver any instrument needed to make the title good. For example, if the grantor's spouse has failed to sign away dower rights, the grantor must deliver a quitclaim deed (discussed later) to clear the title.

covenant of quiet enjoyment
The covenant implied by law by which a landlord guarantees that a tenant may take possession of leased premises and that the landlord will not interfere in the tenant's possession or use of the property. The grantor guarantees that the grantee's title will be good against third parties who might bring court actions to establish superior title to the property. If the grantee's title is found to be inferior, the grantor is liable for damages.

covenant of seisin
The grantor warrants that he or she owns the property and has the right to convey title to it ("seisen" simply means "possession").

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covenant of warranty forever
The grantor promises to compensate the grantee for the loss sustained if the title fails at any time in the future. These covenants in a general warranty deed are not limited to matters that occurred during the time the grantor owned the property: they extend back to its origins. The grantor defends the title even against himself/herself and all those who previously held title.

covenants that run with the land
Convenants that become part of the property rights and benefit or bind successive owners of the property.

creative financing
Structuring the financing of a real estate transaction based on the cash positions of the buyer and seller. It involves working in conjunction with the existing financing to create a financing package that enables the buyer to purchase the property at better interest rates or terms than a conventional loan.

credit
Obligations that are due or are to become due to a person. In closing statements, that which is due and payable to either the buyer or seller--the opposite of a charge or debit.

credit loan
A mortgage issued upon the financial strength of a borrower, without regard for collateral.

credit rating
The Dun & Bradstreet credit rating system. Rating the financial strength of commercial and industrial companies.

Credit Report
A report detailing the credit history of a prospective borrower that's used to help determine borrower creditworthiness.

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credit repository
Organizations that maintain and make available public credit history records; lenders use information from credit repositories to derive credit scores for potential borrowers. (See credit report, credit score)
Equifax
Experian

credit score
A snapshot of a borrower's credit worthiness; a numerical score based on statistics showing the risk of default on a loan; takes into consideration available credit, management of existing credit, and any detrimental credit information. (See FICO)
Fair, Isaac and Company on Credit Scoring

CRS (Certified Residential Specialist)
A professional designation awarded to experienced agents who complete an advanced course of study in residential real estate and demonstrate proficiency in sales and production. CRS Designees are members of the Residential Sales Council, a not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS®.

customer
A prospective buyer of real estate. Not to be confused with a property seller, who is the listing broker's client.

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