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Term Definition
Contiguous
Two sides that actually touch and/or share a common boundary.

Contingency
A stipulation in the contract that must be met before it takes effect and becomes legally binding. Home purchasers often include a contingency that specifies that the contract is not legally binding until the purchaser obtains a satisfactory home inspection report.

Contract
An agreement between two or more parties to do (or not do) certain things in exchange for consideration. (See definition of "consideration" above.)

Contract For Deed
A real estate installment selling arrangement whereby the buyer may use and occupy the land or property, but no deed is actually given by the seller until all or part of the sale price (specified in the contract) has been paid. Same as land contract.

Contractor
A person who provides specific goods or services under the terms of a contract.

Conventional Loan
A conforming loan that does not have a government guarantee. Freddie Mac loans and Fannie Mae loans are two examples of this type of loan. (See definition of "conforming loan" above).

Conversion
The act of changing a property to a different use or type of ownership.

Convey
The act of transferring a title to another party.

Cooperative (co-op)
A type of ownership by several parties. The residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property. Under the terms of the contract, each resident is given the right to occupy a single, specific unit in the complex.

Counteroffer
The act of rejecting an offer, but making an immediate new offer in its place.

Creative Financing
Refers to any financing arrangement other than a traditional mortgage supplied by a third party institution.

Credit Line
A loan that allows revolving use of the credit. After the borrower repays borrowed funds, he or she may borrow funds again without needing to apply for a new loan. There is usually an established limit of available credit and some or all of the available funds can be optionally disbursed at closing. Undisbursed funds are available for the borrower’s use at any time. Payments are required only on the outstanding balance. A credit line resembles a credit card except that the borrower usually uses checks to access the funds. Credit lines are inexpensive and useful tools for investors.

Cumulative Cash on Cash Return
Total cashflow to date divided by the total amount of initial investment (plus any additional capital expenditures not financed). Can be looked at on a Before- and After-Tax basis. The point where Cumulative Cash on Cash passes 100% is the point where the investor gets their entire investment back.

Dealer
A person who holds real property with the primary purpose of selling it to customers. A dealer treats his or her profit from a sale as ordinary income.

Debt Coverage Ratio
Ratio between a property's Net Operating Income (NOI) for the year and the annual debt service (total mortgage payments). This is a metric often used by lenders to measure whether the property will generate sufficient cashflow to cover it's mortgage payments.

Debt Coverage Ratio (DCR)
A ratio that is used to underwrite loans for income producing property. To calculate DCR, divide net operating income by total debt service. Ratios of at least 1.10 are generally required, with ratios of 1.20 and higher considered the norm. (See definition of "underwriting" below).

Debt Ratio (DR, D:I)
Also known as debt to income. The ratio of the total of minimum monthly debt payments to gross monthly income. If a person’s minimum monthly payments on a credit card, auto lease, and mortgage (PITI) were $30, $220 and $750 respectively, and his/her gross monthly income was $3000, his or her debt ratio would be calculated as 33.33%. Non-fixed payments for things such as food, utilities, medical bills, and entertainment are not included in the calculation. However, contractual obligations such as a lease are included. The housing ratio in this example would be 25% ($750 / $3000). Preferred candidates for loans usually have debt ratios of 28% or less for housing, and 36% or less in total. The maximum ratios that lenders will allow are generally around 30% housing and 40% total, though lenders may consider extenuating circumstances when making their decision. Confirming loans such as FHA and VA loans allow a total of approximately 41%, while non-conforming loans sometimes allow total debt ratios as high as 55%.

Decree
an order issued from an authority; for example, a court order.

Deed
A written document that conveys a real property’s title to a certain party. This document must be properly signed, sealed, and delivered.

Deed in Lieu of Foreclosure
A party returns a property to the original lender without opening up the process of foreclosure.

Deed of Trust (DOT)
DOT's are similar to mortgages in that they serve as security for a loan by encumbering real estate. While a mortgage is between two parties (borrower and lender), a deed of trust involves three parties (borrower, lender and trustee). The trustee holds the property in trust as security for the payment of the debt. If the borrower defaults on the agreement, the trustee is legally authorized to sell the property.

Deed Restriction
See Conditions, Covenants, and Restrictions.

Default
A failure by the borrower to fulfill all of the obligations and commitments specified in the mortgage or deed of trust. Defaults usually give the lender the right to accelerate payments and begin the foreclosure process, though there are some exceptions.

Defeasance
A clause in a mortgage that gives the borrower the right to redeem the property after default by paying the entire debt plus any additional fees incurred.

Deferred Maintenance
Physical depreciation of a property due to lack of normal upkeep.

Deficiency Judgment
A court order stating that the borrower is still obligated to repay a certain amount of money. Used when a loan’s security does not completely cover a defaulted debt.

Density
The intensity with which land is used.

Density Test
A soil test that is conducted in order to find out whether the surface can support a house or other structure to be built in the future.

Depreciable Basis
The portion of the property's value that can be depreciated. Usually equals to Purchase Price minus Value of Land plus any Capital Improvements minus Depreciation already taken

Depreciation Recapture
A situation in which the owner is required to pay tax at normal rates of income to the extent of the excess accelerated depreciation. This occurs when a party sells real property at a gain and claims accelerated depreciation.

Discount Points
A method of giving the lender a higher yield from a loan. One point equals 1% of the loan amount. Two points on a $100,000 mortgage would cost $2,000 ($100,000 x 0.02).

Discount Rate
Conceptually, the discount rate can be thought of as a required return for a real estate investment based on its risk when compared with return earned on competing investments. One way to calculate such rate is to add a risk premium and a liquidity premium, corresponding to the property, to a relatively risk-free rate such as a US Treasury bill. This rate will be used to discount the property's expected cashflows to arrive at their present value.

Document Preparation
A fee is often charged to cover the expenses of preparing some of the legal documents that need to be signed at closing, such as the note, mortgage, and truth-in-lending statement.

Down Payment
A portion of the purchase price paid to a seller from sources of funds other than funds provided by a lender.

Draw
An  occasional advance of funds.

Due Diligence
The act of carefully checking, reviewing, and verifying all facts and important aspects of a deal before proceeding. In lending, this includes verification of employment, income and savings; obtaining a credit report; review of the appraisal; and status of the title.

Due-on-Sale
A lender’s reserved right to designate the loan as due and payable upon sale of the property.

Earnest Money
A deposit that a buyer of real estate makes in order to show that he or she is serious about completing the deal; a show of "good faith."

Easement
One party’s privelege, right, or interest in the land of another party.

Easement by Necessity
The right of an owner to enter another’s property for a certain necessary purpose.

Easement by Prescription
By meeting certain conditions, an owner may convert continued use of another’s property (for a special purpose) to permanent use.

Effective Mortgage Rate
Blended mortgage rate adjusted for leverage. If you are borrowing at 80% LTV, for example, with a rate of 10%, your effective mortgage rate is 8%. A quick and useful performance measure is to subtract your effective mortgage rate from the Cap Rate. If the result is positive, you should expect positive cashflow.

Egress
A method of access and/or exit.

Eminent Domain
The right of the government or a public utility to condemn a property in order to acquire it for necessary public use. Under eminent domain laws, the acquiring party must pay the owner fair compensation.

Employer-Assisted Housing
A housing initiative by Fannie Mae that offers a number of different ways in which employers may work with local lenders to develop plans to help their employees in buying homes.

Encroachment
A building or any part of a building that physically overlaps, intrudes upon, or trespasses upon the property of another. This also may include other fixtures or obstructions on the property that are not actually part of the building.

Encumbrance
Any right to or interest in land that may affect its value in a transaction. This may include unpaid taxes, mortgage loans, junior liens, easements, or deed restrictions.

Equal Credit Opportunity Act (ECOA)
A federal law that states that lenders and other creditors must make credit equally available, with no discrimination based on race, color, national origin, religion, age, sex, marital status, or public assistance income.

Equitable Conversion
A legal doctrine effective in certain states. Equitable conversion laws state that under a contract of sale, buyers and sellers are treated as if a closing has taken place in the sense that the seller in possession is required to take adequate care of the property.

Equitable Title
The interest held by a party who has agreed to purchase a property, but has not yet actually closed the transaction.

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