Mortgage Glossary
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
Abandonment of Property
To vacate a property with a definite intention never to return.
Abstract of Title
Registry System: A condensed history of the title to a parcel of land. The
abstract consists of a synopsis of every recorded instrument affecting the title
to that land arranged in chronological order of recording.
Accelerated Weekly Payment
A mortgage repayment plan in which the borrower makes 52 payments per year
instead of 48 which would be required if the payment plan called for four
payments per month. The extra four payments each year have the effect of
“accelerating” the repayment of the mortgage.
Acceleration Clause
A clause in a mortgage which provides that where default has occurred in making
any mortgage payment, the outstanding mortgage amount becomes due.
Acceptance
The offeree’s consent to enter into a contract and to be bound by the terms of
the offer.
Accredited Appraiser Canadian Institute (AACI)
The highest level of designation bestowed by the Appraisal Institute of Canada.
It allows the holder to conduct appraisals and consultations on various types of
property.
Accredited Mortgage Professional (AMP)
AMP is Canada’s only national designation for mortgage professionals. The AMP
designation sets a single national proficiency standard for Canada’s mortgage
professionals and is issued by the Canadian Association of Accredited Mortgage
Professionals (CAAMP).
Accrued Interest
The interest charged for the period of time that has elapsed since the last
interest date.
Action for Possession
A legal remedy available to a lender when a mortgage is in default. It allows
the lender to take possession of the mortgage property.
Action of Receiver
A legal remedy available to a lender when a mortgage is in default, asking the
courts to appoint a receiver who takes possession of the property
Action on the Covenant for Payment
A legal remedy available to a lender when a mortgage is in default. It gives the
lender the right to sue the borrower, even if the borrower has since sold the
property.
Acquittance
The term for a discharge of mortgage in Québec.
Adjustable Rate Mortgage
See variable rate mortgage.
Adjustment on Sale
A pro-rated division and distribution of prepaid or accrued taxes, prepaid
insurance premiums, prepaid rents and other income and expenses. This adjustment
usually occurs when a property is sold and is the manner of determining the
amounts due to and from the parties.
Adverse Possession
The right by which someone occupying a piece of land might acquire title against
the real owner, if the occupant’s possession has been actual, continuous,
hostile, visible, and distinct for a statutory period. Adverse possession is not
possible under Land Titles or when Crown property is involved.
Advertising Standards Canada (ASC)
Advertising Standards Canada (ASC) is the Canadian advertising industry’s
self-regulatory body. ASC’s mission is to ensure the integrity and viability
of advertising. They administer The Canadian Code of Advertising Standards.
Affidavit
A statement or declaration in writing and sworn to or affirmed before some
officer who is authorized to administer an oath or affirmation, such as a notary
public, or commissioner of oaths.
Agency
An agency relationship is created when one person, called the principal,
authorizes another person, called the agent, to act on behalf of and subject to
the control of the principal.
Agent
One who is authorized to represent and act on behalf of another person or
business, the principal in transactions involving a third party. Unlike an
employee who merely works for the principal, an agent works in place of the
principal.
Agreement of Purchase and Sale
A written agreement between vendor and purchaser in which the purchaser agrees
to buy certain real property and the vendor agrees to sell upon terms and
conditions as set out in that agreement.
Alberta Mortgage Brokers Association (AMBA)
An independent non-profit organization serving the mortgage industry in Alberta.
Alienation Clause
A type of acceleration clause that demands payment of the entire debt upon sale
or other transfer of the title.
Amending Agreement
An agreement between the lender and borrower by the lender in which the terms of
the registered mortgage are changed. The amending agreement may or may not be
not be registered on title.
Amortization
This refers to the process of paying off a mortgage in regular payments composed
of both interest and principal.
Amortization Period
The time over which the mortgage is to be completely repaid, assuming equal
payments. This means that when looking, for example, at a mortgage with a
25-year amortization period, it would take 25 years to reduce the balance to
zero, if all regular payments were made on time and the terms (payment, interest
rate) remained the same.
Amortization Schedule
A table showing the amounts of principal and interest which make up each of the
periodic level payments and the outstanding principal balance of the loan after
each level payment is made.
Amortized Mortgage
A mortgage requiring regular payments which include both principal and interest
sufficient to fully repay the loan by maturity.
Anniversary Date
The same date in each calendar year during the term of the mortgage. The first
anniversary date occurs one year from the date interest is adjusted and the
periodic repayments begin.
Appointment of a Receiver
A legal remedy available to a lender when a mortgage is in default. The receiver
takes possession of the property, collects rents, and pays any expenses as
required.
Appraisal
An independent, unbiased report that uses various analysis techniques and market
research to determine the realistic value of a property.
Appraisal Institute of Canada (AIC)
The national professional organization that designates and represents
professional real estate appraisers. The AIC sets the standards and requirements
necessary to earn the designation of Accredited Appraiser Canadian Institute
(AACI) and Canadian Residential Appraiser (CRA).
Appraisal Report
An independent assessment of a property by a qualified individual. A statement
giving an opinion of value of an adequately described property, as at a specific
date and supported by pertinent data.
Appraiser
An appraiser determines the market value of a house based on its condition and
the selling price of comparable houses recently sold in the area. The licensing
requirement for real estate appraisers varies from province to province.
Arm’s Length Transaction
A transaction between unrelated parties. A transaction freely arrived at in the
open market unaffected by abnormal pressures as might be the case in a
transaction between related parties.
Arbitration
The determination of a dispute by a disinterested third party.
Arrears
An overdue payment (in reference to a mortgage for the purposes of this text).
Assessment (assessed value)
A value placed upon property (land and buildings) for taxation purposes.
Assessment Roll
An annual list of the assessed values of all properties in a municipality. The
assessment roll includes the name of the property owners or tenants and their
addresses. Assessment rolls are usually delivered to a municipality before the
end of the year. The term “roll” comes from ancient times and refers to the
way information used to be stored – on paper or parchment, rolled up into
cylinders.
Assets
Goods of value, either tangible or not, that a borrower or business owns.
Assignee
One who takes the rights or title of another by assignment.
Assignment
The act of transferring rights held by one party, the assignor, to another
party, the assignee.
Assignment of Lease
The absolute or conditional transfer of the rights of either party to a lease.
Assignment of Mortgage
The transfer of ownership of a mortgage from one party to another.
Assignment of Rentals
A contract in which the borrower grants the lender the right to collect future
rents on a given occurrence, normally default. This assignment is normally taken
as additional security on rental loans.
Assignor
One who transfers or assigns the rights or title to another.
Association des courtiers et agents immobiliers du Québec (ACAIQ)
ACAIQ is responsible for administering the Real Estate Brokerage Act and
regulations in Québec.
Assumable Mortgage
An existing mortgage that can be taken over (assumed) by the buyer of a property
when that property is sold.
Assumption of Mortgage
The act of assuming liability for an existing mortgage on a property by the
purchaser of that property. With builders’ loans, the assumption is usually
evidenced by written agreement.
Attachment
The seizure of property by court order.
Attornment of Rents
A legal action available upon default of a mortgage. As a result, tenants are
directed to pay their rents to the lender.
Automated Valuation Models (AVM)
Computer programs that provide real estate market analysis and estimates of
value based on specific attributes of a property as well as sales information.
B
Balance Sheet
Also known as the Statement of Financial Position or Statement of Assets and
Liabilities. The Balance Sheet is a listing of the assets, liabilities (debts),
and owners’ equity of a business enterprise at a specific point in time. The
assets must equal the liabilities plus the owners’ equity.
Balloon Payment
Any payment of principal over and above the regular payment.
Bank Act
The Canadian Bank Act regulates all Canadian banking activity conducted through
a federally chartered institution. This includes banks, trust companies, loan
companies, and insurance companies.
Bank Rate
The rate at which the Bank of Canada charges loans to the chartered banks. This
is the rate on which lending institutions base their prime lending rate.
Basis Point
One one-hundredth of one percent. Used to describe the amount of change in yield
in money debt instruments, including mortgages.
Beacon Score
The name given to the credit score published by Equifax. See also Empirica
Score.
Binder Insurance
A temporary agreement where one party agrees to insure another party while
awaiting receipt of, and final action on, the application for insurance.
Blanket Mortgage
A single mortgage registered against two or more individual parcels of real
property.
Blended Payments
Regular equal mortgage payments combining, or blending, interest and principal
components in one constant payment.
Blended Rate
The rate that results from the blending of an existing mortgage and a new
mortgage with differing interest rates into one consolidated mortgage. The
calculation to determine the final rate takes into account both the interest
rates and the amount of principal for each of the component loans.
Bona Fide
In good faith, with valuable consideration and with absence of notice of any
problems.
Bonus
- A sum paid by the borrower, or retained by the lender, from the advance of
mortgage money as part of the consideration for the making of the loan. - A sum paid by the borrower to the lender as consideration for prepayment
of all or part of the principle outstanding.
Book Value
The capital amount at which an asset is shown on the books of an account.
Usually it is the original cost, less reserves for depreciation.
Book Value of a Mortgage
The mortgage amount outstanding on a mortgage at any given point in time. The
book value is determined by deducting the amount of principal repayment from the
original principal amount.
Borrowing By-laws
A document providing proof that a corporation has the power to borrow under its
company charter.
Breach of Contract
Failure, without legal reason, to perform any promise that forms the whole or
part of the agreed terms contained in the contract.
Bridge Financing
A loan provided to borrowers to provide financing for purchase, pending closing
of the sale of their existing property.
Bridge Loan
A bridge loan is a short-term, high interest loan intended to offset financial
hardship until a long-term loan is secured.
Brokerage
The aspect of business concerned with bringing parties together for the
transaction of business and the execution of contracts. Brokerage involves
sales, exchanges and rentals.
Broker
One who acts as an intermediary between parties in a transaction. A broker,
usually paid by the lender, arranges a mortgage for the
buyer.
Builder’s Loan
A loan designed for borrowers who need financing for construction projects.
These differ from normal loans as the funds are received in stages (also known
as draws) during the building process to protect the lender from construction
abandonment.
Builder’s Risk Insurance
Fire and extended coverage insurance for a building under construction. Coverage
increases automatically as the construction progresses and terminates at
completion.
Building Code
A set of minimum regulations respecting the safety of buildings with reference
to public health, fire protection and structural sufficiency.
Building Scheme
A group of restrictive covenants attached to two or more lots. These covenants
are set by a vendor or landlord. They detail restrictions for use and are agreed
to by the purchasers or tenants as part of the purchase or lease.
Bundle of Rights
Legal rights with respect to real estate ownership which include the
right to use, sell, lease, enter, or to give away the property, plus the right
to refuse to take any of these actions.
Buy Down
A lump sum payment as consideration for the reduction in the interest charged on
a loan from that which would normally be charged.
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C
Canada Mortgage and Housing Corporation (CMHC)
A Crown Corporation which was initially created to administer the National
Housing Act and is Canada’s only public sector mortgage insurer. CMHC is
charged with administering government housing initiatives and works with
community organizations, the private sector, non-profit agencies and all levels
of government to help create innovative solutions to today’s housing
challenges.
Canada Mortgage Bonds
Canada Mortgage Bonds (CMBs) are similar to Mortgage Backed Securities (MBS) in
that Canada Mortgage and Housing Corporation guarantees the timely payment of
interest and principal. However, an MBS has a disadvantage to investors since
borrowers of the underlying mortgages can make partial or full prepayments of
their mortgage principal. While consumers (borrowers) like this flexibility,
investors do not like this unpredictability. The Canada Mortgage Bond program
eliminates this cash flow uncertainty to investors, as CMHC guarantees both
semi-annual interest payments, and the repayment of principal on a specified
maturity date.
Canadian and British Insurance Company Act
The federal statute that governs federally incorporated insurance companies.
Canadian Code of Advertising Standards
These are administered by Advertising Standards Canada. The goal of the
standards is to promote the professional practice of advertising, by setting
criteria for what is or is not acceptable practice.
Canadian Association of Accredited Mortgage Professionals (CAAMP)
CAAMP is the only national organization representing Canada’s mortgage
industry and administers the Accredited Mortgage Professional (AMP) designation.
CAAMP’s Code of Ethics
A code of conduct for CAAMP members designed to increase professionalism and
decrease the likelihood of fraud.
Caisses Populaires
Credit unions as they are known in Québec. See credit union.
Canadian Residential Appraiser (CRA)
This designation is awarded by the Appraisal Institute of Canada and grants
those with the designation the right to valuate individual, undeveloped
residential sites.
Capacity (5 Cs of Credit)
The ability of a borrower to repay a loan.
Capital (5 Cs of Credit)
The amount of money the borrower has invested into the property.
Capital Reserve Requirements
Specified amount of capital that is necessary for lenders to hold to back up the
loans they grant. The amount is determined by government regulations.
Capped Rate Variable Mortgage
A variable rate mortgage on which the lender has set a limit to interest rate
increases or decreases.
Cash Back
A mortgage feature that provides the borrower with cash back, as a percentage of
the mortgage principal. It is generally used to cover closing costs.
Caution
A notice registered on title by a person claiming to have a proprietary
interest (i.e. a right to call for or receive a transfer of charge) in land or
in a charge (mortgage) of which he or she is not the registered owner. Cautions
are registered to protect their interests. As a result, the registered owner of
the land or charge cannot deal with the land or charge without consent of the
cautioner.
Caveat Emptor
“Let the buyer beware”. Buyers must examine the goods or property they are
buying since they buy at their own risk.
Central Bank
A body established by a national government to regulate currency and monetary
policy on a national / international level. In Canada, it is the Bank of Canada;
in the United States, the Federal Reserve Board; in the U.K., the Bank of
England.
Certificate of Occupancy (Permit)
A certificate provided by the municipality that a property has been constructed
under the authority of the issued building permit, has met the requirements of
the building code, and is now suitable to be occupied.
Cessation of Charge
A discharge of a mortgage registered under the Land Titles Act.
Chain of Title
Chain of title refers to who has owned the land in the past. It is uncovered
through the lawyer’s search. See extent of title.
Character (5 Cs of Credit)
The overall opinion on a borrower’s credibility to repay a loan; the
borrower’s length of employment is a key measurement.
Charge
The name given to a mortgage document when title is registered under the Land
Titles System. Also known as Certificate of Charge.
Chattels
Movable possessions, personal property (generally items that may be removed
without injury to the freehold estate).
Chattel Mortgage
A mortgage given on chattels. This type of mortgage is usually given as
collateral security to a mortgage on real estate. As an example, there may be a
chattel mortgage on refrigerators and stoves in an apartment building.
Closed Mortgage
A mortgage agreement that cannot be repaid, refinanced or renegotiated until
maturity, unless otherwise stated in its terms.
Closing Date
The date on which a sale becomes final, funds are transferred from the purchaser
to the vendor, and the new owner takes possession of a property.
Closing Process
The procedure of finalizing the sale, once the lender receives an accepted
commitment.
Co-Applicant
One of two or more people applying together for a loan.
Co-Insurance
A sharing of risk between insurer and insured which depends on the relationship
of the amount of the insurance carried versus the amount of insurance required
at the time of the loss.
Collateral (5 Cs of Credit)
Guaranteed support for a loan, generally consisting of funds or real estate,
that ensures added security to the lender. Collateral can also take the form of
guarantees provided by third parties, i.e. guarantors.
Collateral Mortgage
The mortgage registered to document collateral security.
Collateral Security
Security given in addition to the direct security and subordinate to it.
Commercial Properties
Properties that are utilized for commerce or trade (e.g. stores, office
buildings).
Commitment
A letter / document issued by a lender reciting the basic terms of a loan which,
when accepted by the borrower, forms a binding contract. The commitment may have
conditions attached to it which must be met before the contract can be
finalized.
Common Law
A legal system of principles and rules of action based on customs and common
usages. It forms a major part of the law in many countries, especially those
with a history as British territories, such as Canada. Common law developed from
rulings by judges based on tradition, custom and precedent, with the idea being
that there was a legal framework common to all cultures throughout time.
Common Mistake
Both parties make the same mistake in a term of the contract.
Completion Loan
The single disbursement of the total loan following satisfactory completion of
the property.
Comparable Properties
Properties that contain similar characteristics to the subject property in an
appraisal. Appraisals typically require three comparable properties. Comparables
should have sold recently, be from the same or similar neighbourhood, be of the
same style/age/condition, be of similar size and on similar lots. See
Comparative Method of Appraisal.
Comparative Method of Appraisal
A method of appraisal that bases the value of the property on that of comparable
properties.
Compound Interest
Interest charged not only on the principal sum but also on interest amounts
charged, but not paid, in preceding periods that accumulate as new principal.
Condition
A clause or statement in the contract, which must be met to fulfil an obligation
in the agreement.
Condition Precedent
Clause in a contract that lays down factors and/or events that must occur for
the agreement to be binding.
Condominium
Ownership of property whereby the owners hold negotiable title to their own
unit. At the same time they share with fellow owners the title and cost of
operation of the balance of the property (common elements) making up the
condominium.
Consideration
Consideration means “some right, benefit or profit accruing to the promisor or
some forbearance, detriment, loss or responsibility suffered by the
promissee”. In other words, when dealing with contracts, the party trying to
enforce the contract must have provided some benefit in return for the promise
to complete the contract.
Contract
A contract is a legally binding agreement between two or more capable people for
consideration or value, to do or not do some lawful and genuinely intended act.
Contract of purchase and sale
A contract involving the sale of a property that outlines the complete duties of
the promisor and the promissee in the real estate transaction.
Conveyance
The transfer of an interest in property from one person to another.
Conventional Mortgage
A loan based on the credit of the borrower and on the collateral for the
mortgage. A conventional mortgage does not exceed 80% of the market value of the
property. This means that the borrower must have 25% or more available for the
down payment.
Convertible Rate
Mortgages with a convertible rate feature allow borrowers to fix the rate of
their variable rate mortgage at any time with no penalty.
Co-Operative
A form of multiple ownership of real estate in which a corporation or business
trust holds title to a property. Individual unit holders have the exclusive
right to occupy their unit by lease but their investment in the corporation is
by way of shares.
Co-Ownership
The idea that a property (present or future) can be held at the same time by
several persons. The most common types of co-ownership are joint tenancy and
tenancy-in-common.
Corporation
A separate legal entity which exists apart from a person but has the rights and
liabilities of an individual.
Cost of Goods Sold (Income Statement)
The costs of purchasing or producing and manufacturing items sold.
Counter Offer
A new offer made in response to an offer received. This has the effect of
rejecting the original offer and placing the counter offer on the table for
consideration.
Covenant
An agreement in writing (in Common Law must be under seal) contained in a deed
and creating an obligation. It may be positive, stipulating the performance of
some action. It may be negative or restrictive, forbidding the commission of
some act.
Credit (5 Cs of Credit)
The repayment history of the borrower.
Credit Report
A detailed description of the applicant’s credit records. This includes
information provided by lenders concerning credit card payments and loans
repayment history.
Credit Score
A single number that represents the information found in a borrower’s credit
history. Equifax’s credit score is known as the Beacon Score, while
TransUnion’s score is called the Empirica Score.
Credit Unions
Credit unions are lending institutions owned by their members. Membership is
often based on a common bond of association such as employment or ethnic
background.
Creditor
One to whom a debt is owed.
Cross Default Clause
Mutual clauses in two or more mortgages, which state that a default under one
mortgage constitutes a default under the other(s).
Current Assets
Goods that can easily be turned into cash, sold or consumed within a year’s
time.
Current Liabilities
Debts and obligations that are expected to be paid within a year, e.g. account
payable, expenses, taxes.
Current Ratio
A measure that shows the ability of a firm to pay its current liabilities. It is
calculated by dividing current assets by current liabilities.
D
Damages
A financial solution determined by a court to compensate one party for injury by
another party. Damages are intended to restore the parties to the state that
would have existed if the contract had been performed.
Debt Service
Ratios
Ratios that are used to compare borrowers’ debts to their incomes to determine
if they can afford loans
Debt-to-Assets
Ratio
This ratio identifies how much of a company’s operations are funded through
borrowing. It is calculated by dividing total liabilities by the total assets.
Debt-to-Equity Ratio
Another ratio (see debt-to-assets) which assesses how much of a
company’s operations are funded through borrowing, compared to the amount of
money provided by the owners. It is calculated by dividing total liability by
owners’ equity.
Debtor
One who owes a debt.
Dedication
The granting of land by the owner for some public use and its acceptance for
such use by authorized public officials.
Deed
A legal document in writing, duly executed and delivered, that conveys title or
an interest in real property.
Default
Failure to fulfill contractual obligations.
Deficiency Judgement
A court order to pay the balance owed on a loan or mortgage if the proceeds from
the sale of the security are insufficient to pay off the loan.
Deficiency Settlement
A monetary settlement by a mortgage lender or insurer when the net proceeds
under a Power of Sale or Judicial Sale is less than the lender’s total claim.
Demand Letter
A letter sent by the lender to the borrower demanding immediate payment of all
arrears, together with costs.
Demographic
Characteristics of a population such as size, growth, age, etc.
Depreciation
The loss of value of an asset over time.
Direct Comparison
This type of appraisal, also referred to as the market data approach,
bases property value on the current selling prices of similar properties.
Discharge Document
Once the receipt (acknowledging the completion of payment) has been
processed and registered to the title, it becomes the discharge document.
Discharge of Mortgage /
Charge
A legal document executed by the lender, and given to the borrower when a
mortgage loan has been repaid in full, releasing him or her from all obligations
and covenants contained in the mortgage.
Disclose Defects
To make known current or past imperfections. Failure to disclose defects will
not affect consent, but will have the same effect as a misrepresentation.
Disclosure Statement
A written statement disclosing information about a specific loan and potential
conflicts of interest required under various consumer protection acts.
Doctrine of Estates
It is the concept that specifies the various rights to land ownership in common
law countries.
Doctrine of Privity
Also known as the “third party rule”. The doctrine of privity states that
only parties to a contract are entitled to enforce a contract; third party
beneficiaries do not have the right to take action.
Dollar Adjustments
These are estimates of the dollar amount allocated to each factor being compared
to the subject property in an appraisal. For example a dollar
adjustment would reflect how much extra a buyer would pay for a home with a
finished basement compared to one with an unfinished basement. See
percentage adjustment.
Dominant Tenement
The land which derives benefit from an easement over a servient tenement, as in
a Right-of-way.
Double Up Option
A clause that may be included as part of an open mortgage contract, giving the
borrower the opportunity to double the scheduled principal and interest
payments.
Draft Mortgage Document
The foundation of the document is to specify all terms and conditions of the
agreement. A lawyer must ensure its contents accurately list loan amounts,
interest rates, proper legal descriptions, repayment contract and other factors
that affect the loan agreement. The draft mortgage document is a last check on
the mortgage required by some lenders.
Draws
The stages in which the borrower receives a partial loan disbursement in a builder’s
loan.
Duress
The threat of force, false imprisonment or threats upon individuals to result in
action or lack of action contrary to their wishes or interests. If duress is
used to enter a contract, courts may find the agreement void and null.
E
Easement
(Servitude)
A right enjoyed by one landowner over the land of another.
Economic Life
The estimated period over which it is anticipated that a property or asset may
profitably be used.
Economic
Obsolescence
A loss of value over time resulting from external determinants such as heavy
traffic, crime and unfavourable non-residential land uses.
Effective Gross
Income (Income Property)
The annual income from a property, if fully leased, less an annual allowance for
vacancies and bad debts.
Effective
Interest Rate (for Mortgages)
The actual rate that the borrower must pay on a loan after the effects of
compounding are considered. It is also known as the true rate. It differs from
the nominal interest rate.
Egress
Going out (access to exit).
Electronic Funds
Transfer (EFT)
The automatic transfer of funds from one account to another. Mortgage repayments
can be made electronically directly to the lender.
emili by CMHC
The automated mortgage insurance evaluation system of the Canada Mortgage and
Housing Corporation (CMHC).
Empirica Score
The name given to the credit score published by TransUnion. See also Beacon
Score.
Encroachment
An improvement such as a wall, fence, or building that intrudes illegally upon
another’s property.
Encumbrance
Outstanding claim or lien recorded against property, or any legal right to the
use of the property by a person who is not the owner.
Equity (for
Mortgages)
The difference between lending value (the purchase price or market value) and
indebtedness.
Equity
A court system that applied the principle of equity to decisions, emphasizing
fairness and de-emphasizing technicalities.
Equity Financing
(Lending)
Investment in the equity in leveraged or unleveraged real estate by investors.
These investors are usually institutional and may or may not have provided the
mortgage financing.
Equity of
Redemption
The right of a borrower to repay a loan that was in default and retain
possession of the property.
Error and
Omissions Insurance
Insurance for professionals with respect to claims regarding mistakes and
absences that occur when acting on behalf of a consumer.
Escrow
Securities, instruments, money or other property deposited by two or more people
with a third person, to be delivered on performance of a certain event.
Estates
An abstract legal right. Estates are interests and rights of ownership.
Estoppel
Certificate
Legal certificate usually issued by a condominium corporation. It indicates
details of the project and is given to the lender / purchaser or tenant.
Delivery of the certificate prevents anyone from claiming a different set of
facts at a later date.
Excel by
Genworth Financial Canada
The automated mortgage insurance evaluation system of Genworth Financial Canada.
Existing
Mortgage
A mortgage loan that is already in-place when the property is being sold. The
buyer may have the option of taking over assuming the mortgage or taking out a
new one, depending on whether or not the mortgage is assumable.
Expandability
This is a feature available in some mortgages. It allows the borrower to
increase or expand the principal on a first mortgage at the lender’s agreed
upon interest rate.
Expert Software
This software, offered by Filogix, dominates the electronic mortgage delivery
system market in Canada.
Expropriation
Expropriation involves taking private property for public use, with fair
compensation to the owner, through the exercise of the right of eminent domain.
Extended
Coverage Endorsement
An endorsement that may be attached to fire insurance policies. It generally
includes coverage against the peril of windstorm, hail, explosion, riot, civil
commotion, damage by aircraft or vehicles and smoke.
Extension
Agreement
An agreement extending a loan past the original maturity date.
Extent of Title
The quantitative factors that determine and affect ownership of land. They
include boundaries, improvements, area of land, etc. See chain of title.
Exculpatory
Clause
A clause in a contract holding one party harmless in the event of some default.
F
Face Rate
The contractual interest rate stated in a mortgage document or other financial
instrument. Also known as the nominal rate.
Face Value
The face value of the loan is the amount of money the borrower promises to repay
(at the contract rate of interest).
Fair Market
Value
Fair market value, also known as market value, is the highest price reasonably
expected for an interest in land when sold by a willing seller to a willing
buyer after adequate time and exposure to the market.
Fee
The right of ownership of a property. In real estate, this is an inheritable
estate in land.
Fee Simple
The highest estate or absolute right in real property. In common practice, fee
simple is thought of as absolute ownership.
Fellow of the
Real Estate Institute (Appraisal Specialist)
Awarded by the Real Estate Institute, the FRI(A) signifies quality and
experience in appraisals and valuation of properties up to triplexes.
Fiduciary
An individual or a trust institution charged with the duty of acting for the
benefit of another party as to matters coming within the scope of the
relationship between them. The relationship between a trustee and a beneficiary
is an example of a fiduciary relationship. The implication in this type of
relationship is that the fiduciary must act solely for the other person’s
benefit, because of the trust placed in him or her.
Final Order of
Foreclosure
A judgement which extinguishes the borrower’s (defendant’s) equity of
redemption and beneficial title goes over to the lender.
Financial
Institutions Commission of British Columbia (FICOM)
An agency of the British Columbia provincial government that administers the
Real Estate and Mortgage Brokers Department, the Credit Unions and Trust
Companies Department, the Insurance Department and the Pensions Department.
Financial
Services Commission of Ontario (FSCO)
FSCO regulates insurance, pensions, credit unions, caisses populaires,
cooperatives, mortgage brokers and loan & trust companies in Ontario.
Finder’s Fee
A fee or commission paid by a lender to a mortgage professional for referring a
mortgage loan.
First Mortgage
A mortgage registered before all others on title.
Fiscal Year
A business’ operating year. Some companies do not use the calendar year for
their bookkeeping but run over a 12 month cycle, beginning and ending at another
point in the year.
Five Cs of
Credit
The ability and willingness of a borrower to pay is determined by five criteria:
- Capacity – The ability of a borrower to
repay a loan - Capital – The amount of money the borrower has invested into
the property - Character – The overall feeling regarding a borrower’s
credibility to repay a loan; the borrower’s length of employment is a key
measurement - Collateral – Guaranteed support for a loan, generally
consisting of funds or real estate, that ensures added security to the
lender. Collateral can also take the form of guarantees provided by third
parties, i.e. guarantors. - Credit – The repayment history of the borrower
Fixed Assets
Fixed assets are typically long term in nature. The value of fixed assets to a
company lies in their use in producing goods and services, rather than in their
sale value. Fixed assets wear out over time or otherwise lose their usefulness.
Fixed Rate
Mortgage
In a fixed rate mortgage the interest is determined and is set for the term of
the mortgage. Fixed rate mortgages are most desirable when current interest
rates are low.
Fixtures
Chattels that have been attached to the land or building so as to lose their
character as chattels.
Forbearance
The waiving of a covenant in a mortgage document.
Foreclosure
A legal remedy available to a lender when there is default under any of the
covenants in the mortgage. It deprives the borrowers of their equitable right to
redeem.
Foreigners
In law, a foreigner refers to an individual who cannot read or speak the
language of the contract. Foreigners are bound to agreements if they understand
the nature of them. However, if an agreement is fraudulently interpreted by
another party, then the contract is void.
Freehold Estate
An estate, or interest, in land or real property of uncertain duration, which is
either of inheritance or for the life of the tenant. There are three (3)
freehold estates, or interests: fee simple, fee tail and life estate.
Frustration
When unexpected events occur that render the contract impossible to be performed,
the frustrated party is allowed to rescind the contract without penalty.
Full Review
The most comprehensive type of appraisal, it includes a review of both the
internal and external features of the property as well as an assessment of
neighbourhood factors.
Fully Amortized
Mortgages
A mortgage that requires the constant regular payments, including both principal
and interest components, for the life of the mortgage.
Fully Open
Mortgage
An open mortgage that allows principal payments to be made in any
amount, at any time, in addition to regular mortgage payment, without penalty.
Functional
Obsolescence (in Real Estate)
A loss of value over time due to some characteristic(s) of a building becoming
less valuable as styles change. A building with no central air conditioning will
suffer from functional obsolescence as air conditioning becomes “the norm”
for new buildings.
G
Gale Date (for
Mortgages)
The date on which interest is charged or compounded on the loan.
Garnishment
The legal attachment of a debtor’s wages, cash flow or assets by creditors.
The party served with notice must comply with the Garnishee Order and forward
funds to the creditor(s) named.
Genuine Consent
For genuine consent both parties must have a clear understanding of the details
of the contract in question. Lack of genuine consent can void an agreement.
Good Title
A proof of ownership that is free of any legal holds or claims.
Grant
Technical term used in deeds of conveyance to indicate a transfer of an interest
or estate in land.
Grantee
The party to whom an interest in real property is conveyed (the buyer).
Grantor
The person who conveys an interest in real estate by deed (the seller).
Gross Area
The total floor area of a building, measured from the outside of the exterior
walls.
Gross Debt
Service Ratio (GDS)
The percentage of the borrower’s income that is needed to make all payments
for costs associated with housing. There is a maximum amount associated with
this ratio to ensure that borrowers can afford to carry the debt.
Gross Income
(Single Family)
The total annual personal income before deductions used in the calculation of an
applicant’s debt service ratios.
Gross Leasable
Area
The total floor area designed for tenant occupancy and exclusive use and that
area on which tenants pay rent. This does not include common areas.
Gross Profit
(Income Statement)
Total revenue of a business minus the cost of goods it sold.
Ground Lease
Contract for the rental of land, usually for a long term.
Group Insurance
A type of insurance plan in which premiums are set for a large group as a whole,
as opposed to individual premiums set on personal characteristics. All mortgage
creditor insurance plans are group insurance plans.
Guarantor
One who promises to pay a debt or perform an obligation contracted by another in
the event the original borrower fails to pay or to perform as contracted.
H
High Ratio
Mortgage
A mortgage is considered high ratio when the loan-to-value is 75% or
more. This occurs when the borrower’s down payment is 25% or less of the
property value.
Highest and Best
Use
This is the most probable, legally allowable, financially feasible use for the
property in question. The appraiser includes an opinion on this as part of the
appraisal report.
Holdback
The withholding of or non-advancement of a portion of a mortgage loan to
maintain adequate security,
1. pending achievement of a performance requirement, or
2. as protection against liens.
Home Equity
Financing
A type of mortgage refinancing in which the mortgage amount is increased to take
advantage of the increased equity in a home.
Household
Formation
Looks at how individuals group together to create a household. A household can
be made up of an individual, a couple, or either one of these with children.
Generally mirrors growth, aging, and divorce/separation patterns of the general
population.
Hypothec
The appropriate civil law term that corresponds to the common law concept of
‘mortgage’.
I
ICI Properties
Investment, commercial, and industrial properties.
Illegal Contract
A contract that requires criminal acts and is thus void. The parties involved
have no standing in court.
Illiterates
In law, an illiterate refers to an individual who cannot read or speak English.
Illiterate individuals are bound to an agreement if they understand its nature.
However, if it is fraudulently interpreted by another party, then the contract
is void. See foreigner.
Immigration
To enter and settle in a country or area in which one is not native.
Immovable
Property
The term used for real property (as opposed to personal property) in civil law.
Incapacity
Refers to the inability of people to make or engage in certain binding
dispositions of their rights, such as entering into contracts.
Income Property
Real property that is used, or is capable of being used, for the production of
annual income through leasing of the property.
Income Statement
Summarizes the findings of calculations between a company’s revenues and
expenses. The income statement can be reported annually, quarterly or monthly.
The income statement is generally broken down as follows:
- Revenue or Sales – Earnings from
day-to-day operations of the business - Cost of Goods Sold -The costs of production and manufacturing
- Gross Profit – Total revenue of a business minus the cost of
goods it sold - Operating Expenses -The total costs of the day-to-day
operations - Net Income from Operations – The amount that is remaining
when you subtract all costs and taxes from total sales
Incorporated Companies
A form of business ownership in which the business is set up as a separate legal
entity under the laws of the jurisdiction it operates in (provincial and/or
federal). When an incorporated company is a party to a contract it is important
to determine if the company exists, and if it has the capacity to become a party
to the contract.
Indefeasible
That which cannot be forfeited or done away with.
Independent Mortgage Brokers Association
of Ontario (IMBA)
A volunteer-based organization serving independent mortgage professionals in
Ontario.
Industrial Property
Property that contains units that are designed for manufacturing, production and
warehousing.
Infant
A person younger than the age of majority (varies among provinces and
territories).
Inflation
A general increase in the price level of goods and services.
Ingress
Going in; right of entrance.
Injunction
An order of a court of equity prohibiting an act or compelling an act to be
done.
Insanity
Categorized as a form of Incapacity which means that such individuals
cannot engage in contractual agreements. If insanity occurs after entering a
binding agreement, contracts can be cancelled or, if sanity is regained, a
reasonable time is allowed to rescind a contract.
Instrument
A formal written legal document.
Insurable Interest
An interest of such a nature that the occurrence of the event insured against
would cause financial loss to the insured. Such interests, for example, may be
that of an owner, a lender, a lessee or a trustee.
Insurable Value
The term is used conventionally to designate the amount of insurance that may be
carried on destructible portions of a property to indemnify the owner in the
event of loss.
Intangible Assets
Non-physical goods that have value to a business. Most common forms are business
goodwill or legal rights to market a product.
Interest
An amount, expressed as a percentage, which a borrower agrees to pay on borrowed
money, at a certain frequency as per an agreement with the lender.
Interest Accruing Loan
In this type of loan no payments on interest or the principal are paid until the
end of the term. Only when the mortgage contract has expired are the payments
due.
Interest Adjustment
The process of calculating compound interest payable on the amount borrowed
between the day the loan is disbursed and the day the amortization period
starts.
Interest Adjustment Date
The date from which interest is calculated at the rate and compounded at the
frequency set out in the mortgage contract. It is normally the first day of the
month following the closing of the mortgage transaction.
Interest Factor
The decimal equivalent for an interest rate on a unit amount for a certain
period of time, calculated as the interest rate divided by the number of days in
a year, times the number of days accrued.
Interest Only Loan
A loan in which the borrower only pays regularly scheduled payments on the
interest to the lender and the principal remains the same during the life of the
loan. The principal is repaid in full at the end of the loan’s term.
Interests Less than Estates, or Interests
Less than Full Ownership
These describe the situation when a fee simple owner divides ownership according
to the kind of use permitted or restricted upon the land.
Interest Plus Specified Principal Loan
Also known as a straight-line principal reduction loan. In this type of loan an
equal amount of principal is repaid at every interest compounding period in
addition to the interest that must be paid for that period.
Interest Rate
Interest rate is the percentage charged on outstanding loan balances.
Interest (Unities)
All joint tenants must have the same interest (extent, nature, duration) in the
land.
Interim Financing (Construction Financing)
Interim loans are used to provide construction financing until the permanent
loan can be funded.
Internal Rate of Return
That rate at which the present worth of all present and future investment costs
equals the present worth of all present and future investment benefits.
Intoxication
see Insanity. This is another form of incapacity in contract law.
Investment Property
Property which is rented out to individuals who do not own the property, and pay
rent to the owner of that property. The opposite of an owner occupied
property.
Invitation to treat
It is an action by one party inviting others to make an offer. It is not a
contract. An invitation to treat may be seen as a request for expressions of
interest.
J
Joint Tenancy
An ownership of property by two or more people, each of whom has an undivided
interest subject to the right of survivorship.
Joint Venture
An arrangement under which two or more people or businesses go into a single
venture as partners.
Judgement
The official and authentic decision of a court of justices upon the respective
rights and claims of the parties to an action or suit being litigated and
submitted to its determination.
Judicial Sale
A legal remedy available to a lender when a mortgage is in default. With this
remedy any excess money from the sale of the property over and above the
mortgage debt is distributed to the borrower.
Junior Mortgage
A mortgage that is subsequent to the claims of the holder of a prior (senior)
mortgage.
K
Known Defects
Problems associated with the title that are known before the policy is taken
out.
L
Land
Includes not only the ground or soil, but also everything that is attached to
the earth, whether by course of nature, such as trees and herbage, or by the
hand of man, such as houses and other buildings. It includes not only the
surface of the earth but everything under it and over it. Condominium Acts
divide land horizontally thereby limiting the vertical ownership.
Land Titles System
This is a system of land registration under which the registrar, or master of
titles, passes on the validity of the mortgage instrument, determines its legal
effect, and the Government guarantees title.
Land-use Regulations
Municipal level regulations that restrict and regulate the types of buildings
and uses allowed on a property.
Late Charge
An additional charge a borrower is required to pay as penalty for failure to pay
a regular instalment when due.
Latent Defects
Present or potential imperfections or blemishes that are not readily evident.
Lawyer’s Report (or
Opinion) on Title
The Lawyer’s Report outlines the mortgage details, including the results of
the title search, tax details, fire insurance and any other related insurance
coverage details, verification that title insurance has been obtained (if
applicable), and any other relevant facts (i.e. easements, restrictions, liens).
Lead Lender (Mortgages)
A financial institution that heads up a financial consortium or syndicate of two
or more lenders to provide funds for a mortgage.
Lease
A contract between landlord (lessor) and tenant (lessee) for the occupation or
use of the landlord’s interest in a property by the tenant for a specified
period of time and for a specified consideration (rent).
Lease Guarantee Insurance
Insurance that protects the owner of leased commercial and industrial real
estate from loss of rental income through the failure of a tenant to make rental
payments.
Leasehold
An estate or interest in an estate in real property held by virtue of a lease
for a term of years. A leasehold is considered personal property.
Leasehold Mortgage
A mortgage given by lessees on the security of their leasehold
interests in the land.
Legal Description
The written geographical description of a property (metes and bounds) as
described in the land register.
Legal Intent
This means that for an individual to be bound by a contract, that person has
intended to create a commitment.
Lending Value
The property value for mortgage purposes. Usually, the lesser of appraised value
or sale price.
Lessee
Tenant.
Letter of Instruction
A letter of instruction will call for the lawyer to act for the lender and
administer the distribution of the mortgage loan.
Liabilities
A business’ or a borrower’s debts and legal obligations.
Lien
A claim on real or personal property for the payment of some undischarged debt
or duty.
Life Estate or Interest
An interest in land that gives exclusive possession of the land for a lifetime
only.
Limited-Restricted Appraisal
A type of appraisal that provides only an exterior inspection for transactions
that are somewhat riskier than standard, e.g., in a new or unknown market, or in
mixed use neighbourhoods but not high risk. Also known as a drive-by appraisal.
Liquidity
The readiness or ease with which an asset can be converted to cash.
Listing Agreement
The listing agreement is a contract between a seller and a real estate agent or
broker. It sets out the conditions of the listing. A listing agreement generally
includes, but is not limited to, the following: the length of the listing
period, the desired sales price and the amount of the commission.
Loan Companies Act
A federal act regulating loan companies.
Loan Qualification
Also known as qualifying the borrower. Loan qualification is the
process of analyzing the buyer’s eligibility for financing.
Loan-to-Value Ratio (LTV)
The amount of the mortgage loan compared to the value of the property. This
ratio is calculated by the lender prior to providing the loan. The results of
this calculation help to determine whether or not the applicant will qualify for
a loan and whether the application, if approved, will be for a conventional
loan or a high ratio loan.
Long Term Investments
These investments are similar to fixed assets but typically do not depreciate in
value.
Long Term Liabilities
Debts and obligations that must be repaid over a long period of time, e.g.
mortgages.
Lump Sum Payment Option
A clause that may be included in an open mortgage allowing the borrower to
prepay a portion of the principal if desired and in accordance with the specific
terms of the contract.
M
Marketable Title
A title that may not be completely clear but has only minor objections that a
well-informed and prudent buyer of real estate would accept.
Market Data Approach
One type of appraisal. See direct comparison and methods of
appraisal.
Market Value Appraiser (MVA)
A designation awarded to practicing realtors who meet specific experience and
education requirements by the Canadian Real Estate Association, the MVA
demonstrates an acute sense of local markets and values that enables them to
provide realistic residential appraisals to lenders.
Marketing
The process of planning, promoting, and distributing ideas to encourage
consumers to purchase a product and/or service.
Marketing Environment
The marketing environment includes economic, demographic, sociological,
competitive, political and regulatory forces in the target market.
Marketing Strategy
An organized, detailed plan to meet a specific set of goals. It involves a
combination of product concepts, a pricing scheme, promotion ideas, and a
distribution plan.
Maturity
The end of the mortgage’s term.
Maturity Date
The final day of the term of the mortgage, on which the balance of the mortgage
owing becomes due.
Maximum Loan Amount
The maximum dollar that a lender is willing to fund. It is expressed as a
percentage of the value of the property to be purchased when using the loan to
value ratio.
Metes and Bounds
A system of land description whereby all boundary lines are set out using
terminating points and angles. ‘Metes’ refers to a limit or limiting mark
and ‘bounds’ refers to the boundary lines.
Methods of Appraisal
There are three methods of appraisal:
- Direct Comparison
Also known as market data approach. Direct comparison generates a property
value based on the current selling prices of similar properties. - Cost Approach
An estimation of land value and the cost of replacing the building less the
depreciation of the property in question. - Income Method
This method is used for valuating income-producing properties such as
apartment complexes, plazas and commercial units.
Migration
The movement of people to or from one country or area to another.
Mill Rate
A rate which, when multiplied by each one thousand dollars of property
assessment, gives the annual real estate taxes.
Minor
See infant.
Misrepresentation
A statement of false facts, generally occurring during negotiations prior to
contract creation. Misrepresentation typically induces the other party to enter
the agreement.
Mistake
An error in the terms of a contract or agreement. There are three types of
mistake:
- Common Mistake
Both parties make the same mistake in a contract. - Mutual Mistake
Each party makes a different mistake on the same contract. - Unilateral Mistake
One party is mistaken while the other party is aware of it and makes no
attempts to rectify it.
Moratorium (Mortgage)
A period during which a borrower is granted the right to delay fulfillment of an
obligation.
Mortgage
A legal method by which a borrower can pledge property to a lender as security
for a debt. In Quebec, this is referred to as a hypothec.
Mortgage Agent
An individual authorized to deal in mortgages on behalf of a mortgage broker.
Mortgage Averaging
A method of determining a weighted mortgage rate. Mortgage averaging is used
when calculating an “average” rate for a first and second mortgage, each of
which has a different mortgage rate.
Mortgage Banker
One who originates mortgages with the intent to sell them to permanent
investors. The mortgage banker does so under the understanding that it will
service these loans for the investor.
Mortgage-Backed Securities
(MBS)
An MBS represents an undivided interest in a pool of insured residential first
mortgages. As mortgages, these financial instruments are secured by the value of
the underlying real estate. NHA MBS carry the CMHC Timely Payment Guarantee and
represent an obligation of the Government of Canada.
Mortgage Bond
In recent years, there has been an increased activity in mortgage bonds, mainly
for larger loans. When a very large loan is required, the number of potential
lenders is limited. A loan in the category of $50,000,000 for instance, is
usually made by the mortgage bond method that is really a device for dividing up
the loan. A bond could be issued for an amount as low as $100,000 and sold to
various pension funds through investment dealers on a public issue, or more
commonly sold as a private placement issue.
Mortgage Broker
An individual authorized to deal in mortgage and lend money using real estate as
a security.
Mortgage Brokers Act
A piece of legislation that regulates the activities of mortgage brokers across
Canada. In Ontario, for example, the Mortgage Brokers Act regulates the
activities of mortgage brokers in that province.
Mortgage Brokers Association
of British Columbia (MBABC)
A non-profit association of mortgage brokers serving British Columbia.
Mortgage Consultant
See mortgage agent.
Mortgage Creditor Insurance
This type of insurance protects the borrower, by relieving the borrower of the
need to make mortgage payments should unforeseen circumstances make it
impossible for them to do so (e.g. serious illness or death).
Mortgage Default Insurance
A type of insurance which protects the mortgage lender in case the borrower
defaults on the mortgage payments.
Mortgage Fraud
Any material misstatement, misrepresentation or omission relied upon by a lender
or insurer to underwrite, approve, fund or insure a mortgage loan.
Mortgage Impairment Insurance
A master insurance policy carried by mortgage lenders that provides them with
insurance proceeds in the event of an otherwise uninsured loss of a property
securing their debt. Some policies also insure losses resulting from the
borrower’s failure to pay real estate taxes.
Mortgage Originator
A mortgage professional engaged in the acceptance, completion and/or submission
of the mortgage loan applications to an underwriting lender.
Mortgage Portfolio
The aggregate of mortgage loans held by an investor.
Mortgage Refinancing
The replacement of current mortgage financing with new financing, usually to
take advantage of different interest rate or financial conditions or the
existing equity in the property.
Mortgage Representative
Employees of a financial institution who originate mortgages. Unlike originators
operating outside of lending institutions and are regulated provincially,
institutional originators, if working for federally incorporated lenders, are
governed under the Office of the Superintendant of Financial Institutions
(OSFI).
Mortgage Servicing
The process of managing the administrative duties resulting from the mortgage
contract.
Mortgage Specialist
See mortgage agent.
Mortgage Term
The length of time the interest rate is guaranteed for a mortgage. Mortgage
terms normally range from 6 months to 5 years or more, after which time the
borrower can either repay the balance of the principal owing or re-negotiate the
mortgage at current rates.
Mortgaged Out
The situation existing when the total mortgage debt equals or exceeds the market
value or cost of the property.
Mortgagee
The lender or creditor.
Mortgagor
The borrower or debtor.
MorWEB
The electronic mortgage application system available through Marlborough
Stirling.
Movable Property
The term used for personal property (as opposed to real property) in civil law.
Municipal Property Assessment
Corporation (MPAC)
MPAC is responsible for administering a consistent, Ontario-wide property
valuation to property owners, municipalities, and the Province of Ontario. It
operates using an automated valuation model (AVM).
Mutual Mistake
Each party makes a different mistake on the same contract.
N
National Housing Act (NHA)
A federal act, administered by CMHC, which seeks to assist the private market in
producing affordable housing to meet the needs of most Canadians.
Net Income/Net Loss from
Operations (Income Statement)
The amount that is remaining when you subtract all costs and taxes from total
revenues.
No Cost Switching of Payment
Option
This option allows the borrower to change the payment schedule (to either
monthly/semi-monthly/bi-weekly/weekly) in an open mortgage at no charge.
No-Doc
Refers to ‘no document necessary’ when confirming past income earnings.
No-Fault
Title insurance claims are paid on a no-fault basis, which means that the
insurer cannot argue negligence in order to deny coverage.
Nominal Interest Rate
Also known as the stated rate. This is the interest rate used to calculate
interest payments. It differs from the effective interest rate.
Non-Conforming Use
A property that is being used in contravention of current zoning by-laws but is
permitted to remain because it pre-dates the enactment of these zoning by-laws.
Non-Disturbance Agreement
An agreement that permits a tenant under a lease to remain in possession despite
any action by a lender.
Non Est Factum
Latin for “it is not my deed”. A claim of ‘non est factum’ means that
the signature on the contract was signed by mistake or without knowledge of its
meaning.
Notes to Financial Statements
The part of a financial statement that includes an auditor’s or accountant’s
opinion on the statements and other relevant notes pertaining to the company’s
operations and the specific methods of accounting used.
O
Offer to Purchase
A written contract outlining the terms under which the buyer agrees to purchase
the property. There may be conditions attached to the offer, for example, the
offer may be conditional on the buyer arranging mortgage financing or selling a
current home.
Offeree
The individual or group who receives an offer to enter into a contract.
Offeror
The individual or group who presents something to another for acceptance or
rejection.
Open Mortgage
An open mortgage allows a borrower to repay any amount of the principal at any
time without notice or penalty. Mortgages may be partially open, having clauses
that allow partial pre-payment at specified times, or in specified ways. For
example,
- Double Up Option
The opportunity to double the scheduled principal and interest payments. - Lump Sum payment Option
The choice to prepay a portion of the principal. - No Cost Switching of Payment Option
This option allows the borrower to change the payment schedule
(monthly/semi-monthly/bi-weekly/weekly). - Skip Payment Option
This alternative grants the borrower the ability to skip a monthly payment
without the mortgage going into default.
Operating Expenses (Income
Statement)
The total costs of the day-to-day operations of a business.
Operational Costs (Mortgage
Fraud)
Costs associated with collections, legal commitments and foreclosure, property
repair, management, and resale of homes. See reputational costs and
public costs.
Option Agreement
This is an agreement in which the seller has the right, but not the obligation,
to undertake an action. This act allows the offer to be kept open for a period
of time under a separate contract.
Owner Occupied
The owner of the land also resides in that property. The opposite of an
investment property.
Owner’s Equity
The amount left over for the firm’s owner(s) if the company’s assets were
used to pay off all its liabilities.
P
Par
An expression used when a mortgage is sold or purchased for the outstanding
balance without premium or discount.
Pari Passu
“On an equal basis”. When mortgages are syndicated, the lenders participate
equally. No one party has preferential access to gains or is able to opt out of
losses. In company stock, it refers to equal ranking of a company’s preferred
shares.
Partial Discharge
A release from the mortgage of a definite portion of the mortgaged lands. A
partial discharge may be given after the borrower has prepaid a specific portion
of the mortgage debt.
Partially Amortized Mortgage
A mortgage that protects both borrowers and lenders from the risk of unexpected
interest rate fluctuations. The loan matures on a short term basis, at which
time the full amount of the outstanding amount must be either repaid or
refinanced at current interest rates.
Participation
Income Participation: The lender’s right to share in
the annual income produced by the property over the term of the mortgage, in
addition to receiving debt repayments on the mortgage.
Equity Participation: Partial ownership of income or
investment property given by the owner to the lender as part of the
consideration for making the loan. There may be an indefinite term and may
endure beyond the maturity of the loan. It need not involve any equity
investment by the lender beyond the amount of the mortgage loan.
Partnership
A business co-owned by two or more people. This form of ownership is less common
than a sole proprietorship or a corporation. Like a sole proprietorship, a
partnership does not exist as a separate legal entity. Each partner is taxed on
his or her share of any profits.
Performance
The actions required by a contract or agreement to fulfill one’s obligations.
The contract is considered completed following the last act of performance.
Patent Defects
An obvious flaw.
Percentage Adjustments
These are estimates of differences between each factor being compared to the subject
property, expressed as a percentage of the sales price in an appraisal. For
example, a buyer might pay 10% more (calculated as a percentage of the selling
price) for a home with a finished basement compared to one with an unfinished
basement. See dollar adjustment.
Perfecting Title
The elimination of any claims against title.
Performance Bond
A bond issued by a duly incorporated surety company. It covers faithful
performance of the contract and payment of all obligations arising under the
contract
Permanent Loan
An amortizing loan on completed property, intended to remain on that property
over the full amortization period. The terms and conditions of the loan usually
change during that period.
Personal Liability
The borrower’s personal assets are pledged, or subject to claim, in addition
to a primary security.
Personal Property
Alternatively referred to as ‘chattels’. Personal property is more temporary
and more destructible than real property.
PITH
The four costs included in the calculation of the gross debt service ratio,
namely principal, interest, taxes, and heat.
Plot Plan
A drawing showing a layout of improvements on a site, including their location,
dimensions and landscapes. It is generally a part of the architectural plans.
Portable Mortgage
A mortgage with an option that allows a buyer to transfer a current mortgage to
a new property (typically subject to credit approval and a property appraisal).
Possession (Unities)
Each interest is an undivided interest in the whole of the property.
Postal Acceptance Rule
This rule provides guidelines on how to accept offers. Basically it indicates
that an acceptance should be delivered in the same manner as the offer is made
and defines when that acceptance goes into effect. For example, if an offer is
made by non-instantaneous means such as mail, then the acceptance is effective
when it is put in the mailbox, rather than when it is received.
Postponement
The deferment of a prior charge on title to another.
Power of Attorney
A written instrument, duly signed and executed by an individual, that authorizes
someone to act on his or her behalf, to the extent indicated in the instrument.
Power of Sale
A clause generally inserted in mortgages giving the lender the right and power,
on default by the borrower, to sell the mortgaged property by public auction,
private contract or tender.
Pre-Authorized Cheques
Direct withdrawals of payments due from a borrower’s bank account in
accordance with authority granted by the borrower.
Premium
The amount, often stated as a percentage, paid in addition to the face value of
a mortgage when a mortgage is being purchased.
Prepayment Clause
A clause inserted in a mortgage that gives the borrower the privilege of paying
all or part of the mortgage debt in advance of the maturity date.
Prepayment Penalty
The sum of money (usually equal to an amount of interest) a lender may require
from a borrower to repay all or part of any outstanding principal in advance.
Prime Rate
The interest rate at which financial institutions lend to their best customers.
Principal
The amount upon which interest is paid.
Principal Risk
A risk to the lender associated with interest only loans. This risk is a result
of market fluctuations. If the market value of a property falls, it might be
less than the principal amount of the loan due at the end of the mortgage term.
The lender might not be able the entire principal.
Prior Charge
An encumbrance ranking in priority over other, subsequent charges.
Private Mortgages
Mortgages provided by private corporations and individuals.
Profit Margin
A calculation of how effectively a firm is using its resources, calculated by
dividing net income after taxes by revenues.
Promissee
The person who can enforce the promise in a contract is called the promissee.
Promisor
The person who makes the promise in a contract is called the promisor.
Property Valuator
This automated valuation model from Landcor Data Corp. produces estimates of
current market value based on data from the British Columbia Assessment
Authority.
Public Costs (Fraud)
These are costs that affect the consumer and industry, such as new
authentication methods and protection procedures. See reputational costs and
operational costs
Pur Autre Vie
A life estate, or interest, measured by the life of a third person rather than
that of the person enjoying the property.
Q
Qualifying the Borrower
Also known as loan qualification. This is the process of analyzing the
buyer’s eligibility for financing.
Quantum Meruit
Latin meaning “as much as he deserved”. Quantum meruit determines the actual
value of the services provided when either no contract exists or when doubt is
cast as to the amount due for the work performed, but under situations when
payment could be expected.
Quick Ratio
A measure of a firm’s ability to pay current assets quickly, calculated by
dividing current assets (minus inventories) by current liabilities.
Quiet Enjoyment
The right of a lessee (tenant) to use the leased property without interference
from the lessor (owner).
Quiet Possession
The right granted by a lender to the borrower to use the property without
interference by the lender until there is default.
Quit Claim
In conveyancing, to release or relinquish a claim. In mortgages, a form of title
transfer of ownership from the owner to the lender. A quit claim is a default
remedy.
R
Real Estate
The physical land and appurtenances including structures
affixed on it.
Real Estate Act
In Alberta, an amalgamation of the Mortgage Broker’s Regulation Act and the
Real Estate Licensing Act. It is administered by the Real Estate Council of
Alberta (RECA).
Real Estate Automated
Valuation System (reavs)
A system that provides an estimation of the value of residential property based
on sales data and the nature of the property in relation to its neighbourhood.
Real Estate Investment Trust
(REIT)
An investment trust that specializes in investing in real estate related
investments, including mortgages, construction loans and real property in
varying combinations.
Real Property
Often called “property”, “real estate”, or “land”. Real property is
defined as the interests, benefits, and rights inherent in the ownership of
physical real estate. It does not include personal property. In civil law, real
property is referred to as immovable property.
Reassessment
The process of creating a new base for property taxation by updating assessments
to reflect more current values.
RECA
The Real Estate Council of Alberta. RECA is an independent, non-government
agency which regulates industry professionals in the real estate, mortgage, and
appraisal industries.
Receipt
A document acknowledging the completion of the repayment agreement under the
terms of the contract and the release of the lender’s interest in the
property.
Receiver (Mortgages)
An appointee of a court, requested by a lender when the borrower is in default,
to receive and account for the rents and profits from mortgaged premises.
Redemption
The duty of a lender, on being paid the principal, interest and costs due by the
borrower, to hand to the borrower the title deeds together with an executed
reconveyance of the mortgage property.
Registry System
The system of land registration in which all interests in land are recorded in
chronological order. The registrar assumes no responsibility for the legal
effect of the document.
Release of Covenant
An agreement by a lender to terminate the personal obligation of a borrower,
usually upon sale of a property to a new purchaser who is acceptable to the
lender, and who has signed an assumption agreement or other appropriate legal
documents releasing a guarantor whose covenant is no longer required.
Renewal Agreement
An agreement through which the lender may agree to extend the mortgage loan,
possibly on revised terms as to principal repayments and interest rate.
Rent
Periodic payments made by the lessee or tenant to the lessor or landlord in
exchange for the use of their property.
Rent Roll
A statement listing the tenants in occupancy, the area or unit occupied by each,
their lease expiry dates and rent payable as well as other leasing details that
may be required.
Replacement Cost (Real
Estate)
The cost of replacing a subject property with one having exactly the same
utility.
Replacement Reserve
A cash reserve for the future replacement of fixed assets.
Reputational Costs (Fraud)
Costs associated with potential damage to the reputations of the mortgage
professional, lending organization, and mortgage industry. See operational
costs and public costs
Rescission
The act of rescinding; the cancellation of a contract and the return of the
parties to the state in which they would have been if the contract had not been
made.
Restrictive Covenant
A contract between neighbouring landowners restricting the use of one of the
properties. It must be negative in nature.
Return on Equity
A measure of how much income is generated by each dollar of equity, calculated
by dividing net income after taxes by the owners’ equity.
Revenue or Sales (Income
Statement)
Earnings from day-to-day operations of the business.
Reverse Mortgage
This type of mortgage allows older consumers to convert their home equity into
monthly cash payment(s), generally for living expenses. A homeowner’s equity
is gradually drawn down by a series of monthly payments from the lender to the
homeowner – the borrower. At the end of the loan period, or upon the death of
the borrower, the loan balance is due, which is usually settled by the heirs who
sell the property to meet the outstanding obligation.
Reversion
A right to future possession retained by an owner at the time of the transfer of
his or her interest in real property.
Right of Survivorship (Real
Estate)
The right of survivorship comes into effect when land is held in undivided
portions by co-owners and one of them dies. In this instance, the deceased’s
interest in the land passes to the surviving co-owner, rather than to the
deceased’s heirs.
Right-of-way
The right to pass over another’s land according to the nature of the easement.
S
Sale Holdback
A percentage of the principal amount of the mortgage held back by the lender
until the property in question has been sold to a party satisfactory to the
lender and until this party has assumed the responsibility of the mortgage by
the appropriate legal document.
Sale Leaseback
A technique in which a seller deeds property to a buyer and the buyer
simultaneously leases the property back to the seller, usually on a long-term
basis.
Sales
Earnings from day-to-day operations of the business.
Sales Data Report
A quick, no-inspection based appraisal that estimates a value for good quality
real estate in low risk neighbourhoods. It provides important information but
lacks in-depth details that other appraisals provide. The value estimate is
based on MLS sales and listing data.
Schedule I, II and III Banks
Schedule I banks, as defined by the Bank Act, have shares that are widely held.
Schedule II banks are more closely held. Schedule III banks are foreign bank
branches of foreign institutions.
Seasonal Deficiencies
Work necessary to finish a property that cannot be completed immediately because
of seasonal or climatic conditions.
Seal
A device used to produce an official stamp as a symbol of authority.
Secondary Financing
Financing real estate with a loan, or loans, subordinate to a first mortgage.
Secondary Mortgage Market
A market where existing mortgages are bought and sold.
Second Mortgage
A mortgage placed on real property which is already encumbered with one
mortgage. Determination of first, second, third mortgage, etc. is determined by
priority of registration (time and date).
Servient Tenement
The parcel of land over, or through which, an easement runs.
Servitude
The term for easement in Quebec.
Severance (Real Estate)
The subdivision of a parcel of land.
Shareholder
A shareholder, also referred to as a stockholder, is someone who legally owns
one or more shares of stock in a company. The shareholders are the owners of the
company.
Shareholder’s Equity
The difference between the assets and liabilities of a corporation, sometimes
called net worth.
Sheriff’s Certificate
A signed statement from the sheriff’s office certifying that there are no
judgements against the specific land.
Simple Interest
The cost of borrowing money, calculated by applying the interest rate
to the original principal amount only. In contrast to compound interest,
interest is not charged on interest.
Skip Payment Option
This is an example of a mortgage clause that may be added to an open mortgage.
If this clause is part of the mortgage agreement, the borrower has the ability
to skip a monthly payment without the mortgage going into default.
Sole Proprietorship
A business owned by a single person and not registered as a corporation. The
sole proprietorship has unlimited liability.
Specific Performance
An equitable remedy to compel performance of a real estate or mortgage contract
according to the specific terms of the contract.
Standby Commitment
An agreement by a lender to provide a certain amount of takeout mortgage
financing on specific terms in the future. This commitment enables the borrower
to arrange construction financing from other sources. The commitment is issued
for a fee and the lender is willing to disburse the committed funds in the event
that a permanent loan on more favourable terms is not obtained.
Standby Fee
A sum of money given by the borrower to the lender to hold a mortgage commitment
for a certain period of time. The fee is normally non-refundable.
Standing Mortgage
A mortgage that provides for equal, regular lump-sum payments of principal,
usually quarterly, plus accrued interest.
Standing Offers
Proposals which are made to the general public and can be accepted by anyone.
Once one person has accepted a standing offer, no one else can accept it unless
more than one acceptance was contemplated in the offer.
Starter Home
A small, inexpensive home generally bought by singles or newlyweds, with the
intent to sell in a few years.
Statement of Changes in
Financial Position
A financial statement that shows how a company obtains and uses its cash.
Statement of Retained
Earnings
A financial statement that indicates the amount of earnings that have been kept
in the business, either in the form of cash equity or invested in new assets for
the company.
Statute Law
Law that has been passed by an Act of Parliament or by a provincial legislature.
Statutory Right of Way
A special type of easement granted by provincial legislation that
permits a land owner, crown corporations or municipalities, to use another’s
land. One example of such a right of way is the right of a water authority to
lay water pipe under an individual’s land.
Step Mortgage
A mortgage product that attaches a mortgage loan to a line of credit in one
package.
Subject Property
The property that is being appraised.
Subordinate
Subject to, or junior to.
Subordination
The act of one party acknowledging by written recorded instrument that a debt
due is inferior to the interest of another in the same property. Subordination
may apply not only to mortgages but also to leases, real estate rights, and any
other type of debt instrument.
Subprime Transactions
Classification of lending based on the payment risk that the lender faces.
Subprime deals (also known as B and C deals) face a higher risk that the amount
of money lent will not be repaid, compared to prime deals (also known as A
deals).
Subrogation
Replacing one person with another in regard to a legal right, interest, or
obligation. An example of this would be a mortgage holder’s selling his rights
and interest to another.
Submortgage Broker
The term used in British Columbia to describe a licensed individual employed by
a broker and working as a mortgage originator.
Subscription Policy
(Insurance)
A single insurance policy that states that two or more insurance companies are
sharing the risk.
Surety
The guarantee given for the performance of someone else.
Survey
A survey sets out the legal description of a mortgaged property, allowing
confirmation that any building sits within the described boundaries of the land.
Land boundaries, areas and improvements are determined and plotted on the
survey. Surveys are also used for identifying easements.
Surveyor’s Certificate
A formal statement signed, certified, and dated by a surveyor giving the
pertinent facts about a particular property and any easements or encroachments
affecting it. Such certificates are no longer available in Ontario.
Syndication
A group of lenders that share in the principal disbursement of a large loan to
spread risk or to comply with statutory restrictions on loan size.
T
Take-out Loan
A first mortgage loan that is committed and expected to be made upon completion
of a property with the loan proceeds to be used to repay an interim or
construction loan.
Target Market
The clients or customers that are sought after by a business. They typically
share similar demographic characteristics.
Tax Account
An account that is created by a lender to hold property taxes collected as part
of the mortgage payments on behalf of the homeowner. The lender will then remit
the taxes to the municipality from this dedicated account.
Tax Certificate
A certificate from the appropriate taxing authority giving the status of real
estate taxes or other assessments affecting the property.
Tenants in Common
An ownership of property by two or more people, each of whom has an interest in
the property. Tenants in common may have different shares in the property.
Unlike the case in joint tenancy, a tenancy in common does not end because one
party chooses to sell his or her interest. Instead, the purchaser simply becomes
the new tenant in common.
Term
In a mortgage, term is the actual length of time for which the money is loaned.
The term is usually shorter than the amortization period. At the end of the term
the outstanding debt must either be refinanced at current market rates or paid
off in full.
Term Mortgage
A non-amortizing mortgage under which the principal is paid in its entirety at
the maturity date. A term mortgage is sometimes called a straight loan.
Third Mortgage
A mortgage placed on real property which is already encumbered with a first and
second mortgage. Determination of first, second, and third or subsequent
mortgage is by priority of registration (time and date).
Time (Unities)
All joint tenants must receive their interests at the same time.
Title
The legal evidence that shows the rightful owner of land.
Title (Unities)
All joint tenants must obtain their interest from the same document.
Title Fraud
A range of fraudulent activity regarding the ownership of property. One form of
title fraud involves taking out a mortgage against a home that the fraudster
does not own. The fraudster assumes the homeowner’s name and credit history,
but absconds with the loan proceeds.
Title Insurance Policy
A contract by which the insurer, usually a title insurance company, agrees to
pay the insured a specific amount for any loss caused by insured defects to
title of a property, for which the insured has an interest as purchaser, lender
or otherwise.
Title Search
An examination of public records to determine the state of title.
Torrens System
The Land Titles System as originated in Australia by a Mr. Torrens in 1858. The
Torrens system is a system for the registration of land title, indicating the
state of the title, including ownership and encumbrances, without the necessity
of an additional search of the public records.
Total Debt Service Ratio
(TDS)
One of the ratios used to determine whether or not a borrower is able to carry
the debt load for a mortgage. The ratio is calculated as the percentage of
annual income required to cover housing costs (GDS) plus any other loans that an
individual has, such as those resulting in credit card and car payments. There
is a maximum amount associated with this ratio to ensure that borrowers can
afford to carry the debt.
Trading Down
Typically, ‘empty nesters’ or aging people sell their existing homes and buy
smaller homes with the aim reducing the cost of home ownership and helping to
fund retirement.
Trailer Fee (Mortgage
Financing)
A fee that a lender may pay to a mortgage originator for sourcing a mortgage
with that lender. The fee is paid annually and continues for as long as the
borrower keeps the mortgage with that lender. This practice is relatively new to
the mortgage industry but has a long standing history in the mutual fund
industry.
Transfer of Charge
Assignment of a mortgage.
Trust Company
A commercial bank or other corporation that manages, holds, or invests assets
for the benefit of others.
Trust Companies Act
A federal act regulating trust companies.
Trust Deed
A written instrument duly executed, sealed, and delivered, conveying or
transferring property to a trustee. A trust deed usually, but not necessarily,
covers real property.
Trustee
An individual who is given legal responsibility to hold property in the best
interest of or “for the benefit of” another.
U
Unconscionable Transactions
Similar to Undue Influence. This situation occurs when there is a
disproportion of power between individuals, with the weaker individual in the
control of the stronger individual, and acting under that person’s direction
in an unreasonable or unfair manner.
Underwriting
This is the process undertaken by lenders and insurers to verify the mortgage
application information and supporting documentation submitted, make an
assessment of risk on both the applicant(s) and the property, and approve or
decline the mortgage loan.
Undue Influence
Unlike duress, undue influence has subjective boundaries; it occurs
when one party suffers pressure (non-physical force such as manipulation or
persuasion) to enter a contract against his or her wishes or interests. Evidence
of such control may result in invalidation of the agreement by the courts.
Unenforceable Contract
Similar to void contracts, unenforceable contracts cannot be acted
upon. Typically oral contracts are unenforceable.
Unilateral Mistake
One party is mistaken while the other party is aware of it and makes no attempt
to rectify it.
Unities
In common law, unities are the four conditions required to create and maintain
joint tenancy. They are time, title, interest and possession.
Title
All joint tenants must obtain their interest from the same document.
Time
All joint tenants must receive their interests at the same time.
Possession
Each interest is an undivided interest in the whole of the property.
Interest
All joint tenants must have the same interest (extent, nature, duration) in the
land.
Usury Rate
The maximum legal rate for interest, discounts, or other fees that may be
charged for the use of money.
V
Valuation Date
The date used for establishing the assessed value for all properties in a
jurisdiction; formerly called a “base year”.
Variable Rate Mortgage
is type of mortgage, also referred to as adjustable rate mortgage, is
the opposite of a fixed rate mortgage. The interest rate on this loan may change
during the term of the mortgage reflecting changes in the current market rates.
Vendor Take-Back Mortgage (or
Seller Take-Back Mortgage)
A mortgage in which the vendor uses his or her own equity to provide some or all
of the mortgage financing in order to sell the property.
Vendor’s Lien
A notice registered on title by the vendor, protecting the vendor for the unpaid
balance of the purchase price. It is usually collaterally secured by a mortgage.
Vendor’s Warranty
A guarantee that implies a home will be built in the appropriate way so that it
is suitable for human habitation. If this guarantee is not met, the purchaser is
entitled to damages for warranty violation.
Vicarious Performance
The subcontracting or delegating of a contractual obligation to a third party.
Void Contract
A contract or agreement that has no legal force or validity.
Voidable Contract
A contract that has the capability of being made void by one of the parties
involved but is valid until rescinded.
W
Warranty
Warranties are assurances that are not vital to the contract (unlike
conditions), such that a violation of warranty will not result in the
termination of the contract.
Working Capital
An indication of how much money would remain once all current liabilities were
paid. It is calculated by determining the difference between current assets and
current liabilities.
Writ
A form of written command in the name of sovereign, state, court, etc. issued to
an official or other person and directing him or her to act or abstain from
acting in some way.
X
Y
Yield to Maturity
A percent returned each year to the lender on actual funds borrowed, considering
that the loan will be paid in full at the end of maturity.
Z
