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N.B. This glossary is provided with the understanding that the author is not
providing any legal, or other professional services. If legal or real estate
advice is required, the services of a competent professional person should be
sought.
California Environmental Quality Act
The Act allows local governments to require environmental impact reports for
private or government projects that may have a significant impact on the
environment. (See environmental impact report, National Environmental Policy
Act)
California Housing Financial Discrimination Act of 1977
Also known as the Holden Act. A California act prohibiting discrimination by a
lender for any reason unrelated to the creditworthiness of the loan applicant.
California Residential Mortgage Lending Act
An act administered by the Commissioner of Corporations which provides licensing
authorizing mortgage lending and brokering.
CAL-FIRPTA
California's version of the federal FIRPTA. It is a tax act which became
effective in 1988 and was subsequently amended in September, 2002 to become a
withholding tax for residents and non-residents who sell California real estate.
Assembly Bill 2065 requires that all sales closing after December 31, 2002 in
California withhold 3 1/3% of the sales price for certain California real
property transactions.
Cal-Vet
A program to help eligible California Veterans finance the purchase of farms and
ranches within the state.
Cancelling Escrow
Providing written notification that an escrow is to be terminated; must be done
by mutual consent of all parties to the escrow and in accordance with governing
agreements.
Capacity of Parties
The legal ability of people or organizations to enter into a valid contract. A
person entering into a contract will have full, limited or no capacity to
contract.
No capacity to contract The inability of a person to enter into a valid contract
under any circumstances. Such inability can arise when a person has been
adjudicated insane or is an officer of a corporation who is not authorized to
execute a contract in behalf of a corporation.
Capital Gain
Profit earned from the sale of an asset, where the sales price was greater than
the adjusted basis.
Capital Loss
Loss sustained from the sale of an asset, where the sales price is less than the
adjusted book basis. (See adjusted basis)
Capitalization
A mathematical process for converting net income into an indication of value,
commonly used in the income approach to value. The net income of the property is
divided by an appropriate (capitalization) rate of return to give the indicated
value. (Income ÷ Rate = Value)
Capitalization Rate
The rate of return a property will produce on the owners investment.
Capping
The process at of laying two to four feet of soil over the top of a landfill
site and then planting vegetation to prevent erosion and enhance the landfill's
aesthetic value. (See landfill)
Caps
Yearly and/or life-of-loan limitations on the amount of variation allowed when
adjusting interest on variable-rate loans. (See adjustable rate mortgage (ARM),
rate cap)
Caravan
A group tour by a real estate office's sales agents to view listed properties.
(See agent property evaluation)
Care
The agent must exercise a reasonable degree of care while transacting the
business entrusted to him or her by the principal. The principal expects the
agent's skill and expertise in real estate matters to be superior to that of the
average person. The most fundamental way in which the agent exercises care is to
use that skill and knowledge on the principal's behalf. T
Carcinogen
A cancer producing substance.
Carry-back
Financing where the seller takes back a note for part of the purchase price
secured by a junior mortgage, wraparound mortgage or contract for deed. (See
wraparound, junior mortgage)
Cash Flow Analysis
A cash flow analysis shows the effect an investment property has on an owner's
income in terms of tax benefits. Analyzes the return on investment after taxes
on an income producing property. Measures the property manager's performance
from period to period by comparing income and expenses for a given property.
Cash Now
The net spend able income from an investment, determined by deducting all
operating and fixed expenses from the gross income. When expenses exceed income,
a negative cash flow results.
Cash-Out
When a seller of a property wants to receive the entire sales price in cash with
no carry-back financing. (See carry-back)
Cash Rent
In an agricultural lease, the amount of money given as rent to the landowner at
the outset of the lease, as opposed to share cropping.
Casualty
Casualty insurance policies include coverage against theft, burglary, vandalism
and machinery damage as well as health and accident insurance. Casualty policies
are usually written on specific risks, such as theft, rather than being
all-inclusive.
Caveat Emptor
Latin for "let the buyer beware." The buyer must inspect the property and
satisfy himself it is adequate for his needs. The seller is under no obligation
to disclose defects but may not actively conceal a known defect or lie if asked.
A buyer should inspect the goods or realty before purchase.
CC&Rs
Covenants, conditions and restrictions are limitations on land use, which are
imposed by deeds, usually when land is subdivided. CC&Rs are a means of
regulating building construction, density and use. May be referred to simply as
restrictions. (See deed restrictions, restrictive covenants)
Centres of Influence
Influential people in a community. Real estate agents cultivate relationships
with these "centres of influence" as a method of locating prospects in the
community where the person has influence. Also known as "bird dogs," indicating
that these people "point the way" to new prospects.
Certificate of Eligibility
A certificate issued by a Veterans Administration regional office to veterans
who qualify for a VA loan. The Veteran Housing Act permits regional
administrators to restore a veteran's entitlement to loan-guarantee benefits
after his or her property purchased with an existing VA-guaranteed loan has been
disposed of and 1. this loan has been paid in full; 2. the administrator is
released from liability under the guarantee or 3. any loss suffered by the
administrator has been repaid in full. It is no longer required that property
ownership was transferred for a compelling reason.
Certificate of Satisfaction
A document signed by the note holder and recorded in the land records evidencing
release of a deed of trust, mortgage or other lien on the property.
Certificate of Title
A written opinion by an attorney setting forth the status of title to the
property as shown on the public records. The certificate does not certify as to
matters not of record and affords no protection unless the author was negligent.
Compare, title insurance.
Certificate of Occupancy
A certificate issued by a governmental authority indicating that a building is
ready and fit for occupancy and that there are no building code violations.
Certificate of Reasonable Value
A certificate insured by the Veterans Administration setting forth a property's
current market value estimate, based on a VA-approved appraisal. The CRV places
a ceiling on the amount of a VA-guaranteed loan allowed for a particular
property. (See VA loan)
Certificate of Sale
The document generally given to the purchaser at a tax foreclosure sale. A
certificate of sale does not convey title normally it is an instrument
certifying that the holder received title to the property after the redemption
period passed and that the holder paid the property taxes for that interim
period.
Certificate of Title
A statement of opinion prepared by a title company, licensed abstracter or an
attorney on the status of a title to a parcel of real property, based on an
examination of specified public records.
Cessation of Work
A period of 60 days where no work is being conducted. (See notice of cessation)
Chain of Title
The series of transactions from grantor to grantee as evidenced in the land
records. The succession of conveyances, from some accepted starting point,
whereby the present holder of real property derives title.
Change
The appraisal principle that holds that no physical or economic condition
remains constant.
Civil Action
An action where an issue, formed by some kind of complaint, is presented for
trial. Proceedings are for declaration, enforcement, protection of a right,
redress, or prevention of a wrong.
Civil Law
A system of law codified by statutes. (See common law, constitutional law, Roman
Civil Law, statutory law)
Civil Rights Act of 1866
The Civil Rights Act of 1866 prohibits racial discrimination in the sale and
rental of housing.
Civil Rights Act of 1870
The Voting Rights Act of 1870 (aka, Civil Rights Act of 1870) includes a clause
reaffirming the remedies of the Civil Rights Act of 1866.
Civil Rights Act of 1964
The first modern civil rights act made into law by President John F. Kennedy's
Executive Order 11063 prohibiting discrimination in housing where federal funds
were involved. (See Federal Fair Housing Law)
Civil Rights Act of 1968
In 1968, Congress enacted Title VIII of the Civil Rights Act, called the federal
Fair Housing Act, which declared a national policy of providing fair housing
throughout the United States (Reference Sections 3601-3631 of Title 42, United
States Code). This law makes discrimination based on race, color, sex, familial
status, handicap, religion or national origin illegal in connection with the
sale or rental of most dwellings and any vacant land offered for residential
construction or use. (See Fair Housing Act, Federal Fair Housing Law)
Classified Ads
Advertisements purchased by the line and placed in the classified ad section of
newspapers or real estate magazines. Used primarily for advertising residential
properties and rentals. (See display ads)
Client
The person who employs an agent to perform a service for a fee. In traditional
real estate brokerage, the client is the seller, and the buyer is the prospect
or customer. In modern practice, more and more buyers are seeking representation
as a client. Dual agency occurs when a broker represents the seller and the
buyer as clients.
Close-of-Escrow
The consummation of a real estate transaction, when the seller delivers title to
the buyer in exchange for payment by the buyer of the purchase price. Closing in
some areas may not occur until the documents are recorded; however, under
general rules of real estate law, transfer of title takes place upon delivery of
the deed to the grantee.
Closing Costs
Expenses of the sale (or loan refinancing) that must be paid in addition to the
purchase price (in the case of the buyer's expenses) or be deducted from the
proceeds of the sale (in the case of the seller's expenses). Some closing costs
result from legal requirements; others are a matter of local custom and
practice.
Closing Statement
A detailed cash accounting of a real estate transaction showing all cash
received, all charges and credits made and all cash paid out in the transaction.
Cloud on Title
Any document, claim, unreleased lien or encumbrance that may impair the title to
real property or make the title doubtful usually revealed by a title search and
removed by either a quitclaim deed or suit to quiet title.
CLTA Policy
A standard coverage title insurance policy protects real estate buyers in
matters of record and specific risk. (See standard coverage policy, title
insurance)
Clustering
The grouping of homesites within a subdivision on smaller lots than normal, with
the remaining land used as common areas.
CMO
Securities (a series of bonds) issued backed by mortgages.
Code of Ethics
A written system of standards of ethical conduct. Because of the nature of the
relationship between a broker and a client or other persons in a real estate
transaction, a high standard of ethics is needed to ensure that the broker acts
in the best interests of both his or her principal and any third parties.
Codicil
A supplement or an addition to a will, executed with the same formalities as a
will, that normally does not revoke the entire will.
Coinsurance
When more than one insurance company shares the risk of a particular transaction
or series of transactions. Lenders may require co-insurance on large commercial
projects.
Coinsurance Clause
A clause in insurance policies covering real property that requires the
policyholder to maintain fire insurance coverage generally equal to at least 80
percent of the property's actual replacement cost.
Collateral
Property pledged to secure a loan. Something of value given or pledged as
security for a debt or obligation.
Combination Trust
A trust that participates in real estate investments as both financier and
investor.
Combustion Gases
The gasses that are emitted from a flame upon the combustion of a flammable
material.
Commercial Acre
A commercial acre is that portion of an acre of newly subdivided land remaining
after dedication for streets, sidewalks, parks and so on.
Commercial Bank
A financial institution designed to act as a safe depository and lender for many
commercial activities (usually short-term loans or lines of credit). Commercial
banks rely heavily on demand deposits--checking accounts--for their basic supply
of loanable funds, although they also receive capital from savings accounts,
loans from other banks, short-term loan interest and the equity invested by
their owners. (See line of credit)
Commercial Investment Real Estate Institute (CIREI)
A professional organization of real estate practitioners specializing in
commercial real estate. CIREI, affiliated with the National Association of
REALTORS®, confers the designation CCIM (Certified Commercial Investment
Member).
Commercial Leasehold Insurance
Insurance that covers payment of rent in the event the insured (tenant) cannot
pay it.
Commercial Real Estate
A classification of real estate that includes income-producing property such as
office buildings, gasoline stations, restaurants, shopping centres, hotels and
motels, parking lots and stores. Public accommodations.
Commercial Waste
All solid waste from businesses. This category includes but is not limited to,
solid waste originating in stores, markets. office buildings, restaurants,
shopping centres, and theatres.
Commingling
The illegal act of mixing deposits or monies belonging to a client (trust funds)
with one's personal money. By law brokers are required to maintain a separate
trust or escrow account for other parties' funds held temporarily by the broker.
Commission
Payment to a broker for services rendered, such as in the sale or purchase of
real property; usually a percentage of the selling price of the property.
Commitment
1. A pledge to do a certain act, such as a promise by a lender to loan a certain
amount of money at a specific rate of interest to a qualified borrower, provided
the loan is made by a certain date. 2. Also refers to an agreement by a title
insurance company to issue a policy in favour of a proposed insured upon
acquisition of a specific property.
Common Areas
Land or improvements in a condominium development designated for the use and
benefit of all residents, property owners and tenants. Common areas frequently
include such amenities as corridor or hall areas, elevators, parks, playgrounds
and barbecue areas, which are sometimes called green belts. In shopping centers,
the common areas are parking lots, malls and traffic lanes.
Common Elements
Parts of a property that are necessary or convenient to the existence,
maintenance and safety of a condominium or are normally in common use by all of
the condominium residents. Each condominium owner has an undivided ownership
interest in the common elements. (See condominium ownsership)
Common Interest
The percentage of undivided ownership in the common elements belonging to each
condominium apartment, as established in the condominium declaration.
Common Interest Subdivision
A subdivision in which the owners own or lease a separate lot or unit together
with an undivided interest in the common areas of the subdivision. (See common
areas, subdivision)
Common Law
The body of law based on custom, usage and court decisions. (See civil law,
constitutional law, stare decisis, statutory law)
Community Property
A system of property ownership based on the theory that each spouse has an equal
interest in the property acquired by the efforts of either spouse during
marriage. This system stemmed from Germanic tribes and, through Spain, came to
the Spanish colonies of North and South America.
Community Reinvestment Act of 1977 (CRA)
Community reinvestment refers to the responsibility of financial institutions to
help meet their communities' needs for low- and moderate-income housing. In
1977, Congress passed the Community Reinvestment Act of 1977 (CRA). Under the
CRA, financial institutions are expected to meet the deposit and credit needs of
their communities, participate and invest in local community development and
rehabilitation projects, and participate in loan programs for housing, small
businesses and small farms.
Company Dollar
The term "company dollar" is the amount left over after all commissions have
been paid out.
Comparables
Properties that are substantially equivalent to the subject property.
Comparative Market Analysis
This is a term often used by real estate brokers in preparing a report for
prospective sellers and buyers, indicating market trends in various
neighbourhoods, based on computer statistics generated from multiple-listing
service data. Generally, these analyses are used for clients to determine a
listing price for the sale of a home or for buyers to determine if a list price
is reasonable for a given location.
Compensating Factors
Positive factors in an individual's credit history which offset negative
factors. "Compensating factors" increase the possiblity that a borrower's loan
application will be approved.
Compensation
The source of compensation does not determine agency. An agent does not
necessarily represent the person who pays his or her commission. In fact, agency
can exist even if no fee is involved (called a gratuitous agency). Buyers and
sellers can agree, whichever way they choose, to compensate the broker,
regardless of which is the agent's principal. For instance, a seller could agree
to pay a commission to the buyer's agent.
Compensatory Damages
Monetary damages paid to compensate an injured party for a loss. (See exemplary
damages, nominal damages)
Competition
The appraisal principle that states that excess profits generate competition.
(See appraisal)
Completion Bond
A surety bond posted by a landowner or developer that guarantees a proposed
development will be completed according to specifications and free of mechanic's
liens.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
A federal law administered by the Environmental Protection Agency that
establishes a process for identifying parties responsible for creating hazardous
waste sites, forcing liable parties to cleanup toxic sites, bringing legal
action against responsible parties and funding the abatement of toxic sites.
(See Superfund)
Comprehensive Zoning
A broad zoning plan over a large area. (See general plan, zoning)
Compound Interest
Interest computed on the principal sum plus accrued interest. At the beginning
of the new interest period, all interest is added to the principal, forming a
new principal figure on which interest is then calculated. This process repeats
itself each interest period—interest may be compounded daily, monthly,
semi-annually or annually.
Computerized Loan Origination (CLO) system
An electronic network for handling loan applications through remote computer
terminals linked to various lenders' computers.
Concession
Discount given to prospective tenants by landlords to induce them to sign a
lease.
Concurrent Ownership
Ownership by two or more persons at the same time, such as joint tenants,
tenants by the entirety, tenants in common or community property owners. (See
joint tenancy, tenants in common)
Concurrent Performance
Occurring simultaneously; real estate exchanges often must be recorded
concurrently.
Condemnation
Taking of private property for a public use through exercise of the power of
eminent domain or a judicial or administrative proceeding to exercise the power
of eminent domain, through which a government agency takes private property for
public use and compensates the owner.
Condition Precedent
A condition that requires a certain action or a specified event to take place
before an estate granted can take effect. For example, most installment real
estate sales contracts require all payments to be made by the time specified
before the buyer can demand transfer of title.
Condition Subsequent
A fee simple estate, may be qualified by a condition subsequent. This means that
the new owner must not perform some action or activity. The former owner retains
a right of re-entry so that if the condition is broken, the former owner can
retake possession of the property through legal action. Conditions in a deed are
different from restrictions or covenants because of the grantor's right to
reclaim ownership, a right that does not exist under private restrictions. (See
fee simple, restrictive covenant).
Conditional Public Report
An interim report that allows a subdivider to enter into a binding contract with
a buyer prior to the issuance of the final public report.
Conditional-Use Permit
Written governmental permission allowing a use inconsistent with zoning but
necessary for the common good, such as locating an emergency medical facility in
a predominantly residential area.
Condemnation
Taking of private property for a public use through exercise of the power of
eminent domain. The constitution protects against taking without fair
compensation.
Condominium
A system of individual fee simple ownership of portions (units) in a multi-unit
structure, combined with joint ownership of common areas. Each individual may
sell or encumber his own unit. Compare, cooperative. A subdivision providing an
exclusive ownership interest in the airspace of a particular portion of real
property, as well as an interest in common in a portion of that property.
Condominium Ownership
An estate in real property consisting of an individual interest in an apartment
or commercial unit and an undivided common interest in the common areas in the
condo project such as the land, parking areas, elevators, stairways, exterior
structure and so on. Each condominium unit is a statutory entity that may be
mortgaged, taxed, sold or otherwise transferred in ownership, separately and
independently of all other units in the condo project.
Conduits
A party that purchases loans from one lender and resells the loans to investors.
Confession of Judgment Clause
Permits judgment to be entered against a debtor without the creditors needing to
institute legal proceedings.
Conforming Loan
A mortgage loan that meets all Fannie Mae and Freddie Mac underwriting
guidelines. (See Fannie Mae, Freddie Mac)
Conformity
The appraisal principle that holds that the greater the similarity among
properties in an area, the better they will hold their value. (See appraisal)
Conservator
Also called a committee or guardian, a person designated by the court to protect
and preserve the property of someone who is not able to manage their own
affairs. Examples include the mentally incompetent, minors and incarcerated
persons.
Consideration
An act or the promise thereof, which is offered by one party to induce another
to enter into a contract; that which is given in exchange for something from
another; also the promise to refrain from doing a certain act, like filing a
justifiable lawsuit (the forbearance of a right). Consideration, which
distinguishes a contractual obligation from a gift, is usually something of
value, such as the purchase price in and paid for a promise or it may be a
return promise. Thus, the mere promise to pay money is sufficient consideration,
so an earnest money deposit is not necessary for purposes of creating a binding
contract.
Constitutional Law
Law set forth in federal or state constitutions. (See civil law, common law,
statutory law)
Constructive Eviction
Actions of a landlord that so materially disturb or impair a tenant's enjoyment
of the leased premises that the tenant is effectively forced to move out and
terminate the lease without liability for any further rent. (See eviction,
actual eviction, lease)
Constructive Fraud
Breach of a legal or equitable duty that the law declares fraudulent because of
its tendency to deceive others, despite no showing of dishonesty or intent to
deceive. A broker may be charged with constructive fraud for failing to disclose
a known material fact when the broker had a duty to speak—for example, if a
listing broker failed to disclose a known major foundation problem not readily
observable upon an ordinary inspection. (See material fact)
Constructive Notice
Notice given to the world by recorded documents. All people are charged with
knowledge of such documents and their contents, whether or not they have
actually examined them. Possession of property is also considered constructive
notice that the person in possession has an interest in the property.
Constructive Receipt
Control of the cash proceeds in a delayed exchange without actual physical
possession by the exchanger or his or her agent.
Contingency
A provision in a contract that requires a certain act to be done or a certain
event to occur before the contract becomes binding.
Continuing Education
A requirement in most states that real estate and appraiser licensees complete a
specified number of educational offerings as a prerequisite to license renewal
or reinstatement.
Contract
A legally enforceable promise or set of promises that must be performed and for
which, if a breach of the promise occurs, the law provides a remedy. A contract
may be either unilateral, by which only one party is bound to act, or bilateral,
by which all parties to the instrument are legally bound to act as prescribed.
Contract For Deed
Also known as a land contract or land installment contract. A method of
financing where title remains in the seller's name until the buyer has paid the
full purchase price. A contract for deed will normally trigger the due on sale
clause in a deed of trust or mortgage but veterans administration regulations
specifically allow contracts for deed without invoking the due on sale clause.
Contract of Sale
A contract for the purchase and sale of real property in which the buyer agrees
to purchase for a certain price and the seller agrees to convey title by way of
a deed or an assignment of lease (for leasehold property). In addition to
binding the parties to the purchase and sale of the property during the period
of time required to close the transaction, the contract frequently serves as the
initial directions to the closing agent or escrow company to process the
mechanics of the transaction. In essence, the contract of sale is an executory
contract to convey property, serving as the vehicle to get to the deed, which
finally conveys title; it is the blueprint for the entire transaction. Some of
the many names for this contract are sales contract, purchase agreement, deposit
receipt, offer and acceptance, agreement of sale, offer to lease or purchase and
sale agreement.
Contract Rent
The rental income as stipulated by the parties in a lease.
Contribution
The appraisal principle that states that the value of any component of a
property is what it gives to the value of the whole or what its absence detracts
from that value. (See appraisal)
Controlled Business Arrangements
As defined under the Real Estate Settlement Procedures Act (RESPA), an
arrangement or combination in which an individual or a firm has more than a 1
percent interest in a company to which the individual or firm regularly refers
business.
Conventional Life Estate
A conventional life estate is created intentionally by the owner. It may be
established either by deed at the time the ownership is transferred during the
owner's life or by a provision of the owner's will after his or her death.
Conventional Loan
A loan made with real estate as security and not involving government
participation in the form of insuring (FHA) or guaranteeing (VA) the loan. The
mortgagee can be an institutional lender or a private party. The loan is
conventional in the sense that it conforms to accepted standards and the lender
looks solely to the credit of the borrower and the security of the property to
ensure payment of the debt. Conventional loans include those loans insured by
private mortgage insurance companies.
Because the lender is not subject to the more stringent government regulations
of the FHA and VA, conventional loans are frequently more flexible with respect
to terms and interest rates, although they do reflect a higher interest rate and
larger down payment requirements due to the higher risk involved.
Nonconventional loan interest rates (VA loans) are fixed by federal regulation.
Conventional loans are subject to institutional regulation, which may be
statutory (federal, state) or self-created. (See FHA, VA loan)
Conversion
The appropriation of property belonging to another. The conversion may be
illegal (as when a broker misappropriates client funds), or it may be legal (as
when the government condemns property under the right of eminent domain). (See
eminent domain)
Convertible Loan
An adjustable-rate loan that the borrower can convert to fixed-rate at any time
during the life of the loan. (See adjustable-rate mortgage, hybrid financing)
Converted-Use Properties
Factories, warehouses, office buildings, hotels, schools, churches and other
structures that have been converted to residential use. Developers often find
renovation of such properties more aesthetically and economically appealing than
demolishing a perfectly sound structure to build something new. An abandoned
warehouse may be transformed into luxury loft condominium units, a closed hotel
may reopen as an apartment building, and an old factory may be recycled into a
profitable shopping mall.
Conveyance
A term used to refer to any document that transfers title to real property. The
term is also used in describing the act of transferring. (See title)
Cooperating Broker
A broker who assists another broker in the sale of real property. Usually the
cooperating broker is the selling broker who found a buyer for the listing
broker. (See listing broker)
Cooperating Broker Fee Agreement
An agreement between brokers specifying the commission split should the
cooperating broker sell a property listed by the listing broker. (See
cooperating broker, listing broker)
Cooperative
A system of individual ownership of stock in a corporation that in turn, owns
the structure. Each owner has an exclusive right to use his individual unit and
must pay his portion of the debt encumbering the entire building. A residential
multiunit building whose title is held by a trust or corporation that is owned
by and operated for the benefit of persons living within the building, who are
the beneficial owners of the trust or stockholders of the corporation, each
possessing a proprietary lease.
Co-ownership
Title ownership held by two or more persons.
Coping
1. The tile around the outer edge of a swimming pool at the water line. 2. The
flat portion at the top of a parapet wall rising above the roof line of a
building.
Corporation
An entity or organization, created by operation of law, whose rights of doing
business are essentially the same as those of an individual. The entity has
continuous existence until it is dissolved according to legal procedures.
Corporation Franchise Tax Lien
State governments generally levy a corporation franchise tax on corporations as
a condition of allowing them to do business in the state. Such a tax is a
general statutory involuntary lien on all real and personal property owned by
the corporation.
Correction Lines
Provisions in the rectangular survey (government survey) system made to
compensate for the curvature of the earth's surface. Every fourth township line
(at 24-mile intervals) is used as a correction line on which the intervals
between the north and south range lines are measured and corrected to a full six
miles. Range lines are only parallel in theory. Due to the curvature of the
earth, range lines gradually approach each other. If they are extended
northward, they eventually meet at the North Pole. The fact that the earth is
not flat, combined with the crude instruments used in early days, means that few
townships are exactly six-mile squares or contain exactly 36 square miles.
Correlative Water Rights
A modern law in some states that holds that a riparian owner who has rights in a
common water source is entitled to take only a reasonable amount of the total
supply for the beneficial use of land (such as irragation). (See appropriative
water rights, riparian rights)
Correspondent
A mortgage banker.
Corrosion
The dissolving and wearing away of metal caused by a chemical reaction such as
between water and the lead pipes or solder in a home's plumbing.
Corrosive
A substance that eats or wears away materials gradually by chemical action.
Co-signers
Additional signers of a financial agreement that add their personal guarantees
to that of the borrower.
Cost Approach
The process of estimating the value of a property by adding to the estimated
land value. The appraiser's estimate of the reproduction or replacement cost of
the building, less depreciation. (See appraisal)
Cost Basis
A cost basis of real property is usually based on the purchase price of the
property plus the buyer's capitalized closing costs. (See closing costs)
Cost Recovery
An Internal Revenue Service term for depreciation.
Cost-Plus
A method of paying construction contractors when the contractor is paid the
actual costs of the job plus a percentage for profit. (See fixed-fee)
Co-tenancy
Ownership in the same land by more than one person. See, tenancy in common,
joint tenants, tenancy by the entireties.
Counteroffer
A new offer made in response to an offer received. It has the effect of
rejecting the original offer, which cannot be accepted thereafter, unless
revived by the offerer.
Covenant
A written agreement or restriction on the use of land or promising certain acts.
Homeowner associations often enforce restrictive covenants governing
architectural controls and maintenance responsibilities. However, land could be
subject to restrictive covenants even if there is no homeowner's association. It
is a written agreement between two or more parties in which a party or parties
pledge to perform or not perform specified acts with regard to property; usually
found in such real estate documents as deeds, mortgages, leases and contracts
for deed.
Covenant Against Encumbrances
The grantor warrants that the property is free from liens or encumbrances,
except for any specifically stated in the deed. Encumbrances generally include
mortgages, mechanics' liens and easements. If this covenant is breached, the
grantee may sue for the cost of removing the encumbrances. (See encumbrances,
liens)
Covenant of Further Assurance
The grantor promises to obtain and deliver any instrument needed to make the
title good. For example, if the grantor's spouse has failed to sign away dower
rights, the grantor must deliver a quitclaim deed (discussed later) to clear the
title.
Covenant of Quiet Enjoyment
The covenant implied by law by which a landlord guarantees that a tenant may
take possession of leased premises and that the landlord will not interfere in
the tenant's possession or use of the property. The grantor guarantees that the
grantee's title will be good against third parties who might bring court actions
to establish superior title to the property. If the grantee's title is found to
be inferior, the grantor is liable for damages.
Covenant of Seisin
The grantor warrants that he or she owns the property and has the right to
convey title to it ("seisen" simply means "possession").
Covenant of Warranty Forever
The grantor promises to compensate the grantee for the loss sustained if the
title fails at any time in the future. These covenants in a general warranty
deed are not limited to matters that occurred during the time the grantor owned
the property they extend back to its origins. The grantor defends the title even
against himself/herself and all those who previously held title.
Covenants That Run With The Land
Covenants that become part of the property rights and benefit or bind successive
owners of the property.
Crawl Space
1. The space between the ground and the first floor, often found in homes with
no basement. 2. The space found between the top floor and the roof, often found
in the place of an attic.
Creative Financing
Structuring the financing of a real estate transaction based on the cash
positions of the buyer and seller. It involves working in conjunction with the
existing financing to create a financing package that enables the buyer to
purchase the property at better interest rates or terms than a conventional
loan.
Credit
1. Obligations that are due or are to become due to a person. 2. In closing
statements, that which is due and payable to either the buyer or seller--the
opposite of a charge or debit. The credit appears in the right-hand column of
the accounting statement.
Credit Loan
A mortgage issued upon the financial strength of a borrower, without regard for
collateral.
Credit Rating
The Dun & Bradstreet credit rating system. Rating the financial strength of
commercial and industrial companies.
Credit Report
A document, obtained from a credit repository, indicating an individual's credit
circumstances. Used to derive credit scores for borrowers seeking a real estate
loan. (See credit repository, credit score)
Credit Repository
Organizations that maintain and make available public credit history records;
lenders use information from credit repositories to derive credit scores for
potential borrowers.
Credit Score
A snapshot of a borrower's credit worthiness; a numerical score based on
statistics showing the risk of default on a loan; takes into consideration
available credit, management of existing credit, and any detrimental credit
information.
Credit Unions
Credit unions are cooperative organizations whose members place money in savings
accounts. In the past, credit unions made only short-term consumer and home
improvement loans. Recently, however, they have branched out to originating
longer-term first and second mortgages and deed of trust loans. (See
non-institutional lenders)
Creditor
The person to whom a debtor owes a debt or obligation; a lender.
Creosote
A potentially flammable oily by-product of wood burning. Often builds up in
the chimney of wood burning fireplaces.
Cross-default
A provision of many junior mortgages stipulating that a default in one mortgage
also triggers a default in the mortgage in which the clause appears. (See junior
lien/mortgage)
Crunch Down
A form of recasting where the lender rewrites an existing mortgage loan to a
lower balance to avoid a foreclosure. (See foreclosure, recasting)
Courtesy
A life estate, usually a fractional interest, given by some states to the
surviving husband in real estate owned by his deceased wife. Most states have
abolished courtesy.
Cumulative Zoning
Zoning that allows more restrictive uses. For example, a lot zoned for a
multi-family dwelling would allow a single-family home if the zoning were
cumulative. (See zoning)
Customer
A prospective buyer of real estate. Not to be confused with a property seller,
who is the listing broker's client.
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