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Michigan Real Estate Law
Chapters 15-21 Final Exam Terms
65
Real Estate & Planning
Not Applicable
05/14/2012

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Term
Appreciation
Definition
The increase in value of an asset.
Term
Equity
Definition
The actual dollar value that an owner holds in her property (as opposed to market value)
Term
Investment Syndicates
Definition
Special business entities formed to share the cost, risk, and profit of real estate investing.
Term
Blue-Sky Laws
Definition
Statutes designed to provide regulation and supervision of securities, offerings and sales. Protect ordinary citizens from from giving monies to fraudulent companies.
Term
Property Tax
Definition
A fee charged on the value of a personal or real property that is owned by a taxpayer.
Term
Assessed (taxable) Value
Definition

The worth of a property including all land and improvements:

Tax Rate x Assessed Value = Tax

Term
Special Assessment
Definition
A category of property tax levied on a property according to specific benefits it receives. Paid off at closing.
Term
Homeowners Principal Residence Exemption
Definition

Relieves principal homeowners a portion of the responsibility for funding public schools.

(Propsal A 1994) 

Term
Calculation of Principal Gain
Definition
When property is sold or exchanged by the owner, the property's adjusted cost basis is subtracted from the recent sale price.
Term
Basis
Definition
The orginal purchase price.
Term
Adjusted Basis
Definition
Capital improvements made by the owner during his ownership are added to the basis to arrive at the "adjusted cost basis".
Term
The "Universal" Exclusion
Definition
Married homeowners filing a joint tax return may exclude up to $500,000 of capital gains.
Term
Section 1031 "Like-Kind" Exchanges
Definition
Mutual transfer of properties of equal interest.
Term
Homeowner's Policy
Definition
A policy obtained by a homeowner to insure against certain risks of loss to one and two-family dwellings.
Term
Homeowner's Warranty Policy (HOW)
Definition
Offers limited protection to a buyer against certain defects in the structure or mechanical items.
Term
Federal Flood Insurance
Definition
Available in certain areas to indemnify property owners against losses caused by flood damage. Required by lenders in flood zones/added to borrowers monthly mortgage.
Term
Errors and Omissions Insurance
Definition
Purchased by brokers to cover liability for errors, mistakes, and negligence that may arise from the customary practice of real estate.
Term
Ad valorem Tax
Definition
Latin for "according to value" real estate taxes are assessed on an ad valorem, or in proportion the the value of the real estate being taxed, basis.
Term
Tax Shelter
Definition
A device used by a taxpayer to reduce the amount of income tax he must pay. For example: deductions allowed for ownership of income producing property.
Term
Mortgage Loan
Definition
A contractual lien. Technically: a written instrument that creates an interest in real property as security for payment of a debt.
Term
Pledge
Definition
A transfer of personal property to a creditor to be held as security for a debt or obligation.
Term
Mortgagor
Definition
The one who gives the mortgage to the lender; the borrower.
Term
Mortgagee
Definition
The person or business entity who receives and holds the mortgage as security; the lender.The mortgagee provides the loan funds used to buy the property in exchange for a lien right on the property.
Term
Lien Theory
Definition
The mortgage is regarded as a mere lien and does not convey an ownership interest to the mortgage. Michigan law.
Term
The Standard Mortgage
Definition
Two written instruments acting together. The mortgage and the promissory note. The mortgage does not automatically include a promissory note. A mortgage by itself does not guarantee the lender that all sums will be paid.
Term
Nonrecourse Debt
Definition
The debter is not personally liable for the repayment of debt. Under a mortgage alone, a debters only recourse is to foreclose or sell. The NOTE contains the actual promise to repay.
Term
Acceleration of Debt
Definition
A clause that allows the lender to accelerate the entire unpaid principal balance and declare it immediately due. (ex: borrower destroys property/lender can accelerate the debt and foreclose.)
Term
Due-on-sale Clause
Definition
Mortgagee can accelerate the debt if mortgager sells or transfers the property to a new buyer. Rather than accelerating, the mortgagee can allow an assumption by a new buyer and adjust the interest rate to current guidelines.
Term
Estoppel Certificate
Definition
Signed statement certifying that a statement is correct as of the date issued. (ex: If a note is sold before full payment, the investor may require verification that loan is current a w/o defaults.)
Term
Obligor
Definition
Party who gives the note and has obligated himself to repayment under the note; the borrower (mortgagor under the mortgage).
Term
Obligee
Definition
The party who receives the note and the one whom the obligor must make payments; the lender (mortgagee under the mortgage)
Term
Advance (payments)
Definition
Payments due at the beginning of each payment period. Property taxes are paid in advance.
Term
Arrears (payments)
Definition
Payments due at the end of each pay period. Interest is paid in arrears.
Term
Simple Interest
Definition
Interest calculated as a straight percent of the principal loan balance and treated as separate from the principal. Each month one-twelfth of the annual interest for the principal balance is charged.
Term
Compound Interest
Definition
Interest that merges with the principal and becomes part of the base on which future interest is calculated. Interest rate is calculated then subtracted from the total monthly payment.
Term
Points
Definition
A one time fee collected by a lending institution at the time a loan is orginated and closed. One point equal one percent of the principal amnt.
Term
Assignment
Definition
When a mortagee sells a mortage and note, the rights and responsibilities are assigned (transferred) to the purchasing investor.
Term
Novation
Definition
Release from liability for a mortgage.
Term
Subject to Mortgage
Definition
When a buyer takes title subject to the mortgage, no formal acknowledgement of the existing debt under the note takes place.The buyer must continue to make payments because the mortgagee can still foreclose.
Term
Buyer's Rights
Definition
Buyers who purchase a property with an existing debt must take care since the property is encumbered by a superior interest. When the mortgager sells the property and assigns the mortgage, the buyer acquires the property either subject to the mortgage or he assumes it.
Term
Deed of Trust
Definition
Security instrument whereby legal title to financed property is conveyed to a trustee to secure repayment of the loan. Operates like a mortgage. Turns the mortgage into a 3 party relationship as opposed to 2 party.
Term
Trustor
Definition
The borrower. The person who gives the deed of trust to the trusteeas security for repayment of the debt.
Term
Trustee
Definition
The one who receives the deed of trust and holds it in trust. Ex: public officers, attorneys, and title insurance companies.
Term
Beneficiary
Definition
The lender. The holder of the note. The party for who's benefit the trustee acts.
Term
Land Contract
Definition
An agreement for the sale of land that calls for a down payment at closing, with the balance of the purchase price made in installments.
Term
Vendor
Definition
The seller (land contract or otherwise)
Term
Vendee
Definition
The buyer (land contract or otherwise)
Term
Statutory Redemption
Definition
A guaranteed right a mortgager has to free the property from foreclosure and to recover the title.
Term
Judicial Foreclosure
Definition
The mortgagee brings a formal lawsuit into a court of law.
Term
Conventional Mortgage Loan
Definition
Any loan by which a a person transfers to a lender a lien in exchange for part of the purchase price. Not insured or guaranteed.
Term
Purchase Money Mortgage
Definition
Mortgage laon in which funds are used to purchase a parcel of real property. The property, in turn, secures the full amt of the loan.
Term
Loan-to-value ratio
Definition
The relationship between the amount borrowed and the appraised value of the property. At 80% the borrower puts 20% down.
Term
Fully Amortized Loan
Definition
Refers to the repayment of financial obligation over a period of time in periodic installments. Includes principal and interest. End balance is zero.
Term
Partially Amortized Loan
Definition
Only part of the principal is paid down, resulting in the principal balance not returning to zero at maturity.
Term
Negative Amortization
Definition
When interest rates increase over time without a corresponding increase in monthly payment. Debt can actually increase as payments are made.
Term
Fixed Rate
Definition
Interest rate does not vary.
Term
Adjustible Rate 
Definition
Interest rate floats.
Term
Open Loan
Definition
Loan that contains no prepayment penalty.
Term
Closed Loan
Definition
Lender has the right to assess a prepayment penalty, but cannot legally prevent early payment of the principal balance.
Term
Prepayment Penalty
Definition
Penalty assessed by a lender to recover unearned interest when the borrower pre-pays the principal.
Term

Graduated Payment Mortgage

GPM

Definition
Reduced monthy payments in the initial years. Gradually increases over time.
Term
Blanket Loan
Definition
Loan desigend to cover more than one parcel of property under a singel security package. Multipal properties.
Term
Bridge Loan
Definition
Any loan issued for a short duration until more permanent financing can be obtained.
Term
Sale and Leaseback
Definition
The seller/grantor of a property immediatey becomes a lessee. The pruchaser/grantee becomes a lessor. Also known as a leasehold mortgage. 
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