1031 Exchange
The process by which a taxpayer may defer recognition of capital gains and related federal income tax liability on the sale and purchase of investment properties within a limited timeframe.

Appraisal
See Evaluation.

Arrears
The interest paid after it’s accrued. For example, a payment on October 1 pays for interest owed for the entire month of September.

Assessor's Parcel Number (APN)
The number used by the tax assessor to identify a parcel of land.

Assignee
The person to whom rights to a property, title, or other interest are transferred.

Auction
A place where properties are sold to the highest bidder. Also known as a foreclosure (county) auction or a sheriff’s sale.

Bankruptcy
A proceeding authorized by federal law that provides debtors with various kinds of relief from their debts. Types include Chapter 7, 11, and 13.

Balloon Loan
A loan that calls for a large sum to be paid at the end of the loan term.

Borrower
The individual or entity borrowing funds to complete a real estate deal.

Bridge Loan
Short term financing that bridges the gap until other financing is obtained, typically for a term of less than one year. Also known as a swing loan or bridge financing.

Broker Price Opinion (BPO)
See Evaluation.

Budget
The detailed financial plan for real estate purchase, flip, construction, and sale.

Cash Flow
An individual’s or entity’s income minus expenses over a particular time period. Typically, monthly.

Closing
The period that marks that a new loan transaction has funded.

Closing Costs
The fees paid at closing for loan origination and processing, including attorneys’ fees, fees for recording a mortgage/deed of trust, fees for title search, taxes, and insurance.

Collateral
Something pledged as security for the repayment of a loan. Types include:
·         Real Estate Collateral – The real property used to secure repayment of a real estate loan.
·         Cash Collateral – A deposit held by a lender in lieu of a down payment.

Collection
The status given to a loan when the payment on the loan is delinquent and efforts are made to collect the amount due. Collection is typically handled by the loan servicer.

Combined Loan to Value (CLTV)
The sum of all liens on the property divided by the value of the property. Lenders often use the term LTV synonymously with CLTV. CLTV is typically used when there is more than one lien and LTV is used when there is only one lien.

Credit Report
The information collected by credit bureaus about an individual’s credit history, including a list of credit accounts, their balances, and monthly payments, along with collection accounts and public record information such as liens and bankruptcies.

Credit Score
A number based on information in the credit report that is used by most lenders to decide whether to extend credit and at what cost. The most common score used is the FICO score.

Creditor
A person or business from whom one borrows or to whom money is owed.

Debt-To-Income Ratio
The amount of money owed each month as a percent of gross income. For example, $2,500 of debt payments / $5,000 of gross income = 50% DTI (debt-to-income) ratio.

Default
The status given to a loan when a borrower fails to comply with any of the agreed-upon terms of the loan, or to work out terms agreed upon during the collection process, including timely repayment, maturity, or other violations of the deed of trust. Loans in default can be subject to higher rates, additional fees, and foreclosure.  

Default Interest Rate
An increased interest rate imposed if there is a breach of the loan terms.

Draws
The funds advanced by a lender to the borrower throughout the construction process for the completion of specific line items, which increase the outstanding balance.

Drive by Appraisal
See Evaluation.

Due Date
The date when a loan payment is due each month.

Equity
The difference between the fair market value (appraised value) of real property and any outstanding loans, liens, and encumbrances. Most lenders require equity to ensure the borrower has a financially vested interest in the property.

Escrow Company
A company that oversees the execution of real estate transactions, including closing documents, disbursement of funds, and the recording of documents at the county offices. Also known as a settlement services company.

Estoppel Certificate
A form used in commercial real estate to verify rents, leases, mortgage balances, monthly payments, etc., on a property.

Evaluation
The method in which the value of a real estate property is determined. Various types of evaluations include:
·         Appraisal – A written opinion and analysis of the estimated market value of real estate from a licensed professional for both the interior and exterior of the property.
·         Broker Price Opinion (BPO) – A property inspection by a licensed real estate broker which results in a written evaluation of the property and the estimated sale price.
·         Drive by Appraisal – A written opinion and analysis of the estimated market value of real estate from a licensed professional based solely on the exterior of the property.
·         Fair Market Value – The value of a property based on comparable sales (“comps”) of similar properties within the last six months.

Extension Fee
A fee paid by a borrower to extend an existing loan for an additional term, upon lender approval. Also known as a renewal fee.

Fair Market Value
See Evaluation.

FEMA Flood Zone
The geographic areas that FEMA has designated as flood zones according to their varying levels of flood risk. These zones are depicted on a community's flood insurance rate map (FIRM) or flood hazard boundary map. Each zone reflects the severity or type of flooding in that area.

FICO Score
A credit score developed by Fair Isaac & Co. that assesses the likelihood that credit users will pay their bills. See Credit Score.

Forced Placed Insurance
The insurance placed on a property by the lender (lien holder) in the event a borrower allows their own coverage to lapse. The premium is advanced by the lender and billed to the borrower to be paid within 30 days.

Foreclosure
The legal process by which an owner’s right to real property is terminated, typically due to a default. Types of foreclosure include:
·         Judicial Foreclosure – A type of foreclosure that allows the lender to retain all profits from a foreclosure sale.
·         Nonjudicial Foreclosure – A type of foreclosure that allows the lender to retain only enough funds to satisfy the debt, including interest fees and costs.

Foreclosure Fees
The costs (legal and other) incurred by a lender to foreclose on a property. These costs are the responsibility of the borrower.

Funding
The process of funds being disbursed to the borrower during the closing of a new loan transaction.

Grace Period
The period between the due date (i.e. 1st of the month) and the date late charges will assess.

Hard Money Lender
A lender that makes private money loans that traditional lenders typically won’t fund.

Interest
The money paid regularly at a particular interest rate for the use of money lent. Common types of interest include:
·         Interim (or Prepaid) Interest – The interest paid by the borrower at loan closing from the funding date to the end of that month.
·         Periodic Interest – The money owed each period as defined by the note, usually monthly.

Interest Rate
The percentage rate that lenders charge for the use of their money. Also known as note rate.

Interest Reserve
The funds paid by the borrower and held by the lender for future interest payments. Typically, these occur on construction loans.

Investment Property
A non-owner occupied property. Can be commercial or residential.

Late Fee
A fee paid by a borrower if a loan payment is not made before the end of the grace period.

Lien
A legal claim on real property, generally for the payment of a debt or obligation.

Lien Position
The position that determines claim priority on a property. The two different types include:
·         First Position – This position is the primary mortgagor on the property.
·         Junior Lien – A lien against a property not in first position or priority. For example, a second mortgage, or third or fourth position.

Line item
A specific cost in a construction budget. Multiple line items add up to the total budget.

Liquidity
The ability to convert assets to cash without significant time delay.

Loan-to-Value Ratio (LTV)
The amount of outstanding debt on real property divided by the fair market value of the property.

Maturity Fee
The fee assessed to a loan not paid off by the due date.

Maturity Date
The date when the full loan balance, accrued interest, and fees are due to be paid off as defined on a note or loan modification agreement.

Mortgage
The document that pledges collateral property(ies) as security. Also known as a deed of trust or trust deed.

Note
An abbreviation for promissory note. It discloses the interest rate and terms of the loan and is an obligation of debt.

Payoff
The act of paying off a loan by paying the outstanding principal amount and any additional interest and/or fees due to completely satisfy the loan obligation.

Payoff Statement
A statement that provides information on the amount of money required to pay off a loan through a specific date.

Per Diem
The daily rate of interest as defined in the note.

Personal Guarantee
A guarantee by an individual to a lender for the entire outstanding loan amount plus legal fees, accrued interest, and costs associated with collecting the loan. This type of guarantee entitles the lender to access the individual’s personal assets to repay the loan.

Points
Finance charges paid at closing. Each point equals 1% of the loan amount. For example, one point on a $100,000 loan is equivalent to $1,000. Some lenders charge a flat fee rather than points.  Also known as origination fees.

Preliminary Title Policy
A search performed by a title company to determine property ownership and the liens filed on the property. Includes an offer to insure title on a property. Also known as a binder or title commitment.

Prepayment Penalty
The penalty a lender may impose if a loan is paid off before it is due or before a specified time period, as defined in the loan’s note.

Principal Balance
The outstanding balance of the principal on a loan, which does not include interest or other charges.

Private Money Lender (PML)
See Hard Money Lender.

Refinance
The process of obtaining a new loan on an already-owned property.  

Scope
The list of work to be performed under a contract or subcontract in the completion of a renovation project. Typically broken out into specific line items.

Security Interest
An ownership interest that a lender takes in the borrower's property to ensure repayment of the debt. Typically through a mortgage or deed of trust.

Servicer
A company that handles all payment-related transactions with borrowers, including accepting monthly payments, issuing monthly statements, providing year-end tax statements, and paying property taxes and insurance when due.

Sheriff’s Certificate
The certificate of sale after a judicial foreclosure.

Tax Identification Number (TIN)
A number issued by the IRS identifying a taxpayer. Usually a Social Security Number (SSN) for an individual or an Employer Identification Number (EIN) for a business.

Title
The evidence of right to ownership of real property.

Title Company
A company that searches county and public records for liens and encumbrances against a subject property and the borrower.

Title Insurance
An indemnity policy issued by a title company that insures an owner and/or lender against loss due to title defects, liens, or encumbrances. Also known as a title policy.

UCC Filing
Also known as uniform commercial code filing. A county or state filing to secure real property and/or fixtures (assets or inventory related to the property). Typically related to commercial property.

Underwriting
The process lenders use to determine the risks related to the property and the involved borrower for any given loan.

Hard Money Lending Acronyms

APN – Assessor's Parcel Number
ARV – After Repair Value
CLTV – Combined Loan to Value
FICO – Fair Isaac Corporation
IO – Interest Only
LLC – Limited Liability Company
LTC – Loan to Cost
LTE – Long Term Extension
LTV – Loan to Value
PML – Private Money Lender
POF – Proof of Funds
SREO – Schedule of Real Estate Owned
TIN – Tax Identification Number
UCC Filing – Uniform Commercial Code Filing
UW – Underwriter