DATE
The mention in a written instrument, such as a sales contract
or deed, of the time (day, month, and year) when it was made
or when a future event is to occur. Real estate contracts may
have more than one date mentioned.
DATE OF APPRAISAL
The day, month, and year as of which the opinion of value, as
expressed in the appraisal, is based. Since changes in the value
of property can occur very quickly, the date of appraisal is
an important part of the appraisal form or report. The inclusion
of the date makes it clear to anyone examining the appraisal
that the value estimate is as of a specific date.
DATUM A level surface
to which the elevations of points used in legal descriptions
are referred. Besides the mean sea level datum some arbitrarily
chosen datum such as a bench mark is often used in surveying
work.
DEALER One who holds
property for sale to customers. If a person is classified as
a dealer for federal income tax purposes, any gain or loss on
the exchange or sale of property is treated as ordinary gain
or loss and not as capital gain or loss. Dealers also may not
take advantage of tax-free exchange rules which can be used
by non-dealer investors.
DEAD END STREET
A street with only one entrance, the other end being closed.
DEBENTURE (BOND)
A long-term bond or note issued by corporations and governments
and not secured by a mortgage or lien on any specific property.
Since there is no specific property securing the debenture,
the ability to repay the debt is based solely on the financial
strength of the issuer.
DEBIT An amount
due or owing, as compared to a credit which is an amount due
or to be received. Debit entries are made on closing statements
to reflect charges made to both parties.
DEBT An obligation
of money, goods, or service either in the present or in the
future from one person to another.
DEBT COVERAGE RATIO (DCR)
The relationship between the annual net operating income (N.O.I.)
of a property and the annual debt service of the mortgage loan
on the property. Lenders and investors calculate the ratio to
assist them in determining the likelihood of the property generating
enough income to pay the mortgage payments. From the lender's
viewpoint, the higher the ratio, the better.
DEBT EQUITY RATIO
The relationship between the total loan amount owed to the lender(s)
and the invested capital of the owner(s). In real estate investments
this ratio, also known as the leverage ratio, can be very high
due largely in part to the loan security of real estate, thus
real estate investments are often highly leveraged. Owner-occupied
residential real estate typically has a high debt-equity ratio,
particularly homes recently purchased. A $100,000 home purchased
with $20,000 cash and an $80,000 mortgage would have a debt-equity
ratio of 4:1 ($80,000/$20,000).
DEBT FINANCING The
use of borrowed funds, or other people's money, to purchase
real estate. Also known as debt capital as compared to equity
capital, which is the amount of one's own money used to purchase
real estate.
DEBTOR One who owes
debt.
DEBT SERVICE The
periodic payment (monthly, quarterly, annually) necessary to
pay the interest and principal on a loan which is being amortized.
DEBT-TO-INCOME RATIO
The relationship between a person's periodic (normally monthly)
debt and his or her income. While lenders use various rules
of thumb in determining the maximum amount of money a person
can borrow, the ratio often used is that the total principal,
interest, taxes, and insurance (PITI) due each month should
not exceed 25 to 28 percent of the borrower’s monthly
gross income.
DECEDENT A deceased
person. One who is deceased with a will is known as a testator
while a deceased person without a will is said to have died
intestate.
DECLARATION OF TRUST
Acknowledgment by a person who holds legal title to property
that he or she is holding the property as trustee for someone
else or for a specified purpose.
DECLINING-BALANCE DEPRECIATION
An accelerated method of depreciation for tax purposes in which
the remaining depreciable balance each year is the base for
calculating the subsequent year's depreciation. The result is
a faster write-off in the early years than would be possible
using a straight-line method of depreciation.
DECREASING ANNUITY
A series of periodic payments or receipts that progressively
decline over time.
DECREE A court order
or declaration announcing the legal consequences of the facts.
DECREE OF FORECLOSURE
A court order following the actions of a mortgagee who has a
lien against a parcel of real property which states the amount
of the outstanding debt and orders the sale of the property
with the proceeds being used to satisfy the debt.
DEDICATION A donation
of property by a property owner to a public authority such as
a local government without payment and for a public use.
DEDUCTION Any ordinary
and necessary expense paid or incurred in a taxable year which
is related to business or the production of income. Such deductions
are in addition to any other deduction Permitted by law and
depend upon the accounting method used by the taxpayer. Except
where specifically authorized by Congress, expenses for personal
or family purposes are usually not deductible. A deduction has
the effect of reducing the amount of taxable income and thereby
reducing a taxpayer's tax liability. If a person owns a house
which serves as his or her personal residence, Congress permits
mortgage interest, property taxes, and casualty losses as allowable
deductions. In addition to these deductions, owners of real
estate held for other purposes may be entitled to deductions
for maintenance expenses, minor repairs, insurance premiums,
and depreciation.
DEED A written instrument,
usually under seal, conveying some property interest from a
grantor to a grantee. A grantor is the person who conveys the
property interest; the grantee is the person to whom the grant
is made. In order for a deed to be effective in transferring
title, it must be in proper legal form and executed as specified
by the law in the state in which the property is located. 7le
title is actually transferred the moment the deed is properly
delivered to and accepted by the grantee. In order to protect
the validity of the title from subsequent innocent third parties
purchasing the same property from the original grantor, the
deed must be recorded as required by the particular state's
recording statute. This also gives assurance to third parties
that no one else has good title unless the title has been recorded.
This gives constructive notice to third parties. When a deed
is delivered, all prior oral and written agreements are merged
into the deed and are collateral. This means that when a deed
is delivered and accepted all prior agreements which are inconsistent
with the deed are superseded and have no legal effect. An exception
to this rule occurs in cases of fraud and mutual mistake. Another
exception exists when the contract specifically provides that
the obligations will survive the closing.
DEED BOOKS Part
of the public records found in the county clerk's or recorder's
office in which copies of deeds transferring real property in
that jurisdiction are recorded. These books are also known as
libers.
DEED IN LIEU OF FORECLOSURE
A special purpose deed used by a borrower (mortgagor) who is
in default to convey the property to the lender (mortgagee)
in order to eliminate the need for a foreclosure.
DEED IN TRUST A
special purpose deed for carrying out fiduciary purposes in
which the real property is conveyed to a trustee in a land trust.
The power to sell, lease, mortgage, and so forth are given to
the trustee under the provision of the trust agreement.
DEED OF RECONVEYANCE
A deed used to transfer title from the trustee back to the trustor
(borrower) after the outstanding debt has been paid in full.
DEED OF RELEASE
A special purpose deed given by lien holders, remaindermen,
or mortgagees to relinquish their claims on the property.
DEED OF SURRENDER
A special type of deed used to merge a life estate with a reversion
or remainder.
DEED OF TRUST A
deed to real property which serves the same purpose as a mortgage
but instead of two parties, three parties are involved. The
third party holds title for the benefit of the lender. The borrower
under a note secured by a deed of trust or trust deed is called
the trustor or in some states the grantor. The lender is called
the beneficiary. When a loan is made the borrower conveys naked
title to a third party called the trustee who holds the title
for the benefit of the lender although the instrument itself
may remain in the lender's possession. A states deed of trust
act specifies who may act as a trustee. Some states have created
the office of public trustee, while others allow individuals
such as attorneys or brokers or entities such as title insurance
companies or savings and loan associations to serve in that
capacity. As with mortgages, states have title theory and lien
theory deeds of trust.
DEED POLL A deed
made by only one party who binds only himself or herself to
the deed.
DEED RESTRICTION DEFAULT
The failure to perform a contractual obligation or duty. Since
each party to a contract has a duty to perform as promised,
the non-defaulting party has a number of alternative remedies
from which to choose. Quite often real estate contracts such
as sales agreements, leases, and mortgages specify the act(s)
that will result in default as well as the remedies available
to the innocent party.
DEFAULT JUDGMENT A
judgment entered by a court against a person who falls to answer
a complaint or appear in court at an appointed time.
DEFAULT RATIO A
ratio used in financial analysis that compares the effective
gross income (the rent collected from a project) to the operating
expenses plus the debt service.
DEFEASANCE CLAUSE
A provision found in a mortgage which "defeats" the
passing of title to the lender (mortgagee) had the borrower
(mortgagor) not met the terms and conditions specified in the
mortgage. When the debt is repaid this clause nullifies any
interest the lender may have had in the property. Typical wording
of a defeasance clause would be as follows: "Provided,
however, if the said mortgagor, his heirs, personal representatives,
or assignees, shall make or cause to be made the payments, and
perform and comply with the covenants and conditions herein
mentioned on his part to be made and done, then this mortgage
shall be void."
DEFEASIBLE Subject
to be revoked or defeated upon the occurrence of a future event
or the performance of a condition subsequent, generally used
in regard to rights and interests in real estate.
DEFECT OF RECORD
Any lien, claim or encumbrance on a particular piece of real
estate that has been properly recorded in the public records.
Recorded defects impair clear title and may result in the title
being unmarketable.
DEFENDANT The person
against whom a lawsuit has been brought or against whom recovery
is sought by the plaintiff.
DEFERRED ANNUITY
A series of periodic payments or receipts that begin at some
point in the future.
DEFERRED CHARGES
In accounting, expenditures for intangible assets, such as mortgage
placement fees or property leasing commissions, that are to
be written off over the life of the service provided.
DEFERRED INCOME
Income to be received in the future.
DEFERRED INTEREST MORTGAGE
A financing technique in which a lower interest rate and thus
a lower monthly mortgage payment is charged. Upon the selling
of the property the lender receives the deferred interest plus
a specified fee for postponing the interest that would normally
have been paid each month. This type of mortgage is particularly
aimed at those people who only plan to keep the property for
a short period of time.
DEFERRED LIABILITY
A debt that need not be paid currently. Accelerated depreciation
frequently causes a deferred income tax liability for income-
producing property.
DEFERRED MAINTENANCE
Inadequate repair and upkeep of a building which results in
physical depreciation and loss in value.
DEFICIENCY The lack
of an item or its inadequate capacity.
DEFICIENCY JUDGMENT
A personal claim based on a court order against a borrower (mortgagor)
for difference between what is owed the lender (mortgagee) and
the amount realized following a foreclosure on the property.
The deficiency occurs when the prop fails to sell at foreclosure
for a price which covers the outstanding mortgage amount. Some
mortgages, particularly commercial loans, are written so that
the lender recourse only against the property (non- recourse
mortgage) and thus, if the prop fails to sell at foreclosure
for the amount owed, no personal judgment can brought against
the borrower.
DEFLATION A decline
in the general level of prices.
DEGREE A land surveying
measurement denoting 1/360th part of a circle. The term used
in metes and bounds method of surveying and is denoted by the
symbol ... in 90'.
DELINQUENCY DATE
A specific time after which a penalty is incurred for nonpayment
of a debt. real estate lending, promissory notes normally have
a due date, typically the first of each month, and a delinquency
date, normally sometime between the tenth the fifteenth.
DELINQUENCY RATIO
A ratio used by commercial banks and other lenders to denote
the number of overdue loans relative to the total loans being
serviced.
DELIVERY The formal
surrender of control or ownership of something to someone else.
Legal documents such as deeds and mortgages do not become valid
until they have been delivered and accepted. What constitutes
delivery depends upon the intent of the parties. For a deed,
there must be an objective intent on the part of the grantor
to give up present control of the deed.
DEMAND An economic
term commonly used to denote a qualified buyer(s) who is ready,
willing, and able to make a purchase.
DEMAND DEPOSIT Funds
on deposit with banks which are subject to immediate withdrawal
by the depositor(s). Commonly known as checking accounts, demand
deposits are different from time deposits, commonly referred
to as savings accounts, which require the depositor to wait
a specified period of time before withdrawing or else pay a
penalty for early withdrawal.
DEMAND LOAN A loan
which permits the lender to call the loan due and payable at
any time. Normally, real estate loans are not demand loans.
DEMISE A conveyance
of an estate to someone for life, for a certain number of years,
or at will by means of a lease. The word demise is synonymous
with "lease" or 'let' and use of the word in a lease
implies a covenant for quiet enjoyment which means the landlord
(lessor) guarantees that the tenant (lessee) will not be disturbed
by someone having superior claims against the property.
DEMISED PREMISES
The part of a property which is leased to a tenant.
DEMOGRAPHY The study
of populations with respect to density and distribution. Demographic
information is of particular importance to people involved in
market analysis and highest and best use analysis in determining
potential land uses of a particular site.
DEMOLITION COSTS
The total expenses incurred in tearing down and removing the
improvements on a parcel of land.
DEMOLITION LOSS
A tax deduction which may be taken under certain circumstances
when an improvement is voluntarily demolished. No deduction
may be taken if there was an intent to demolish the building
at the time the property was acquired. If the building is used
in trade or business or for production, and a decision is made
to demolish the building after acquisition, then the taxpayer
will ordinarily be entitled to the demolition loss deduction.
DENSITY The number
of buildings or persons occupying a certain area of land, generally
an acre.
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT (HUD) A federal agency actively engaged
in housing programs and related activities including urban renewal,
model cities, block grants, public housing and subsidy programs.
The Federal Housing Administration (FIL4), the Government National
Mortgage Association (GNMA), and the Office of Interstate Land
Sales Registration are all under HUD's jurisdiction.
DEPARTMENT STORE
A large store divided into sections or departments selling a
wide range and variety of products. Local department stores
are often used as anchor tenants in shopping centers.
DEPENDENCY, PRINCIPLE OF
An economic principle which states that the use and thus the
value of a particular parcel of land can change as a result
of modifications of other parcels or other changes in the land-use
pattern or environment.
DEPLETION A tax
deduction which may be taken by taxpayers who own property interests
in extractive industries such as mines, oil, gas, or other natural
deposits.
DEPOSIT Money offered
by a prospective purchaser to indicate his or her good faith
in entering into a sales contract. If the sale is completed
then the deposit is credited to the purchaser and applied towards
the purchase price. However, if the purchaser defaults then
the deposit is normally kept by the seller as liquidated damages.
Depending upon the terms of the listing agreement, the seller
may split the deposit with the listing broker. Default by the
seller results in all of the deposit being returned to the purchaser,
with the broker having no legal claim to any of the money.
DEPOSIT INSURANCE ACT
A federal act enacted during the Great Depression creating the
Federal Deposit Insurance Corporation (FDIC) to insure deposits
of member commercial banks.
DEPOSIT OF TITLE-DEEDS
The placing of title-deeds to land in the hands of a lender
for the purpose of securing a loan.
DEPOSITION The testimony
of a witness taken outside of court for the purpose of using
the testimony during a trial.
DEPOSITORY INSTITUTIONS DEREGULATION
AND MONETARY CONTROL ACT (1980) A federal act that
resulted in significant deregulation of federally chartered
commercial banks and savings institutions. Included in the legislation
were provisions to phase out ceilings on interest rates being
paid by lenders (Regulation Q) and limitation over the type
of loans savings institutions could make. The act also overrode
state usury laws for all federally insured institutions.
DEPRECIABLE BASIS
The amount on which depreciation deductions are based for income
tax purposes. Allocation must be made between land and improvements,
since ordinarily only the improvements to and on the land may
be depreciated.
DEPRECIABLE LIFE
The estimated economic useful life of a depreciable asset such
as a building. Depreciable life is not a measure of how long
the building will remain standing, but rather how long the improvements
are expected to provide an economic return. As an analogy, automobiles
may last for decades, but the cost and annoyance of repairs
and the modern equipment of newer cars gives most automobiles
a short useful life. Improvements to real estate are long- lasting,
but without renovation, they steadily march to the junkyard.
DEPRECIATED COST
In taxation, the cost new minus any depreciation taken.
DEPRECIATION (ACCOUNTING)
A method of allocating the cost of a wasting asset over its
estimated useful life. For income tax purposes, depreciation
is a provision for the estimated wear and tear of an asset.
Depreciation deductions can be claimed as a tax deduction on
real estate improvement (not land), regardless of whether the
market indicates an increase or decrease in the value of the
property. To claim depreciation on an income tax return, a bookkeeping
entry is required, not a cash payment. In many real estate investment
situations, depreciation deductions are of significant value.
The deductions reduce income taxes without a cash payment. However,
there will be a day of reckoning. Ultimately, the tax implications
catch up with the real economic situation. Depreciation deductions
serve to reduce the adjusted tax basis of property, so, upon
a resale, there will be a greater capital gain on which a tax
is due. Most investors prefer to enjoy substantial amounts of
current depreciation deductions in the face of a future tax
because of (1) The time value of money, and (2) The possibility
of lower tax rates upon resale. Lower tax rates may be due to
more favorable capital gains rates, or planning the sale to
occur in a tax year when there are off-setting losses. The time
value of money implies that taxpayers would rather pay taxes
later than now. It is like getting an interest-free loan from
the Government.
DEPRECIATION/AMORTIZATION
RATIO The relationship between depreciation deductions
and mortgage payments for income-producing property. Depreciation
claimed for income purposes allows a tax deduction without a
cash payment. Mortgage payments that apply toward principal
reduction require an actual cash payment but are not deductible
for income tax purposes, so they have an opposite effect. Since
all other operating expenses such as maintenance and property
tax are tax- deductible, the difference between the depreciation
claimed for tax purposes and the mortgage payments is clearly
reflected in taxable income. Thus, any excess of depreciation
over mortgage principle payments in a taxable year will cause
some of the before-tax cash flow (cash throw-off) to be tax-free.
DEPRECIATION (APPRAISAL)
A loss in utility, and hence value, from any cause. In the cost
approach to value, the depreciation factor attempts to make
adjustments between the attributes of the selected building,
as if it were new, and the subject property's physical condition
and economic setting. It is a way of adjusting the hypothetical
new structure on which the cost estimate was based and distinguishing
it from the subject property. An appraiser may estimate depreciation
through observation and/or by applying a formula based on the
effective age and remaining life of each component of the property.
The indirect method of estimating depreciation is to subtract
values for the property, estimated from the market or income
approach (or both), from the reproduction cost of the subject
property, plus the value of the land. The difference obtained
is the total depreciation sustained.
DEPRECIATION METHODS
Those methods allowed for depreciating real estate improvements
(not the land) as prescribed by the Internal Revenue Code.
DEPRECIATION RECAPTURE
A provision contained in the Internal Revenue Code that makes
excess depreciation taken on real property subject to income
tax upon the sale or disposition of the property.
DEPTH TABLE A table
showing the percentage relationship between the depth of a lot
being appraised and the value as compared to values indicated
by a standard lot in the market. Such tables are sometimes used
by appraisers and tax assessors in estimating the value of a
particular parcel of land. Several rules of thumb for depth
adjustment have been developed. Among the more common are the
4-3-2-1 rule, the Hoffman rule, the Hoffman-Neill rule, the
parabolic formula, and the Milwaukee rule. Little reliance can
be placed on these rules without first testing market behavior.
In some markets very little price differentiation exists between
different-sized lots within acceptable rates. In other markets
prices may be affected by size. A much preferable approach is
the use of linear or multiple regression. This is a statistical
technique used to calculate the mathematical relationships between
variables. It requires the use of large numbers of data points
to provide reliability. Using one of many calculators currently
available, the appraiser can use regression to determine the
existence of a relationship between lot depth and sales price.
DERELICTION A process
by which water gradually recedes, leaving dry land where water
previously was.
DERIVATIVE CONVEYANCE
A conveyance of property which presupposes that a conveyance
of the property has previously occurred. Such a conveyance only
serves to alter or confirm the interest originally conveyed.
DESCENT The transfer
of title to property upon the death of the owner who has died
without a will (intestate) to those heirs related by blood or
marriage, whom the law designates. If a person dies intestate
the disposition of the person's property will pass as defined
by state laws called statutes of descent and distribution. Real
estate will pass directly to a person's heirs as defined by
the state law in which the real estate is located subject to
the debts of the decedent. A court in the state where the decedent
lived will appoint a person called an administrator to dispose
of the property of the estate. The administrator will collect
the assets of the estate, pay debts and distribute the remainder.
The administrator is usually required to put up a bond and may
sell that real property which is necessary to pay off the estate's
debts if the sale of personal property produces insufficient
proceeds. The real estate remains charged with debts of the
estate until the state's statute of limitations has run. States
have different rules as to who receives property of the decedent.
DESCRIPTION The
part of a deed, mortgage, sales contract, or other such legal
instruments which identifies the real estate involved in the
transfer. When land is conveyed one party to another the instrument
of conveyance needs to contain a legally sufficient description
of the parcel. Courts have interpreted this to mean that property
sufficiently described if a competent civil engineer or surveyor
could locate subject property given the land description. Since
no two parcels of land could be exactly alike in location, each
parcel requires a unique description. A legal instrument, such
as a deed, which does not have a legally sufficient description
is void and not enforceable.
DESIGNATED REAL ESTATE BROKER
An officer of a corporation who has been designated by the corporation
as its broker of record. The person so designated must meet
the minimum qualifications for acquiring and maintaining a broker's
license and is responsible for the corporation's real estate
brokerage activities.
DESIGNATED REAL ESTATE INSTRUCTOR
(DREI) A professional designation awarded by the Real
Estate Educators Association to persons involved in real estate
education.
DETACHED SINGLE-FAMILY HOME
A free-standing structure designed for one family unit.
DETERIORATION A
loss in value due to wear and tear by action of either the natural
elements or use of the property.
DEVELOPER One who
does whatever is necessary to transform an undeveloped tract
of land into parcels ready for construction. This could mean
acquiring a 100-acre tract of land from a farmer, subdividing
the large parcel into one-half acre tracts, putting in roads,
curbs, gutters, sewers, and water mains and then selling the
individual lots to either builders or private individuals who
in turn construct houses on the lots. I-and development can
also involve commercial property such as the development of
a large shopping district or industrial property such as an
industrial park.
DEVELOPMENT LOAN
A loan to fund the cost of converting an undeveloped tract of
land into parcels ready for construction. Such loans, intended
to be short-term, are normally tied to the prime rate and are
made by lenders expecting repayment when the improvements to
the land are completed.
DEVELOPMENT RIGHTS
The rights to improve or develop land that are sold or given
by one property owner to another.
DEVISE Transferring
title to real property by means of a will. In order to make
a valid formal will a person must be of statutory age, generally
eighteen or twenty-one in most states, although some states
set the age as low as fourteen. In addition, the person must
be of "sound mind' at the time of the execution of the
will. A formal will must be in writing, which may be typed,
printed, or handwritten. Real estate must be described with
sufficient certainty, but it is not required that a complete
legal description be included. A formal will must be signed.
In addition, states impose a strict requirement that the will
be witnessed. Some states recognize non-witnessed wills called
holographic wills. A holographic will is one which is entirely
handwritten. Such a will is valid only in some jurisdictions
and there only if it is free from suspicion of fraud or other
defects. In addition many states recognize nuncupative wills.
A nuncupative will is an oral will which a terminally ill testator
or testatrix declares before qualified witnesses. This will
must be reduced to writing within a statutorily prescribed time
period in order to be admitted into probate. Unlike a deed which
cannot be changed or withdrawn by a grantor after it has been
delivered and accepted, a will may be changed or revoked by
the testator at any time during his or her lifetime. A will
may be changed by making out a new will or by drafting a codicil
to a will. A codicil is a supplement or addition to the original
will and must be executed with the same formality. Any attempt
to modify the original will by crossing out a provision will
not ordinarily be effective. The courts may view such as alteration
as a revocation of the will.
DEVISEE The person
to whom real property is given by will.
DEVISOR A giver
of real property by means of a will; also known as a testator.
DIMINISHING RETURNS, POINT
OF The point in time or production where returns fail
to increase in proportion t additional investments of labor,
capital, management, or land.
DINK Double income,
no kids. A term used to denote a working couple, often in the
market for condominium ownership or other types of real estate
investments.
DIPLOMAT CLAUSE
A provision included in a lease allowing for immediate termination
of the lease when the tenant, who is a diplomat of a foreign
government, is transferred to another country.
DIRECT CAPITALIZATION
A method of capitalizing income based on dividing net operating
income by a rate of return derived by analyzing similar properties
and comparing their net income to their selling price. Also
known as the overall capitalization rate, this approach takes
into account the unique operating characteristics of each property.
DIRECT COSTS Expenditures
made in the construction of an improvement that can be directly
attributable to the improvement. Also known as hard costs, direct
costs include such items as labor, material, contractor's overhead,
and profit.
DIRECTIONAL GROWTH
The direction towards which a city or area tends to be growing.
Land values, and thus the uses to which land is put, are directly
affected by the direction the growth takes.
DISAFFIRM To disclaim
or refuse consent previously given.
DISASTER LOAN A
loan either made or guaranteed by a governmental agency to owners
property which has been damaged or destroyed as a result of
such natural disasters as floods, riots, or earthquakes.
DISBURSEMENT A cash
expenditure for the purpose of settling a debt.
DISCLAIMER Rejection
or refusal of a legal claim, power, or property. In real estate,
disclaimer would be the refusal by a party to accept an estate
which had bee conveyed to him or her.
DISCLOSED PRINCIPAL
A kind of principal in a principal-agent relationship whose
identity is know the third person before the third person enters
into contractual relations negotiated by the agent. Under such
a principal-agent relationship the agent is considered liable
under the contract in the absence of personal wrongdoing. N
real estate transactions involve a disclosed principal.
DISCLOSURE STATEMENT
A written statement required under the National Consumer Credit
Protection Ac referred to as the Truth-in- Lending Act, to be
given by a lender to individual borrowers for certain types
of consumer loans. All real estate lending transact involving
consumers are covered, as is all credit extended in five or
more installments and not in excess of $25,000 for personal,
family, household, or agricultural purposes. Two important disclosures
included are the finance charge and the annual percentage rate
(APR).
DISCOUNT The amount
of money paid at the front end to acquire a loan. This amount
deducted from the principal at the time the loan is made and
thus represents int4 paid in advance. The discount is normally
stated in terms of points or percent.
DISCOUNTED MORTGAGE
A mortgage sold below the amount of the remaining principal
balance in order to provide a satisfactory yield to the purchasing
mortgage investor.
DISCOUNTING The
process of converting investment inflows to a present value.
Since money has a time value, one dollar to be received in the
future is worth less than one now. How much less (the amount
of discount) depends on: (1) the time span between the cash
outflow and inflow, and (2) the necessary rate of inter discount.
DISCOUNT POINTS
A fee charged by a lender at closing or settlement that results
in increasing the lender’s effective yield (internal rate
of return) on the money borrowed. discount point represents
a one-time charge by the lender equal to 1% of the principal.
Often sellers pay these point to comply with government regulations
by law the buyer cannot pay discount points on VA mortgages.
Why would third persons want to pay discount points if the loan
is actually being given borrower and not to themselves? The
third person usually stands to benefit f loan indirectly.
DISCOUNT RATE The
rate of interest charged by the Federal Reserve System to banks
who money from the Federal Reserve. An increase in the rate
not only discourage from borrowing, but it also serves as a
signal to the money market that interest rates are probably
going to increase. Accordingly, interest rates charged by banks
1 customers usually increase as a result of an increase in the
discount rate. The term is also used to explain the compound
interest rate used in the in approach to value to convert expected
future cash flows into a present value.
DISCOUNT REAL ESTATE BROKER
A licensed real estate broker who charges a lower sales commission
normally charged in exchange for the seller performing some
of the normally performed by the broker. A discount broker may
charge as little two percent commission if the seller agrees
to, for example, be available to house to potential buyers and
pay the advertising expenses normally incurred broker.
DISCRIMINATION Failure
to treat all people equally. It is the stated policy of the
government to eradicate discrimination in real estate markets.
DISINTERMEDIATION
The withdrawing of funds from financial institutions by depositors
who in turn invest directly into short-term financial instruments,
such as treasury bills and commercial paper. Such activity occurs
when the interest rate paid on these short-term instruments
is higher than the rate(s) offered by savings and loan associations,
mutual banks, and commercial banks. The result is less mortgage
money available for loans, since the short-term instruments
being purchased are normally not made available for real estate
loans.
DISPOSSESS The removal
or eviction of someone from real estate through legal action.
DISPOSSESS PROCEEDINGS
Legal action undertaken by a landlord to remove a tenant and
regain possession of the property for breaking a condition or
term of the lease such as nonpayment of rent.
DISTRAINT The taking
by a landlord of personal property belonging to the tenant to
satisfy past-due rents. Under common law a landlord had the
right to seize the tenant's property on the premises and to
sell or hold the property to satisfy a claim for rent. Today,
a court action is required and the priority of the landlord's
lien will depend upon local law.
DISTRESS The common
law right of a landlord to seize the personal property of a
tenant to satisfy past-due rent.
DISTRESSED PROPERTY Real
estate which must be sold due to a pending mortgage foreclosure.
DISTRICT A classification
of neighborhoods in which the land uses are similar, such as
commercial, multifamily, or industrial.
DOCUMENT An official
paper establishing facts or giving instructions.
DOCUMENTARY STAMP
A tax levied by some local and state governments at the time
legal instruments such as deeds and mortgages are entered into
public record. Prior to January 1, 1968, there was a requirement
for U. S. revenue stamps on deeds at the rate of $.55 per $500.
DOG A parcel of
real estate that is very difficult to sell due to location,
condition, or design. Such property normally remains on the
market for an extended period of time and may sell at substantially
below the listing price.
DOMICILE The legal
residence of a person. A person has only one domicile, which
is the place to which he or she intends to return, even though
he or she may now reside someplace else.
DOMINANT ESTATE The
tract of land that benefits as a result of an easement on a
servient estate.
DONEE The recipient
of a gift.
DONOR The giver
of a gift.
DOUBLE-DECLINING BALANCE
DEPRECIATION In accounting, an accelerated depreciation
method restricted to certain qualified properties. The method
calculates depreciation at twice the rate of the straight-line
method on a balance that is reduced each year as the depreciation
is taken.
DOUBTFUL TITLE A
situation in which there exists some doubt as to the validity
of title a court will not force a purchaser to accept title.
In contrast, a court will compel a purchaser to accept a marketable
title when the purchaser has previously agreed to buy the property.
DOWER A legal life
estate, recognized in some states, that a wife acquires in her
husband's fee simple property. Conventionally, this right was
a life estate in one-third of all the property that the husband
owned at any time during the marriage. While the husband was
alive this right was inchoate or an expectancy. This expectancy
could not be defeated by the husband by sale or mortgage. In
order to convey property which was freed from the dower interest,
the wife had to sign a release. When the husband died, the wife's
interest was called consummate, and she was entitled to one-third
of the property to be held in life estate, despite any will
provisions which sought to dispose of the property otherwise.
Most states have abolished dower because of the uncertainty
this right has placed on title assurance. Other states have
created substitutes such as community property or a statutory
share in lieu of dower. Some states give the widow a one-year's
support which could conceivably tie up all of the husband's
estate until the right was exercised. Other states give the
widow 25 percent to 50 percent of the estate. However, if the
husband sells his property before his death then there will
be nothing for the wife to receive under the statutory share.
In some states the husband as well as the wife is entitled to
dower rights.
DOWN PAYMENT The
amount of cash paid by a purchaser which when added to the mortgage
amount equals the total sales price. At the time of closing
this is referred to as the purchaser's equity.
DOWNSIDE RISK The
probability that an investor may lose the money he or she has
invested in a particular venture.
DOWNZONING Action
by a local government to reduce the allowable density for a
parcel of land, as for example, from apartment to single-family
residential.
DRAGNET CLAUSE A
clause included in a mortgage instrument which extends the lien
of the mortgage to any and all other debts, both past and future,
of the borrower.
DRAIN A ditch or
other means by which water flows off land. A landowner may not
obstruct or divert the natural drain of water to the detriment
of another landowner.
DRAW An advance
of money, as for example the periodic receipt of money by a
builder from a lender under the stipulations of a construction
loan to pay for labor and materials. The term also refers to
a practice by some brokers to advance money to certain salespersons
with the money being repaid from future commissions.
DREI Designated
Real Estate Instructor. A designated awarded by the Real Estate
Educators Association to persons involved in real estate education.
DRY MORTGAGE A mortgage
in which the lender has a lien on the property but does not
have any recourse against the borrower in case of default. Such
a mortgage is commonly known as a non recourse loan.
DUALAGENCY Action
by an agent in a principal-agent relationship resulting in the
agent representing the third party and, thus, creating two principals.
As such, the agent is in violation of agency law which requires
that he or she represent the principal, not the third party.
A principal-agent relationship establishes a fiduciary relationship
which means that the agent owes his or her loyalty to the principal.
In addition, in most states the real estate licensing law prohibits
a licensee from representing both buyer and seller in the same
transaction.
DUE DATE A date
set on which a payment is to be paid. If the payment is not
made on or before the due date, then it is past due. Most real
estate loans carry with them a first of the month due date as
well as a grace period up to fifteen days during which time
the payment can be made without penalty. The last day of the
grace period is known as the delinquency date and payment after
that date normally must also include a past payment charge.
DUE-ON-SALE CLAUSE
A clause included in many mortgages permitting the lender to
require the borrower to repay the outstanding balance when the
property is sold. Also known as a non assumption clause, the
effect is that mortgages with such a clause are non assumable
unless the lender permits the assumption. The lender may allow
the mortgage to be assumed only after adjusting the interest
rate to reflect current market conditions. All FHA and VA mortgages
are assumable.
DUMMY Someone who
buys or holds legal title to property on behalf of someone else.
In certain instances, the true buyer wishes to keep his or her
true identity hidden and thus someone else is used to purchase
the property.
DUPLEX A house divided
into two dwelling units with separate living facilities. The
units may be side-by-side or one on top of the other.
DURESS The use of
force or improper actions against a person or property in order
to induce a party to enter into a contract. Examples of duress
include blackmail, extortion, unlawful retention of property,
a threat to bring criminal action, or threats against family.
DWELLING The building
in which a person lives.
DWELLING UNIT Used
in zoning ordinances and building codes to denote the room or
rooms joined for occupancy by a family and containing a kitchen.
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