Accelerate: An option given to lenders through an "acceleration" clause in the mortgage or deed of trust requiring the borrower to pay the entire balance of the loan all at once if their loan is in default.
Appraisal: The process in which a licensed or authorized person gives an estimate of property value.
Appreciation Assignment: The transfer of property to be held in trust or to be used for the benefit of the creditors (lenders).
Assignment: The written transfer of an interest in a lease of mortgage. The lessee, or assignor transfers the remainder of the term and the assignee becomes liable ot the original lessor for the rent.
Balloon Payment Mortgage: A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal. It is common for these loans to be rather short terms, less than 10 years.
Bridge Loan: Bridge loans are loans intended to be used for a short period of time between the initial requuirements for funds and a permanent, usually less costly, financial solution.
Cash Out: Cash proceeds in refinance that a borrower receives after any existing mortgage(s), lien(s), etc. are paid off and after closing costs are covered.
Commercial Bridge Loan and Hard Money Commercial Loan: Loans that are made on commercial - as opposed to owner-occupied residential - properties. A commercial bridge loan is acquired when time constraints are involved. A hard money commercial loan is acquired when poor quality of credit or collateral is at issue.
Commercial Lender: Commercial lenders offer a variety of mortgage-backed loans for commercial property. Each commercial lender sets economic, demographic, and geographic criteria.
Commitment: An official letter from a lender to a borrower, constituting an offer to lend and specifying the terms of the loan.
Construction Loan: A loan on new construction, involving submission of permits, plans, budgets, and more. Funding for construction is usually in installments, and is done after each stage has been inspected and certified by a lender\'s agent.
Deed of Trust: A three party security instrument conveying the legal title to real property as security for the repayment of a loan. The three parties included in a deed of trust are the borrower, lender, and trustee.
Default: Borrower's breach under the mortgage documents, usually due to failure to make payments on the loan or to pay off. Upon borrower's default, the default interest specified in the note becomes effective.
Due-on-Sale Provision: A clause in the mortgage documents that requires the borrower to repay the mortgage in full prior to selling the property.
Equity: The difference between the market value of a property and the total balance(s) of the loan(s) and lien(s) encumbering the property. Equity constitutes an owner's interest in the property, and represents the net amount of cash an owner would receive if the property were sold at present.
Escrow: Money held in trust by a third party such as an attorney or a title company. The funds are held until the payer of the escrow performs as agreed. Escrow funds can also be held by a lender for payment of insurance, taxes, repairs, etc. A holder of escrow moneys by definition has no rights to the moneys.
Fair Market Value: The price a property would sell for on the open market.
First Mortgage: The primary mortgage on a property that has priority over all other voluntary liens.
Hard Money: A hard money loan when the borrower's situation does not conform with common real estate lenders' standards for funding. Real estate provides the collateral for a hard money loan.
Hard Money Lender: A lender who offers loan funding based on real estate as the primary collateral asset.
Letter of Intent: A non-binding agreement between parties involved in a contract to move forward with negotiations or complete a project.
Lien: A legal claim upon real or personal property for the satisfaction of a debt.
Lock-In Period: A period of time after origination during which a borrower is prohibited from repaying a loan. If a loan is paid off before a lock-in date, a borrower will incur a prepayment penalty. Some lenders completely prohibit prepayment during lock-in, not even with a prepayment penalty.
LTV - Loan to Value: A simple ratio of the requested loan amount to the full market value of the collateralized property.
Market Value: A certified, written estimate of value calculated by an independent, licensed appraiser.
Maturity: The date on which a loan is due. If a loan is not paid off on or before maturity, it is accelerated and foreclosure is commenced.
Mezzanine Financing: A loan to a corporation that owns a property. This is not a mortgage loan. The security available to a mezzanine lender is a UCC lien. Commercial hard money financing can come in the form of a mezzanine loan.
Mortgage: The pledge of real property as security to a lender. Mortgages are filed to secure promissory notes for residential or commercial hard money, bridge loans, and conventional loans. Some hard money financing may not require a mortgage but only a UCC lien (see Mezzanine Financing).
Mortgage Note: A document which serves as an IOU in mortgage transactions. It is also called Promissory Note, or simply Note. The note specifies the terms of a loan. The note, mortgage and other closing documents are produced by lenders' attorneys.
Non-Conforming Loan: A non-conforming loan refers to a type of loan that does not meet bank standards for funding. The flexibility of private money can allow for a much wider range of projects to be funded, although additional collateral and documentation may be required by the lender.
Non-Recourse Loan: A loan in which a lender's security is limited to the collateral. In the event of deficiency, a lender with a non-recourse loan cannot collect from the personal assets of a company's principal, because there is no personal guarantee. While some conventional commercial loans may not require a personal guarantee, commercial hard money financing tends to include it in every transaction. Thus, it can be said that commercial hard money financing for the most part involves a Full-Recourse Loan.
Personal Guarantee: A contractual personal assurance provided by a principal of a borrowing entity that a loan taken by the entity will be repaid. In the event that the sale of collateral is insufficient to repay a loan, a personal guarantor has to personally come up with the funds to repay the deficiency. A loan with a personal guarantee is called a Full-Recourse Loan. A loan without it is called a Non-Recourse Loan.
Personal Property: Property other than real property (real estate) consisting of things that are temporary or movable.
Points: One point is 1% of the amount of a mortgage. It is usually a fee paid to a lender upon origination. A payment to a broker is also denominated in points. Hard money loans tend to involve more points than conventional loans or bridge loans where the risk is lower.
Pre-Approval: A loosely used term which is generally taken to mean that a borrower has completed a loan aplication and provided debt, income, and savings documentation which an underwriter has reviewed and approved. This process is independent of, and previous to, the same underwriting review of a property.
Prepayment Penalty: A charge, usually given as a percentage, that is listed in the origination terms of a loan.
Prepayment Penalty: A fee charged by a lender if a loan is paid off before maturity or before a predetermined lock-in period. Hard money lenders include prepayment penalties as a means to deter payoffs and thus hold onto their high-yielding loans. Conventional banks include prepayment penalties because they securitize their loans and need to maintain the future cash flows mandated by the loan documents.
Principal:
Private Hard Money Lenders: Providers of hard money loans, also known as direct mortgage lenders, commercial hard money lenders, real estate private lenders, and private bad credit lenders. Private hard money lenders tend to incur higher risks and charge higher rates than conventional banks.
Promissory Note: A legal document in which a borrower contractually undertakes to repay a loan to a lender. In the case of a mortgage, it is called Mortgage Note.
Right of Redemption: A borrower's right to reacquire property lost due to a foreclosure. Governed by state law.
Seller Financing: A loan provided by a seller to a buyer. Conventional banks prohibit such financing behind their loans. Bridge loan companies and hard money lenders may allow it, depending on the circumstances.
Servicing: The collection of payments on a mortgage and the handling of other mortgage-related issues, such as taxes, insurance, etc.
Term:
UCC Lien: A lien filed on movable objects that are attached to or come with real property. A UCC (Uniform Commercial Code) lien appears on title and can thus provide a mezzanine lender with publicly searchable security.
Underwriting: The process that lenders go through to evaluate the risks posed by a particular borrower and to set appropriate conditions for the loan.