Church Lenders Directory

Real Estate & Mortgage Glossary

The lending industry has terms and phrases, which although common to it, are frequently unfamiliar to church leaders. In order to assist our churches, we have developed the following list of common terms and their respective meanings. If you need further assistance, please call us, we would be glad to be of service to your church.

ABSTRACT OF TITLE - The history of a parcel of land starting with the original grant and following through each transfer of title to the present title holder. The history recites all mortgages outstanding on the property and any defects that would cause a clouded title in the chain of transfers.

ACCELERATION CLAUSE - A clause generally included in the body of a real estate contract or note which stipulates that the entire balance of the debt shall become due immediately and payable in the event of a breach of certain conditions of the contract or note. In the event of default on payments, the lender may initiate foreclosure proceedings in an effort to collect the entire balance due.

ACCOMMODATION ENDORSEMENT - An endorsed note signed solely for the purpose of inducing a creditor to lend money to a borrower whose credit may or may not be substantial enough to warrant a loan.

ADDITIONAL INSURED - Other persons that are insured under a policy other than the person named to hold the contract.

ADJUSTABLE RATE MORTGAGE (ARM) - A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.

ADJUSTMENT DATE - The date the interest rate changes on an ARM (adjustable rate mortgage).

ADJUSTMENT INTERVAL - For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

AGGREGATE LIMIT - Indicates how much coverage one is entitled to for a certain period of time, no matter how many accidents occur.

ALTA - American Land Title Association

AMORTIZATION - The process of debt retirement or liquidation through systematic periodic payments. For example, most mortgage loans have monthly payments consisting of both principal and interest. Each month, the principal portion of the payment is applied to reduce the outstanding balance of the loan.

ANNUAL CONSTANT - The percentage which when applied directly to the face value of a debt develops the annual amount of money necessary to pay a specified net interest rate on the reducing balance and to liquidate the debt in a certain period of time.

APPRAISAL - An estimate of value based on factual analysis.

APPRAISAL METHODS - Generally three methods are employed to estimate the value of real estate: Cost Approach, Income Approach and Market Value (Comparables) Approach.

ARCHITECT - Professional registered as a trained and qualified expert on the structural and design based elements of facility planning. Many local building departments require a registered architect to review and stamp floor plans and other drawings prior to issuing building permits for a project. Architects fees may range as high as 7% of a building project's total construction cost.

ARREARS - An obligation remaining unpaid after the date on which it is due and payable.

ASSET - Anything owned by an individual or business which has commercial or exchange value. 

ASSETS, CURRENT - Those assets which are readily convertible into cash without substantial loss. Sometimes referred to as quick assets. ASSETS, FIXED ? Those assets which are not readily convertible into cash and in the ordinary course of business are not so converted such as real estate, leasehold improvements, natural resources, machinery, equipment, furniture, fixtures, etc.

ASSUMPTION - The responsibility for loan payments assumed by a party other than the original maker of the debt. In church lending, assumptions may occur when a church with a loan merges with another church and the other church assumes responsibility for the subject loan.

BALANCE SHEET - An itemized listing of assets and liabilities for an organization or individual arranged and classified so as to permit determination of assets by class, liabilities by class and net worth. For non-profit organizations, net worth or equity is generally referred to as Fund Balance. 

BALLOON NOTE - A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "balloon" is due at maturity.

BENEFICIARY (OF DEED OF TRUST) - Beneficiary is the Lender who is one of three parties in a Trust Deed. The Borrower is the Trustor who gives the title to a third party, the Trustee, who holds the title in trust for the benefit of the borrower and the lender.

BINDER - An agreement that states that insurance can be put into force before the contract has been written or the premium has been paid.

BONDS - Alternative form of financing construction projects and long-term mortgage-related debt. Often referred to as 'debentures', bonds are underwritten by outside professional companies who market a church's creditworthiness on the open-market to investors. Those investors, in exchange for a set amount of interest, agree to front the church the necessary money the church needs to complete the financing needs of their building. Bonds are usually collateralized by the church's property. In agreement for issuing bonds, churches promise to repay the borrowed money through a series of principal and interest payments, or risk forfeiture of the church property. Bonds often afford churches greater flexibility in structuring their debt repayment than conventional financing does. As such a bond's long-term costs is usually greater than traditional bank-related financing. Church bonds may or may not be registered with state and national securities regulators, and as such, churches should carefully research bond companies they choose to do business with.

BREACH - The failure of performance by a party to a contract.

CANCELLATION - What occurs when a policy is ceased by the insurer or the insured in compliance to what is outlined in the contract.

CAPITALIZATION (Appraisal Usage) - The process of converting an income stream or anticipated future income into an indication of value. Capitalization is used in the Income Approach value.

CAPITALIZE (Accounting Usage) - To charge an expenditure to an asset account because it benefits a period in excess of one year. For example, a betterment to a machine would be capitalized to the machinery account.

CAPITAL STEWARDSHIP PROGRAM - Services offered through state conventions; para church organizations; and professional businesses. Program designed to increase designated giving toward a building project for a set period of time, usually three years. Church members individually pledge in advance set amounts of money toward the repayment of building-related debt. Each capital stewardship company is judged on its past success, and its ability to identify with the common goals and culture of the local church they are contracted by.

CARRYBACK FINANCING - (also know as Purchase Money Mortgage) A mortgage that is given by a purchaser to a seller in lieu of cash as partial payment for the purchase of real property.

CASH FLOW - Undesignated (general) income that is available to pay the mortgage payment after deducting all fixed expenses except debt service expense. Fixed expenses include such items as salaries, benefits, utilities, taxes, insurance and any other non-discretionary continuing expense.

CERTIFICATE OF OCCUPANCY - aka C.O. Permit issued by city, county or other local municipality authorizing owner of related property to use a building for a specific purpose. C.O.'s are often issued by local building departments once a newly built facility has been built or remodeled. Issuance of a C.O. is necessary before most conventional lenders will close a loan on the related property.

CLEAR TITLE - A title that is free of liens or any legal questions as to the ownership of the property.

CLOSING
(1.) In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed.

(2.) A selling term meaning the point at which the client or customer is asked to agree to the sale or purchase and to sign the contract.

(3) The final call in a metes and bounds legal description which "closes" the boundaries of the property by connecting with the "point of beginning".

CLOSING COSTS - Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes and deed recording fee. All closing costs are separated into "non-recurring" and "pre-paid". Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes.

CLOUD - An outstanding claim or encumbrance that, if valid, would affect or impair the owner's property title.

COLLATERAL - Marketable properties such as stocks, bonds, land, property, evidences of deposit and other securities which the borrower pledges as security for a loan. 

COMMITMENT - A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

CONSTRUCTION LOAN - A business transaction between two legal entities whereby one party, known as a lender, agrees to loan funds to the second party, known as the borrower. The proceeds of this transaction will be used to build improvements upon land owned by the borrower. In most cases, the loan proceeds will be advanced in accordance with the corresponding progress of the completed improvements.

CONTRACT - A mutual agreement between two or more legal entities, which is enforceable at law.

DEBT SERVICE - Amount of money needed to meet required fixed costs. Mortgage payments and related expenses.

DEBT SERVICE RATIO - The required annual debt payments divided by general income.

DEED - Any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.

DEED OF TRUST - An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

DEFAULT - The failure to make payments on a loan.

DEFICIENCY JUDGMENT - Commonly, the amount for which the borrower is personally liable on a note and mortgage if the foreclosure sale does not bring enough to cover the debt. 

DELINQUENCY - Late or non-payments of principal, interest, taxes or insurance. 

DESIGNATED INCOME - Income received from church members for a specific non-budgeted purpose or expense.

DISCOUNT - The amount of money or the percentage of the principal deducted from the face value of a note. For example, a loan fee of 2% on a $100,000 loan would amount to a discount of $2,000 if the fee is deducted from the loan amount.

EASEMENT - An expressed or implied agreement whereby one party has the right to use the land of another for a specific purpose.

EMINENT DOMAIN - The right of the state to take private property for public use.

ENCUMBRANCE - Any lien against a property or any restriction in its use, such as an easement; a right or interest in a property held by one who is not the legal owner.

ENGINNER - a registered professional with expertise in a specific field related to the building industry. Engineers are often employed to assist architects as they plan a building design. 

EQUITY - The net asset value of property.

ESCROW - An agreement in writing setting up the allocation of funds deposited by the giver or grantor to a third party called the escrow agent for the eventual benefit of the second party called the grantee when certain conditions have been met.

ESTATE - The interest, right or ownership in personal and real property.

FACE VALUE - The principal value or amount reflected on an instrument evidencing an obligation of debt.

FEE SIMPLE - Title to land which is without limitation or restriction.

FIDUCIARY - A person or other entity involving a relationship of trust or confidence, in which the person or party acts on behalf of another person or party.

FINANCIAL STATEMENT - A series of documents prepared by or for an organization regarding its financial status as of a certain date. The financial statement includes, but may not be limited to, a balance sheet, profit and loss statement and other pertinent exhibits.

FIRST MORTGAGE - A mortgage that has priority over other mortgages.

FIXED COSTS - Costs identified as regular and reoccurring expenses as projected in a church budget. Costs such as salaries, utilities, insurance premiums and contractual obligations.

FIXED EXPENSE RATIO - The sum of fixed expenses (necessary church operating expenses) divided by general income.

FORECLOSURE - A legal process whereby a mortgagor of a property is deprived of his interest therein, usually by means of a court administered sale of the property.

FUND BALANCE - Net worth or equity in the funds reflected on the balance sheet of a financial statement for a non-profit organization.

GENERAL CONTRACTOR - A person or business entity that supervises the erection of structures or other improvements.

GENERAL INCOME - A church's income which consists of undesignated income plus other ongoing income with demonstrated growth in each of the past three years. This income must come from church members and be used for budget expenses. GROUND LEASE ? A lease which provides for occupancy and use of a parcel of land.

GUARANTY - A three-party contract involving the promise of the guarantor to pay the debt in default of a borrower.

GRANT DEED - A grant deed transfers ownership from one party to another The form includes certain implied warranties of ownership given by Seller to Buyer.
HAZARD INSURANCE - A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes.

HIGHEST AND BEST USE - The legal, reasonable and probable use which will support the highest value of the property.

HUD - The Department of Housing and Urban Development was established by Congress in 1965 and is responsible for the implementation and administration of government housing and urban development programs. These programs include community planning and development, housing production and mortgage insurance (FHA), secondary mortgage market activities (GNMA) and equal opportunity in housing.

HUD-1 SETTLEMENT STATEMENT - A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the sellers net proceeds and the buyers net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the closing statement or settlement sheet.

IMPROVED VALUE - The value of land when and if improved to its best or most appropriate use.

INDEMNITY - The obligation resting on one party to make good any loss or damage another party has incurred or may incur by acting at his request for his benefit.

INSOLVENCY - The state of having liabilities that exceed assets, i.e. a negative net worth or equity.

INSTITUTIONAL LENDERS - Banks, savings and loan associations and other businesses which make loans to the public in the ordinary course of business. 

INTEREST - Compensation for the use of money borrowed.

INTEREST ONLY - A non-amortizing loan in which the lender receives interest only during the term of the loan and recovers the principal in a lump sum at the time of maturity.

INTEREST RATE SWAP - An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit, or manage, its exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.

INTERIM FINANCING - Non-amortized loans provided for the culmination of a specific project such as construction or other compound transaction. They are typically interest-only and are due and payable at the conclusion of the project. These loans usually require long term financing to be in place prior to approval.

JUNIOR LIEN - A lien placed on property after a previous lien has been made and recorded; a lien made subordinate to another by agreement, e.g., second and third mortgages/deeds.

LAPSE - A term used to refer to a cancellation of a contract due to an individual's failure to pay premium.

LEGAL DESCRIPTION - A description of land that identifies the real estate according to a system established or approved by law; an exact description that enables the real estate to be located and identified.

LEASE - A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time. LEVERAGE RATIOS - Ratios that show the per capita giving and debt loads for a church. These ratios are based on the current, average worship attendance.

LIABILITIES, CURRENT - Those pecuniary obligations ordinarily intended to be paid in the usual course of business within a relatively short time, normally within a year, out of earnings.

LIABILITIES, LONG TERM - Those debts or pecuniary obligations intended at their inception to be paid at a future date, usually more than one year.

LIABILITY INSURANCE - Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.

LIEN - A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.

LINE OF CREDIT - A fixed amount of credit granted to cover a series of transactions.

LOAN - A business transaction between two legal entities whereby one party, known as a lender, agrees to loan funds to the second party, known as the borrower.

LOAN AGREEMENT - A document to accompany the note and security instrument which sets forth the terms of the transaction.

LOAN PARTICIPATION - A cash purchase of a percentage of an outstanding loan from the originating lender, usually with risk shared pro rata.

LOAN SERVICING - A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers.

LOAN-TO-VALUE RATIO - The loan amount divided by the lower of the appraisal value or the selling price of the security property.

MARKET SURVEY - A survey of a subject market area to identify neighborhood characteristics in terms of demographics, residential and commercial developments, transportation and competition.

MARKET VALUE - The price which the property will bring in a competitive market under all conditions requisite to a fair sale, which would result from negotiations between a buyer and a seller, each acting prudently with knowledge and without undue stimulus.

MARKET VALUE APPROACH - Appraising the value of a property by comparing the price of similar properties (comparables) recently sold. The degree of similarity of the properties and circumstances of the sale are the important characteristics to consider.

MATURITY - Termination period of a note. For example: A 30 year mortgage has maturity of 30 years.

METES AND BOUNDS - A method of describing the territorial limits of property by means of measuring distances and angles from designated landmarks and in relation to adjoining properties.

MODIFICATION - Any change to the original terms of a mortgage.

MORTGAGE NOTE - Legal evidence of a debt secured by a mortgage.

MORTGAGE - The conveyance of an estate or interest in real property as security for a debt with a right of redemption. MORTGAGE SERVICING ? Controlling the necessary duties of a mortgage lender, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. Servicing may be done by the lender or a company acting for the lender, generally for a servicing fee.

MORTGAGEE - One who takes a mortgage, or one who loans money secured by a mortgage. the BANK is the mortgagee when it loans money to churches.

MORTGAGOR - One who gives the mortgage or one whose property is mortgaged for a loan. Churches who borrow money from a bank are mortgagors.

NAMED INSURED - Any person(s), firms or corporation that is named to be protected under the insurance contract.

NET WORTH - The excess of assets over creditor claims against the assets, that is to say, assets minus liabilities equals net worth.

NON-RENEWAL - Termination of insurance coverage at its expiration date.

NOTE - A legal document which evidences one's promise to pay another. For example, a borrower's promise to pay a lender.

NOTICE OF CANCELLATION - A notice written by an insurance agent with the intent of terminating a policy. OBSOLESCENCE - A major factor in depreciation resulting from technological or neighborhood changes. Wear and tear from use and natural deterioration through interaction of the elements are other factors that cause depreciation in assets. It is often a major consideration in the appraisal of market value of church property.

PAR - Used in connection with negotiable instruments to denote the face amount of the instrument and not the actual value it would receive on the open market.

PAYMENT CHANGE DATE - The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated payment mortgage (GPM). The payment change date occurs the month immediately after the interest rate adjustment.

PECUNIARY - Relates to money and monetary affairs or that which can be valued in money. PERFORMANCE BOND ? A surety bond supplied by one party to another protecting that party against loss in the event of improper performance or completion of the terms of an existing contract.

PERMANENT FINANCING - A fully amortized, or long term loan with payments which include both interest and principal and results in the elimination of the initial debt at its maturity.

PLAT - A map of a parcel of land prepared by a civil engineer or licensed surveyor indicating location and showing the metes and bounds expressed in engineering terms on the drawing.

POINT - One percent. When referring to mortgages or deeds of trust, the term is used to describe the percentage of discount rather than interest (for which the word "percent " is used). The points are paid by borrowers to help defray expenses in conjunction with making loans. 

POINTS DISCOUNT - A reduction in the principal amount of a loan expressed as a percentage discount for the purpose of defraying expenses in making the loan or to increase the effective net investment yield to the lender.

POWER OF ATTORNEY - A written instrument by which one person as principal appoints another as his agent and confers upon him the authority to perform certain specified acts on behalf of the principal.

PRINCIPAL - The face value of a loan or mortgage which becomes the obligation of the maker to pay to a holder in due course. The amount on which interest may be charged.

PROMISSORY NOTE - An unconditional promise in writing made by one person to another signed by the maker promising to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

QUITCLAIM DEED - A conveyance to the grantee of only the interest held by the grantor at the time of the conveyance with no warranty as to encumbrances or condition of title.

REAL ESTATE - Every possible interest in land and the improvements thereon.

REAL PROPERTY - Land and whatever is erected or growing thereon or affixed thereto. Rights issuing out of, annexed to and exercisable within or about the land.

RECONVEYANCE - A written instrument that passes title to real property back to the original owner; e.g., in a deed of trust arrangement, upon liquidation of the debt, the party is reconveyed from a third-party trustee to the trustor (borrower).

RECISSION - The canceling or annulling of an agreement, contract or deed.

REDEMPTION - The repayment of an indebtedness whether on maturity or prior to maturity. REFINANCE - the act of securing a replacement loan.

REPLACEMENT COST - The cost of constructing new a building or other improvement to land having utility equivalent to the unit being appraised but built with modern materials and according to current standard designs and layout.

REPRODUCTION COST - The cost of construction new of an exact duplicate or replica using the same materials, construction standards, design, layout and quality of workmanship.

RETENTION - A percentage, usually 10%, withheld from a periodic payment to a contractor, in accordance with the owner-contractor agreement for work completed. The retention is held until all terms of the contract have been met.

REVERTER CLAUSE - A stipulation in the conveyance of property providing for the return of the property to the grantor should a specified event occur or a particular act be performed in the future, such as property that ceases to be used for church purposes.

ROLLOVER - A mortgage loan in which the terms, or interest rate, are adjusted periodically according to contract. Technically, the outstanding balance is due on the renewal date, but the lender may extend the mortgage for a second renewal period.

SECONDARY MORTGAGE MARKET - The market place for the buying and selling of existing first mortgages of trust deeds by banks, insurance companies, government agencies and other mortgages. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (par) or above, but are usually sold at discount. The secondary mortgage market should not be confused with second mortgage.

SECOND MORTGAGE - A mortgage which ranks below a first mortgage in priority. Properties may have two, three or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.

SECURED LOAN - A loan that is backed by collateral.

SECURITY INTEREST - Any interest in property which secures payment or performance of an obligation, frequently called a "lien" in real estate transactions.

SUBORDINATION AGREEMENT - An agreement in which a party holding a security interest in property grants another interested party a priority claim or preference to the property of the borrower ahead of any claim that the first interested party may have.

SURVEY - The measurement of the boundaries of a parcel of land, its area and sometimes its topography.

SWEAT EQUITY - The equity recognized as the result of one's work on the property (in place of all or part of the down payment and other costs of purchase).

TAKE OUT COMMITMENT - Agreement by a lender to place a long term (take out) loan on real property after completion of construction.

TITLE COMPANY - A company that specializes in examining and insuring titles to real estate.

TITLE INSURANCE - Title insurance policies typically insure a buyer against any title-search errors or mistakes, and against loss due to disputes over property ownership. Title insurance can additionally offer protection to the lender under similar circumstances. The cost of title insurance is usually a set value per thousand of dollars of the total loan amount.

TITLE SEARCH - A check of title records to make sure that the seller is the actual legal owner of the property, and that there are no liens or other claims outstanding. 

TRUST DEED - A deed that establishes a trust. An instrument that conveys (transfers) legal title to a property to a trustee, stating the trustees authority and the conditions that bind the trustee in dealing with the property. (See also Deed of Trust)

TRUSTEE
(1.) One who holds legal title to property for the benefit of another person and who is required to carry out specific duties with regard to the property.

(2.) One, as a corporate director, occupying a position of trust and performing functions comparable to those of a trustee, such as a church trustee.

UNDESIGNATED INCOME - Unrestricted tithes and offerings; given without restriction for use by the church.

UNSECURED LOAN - A loan requiring no physical or "real" collateral.

USURY - Accepting more than the legal rate of interest in the applicable jurisdiction.

WARRANTY DEED - A deed conveying to the grantee title to the real property free and clear of all encumbrances except those specifically set forth in the instrument.

WITHOUT RECOURSE - A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default and not personally to the borrower. Legally, without recourse means that should the loans go into default the lender would look to the property securing the loans in order to recover their investments. 

WRAP-AROUND MORTGAGE - A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgagee under the wrap-around collects a payment based on its face value and then pays the first mortgagee. 

YIELD - The rate of return received from one's investment.

ZONING - Legislative action usually on the municipal level which separates or divides municipalities into districts for the purpose of regulating, controlling or in some way limiting the use of the property and the construction and/or structural nature of buildings erected within the zones or districts established.