Term Tuesday: CC&R's

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CC&R's stand for Covenants, Conditions and Restrictions. These are rules that apply to limitations on the use of real or personal property in a specific neighborhood as outlined by the homeowners' association. Restrictions are generally included in the Homeowners' Associations' By-laws or can be requested from the County Recorder's office.

Here are several examples of provisions that may be outlined in a community's CC&R's:

• Construction guidelines, such as a height restriction of a wall surrounding a home
• Parking guidelines, such as no street parking
• Pet allowance or limitations
• Exterior decoration, such as flags or signage

CC&R's apply to homeowners as well as their guests or rental tenants, and unless a specific guideline conflicts with federal, state or local law, these rules are legally enforceable. Failure to abide by these rules may result in fines, forced compliance or lawsuits by the association.

Term Tuesday: Pre-foreclosure

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Pre-foreclosure refers to the early stages of foreclosure (when a borrower is unable to pay an outstanding mortgage amount). Once the borrower has defaulted on the loan amount, the lender issues a notice of default, or NOD, on the property. This informs the borrower that the lender will take legal action if the outstanding loan amount is not paid.

Once an NOD is filed, a borrower has two options: repay the loan amount or sell the property before
At this point the borrower has the opportunity to begin repaying the loan amount or sell the property before it goes into foreclosure.

Term Tuesday: TDS

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The Transfer Disclosure Statement (TDS) is a three-page document included in the seller's disclosure packet and is intended to disclose the condition of the home. It is imperative the TDS be filled out correctly and all pertinent information is disclosed.

Currently the TDS is required for transactions involving residential real property (1-4 Units), manufactured homes and for personal property/mobile home transactions an MHTDS is required (Mobile Home Transfer Disclosure Statement). All probate, bankruptcy, bank-owned property and trusts are exempt from the TDS at this time; these sales typically state in the MLS that the property is sold "as-is" and "seller has no knowledge of property condition."

Term Tuesday: Closing Costs

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Closing costs are expenses incurred by buyers and sellers in addition to the the price to the home which are used to pay for services and miscellaneous fees in a transaction.

Common closing costs include: impound, escrow, title, pro-rated taxes, transfer tax, reports, real estate commissions, document recording fees, courier fees and other various fees specific to the transaction.


Generally speaking, a seller can expect to pay approximately 1.5% + commissions and a buyer can expect to pay approximately 3.5% of the property price in closing costs. It is advisable to request a closing cost net sheet from your agent at the beginning of a transaction so that you are aware and prepared for these costs.

Occasionally, buyers will ask sellers to pay a portion or all of their closing costs. However, in an aggressive market (as we have today), asking for any concessions tends to weaken your offer. Be sure to have these discussions with your agent before you start viewing properties.

If you are considering a VA Loan, know that some of the buyer's closing costs must be paid by the seller. The buyer's loan officer will advise what this amount might be, and it is required to be listed in the offer.

Term Tuesday: Earnest Money Deposit

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An Earnest Money Deposit (EMD) usually accompanies an offer to purchase real property. The Earnest Money is intended to demonstrate that the potential buyer is serious about his/her intention to purchase the property. The EMD can vary from a standard of 1% of the purchase price (or less) all the way up to the total purchase price of the property (in the case of a cash offer). 


Once the deposit check has been written and the purchase offer is fully accepted, the amount of the deposit is submitted to and held with the escrow company until the transaction is complete. If the transaction is complete or if it falls out of escrow, the amount of the deposit is distributed by the Escrow company as instructed by the involved parties. 

Term Tuesday: Points and Buy Down

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A point is generally one percent of the loan amount. A borrower may pay points to buy down the interest rate, and the more points paid, the lower the rate the borrower may get. Paying points will increase the borrower’s closing costs, however, because they will be getting a lower rate, their monthly payment will be less. 

At some point during the loan term, the amount saved monthly will equal the amount paid up front in points. Paying points may make sense if the borrower plans to keep the property and not refinance for at least the amount of time it takes to recoup the money spent in upfront points (through the monthly savings due to the lower interest rate purchased).

Conversely, a borrower could take a higher interest rate than market and have the lender credit them money towards their closing costs. This may make sense if a borrower plans to keep a property or loan for a shorter period of time, or if the borrower wants little or no out of pocket expenses above their down payment.

Term Tuesday: Title

Title itself refers to a distinct form of possession, although that does not always prove ownership. In real estate, Title is used to describe a formal document that serves as proof of ownership to real property. The most common rights in holding title on a piece of property are but not limited to; exclusive possession, exclusive use, conveyance and acquisition. 


Title is also a legal term used to describe a bundle of rights to a real property in which a party may have equitable interest or legal interest. Equitable interest in title of real property refers to actual possession of the property whereas legal interest in title of real property implies actual ownership. In many cases possession and Title can be transferred independently from each other.   

Term Tuesday: Deed of Reconveyance

A Reconveyance Deed is an official document given to a borrower by the mortgage holder that indicates the borrower has been released from debt. A borrower will most commonly receive this deed when their debt has been paid in full. A Deed of Reconveyance also transfers title of property to the borrower.


The deed must be recorded in the public records of the county where the property is located. This allows it to be public record that liens on the property have been paid in full, which is important information if the property is being resold. Problems may arise if the deed is ever lost or destroyed. Lack of proof that the owners debt had been paid in full creates a cloud on the title of the property. 

Term Tuesday: Escrow

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Escrow is the timeframe during which an independent third party, known as the escrow officer, receives and disburses money and documents according to the contractual terms of the agreement. The officer's job it is to maintain the integrity of the contract agreed to by the buyer and the seller, remain neutral and to collect all documents relating to the transaction from both parties. He or she will make sure all terms and conditions of the contract are satisfied, that the title is offered free of incumbencies and the purchases monies are transferred to the proper party.

When a buyer is ready to purchase a home the purchase money is deposited in an Escrow account attached to the specific terms and conditions of the purchase contract versus the money being given directly to the seller in exchange for the property. The money will stay in the Escrow account until the transaction is complete, at which point the escrow officer proceeds to disperse the funds to the appropriate parties.

Term Tuesday: NOD

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A notice of default, or NOD, is a legal document filed by a lien holder when a homeowner has defaulted on a home loan (stopped making the payments). The homeowner will have a predetermined amount of time to become current with payments or face foreclosure.

Once the NOD is registered the homeowner has three months to catch up on the late payments and fees. Immediately following the three month grace period, a notice of trustee sale is sent which informs the homeowner the date on which house is to be sold at auction.

If a homeowner is unable to bring the mortgage current, they can attempt a short sale or relinquish the property to the lien holder.

Term Tuesday: Foreclosure

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A foreclosure is a legal process which occurs when a property is repossessed by the bank due to lack of payment on the mortgage. For example, if the property's mortgage holder falls behind on the loan payment, the financial institution that holds the mortgage can claim ownership on the property after a specified period of time.

The lien holder must first file an NOD (Notice of Default) outlining the time frame in which the property owner must correct the default or relinquish the property. If the property holder is unable to continue payment, they might attempt a short sale with the help of an experienced real estate agent.

Foreclosed properties are also described as real estate owned (REO) or bank-owned properties.

Term Tuesday: LTV

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The loan-to-value ratio, or LTV, represents the amount of the mortgage against the value of the property. For example, if a home is worth $200,000 and the outstanding balance of the loan is $150,000, the home has a 75% LTV.

LTV is an important gauge when securing a mortgage. For example, it is generally more difficult to qualify for a loan on a property with a high LTV (80% or more), and it will be subject to Private Mortgage Insurance. *Note: VA Loans are an exception to this rule.


If the property has more than one lien against it, they are added together to asses the Combined Loan to Value, or CLTV.

Term Tuesday: BPO

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A BPO, or Broker Price Opinion, is used by mortgage lenders, banks and others to determine the value of a home. They are often associated with, but not limited to, foreclosures and short sales. Similar to a CMA, companies will hire real estate agents to prepare an opinion on the value of a property based on similar properties that have sold in the area and current market conditions surrounding the subject property.

There are two main types of BPOs: drive-by and interior. A drive-by BPO is a simple opinion of the value of a property and will only require photos taken of the outside of the subject property. An interior BPO requires a much more in-depth evaluation including the inside of the subject property.

A real estate agent might be contracted to create a BPO for a specific property to avoid the cost of an appraisal, evaluate pending foreclosures and homes in delinquency or in a refinance situation on behalf of a lender.

Term Tuesday: Setback

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Setback refers to the minimum distance that a property or structure must be set back from an invisible line. In some cases, this line is  drawn from a street or shore and in others it is drawn from the property line. While the actual setback distance will vary, you can expect to see a setback of at least 5-15 feet in the majority of suburban neighborhoods. The term "setback line" refers to the line at which building can begin.

Setbacks serve to create space for a number of reasons including privacy, security, safety and access to utilities and meters.

It is important to know any setback restrictions on your property if you intend to build additional structures, such as a detached garage or car port, or if you intend to add on to your home.

Term Tuesday: Short Sale

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A property is sold as a short sale when the balance of the loan exceeds the selling value of the property (the property is under water or upside down). Each short sale is different, but generally speaking they will follow this path:

1. The sellers enlist the help of a real estate agent. The agent will come up with an asking price by creating a CMA.
2. Once an offer is received, it is sent to the bank along with a short sale packet. This packet includes documentation from the seller as proof of why they need to short sale, such as bank statements, tax returns and a hardship letter.
3. The short sale process with the bank begins. This process can last several months while the bank examines the short sale packet, negotiations are worked out with any additional lien holders (for example, a second mortgage), and the offer in play considered.
4. The bank will decide on the terms they will accept (price, close of escrow, etc). If the original offers meet these terms, the short sale can proceed. If not, the bank may choose to counter the offer or reject it and wait for a new offer to be presented.
5. If an offer can meet the time and price restrictions set by the bank, the transaction can be completed. If the terms cannot be met, the property will become a foreclosure.

Keep in mind that the initial asking price is based solely on the opinion of the agent based on the market conditions. The actual price of the property will be determined by the lien holders.

Term Tuesday: Upside Down & Under Water

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When someone describes a home as "upside down" or "under water," they are referring a deficit between the value and the remaining mortgage. For example, if someone purchased a home in 2005 for $800,000, the balance of the mortgage is currently $600,000 and the home will sell around $400,000, the home is under water by $200,000. In this scenario, in order for a property to sell without being a short sale the owners would need to pay off the additional $200,000 of the mortgage.

Just because someone's property is under water doesn't mean that they have to participate in a short sale. If they are still capable of making the payments, do not wish to pay off the balance of the mortgage and do not have a need to move, the best course of action is to stay in their home while the market continues to correct.

Term Tuesday: Easement

An easement allows a portion of a parcel to be available for access and specific use to another party. The most common are utilities easements or easements granted to a neighbor to cross your property, as in the case of a private road. Easements are formally recorded in the property's title report and remain with the land regardless of sale or transfer.

Easements do not grant possession rights to the other party, only the right to the specific use.

Term Tuesday: Counter Offer

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A counter offer is made in response to an original offer addressing terms that the party would like to change. For example, a higher or lower price might be requested, as well as terms regarding time such as contingency period or the close of escrow. Two parties may counter each other multiple times until mutually agreeable terms are reached, at which point a section of the document labeled "buyer/seller accepts this counter" is signed and the full offer is accepted.

When countering an offer or counter offer, the agent will check the box labeled "subject to attached counter offer."

Term Tuesday: REALTOR®

A real estate agent becomes a REALTOR® by joining the NATIONAL ASSOCIATION OF REALTORS®, also known as NAR. What's the difference? NAR members agree to abide by a Code of Ethics and Standards of Practice beyond what is expected of a real estate agent and agree to "treat all parties to a transaction honestly" and maintain a "higher level of knowledge of the buying and selling process." All agents at CENTURY 21 Award are required to be a member of NAR.

For more information, check out these articles from NAR about why you should use a REALTOR® and what a REALTOR® can do for you.

Term Tuesday: Comparable

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A comparable property, or comp, is a property compared to a subject property to help determine worth. A real estate agent will use several comps to create a comparative market analysis, or CMA. Your agent will narrow down the specifications that will give the most accurate value to your subject property, but these are some general guidelines to help you select appropriate comps:

• Within the same community or neighborhood as the subject property, or within a reasonable distance
• Within 10% of the square footage of the subject property
• Within 10% of the lot size of the subject property
• Within 3-5+/- years built of the subject property
• Including features and upgrades similar to the subject property such as a pool or number of stories
• In a similar condition to the subject property
• Properties sold within the last 90 days