Glossary of Real Estate Terms (Oregon) – B
Back-End Ratio – See Debt-to-Income Ratio (“DTI”), below.
Back-Up Offer – An offer, such as an offer to purchase real property that is made by a buyer and accepted by the seller with the written agreement that it does not become effective unless the prior accepted offer is terminated or withdrawn.
Balance Sheet – A financial statement showing assets and liability of a person or company. The difference between the assets and liabilities is called “net worth.”
Balloon Payment – A lump sum payment of unpaid principal made to the lender. It may be scheduled in the loan documents or, if the loan permits, by full or partial balloon payments, at any time the buyer decides to do so. A full balloon payment would be the sum necessary to pay off the entire loan, whereas partial balloon payment would not. Most loan documents provide that making a partial balloon payment will not excuse the borrower from continuing to make the remaining regularly scheduled payments of principal and interest. Frequent partial payments, such as every two weeks (rather than monthly) will have the effect of dramatically (a) reducing the total interest paid over the life of the loan and (b) accelerating the date the principal loan balance will be completely paid off.
Bankruptcy – A process under federal law whereby a debtor asks the court to take control of their non-exempt assets, if any, liquidate them, and distribute any proceeds to the unsecured creditors in full satisfaction of all of the bankrupt’s liabilities. This is known as a “Chapter 7 Bankruptcy.” Secured creditors typically have more protection in bankruptcy because they have the first right to attach and liquidate their security interest in the bankrupt’s assets. During the period of any bankruptcy all creditors are strictly forbidden from attempting to secure payment directly from the debtor without permission of the court. A Chapter 13 Bankruptcy sets up a payment plan between the borrower and the major creditors to be monitored by the court. The homeowner can keep the property, but must make payments according to the agreed-upon terms of the plan within a 3 to 5 year period.
Bargain and Sale Deed – One of the four major deeds used in Oregon. A bargain and sale deed conveys legal title to real property, but the grantor (the one making the conveyance) gives no warranties to the grantee (the one receiving the conveyance) regarding the quality of the title being conveyed. With certain exceptions, such as boundary encroachments, adverse possession, and other issues not appearing on the public record, taking title through a bargain and sale deed is not particularly risky, so long as the grantee obtains a policy of title insurance that includes extended coverage. As for off-record title defects such as encroachments and adverse possession, the risks can be minimized by (a) a survey, where appropriate, (b) locating boundary pins through a physical inspection, and (c) generally making sure that fence lines, outbuildings, and shrubbery are located on the appropriate property. A pre-closing discussion with adjacent neighbors is useful to find out if there are any disagreements over boundary lines. (See, ORS 93.860)
Basis – In reference to real estate, the “basis” is the acquisition cost, sometimes called the “cost basis.” The cost basis is adjusted upwards by certain expenses related to the acquisition such as escrow fees and closing costs. If capital improvements are made to the property the cost of those improvements are also added to the original basis. These upward adjustments result in an “adjusted basis.” To determine the amount of capital gain from the sale of real estate (excluding factors such as depreciation, etc., for income properties) the adjusted basis is subtracted from the sale price. [PCQ Note – This is intended to be a very simplified and lay explanation and should not be used in calculating taxes or other financial consequences arising from any specific sale or disposition of a capital asset. An expert in tax and accounting should be consulted.]
Beneficiary – The person receiving a specified benefit under a trust, will, or a contractual provision. The beneficiary of a trust is the person or entity designated to receive some asset, money, or other consideration. In trust deed law, the beneficiary is the lender to whom repayment of the loan is to be made.
Bill of Sale – This is the instrument that conveys title to personal property from one party to the other. Its purpose is similar to that of a deed to real property – except that it conveys one’s interest in personal property.
Biweekly Payments – The payment of a loan twice a month. The effect of this arrangement is to reduce principal sooner, which means that there is less interest cost over the life of the loan. This arrangement also significantly accelerates the ultimate payoff of the entire principal loan balance.
Blanket Mortgage or Trust Deed – A mortgage or trust deed secured by more than one parcel of property. Frequently, when such an arrangement is established with a lender, the borrower insists upon a “partial release” provision, in order to allow parcels to be released from the lien of the blanket encumbrance as portions of the indebtedness are paid.
Bona Fide Purchaser – The term “bona fide” is Latin for “good faith.” A bona fide purchaser (or “BFP”) is one who pays full and fair consideration for a property, acting in good faith, and without notice of any adverse claims against the property. The law gives certain legal preferences to BFPs when there are competing claims to purchase the same property.
Bond – A written agreement or undertaking by a company that guarantees to third parties (such as a homeowner) that a person or company (such as licensed builders) will perform in accordance with the terms of their contract. In Oregon all licensed builders are required to be bonded. If the builder fails to properly perform, the homeowner may make a claim against their bond. A bond is different from insurance, since the bonding company has the right to come back against the builder for recovery of any moneys they paid in claims on his or her behalf. In financial or investment terms, a “bond” is a long-term debt obligation issued by a company or government. Bonds are generally sold by the issuer to finance other acquisitions and purchased by the investor for the interest rate returns offered.
Breach of Contract – A violation of, or failure to perform, the terms of any contract without legal excuse. Most written contracts provide for legal remedies for a material breach of the contract.
Bridge Loan – A loan given by a lender for a short period of time. Bridge loans were frequently given to “bridge” or cover the carrying costs (such as mortgage payments) for a borrower who had acquired a second residence, but had not yet been able to sell their first home. Bridge loans are less frequent today due to the tightening of credit standards and slowing of housing sales.
Broker – An intermediary involved in the sale of a product or service, such as a stock broker, mortgage broker, insurance broker, business chance broker, or real estate broker. In many states there is a two-tiered system, whereby a real estate broker is a person who supervises licensed real estate sales associates. Some brokers also represent buyers and sellers of real property in addition to their supervisory responsibilities. In Oregon the terminology is somewhat different – and confusing for the public. Today, all real estate licensees are “brokers” unless they are “principal brokers.” There are additional time and testing requirements to become a principal broker. Until 2010, “principal brokers” could only hold that designation if they were responsible for supervising other brokers. Now, principal brokers do not have to supervise in order to earn that designation, which has resulted in an informal distinction being created called “managing principal brokers” to distinguish them from non-managing principal brokers. ORS Chapter 696 is the state law governing all real estate licensees, residential and commercial. The administrative rules for real estate licensees are found at Oregon Administrative Rules Chapter 863.
Broker Price Opinion (“BPO”) – The opinion issued by a licensed real estate broker, concerning the present value of a property for resale purposes. Banks frequently obtain BPOs from brokers prior to deciding whether to modify a loan, accept it back in lieu of foreclosure, or take some other action regarding a distressed property. BPOs are not “appraisals,” although they may both reach similar conclusions regarding present value. However, in Oregon, appraisals may only be issued by state licensed appraisers.
Building Code – The regulations governing construction of all structures including residential, commercial and industrial properties. Most jurisdictions within a state, including the state itself, have their own building codes. The Uniform Building Code (“UBC”) is a uniform set of standard building codes that has been widely adopted throughout the country.
Building Permit– A permit granting one to commence certain types of construction. While some work does not require a permit, such as the painting of a home or similar minor cosmetic improvements, most jurisdictions have building departments governing whether and when a permit is necessary. Once issued (for a fee), the jurisdiction then checks the improvement at various stages to confirm that all building and safety codes have been followed. Some cities and counties have this information on-line thus enabling buyers to easily determine if certain improvements were performed with or without a permit. Unpermitted work usually means that it was never checked for code compliance by a building official. Oregon’s Seller’s Property Disclosure form asks if permits were obtained when improvements have been performed on the home.
Business Day – Usually Monday through Friday, excluding state and national holidays. In Oregon the definitions are contained in ORS 187.010 and 187.020.
Buy Down – The cost, expressed as a percentage of the loan, as “points” or in dollars, to reduce the stated interest rate charged on that loan. In effect, it is a prepayment of interest at the com mencement of the loan in order to bring down the effective interest rate on the unpaid principal. Buy downs can be for a short term period (one to five years) or for the life of the loan.