Glossary of Real Estate Terms (Oregon) – C
Cancellation of Debt (“COD”) – This is the term used to refer to any event in which a debtor (e.g. a borrower under their note and mortgage) is forgiven of the duty to repay the balance owed on their debt. Subject to several exceptions, the IRS taxes COD income at the debtor’s ordinary income tax rate. Foreclosures, deeds-in-lieu, short sales and even loan modifications may all be taxable COD events. For distressed homeowners, an important exception to the COD tax is the Mortgage Debt Relief Act of 2007, which expires at the end of 2012. Subject to certain exclusions (e.g. non-principal residences or non-purchase money home loans), this federal legislation permits taxpayers to exclude taxable COD income arising from the discharge of debt on their principal residence. For more information, see IRS Code §108. [PCQ Note: Capital gains under IRS Code §121 is not a part of the Mortgage Debt Relief Act of 2007.]
Central Oregon Association of Realtors® (“COAR”) – The local Realtor® organization for Realtor® members in Central Oregon. It is headquartered in Bend, Oregon.
Cap – The maximum limit placed on an adjustable rate mortgage (“ARM”). For example, the ARM may have a cap on the amount of any periodic interest rate increases, as well as maximum interest rate cap over the life of the loan.
Capital Asset – An asset held for investment by the taxpayer that receives more favorable tax treatment. Capital assets are best defined by what they are not, such as inventory, property held for resale, real or personal property used in a trade or business, certain copyrights, etc. A taxpayer’s residence or rental property (assuming the rental property is not held as a part of a trade or business) are capital assets. Capital assets are usually not liquid and have a long term useful life, such as land, buildings, equipment, etc.
Capital Gain – The gain received by a taxpayer upon sale or other disposition of a capital asset. Gain is measured by the profit received based on the difference between the original purchase price (original basis), adjusted upward based upon the addition of capital improvements, and the total sale price.
Capital Improvement – Any material improvement to a capital asset (usually structural, such as a new furnace, a new addition, new garage, etc.) that generally increases value or adds to its useful life over one year. The cost of a capital improvement is added to the original basis of the property (generally the purchase price) when calculating any capital gains (or losses) upon resale. Not all improvements are regarded as “capital improvements” even though they may improve the appearance of the property or make it more valuable. Routine repair or maintenance is not a capital improvement.
Casualty Insurance – Insurance covering loss from damage to property resulting from risks such as fire, wind, earthquake, etc.
Certificate of Eligibility – The document used by the federal Department of Veterans Affairs (“VA”) to certify that the veteran is eligible for a guaranteed loan. The certificate can be obtained through a VA approved lender, the VA website or by mail.
Certificate of Reasonable Value (“CRV”) – The document used by the federal Department of Veterans Affairs to designate its opinion of value based upon an appraisal and the maximum allowable loan amount it will permit.
Chain of Title – The successive conveyances of title (usually, but not always by deed) to improved or unimproved real property. The chain usually starts from the federal land patent and continues by successive conveyances of record to the present day. A “clean” chain of title would indicate that there were no unbroken “links” in the chain, that is, all of the prior recorded owners properly conveyed their interest to their successor owners.
Clear Title – Usually designates that the property is “marketable,” that is it is clear of any objectionable liens or encumbrances. If property is not “clear,” it is not marketable.
Closing – Sometimes known as “settlement,” especially on the East Coast. Closing is the time at which title is conveyed by the seller in exchange for full payment by the buyer and the recording of the deed in the public records of the county in which the real property is located. Closing is also the time at which title to the property must be cleared, usually by the payoff of all loans, judgment or tax liens. The closing date is normally set forth in the sale agreement. In Oregon, almost all closings are handled by licensed escrow companies that also act in conjunction with a title insurance company. Attorneys are exempted from the escrow licensing requirement, but rarely close real estate transactions in Oregon.
Closing Costs – The charges paid at the time of closing and include such things as the title insurance premium, prorated items such as prepaid property taxes, costs of escrow, recording fees, real estate commissions and lender charges.
Cloud On Title – An expression referring to any matter appearing on the public record that negatively affects the marketability of title to real property.
Collateral – The property used as security for repayment of a debt. The security is in written form and recorded in the public records where the property is located. In Oregon the written security interest is known as a “trust deed” or “deed of trust” and recording gives notice to the world that the property is subjected to the lender’s interest which acts as a “lien” on the property. If the borrower defaults on the loan, the lender may foreclose their trust deed on the land that is the “collateral.” If something is “collateralized,” it means that some or all of it is secured, usually to a lender who loaned money for its purchase.
Collateral Debt Obligation (“CDO”) – A generic term used to describe any security that collateralizes the cash flows generated by a pool of debt obligations. If the securitized pool consists of mortgages, it is called a “Collaterized Mortgage Obligation” or “CMO”; A “Commercial Mortgage-Backed Security” is a “CMBS.”
Collection Account – An account, usually handled by a licensed escrow, set up between seller and buyer for purposes of collecting the buyer’s payments, depositing them in the bank, remitting payment to the seller, paying the property taxes and hazard insurance, and maintaining an accounting for the parties. Collection accounts are not uncommon when property is sold on a land sale contract. Sometimes the seller places a pre-signed fulfillment deed in escrow with instructions to record it when the entire contract balance is paid in full.
Commission – In real estate brokerage law, the charge made (usually to the seller) for marketing a property and procuring a ready, willing and able buyer. Agreements to pay a commission are commonly addressed in the listing agreement between the seller and seller’s agent. If the buyer has a separate real estate agent, a portion of the gross commission is split with that agent. Commissions are normally paid at the time of closing from the seller’s gross proceeds of sale.
Commitment Letter – A letter issued by a lender indicating its willingness to make a loan to a borrower based upon certain pre-set conditions and assumptions.
Common Area – In condominiums and planned community developments, common areas usually consist of the land, structures and other amenities owned by an association of unit owners, or home owner associations, for their common use and enjoyment. All costs of the common areas, such as maintenance, repairs, taxes and insurance are shared proportionately based upon a formula and prorated among all owners (called “common area (or “common elements”) assessments”).
Community Property – A form of joint ownership of property between husband and wife, regardless of whether both spouses are on title. Applies primarily to all real and personal property acquired during the marriage and is the basis of dividing the marital property upon divorce. Each state’s laws are different regarding ownership of spousal property. Oregon is not a community property state, although upon divorce in Oregon a court can divide or apportion property as it sees fit based upon the parties’ specific circumstances such as the length of the marriage, available liquid funds, earnings, earning potential, etc.
Comparables – In establishing residential real property values, real estate agents and appraisers rely most heavily on the use of comparables or “comps,” which consist of property sales data obtained by a review of the most recent arms-length transactions (that is, not between related parties, etc.) of similar properties in similar neighborhoods. The motive for selling affects the validity of a comp, since short sales and other distressed transactions reflect prices in which the seller is operating under different motivations than obtaining the highest and best price.
Common Law – The basis of American jurisprudence first established in England and then adopted and developed in the United States. Common Law is based upon “precedent,” that is, earlier court decisions developed over time. The Common Law does not include statutory laws or administrative laws enacted by the legislative or executive branches of government.
Community Property – A form of joint ownership of property between husband and wife, regardless of whether both spouses are on title. Applies primarily to all real and personal property acquired during the marriage and is the basis of dividing the marital property upon divorce. Each state’s laws are different regarding ownership of spousal property. Oregon is not a community property state, although upon divorce in Oregon a court can divide or apportion property as it sees fit based upon circumstances such as the length of the marriage, available liquid funds, earning potential, etc.
Comparative Market Analysis (“CMA”) – An analysis performed by a licensed real estate broker by comparing and analyzing the prices of recent sales of comparable properties. The Oregon statute refers to CMAs as a “competitive market analysis” for unknown reasons, but it is the same thing. (See, ORS 696.010(7)) Similar to BPOs (“Broker Price Opinions”), CMAs are not “appraisals” even though the process and outcome of the analysis may be similar.
Conditions, Covenants and Restrictions (“CC&Rs”) – The legally enforceable deed restrictions that are recorded on land by a current or prior owner. Since they are binding upon all who subsequently purchase the property encumbered by the restrictions, they are said to “run with the land,” meaning that they continue indefinitely. They regulate such things as permitted uses for the property (such as single family residential) and impose certain architectural controls, etc. In Oregon, CC&Rs that discriminate against certain constitutionally protected classes (for example, race, religion, etc) are unenforceable today by statute.
Condominium – A unique form of property ownership in which the owner (called the “unit owner”) acquires the interior space of a unit together with the exclusive right to use other portions of the property, such as the deck and/or parking space (known as “limited common elements”) and a nonexclusive right to use other portions, such as a clubhouse, hallways, etc. (known as “general common elements”). Governance regarding enforcement of the recorded rules (called the Declaration), and corporate regulations such as bylaws, is through a Unit Owners’ Association which has the power to assess dues to cover maintenance, repair and replacement of limited and general common elements. (See, ORS Chapter 100)
Condominium Conversion – The creation of a condominium form of ownership from a pre-existing structure, such as an apartment building or multi-plex structure, thus allowing the owner/developer to sell individual units within the structure. The conversion process is governed by statutes found in ORS 100.300 – 100.320.
Conforming Loan – A loan that complies with the guidelines set by one of the two GSEs, the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). The best known guideline is the maximum amount of such a loan which is $417,000 in most parts of the country but under the Economic Stimulus Act of 2008, was amended and raised to $729,000 in high cost areas.
Consideration – Anything of value that is given in exchange for something else. It can consist of something tangible, such as money; an act, such as performance; or forbearance to act, such as an agreement not to sue. Contractual agreements must be supported by some form of consideration in order to be enforceable.
Construction Loan – A loan made for purposes of constructing a structure. Construction loans are short term and not the same as “permanent loans.” Partial payment of the construction loan (known as “draws”) are usually tied to the lender’s verification that certain stages of the project have been completed.
Contingency – A provision in a contract that ties its performance, completion or enforceability to the occurrence (or sometimes non-occurrence) of a designated event. Most real estate transactions contain several contingencies, such as a professional inspection, appraisal, financing, condition of title, etc. For example, a buyer may make the purchase of a home contingent upon the sale of his or her existing home. Most – but not all – contingencies are usually for the buyer’s benefit.
Contract – An agreement between two or more parties to take some sort of action (e.g. the sale and purchase of real property) or to refrain from taking action (e.g. an agreement to settle all disputes and release all claims). There are several “elements” that go into making a binding contract, such as an offer; acceptance on the same terms as the offer; consideration (something of value between the parties), etc. An acceptance of an offer that materially varies from, or attempts to change, the terms of the offer, is regarded as a rejection of the offer and is called a “counter-offer.”
Contribution – A legal action usually brought by a defendant against whom a money claim has been made, against a third party, in an effort to recover some or all of the moneys sought against that defendant. A defendant’s right of contribution against a third party is usually based upon a contractual, statutory, or common law (i.e. case law precedent) duty to share in, or pay, the cost of the claim brought against the defendant.
Conventional Loan – A loan from a private bank or other institutional lender as opposed to one guaranteed or insured by the federal government.
Conversion Clause – A clause in a loan containing an adjustable interest rate that permits the borrower to “convert” it to a fixed rate loan for the balance of the term. The new fixed term interest rate is usually tied to some well-known index or rate. These types of loans are sometimes called “Convertible ARMs.”
Cooperative (Co-op) – A form of ownership in which an entity, such as a nonprofit corporation, owns a multifamily residential property. The individual shareholders have a right to live in a designated unit through a long term lease and bear a prorata share of the costs and loan payments. Co-ops are rare on the West Coast. Some co-ops impose strict exclusivity requirements based upon financial capacity and the shareholders have a right to vote on whether a particular purchaser will be permitted to acquire a unit.
Counter-Offer – The rejection of an offer that proposes new or different terms to a pending offer.
Covenant – A promise. In real estate transactions, covenants are usually found in written and recorded documents affecting (and frequently limiting) the use of the property. These documents are often referred to as “CC&Rs,” or “Conditions, Covenants and Restrictions.” Most CC&Rs are legally enforceable by the person(s) benefited by them. In Oregon, CC&Rs that discriminate against certain constitutionally protected classes (such as race, religion, etc) are unenforceable today by statute.
Credit – In lending, the extension of “credit” is the making of a loan subject to certain repayment terms.
Credit Bureaus – Companies that for a fee provide consumer information and data on the payment histories of people who have consumer loans, credit cards, or other financial obligations such as rental history.
Credit Counseling Services – Public or private agencies that help educate consumers on controlling or avoiding spending, and the accumulation of debt.
Credit Default Swaps (“CDS”) – These exotic financial instruments acted as a loose and unregulated form of insurance (which ultimately took on the appearance of wagers) that paid the insured if a particular obligation, such as a mortgage backed security (“MBS”) defaulted. (See, definitions of Moral Hazard,” “Securitization,” and “REMICs”, below.) Not only did the issuers of the MBS instruments purchase CDSs, but strangers to the underlying transactions bought them. Ultimately the volume of such activity created a separate CDS market creating an appearance that CDS purchasers were betting that certain investments would fail – which they ultimately did. American International Group (“AIG”), the giant international insurance company, was a primary issuer of CDSs, and became so top-heavily invested in this side of their business, that when the MBSs and other securitized debt failed, it was unable to pay the investors who purchased the swaps. The result, a $182 billion bailout for AIG that resulted, in part, because risk could be quantified, sold, and traded for profit.
Credit Rating Bureaus – These are firms that rate the quality of bonds and other securities such as packaged mortgage investments. Investors rely upon the ratings in order to evaluate risk and the probability of default. The best known rating bureaus are Standard and Poors, Fitch, and Moody’s. The Securities and Exchange Commission regulates the ratings bureaus.
Credit History – The record of one’s repayment of debt. Credit history is used to evaluate one’s fitness for loan repayment as well as judging the risk of default, which is reflected in the interest rate charged. The greater the risk, the higher the rate. Credit history is reflected in a report and is often accompanied by a credit “score” such as a “FICO” score.
Credit Report – A written report containing detailed information about a consumer’s credit history. It includes such things as all identifying information and past names, open and closed credit accounts, loans, bankruptcies and late payment history. Some credit reports also disclose recent credit inquiries. Credit reports are ordered (with the borrower’s consent) by prospective lenders, to determine their creditworthiness and ultimately their ability to repay the loan applied for.
Credit Union – Member-owned non-profit lending institution that provides certain financial services including savings accounts and lending. Joining a credit union frequently requires that one belongs to a participating entity, such as a school district or other large employer.
Creditor – One to whom a debtor, such as a borrower, owes money.