Glossary of Real Estate Terms (Oregon) – F
Fair Credit Report Act – The federal law enforced by the Federal Trade Commission (“FTC”) that is designed to promote accuracy and ensure the privacy of the information used in consumer credit reports. It also places certain requirements on credit reporting agencies.
Fair Housing Act – The federal law that prohibits discrimination in the sale, rental or financing of residential property based upon race, religion, color, national origin, familial status (families with children), sex, and disability.
Fair, Isaac and Company (“FICO”) – Through a complicated, secret, and proprietary set of algorithms, this company has developed the “FICO score” which is heavily relied upon by lending institutions (and other industries, e.g. insurance) in evaluating a person’s credit and their ability to timely repay debt. The lower the score, the greater the perceived risk of default. FICO scores are based upon credit information from the three major credit bureaus, Experian, TransUnion and Equifax. Scores range between 300 and 850.
Fair Market Value – The value of a property that would be paid by a hypothetical ready, willing, able and knowledgeable buyer in a voluntary arms-length purchase transaction. The price paid for a property in foreclosure or some other forced or distressed sale proceeding is not necessarily the fair market value; although the collective effect of multiple short sales and foreclosures in a neighborhood can have a negative impact on fair market value.
Fannie Mae (“FNMA”) – Its full name is the Federal National Mortgage Association. It is similar to Freddie Mac (the Federal Home Loan Mortgage Association). Both associations are privately held, shareholder-controlled, corporations, with the purpose of purchasing residential loans from originating lenders, thus allowing the lenders to re-lend the funds to other home purchasers. Both FNMA and Freddie Mac are government sponsored enterprises (or “GSEs”). Today, these GSEs comprise almost the entire “secondary mortgage market.” During the easy-credit years of 2004 – 2007 Fannie and Freddie acquired nearly 50% of the loans sold into the secondary mortgage market. The remainder of the secondary market consisted of private investors and similar entities, sometimes know as the “private label market.” Since the credit and lending crisis of 2008 and thereafter, the private label secondary mortgage market has dried up, leaving Fannie and Freddie as the only major players. Because Fannie and Freddie were awash in debt, the federal government has taken them over. Whether, and when, they will be replaced is a matter currently under review.
Fed Funds Rate – The interest rate at which depository institutions (banks and S&Ls that take customer deposits in order to fund loans and other investments) lend to other depository institutions overnight.
Federal Housing Administration – The federal agency generally known as “FHA” that provides mortgage insurance on loans made by its approved lenders. The FHA does not make direct loans but insures mortgages on single family and multifamily homes and manufactured homes. Its mortgage insurance provides lenders with protection against losses resulting from borrower default. FHA-insured loans permit low down payments and more lender flexibility in borrower debt-to-income ratios. The mortgage insurance premium is passed along to the homeowner and generally is included in the monthly payments.
Federal Reserve System – The Federal Reserve System is the central bank of the United States. It is agency of the federal government, with the Board of Governors located in Washington, D.C. There are 12 regional Reserve Banks located in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis.
Fee Title – This term, derived from old English Common Law, refers to the full legal “bundle of rights” that the owner has in real property. It is assumed today in most transactions, that the owner has fee title and thereby the ability to convey all right, title and interest in the property. This fact is usually verified by the issuance of a policy of title insurance to the buyer or new owner [PCQ Note: Having fee title is not the same as having “marketable title” (defined below). One can have “fee title” that is encumbered by liens or other claims such that it is not marketable and therefore, not saleable].
Fiduciary – A general term used to identify one upon whom the law imposes certain special duties, such as good faith, full disclosure, fair dealing and other responsibilities arising as a result of their position of trust and confidence. For example, real estate agents have fiduciary responsibilities to their clients, as do lawyers and physicians [PCQ Note: For unknown reasons, in Oregon’s real estate licensing law, these fiduciary duties are called “affirmative obligations” even though they apply between the agent and their principal (and even though the statutes make it clear they are not intended to dilute any of the fiduciary duty laws developed by the courts, i.e., “the Common Law”). (See, ORS 696.800 – 696.895)] ).
First Mortgage – A “first” mortgage means that it was recorded in the public records before any others on the same property. The time of recording is determined by the time affixed to it by the recording clerk immediately upon taking it for filing. Being “first” in time of recording generally gives the holder of the mortgage priority over junior (or “subordinate”) mortgages that were subsequently recorded. This priority means that upon foreclosure, the sale proceeds will be applied first toward debt reduction of the first mortgage holder before debt due to the holders of the second and third mortgages. It also means that if the first mortgage holder forecloses, the holder of the second mortgage must pay off the first mortgage in order to avoid foreclosure of its own interest [PCQ Note: The date of execution, i.e. signing, of a mortgage does not determine its priority – only the date of its recording in the public records where the property is located].
Fixed-Rate Mortgage – A mortgage with an interest rate that remains at the same level for the balance of the loan term. In other words, it does not “adjust” at given intervals, such as an adjustable rate mortgage (“ARM”).
Fixture – Personal property that is “affixed” to land or a structure on the land such that removal would cause significant damage to the land or structure. In the sale of a home or building, fixtures are regarded as part of the real property purchased. The only exception is in commercial properties, where “trade fixtures” may be removed before closing, although the property must be restored by the seller after doing so. Sellers and buyers should be careful to designate what goes and what stays in order to avoid arguing (usually after closing) whether the buyer had the right to remove the item. Fireplace inserts, chandeliers, and similar items are good examples of personal property that should be specifically identified if the buyer wants them.
Flood Insurance – Insurance protecting homeowners from loss by flood. The Federal Emergency Management Agency (“FEMA”) makes flood plain maps, which are relied upon by lenders and others in determining whether flood insurance must be purchased as a condition to making a loan.
Forbearance – The act of giving up entitlement to exercise a legal right or remedy. To forbear taking action is not necessarily the same as a complete waiver of the legal right to later do so, but merely a suspension on taking certain action.
Foreclosure – The name of the process whereby a lender (or seller) exercises their rights under a mortgage, trust deed, or land sale contract, to cut off (or “foreclose”) all legal rights of the borrower to the secured property. Foreclosures are governed by state law. (See, ORS Chapter 86.) Upon foreclosure, the lender usually holds a publically advertised sale at a specified time and place, designed to yield sufficient funds to repay the indebtedness and costs of sale. In many – but not all cases – if there is a shortfall in the proceeds obtained at the time of sale, that amount, known as a “deficiency” becomes a personal repayment obligation of the borrower to the lender. When the borrower and lender agree, the borrower may voluntarily deed the property back to the lender through a document known as a “deed in lieu of foreclosure.” However, this should not be done without the advice of legal counsel, as the procedure can result in future tax or other financial liability to the borrower.
Fractional Ownership – A percentage ownership interest in real or personal property. Fractional ownership is different from a “time share,” since the former is shared ownership based upon title, while the latter is merely a sharing of time, where title is held in a third party.
Freddie Mac – See “Fannie Mae” above.
Front End Ratio – See Debt-to-income ratio, above.
FSBO – The acronym used to identify homes being sold by owners without the use of an agent, that is, “For Sale by Owner.”