Glossary of Real Estate Terms (Oregon) – L
Land Sale Contract – A written contract between the owner-seller (known as the “vendor”) and a buyer (known as the “vendee”) setting forth the price and terms of the sale. The contract, or (more likely) a memorandum of the contract, is recorded in the county where the property is located. Under a land sale contract, title is not conveyed at the commencement of the transaction. Rather, the seller retains title until the contract is fully paid off and satisfied. At that time, the seller issues a “fulfillment deed” which is equivalent to a satisfaction of mortgage (in mortgage law) or a deed of reconveyance (in trust deed law). Although the land sale contract buyer is said to have “equitable title” during the life of the contract (as opposed to “legal title”), for all practical purposes they are substantially the same. So long as the contract (or memorandum thereof) is promptly recorded at the time of closing, it will take priority over subsequent liens or other encumbrances recorded on the property even though they may be filed of record before the fulfillment deed is recorded. The contract buyer may obtain a “purchaser’s policy” of title insurance at the inception of the transaction. It is not unusual for the seller’s fulfillment deed to be pre-signed and placed in escrow with appropriate instructions at the commencement of the transaction. This avoids difficulties should the seller die before the contract is fully paid off. Collection accounts are also not unusual at the start of the contract in order to collect the payments, keep records thereof, and pay taxes and insurance.
Landlord – One who rents or leases to another the right to occupy property under a written or oral tenancy agreement. Also called a “Lessor.”
Late Payment Charges – A lender imposed charge assessed on borrowers whose payment is received after expiration of the grace period.
Lead-Based Paint – Pre-1978 paint that contained lead as one of its components. Lead can be harmful to humans, especially young children. Because of lead-based paint’s widespread use in the residential and multi-family housing industry, its use has been banned. However, pre-1978 housing (called “target housing”) still contains lead-based paint. As a result, sellers and lessors (landlords) of target housing are required to provide buyers and tenants with certain information and documentation and be given an opportunity to have the property inspected for the presence of lead-based paint and lead-based paint hazards. (See, http://www.epa.gov/lead/pubs/paint.htm)
Lease – An agreement between an owner (“landlord” or “lessor”) and tenant (“lessee”) in which possession of real property is transferred for a fixed period of time in exchange for the payment of an agreed-upon amount of rent. Under a lease, the tenancy begins and ends on fixed dates. Residential leases are governed in Oregon by the Oregon Residential Landlord-Tenant Act (“ORLTA”) found in ORS Chapter 90. No comparable statutory regulation exists over commercial leases, although both are subject to essentially the same laws governing the eviction process. (See, ORS 105.105 – 105.168)
Lease Option – A lease of property coupled with a separate right for the lessee (i.e. the tenant) to purchase it upon pre-agreed terms and conditions. The option right is normally paid for separately and may be exercised during a certain period of time by the giving of written notice to the landlord. Usually, the agreement provides that a portion of the lease payments will be applied toward the purchase price if the option is timely exercised..
Legal Description – There are several forms of legal descriptions, the purpose of which is to assist sellers and buyers to properly identify property being sold. If a contract does not properly or sufficiently identify the location of the subject property it may not be enforceable should there be a dispute concerning its whereabouts. Property can best be identified – if it is located in a subdivision – by its lot and block number, for example, Lot 1, Block 4, Smith’s Addition, City of Portland, County of Multnomah, State of Oregon. If the property is not in a subdivision, it likely contains a metes and bounds legal description (see definition) which would also be sufficient to locate it. These are generally referred to as “formal” legal descriptions. Sometimes “informal” legal descriptions, such as a street address, are used to identify property; but good practice suggests that it should be supplemented or accompanied by a formal legal description.
Leverage – The degree to which a person or business uses borrowed funds in the acquisition of assets or operation of a business. Since there are certain tax advantages associated with some leverage (e.g. deductibility of home mortgage interest) it can have certain advantages. Where leverage becomes problematic is when it exceeds the ability of the borrower to repay, refinance or liquidate the assets or business. The housing and foreclosure crisis was brought on, in part, by the creation of innovative lending programs that encouraged 100% (or more) financing, which resulted in many borrowers becoming over-leveraged. Theoretically, this would not have been a problem if prices had continued to rise, homes continued to sell, and banks continued to lend based upon their formerly lax (or nonexistent) underwriting policies.
Liability Insurance – Insurance coverage against certain claims, such as negligence or other acts of the insured that result in personal injury or property damage to others.
LIBOR – Acronym for “London Inter-Bank Offered Rate.” It is based on rates that participating London banks offer each other for inter-bank loans. LIBOR is one of the major indices used for calculating interest rate adjustments on adjustable rate mortgages or “ARMS.” (Typically, the borrower’s rate included a fixed margin or constant of X%, that when added to the LIBOR rate equaled the borrower’s adjusted rate. As the credit markets siezed up in 2008, LIBOR became involved in a scandal involving artificially rigging the quoted rates. Now, in the U.S., the Federal Reserve Bank of New York has introduced a new reference rate, the “Secured Overnight Financing Rate”, or “SOFR”, in cooperation with the U.S. Treasury Department’s Office of Financial Research.
Lien – A charge against real property, the nonpayment of which can result in a sale of that property. Some liens are voluntary, such as mortgages and trust deeds, and others are involuntary, such as tax liens and judgment liens. A lien “clouds” or burdens the marketability of title to real property and prevents it from being conveyed to others unless the holder of the lien voluntarily removes it, usually following payment of the amount due under the lien.
Lien Waiver – A document that releases an owner from any further obligation for payment of the indebtedness due once the lien has been paid in full. Lien waivers are frequently used to protect homeowners from lien claims by subcontractors whose general contractor received payment but did not pay his or her subs or other suppliers who provided labor and materials to the construction project.
Lifetime Cap – In an adjustable rate mortgage (“ARM”) total maximum and minimum interest rates for the full term of the loan.
Life Estate – An estate in land that lasts as long as the owner’s life. The document conveying the interest, such as a deed or will, usually provides that upon the death of the owner of the life estate, the property will either revert back to the grantor (the one making the conveyance) or their estate, or pass to the grantee’s (the one receiving the life estate) estate. Caution should be exercised in creating life estates, as they can be complex.
Line of Credit – An agreement by a lender to extend credit to an approved borrower for loan funds up to a pre-agreed amount. Such agreements frequently give the lender the right to require the borrower to periodically submit updated financial information in order to assure the lender that the borrower’s financial condition has not materially changed for the worse while the line of credit is still open.
Liquid Assets – Those assets that can quickly be converted into cash. Company stock traded on a national exchange is a typical example.
Lis Pendens – In Oregon a law that permits one who has filed a claim affecting an interest in the real property of another to also file in the deed records a document informing the public that the claim has been filed. It essentially says that “litigation is pending.” (See, ORS 93.740)
Listing Agreement – A contract between a property owner and a real estate agent/broker wherein the agent agrees to provide certain professional real estate services to the owner in an effort to sell the property to a ready, willing and able purchaser for the listed price or such other price and terms as the seller may agree upon. Listing agreements usually provide for the payment of a pre-agreed commission at the time of closing, based upon the gross sale price of the property. In Oregon under the Statute of Frauds, listing agreements must be in writing. (See, ORS41.580(1)(g))
Loan Estimate. The Loan Estimate (formerly known as the “Good Faith Estimate”) provides prospective borrowers with important loan information, including the estimated interest rate, monthly payment, closing costs, and estimated taxes and insurance. In addition, the Loan Estimate informs prospective borrowers if the loan has certain features, such as a prepayment penalty. (See link here for more information).
Loan Fraud – The term is most frequently used to describe any intentional misstatement of material information at any stage of the lending process. Loan fraud is generally divided into two categories: (a) Fraud committed in the acquisition of property, and (b) fraud committed solely for profit (such as using a straw purchaser or fraudulent appraisal), and usually involving a subsequent flip of the property, after the fraud. See, U.S. Code Chapter 47 – Fraud and False Statements.
Loan Officer – Although they may go by different titles, a loan officer is a representative of a lending institution whose responsibility is to secure prospective borrowers and provide documents, applications, credit and qualification information to them throughout lending process.
Loan Origination Fee – A fee or charge made by lenders, mortgage brokers or other loan originators for the administrative costs of processing a loan. The charge is usually stated in “points” with one point equaling one percent of the loan amount. The charge is paid at the time of closing. Since lender and broker fees can vary significantly, prospective borrowers should competitively shop their loan before making a final decision.
Loan Servicer – The company to whom a borrower makes their monthly payments. The servicer is responsible for handling the proper accounting and disbursement of these payments and for making sure property taxes and insurance is paid. The loan servicing company also monitors nonperforming loans and is usually the entity defaulting borrowers deal with in negotiating any adjustments to their loan terms, such as modification. Some lenders have departments that service their own loans and others contract with separate entities to do so.
Loan to Value Ratio (“LTV”) – The ratio, expressed in a percentage of the appraised value of the home, that describes how much will be loaned. An 80% LTV means that the lender will loan up to 80% of the appraised value. It also implies that the remaining 20% will represent the amount of down payment the lender will expect the buyer to pay at the time of closing. When the sale price of the property exceeds the appraiser’s opinion of value, it usually means one of two things: (a) The buyer and seller will have to reach agreement on how the additional amount above the appraised value will be dealt with – either the buyer pays the amount, the seller reduces the sale price, or some combination of the two; or (b) The transaction will fail.
Lock-In – Refers to fixing or “locking” the interest rate that the lender will charge on the loan. Locks can range in the amount of time the lender will commit to and when the lock period starts and stops. If the lock is lost before closing, it usually means that the current market rate will apply. If the rate is significantly higher that the locked rate, the buyer may wish to “buy down” the rate through a lump sum payment at closing. If rates are falling, some borrowers may decline to lock in, preferring instead to let the loan rate “float.”
Loss Mitigation – To “mitigate” damage is to try to reduce its negative impact. During the credit and housing crisis, in order to deal with the numerous loan defaults, some lenders developed their own loss mitigation departments to deal with defaulting borrowers and try to work out solutions that would avoid the need to foreclose on the property.