Daddy Mac mortgage A shared-equity mortgage arrangement to facilitate family members in obtaining tax benefits from home ownership. Parents become co-owners of their child's house and assist with mortgage payments. In return, the parents share in future appreciation and obtain current income tax benefits, such as depreciation and interest deductions. Tax reform has reduced the desirability of Daddy Mac arrangements. "Daddy Mac" is a play on the term Freddie Mac which describes the Federal Home Loan Mortgage Corporation.
damages Losses recoverable in court expressed in monetary terms, for loss of money or other thing of value. Damages may be recovered in court for loss of use of money, loss of use of real estate, loss of future profits, and sometimes, loss of peace of mind, quiet enjoyment and even losses from mental suffering, as in mental anguish and pain. See also judicial actions and remedies; compensatory damages; punitive damages, out-of-pocket damages.
DBA Abbreviation for “doing business as.” For example, John Doe dba International Land Scams, Ltd. Fictitious names are very common and are registered in county files that are open to the public.
DCF discounted cash flow analysis See discounted cash flow analysis.
dead end street A street closed at one end.
deal A real estate transaction, usually of commercial nature. Many professionals avoid the use of the term on the basis that it carries negative connotations. They prefer using the term "transaction."
deal-killers Attorneys. Many real estate business persons are reluctant to engage an attorney in the negotiating process out of fear that he or she will raise so many "what ifs" that the parties will back out of the deal in fear of future litigation and problems.
deal point A proposed contract term that is critical to one party. If the term is denied, the deal will not occur. Ant. red herring.
debtor syn mortgagor See mortgagor.
debt service The annual payment agreed to be made on a mortgage loan, including principal and interest, and sometimes taxes and insurance often referred to as PITI.
debt to income ratio A concept used to judge the qualification of a borrower for a home mortgage. Under present Federal Housing Administration (FHA) guidelines, a home buyer should not spend more than twenty-eight percent of his monthly gross income on mortgage payments, including principal, interest, property taxes, and insurance. A maximum of thirty-six percent of monthly gross income should be spent on all combined debts. These percentages change from time to time by FHA regulation.
deceit syn misrepresentation and fraud See fraud and judicial actions and remedies.
declaration of homestead A document recorded by a homeowner to protect a prescribed amount of equity in his home from creditor’s claims.
declaratory judgment A binding court decree determining future contractual rights and obligations of parties to a contract, the future performance of which is in dispute. The parties desire to ascertain the complete extent of their future obligations under a contract. An action for declaratory relief receives preference on the court calendar. This remedy is rare. Courts prefer to respond after damage has been done, and an action for breach of contract has been instigated.
dedication The process by which an owner gives an interest in real property to a public body, such as a city or county. The motivation is often not charitable but rather an agreed-on condition for development. For example, a condition of annexation or zoning may be that a park site be donated (by dedication) to the city for the benefit of the public. A fee simple, or merely an easement, may be dedicated. See also exactions.
deed A document used to convey an interest, such as an easement,
or a fee simple, in real property from one person (called the grantor)
to anther person (called the grantee). Although all deeds serve this
function, there are a variety of specialized deeds used for particular
situations or circumstances. See also bargain and sale of deed, corporation
grant deed, court deed, deed of trust, deed of reconveyance, gift deed,
sheriff’s deed, trustee’s deed, quitclaim deed, and warranty deed.
Regardless of the particular transaction for which these various deeds
are designed, all share certain basic requirements:
1. The grantor and grantee must be named
2. The grantor must sign on the “dotted line”
3. The real property and interest being transferred must
be adequately described (a street address,
standing alone, invites
legal problems as does an ambiguous phrase like “an interest in...”)
4. One of several possible words, such as grant, convey,
transfer, or assign must appear to
ensure there is an intent
to transfer ownership
5. The deed must be delivered to and accepted by the grantee
Additionally, it is wise to date, and especially record a deed
in order to give constructive notice to the world of its existence.
A deed, like any other document affecting real property, is recorded by
handing it and a prescribed fee to a county clerk or official, who time
stamps, microfilms, and files it for preservation. After recording,
the deed is delivered to the new owner.
deed in lieu of foreclosure A deed given by a defaulting owner to his creditor so that the lender does not have to proceed with foreclosure. Following a deed in lieu, the creditor may not be able to sue for a deficiency judgment. On the other hand, the debtor may preserve his credit reputation. Because foreclosure is averted in a deed-in-lieu situation, the lender may be well-advised to proceed carefully. Foreclosure eliminates all subordinate claims to the property; they are not eliminated if a deed-in-lieu is accepted.
deed of reconveyance syn recon and reconveyance A deed. Under a trust deed, the debtor is called the trustor and the lender is called the beneficiary. The effect of the trust deed is to transfer legal title to real estate to a third party (called the trustee) who holds title until the debt is paid. Once the debt is paid, the trustee returns title to the debtor by recording a deed of reconveyance. The record title is then clear of that former debt. It is a criminal offense if a trustee wrongfully refuses to reconvey. Recordation of a recon is comparable to the historical "burning of the mortgage." See also deed of trust.
deed of sale A deed used by a court appointed receiver to convey foreclosed property to the successful bidder at a sale following a judicial foreclosure.
deed of trust syn real mortgage and mortgage A deed used to guarantee repayment of a debt. For practical intents and purposes, a deed of trust is synonymous with a mortgage. Most deeds are used to transfer both ownership and possession. However, in many instances ownership (title) is separated from possession of real property. A lease is an example where possession is transferred to another, the tenant. A deed of trust is the opposite. The owner retains possession but transfers the title to another as security for repayment of his debt. Or, as lawyers say, the grantor (called the trustor now) retains the equitable ownership (possession) and transfers legal ownership (title).
Example: A is the owner of and living in his home which is free
and clear of mortgage debt. He borrows $5,000 from Hometown Savings
and Loan to take a vacation, signs a promissory note evidencing the debt,
and, by deed of trust, conveys legal title to his home to a trustee (First
National Title Company) to guarantee timely repayment.
But for the deed of trust, Hometown would be an unsecured general
creditor of A. Because of the deed of trust, Hometown is a secured
creditor. Therefore, on any default by A, Hometown could foreclose.
Trustees can be anyone eighteen or over, but usually are title companies
because of their familiarity with forms and procedures. The creditor,
whose loan repayment is being secured, is called the beneficiary.
The property owner and debtor is called the trustor. The deed of
trust contains numerous provisions designed to protect the value of the
security. For example, it specifies the duty to pay taxes and to
maintain the property. See also foreclosure.
deed restrictions Limitations that are included within a grant deed that restrict various future uses of the land. These private restrictions may pertain to uses (such as residential only) as well as to size of structures, presence of TV antennae, or other limitations the reasonable effect of which are to maintain values within a project. See also covenants, conditions, and restrictions.
deep pockets A wealthy person or organization. Deep pockets often are targeted as defendants in litigation.
default The failure to meet a contractual obligation in a note, or mortgage, such as failure to make the monthly payments on a note, or failure to keep property taxes current. See also breach.
default judgment Court-awarded judgment based on the defendant’s failure to answer the summons and complaint or to appear at the trial to contest the claim of the plaintiff.
default ratio Ratio of debt service to net operating income. The higher the ratio, the greater the probability of default. Calculate by dividing annual debt service by net operating income.
defendant (a) In a civil trial, the person from whom money damages or other relief is sought by the plaintiff. (b) In a criminal trial, the accused.
deferred maintenance The maintenance and repairs that, although needed, are not done. Deferred maintenance is one of the early signs of blight in a neighborhood. Sometimes maintenance is deferred when a replacement or improvement would be more affordable the following year. Or, it may be the result of poor management.
deficiency judgment A legal judgment in favor of a creditor who has not received the full amount of his claim against a debtor. For example, following foreclosure, the net proceeds of the sale may not fully reimburse the creditor (beneficiary or mortgagee) for the balance owing on the loan plus accrued costs, penalties, and expenses. Any such shortage is considered a deficiency. When such a deficiency exists, the creditor is naturally inclined to sue the debtor for the difference. Such a judgment in the creditor's favor is called a deficiency judgment. In many instances, however, anti-deficiency legislation prohibits such judgments. The idea is that it is bad enough to take someone's property through foreclosure; but to straddle the debtor with an additional money judgment is too much. However, such a judgment is not prohibited in all situations. As a general proposition, a deficiency judgment is not allowed if the foreclosed mortgage was the security for the purchase price of the property. That is, a seller financing a buyer by taking back a note secured by deed of trust is not generally able to secure a deficiency judgment.
deficiency loan A loan in which the lender may obtain a deficiency judgment against the debtor following judicial foreclosure. Also called recourse loans and hard money loans. Cases in which deficiency judgments are obtained are rare, however.
delayed exchange syn Starker exchange A tax-deferred exchange where the owner of investment real estate sells his property, but ties up the proceeds of the sale for a maximum of six months in a trust account, during which period of time he acquires another property by "exchange" with the proceeds of the first sale. In such an exchange, taxable gain is deferred until sometime in the future when the property acquired in the exchange is sold. The benefit is to use equity in a property to acquire a larger property without suffering the shrinkage of equity that would otherwise occur because of the income tax on gain. Owner occupied residences are automatically tax-deferred if replacement homes of equal or greater price are obtained within one year of the sale date-but purchase of a replacement home is not referred to as a Starker exchange. AS of 1998, all gain on sale of a principal residence is tax exempt to $250,000, thus most homeowners are not concerned weith the one-year rollover rule to defer gain.
delegation The transfer of a contractual duty from one person to another. For example, in a loan assumption, the buyer assumes the seller’s obligation to pay an existing debt. The seller is not released from his obligation unless the person or institution to whom the debt is owed consents. If a release is given, a novation has occurred (the substitution of one obligor with another). Generally, a seller should always obtain a formal release on a loan assumption especially if a deficiency judgment is a possibility.
delinquency date Any date following which a penalty is automatically accrued for nonpayment of an obligation. Promissory notes contain both a due date and a delinquency date. The period of time between these dates is the grace period. Some lenders put “due” dates on their monthly loan statements that are far in advance of the actual “delinquency” date when the payment is actually due. This antic may prmote early payment by borrowers providing lenders with a cash windfall. For example, in early 1998, Home Savings has marked its August 15 payments as “due” on May 15. This practice is not illegal.
delivery and acceptance The conveyance of an interest in real property requires both the delivery of the title and its acceptance. Delivery and acceptance are usually implied from the circumstances surrounding the sales transaction, such as instructions by the buyer to record the deed. Formal acceptance of a conveyance is usually required when a property interest is dedicated to a public entity. Acceptance under such circumstances occurs by official resolution and written memorandums.
demurrer A motion filed by a defendant in response to a summons and complaint when allegations of the complaint, even if true, are insufficient to state a cause of action. In federal courts, and in many states, the same result is achieved by a motion to dismiss.
density The number of lots or building units per acre of land. The present trend is to increase the traditional densities of four per acre to twenty or more living units per acre.
Department of Housing and Urban Development (HUD) The national department with responsibility for national subsidized housing and supervision of mortgage markets.
deposit syn earnest money, binder, and good faith money See earnest money.
deposition Questioning of a witness or adverse party to an action, under oath, by the opposing attorney before the trial depositions are conducted in the presence of a court reporter and the person’s own counsel. They are the principal type of discovery procedure.
deposit receipt syn purchase contract, contract for sale, and marketing contract A slang term for a legally binding contract to purchase and sell a specific parcel of real property.
depreciation Both a decrease in value of real estate and an income tax benefit, depending upon its usage. In taxation a ”depreciation” deduction from ordinary income is allowed the owner of certain improved real property whether or not it has declined in value during the year. Tax depreciation is also called “cost recovery” and “write-off.” (See also cost recovery.) In appraisal, depreciation means a loss in market value. It may arise from physical deterioration (wearing out) or functional obsolescence (blight in area).
designated real estate broker A real estate broker who is an officer of a corporation licensed to sell real estate. The designated broker is responsible for the corporation's activities.
detached condo syn single family condo See single family condo.
detached single-family home A single structure designed to house one family.
developer A person or company that organizes and carries out the construction of a real estate project. A project may be lots suitable for construction or may be completed structures. The word developer is very broad and applies to all land uses, commercial, industrial, residential, recreational and so forth.
development loan A loan for the purpose of improving raw land so that the construction of buildings may start (for example, by building roads and installing utilities). A development loan is one variety of interim financing.
director (of corporation) One of a group of persons (called a board) legally charged with the determination of major policies for management of a business corporation, appointment of top executives, and the declaration of dividends.
disclaimer syn exculpatory clause and hold harmless clause See exculpatory clause.
discount The difference between the unpaid balance of a note and its market value. Promissory notes are almost always sold a a discount from their unpaid balance. For example, if the unpaid balance of a mortgage loan is $90,000, its owner could sell it only if he accepted a discount of, say twenty percent.
discounted cash flow analysis, (DCF) In investment analysis, after tax cash flows projected in the future are discounted to the present (by using the concept of present value) to evaluate the desirability of an investment. DCF depends on assumptions about future net returns and on the present value of future dollars. It is a present value concept, for example, that if a ten percent discount factor is selected, an investor would pay $74,174 to receive $100,000 three years in the future. Stated differently, $74,174 will grow into $100,000 in three years assuming ten percent interest compounded annually. Sophisticated investors rely heavily on such analysis.
discounted mortgage loan An adjustable rate mortgage loan offering a low "teaser" rate of interest (a discount) for the first year only. After the first year, the fully indexed interest rate must be paid by the borrower, which can result in payment shock.
discount financing syn cut-rate financing See cut-rate financing.
discount points One discount point is one percent of a loan. The borrower is charged discount points to equalize the interest rate specified in the loan (called the contract rate) with the market interest rate, or simply to produce a profit for the lender. Five points on a $150,000 loan equals a one time charge of $7,500.
discount real estate broker A real estate broker who charges a commission at less than the going rate, say, three percent to four percent instead of six percent, on condition that the seller performs some of the services normally performed by the agent, such as conducting the open house. This also means that the lower commission is available to divide with the selling agent, and for that reason discount listings are not suitable for Multiple Listing Services (MLS). However, the savings to the seller can be substantial.
discovery procedures A complex legal process by which attorneys in pending litigation can obtain files, records and testimony in preparation for trial. In real estate transactions, virtually all records, notes telephone records, escrow documentation, cancelled checks and so forth are available through discovery processes. Witnesses can be subpoenaed to testify in an attorney's office long before trial and can later be discredited if they change their testimony. Discovery is time consuming and expensive, being one of the major costs of litigation. The principal discovery mechanisms are depositions (sworn oral testimony in an attorney's office); written interrogatories (written questions that must be answered in writing, under oath); and subpoenas for documents and records (court orders to produce the documents specified).
disguised option See disguised sale.
disguised sale A sale disguised as an option. A sophisticated buyer offers to pay some cash to a seller for an option to purchase his residence. The option is renewable for several years during which the optionor/seller receives monthly “option” payments. Possession is transferred to the optionee for the option period. After this transaction, the “optionee” sells the home using a contract-for-deed arrangement. As payments are received from the purchaser by the “optionee”, payments are made to the optionor/seller. When the purchaser under the contract for deed pays the balloon called for, the “optionee” exercises the option and makes the purchase with the balloon payment received. In these arrangements the “optionee” will include a power of sale in the contract-for-deed to provide for foreclosure if the purchaser should default. There are risks for all parties in a disguised sale, especially when the original owner/seller is unaware of the details of the transaction.
disintermediation The withdrawal of money from a savings institution (an intermediary) and investment of it in direct market instruments, such as money market funds. Disintermediation together with the practice of making long-term low-interest-rate loans placed the savings and loan industry in an unsound financial condition during the early 1980s.
distressed property Any real property that suffers from a decreasing value in the marketplace. Lower inflation rates, lower relative interest rates, or overbuilding can create distressed properties. Any commercial property that does not produce a positive cash flow is, in a sense, distressed. Any real estate, especially residential property, also may be distressed and suffer a lower price from waste or excessive deferred maintenance. Surrounding blight also can contribute to the troubles of a distressed property. Specialized investors, such as vulture funds, seek out distressed properties hoping to purchase it at bargain basement prices and then reap large capital gains following a turn-around in market conditions.
documentary transfer tax A tax on the transfer of property, imposed by the city and collected by the county recorder. State law limits the maximum to $.55 per $500 of value of the property less mortgage balances.
dog A house that is very difficult to sell, probably because it looks unusually bad for its neighborhood or has a very bad design.
doll house A very small house.
don't wanter A seller who does not want to own his real estate,
usually a house. Such a seller may be disenchanted with a negative
cash flow, poor relations with tenants, or even a divorce. The essential
point is the owner does not want to own his property any longer, and therefore
may accept a lowball offer, no no-money-down deal.
double-ender A sales transaction where the listing agent procures a ready, willing and able buyer and thereby earns both ends of the commission.
double escrow A procedure in which the closing of one escrow is dependent on the closing of another. The procedure is commonly used in exchanges of property as well as in instances where a buyer acquires purchase funds from the sale of the same or another property. The seller of real estate may be unaware that his property is being resold immediately to another buyer through a double escrow deal.
down payment The unfinanced part of the price of a parcel of real estate. Cash to the loan. By custom, earnest money previously paid is applied to the cash down. Salespersons often use initial investment as a euphemism for down payment.
down zoning A change in zoning from uses that customarily attract higher sales prices to uses that result in lower values. A zoning change from multiple family housing to single-family residential use is an example of down zoning. Owners of down-zoned property often contend that an inverse condemnation has occurred because of the now decreased value of their land. However, zoning changes are generally constitutional and do not result in inverse condemnation except under certain limited circumstances, as when no reasonable use is permitted at all.
dragnet clause syn anaconda mortgage, and mother hubbard clause A clause contained in a deed of trust that automatically subjects all debts, past, present, and future, of the debtor to the security of the deed of trust. An aptly named clause!
draw A disbursement of loan proceeds from a construction loan.
dried up market An extremely soft market. The real estate market may sour, or dry up, on a regional basis when some regional economic consequence occurs, such as closure of a military base. Or, a national market can dry up because of generally poor economic conditions.
drive-by A prospective purchaser of residential real estate who drives through desirable areas in which he would like to purchase and reside. "For sale" signs are used to stop drive-bys as well as to promote the listing brokerage firm or salesperson.
dry closing An incomplete delayed close of escrow in which funds
and signed documents are held in suspense pending final disbursement upon
the happening of some future event, such as the close of a second escrow.
dry mortgage Nonrecourse debt. The mortgagor in a dry mortgage
is not personally responsible for payment of the debt. The creditor
is limited to foreclosure of the real estate securing the loan.
dry up A term frequently used to describe an absence of new mortgage capital. For example, mortgage money may become unavailable, that is, dry up just prior to or during a recession. The commercial loan market dried up in the 90s as values deflated on existing properties leaving lenders in the unenviable position of foreclosing on properties worth less then their unpaid principal balances, or discounting loans to new reduced value amounts.
dual agency A situation where one agent simultaneously represents two principals. For example, both the listing agent and the selling agent are agents of the seller, their principal. But the selling agent must necessarily deal in a close relationship with the prospective buyer, who may erroneously believe that the agent is his agent. Some contend that the selling agent is a dual agent to the seller and buyer and cannot serve their conflicting interests without specific disclosure to and consent from both principals. In commercial transactions, a buyer may engage an agent to locate a property, and agree to pay that agent a commission if a property is purchased, The commission is actually paid by the agent's share traditionally received from the listing agent. Thus, to whom does the "buyer's agent" owe his loyalty? Generally, such a "buyer's agent" remains a subagent of the seller's agent and therefore owes his loyalty to the seller. The National Association of Realtors has recommended state laws for mandatory agency disclosure statements to buyers as a part of the closing process. The disclosure would make it clear that the sales agent was working for the seller even though he was providing market information and assistance to the buyer. (See also agent.)
duds and doers Opposites in real estate activities. A dud is a failure; a doer is an achiever.
due date An arbitrarily selected date on which a payment is due
to be paid. Following the due date there is a grace period during
which the payment may be made without penalty. Finally, there is
a delinquency date, and ordinarily the payment must be received by the
creditor before the delinquency date or a penalty for late payment is accrued.
For example, the due date for payment of semi-annual property taxes may
be a month or more before the delinquency date. Most creditors prefer
early due dates in the hope that payments will be received earlier so that
they may earn additional interest before the delinquency date.
due-on clause syn alienation clause An acceleration
clause found in a note or deed of trust. Such a clause calls for
immediate payment of the entire unpaid balance of the mortgage loan upon
the occurrence of some specified event, such as a sale or encumbrance of
the security. When the clause is overly broad, it is often referred
to as a due-on-anything clause. Under some circumstances, such a
clause is not enforceable. See also acceleration.
due-on further encumbrance clause This clause triggers the unpaid balance of a mortgage loan if the borrower records an additional encumbrance, such as a second deed of trust. The lender prefers there be substantial borrower equity during the term of the loan.
due-on-sale clause See alienation clause and acceleration.
dummy syn straw Not a reference to someone's intellectual capacity. Rather, it refers to a person who is appointed, for convenience, to hold title to real property or to perform some act temporarily. It is sometimes used to conceal a principal's identity. A dummy also is called a straw. For example, A and B are joint tenants. A surreptitiously deeds to X, a "straw," who responds by re-deeding (a newly coined word) to A. Neither deed is recorded. A and B are new tenants in common, without the right of survivorship, and B is none the wiser! Joint tenants, even if married, cannot be sure at any given moment that they continue in the joint tenancy relationship.