land acquisition loan A loan for the purpose of acquiring raw land for development. Frequently, the seller of raw land will accept a carryback mortgage for most of the purchase price. Such a loan may offer favorable terms to the buyer, such as “interest only,” and subordination to future development and construction loans. Some development loans include funds earmarked for acquisition of the project’s land, i.e., payoff of the seller’s carryback mortgage. See subordination agreement. Large and well capitalized buyers of development land (e.g., subdividers) may use their working capital to buy land for cash and, accordingly, drive especially hard bargains (i.e., negotiate very favorable prices).
land contract syn contract for deed, installment land contract See contract for deed.
landlocked Without access. A parcel is landlocked when it has no legal right of access to a public way. The law disfavors transactions that landlock parcels. For example, if a landowner sells off the front of his parcel that borders the only public way in the area, and retains the landlocked rear, the law will imply an easement of access over the portion sold. Although that easement is not written anywhere, on request the court will declare its existence and location, and it then will be shown on record. Cities and counties, where applicable, will not permit lot splits or transactions that result in landlocked parcels.
landlord The owner, or owner's agent, of a rental property. It is a historic word that carries some negative connotations, as does the term tenant. In residential properties, many owners now refer to tenants as residents to avoid any unpleasant connotations.
landlord’s lien A statutory lien in favor of an unpaid landlord that provides a mechanism for storage of the absent tenant’s belongings, and their ultimate sale to pay for the storage costs and unpaid rent.
land office business A real estate organization doing as much business as it can handle. Good business.
land packager One who ties up predevelopment land (perhaps with options), prepares it for development by obtaining a tentative subdivision map, and then offers it for sale to a developer.
land poor The status of owning large equities in raw land, but being short of cash due to the negative cash flow brought about by taxes, insurance, and perhaps interest. This aspect is why raw land is called an alligator investment, it eats up your cash.
landscape architect A professional person who is licensed to design landscape features surrounding a real estate project.
landscape contractor A contractor licensed to construct the designs of landscape architects.
landscape designer A nonlicensed specialist usually involved in
landscape design where plans and specifications for building permits need
not be certified by an architect or civil engineer.
large lot zoning syn low-density zoning See exclusionary
zoning.
lawsuit syn litigation A formal legal proceeding initiated by a summons and complaint in a trial court. A lawsuit that is not settled will ordinarily result in a judgment in favor of either the plaintiff or defendant. The purpose of a lawsuit is to finally determine facts (i.e., what really happened) and to compensate the victims.
lawyer’s law syn procedural law The huge body of statutes and court rules that govern the procedural steps involved in all aspects of litigation. For example, the laws governing the taking of depositions, of whom, by whom, when, where and concerning what are examples of the procedural, or lawyer’s law. Many trial lawyers view the procedural law (also called a “paper blizzard”) as a very valuable weapon in the arsenal of tactics that are involved in the adversary system.
lead lender A primary lender in a large loan package who often makes the major portion of the initial or interim loan and also arranges for long-term financing with other lenders.
leapfrog development A development that jumps over, or bypasses, undeveloped parcels. A checkerboard pattern may result from extensive leapfrogging. It is considered an undesirable development pattern.
lease A contract between an owner of real estate, called the landlord, and a tenant the effect of which is to create a leasehold. See leasehold.
leaseback rent guarantee A special technique to overcome vacancy problems in the sale of an office building. The seller leases back vacant space for a period of time to provide the buyer with the income stream bargained for in the original transaction. The leaseback typically has an outside time limit at which point it ceases. The seller hopes to generate his lease payments from sub-leases to tenants. In a sale-leaseback, the owner leases back the entire premises.
leased-fee mortgage A mortgage loan secured by a landlord's interest in real estate (the reversion) that is subject to a leasehold.
leasehold An interest in real estate created by a contract called a lease. The leasehold owner is entitled to possession and the landowner is entitled to rent. The parties may choose to allocate the costs of ownership and occupancy (such as property taxes and utilities) between themselves. There are four types of leaseholds. A tenancy for years is a leasehold that automatically terminates at the end of a specified period, such as five years. A periodic tenancy is a leasehold that endures from period to period, with an indefinite termination date. Each period the leasehold is automatically renewed for another period, unless it is terminated by the landlord or tenant. Many apartment owners use a month-to-month tenancy, that is, a periodic tenancy. The tenancy at will has no specific termination date and simply endures until ended by the landlord or tenant. Finally, a tenancy at sufferance exits when a tenant wrongfully refuses to vacate at the end of the leasehold. This tenancy is not really a leasehold, rather it is a status.
leasehold mortgage A mortgage loan secured by a tenant's leasehold interest. Note that a long-term lease below market rate enjoys a large “bonus” value that would be attractive collateral. On the other hand, a long-term lease above market rate can be a noose around one’s neck.
lease-option syn lease with option to buy See lease with option to buy.
lease with option to buy syn lease-option A lease that gives the tenant the right to purchase the premises at a stated price upon stated terms. A portion of the rent may count as part of the down payment, or price, in the event the option is exercised. The lease-option is a favorite method to purchase real estate because it does not require an initial down payment. The advantages to sellers include a top-dollar sales price, that the option money isn't taxed until the option is exercised, that the rent is usually above market, and that the tenant/buyer usually takes good care of the house because he intends to own it someday. The advantages to the buyer/tenant include low up-front cash requirement, a potential profit should the property increase in value during the option term, that all or part of the rent applies to the purchase price, and that there is no need to qualify for an institutional loan. See also option.
lease with option to renew A lease with a clause that gives the tenant the unilateral right to extend the lease for another term at a specified rent. Typical in commercial leases.
leasing co-op A variety of co-op in which the co-op association does not buy the residential property but rather leases the entire structure and manages it for the benefit of its residents.
legal assistant See also paralegal. Person qualified through education, training, and/or work experience to be employed or retained by a lawyer, law office, government agency, or other entity in a capacity or function that involves the performance, under the ultimate direction and supervision of an attorney, of specifically delegated substantive legal work. This work, for the most part, requires sufficient knowledge of legal concepts that, absent such assistants, the attorney would perform the task.
lemonading Adding cash to an offer to exchange a bad investment property for a better investment property. The bad investment is the "lemon" to which the cash, or "sugar" is added, to make the successful exchange, which is the "lemonade".
lessee A party to a lease who pays rent to the landlord in exchange for the possession and use of real property, such as a person who rents an apartment.
lessor The landlord. A party to a lease who accepts rent from a tenant in exchange for the possession and use of real property by the tenant. The lessor is more commonly called the landlord.
letter of credit A guarantee by a bank of a sum of money payable to a beneficary on behalf of the bank’s customer (called the “applicant” or “account party”). In real estate transactions, standby letters of credit may be used to secure future performance, such as completion of off-site improvements. In such situations, a city or county may accept a standby letter of credit (as beneficiary) in the amount necessary to construct improvements. In the event the specified improvements are not constructed by the developer (“applicant”), the city or government can look to the issuing bank for the money. The law governing letters of credit is found in Article 5 of the Uniform Commercial Code.
letter of intent A written expression of the intent to make a real estate acquisition or to take some future action. A letter of intent is a preliminary step to allow a prospective buyer additional time to evaluate a possible acquisition without drafting a detailed offer to purchase. Standing alone, it typically is not a legally enforceable contract, although it can blossom into enforceability depending upon the circumstances that follow its issuance. The signature of the seller is typically required and some degree of commitment is thereby made, at least to the extent that the property must be held available.
lettuce Money used to bribe a public official in a zoning, development or construction matter. “Joe, did you bring the lettuce?”
level-payment mortgage A mortgage featuring a constant, or level, monthly payment for the life of the loan, although changes in its interest rate may require the extension of its term, or lead to negative amortization.
leverage The ratio between the amount of financing and the amount of equity in real estate. A ninety percent leverage means the owner has a ten percent equity position. If the property increases in value by ten percent, the equity owner has doubled his position which is a one hundred percent return. Or, if the real estate decreases in value by ten percent, the equity has been wiped out through reverse leverage. Leverage, under such circumstances, has become one hundred percent.
lien A form of encumbrance that usually makes property the security for the payment of a debt or the discharge of an obligation. Examples of involuntary liens are a judgment lien, and a tax lien. A mortgage is a voluntary lien. Like other encumbrances, liens must be recorded to preserve their priorities.
lien release A document executed by a lien holder (the creditor) that lifts a lien from the real property. A contractor may ask for a lien release from a subcontractor before payment to make certain that no mechanic’s lien problem can arise thereafter. A judgment debtor who pays off a judgment creditor will obtain a lien release that, when recorded, releases the lien from his land.
life estate An ownership estate in real property characterized by the full use and possession of the property for one’s life; upon death the life estate is automatically terminated and the remainderman is instantly vested with a fee. The most important characteristics are: (1) that life tenants cannot cut off the future interests of their remainderman, as through conveyance or by Will, and (2) there are no state or federal death taxes on the value of a life estate upon the life tenant’s death. The owner of a life estate is called a life tenant.
life tenant The owner of a life estate. Life tenants are entitled to the possession of the property until they die.
light industrial zone A type of zoning that generally authorizes specified industrial uses, such as painting, but that excludes most manufacturing uses.
light rail system A railway system designed to transport people from suburbs to downtown commercial and employment centers.
light manufacturing zone A zoning designation permitting specified manufacturing/industrial land use, not including heavy machinery or heavy truck traffic. Many other restrictions may be placed on the activities of the users.
like kind exchange syn tax-free exchange See tax-free exchange.
limited liability company (LCC) An unincorporated entity that combines the partnership benefits of flow-through taxation and management flexibility with the corporate benefit of limited liability. LCCs enjoy a single level of tax instead of the two-level corporate system. They are not required to follow any corporate formalities (e.g., directors’ meetings) in operations. It is not available to professionals who are licensed under the Business and Professions Code (e.g., lawyers, accountants and physicians) who may elect to operate in the similar limited liability partnership (LLP).
limited liability of stockholders Refers to the fact that regardless of the number of shares owned, a stockholder is normally not liable for the debts of the corporation beyond the extent of his or her investment. This limited liability is considered a primary advantage of corporate ownership.
limited liability partnership, (LLP) A variation of the general partnership in which if the firm (of lawyers, for example) is sued by a client for malpractice, only the lawyer(s) actually guilty of the tortious conduct is (are) liable without limit. Of course, firm assets and firm professional liability insurance would first be exhausted.
limited partner An investor in a limited partnership who is granted protection from the debts and liabilities of the partnership. Ordinarily a limited partner risks only his initial investment in the partnership because the statutory partnership law insulates him from further liability.
limited partnership A partnership composed of at least one general partner and limited partners. The chief distinctions between limited partnerships and general partnerships is that, by statute, limited partners are not personally liable for the debts of the organization, and normally do not participate in its management. See real estate limited partnership, RELP.
line-of-credit mortgage syn expandable second mortgage A second mortgage given to secure periodic advances of cash on an as-needed basis. In effect, a homeowner can obtain an unrestricted line of credit through such a mortgage. Cash is received, that is, loan proceeds are disbursed, whenever the homeowner desires, in whatever amounts the homeowner desires, up to agreed on limits. Interest paid on these loans is tax deductible. See home equity loan.
linkage Linkage is a term used to describe the time-distance relationships between a site and certain destinations of typical users, such as shopping centers, schools, public transportation, and jobs. Sales agents merge the concept of linkages into their expression “location, location, location.”
liquidated damages An amount of money that the parties to a contract agree represents a fair and proper amount of damages that should be paid by either one of them who wrongfully breaches the agreement, to the other innocent party. Commonly used in real estate purchase agreements; rarely used in lease agreements.
liquidated damages clause A contract provision in which the parties agree that a specified amount of money is adequate compensation in the case of a breach. The parties accordingly are aware of their exposure in the transaction. In real estate, the most common example of liquidated damages occurs in deposit receipt transactions where earnest money is agreed to be forfeited should the buyer wrongfully fail to complete the purchase. Inclusion of a “listing price” in a listing agreement is an example of a disguised liquidated damages clause.
lis pendens A recorded document that gives legal notice to the world of the filing of a legal action affecting specified real property. A lis pendens may be recorded only when the underlying lawsuit claims title to or possession of the property. Once recorded, it becomes a cloud on title. Its purpose is to prevent a defendant from conveying away property that otherwise could be obtained by the plaintiff in the lawsuit. A bona fide lis pendens may be expunged by court order on the posting of an adequate bond. Or, an improper lis pendens may be expunged by the court without bond following a preliminary court proceeding. The buyer of property subject to a lis pendens would effectively be "buying a lawsuit." See also judicial remedies.
list The act by a prospective seller of hiring a real estate broker to hunt for a buyer of his or her real property. The document which establishes the employment relationship is called a listing. For example, “I am going to list my house” and, “I signed a listing” and, “My house is listed with ABC Realty.” Clearly, the word “list” is a euphemism for “employ.” Perhaps it is an easier sale to ask “List your house with me” than “Employ me as your agent.”
listing An employment contract between an owner of real estate
and a licensed real estate broker. Under such an agreement, the licensee
is an agent, the landowner is the principal, and the purpose is to consummate
a sale. The agent is authorized to hunt for a buyer, and the principal
is obligated to pay compensation, called a commission, to the agent if
a ready, willing and able buyer is found at the price and terms set forth
in the listing, or any other price and terms acceptable to the seller.
The term listing is somewhat of a euphemism because a listing agreement
carries with it serious potential dangers for a homeowner. There
are three basic varieties of listings: the open listing, the exclusive
listing, and the exclusive-agency listing. All listings include such
details as its duration, the compensation (commission) to be paid, authorization
for multiple listing, the advertising budget, and whether it is an open
exclusive, or exclusive-agency listing.
In an exclusive listing, a commission is due the agent even if
the homeowner personally finds the buyer during its term. In an open
or exclusive agency listing, a commission is not due if the homeowner personally
finds the buyer. See open listing, exclusive listing, and exclusive-agency
listing.
listing agent An agent who obtains a listing, that is, a contract to solicit a buyer on behalf of his principal, the seller. An agent must be licensed by the state to solicit listings or buyers, or to engage in any other aspects of negotiating the sale or purchase of real estate. Some agents specialize in obtaining listings, other agents specialize in the selling function. Commissions paid by the seller are traditionally shared by the listing agent and the selling agent.
listing agreement See listing.
listing package Information about a specific parcel of real estate, including its legal description, a list of encumbrances, the name and address of its owner, and the status of property taxes. Title companies may prepare a listing package for a customer in the expectation that it will receive the escrow and title insurance business when the property sells.
litigious Excessively inclined to resolve disputes and claims through lawsuits rather than by negotiation or other methods.
LLC limited liability company See limited liability company.
LLP limited liability partnership See limited liability partnership.
load The front-end costs (initial expenses) in a limited partnership syndication, including sales commissions on raising capital, organization and offering expenses (incorporating, printing and advertising, for example), acquisition fees (commissions), and working capital reserves. Often one third of the capital raised is consumed by the front-end load, leaving only two-thirds for the real estate investment. A no-load syndication charges no sales commissions on the capital it raises directly, but it does charge the other front-end loads, leaving three-fourths or more of the capital for the real estate investment. Even no-load syndications may pay a sales commission to third-party broker dealers who raise capital.
load factor Not all the space in an office building is capable of generating rent. The percentage of non-rentable space is its load factor. Areas such as hallways, stairwells, and rest rooms are typically not included in the tenant's lease. The load factor is a percentage figure created by dividing the square footage of non-income-generating space by the total square footage of the building. The lower the percentage, the more effective the building is in generating income due to its design.
loan syn finance See finance.
loan commitment A promise by a lender to provide financing according to specified terms at some future date. A verbal loan commitment is not enforceable unless supported by consideration. Terms of a committed loan frequently will be “locked” for an agreed period of time providing the borrower with an effective option.
loan correspondent A loan representative who negotiates and/or services mortgage loans. A loan correspondent often works for an out-of-state lender. See servicing.
loan fees The fees that are incurred to obtain a mortgage loan. These fees are in addition to interest charges and may include charges for a loan application, a loan origination fee (called points), an appraisal fee, a credit report fee, an inspection fee, an attorney's fee, and a mortgage insurance premium.
loan modification A type of refinancing in which an existing loan is simply modified, instead of replaced. Modification may involve an increase in the amount of the loan as well as a change in its interest rate. Points are normally not charged in connection with a modification, although a small "token" fee may be charged. Loan modifications are possible when the original lender has retained the loan (i.e., it is a portfolio loan). Loans sold in the secondary mortgage market usually cannot be modified.
loan origination fee A lump sum fee paid by a mortgage borrower to the lender, who in turn pays it to a mortgage broker who introduced the borrower to the lender. Often the fee is called “points” when it is charged to the borrower, and called “a loan origination fee” when paid by the lender to the mortgage broker.
loan package A group of financing documents presented to an escrow by a mortgage lender with instructions to disburse loan proceeds when certain conditions are met. Mortgage lenders may fund the escrow at the last minute before escrow closes even though the loan package is forwarded much earlier to allow time for the escrow officer to obtain signatures and data. Sometimes a loan application with supporting documentation, supplied to a lender from a developer is also referred to as a loan package.
loan ratio The ratio of a prospective loan amount to the appraised value of a home. For example, a buyer that needed to borrow $100,000 to buy a home with an appraised value of $125,000, would ask the lender to accept a loan ratio of 80% ($100,000/125,000 = 80%). Also called the loan-to-value ratio.
loan-to-value ratio, (LTV) The ratio of a mortgage loan to the market value of the real estate securing the loan. Lenders prefer a low ratio to guarantee collecting the loan amount even if the borrower defaults and they must foreclose. Borrowers prefer a high loan ratio, preferably one hundred percent, to keep as much of their working capital available as possible. Some developers and builders overstate construction costs and obtain inflated appraisals to obtain larger loans, that is, higher loan-value ratios. Many lenders are aware of this practice and take it into consideration in their loan approval process.
loan underwriting The process of evaluating the acceptability of a prospective borrower’s loan application. Underwriters adhere to rules, policies and company practices to determine whether or not a specific loan ought to be made or denied.
location, location, location A phrase that emphasizes how important location is to the desirability, and hence the value of real estate.
locked-in interest rate An interest rate guaranteed by the lender, even if interest rates should rise between the time of the quotation and the time the loan closes. Quoted interest rates may become locked-in at the time of application for the loan, later on when the loan is approved, or not until the loan escrow is closed.
locked-in loan A mortgage loan that cannot be prepaid prior to its maturity. Some notes call for a specified sum each month, "or more." Such a provision means the loan is not locked in. In some states, a mortgage loan secured by residential property of four or less units legally may not be locked in. If a borrower desires to prepay a locked-in loan, the lender can negotiate a prepayment fee or penalty, or simply refuse if permitted to under state law. Usually creditors will, by the terms of their note, accept some prepayment each year without penalty.
locked-out home buyers Potential purchasers who cannot afford to purchase available housing.
lo-doc loan A mortgage loan for those persons who cannot easily substantiate their income, or who are in an exceptional hurry to close a deal. Most of the typical documentation required by lenders is waived. The obvious benefits to the borrower of a lo-doc loan are offset by the requirement for a large down payment of, say 25 percent, plus a higher interest rate, and plus higher origination and/or garbage fees.
log home A modern log cabin based on the usefulness of logs as an efficient building material. Its popularity is hampered by building codes which are directed towards stick-built houses.
lot A parcel of land zoned for commercial or residential development of a single structure.
lowball offer An offer to purchase real estate that is much lower than the asking price. A lowball offer may insult a seller or result in a "steal".
low-density zoning syn large lot zoning See exclusionary zoning.
LTV loan-to-value ratio See loan-to-value ratio.