Real Estate Encyclopedia: Page 6

Key Takeaways

• A Home Equity Conversion Mortgage (HECM) is an FHA-insured reverse mortgage that lets homeowners aged 62 or older convert part of their home equity into cash.
• HUD lists the 2026 HECM maximum claim amount as $1,249,125, which caps the home value used to calculate the loan.
• Unlike a traditional mortgage, the lender makes payments to the homeowner, in a lump sum, monthly payments or a line of credit.
• A HECM reduces the home equity left for heirs, and fees and closing costs can be higher than on traditional loans.
• HECM borrowers receive counseling and a financial assessment before the loan is made, so confirm the current requirements with an FHA-approved lender.

A Home Equity Conversion Mortgage (HECM) is the FHA-insured reverse mortgage for homeowners aged 62 or older: it turns home equity into lump-sum, monthly or line-of-credit payments, with no required monthly mortgage payment while the borrower lives in the home.

Key Takeaways

• The Home Affordable Modification Program (HAMP) was a federal mortgage modification program launched in 2009 as part of the Making Home Affordable (MHA) plan to help homeowners avoid foreclosure.
• HAMP is no longer open: Treasury reports the Making Home Affordable program expired at the end of 2016.
• Under HAMP Tier 1, servicers modified loans in sequence (lower rate, longer term, sometimes principal deferral or forgiveness) to reach a payment of 31 percent of the borrower's gross monthly income.
• Borrowers first completed a trial period of modified payments before a permanent modification.
• HAMP's structure still shapes the modification options servicers offer today.

The Home Affordable Modification Program (HAMP) was a federal program, launched in 2009 under the Making Home Affordable plan, that gave financial incentives to mortgage servicers to modify loans for struggling homeowners so their monthly payments became affordable.

Key Takeaways

• Holding over is when a tenant stays in a rental property after the lease expires without the landlord's consent.
• A holdover can lead to eviction proceedings, lost rental income and legal costs for the landlord, and to penalties for the tenant.
• Holdover penalties such as double rent depend on the jurisdiction, so landlords and tenants should check local rules.
• Holding over differs from a month-to-month tenancy, which both sides agree to, and from a lease renewal, which is a signed extension.
• Clear lease terms about post-lease occupancy and early communication are the most effective ways to prevent holdovers.

Holding over is a tenant's continued occupation of a rental property after the lease term ends, without the landlord's agreement to a renewal, extension or new tenancy. The tenant who does so is called a holdover tenant.

Key Takeaways

• Historical designation is a status given to properties recognized for historical, cultural, architectural or archaeological significance.
• The National Register of Historic Places is the official federal list of significant properties; listing alone places no restrictions on what a private owner may do with the property, according to the National Park Service.
• Restrictions on alterations and demolition can come from local landmark or historic district ordinances and state laws, even when the federal list adds none.
• The federal historic tax credit equals 20 percent of qualified rehabilitation expenses but is available only to income-producing properties, so a purely owner-occupied home does not qualify for it.
• Designation can raise desirability but also narrows the buyer pool and adds approval steps, so its effect on value varies by market.

Historical designation is an official status that recognizes a building, site or district for its historical, cultural, architectural or archaeological significance, granted by a federal, state or local body.

Key Takeaways

• A high equity property is a property whose market value far exceeds the mortgage and other liens against it, so the owner holds a large ownership stake.
• Equity equals market value minus outstanding mortgage balance: a $400,000 home with a $50,000 mortgage carries $350,000 in equity.
• Homeowners with high equity can borrow against it through a home equity loan, a HELOC, a cash-out refinance or a reverse mortgage (for owners aged 62 or older).
• High equity lowers foreclosure risk but does not remove it, and falling home values can shrink equity.
• Investors and agents treat high equity as a sign of financial flexibility and, often, of a seller who has room to negotiate.

A high equity property is a property whose owner holds a large share of its value outright, with little or no mortgage or other debt against it. There is no legal cutoff for "high": lenders and investors set their own, and many investors look for owners with roughly 40 to 50 percent equity or more.

Key Takeaways

• HVAC stands for Heating, Ventilation, and Air Conditioning, the system that controls a building's temperature, humidity and air quality.
• An HVAC system usually includes a furnace or boiler, an air conditioner or heat pump, ductwork, fans and filters.
• Efficiency is rated with SEER for air conditioners and AFUE for furnaces, and higher ratings mean lower energy use.
• The age and condition of the HVAC system is a major negotiating and inspection point in a sale, since replacement is a large expense.
• The federal Energy Efficient Home Improvement Credit (Section 25C) applied to qualifying property placed in service through 2025: the IRS lists up to $2,000 per year for heat pumps. The IRS page states property placed in service before December 31, 2025, so check the IRS for any current credit.

An HVAC system is the combined equipment, such as a furnace, air conditioner or heat pump, ducts and filters, that heats, cools and ventilates a building to keep its temperature, humidity and air quality comfortable.

Key Takeaways

• Hazard insurance is property insurance that pays for damage to a home's physical structure from covered perils such as fire, lightning, windstorms and hail.
• Mortgage lenders usually require it, and it is commonly the dwelling-coverage part of a homeowners policy.
• Floods and earthquakes are typically excluded and need separate policies.
• If a borrower lets coverage lapse, the servicer can buy force-placed insurance, which is often more expensive and protects mainly the lender.
• Under federal rule 12 CFR 1024.37, a servicer must send written notice at least 45 days before charging for force-placed insurance and a reminder at least 15 days before the charge.

Hazard insurance is the part of property insurance that pays to repair or rebuild a home's structure after damage from covered perils like fire, wind and hail, and it is the coverage mortgage lenders require to protect their collateral.

Key Takeaways

• A hard money loan is a short-term loan secured by real estate and funded by private investors or companies, with the property's value rather than the borrower's credit as the main underwriting factor.
• Typical terms run from 6 months to 3 years, with interest rates of about 8% to 15% or higher and loan-to-value ratios of roughly 60% to 75%.
• Approval and funding can take a few days to a week, which makes hard money popular for fix-and-flips, bridge loans, construction and auction purchases.
• Hard money is more expensive than conventional financing, and defaulting can cost the borrower the collateral property, so a firm exit strategy is essential.
• Hard money loans are generally used for investment properties rather than primary residences, in part because lending rules differ for business-purpose loans.

A hard money loan is a short-term, asset-backed loan from a private lender, secured by real estate and priced higher than a bank mortgage in return for speed and flexibility.

Key Takeaways

• A hard money lender is a private individual or company that makes short-term loans secured by real estate, underwriting mainly on the value of the property rather than the borrower's credit and income.
• Typical hard money terms are 6 to 36 months, interest rates of about 8% to 15%, and loan-to-value ratios capped around 60% to 75%.
• Approval and funding often take days rather than weeks, which suits fix-and-flips, bridge financing, land purchases and auction buys.
• Hard money costs more than bank financing, and a missed payoff date can lead to foreclosure, so investors need a clear exit strategy.
• Rules vary by state, and hard money lenders are not exempt from consumer lending law: whether a loan is treated as business-purpose or consumer-purpose is decided by its use, so confirm with a real estate attorney.

A hard money lender is a private lender that gives short-term, asset-based loans secured by real estate, funding deals faster and with fewer credit requirements than a bank.

Key Takeaways

• The habendum clause is the part of a deed, introduced by the words "to have and to hold," that describes the type and extent of the estate the grantee receives.
• It follows the granting clause, which names the grantee and conveys the property, and it can specify estates such as fee simple absolute, life estate or leasehold.
• If the habendum and the granting clause conflict, the traditional common-law rule gives priority to the granting clause, but courts and states vary, so unclear wording invites disputes.
• Many modern deeds, especially statutory short-form deeds, fold the estate language into the granting clause and do not have a separate habendum, so a missing habendum is not by itself a defect.
• Always have a real estate attorney read a deed with conditions, life estates or reversionary language.

A habendum clause is the section of a deed, traditionally beginning "to have and to hold," that defines the type of ownership interest and any limits on the estate being transferred to the grantee.

Key Takeaways

• A Growing-Equity Mortgage (GEM) is a fixed-rate loan whose monthly payment rises on a schedule, with every increase applied to principal so the loan pays off faster.
• HUD's archived description of the FHA Section 245(a) program says first-year payments follow a 30-year level schedule, then rise 1 to 5 percent each year, with a loan term no longer than 22 years.
• Because the extra money goes to principal, a GEM builds equity faster and costs less interest than a level-payment mortgage at the same rate.
• GEMs suit borrowers who expect their incomes to rise; the main risk is that the rising payments become hard to meet if income stalls.
• GEMs are uncommon today: HUD's archive page, last modified in 2000, says HUD was considering eliminating the program, so confirm availability with lenders.

A Growing-Equity Mortgage (GEM) is a fixed-rate home loan with scheduled monthly payment increases that go entirely toward principal, shortening the loan term and cutting total interest.

Key Takeaways

• A group boycott is an agreement between two or more competitors to refuse to deal with, or to exclude, another business, and it can violate Section 1 of the Sherman Act.
• In real estate, boycotts typically involve denying a competitor access to a Multiple Listing Service (MLS), listings, clients or vendors.
• Under 15 U.S.C. 1, a Sherman Act violation is a felony: individuals face up to $1,000,000 in fines and 10 years in prison, and corporations up to $100,000,000 in fines.
• Not every refusal to deal is illegal: a single business can usually choose its own partners, and courts examine some group arrangements under a rule-of-reason test rather than treating them as automatically illegal.
• Victims can report suspected boycotts to the Federal Trade Commission (FTC) or the Department of Justice Antitrust Division and should seek legal advice.

A group boycott is an agreement among competitors to cut off a rival from customers, suppliers or market access, and it is a form of anticompetitive conduct under United States antitrust law.

Key Takeaways

• Ground rent is a recurring payment a leaseholder makes to the owner of the land under a leasehold property, and it is set out in the lease.
• Ground rent is usually paid annually, semi-annually or quarterly and can be fixed or rise through escalation clauses linked to inflation or market value.
• Non-payment can lead to legal action and, under the lease terms, even forfeiture of the lease.
• In England and Wales, the Leasehold Reform (Ground Rent) Act 2022 sets the permitted ground rent on new regulated leases at a peppercorn rent, meaning one peppercorn a year.
• Ground rent is not a property tax: it goes to the landowner, while property taxes go to the government.

Ground rent is a recurring payment a leaseholder makes to the owner of the land under a property, in exchange for the right to occupy and use it under the lease.

Key Takeaways

• Gross Rent Multiplier (GRM) equals a property's purchase price divided by its annual gross rental income, so a $500,000 property earning $60,000 a year has a GRM of 8.33.
• A lower GRM means fewer years of gross rent are needed to equal the price, which is why a lower number generally signals a better deal when the properties are comparable.
• GRM ignores operating expenses, vacancies and financing, so it works as a first screen and should be followed by Net Operating Income (NOI) and cap rate analysis.
• What counts as a good GRM depends on the market and property type, so compare against similar properties in the same area.

The Gross Rent Multiplier (GRM) is a valuation ratio that divides a rental property's price by the gross rent it collects in a year, giving a quick read on how many years of rent it would take to pay for the property.

Key Takeaways

• Gross Monthly Income (GMI) is the total income a person earns in a month before taxes and other deductions.
• Lenders use GMI to calculate debt-to-income (DTI) ratio, which is monthly debt payments divided by GMI.
• Under the common 28/36 guideline, housing costs stay within 28% of GMI and total debt within 36%; a $6,000 GMI gives a $1,680 housing target.
• Lenders and landlords typically verify GMI with pay stubs, tax returns or bank statements.
• GMI differs from net income, which is what remains after taxes and deductions.

Gross Monthly Income (GMI) is the total income a person earns in a month before taxes or deductions. This guide explains how GMI works in 2026 and why lenders and landlords rely on it.

Key Takeaways

• A gross lease is a rental agreement in which the tenant pays a flat rent and the landlord pays property expenses such as taxes, insurance and maintenance.
• Gross leases are most common in commercial real estate, especially office space.
• Tenants get predictable monthly costs; landlords take the risk of rising operating expenses.
• A net lease differs because the tenant pays some or all property expenses on top of base rent.
• Utilities are often separate, but exactly what is included depends on the lease.

A gross lease is a rental agreement where the tenant pays one flat rent and the landlord covers the property's operating expenses. This guide explains how a gross lease works in 2026 and how it compares with net leases.

Key Takeaways

• Gross Floor Area (GFA) is the total floor space of a building, usually measured to the outside of its exterior walls.
• GFA cost is a project's cost divided by its GFA, which gives a cost per square foot for comparing buildings.
• Definitions differ by jurisdiction, so what counts toward GFA for zoning must be checked against the local code.
• GFA is used in construction costing, valuation, zoning limits and rent projections.
• Floor Area Ratio (FAR) divides a building's total floor area by its lot size and is a common zoning limit.
• GFA is larger than net or rentable area because it includes walls, structure and common space.

Gross Floor Area (GFA) is the total floor space of a building, adding up all enclosed floors and usually measuring to the outside of the exterior walls. Developers use it to set construction budgets, so GFA cost means the project cost divided by that area. Zoning codes use it to limit how much can be built.

Key Takeaways

• A grantor is the individual or entity that transfers property rights to another party, typically the seller or original owner.
• The grantor transfers ownership through a deed, such as a warranty deed, grant deed or quitclaim deed.
• A grantor must have legal capacity, meaning legal age and sound mind, and the authority to transfer the property.
• Sellers acting as grantors typically pay off liens and mortgages from sale proceeds at closing so the buyer receives clear title.
• In a trust, the grantor (also called the trustor) is the person who creates the trust and transfers assets into it.

A grantor is the person or entity that transfers ownership of real property to another party through a deed. This guide explains the grantor's role in 2026.

Key Takeaways

• A grantee is the person or entity that receives title to real property from a grantor, which in a sale is the buyer.
• The grantee must be clearly named in the deed; an incorrect name can cause disputes over ownership.
• A grantee can be an individual, corporation, trust or other legal entity, and there can be multiple grantees.
• After closing, the grantee takes on responsibilities such as property taxes and maintenance.
• Title searches and title insurance help a grantee confirm and protect ownership.

A grantee is the party who receives ownership of real property in a deed. This guide explains the grantee's role in 2026, why it matters and how it differs from the grantor.

Key Takeaways

• A grant in real estate is the formal transfer of property ownership from one party to another, usually evidenced by a deed.
• The grantor transfers the property and the grantee receives it.
• Common grant instruments include warranty deeds, quitclaim deeds and grant deeds, which differ in the assurances they give.
• A grant is not complete until the deed is delivered to and accepted by the grantee, and the deed is typically recorded in county public records.
• Transfers may trigger taxes and recording fees that vary by state and county.

A grant in real estate is the formal transfer of property ownership from one party to another, typically evidenced by a written deed. This guide explains how a grant works in 2026 and why it matters.

Key Takeaways

• The Gramm-Leach-Bliley Act (GLBA), enacted in 1999, requires financial institutions to explain their information-sharing practices and protect customers' sensitive data.
• The GLBA has three parts that matter most in real estate: the Financial Privacy Rule, the Safeguards Rule and pretexting protection.
• Per the FTC, the Safeguards Rule requires covered companies to build, run and maintain an information security program with administrative, technical and physical safeguards.
• Mortgage companies and title companies commonly handle GLBA-covered data; whether other professionals are directly covered depends on the services they provide.
• Non-compliance can bring fines, legal action and reputational damage.

The Gramm-Leach-Bliley Act (GLBA) is a 1999 federal law that requires financial institutions to disclose how they share consumers' personal financial information and to safeguard it. This guide covers what the GLBA requires and how it applies to real estate in 2026.

Key Takeaways

• The Good Faith Estimate (GFE) was a standardized form that listed a borrower's expected mortgage costs, and it is no longer used for most mortgages.
• The Loan Estimate replaced the GFE in 2015 as part of combined mortgage disclosure rules.
• Lenders had to provide the GFE within three business days of receiving a loan application; the CFPB says the same three-business-day deadline applies to the Loan Estimate today.
• The GFE was required under the Real Estate Settlement Procedures Act (RESPA).
• The GFE let borrowers compare lenders and reduced "bait and switch" fee surprises at closing.

The Good Faith Estimate (GFE) was a standardized disclosure that U.S. lenders gave mortgage applicants to itemize expected loan costs. Although replaced by the Loan Estimate in 2015, understanding the GFE provides context for how mortgage disclosures promote transparency and protect consumers in 2026.

Key Takeaways

• A gift letter is a signed statement that money given to a homebuyer is a gift, not a loan, and needs no repayment.
• Lenders ask for it so gifted down payment funds are not counted as debt in the buyer's debt-to-income ratio.
• A gift letter typically names the donor, the donor's address and relationship to the borrower, the gift amount and a no-repayment statement.
• Lenders may also ask for bank statements showing the donor can afford the gift; requirements vary by lender and loan program.
• The IRS annual gift tax exclusion is $19,000 per recipient in both 2025 and 2026, and the donor, not the buyer, is generally responsible for any gift tax.

A gift letter is a formal document used in real estate transactions to confirm that money a homebuyer receives from a relative or friend is a gift, not a loan. This guide explains what a gift letter is, how it works in 2026, and why lenders require it.

Key Takeaways

• GAAP, or Generally Accepted Accounting Principles, is the set of U.S. accounting rules and standards that companies follow to prepare consistent, comparable financial statements.
• The Financial Accounting Standards Board (FASB) sets GAAP for non-governmental entities, including real estate companies.
• GAAP is required for U.S. public companies and is commonly demanded by lenders and investors from private ones.
• Real estate companies apply GAAP to revenue recognition, lease accounting, depreciation, and impairment of property.

Generally Accepted Accounting Principles (GAAP) are the standardized accounting rules, set by the Financial Accounting Standards Board (FASB) for U.S. non-governmental entities, that govern how financial statements are prepared and presented.

Key Takeaways

• A general warranty deed transfers property from a grantor to a grantee and carries the grantor's promises about title for the entire history of the property.
• It protects the buyer more than a special warranty deed (which covers only the seller's period of ownership) or a quitclaim deed (which carries no warranties).
• The deed must be signed, notarized, and recorded with the county to become part of the public record.
• A warranty deed is only as good as the grantor's ability to pay, so buyers usually also buy title insurance.

A general warranty deed is a deed in which the seller (grantor) promises the buyer (grantee) that the seller holds good title and will defend it against claims arising at any time in the property's history, not only during the seller's ownership.

Key Takeaways

• A general contractor is the licensed professional who manages a construction or renovation project from start to finish, coordinating subcontractors, schedule, budget, and permits.
• General contractors hire and supervise subcontractors for specialized work such as plumbing, electrical, and carpentry.
• Most regions require general contractors to be licensed, and they typically carry liability insurance and sometimes a bond.
• Investors use a general contractor to run rehab and development work, and to control budget, timeline, and quality.

A general contractor is the person or company hired by a property owner to oversee a construction or renovation project, hire subcontractors, and deliver the work on schedule, on budget, and to code.

Key Takeaways

• Garnishment is a court-ordered process that directs a third party, such as an employer or bank, to withhold a debtor's wages or funds and pay them to a creditor.
• Under federal law (15 U.S.C. 1673), ordinary wage garnishment is capped at the lesser of 25% of weekly disposable earnings or the amount that earnings exceed 30 times the federal minimum hourly wage.
• Garnishment can cut a buyer's cash for a down payment or a seller's ability to clear debts at closing.
• A garnishment is not a lien: a lien is a claim against property, while garnishment captures wages or bank funds.

Garnishment is a legal process in which a creditor, usually after winning a court judgment, directs an employer or bank to withhold part of a debtor's pay or account funds to satisfy a debt.

Key Takeaways

• Gap lending is short-term financing that covers the difference between a project's total cost and the primary loan or equity already in place.
• Gap loans usually run from a few months to a couple of years and are repaid when permanent financing or a sale closes.
• They carry higher interest rates than traditional loans and are secured by collateral, often a junior or second position.
• In the example, a $10 million project with $8 million of primary financing needs a $2 million gap loan to continue.

Gap lending is short-term, typically higher-cost financing that fills the shortfall between what a primary lender will fund and what a real estate project or purchase actually costs.

Key Takeaways

• Functional obsolescence is a loss in property value caused by outdated or inefficient design, such as a poor floor plan, rather than by physical wear or the surrounding area.
• Appraisers separate it into curable obsolescence (worth fixing) and incurable obsolescence (too costly or impractical to fix).
• It is one of three kinds of depreciation in appraisal, alongside physical deterioration and external (economic) obsolescence.
• Investors can buy functionally obsolete properties at a discount, but the renovation cost has to be less than the value it adds.

Functional obsolescence is a reduction in a property's value caused by design features that are outdated, inefficient, or no longer wanted by buyers, even when the building is in good physical condition.

Key Takeaways

• A fully amortized mortgage is a loan whose scheduled payments cover both principal and interest, so the balance reaches $0 at the end of the term with no balloon payment.
• Common terms are 15, 20, and 30 years, and the rate can be fixed or adjustable.
• A $250,000, 30-year loan at a 4% fixed rate has a monthly principal-and-interest payment of about $1,193.54 and about $179,674 in total interest.
• In an amortization schedule, early payments are mostly interest and later payments are mostly principal.

A fully amortized mortgage is a loan repaid through equal scheduled payments that cover principal and interest so the balance is exactly $0 on the final payment date.

Key Takeaways

• A freehold estate is an ownership interest in real property that lasts for an indefinite period, as opposed to a leasehold, which ends on a set date.
• Fee simple is the most common and most complete freehold estate; a life estate is a freehold that lasts only for one person's lifetime.
• A freehold owner can generally occupy, use, sell, lease, and leave the property by will, within limits set by law, zoning, liens, and recorded covenants.
• Freehold ownership carries ongoing duties: property taxes, maintenance, insurance, and compliance with local codes.

A freehold estate is the ownership of real property for an indefinite length of time, in contrast to a leasehold, where the right to possess the property ends on a fixed date.

Key Takeaways

• A free and clear property is real estate owned outright, with the mortgage paid off and no outstanding loans against it.
• A title search confirms whether any other liens, such as tax, judgment or contractor liens, remain on the property.
• Debt satisfaction is evidenced by a release or satisfaction of mortgage.
• Free and clear owners still owe property taxes and maintenance, and can borrow against the property through a home equity loan or line of credit.
• Free and clear properties can be sold without lender approval, which simplifies closings.

What Is a Free and Clear Property?

Key Takeaways

• Forfeiture is the loss of a right, money or property because a party failed to meet an obligation or because the law requires it.
• In real estate, common forms are a buyer losing an earnest money deposit, a tenant losing a lease under a forfeiture clause, a land contract buyer losing their interest, and government forfeiture of property tied to a crime.
• Forfeiture terms must be clearly stated in the contract, and legal processes often require formal notice before forfeiture is enacted.
• Foreclosure is a separate legal process used to enforce a mortgage; it is not the same thing as forfeiture.
• Forfeiture rules and any redemption rights vary by state and contract, so parties should confirm them with a real estate attorney.

What Is Forfeiture in Real Estate?

Key Takeaways

• The Foreign Investment in Real Property Tax Act (FIRPTA) is a U.S. tax law enacted in 1980 that requires tax withholding when a foreign person sells U.S. real property.
• The IRS states that the withholding rate is generally 15% of the amount realized on the sale.
• The buyer (transferee) is generally the withholding agent, and certain purchasers' agents and settlement officers must also withhold.
• No withholding applies to a sale of $300,000 or less if the buyer plans to use the property as a residence, and reduced withholding may apply to residences between $300,000 and $1 million.
• Withholding is reported on IRS Forms 8288 and 8288-A, and a seller can apply for a withholding certificate on Form 8288-B to reduce or eliminate it.

What Is FIRPTA?

Key Takeaways

• Foreclosure is the legal process a lender uses to take possession of a property when a borrower stops making mortgage payments, so the lender can sell it to recover the loan balance.
• The foreclosure process and its timeline vary by state, from a few months to over a year.
• A foreclosure can significantly lower the borrower's credit score and affect future credit.
• Foreclosure can often be stopped by catching up on payments, negotiating with the lender, or legal intervention.
• Investors can find opportunities at pre-foreclosure, at auction and in bank-owned (REO) sales, but must check liens and condition.

What Is Foreclosure?

Key Takeaways

• A foreclosed property is real estate a lender has taken over because the borrower could not keep up with mortgage payments.
• Foreclosed properties usually reach buyers at a foreclosure auction or as bank-owned (REO) listings, and they are often sold at a reduced price.
• Many foreclosed homes are sold as-is, without warranties, so inspection access, repairs and title issues are the main risks.
• Some foreclosed properties do not qualify for traditional financing, so buyers may need cash or special loan programs.
• Foreclosure timelines and rules vary by state, so investors should verify local procedures before bidding.

What Is a Foreclosed Property?