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Brokerage
The business of bringing together buyers and sellers (or landlords and tenants) of real estate and negotiating contracts of sale, lease, or mortgage. In Illinois, brokerage activities require a real estate license and are regulated under the Real Estate License Act of 2000.
A licensed brokerage firm in Chicago helps a family sell their suburban home and assists another family in purchasing it, earning a commission on the successful transaction.
Market
The mechanism through which buyers and sellers interact to determine prices and quantities of goods or services. In real estate, the market is local and influenced by supply, demand, economic conditions, interest rates, and location-specific factors.
In a hot Chicago neighborhood, high demand and low inventory drive home prices upward, creating a seller's market where properties sell quickly above asking price.
Real Estate Licensee
An individual who has met the state's education, examination, and licensing requirements to engage in real estate brokerage activities. In Illinois, this includes brokers and managing brokers who must adhere to the Real Estate License Act of 2000.
After passing the Illinois real estate exam and completing required education, a new licensee can legally represent clients in property transactions.
Sponsoring Broker
The licensed broker or brokerage firm that employs or associates with a real estate licensee, providing supervision, errors and omissions insurance, and a place to hang the license. The sponsoring broker is responsible for the licensee's actions.
Maria joins ABC Realty as a new licensee. ABC Realty is her sponsoring broker and must supervise her transactions and ensure compliance with Illinois law.
Supply and Demand
Economic principle where the price of real estate is determined by the relationship between the amount of property available (supply) and the number of buyers or tenants seeking it (demand). Imbalance creates price changes.
When interest rates drop, demand for homes increases while supply stays the same, pushing prices higher in the Illinois housing market.
Accession
The process by which real property increases in size or value through natural or artificial means, such as accretion (gradual deposit of soil by water) or avulsion (sudden change in watercourse).
A river gradually deposits soil on a landowner's property in downstate Illinois, increasing the acreage through accession by accretion.
Air Rights
The right to use, control, and occupy the airspace above a parcel of land, which can be sold or leased separately from the surface rights (for example, for building skyscrapers or air easements).
The owner of a small lot in downtown Chicago sells the air rights above 100 feet to allow construction of a tall office building while retaining surface use.
Annexation
The legal process of attaching personal property to real property so that it becomes a fixture and part of the real estate. Intent, adaptation, and relationship of the parties determine if annexation has occurred.
A homeowner installs a built-in dishwasher and custom cabinets that become permanently attached; these items are now annexed to the real property and convey with the sale.
Appurtenance
A right, privilege, or improvement that passes with the conveyance of real property, such as easements, water rights, or fixtures. It is attached to the land and transfers automatically with the deed.
A home in rural Illinois comes with an appurtenant easement allowing the owner to cross a neighbor's land to access a public road.
Attachment
The act of affixing personal property to real property, making it a fixture. In legal terms, it also refers to a court order seizing property to secure a judgment.
When a new furnace is installed and connected to the ductwork of a house, it becomes attached and is considered part of the real estate rather than personal property.
Bill of Sale
A written document that transfers ownership of personal property from seller to buyer. It is used for items that do not automatically convey with real estate, such as furniture or equipment.
During a home sale in Naperville, the seller provides a bill of sale for the washer, dryer, and window treatments being sold separately from the real property.
Bundle of Legal Rights
The collection of rights that come with ownership of real property, including the right to possess, use, enjoy, exclude others, and dispose of the property. These rights are protected by law but subject to government limitations.
When purchasing a condo in Chicago, the buyer receives the full bundle of legal rights, subject to HOA rules, zoning laws, and eminent domain powers.
Chattel
Personal property that is movable and not permanently attached to real estate. Examples include furniture, vehicles, and appliances that are not fixtures. Chattel is transferred by bill of sale, not deed.
The antique dining table and living room sofa in a listed home are chattel and do not automatically transfer to the buyer unless specified in the sales contract.
Deed
A legal document that transfers ownership (title) of real property from grantor to grantee. It must be in writing, signed, delivered, and accepted to be valid. Types include warranty deeds, quitclaim deeds, and special warranty deeds.
At closing in Springfield, the seller signs and delivers a warranty deed to the buyer, officially transferring title to the single-family home.
Emblements
Crops that are planted and cultivated annually (fructus industriales), such as corn or wheat. They are considered personal property of the tenant or farmer who planted them, even if the land is sold.
A tenant farmer in central Illinois plants soybeans. If the lease ends or the land is sold before harvest, the tenant retains the right to harvest the emblements as personal property.
Fixture
Personal property that has been attached to real property in such a way that it becomes part of the real estate. Tests include method of attachment, adaptation to the property, and intent of the parties.
A ceiling fan, light fixtures, and built-in microwave oven are fixtures in a home and convey with the real estate unless specifically excluded in the sales contract.
Improvement
Any permanent addition or betterment to land or buildings that increases value or utility, such as buildings, fences, driveways, or landscaping. Improvements are part of real property.
Adding a swimming pool, new roof, and detached garage are capital improvements that increase the value of a residential property in the Chicago suburbs.
Land
The earth's surface, including soil, rocks, and natural resources, extending downward to the center of the earth and upward to infinity (subject to air rights). Land is the foundation of real property.
Raw land purchased in Will County for future development includes the surface, subsurface minerals, and air rights above it.
Manufactured Housing
A dwelling built in a factory and transported to a site, including mobile homes and modular homes. In Illinois, it may be classified as real or personal property depending on whether it is permanently affixed to land and titled accordingly.
A double-wide manufactured home placed on a permanent foundation in a rural Illinois county and titled as real property becomes part of the real estate for financing and taxation purposes.
Personal Property
All property that is not real property. It includes chattels (movable items) and is transferred by bill of sale rather than deed. Also called chattel or personalty.
The refrigerator, curtains, and patio furniture in a home for sale are personal property and must be negotiated separately if the buyer wants them included.
Real Estate
Land plus all human-made improvements permanently attached to it, such as buildings, fences, and utilities. It includes the physical land and structures but not the bundle of legal rights.
A commercial building and the 2-acre lot it sits on in downtown Peoria constitute real estate that is being marketed for sale or lease.
Real Estate License Act of 2000
The Illinois statute that governs the licensing and regulation of real estate brokers, managing brokers, and leasing agents. It establishes requirements for licensure, defines prohibited practices, and creates the Real Estate Administration and Disciplinary Board.
All real estate professionals practicing in Illinois must comply with the Real Estate License Act of 2000, which requires continuing education and adherence to ethical standards enforced by IDFPR.
Real Property
Real estate plus the bundle of legal rights of ownership. It includes land, improvements, and the rights to use, enjoy, and dispose of the property. Real property is transferred by deed.
When buying a house in Evanston, the purchaser acquires real property, which includes the land, house, fixtures, and legal rights such as easements and mineral rights.
Severance
The act of separating a fixture or improvement from real property, converting it back into personal property. Once severed, it no longer conveys with the real estate.
A homeowner removes built-in bookcases and a chandelier before selling; these items have been severed and are now personal property that the seller can take.
Situs
The location or site of a property. In real estate, situs is a key value factor because location determines desirability, zoning, school districts, taxes, and market demand.
A home's situs on a quiet cul-de-sac near excellent schools in Naperville significantly increases its market value compared to a similar home near a busy highway.
Subsurface Rights
The rights to the minerals, oil, gas, water, and other resources below the surface of the land. These rights can be severed and sold or leased separately from surface rights.
A landowner in southern Illinois sells the mineral rights to a coal company while retaining surface rights to farm the land.
Surface Rights
The rights to use and enjoy the surface of the land, including building, farming, and access. Surface rights are what most buyers acquire unless subsurface or air rights have been previously severed.
The buyer of a 40-acre parcel in McHenry County receives surface rights to build a home, plant crops, and use the land, subject to any existing easements.
Trade Fixture
Personal property used in a trade or business that is attached to real property but remains personal property of the tenant. Trade fixtures are removable by the tenant at the end of the lease.
A restaurant tenant installs commercial ovens, refrigeration units, and a custom bar that are trade fixtures; the tenant can remove them when the lease ends, restoring the space to its original condition.
Boot
Cash or other non-real-property consideration received in a like-kind exchange (1031 exchange) when the properties exchanged are not of equal value. Boot is taxable in the year received.
In a 1031 exchange, an investor trades a $400,000 rental property for a $350,000 property and receives $50,000 cash as boot. The $50,000 is recognized as taxable gain.
Capital Gains
The profit realized from the sale of a capital asset, such as real estate. Federally, primary residence capital gains may be excluded up to $250,000 (single) or $500,000 (married) if ownership and use tests are met.
A homeowner sells their primary residence in Illinois for a $180,000 profit after living there for 3 years. They qualify for the capital gains exclusion and owe no federal tax on the gain.
Coinsurance Clause
A provision in property insurance policies that requires the insured to carry coverage equal to a specified percentage (usually 80% or 90%) of the property's replacement cost. Underinsurance results in reduced claim payouts.
A home with $300,000 replacement cost is insured for only $200,000 (67%). When a $50,000 fire loss occurs, the coinsurance clause reduces the payout because coverage was below the required 80%.
Equity
The owner's financial interest in real property; calculated as current market value minus outstanding mortgage balance and other liens. Equity builds through appreciation and principal payments.
A homeowner's house is worth $350,000 with a remaining mortgage of $220,000. Their equity is $130,000, which can be accessed through a home equity loan or line of credit.
Homeowners Insurance
A package policy that protects homeowners against losses from fire, theft, liability, and other perils. It typically includes dwelling coverage, personal property, liability, and additional living expenses. In Illinois, lenders require it for mortgaged properties.
A family in Bloomington purchases an HO-3 policy that covers the structure for $280,000, personal belongings for $140,000, and provides $100,000 in personal liability coverage.
Liability Coverage
The portion of a homeowners or other insurance policy that protects the insured against claims for bodily injury or property damage to others. It covers legal defense costs and settlements up to policy limits.
A guest slips on an icy walkway at a homeowner's property in Illinois and sues. The liability coverage portion of the homeowners policy pays for the legal defense and any settlement up to the policy limit.
PITI
Principal, Interest, Taxes, and Insurance — the four components of a typical monthly mortgage payment. PITI represents the total housing cost for budgeting and qualification purposes.
A borrower's monthly PITI payment is $1,850: $1,200 principal and interest, $350 property taxes, and $300 homeowners insurance. Lenders use PITI to calculate debt-to-income ratios.
Policy
A written contract between an insurance company and the insured that outlines coverage, exclusions, conditions, and premiums. In real estate, it most commonly refers to a homeowners insurance policy.
The insurance policy for a new home purchase must be in place at closing with the lender named as mortgagee to protect the collateral.
Replacement Cost
The cost to rebuild or repair a structure using current materials and labor prices, without deducting for depreciation. Most homeowners policies insure the dwelling on a replacement cost basis rather than actual cash value.
A 20-year-old home has a market value of $250,000 but a replacement cost of $320,000 due to increased construction costs. Insurance should be based on the higher replacement cost to avoid coinsurance penalties.
Agency
A legal relationship in which one party (the agent) is authorized to act on behalf of another party (the principal) in dealings with third parties. In real estate, it creates fiduciary duties owed by the agent to the principal.
A seller signs a listing agreement creating an agency relationship with a broker, authorizing the broker to market the property and negotiate offers on the seller's behalf.
Agency Coupled with an Interest
An agency relationship in which the agent has a personal financial interest in the subject matter of the agency. This type of agency is irrevocable by the principal and survives the principal's death or incapacity.
A broker loans money to a developer secured by the property and is given authority to sell the property if the loan defaults. This creates an agency coupled with an interest that cannot be revoked by the developer.
Agent
A person authorized to act on behalf of a principal in dealings with third parties. In real estate, agents include brokers who owe fiduciary duties to their clients.
The listing broker is the agent of the seller and must present all offers, maintain confidentiality, and work diligently to sell the property at the best possible price and terms.
Brokerage Agreement
A written contract between a real estate broker and a client that authorizes the broker to act as agent and defines the scope of services, compensation, and duration. Includes listing agreements and buyer agency agreements.
A homeowner signs a 6-month exclusive right-to-sell brokerage agreement with a broker, agreeing to pay 5% commission if the property sells during the term.
Buyer Agency Agreement
A written contract between a buyer and a real estate broker that creates an agency relationship. The broker agrees to represent the buyer's interests in finding and purchasing property in exchange for compensation.
A first-time buyer in Illinois signs a buyer agency agreement with a broker who then shows properties, negotiates offers, and advises on inspections and financing exclusively for that buyer.
Client
The principal in an agency relationship who hires and is represented by the agent. The agent owes full fiduciary duties (care, obedience, loyalty, disclosure, accounting, and reasonable skill) to the client.
The seller who signed the listing agreement is the client of the listing broker. The broker must put the seller's interests first and maintain strict confidentiality about the seller's motivations.
Commingling
The illegal mixing of a client's or customer's funds with the broker's personal or business operating funds. Illinois law requires all earnest money and client funds to be held in a separate escrow account.
A broker who deposits a buyer's $10,000 earnest money check into the brokerage's general operating account instead of the escrow account has committed commingling and violated Illinois license law.
Compensation
Payment for services rendered in a real estate transaction, typically a commission based on a percentage of the sales price or a flat fee. Must be agreed upon in writing in the brokerage agreement.
The listing broker receives 5% commission at closing, split with the buyer's broker according to the cooperative commission agreement in the MLS.
Confidential Information
Any information the agent learns during the agency relationship that the client wants kept private. The duty of confidentiality survives the termination of the agency relationship and is a core fiduciary duty.
A seller tells the listing agent they must sell quickly due to a pending divorce. The agent cannot disclose this confidential information to prospective buyers or other agents.
Consumer
A member of the public who uses real estate services but is not a client of the broker. Consumers are owed honesty, fair dealing, and disclosure of material facts but not full fiduciary duties.
A buyer who walks into an open house is a consumer. The listing agent must be honest but represents the seller and owes no fiduciary duties to the unrepresented buyer.
Conversion
The unauthorized use or misappropriation of a client's funds or property by the broker. It is a serious violation of license law and can result in criminal charges as well as license revocation.
A broker uses earnest money from one transaction to cover office expenses or another client's shortfall. This constitutes conversion and is grounds for immediate disciplinary action by IDFPR.
Cooperative Commission
The commission offered by the listing broker to a buyer's broker who procures a buyer for the listed property. It is typically published in the MLS and split between the two brokerages.
The listing broker offers a 2.5% cooperative commission to any buyer's broker who brings a successful buyer. The buyer's broker receives their share at closing.
Customer
A third party in a real estate transaction who is not represented by the agent. Customers are owed honesty and disclosure of known material facts but are not owed fiduciary duties.
An unrepresented buyer making an offer on a listed property is a customer of the listing broker. The listing broker must disclose known defects but represents only the seller.
Designated Agent
A licensee specifically named in a written agency agreement to represent a particular client when the brokerage represents both sides of a transaction. This allows the brokerage to practice dual agency while protecting confidentiality.
In a dual agency situation, Broker ABC designates Agent Smith to represent the seller and Agent Jones to represent the buyer, each maintaining separate confidential information.
Dual Agency
A situation in which the same brokerage firm or agent represents both the buyer and the seller in the same transaction. It requires written informed consent from both parties and limits the duties the agent can perform.
A brokerage represents both the buyer and seller in a transaction. With written consent, the designated agents provide limited representation but cannot advise on price or terms that would favor one side over the other.
Express Agency
An agency relationship created by an oral or written agreement between the principal and agent. Most real estate agency relationships in Illinois are express and must be in writing to be enforceable for commission claims.
A signed listing agreement or buyer agency agreement creates an express agency relationship with clearly defined duties and compensation.
Express Contract
A contract whose terms are stated in words, either oral or written. In real estate, most important agreements (listing, buyer agency, sales contracts) are express written contracts.
The purchase agreement signed by buyer and seller is an express written contract that creates enforceable obligations for both parties.
Fiduciary Duties
The highest duties of care, obedience, loyalty, disclosure, accounting, and reasonable skill and care that an agent owes to a client (principal). Memorize COLD AC: Care, Obedience, Loyalty, Disclosure, Accounting, Care/Skill.
A listing agent discovers a serious structural defect. The fiduciary duty of disclosure requires the agent to inform the seller client immediately so the seller can make proper disclosures to buyers.
Fraud
An intentional misrepresentation of a material fact that induces another party to act to their detriment. In real estate, fraud can be actual (active lying) or constructive (failure to disclose known defects).
A seller and agent knowingly conceal water damage and mold in the basement. When discovered after closing, the buyer can sue for fraud and seek damages or rescission of the contract.
General Agency
An agency relationship in which the agent is authorized to conduct a broad range of activities on behalf of the principal, such as managing all aspects of a property or business.
A property manager hired to handle all leasing, maintenance, tenant relations, and financial reporting for an apartment complex operates under a general agency relationship.
General Agent
An agent authorized to represent the principal in a broad range of matters, often on a continuing basis. Property managers and some real estate brokers act as general agents.
A managing broker who oversees multiple agents and all office transactions acts as a general agent for the brokerage firm.
Gratuitous Agency
An agency relationship in which the agent agrees to act without receiving compensation. Even without pay, the agent still owes fiduciary duties to the principal.
A licensed broker agrees to help a family member sell their home without charging a commission. The broker still owes full fiduciary duties as a gratuitous agent.
Implied Agency
An agency relationship created by the actions or conduct of the parties rather than by express agreement. It can arise unintentionally and still create fiduciary duties.
A broker shows properties to a buyer for several weeks, helps write offers, and advises on negotiations without a written buyer agency agreement. An implied agency may have been created.
Implied Contract
A contract whose terms are inferred from the conduct of the parties rather than stated in words. Courts may enforce implied contracts to prevent unjust enrichment.
A broker performs extensive marketing services for a seller who never signed a listing agreement but accepted the benefits. A court may find an implied contract and award compensation.
Latent Defect
A hidden defect in real property that is not discoverable by ordinary inspection. Sellers and agents have a duty to disclose known latent defects to buyers.
A home has foundation cracks hidden behind drywall that are causing structural issues. This is a latent defect that must be disclosed if known to the seller or agent.
Listing Agreement
A written brokerage agreement between a seller and a real estate broker that authorizes the broker to market and sell the property. It defines the broker's duties, compensation, and the terms of the listing.
A seller signs an exclusive right-to-sell listing agreement with a broker for 90 days at 5.5% commission. The broker markets the property and brings qualified buyers.
Material Fact
Any fact that would influence a reasonable person's decision to buy, sell, or lease property. Material facts must be disclosed to all parties and include property condition, title issues, and known defects.
A leaking roof, pending special assessment, and recent flooding in the basement are all material facts that must be disclosed to prospective buyers.
Negligent
Failure to exercise the degree of care that a reasonably prudent person would exercise under similar circumstances. In real estate, negligence can lead to license discipline and civil liability.
An agent fails to verify square footage or check public records for easements before marketing a property. This negligent conduct may result in a lawsuit if the buyer is harmed.
Misrepresentation
A false statement of fact made by one party to another that induces the other party to enter into a contract. It can be innocent, negligent, or fraudulent, each with different legal consequences.
An agent states that a home has 'new wiring throughout' when only the kitchen was rewired. This misrepresentation could allow the buyer to rescind the contract or sue for damages.
Principal
The person who hires and authorizes an agent to act on their behalf. In real estate, the principal is the client (buyer or seller) who owes the agent compensation and cooperation.
The seller who signed the listing agreement is the principal. The listing broker is the agent who owes fiduciary duties to that principal.
Puffing
Exaggerated or subjective statements of opinion made in sales talk that are not intended as factual representations. Puffing is generally legal, but crossing into misrepresentation of facts is not.
Saying 'This is the most beautiful kitchen in the neighborhood' is puffing. Saying 'This kitchen was completely remodeled in 2024 with permits' when it was not is misrepresentation.
Single Agency
An agency relationship in which the broker represents only one party (either buyer or seller) in a transaction. The broker owes full fiduciary duties to that one client and treats the other party as a customer.
A broker represents only the buyer in a transaction. The seller is a customer, and the broker discloses this relationship and owes no fiduciary duties to the seller.
Special Agent
An agent authorized to perform only specific acts or a single transaction on behalf of the principal. Most real estate brokers are special agents limited to the scope of the listing or buyer agency agreement.
A listing broker is a special agent authorized only to market and sell one specific property, not to manage the seller's other properties or make other decisions.
Substantive Contact
The point at which a broker or agent begins to provide specific real estate services or advice to a consumer, triggering the requirement to provide agency disclosure in Illinois.
When a broker starts discussing a buyer's specific needs, showing properties, or helping write an offer, substantive contact has occurred and agency disclosure must be provided.
Universal Agent
An agent authorized to perform any and all acts that the principal could legally perform. This is the broadest form of agency and is rare in real estate practice.
A power of attorney granted to a trusted family member to handle all personal and financial matters, including real estate decisions, creates a universal agency relationship.
Antitrust Laws
Federal and state laws (including the Sherman Antitrust Act and Illinois Antitrust Act) that prohibit monopolies, price-fixing, group boycotts, and other anti-competitive practices in the real estate industry.
Two brokerages agree to charge the same 6% commission rate on all listings in a market area. This constitutes illegal price-fixing under antitrust laws.
Broker
A licensed individual or entity authorized to bring together parties in real estate transactions and charge a fee. In Illinois, brokers must be sponsored by a managing broker or brokerage and operate under the Real Estate License Act of 2000.
A licensed broker in Illinois lists a home, markets it, negotiates offers, and earns a commission upon successful closing.
CAN-SPAM Act of 2003
Federal law regulating commercial email. Requires accurate subject lines, physical address of the sender, and an opt-out mechanism. Real estate professionals must comply when sending marketing emails.
A broker sends mass emails promoting new listings. The emails must include a clear unsubscribe link and the brokerage's physical address to comply with CAN-SPAM.
Commission
Compensation paid to a real estate broker for services, typically a percentage of the sales price or a flat fee, as agreed in the brokerage agreement. Paid at closing from proceeds.
The listing agreement specifies a 5.5% commission. At closing, the brokerage receives $16,500 on a $300,000 sale.
Cooperative Commission
The portion of the total commission offered by the listing broker to a buyer's broker who procures a ready, willing, and able buyer. Usually published in the MLS.
The listing broker offers 2.5% cooperative commission. The buyer's broker receives that share when their client purchases the property.
Designated Managing Broker
A managing broker specifically designated by a brokerage to supervise licensees and be responsible for compliance with Illinois license law for that office or company.
The brokerage designates one managing broker to oversee all agents in the Chicago office and ensure adherence to the Real Estate License Act.
Employee
A person who works for a broker or brokerage under an employer-employee relationship, subject to control over how work is performed. May be entitled to benefits and tax withholding unlike independent contractors.
A broker hires an assistant as a W-2 employee who works set hours and receives benefits, distinguishing them from independent contractor agents.
Errors and Omissions Insurance
Professional liability insurance that protects real estate licensees and brokerages against claims of negligence, errors, or omissions in the performance of their duties.
A buyer sues claiming the agent failed to disclose a known defect. The brokerage's E&O insurance covers legal defense costs and any settlement.
Fiduciary Standard
The highest legal duty of care, loyalty, obedience, disclosure, accounting, and reasonable skill owed by an agent to their client (principal).
A listing broker discovers a structural issue and immediately discloses it to the seller client per the fiduciary standard of disclosure.
Group Boycotting
An antitrust violation where competitors agree to refuse to deal with another competitor, supplier, or customer. Illegal in real estate.
Several brokerages agree not to show or sell properties listed by a new discount brokerage. This is illegal group boycotting.
Independent Contractor
A self-employed person who performs services for others under contract but maintains control over how the work is done. Most real estate agents are independent contractors, not employees.
A real estate agent signs an independent contractor agreement with a brokerage. The agent sets their own schedule and pays their own taxes.
Junk Fax Prevention Act of 2005
Federal law that prohibits sending unsolicited fax advertisements. Requires prior written permission or an established business relationship with an opt-out notice.
A broker cannot fax unsolicited listing flyers to businesses without prior consent or an existing relationship.
National Do Not Call Registry
A federal registry where consumers can register phone numbers to avoid telemarketing calls. Real estate professionals must check the registry before making cold calls.
Before calling potential sellers from a purchased lead list, the broker checks the National Do Not Call Registry and removes registered numbers.
Price-Fixing
An antitrust violation where competitors agree on the price of goods or services. In real estate, this includes agreeing on commission rates or fees.
Brokerage owners meet and agree that all will charge a minimum 6% commission. This illegal price-fixing can result in heavy fines and lawsuits.
Procuring Cause
The broker who is the primary or efficient cause of a buyer being ready, willing, and able to purchase a property. Entitled to the commission even if another broker closes the deal.
Broker A shows the property multiple times and writes the offer. Even though Broker B writes the final contract, Broker A may claim procuring cause.
Ready, Willing, and Able Buyer
A buyer who is financially qualified, prepared to enter a contract, and has the legal capacity to complete the purchase. The broker who produces such a buyer for a listed property may be entitled to commission.
A buyer with a pre-approval letter, earnest money ready, and no contingencies that would prevent closing is a ready, willing, and able buyer.
Regular Employee
An employee who works under the direct control and supervision of the employer regarding both the results and the methods of work. Distinguished from independent contractors in tax and liability matters.
An office manager who works set hours, uses brokerage equipment, and follows specific procedures is a regular employee.
Sponsoring Broker
The licensed broker or brokerage that employs or associates with a licensee and is responsible for their supervision and compliance under Illinois law.
New licensee Maria's sponsoring broker must review her contracts and ensure she follows all license law requirements.
Tie-In Agreement
An illegal antitrust practice where the sale or lease of one product is conditioned on the purchase of another unrelated product or service.
A developer requires buyers to use only their preferred lender and title company to purchase a new home. This may constitute an illegal tie-in agreement.
Buyer Agency Agreement
A written contract between a buyer and a real estate broker that creates an agency relationship. The broker agrees to represent the buyer's interests in locating and purchasing property.
A first-time buyer signs a buyer agency agreement with a broker who then shows properties, negotiates offers, and provides advice exclusively for that buyer.
Comparative Market Analysis (CMA)
A report prepared by a real estate licensee that compares a subject property to similar recently sold properties (comps) to estimate market value. Not a formal appraisal.
Before listing a home, the broker prepares a CMA showing three similar homes sold in the last 90 days to help the seller set a realistic asking price.
Contemporaneous Offers
Multiple offers on the same property received at approximately the same time. The listing broker must present all offers to the seller for consideration.
Two offers arrive within minutes of each other on a new listing. The listing broker presents both to the seller simultaneously for review.
Exclusive-Agency Listing
A listing agreement in which the seller agrees to pay commission only if the property is sold by the listing broker or any other broker. The seller retains the right to sell the property themselves without paying commission.
The seller lists exclusively with Broker A but can sell the home privately to a neighbor without owing commission under an exclusive-agency listing.
Exclusive Right-to-Sell Listing
The most common listing agreement. The seller agrees to pay the listing broker a commission if the property sells during the listing period, regardless of who finds the buyer (including the seller themselves).
Seller signs an exclusive right-to-sell listing. Even if the seller finds their own buyer through a friend, they still owe the agreed commission to the listing broker.
Market Value
The most probable price a property would bring in a competitive, open market under normal conditions, with both buyer and seller acting prudently and knowledgeably.
A CMA and recent appraisals support a market value of $425,000 for a three-bedroom home in a desirable school district.
Minimum Services
The basic services a broker must provide under a brokerage agreement in Illinois, including presenting all offers, answering questions about offers, and providing advice on negotiations and closing.
Even in a limited-service listing, the broker must still present all offers and provide minimum services required by Illinois license law.
Multiple Listing Service (MLS)
A cooperative database of properties listed for sale by member brokers. Allows sharing of listings and cooperative commission offers among brokers.
The broker enters the new listing into the local MLS so other agents can find it and show it to their buyer clients.
Net Listing
An illegal or discouraged listing agreement in which the broker's commission is the difference between the selling price and a net amount specified by the seller. Banned or heavily restricted in most states including Illinois.
A seller wants a net listing guaranteeing them $300,000 with the broker keeping anything above that. This type of agreement is prohibited in Illinois.
Open Listing
A non-exclusive listing agreement in which the seller can list with multiple brokers and pays commission only to the broker who actually procures the buyer. The seller can also sell the property themselves.
The seller lists the property with three different brokers under open listings. Only the broker who brings the successful buyer earns the commission.
Option Listing
A listing agreement that gives the broker an option to purchase the property at a predetermined price. Creates a conflict of interest and is heavily regulated or prohibited in many states.
A broker offers to list the property and also takes an option to buy it at $250,000 if it doesn't sell in 60 days. This requires full disclosure and is risky.
Statute of Frauds
A legal doctrine requiring certain contracts, including real estate sales contracts and brokerage agreements for commission, to be in writing to be enforceable.
A seller verbally promises a 6% commission but later refuses to pay. Without a written agreement, the broker cannot enforce the commission claim under the statute of frauds.
Accretion
The gradual increase in land area through natural deposits of soil or sand by water action. The new land belongs to the riparian owner.
A river slowly deposits silt along a farmer's riverfront property in Illinois, gradually adding several acres through accretion.
Appurtenant Easement
An easement that benefits a specific parcel of land (dominant tenement) and runs with the land when sold. It is attached to the property, not the owner.
A driveway easement across a neighbor's land to reach a landlocked parcel is an appurtenant easement that transfers automatically with the sale of the landlocked property.
Avulsion
The sudden loss of land through natural forces such as a flood or change in a river's course. The owner generally retains title to the lost land.
A sudden flood changes the course of a river and cuts off 5 acres of a landowner's property. The owner still holds title to the avulsed land.
Condemnation
The legal process by which the government exercises eminent domain to take private property for public use, with just compensation paid to the owner.
The state condemns a strip of private land to widen a highway and pays the owner fair market value through the condemnation process.
Conventional Life Estate
A life estate created by deed or will that lasts for the lifetime of a named individual (life tenant). Upon death, the property passes to a remainderman or reverts to the grantor.
A father deeds his home to his daughter for her lifetime, with the remainder to his grandchildren. This creates a conventional life estate.
Deed Restrictions
Private limitations on land use recorded in the deed or declaration that run with the land. Also called restrictive covenants. Enforced by courts if reasonable.
A subdivision declaration prohibits fences over 4 feet tall and requires all homes to have brick exteriors. These deed restrictions are binding on all future owners.
Doctrine of Prior Appropriation
A water rights doctrine used in some western states where the first person to divert and use water from a source acquires the right to continue using that water. Illinois primarily follows riparian rights.
In a prior appropriation state, the first farmer to divert river water for irrigation gains senior water rights over later users.
Dominant Tenement
The parcel of land that benefits from an appurtenant easement. It has the right to use the servient tenement.
The landlocked parcel that has the right to use a shared driveway across the neighboring property is the dominant tenement.
Easement
A non-possessory right to use another person's land for a specific purpose. Can be appurtenant or in gross, affirmative or negative.
A utility company has an easement to run power lines across a homeowner's backyard. The homeowner cannot build structures that interfere with the easement.
Easement by Condemnation
An easement acquired by the government through eminent domain for public purposes such as utilities or access.
The city condemns an easement across private land to install a new sewer line serving the neighborhood.
Easement by Necessity
An easement created by operation of law when a parcel is landlocked and has no legal access to a public road. Requires former common ownership.
When a large parcel is subdivided and one lot has no road access, an easement by necessity is implied over the other lots to reach the public road.
Easement by Prescription
An easement acquired through continuous, open, notorious, and adverse use of another's land for the statutory period (usually 20 years in Illinois).
A neighbor has used a path across another's land openly for over 20 years without permission. They may acquire an easement by prescription.
Easement in Gross
An easement that benefits a person or entity rather than a specific parcel of land. Common for utility companies and does not run with the land.
The electric company has an easement in gross to maintain power lines across multiple properties. It belongs to the company, not to any particular dominant parcel.
Eminent Domain
The government's constitutional power to take private property for public use upon payment of just compensation. Limited by the Fifth Amendment and Illinois law.
The state uses eminent domain to acquire land for a new interstate highway, paying owners fair market value plus relocation costs.
Encroachment
An unauthorized intrusion of a structure, fence, or other improvement onto another person's property. Can lead to adverse possession claims if not addressed.
A neighbor's fence and shed extend 3 feet onto the adjacent property. This encroachment should be resolved before selling either home.
Encumbrance
Any claim, lien, easement, or restriction that affects title to real property and may impair its value or marketability.
A mortgage, mechanic's lien, easement, and deed restriction are all encumbrances that appear on a title search.
Equity in Eminent Domain Act
Illinois statute that provides additional protections and compensation procedures for property owners when the government takes property through eminent domain.
Under the Equity in Eminent Domain Act, an Illinois property owner facing condemnation has specific rights to challenge the taking and negotiate compensation.
Erosion
The gradual wearing away of land by natural forces such as water or wind. The owner loses title to the eroded land.
Years of river current erode several feet of shoreline from a lakeside property. The owner loses title to the eroded portion.
Escheat
The reversion of property to the state when an owner dies without a will and without identifiable heirs. Prevents land from becoming ownerless.
An elderly man dies without a will and no known relatives. His home escheats to the State of Illinois.
Estate in Land
The degree, nature, and extent of ownership interest a person holds in real property. Ranges from fee simple absolute to life estates and leasehold estates.
A homeowner holds fee simple absolute estate, the highest and most complete form of ownership in land.
Fee Simple Absolute
The highest and most complete form of ownership in real property. Includes all rights to possess, use, enjoy, and dispose of the land, subject only to government powers.
When a buyer receives a warranty deed to a home, they typically acquire fee simple absolute ownership.
Fee Simple Defeasible
A fee simple estate that can be terminated upon the occurrence or non-occurrence of a specified event. Also called conditional fee.
A deed grants land 'to the city for use as a public park only.' If the city stops using it as a park, the estate may terminate and revert to the grantor.
Fee Simple Determinable
A defeasible fee estate that automatically terminates and reverts to the grantor upon the occurrence of a stated condition. Created with words like 'so long as' or 'while.'
Land is deeded 'to the school district so long as it is used for educational purposes.' When the school closes, ownership automatically reverts to the original grantor.
Freehold Estate
An estate in land that is of uncertain duration and includes ownership rights. Includes fee simple estates and life estates. Distinguished from leasehold estates.
Both fee simple absolute and conventional life estates are freehold estates because they involve ownership rather than tenancy.
Future Interest
A present right to future possession and enjoyment of real property. Includes remainder interests, reversionary interests, and executory interests.
A father deeds property to his son for life, with the remainder to his granddaughter. The granddaughter holds a future interest (remainder) during the son's lifetime.
Homestead
A legal protection that shields a portion of a homeowner's equity in their primary residence from certain creditors. Illinois has a homestead exemption.
In Illinois, a homeowner can protect a statutory amount of equity in their primary residence from judgment creditors through the homestead exemption.
Leasehold Estate
An estate in land that gives the tenant (lessee) the right to possess and use the property for a specified period in exchange for rent. Created by a lease.
A tenant signs a 12-month apartment lease and acquires a leasehold estate for that term.
License
A personal, revocable privilege to use another's land for a specific purpose. Does not create an interest in the land and is not transferable.
A neighbor gives verbal permission to use their driveway temporarily. This is a license, not an easement, and can be revoked.
Lien
A legal claim against property as security for a debt or obligation. Common liens include mortgages, tax liens, mechanic's liens, and judgment liens.
A contractor files a mechanic's lien against a homeowner's property after not being paid for a kitchen remodel.
Life Estate
An estate that lasts for the duration of a specified person's life. The life tenant has the right to use and enjoy the property but cannot commit waste or convey more than their interest.
A mother deeds her home to her daughter for the mother's lifetime. The daughter is the life tenant and can live in the home but cannot sell it outright.
Life Tenant
The person who holds a life estate and has the right to possess and use the property during their lifetime or the lifetime of another (pur autre vie).
Grandfather deeds the family farm to his grandson for grandfather's lifetime. The grandson is the life tenant.
Littoral Rights
Water rights of owners whose land borders a lake or ocean. Include rights to use the water and, in some cases, rights to accreted land.
A homeowner whose backyard touches a private lake in Illinois has littoral rights to reasonable use of the water for swimming and boating.
Party Wall
A wall built on the boundary line between two adjoining properties that serves both buildings. Both owners share ownership and maintenance responsibilities.
Two townhomes share a common wall that sits directly on the property line. This party wall is jointly owned and maintained.
Police Power
The government's inherent power to regulate land use for the health, safety, morals, and general welfare of the public. Includes zoning, building codes, and environmental regulations.
A city uses its police power to enact zoning ordinances that restrict industrial development in residential neighborhoods.
Pur Autre Vie
A life estate measured by the life of someone other than the life tenant. Latin for 'for the life of another.'
A deed grants property to a son for the lifetime of his elderly father. This is a life estate pur autre vie measured by the father's life.
Quick-Take
A fast-track eminent domain procedure used in Illinois that allows the government to take possession of property quickly while compensation is being determined.
The state uses quick-take procedures to immediately begin construction on an emergency highway repair project while negotiating with affected landowners.
Reliction
The gradual recession of water from land, exposing new land that belongs to the riparian owner. Opposite of erosion.
A lake level drops over many years, exposing new dry land along the shoreline. The adjacent property owner gains title to the relicted land.
Remainder Interest
A future interest in property that becomes possessory upon the termination of a prior estate (such as a life estate).
A mother deeds her home to her daughter for life, with the remainder to her son. The son holds the remainder interest.
Reversionary Interest
A future interest retained by the grantor that becomes possessory when a prior estate (such as a life estate or defeasible fee) terminates.
A grantor deeds land 'to the city for use as a park.' If the city stops using it as a park, the land reverts to the grantor due to the reversionary interest.
Riparian Rights
Water rights of landowners whose property borders a flowing watercourse (river or stream). Include reasonable use of the water and rights to accreted land.
A farmer whose land borders the Illinois River has riparian rights to use the water for irrigation, subject to reasonable use by other riparian owners.
Servient Tenement
The parcel of land that is burdened by an appurtenant easement. It must allow the dominant tenement to exercise the easement rights.
The property across which the shared driveway runs is the servient tenement. The owner cannot block the easement.
Tacking
The combining of successive periods of adverse possession by different persons to meet the statutory time requirement for acquiring title by adverse possession.
One squatter occupies land for 12 years, then sells their interest to another who occupies for 9 more years. Tacking allows them to claim the full 20+ years needed in Illinois.
Taxation
The government's power to levy taxes on real property to fund public services. Property taxes are an ongoing encumbrance on ownership.
Cook County assesses property taxes annually based on assessed value. Unpaid taxes become a lien on the property.
Uniform Probate Code
A model law adopted in various forms by states to standardize probate procedures for transferring property after death. Illinois has its own probate laws based on similar principles.
When an Illinois resident dies without a will, Illinois probate principles determine how their real estate passes to heirs.
Waste
Damage or destruction to property caused by a life tenant or tenant that reduces its value for the remainderman or landlord. Can be voluntary, permissive, or ameliorative.
A life tenant cuts down all the mature timber on the property for personal profit, committing waste that damages the remainder interest.
Common Elements
The parts of a condominium project owned jointly by all unit owners, including hallways, elevators, roofs, grounds, and recreational facilities.
In a Chicago high-rise condominium, the lobby, pool, fitness center, and rooftop deck are common elements maintained by the homeowners association.
Condominium
A form of ownership in which the owner holds fee simple title to an individual unit plus an undivided interest in the common elements of the project. Governed by declaration and bylaws.
A buyer purchases a condo unit on the 12th floor and automatically becomes a member of the condominium association with rights to use the common elements.
Cooperative
A form of ownership in which a corporation holds title to the entire property and shareholders receive proprietary leases for individual units. Shareholders own stock in the corporation, not the real estate directly.
In a cooperative building, residents buy shares of stock in the co-op corporation and receive a proprietary lease for their specific apartment.
Co-Ownership
Ownership of real property by two or more persons or entities at the same time. Includes tenancy in common, joint tenancy, tenancy by the entirety, and other forms.
A married couple purchases a home together, creating co-ownership with rights of survivorship under Illinois law.
Corporation
A legal entity created under state law that can own real estate in severalty. Provides limited liability to shareholders. Must act through authorized officers or agents.
A real estate investment corporation purchases an office building. The corporation holds title in severalty, and shareholders have limited liability.
General Partnership
A business entity in which two or more persons agree to carry on a business for profit. All partners have unlimited personal liability and can bind the partnership.
Two friends form a general partnership to flip houses. Both partners are personally liable for partnership debts and can sign contracts for the business.
Joint Tenancy
A form of co-ownership with the right of survivorship. Requires four unities (time, title, interest, possession). When one joint tenant dies, their interest automatically passes to the surviving joint tenants.
Two siblings inherit a lake house as joint tenants with right of survivorship. When one dies, the other automatically becomes sole owner.
Joint Venture
A temporary partnership formed for a specific business purpose or project, such as developing a single real estate project. Ends when the project is completed.
A developer and an investor form a joint venture to build a shopping center. The venture dissolves after the center is completed and sold.
Limited Liability Company (LLC)
A hybrid business entity that provides limited liability protection like a corporation while allowing pass-through taxation like a partnership. Popular for holding real estate.
Investors form an LLC to purchase and manage rental properties. The LLC shields members from personal liability for property-related lawsuits.
Limited Partnership
A partnership with at least one general partner who has unlimited liability and one or more limited partners whose liability is limited to their investment. Limited partners cannot participate in management.
A real estate syndicator forms a limited partnership to raise money for an apartment complex. Limited partners receive tax benefits but have no say in daily operations.
Marital Property
Property acquired during marriage that is subject to division upon divorce. Illinois is an equitable distribution state, not community property.
A home purchased during marriage with marital funds is marital property and subject to equitable division in a divorce proceeding.
Partition
A legal action to divide co-owned property among the owners or to force its sale and division of proceeds. Available when co-owners cannot agree on use or sale.
Two siblings who inherited a house cannot agree on whether to sell it. One files a partition action asking the court to order the sale and split the proceeds.
Partnership
A business relationship in which two or more persons agree to share profits and losses from a business. Can be general or limited. Real estate can be held in partnership name.
Three investors form a partnership to buy and manage commercial rental properties. Profits and losses flow through to the individual partners' tax returns.
Proprietary Lease
A lease given by a cooperative corporation to a shareholder that grants the right to occupy a specific unit. The lease is tied to ownership of shares in the cooperative.
When someone buys shares in a cooperative, they receive a proprietary lease that gives them the exclusive right to live in a particular apartment.
Right of Survivorship
The automatic transfer of a deceased co-owner's interest to the surviving co-owners. A key feature of joint tenancy and tenancy by the entirety.
Because the couple owned their home in joint tenancy with right of survivorship, when the husband dies, the wife automatically becomes sole owner without probate.
Severalty
Ownership of real property by a single individual or entity. The owner has sole and exclusive rights to the property.
An investor purchases a rental house in her own name, holding it in severalty with no co-owners.
Syndicate
A group of investors who pool money to purchase and manage real estate. Can be organized as a partnership, corporation, or LLC.
A real estate syndicate raises $5 million from 50 investors to purchase a large apartment complex.
Tenancy by the Entirety
A form of co-ownership available only to married couples in Illinois. Includes right of survivorship and protects the property from individual creditors of one spouse.
A married couple buys a home titled as tenants by the entirety. Creditors of only one spouse cannot force the sale of the home to satisfy a judgment.
Tenancy in Common
The most common form of co-ownership. Each owner holds an undivided interest and can sell, mortgage, or will their share independently. No right of survivorship.
Three friends buy an investment property as tenants in common with 40%, 35%, and 25% interests. Each can sell their share without the others' consent.
Town House
A style of attached housing where owners hold fee simple title to their unit and the land beneath it, plus membership in a homeowners association that maintains common areas.
A buyer purchases a townhouse. They own the unit and the small yard in fee simple, while the HOA maintains the roof, exterior, and shared amenities.
Trust
A legal arrangement in which a trustee holds legal title to property for the benefit of beneficiaries. Can be used for estate planning, asset protection, or real estate investment.
Parents place their vacation home in a revocable living trust to avoid probate and provide for their children upon their death.
Air Lot
A legal description of a three-dimensional space above the surface of the earth, often used for condominiums, air rights, or subsurface rights.
A legal description for a penthouse condo may describe an air lot beginning 200 feet above ground level and extending upward.
Base Line
An imaginary east-west line used in the rectangular survey system as a reference for measuring township tiers. Established by government survey.
The 4th Principal Meridian base line runs through central Illinois and is used to number townships north and south.
Benchmark
A permanent marker placed by surveyors to indicate a known elevation. Used as a reference point for measuring elevations in surveys and construction.
A brass disk set in concrete at a known elevation serves as a benchmark for a new subdivision survey.
Correction Line
An adjustment line in the rectangular survey system, usually every 24 miles, to compensate for the curvature of the earth and keep sections approximately square.
Correction lines in the government survey system prevent sections from becoming distorted as surveys move north from the base line.
Datum
A reference point or surface used to measure elevations. In surveying, often mean sea level or a local benchmark.
All elevations in a survey are measured from a datum of 500 feet above mean sea level.
Fractional Section
A section in the rectangular survey system that is less than 640 acres due to natural boundaries such as rivers or lakes, or because it is on the edge of a correction line.
A section along the Mississippi River may be a fractional section containing only 480 acres instead of the standard 640.
Government Check
A 24-mile square area in the rectangular survey system bounded by correction lines and guide meridians. Contains 16 townships.
Government checks help surveyors organize large areas and apply correction lines every 24 miles.
Government Lot
A parcel of land in a fractional section that is numbered and described separately because it is irregular in shape due to water boundaries or other natural features.
Along a lake, irregular parcels are numbered as government lots rather than standard quarter-sections.
Legal Description
A precise written description of a parcel of land that is legally sufficient to locate and identify the property without ambiguity. Used in deeds, mortgages, and court documents.
A legal description using metes and bounds or the rectangular survey system allows a surveyor to locate the exact boundaries of a property.
Lot-and-Block System
A method of legal description used in platted subdivisions. Identifies property by lot number, block number, and the name of the subdivision plat.
A home is legally described as 'Lot 12, Block 3, Oak Grove Subdivision, according to the plat recorded in Book 45, Page 22.'
Metes-and-Bounds
A method of legal description that describes a parcel by its boundaries, starting at a point of beginning and following compass directions and distances around the perimeter back to the starting point.
A rural property is described by metes and bounds: 'Beginning at a stone monument at the intersection of County Road 5 and the old fence line, thence North 89° 15' East 1,245.6 feet...'
Monument
A fixed physical object used as a reference point in a survey or legal description. Can be natural (tree, rock) or artificial (iron pin, concrete marker).
The legal description references an iron pin monument set at the southwest corner of the property as the point of beginning.
Plat Map
A detailed map of a subdivision showing lot boundaries, streets, easements, and other features. When recorded, it becomes the basis for lot-and-block legal descriptions.
The developer records the final plat map with the county recorder, creating the official lot and block numbers for all parcels in the subdivision.
Point of Beginning (POB)
The starting point in a metes-and-bounds legal description. The description must close by returning to this exact point.
The metes-and-bounds description begins: 'Commencing at the point of beginning, being the northwest corner of Section 14...'
Principal Meridian
A north-south line used in the rectangular survey system as a reference for measuring ranges. Established by government survey.
The 3rd Principal Meridian runs through eastern Illinois and is used to number ranges east and west of the line.
Range
A vertical column of townships in the rectangular survey system, numbered east or west of a principal meridian.
A property located in Range 2 East of the 4th Principal Meridian is two columns of townships east of that meridian.
Rectangular Survey System
Also called the government survey system. A method of describing land using a grid of townships, ranges, sections, and fractions. Used in most of the United States, including Illinois.
Most rural land in Illinois is described using the rectangular survey system: Township 12 North, Range 3 East, Section 24.
Section
A one-square-mile parcel (640 acres) within a township in the rectangular survey system. There are 36 sections in a township.
A farmer owns the Southeast Quarter of Section 16, containing 160 acres.
Survey
The process of locating and measuring the boundaries of a parcel of land and preparing a map or plat showing the results. Performed by a licensed surveyor.
Before closing on raw land, the buyer orders a boundary survey to confirm the exact acreage and location of corners.
Township
A six-mile-square area in the rectangular survey system containing 36 sections. Townships are numbered north or south of a base line.
The property is located in Township 20 North of the base line.
Township Line
An east-west line that forms the north or south boundary of a township in the rectangular survey system.
Township lines run parallel to the base line and are spaced six miles apart.
Township Tier
A horizontal row of townships running east-west, numbered north or south of the base line in the rectangular survey system.
Township Tier 5 North includes all townships five rows north of the base line.
Appropriation
The formal process by which a taxing authority authorizes the expenditure of funds and sets the amount of the tax levy for a specific period.
A city council votes to appropriate funds for road repairs, which then determines how much of the general real estate tax will be collected.
Collateral
Property or other assets pledged by a borrower to secure a loan. If the borrower defaults, the lender can seize the collateral.
When a homeowner takes out a mortgage, the house itself serves as collateral for the loan.
Encumbrance
Any claim, lien, charge, or liability attached to real property that may lessen its value or restrict its use, but does not necessarily prevent transfer of title.
A mortgage, unpaid property taxes, or an easement are all common encumbrances on a title.
Equalization Factor
A multiplier used by assessing officials to adjust assessed values so that properties in different areas are taxed more fairly when tax rates differ.
If one township assesses property at a lower percentage of market value, an equalization factor raises those assessments to match the county average.
Equitable Lien
A lien imposed by a court to achieve fairness when no formal statutory lien exists, based on principles of equity.
A court may create an equitable lien on property to secure payment of a debt that would otherwise go unpaid.
Estate Taxes
Taxes levied on the transfer of a deceased person's property to their heirs or beneficiaries. Also called inheritance or death taxes in some contexts.
When a large estate passes to heirs, federal and sometimes state estate taxes may be due before the property can be distributed.
General Lien
A lien that attaches to all of a debtor's property, both real and personal, rather than to one specific parcel.
A judgment lien or federal income tax lien is a general lien that can affect everything the debtor owns.
General Real Estate Tax
An ad valorem tax levied on real property by local governments (city, county, school district) to fund public services. Based on the assessed value of the property.
Homeowners pay general real estate taxes each year to support schools, police, fire protection, and local government.
Inheritance Taxes
State taxes imposed on the right of an heir to receive property from a deceased person. Distinct from federal estate taxes in some jurisdictions.
Some states still impose inheritance taxes that the beneficiary must pay based on their relationship to the deceased.
Involuntary Lien
A lien placed on property without the owner's consent, usually by operation of law (taxes, judgments, mechanic's liens).
Unpaid property taxes create an involuntary tax lien against the property.
Judgment
A formal decision by a court that one party owes money to another. Once recorded, it can become a lien on the debtor's real property.
After winning a lawsuit, the creditor records the judgment so it becomes a lien against the debtor's real estate.
Lien
A legal claim against property that serves as security for a debt or obligation. The lienholder has the right to have the property sold if the debt is not paid.
A mortgage creates a lien on the home that must be paid off or assumed when the property is sold.
Lien Waiver
A written document in which a contractor, subcontractor, or supplier gives up the right to file a mechanic's lien in exchange for payment.
Before final payment, the general contractor requires lien waivers from all subcontractors to protect the owner from future claims.
Lis Pendens
A recorded notice that a lawsuit is pending that may affect title to a particular property. It warns potential buyers of possible claims.
When a foreclosure lawsuit is filed, the lender records a lis pendens so that anyone checking the title is aware of the pending action.
Mechanic's Lien
A statutory lien that gives contractors, subcontractors, and suppliers the right to claim payment for labor or materials used to improve real property.
A roofing company that is not paid can file a mechanic's lien against the property to secure payment.
Mortgage Lien
A voluntary lien created when a property owner borrows money and pledges the real estate as security for repayment of the loan.
The first mortgage on a home is the most common form of mortgage lien.
Special Assessment
A tax levied against specific properties that benefit from a public improvement (new sidewalks, sewers, street lighting).
Property owners on a newly paved street may be charged a special assessment to help pay for the improvement.
Specific Lien
A lien that attaches only to a particular parcel of real estate rather than to all of the debtor's property.
A mortgage, mechanic's lien, and property tax lien are all specific liens.
Statutory Lien
A lien created by state or federal statute rather than by a contract between the parties.
Property tax liens and mechanic's liens are classic examples of statutory liens.
Subordination Agreement
A written agreement in which a lienholder agrees to take a lower priority position behind another lien, even though their lien was recorded first.
A second mortgage lender may sign a subordination agreement so a new first mortgage can take priority.
Tax Deed
A deed given to the purchaser at a tax sale. It conveys the property of a delinquent taxpayer after the redemption period expires.
After the statutory redemption period ends, the successful bidder at a tax sale receives a tax deed.
Tax Lien
A lien imposed by law against property for unpaid real estate taxes. It usually has priority over most other liens.
Unpaid county property taxes create a tax lien that must be paid before the property can be sold free and clear.
Tax Sale
A public sale of property by the taxing authority to collect unpaid real estate taxes. The highest bidder receives a tax certificate or tax deed.
If property taxes remain unpaid for several years, the county may sell the property at a tax sale.
Voluntary Lien
A lien created by the property owner's own action, such as signing a mortgage or home equity loan.
Taking out a mortgage voluntarily places a lien on the property.
Writ of Attachment
A court order that directs the sheriff to seize and hold a defendant's property until a lawsuit is decided, preventing the defendant from transferring assets.
A creditor who fears the debtor will sell property before judgment may request a writ of attachment.
Assignment
The transfer of a party's rights and obligations under a contract to another person. The original party may remain secondarily liable unless released.
A buyer assigns their purchase contract to another buyer who then closes on the property.
Bilateral Contract
A contract in which both parties make promises and are obligated to perform. Most real estate sales contracts are bilateral.
In a typical purchase agreement, the seller promises to deliver the deed and the buyer promises to pay the purchase price.
Breach of Contract
Failure to perform any term of a valid contract without a legal excuse. The non-breaching party may seek damages or other remedies.
If a seller refuses to close after accepting a valid offer, the seller has breached the contract.
Commingling
The illegal mixing of a client's or customer's funds with a broker's personal or business funds.
A broker who deposits earnest money into the company operating account instead of an escrow account is guilty of commingling.
Consideration
Something of legal value given in exchange for a promise. It can be money, property, services, or a promise to do or not do something.
The buyer's earnest money and promise to pay the full price, and the seller's promise to convey title, serve as consideration.
Contingency
A condition that must be met before a contract becomes fully binding. Common contingencies include financing, inspection, and appraisal.
The purchase contract is contingent on the buyer obtaining a mortgage loan within 30 days.
Contract
A voluntary, legally enforceable agreement between competent parties supported by consideration to do or not do a specific thing.
A signed real estate purchase agreement is a contract that binds both buyer and seller.
Conversion
The illegal use of a client's funds for the broker's own purposes. More serious than mere commingling.
A broker who uses earnest money to pay personal bills has committed conversion.
Counteroffer
A response to an offer that changes one or more of its terms. A counteroffer rejects the original offer and creates a new offer.
The seller accepts the price but changes the closing date; this is a counteroffer that the buyer may accept or reject.
Earnest Money
A deposit made by a buyer to show good faith when making an offer. It is usually held in escrow and applied to the purchase price at closing.
The buyer submits a $5,000 earnest money check with the offer to purchase.
Equitable Title
The interest a buyer holds in property under a land contract or after a purchase contract is signed but before closing. The buyer has rights but not legal title yet.
Once the purchase contract is signed, the buyer has equitable title and the seller holds legal title until closing.
Executed Contract
A contract in which all parties have fully performed their obligations. Nothing remains to be done.
After closing, when the deed has been delivered and the purchase price paid, the sales contract is executed.
Executory Contract
A contract in which one or both parties still have duties to perform. Most real estate contracts are executory until closing.
A signed purchase agreement is an executory contract until the closing takes place.
Express Contract
A contract in which the parties state the terms either orally or in writing. Most real estate contracts are express and written.
A written listing agreement is an express contract between the seller and the broker.
Implied Contract
A contract formed by the actions or conduct of the parties rather than by written or spoken words.
A passenger who boards a taxi implies a contract to pay the fare even though nothing is said.
Land Contract
An installment sales contract (contract for deed) in which the seller retains legal title while the buyer makes payments and receives equitable title and possession.
A buyer with limited credit purchases a home under a land contract and makes monthly payments directly to the seller.
Liquidated Damages
An amount of money agreed to in advance that the parties will accept as full compensation if one party breaches the contract.
The contract states that the seller may keep the earnest money as liquidated damages if the buyer defaults.
Novation
The substitution of a new contract or a new party for an existing one, releasing the original party from liability.
When a buyer assumes the seller's existing mortgage and the lender agrees to release the seller, a novation occurs.
Offer and Acceptance
The process by which one party makes an offer and the other party accepts it, forming a mutual agreement (meeting of the minds).
The buyer makes a written offer; the seller signs it without changes, creating a binding contract.
Option
A unilateral contract in which a property owner gives a prospective buyer the exclusive right to purchase the property at a fixed price within a stated period.
A developer pays $10,000 for a six-month option to buy a parcel of land at a set price.
Specific Performance
A legal remedy that forces a party to complete the contract as agreed rather than pay damages. Courts often grant this in real estate cases because each property is unique.
If a seller refuses to close, the buyer may sue for specific performance to force the transfer of the property.
Statute of Frauds
State law requiring that certain contracts, including most real estate contracts, be in writing to be enforceable.
An oral agreement to sell a house is generally unenforceable under the statute of frauds.
Time Is of the Essence
A contract clause that makes performance within the stated time limits a material term. Failure to perform on time is a breach.
Because the contract states 'time is of the essence,' missing the closing date by even one day can be grounds for termination.
Unenforceable Contract
A contract that appears valid but cannot be enforced in court, often because it violates the statute of frauds or the statute of limitations has expired.
An oral contract for the sale of real estate is usually unenforceable.
Unilateral Contract
A contract in which only one party makes a promise and is obligated to perform. The other party is not obligated until they perform.
An option contract is unilateral: the optionor is bound if the optionee decides to exercise the option.
Valid Contract
A contract that meets all legal requirements (competent parties, mutual consent, lawful object, consideration) and is fully enforceable.
A properly signed purchase agreement with all essential terms is a valid contract.
Void Contract
A contract that has no legal force or effect from the beginning because it lacks an essential element or is illegal.
A contract to sell property that the seller does not own is void.
Voidable Contract
A contract that is valid and enforceable on its face but may be rejected by one of the parties because of a legal disability, fraud, duress, or misrepresentation.
A contract signed by a minor is voidable at the minor's option.
Acknowledgment
A formal declaration before a notary public or other authorized officer that the person signing a document is doing so voluntarily and that the signature is genuine.
The grantor acknowledges the deed before a notary so it can be recorded.
Adverse Possession
A method of acquiring title to real property by open, notorious, continuous, hostile, and exclusive possession for the statutory period without the owner's permission.
A neighbor who fences and openly uses a strip of land for more than 20 years may claim title by adverse possession.
Bargain and Sale Deed
A deed that conveys the grantor's interest in the property but contains no warranties against encumbrances. It implies that the grantor has title.
Some states use bargain and sale deeds in tax sales or foreclosure situations.
Beneficiary
The person or entity who receives the benefits of a trust, will, or insurance policy. In a deed of trust, the lender is the beneficiary.
Under a will, the children are named as beneficiaries of the real estate.
Bequest
A gift of personal property made by a will. Real property given by will is called a devise.
The testator's will includes a bequest of jewelry and cash to a niece.
Deed
A written instrument that transfers ownership of real property from the grantor to the grantee. It must meet statutory requirements to be valid.
At closing the seller signs and delivers a deed that conveys title to the buyer.
Deed in Trust
A deed used to convey real property to a trustee who holds it for the benefit of a beneficiary, often as part of a land trust or financing arrangement.
A land trust uses a deed in trust to transfer title to a trustee while the beneficiary retains control.
Devise
A gift of real property made by a will. The person who receives the real property is the devisee.
The will devises the family home to the oldest child.
General Warranty Deed
A deed that provides the greatest protection to the grantee. The grantor warrants title against all defects, whether arising before or during the grantor's ownership.
Most residential sales use a general warranty deed so the buyer receives the strongest guarantees.
Grantee
The person who receives title to real property by a deed. The buyer in a typical transaction is the grantee.
The deed names the buyers as grantees as joint tenants.
Granting Clause
The words of conveyance in a deed that state the grantor's intention to transfer the property (for example, 'convey and warrant' or 'grant, bargain, and sell').
The granting clause is the heart of the deed and must clearly show the intent to transfer ownership.
Grantor
The person who transfers title to real property by a deed. The seller in a typical transaction is the grantor.
The sellers sign the deed as grantors and deliver it to the buyers.
Intestate
Dying without a valid will. Property of an intestate person is distributed according to state laws of descent and distribution.
Because the owner died intestate, the property passes to the heirs under Illinois intestacy statutes.
Involuntary Alienation
The transfer of title to real property against the owner's will, such as by foreclosure, adverse possession, condemnation, or tax sale.
Foreclosure is a common form of involuntary alienation.
Probate
The formal legal process of proving a will's validity, identifying heirs, paying debts, and distributing the deceased person's property under court supervision.
After the owner dies, the will is submitted to probate so the executor can transfer the real estate.
Quitclaim Deed
A deed that transfers whatever interest the grantor may have in the property without any warranties. It is often used to clear clouds on title.
A relative who may have a possible claim signs a quitclaim deed to remove any cloud on the title.
Special Warranty Deed
A deed in which the grantor warrants only against defects that arose during the grantor's period of ownership, not against earlier defects.
Corporate sellers and some banks often use special warranty deeds.
Testate
Dying with a valid will. The property is distributed according to the instructions in the will.
Because the owner died testate, the property is transferred as directed in the will.
Testator
A person who makes a will. A female testator is sometimes called a testatrix.
The testator signed the will in the presence of two witnesses.
Title
The right to or ownership of land. It also refers to the evidence of that ownership (the deed or other documents).
Clear title means the owner has the full legal right to possess, use, and transfer the property.
Transfer Tax
A tax imposed by state or local government on the transfer of real property. In Illinois it is commonly called the real estate transfer tax.
At closing the parties pay the Illinois real estate transfer tax based on the sale price.
Trustee's Deed
A deed executed by a trustee that conveys property held in trust to a third party, often used in deed-of-trust foreclosure sales.
After a nonjudicial foreclosure, the trustee issues a trustee's deed to the successful bidder.
Voluntary Alienation
The intentional transfer of title by the owner, usually by deed, will, or gift.
Selling a home by signing and delivering a deed is voluntary alienation.
Will
A written legal document that directs how a person's property is to be distributed after death. It must meet statutory formalities to be valid.
The owner's will leaves the house to a spouse and the investment properties to the children.
Abstract of Title
A condensed history of all recorded documents affecting a particular parcel of real estate, prepared by an abstractor or title company.
Before closing, the buyer's attorney reviews the abstract of title to identify any possible clouds or defects.
Actual Notice
Knowledge of a fact that a person has gained by seeing, hearing, or reading it directly. Actual notice is personal knowledge.
When a buyer is told about an unrecorded easement and walks the property, the buyer has actual notice of the easement.
Certificate of Title
A statement of opinion by a title company or attorney on the status of the title based on an examination of the public records. It is not a guarantee.
The title company issues a certificate of title stating that, based on the records, the seller appears to have marketable title.
Chain of Title
The successive conveyances and other events that affect a particular parcel of land, starting from the original grant and continuing to the present owner.
A complete chain of title shows an unbroken succession of ownership from the government patent to the current seller.
Constructive Notice
The legal presumption that a person has knowledge of a fact because it is recorded in the public records or is visible on the property. Recording gives constructive notice.
Once a mortgage is properly recorded, everyone is considered to have constructive notice of it, even if they never actually look at the records.
Marketable Title
Title that is free from reasonable doubt, serious defects, or the threat of litigation so that a reasonably prudent buyer would accept it.
A title with unresolved liens or breaks in the chain is not marketable until those problems are cleared.
Priority
The order of preference among liens or other claims against property, usually determined by the date and time of recording.
The first mortgage recorded has priority over a second mortgage recorded later.
Recording
The act of placing documents that affect real estate into the public records of the county where the property is located. Recording gives constructive notice.
After closing, the deed and mortgage are recorded in the county recorder's office.
Subrogation
The right of a title insurance company (or other insurer) to step into the shoes of the insured and pursue any claims the insured may have against third parties after paying a claim.
If the title company pays a claim because of a forged deed, it may then sue the forger under its right of subrogation.
Suit to Quiet Title
A court action brought to establish ownership or to remove a cloud on title when there is a dispute or defect that cannot be cleared by ordinary means.
When an old, unreleased mortgage appears in the chain of title, the owner may file a suit to quiet title to clear the cloud.
Title Insurance
An insurance policy that protects the insured (usually the buyer or lender) against losses arising from defects in title that existed before the policy was issued.
The buyer purchases an owner's title insurance policy at closing to protect against hidden title defects.
Title Search
An examination of the public records to determine the current state of title and to identify any defects, liens, or encumbrances that may affect the property.
The title company performs a thorough title search before issuing a commitment for title insurance.
Blind Ad
An advertisement that does not clearly identify the broker or brokerage. Prohibited in Illinois as it can mislead the public.
An ad that says only 'For Sale — Call 555-1234' without naming the brokerage is a blind ad and violates license law.
Broker
A licensed individual authorized to engage in real estate brokerage activities for others for compensation under the Real Estate License Act of 2000.
A licensed broker can list properties, negotiate contracts, and earn commissions in Illinois.
Designated Agency
A practice where a brokerage designates specific agents to represent the buyer and seller in the same transaction to maintain confidentiality while allowing the brokerage to represent both sides.
Brokerage ABC designates Agent Smith for the seller and Agent Jones for the buyer in a dual agency situation.
Designated Managing Broker
The managing broker specifically named to supervise licensees and ensure compliance for a particular office or company under Illinois law.
The brokerage names one managing broker responsible for all agents in the downtown Chicago office.
Division of Real Estate
The division within the Illinois Department of Financial and Professional Regulation (IDFPR) that oversees real estate licensing, education, and enforcement.
The Division of Real Estate handles license applications, continuing education approval, and disciplinary hearings.
IDFPR
The Illinois Department of Financial and Professional Regulation — the state agency that regulates real estate licensees, along with many other professions. Also referred to as 'the Department'.
All real estate license applications, renewals, and complaints in Illinois are processed through the IDFPR.
Informed Written Consent
Written agreement from both buyer and seller acknowledging and agreeing to dual agency or designated agency representation after full disclosure.
Before representing both parties, the brokerage must obtain informed written consent from the buyer and seller.
License
Official authorization from the state (IDFPR) granting an individual the legal right to engage in real estate brokerage activities in Illinois.
After passing the exam and background check, the applicant receives their real estate broker license from the IDFPR.
Managing Broker
A broker who has met additional requirements and is authorized to manage a brokerage office, supervise other licensees, and take responsibility for compliance.
A managing broker can sponsor new licensees and is responsible for reviewing their transactions.
Real Estate Administration and Disciplinary Board
The board within IDFPR that hears disciplinary cases against real estate licensees and makes recommendations on license actions.
The Board reviews cases of alleged license law violations and can recommend suspension or revocation.
Real Estate Recovery Fund
A fund administered by IDFPR that compensates members of the public who suffer financial loss due to a licensee's misconduct when the licensee cannot pay.
A consumer who wins a judgment against a dishonest broker but cannot collect may apply to the Recovery Fund for reimbursement.
Real Estate Research and Education Fund
A fund that supports real estate research, education, and consumer protection programs in Illinois.
Portions of license fees go into this fund to improve real estate education and protect consumers.
Residential Leasing Agent
A person licensed to lease residential real estate on behalf of others. Has a more limited scope than a full broker license.
A residential leasing agent can show apartments and negotiate leases but cannot sell property.
Sponsoring Broker
The broker or brokerage that employs or associates with a licensee and is legally responsible for supervising their activities under Illinois law.
New licensees must have a sponsoring broker who oversees their work and maintains their license.
Acceleration Clause
A provision in a mortgage or note that allows the lender to demand immediate payment of the entire balance if the borrower defaults on payments or violates other terms.
After missing three mortgage payments, the lender invokes the acceleration clause and demands the full remaining balance.
Alienation Clause
A clause in a mortgage that prevents the borrower from transferring the property without the lender's consent, or allows the lender to accelerate the loan upon sale. Also called a due-on-sale clause.
The alienation clause requires the borrower to pay off the loan if they sell the property.
Beneficiary
The lender (or entity) that benefits from a deed of trust. The party to whom the debt is owed.
In a deed of trust, the bank is the beneficiary and the borrower is the trustor.
Certificate of Sale
A document issued to the highest bidder at a foreclosure sale, giving them the right to the property after any redemption period expires.
The winning bidder at the sheriff's sale receives a certificate of sale and must wait for the redemption period to end.
Deed in Lieu of Foreclosure
A deed given by the borrower to the lender to satisfy the debt and avoid foreclosure proceedings. The lender takes ownership of the property.
Instead of going through foreclosure, the homeowner voluntarily deeds the property to the bank to settle the mortgage.
Deed of Trust
A security instrument used in some states where the borrower conveys title to a trustee who holds it as security for the lender (beneficiary).
In states that use deeds of trust, a third-party trustee holds title until the loan is paid off.
Defeasance Clause
A clause in a mortgage that states the mortgage lien will be released and title will be clear once the debt is fully paid.
Upon final payment of the mortgage, the defeasance clause requires the lender to issue a satisfaction of mortgage.
Deficiency Judgment
A court order requiring the borrower to pay the difference between the foreclosure sale price and the remaining loan balance plus costs.
After a foreclosure sale brings only $180,000 on a $220,000 mortgage, the lender may obtain a deficiency judgment for the $40,000 shortfall.
Discount Point
A fee paid to the lender at closing to reduce the interest rate on the loan. One point equals 1% of the loan amount.
The borrower pays two discount points ($4,000 on a $200,000 loan) to lower the interest rate by 0.5%.
Equitable Right of Redemption
The borrower's right to redeem the property by paying the full debt plus costs before the foreclosure sale is finalized.
Even after foreclosure proceedings begin, the homeowner can still redeem the property by paying everything owed before the sale.
Equitable Title
The borrower's interest in the property under a land contract or installment sale. The buyer has the right to possession and equity but legal title remains with the seller until paid in full.
Under a land contract, the buyer has equitable title and can live in the home while making payments, but the seller retains legal title.
Escrow Account
An account held by the lender for collecting and paying property taxes and insurance on behalf of the borrower. Also called an impound account.
The monthly mortgage payment includes principal, interest, taxes, and insurance (PITI), with taxes and insurance going into escrow.
Foreclosure
The legal process by which a lender takes possession of a property after the borrower defaults on the loan, usually through a court proceeding or power of sale.
After repeated missed payments, the lender begins foreclosure to recover the outstanding loan balance by selling the property.
Hypothecation
The pledging of property as security for a debt without giving up possession. The borrower keeps using the property while it secures the loan.
When a homeowner takes a mortgage, they hypothecate the house as collateral but continue living in it.
Interest
The cost of borrowing money, expressed as a percentage of the loan amount. Paid to the lender over the life of the loan.
On a $300,000 mortgage at 6% interest, the borrower pays the lender for the use of the money over 30 years.
Intermediate Mortgage Theory
A hybrid theory used in some states where the borrower holds title but the lender has a lien that can become ownership upon default. Illinois generally follows intermediate theory.
Illinois generally follows intermediate theory, where the borrower holds title until default triggers lender rights.
Judicial Foreclosure
A foreclosure process that requires court action and supervision. The lender files a lawsuit to foreclose the mortgage lien.
In judicial foreclosure states, the lender must go through the court system to obtain a judgment and order the property sold.
Land Contract
An installment sales contract where the seller retains legal title while the buyer makes payments and gains equitable title. Also called contract for deed.
A buyer with poor credit purchases a home under a land contract, making monthly payments directly to the seller who still holds the deed.
Lien Theory
The legal theory that a mortgage creates only a lien on the property, not a transfer of title. The borrower retains both possession and title.
In lien theory states, the mortgage is simply a lien that the lender can foreclose upon default.
Loan Origination Fee
A fee charged by the lender for processing and originating the mortgage loan, usually expressed as a percentage of the loan amount.
The lender charges a 1% loan origination fee ($3,000 on a $300,000 loan) to cover underwriting and processing costs.
Mortgage
A legal document that creates a lien on real property as security for repayment of a loan. The borrower (mortgagor) pledges the property to the lender (mortgagee).
The homeowner signs a mortgage giving the bank a lien on the house until the loan is repaid.
Mortgagee
The lender who receives the mortgage as security for the loan. The party to whom the debt is owed.
The bank is the mortgagee and holds the mortgage lien on the borrower's property.
Mortgagor
The borrower who gives the mortgage as security for the loan. The owner of the property who pledges it as collateral.
The homeowner is the mortgagor who signs the mortgage promising to repay the loan.
Negotiable Instrument
A written document (such as a promissory note) that can be transferred to another party and is legally enforceable. Must meet specific requirements under the UCC.
A promissory note signed by the borrower is a negotiable instrument that the lender can sell to another investor.
Nonjudicial Foreclosure
A foreclosure process that does not require court action. The lender can foreclose under a power of sale clause in the mortgage or deed of trust.
In nonjudicial foreclosure states, the lender can sell the property after proper notice without going to court.
Novation
The substitution of a new contract or new party for an existing one, releasing the original party from liability. Often used when assuming a loan.
When a buyer assumes the seller's mortgage with the lender's approval, a novation releases the original borrower from liability.
Prepayment Penalty
A fee charged by some lenders if the borrower pays off the loan early. Restricted or prohibited on many residential mortgages under federal law.
An investor pays off a commercial loan early and incurs a prepayment penalty equal to six months of interest.
Promissory Note
A written promise to pay a specific sum of money to a designated party under agreed terms. The primary evidence of the debt in a mortgage transaction.
The borrower signs a promissory note agreeing to repay the $250,000 loan at 5.75% interest over 30 years.
Release Deed
A document executed by the lender that releases the mortgage lien on the property once the loan is paid in full. Also called a satisfaction of mortgage.
After the final mortgage payment, the lender records a release deed clearing the title.
Satisfaction of Mortgage
A document recorded by the lender stating that the mortgage debt has been paid in full and the lien is released.
Upon payoff, the lender must provide a satisfaction of mortgage to be recorded in the public records.
Sheriff's Deed
A deed given to the purchaser at a foreclosure sale, conveying whatever interest the borrower had in the property.
The highest bidder at the foreclosure auction receives a sheriff's deed after the redemption period expires.
Sheriff's Sale
The public auction of a property conducted by the sheriff or other authorized official after a foreclosure judgment.
The foreclosed home is sold at the sheriff's sale to the highest bidder, with proceeds applied to the mortgage debt.
Statutory Right of Redemption
The borrower's legal right, after a foreclosure sale, to redeem the property by paying the sale price plus costs within a specified time period.
In Illinois, the borrower generally has a statutory right of redemption for a period after the foreclosure sale.
Statutory Right of Reinstatement
The borrower's right to reinstate the loan by paying all past-due amounts plus costs before the foreclosure sale occurs.
Before the foreclosure sale, the homeowner can reinstate the loan by bringing all payments current plus lender costs.
Strict Foreclosure
A rare type of foreclosure where the court transfers title directly to the lender without a sale, used only in limited circumstances.
In very limited cases, a court may allow strict foreclosure, giving the lender title without auctioning the property.
Title Theory
The legal theory that a mortgage transfers legal title to the lender until the debt is paid, with the borrower retaining equitable title and possession.
In title theory states, the lender technically holds title to the property as security until the loan is satisfied.
Usury
The charging of an illegally high interest rate on a loan. Usury laws set maximum allowable interest rates.
A lender who charges 40% interest on a personal loan may be guilty of usury under state law.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on an index. Usually starts with a lower rate that can increase or decrease.
A 5/1 ARM has a fixed rate for the first five years, then adjusts annually based on market conditions.
Amortized Loan
A loan repaid in equal periodic payments that include both principal and interest. The loan balance decreases over time until paid off.
A standard 30-year fixed mortgage is fully amortized, with payments covering both principal and interest.
Balloon Payment
A large final payment due at the end of a loan term when the loan has not been fully amortized. Common in short-term or interest-only loans.
A 5-year balloon loan requires the borrower to pay the remaining $180,000 balance in one lump sum at the end of year 5.
Blanket Loan
A single mortgage that covers multiple parcels of real estate. Often used by developers.
A developer takes a blanket loan on five lots and plans to release individual lots as they are sold.
Buydown
A financing technique where the seller or borrower pays points upfront to temporarily or permanently reduce the buyer's interest rate.
The seller pays $6,000 in buydown points to lower the buyer's rate by 1% for the first three years.
Certificate of Reasonable Value (CRV)
A document issued by the VA that states the maximum reasonable value of a property for VA loan purposes. Required for VA loans.
The VA appraiser issues a CRV of $320,000 for the home the veteran wants to purchase.
Community Reinvestment Act (CRA)
Federal law that encourages banks to meet the credit needs of low- and moderate-income neighborhoods in their service areas.
Banks must demonstrate they are lending in underserved communities to comply with CRA requirements.
Construction Loan
A short-term loan used to finance the construction of a building. Funds are usually disbursed in stages as construction progresses.
A builder obtains a construction loan to build a new home, with draws released after each inspection phase.
Conventional Loan
A mortgage not insured or guaranteed by a government agency (FHA, VA, or USDA). The most common type of residential mortgage.
A buyer with good credit and 20% down obtains a conventional loan from a local bank.
Equal Credit Opportunity Act (ECOA)
Federal law that prohibits discrimination in lending based on race, color, religion, national origin, sex, marital status, age, or public assistance income.
A lender cannot deny a loan application solely because the applicant is divorced or receives Social Security income.
Fannie Mae
Federal National Mortgage Association. A government-sponsored enterprise that buys mortgages from lenders to provide liquidity in the secondary market.
Fannie Mae purchases conforming loans from banks, allowing lenders to make more loans to homebuyers.
Federal Reserve System
The central banking system of the United States that influences interest rates and monetary policy, affecting mortgage rates.
When the Fed raises the federal funds rate, mortgage rates typically increase.
FHA Loan
A mortgage insured by the Federal Housing Administration. Requires a lower down payment and has more flexible credit requirements than conventional loans.
A first-time buyer with a 3.5% down payment qualifies for an FHA loan with mortgage insurance.
Freddie Mac
Federal Home Loan Mortgage Corporation. A government-sponsored enterprise that buys mortgages to provide liquidity to the secondary mortgage market.
Freddie Mac buys loans from lenders and packages them into mortgage-backed securities for investors.
Ginnie Mae
Government National Mortgage Association. A government agency that guarantees mortgage-backed securities backed by FHA, VA, and USDA loans.
Ginnie Mae provides the full faith and credit of the U.S. government on securities backed by government-insured loans.
Growing Equity Mortgage (GEM)
A fixed-rate mortgage with increasing payments over time. Extra payments go toward principal reduction, shortening the loan term.
A GEM starts with lower payments that increase 5% each year, paying off the loan faster than a standard 30-year mortgage.
Home Equity Loan
A second mortgage that allows the homeowner to borrow against the equity in their home, usually as a lump sum with fixed payments.
A homeowner takes a $50,000 home equity loan at a fixed rate to pay for a kitchen remodel.
Loan-to-Value (LTV) Ratio
The ratio of the loan amount to the appraised value or purchase price of the property, expressed as a percentage. Higher LTV means less down payment.
A $240,000 loan on a $300,000 home has an 80% LTV ratio.
Mortgage Insurance
Insurance that protects the lender if the borrower defaults. Required on conventional loans with less than 20% down payment.
Private mortgage insurance (PMI) is required on a conventional loan with only 10% down.
Mortgage Loan Originator (MLO)
An individual who takes mortgage loan applications and arranges financing. Must be licensed under the SAFE Act.
The loan officer who helps the buyer complete the mortgage application is a licensed mortgage loan originator.
Open-End Loan
A mortgage that allows the borrower to obtain additional advances up to a maximum amount, similar to a home equity line of credit.
An open-end mortgage lets the homeowner draw additional funds as needed up to the credit limit.
Package Loan
A loan that finances both real property and personal property (such as appliances or furniture) as part of the purchase.
A buyer finances the house plus the washer, dryer, and refrigerator in one package loan.
Primary Mortgage Market
The market where borrowers obtain loans directly from lenders (banks, credit unions, mortgage companies).
When a homebuyer applies for a mortgage at their local bank, they are participating in the primary mortgage market.
Private Mortgage Insurance (PMI)
Insurance provided by private companies that protects conventional lenders against borrower default when the down payment is less than 20%.
A borrower with 15% down pays PMI until the loan balance drops below 80% of the home's value.
Purchase Money Mortgage (PMM)
A mortgage given by the seller to the buyer as part of the purchase price. The seller acts as the lender.
The seller finances $80,000 of the purchase price and takes back a purchase money mortgage from the buyer.
RESPA
Real Estate Settlement Procedures Act — federal law that requires disclosure of closing costs and prohibits kickbacks in mortgage transactions. Requires the Closing Disclosure form.
RESPA requires lenders to provide the Closing Disclosure at least three business days before closing.
Reverse Mortgage
A loan that allows homeowners age 62 and older to convert home equity into cash without monthly payments. The loan is repaid when the home is sold or the borrower dies.
A 70-year-old homeowner takes a reverse mortgage to receive monthly payments while continuing to live in the home.
Secondary Mortgage Market
The market where existing mortgages are bought and sold by investors (Fannie Mae, Freddie Mac, etc.). Provides liquidity to primary lenders.
Banks sell mortgages to Fannie Mae and Freddie Mac in the secondary market so they can make new loans.
SAFE Act
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 — federal law that sets minimum standards for licensing and registration of mortgage loan originators.
All mortgage loan originators must be licensed under the SAFE Act and pass background checks and education requirements.
Straight Loan
An interest-only loan where the borrower pays only interest during the term, with the full principal due at maturity.
A straight loan requires interest-only payments for 5 years, then the entire principal is due in one balloon payment.
Trigger Terms
Specific loan terms (such as payment amount, interest rate, or down payment) that, when advertised, require additional disclosures under TILA.
Advertising 'only $999 per month' triggers additional required disclosures about the loan terms.
TRID
TILA-RESPA Integrated Disclosure Rule — federal rule that combines TILA and RESPA disclosures into the Loan Estimate and Closing Disclosure forms.
TRID requires lenders to provide the Loan Estimate within three business days of receiving a loan application.
Truth in Lending Act (TILA)
Federal law that requires lenders to disclose the true cost of credit, including the APR, to help consumers compare loan offers.
TILA requires lenders to disclose the Annual Percentage Rate (APR) so borrowers can compare the true cost of different loans.
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs. Available to eligible veterans and service members with no down payment required.
A veteran with VA eligibility purchases a home with a VA loan and no down payment.
Wraparound Loan
A new mortgage that includes the existing mortgage balance. The borrower makes one payment to the wraparound lender, who pays the underlying mortgage.
A seller with a low-interest assumable mortgage offers a wraparound loan to a buyer at a higher rate, keeping the difference.
Actual Eviction
The physical removal of a tenant from the premises by legal process after a court order. Also called forcible detainer.
After winning an eviction lawsuit, the landlord obtains a court order and the sheriff physically removes the tenant.
Assignment
The transfer of the tenant's entire remaining lease term to another party. The original tenant remains liable unless released by the landlord.
The tenant assigns the remaining 18 months of their lease to a new tenant, but stays secondarily liable if the new tenant defaults.
Cash Rent
A lease where the tenant pays a fixed amount of rent in cash or check, regardless of crop yield or business income.
A farmer pays the landowner a fixed $50,000 cash rent per year regardless of how much corn is harvested.
Constructive Eviction
When the landlord's actions (or failure to act) make the premises uninhabitable, forcing the tenant to move out. The tenant may be released from the lease.
After months of unaddressed sewage backups and no heat, the tenant claims constructive eviction and moves out.
Estate at Sufferance
A tenancy that continues after the lease expires without the landlord's consent. The tenant is a holdover and may be evicted.
A tenant stays in the apartment two weeks after the lease ends without permission. They are now a tenant at sufferance.
Estate at Will
A tenancy that can be terminated at any time by either party with proper notice. No fixed term.
A friend is allowed to stay in a spare room with no lease and can be asked to leave with reasonable notice.
Estate for Years
A leasehold estate with a fixed beginning and ending date. The most common type of lease. Also called tenancy for years.
A one-year apartment lease from January 1 to December 31 creates an estate for years.
Estate from Period to Period
A tenancy that automatically renews for successive periods (month-to-month or year-to-year) until terminated by proper notice.
After the original lease expires, the tenant stays month-to-month. This is an estate from period to period.
Gross Lease
A lease where the tenant pays a fixed rent and the landlord pays all operating expenses (taxes, insurance, maintenance). Common for residential leases.
In a gross lease, the tenant pays $1,800 per month and the landlord covers property taxes, insurance, and repairs.
Ground Lease
A long-term lease of land only, where the tenant owns the building and improvements. Often 50–99 years.
A developer leases land for 99 years and constructs an office building on it under a ground lease.
Holdover Tenancy
A tenancy that continues after the lease term expires. May become a month-to-month tenancy or tenancy at sufferance depending on landlord consent.
The tenant remains in the apartment after lease expiration with the landlord's acceptance of rent, creating a holdover tenancy.
Implied Warranty of Habitability
A legal doctrine that requires landlords to maintain residential property in a habitable condition. Cannot be waived by the tenant.
A landlord must ensure the apartment has working heat, plumbing, and is free from serious defects under the implied warranty of habitability.
Lease
A contract between landlord and tenant that grants the tenant the right to exclusive possession of the property for a specified period in exchange for rent.
The signed lease agreement outlines the rent amount, term, rules, and responsibilities of both parties.
Leasehold Estate
An estate that gives the tenant the right to possess and use the property for a limited time. Created by a lease.
A 12-month apartment lease creates a leasehold estate for the tenant.
Lease Purchase
An agreement where the tenant has the option or obligation to purchase the property at a later date, with part of the rent sometimes applied to the purchase price.
A lease-purchase agreement allows the tenant to buy the home after three years, with 20% of rent credited toward the down payment.
Month-to-Month Tenancy
A periodic tenancy that renews automatically each month until terminated by proper notice (usually 30 days).
After the one-year lease ends, the tenant stays month-to-month and can move out with 30 days' notice.
Net Lease
A lease where the tenant pays rent plus some or all of the operating expenses (taxes, insurance, maintenance). Common in commercial leases.
In a triple net lease, the commercial tenant pays rent plus property taxes, insurance, and maintenance costs.
Nondisturbance Clause
A clause in a lease or mortgage that protects the tenant's right to remain in possession if the property is sold or foreclosed.
A nondisturbance clause ensures the tenant can stay even if the landlord defaults on the mortgage.
Percentage Lease
A commercial lease where the tenant pays a base rent plus a percentage of gross sales. Common for retail stores in shopping centers.
A retail store pays $5,000 base rent plus 6% of monthly gross sales under a percentage lease.
Rental-Finding Service
A business that charges a fee to help tenants locate rental properties. Must be licensed in Illinois if performing brokerage activities.
A company that charges tenants a fee to find apartments must have a real estate license in Illinois.
Reversionary Right
The landlord's right to regain possession of the property when the lease term ends.
When the lease expires, the landlord's reversionary right allows them to take back possession of the apartment.
Right of First Refusal
A clause giving the tenant the first opportunity to purchase the property if the landlord decides to sell, usually on the same terms offered by a third party.
The lease includes a right of first refusal, so if the landlord receives an offer to buy the building, the tenant gets to match it first.
Security Deposit
Money paid by the tenant to the landlord to cover potential damages or unpaid rent. Must be handled according to Illinois law, including interest requirements in some cases.
The landlord collects a security deposit equal to one month's rent and must follow Illinois rules for holding and returning it.
Sublease
A lease from the original tenant to a new tenant for part or all of the remaining lease term. The original tenant remains liable to the landlord.
The tenant subleases the apartment for the summer while studying abroad, but remains responsible if the subtenant damages the unit.
Americans with Disabilities Act (ADA)
Federal law that prohibits discrimination against individuals with disabilities in employment, public services, and public accommodations. Requires reasonable accommodations in property management.
An apartment complex must install a ramp and accessible parking spaces to comply with the ADA for tenants with mobility impairments.
Management Agreement
A written contract between the property owner and the property manager that outlines the manager's duties, authority, compensation, and term of the agreement.
The owner signs a management agreement authorizing the property manager to collect rent, handle maintenance, and screen tenants for a 10% fee.
Management Plan
A written plan prepared by the property manager that outlines goals, strategies, and budgets for operating the property effectively.
The property manager creates a management plan that includes projected income, expense budgets, marketing strategies, and maintenance schedules for the coming year.
Multiperil Policy
An insurance policy that covers multiple risks (fire, theft, liability, etc.) in a single package. Common for property owners.
The apartment building is insured under a multiperil policy that covers fire, wind damage, liability, and loss of rents.
Property Manager
A person or company hired by the owner to manage real estate. Duties include leasing, rent collection, maintenance, tenant relations, and financial reporting.
The property manager oversees 120 apartments, handles all leasing, maintenance requests, and sends monthly financial reports to the owner.
Risk Management
The process of identifying, evaluating, and controlling potential losses or liabilities in property management. Includes insurance, safety programs, and legal compliance.
The property manager implements risk management by installing security cameras, requiring renters insurance, and conducting regular safety inspections.
Surety Bonds
A bond that guarantees performance or honesty. In property management, often used to protect the owner against employee dishonesty or contractor performance.
The property management company requires maintenance staff to be bonded so the owner is protected if an employee steals from tenants.
Tenant Improvements
Alterations or improvements made to leased space to meet the specific needs of a tenant. Often negotiated in commercial leases.
The landlord agrees to build out new office space with custom walls, lighting, and HVAC as tenant improvements for a new corporate tenant.
Workers' Compensation Acts
State laws that provide benefits to employees injured on the job. Employers (including property managers) must carry this insurance.
When a maintenance worker is injured on the job, workers' compensation covers medical bills and lost wages as required by state law.
Buffer Zone
A strip of land separating two different zoning districts (for example, residential from commercial) to reduce conflict and provide transition.
A 50-foot buffer zone of trees and landscaping separates a new shopping center from the adjacent single-family neighborhood.
Building Code
Local regulations that set minimum standards for construction, materials, safety, and design of buildings. Enforced through permits and inspections.
The city building code requires smoke detectors in every bedroom and fire-resistant materials in multi-family buildings.
Comprehensive Plan
A long-term master plan adopted by a city or county that guides future growth, zoning, transportation, and land use decisions.
The city's comprehensive plan designates the area near the new highway for mixed-use development over the next 20 years.
Conditional-Use Permit
A special permit that allows a use not normally permitted in a zoning district, subject to specific conditions and approval.
A church in a residential zone obtains a conditional-use permit after demonstrating it will not create traffic or noise problems.
CC&Rs
Covenants, Conditions, and Restrictions — private restrictions recorded against a property that control land use, building design, and owner behavior. Enforced by homeowners associations.
The subdivision's CC&Rs prohibit above-ground pools, require minimum house sizes, and ban certain exterior colors.
Density Zoning
Zoning that controls the number of units or people per acre rather than just lot size. Used to manage population density.
Density zoning allows up to 12 dwelling units per acre in this multifamily district.
Developer
A person or company that improves raw land or redevelops existing property for sale or investment. Often handles subdivision, construction, and marketing.
The developer buys 40 acres, obtains zoning approval, installs infrastructure, and builds 120 new homes for sale.
Enabling Acts
State laws that give local governments the authority to create and enforce zoning ordinances, building codes, and land-use regulations.
Illinois enabling acts authorize cities and counties to adopt zoning ordinances and regulate land development.
Interstate Land Sales Full Disclosure Act
Federal law (1968) that requires developers selling subdivided land across state lines to register with HUD and provide full disclosure to buyers.
A developer selling lots in a large recreational community in another state must comply with the Interstate Land Sales Full Disclosure Act.
Laches
A legal doctrine that prevents enforcement of a right if there has been an unreasonable delay in asserting it, causing prejudice to the other party.
After 15 years of ignoring a neighbor's fence that slightly encroaches, the owner may be barred by laches from demanding its removal.
Nonconforming Use
A use that was legal when established but no longer complies with current zoning. Usually allowed to continue but cannot be expanded.
An old corner store in a now-residential zone is a nonconforming use and can continue operating but cannot be enlarged.
Plat Map
A detailed map of a subdivision showing lot boundaries, streets, easements, and other features. When recorded, it creates the legal description for the lots.
The developer records the final plat map, officially creating the 85 lots in the new subdivision.
Restrictive Covenants
Private agreements that limit how property can be used. Often recorded in deeds or declarations and run with the land.
Restrictive covenants in the neighborhood prohibit commercial vehicles from being parked in driveways overnight.
Subdivider
A person or company that divides a large parcel of land into smaller lots for sale or development.
The subdivider purchases 50 acres and creates 120 individual building lots with roads and utilities.
Subdivision
The process of dividing land into smaller parcels (lots) for sale or development. Also refers to the resulting development.
The subdivision includes 85 single-family lots, a park, and two stormwater retention ponds.
Variance
Permission from the zoning board to deviate from strict zoning requirements when strict enforcement would cause undue hardship.
The homeowner receives a variance to build a garage 3 feet closer to the side lot line than the zoning ordinance allows.
Zoning Ordinance
Local law that divides the community into districts and regulates land use, building height, setbacks, density, and other development standards.
The zoning ordinance requires a minimum 25-foot front yard setback and limits building height to 35 feet in this residential district.
Americans with Disabilities Act (ADA)
Federal civil rights law that prohibits discrimination against individuals with disabilities. Requires reasonable accommodations in housing and public accommodations.
A landlord must allow a tenant with a disability to install a ramp at their own expense and must permit a service animal even if pets are not allowed.
Blockbusting
The illegal practice of inducing owners to sell their homes by suggesting that members of a protected class are moving into the neighborhood, causing property values to decline.
An agent tells homeowners that 'those people' are moving in and property values will drop — this is illegal blockbusting.
Code of Ethics
A set of professional standards and principles that guide the conduct of real estate licensees. The NAR Code of Ethics is widely adopted.
The REALTOR Code of Ethics requires members to protect and promote the interests of their clients while treating all parties honestly.
Ethics
Moral principles that govern a person's behavior. In real estate, includes honesty, fairness, disclosure, and putting clients' interests first.
Even when not legally required, an ethical agent discloses known defects and avoids any misrepresentation.
Fair Housing Act
Federal law (Title VIII of the Civil Rights Act of 1968, as amended) that prohibits discrimination in housing based on race, color, religion, sex, national origin, familial status, and disability.
A landlord cannot refuse to rent to a family with children or to someone because of their race or religion under the Fair Housing Act.
Redlining
The illegal practice of refusing to make loans or provide insurance in certain neighborhoods based on racial or ethnic composition rather than individual creditworthiness.
A lender draws a red line around minority neighborhoods on a map and refuses to make mortgages there — this is illegal redlining.
Steering
The illegal practice of directing prospective buyers or tenants toward or away from certain neighborhoods based on protected class characteristics.
An agent only shows homes in predominantly White neighborhoods to White buyers and steers minority buyers elsewhere — this is illegal steering.
Asbestos
A fibrous mineral once widely used in building materials for insulation and fire resistance. When disturbed, fibers can cause serious lung diseases including asbestosis and cancer.
An older home has popcorn ceilings and pipe insulation that test positive for asbestos. Disturbing these materials during renovation requires licensed abatement.
Brownfield
Abandoned or underused industrial or commercial sites that may be contaminated with hazardous substances. Often targeted for redevelopment with government incentives.
An old factory site is designated a brownfield. A developer can receive grants and liability protection to clean it up and build new housing.
Capping
A method of containing hazardous waste or contaminated soil by covering it with an impermeable layer (clay, plastic, concrete) to prevent exposure or migration.
The landfill is closed and capped with clay and soil to prevent rainwater from leaching contaminants into groundwater.
Carbon Monoxide (CO)
A colorless, odorless, toxic gas produced by incomplete combustion of fuels. Can cause illness or death in poorly ventilated spaces.
A faulty furnace in a home produces dangerous levels of carbon monoxide. The agent recommends CO detectors in every home listing.
CERCLA
Comprehensive Environmental Response, Compensation, and Liability Act, also known as Superfund. Federal law that holds current and past owners/operators liable for cleanup of hazardous waste sites, even if they did not cause the contamination.
Under CERCLA, a buyer who purchases contaminated property can be held liable for cleanup costs even if the contamination occurred decades earlier.
Encapsulation
A method of sealing asbestos-containing materials with a protective coating or wrap to prevent fiber release, rather than removing the material.
Instead of removing old asbestos pipe insulation, the contractor encapsulates it with a special sealant to contain the fibers.
Formaldehyde
A chemical used in building materials (particleboard, plywood, insulation) and household products. Can cause respiratory irritation and is a known carcinogen.
New cabinetry and flooring in a recently renovated home off-gas formaldehyde. Proper ventilation helps reduce indoor air levels.
Groundwater
Water located beneath the earth's surface in soil pores and rock fractures. A major source of drinking water that can be contaminated by pollutants.
A leaking underground storage tank contaminates the groundwater, affecting nearby private wells.
Innocent Landowner Immunity
A defense under CERCLA that protects a buyer from liability if they conducted appropriate environmental due diligence (Phase I ESA) before purchase and had no knowledge of contamination.
A buyer who orders a Phase I Environmental Site Assessment before closing may qualify for innocent landowner immunity under CERCLA.
Landfill
A designated site for disposal of solid waste. Modern landfills are engineered with liners, leachate collection, and gas monitoring systems.
The county landfill is lined and monitored to prevent leachate from contaminating groundwater.
Lead
A toxic heavy metal once commonly used in paint and plumbing. Exposure, especially in children, can cause serious developmental and health problems.
Homes built before 1978 are presumed to contain lead-based paint. Federal law requires disclosure and lead-safe renovation practices.
Mold
Fungi that grow in damp environments. Certain types can cause allergic reactions, respiratory problems, and structural damage.
Water damage from a roof leak leads to black mold growth in the attic. The buyer requires professional remediation before closing.
Radon
A naturally occurring radioactive gas that can seep into homes from the ground. The second leading cause of lung cancer after smoking.
A home inspection reveals elevated radon levels. The seller installs a mitigation system before closing.
SARA
Superfund Amendments and Reauthorization Act (1986) — amendments to CERCLA that strengthened cleanup standards, increased funding, and created the innocent landowner defense.
SARA strengthened CERCLA by adding the innocent landowner defense and increasing the Superfund trust fund.
Underground Storage Tank (UST)
A tank and piping system located underground, commonly used to store petroleum or hazardous substances. Leaks can contaminate soil and groundwater.
An old gas station's underground storage tanks are leaking. The owner must remove or upgrade the tanks and clean up the contamination.
Water Table
The upper surface of groundwater. The depth can affect construction, septic systems, and contamination risk.
A high water table on a property requires special foundation design and can limit the use of a conventional septic system.
Accrued Item
An expense that has been incurred but not yet paid by the closing date. The seller typically owes this amount at closing (for example, unpaid property taxes).
Property taxes for the first half of the year have accrued but are not yet due. The seller credits the buyer for this accrued amount at closing.
Affiliated Business Arrangement (ABA)
A situation where a settlement service provider refers business to another company in which they have an ownership interest. Must be disclosed under RESPA.
A title company owned by the same parent company as the lender must disclose the affiliated business arrangement to the borrower.
Arrangement
The overall process and coordination of documents, funds, and parties involved in transferring title and completing a real estate closing.
The closing attorney coordinates the arrangement of all documents, payoffs, and disbursements for the transaction.
Closing
The final step in a real estate transaction where ownership is transferred, funds are disbursed, and all documents are signed and recorded.
At closing, the buyer signs the mortgage, the seller signs the deed, and title is transferred in exchange for the purchase price.
Closing Disclosure (CD)
A five-page form required under TRID that details all final loan terms, closing costs, and cash to close. Must be provided at least three business days before closing.
The lender issues the Closing Disclosure three days before closing so the buyer can review all final numbers.
Credit
An amount the buyer or seller receives at closing (for example, earnest money, prorated taxes, seller concessions). Appears on the Closing Disclosure.
The buyer receives a credit for the $5,000 earnest money deposit already paid and for the seller's portion of prepaid property taxes.
Debit
An amount the buyer or seller must pay at closing (for example, purchase price, loan fees, prorated expenses). Appears on the Closing Disclosure.
The buyer is debited for the full purchase price, loan origination fee, and prepaid homeowners insurance.
Escrow
A neutral third party that holds funds and documents until all conditions of the transaction are met. Also refers to the impound account for taxes and insurance.
The title company acts as escrow agent, holding the buyer's earnest money and the signed deed until closing conditions are satisfied.
Loan Estimate (LE)
A three-page form required under TRID that provides an estimate of loan terms and closing costs within three business days of application.
The lender provides the Loan Estimate shortly after the buyer applies for the mortgage so they can compare offers.
Prepaid Item
An expense paid in advance by the seller that benefits the buyer after closing (for example, prepaid property taxes, insurance). The buyer reimburses the seller at closing.
The seller prepaid the entire year's property taxes. At closing, the buyer reimburses the seller for the portion after the closing date.
Proration
The division of expenses (taxes, rent, HOA fees, etc.) between buyer and seller based on the number of days each owns the property.
Property taxes are prorated so the seller pays for the 180 days they owned the home and the buyer pays for the remaining 185 days.
RESPA
Real Estate Settlement Procedures Act — federal law that requires disclosure of closing costs and prohibits kickbacks in mortgage transactions.
RESPA requires lenders to provide clear closing cost disclosures and prohibits referral fees between settlement service providers.
TRID
TILA-RESPA Integrated Disclosure Rule — federal rule that combines Truth in Lending Act and RESPA disclosures into the Loan Estimate and Closing Disclosure forms.
TRID requires the lender to deliver the Loan Estimate within three business days and the Closing Disclosure at least three business days before closing.
Frontage
The linear measurement of a property's boundary that fronts a street, road, or water body. Often affects value and development potential.
A commercial lot with 150 feet of frontage on Main Street is more valuable for retail development than a similar lot with only 50 feet of frontage.
Interest
The cost of borrowing money, expressed as a percentage of the loan amount. Calculated as Principal × Rate × Time.
On a $200,000 loan at 6% annual interest, the borrower pays $12,000 per year in interest ($200,000 × 0.06).
Net Operating Income (NOI)
The income generated by a property after operating expenses but before debt service and income taxes. Key metric for investment analysis.
A rental property generates $60,000 in gross rent minus $22,000 in operating expenses, resulting in $38,000 NOI.
Perimeter
The total distance around the outside of a property or building. Calculated by adding the lengths of all sides.
A rectangular lot measuring 100 ft by 150 ft has a perimeter of 500 feet (100 + 150 + 100 + 150).