Acceleration Clause:
Language in a mortgage that accelerates the maturity of the mortgage note upon the sale of the property.

Amortization:
The gradual, systematic payment of a debt, such as a mortgage or other loan, in installments of principal and  interest for a definite time, so that at the end of that time, the debt will have been paid in full.

Asset:
Anything having commercial or exchange value that is owned by a business, institution or individual. A business' assets might include its real estate, equipment inventory, intellectual assets such as copyrights or trademarks, and accounts receivable.

Assignability:
The ability to assign (or sell) an income stream to another individual or business.

Assignee:
The person or business entity who is given, obtains, or buys the right to an asset through an assignment of a contract where such assignment is permissible under the contract.

Assignment:
The transfer of the rights, title or interest of any debt instrument that is properly owned by another party.

Assignor:
The person giving or selling an asset, and subsequently, forfeiting rights to that asset through the assignment of those rights to an assignee.

"B" through "D" credit customers:
These consumers have less than perfect to bad credit and usually cannot qualify for traditional financing. Also called sub-prime credit customers.

Balloon:
The balance of principal that is due and owing in its entirety at a specified point in time, but in any event, less than the time required to fully amortize the debt. Refinancing or property sale is the typical way to payoff a balloon.

Bankruptcy:
A state of insolvency of an individual or organization. The inability to pay debts with protection granted under the law.

Beneficiary:
The person or party entitled to receive the benefits, or proceeds, of the life insurance policy upon the death of the insured person.

Bill of Sale:
A document used as evidence of the transfer of title of certain goods from seller to buyer.

Business-based income streams (also called Cash Flow Contracts):
Cash flow instruments that are paid to a business by another business or government.

Buyer:
The individual(s) purchasing the real estate from the seller is called the Buyer, and becomes the Obligor under the terms of a mortgage and note created at the closing of the sale.

Cash flow:
The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a recipient in the form of revenues or salary, and out of the recipient in the form of expenses.

Chattel mortgage:
A mortgage on personal property, given to secure a debt. Typically used in the sale of a business. Also called a security agreement.

Contract for Deed:
In certain states, title to the property is not conveyed, or transferred, until all the payment obligations are made by the Buyer.  This does not reduce any burdens the Buyer assumes upon the purchase of the property, but, rather, just the point in time at which the actual title is transferred.  State laws impact the rights of a creditor so this must be carefully reviewed with legal counsel for a complete understanding of any potential implications for both the Buyer and Seller.

Collateral:
Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize (also called foreclose) the collateral.

Creditor:
One who is owed payments on a debt by a debtor.

Debtor:
One who owes something and makes payments to a creditor.

Default:
The omission or failure to perform or fulfill a legal duty, obligation, or promise.

Due diligence:
Exhaustive research on a transaction, income stream, client, and/or payor. Due diligence may involve credit checks, appraisals, lien searches, employment history verification, and on-site visits with clients.

Equity:
The value or interest an owner has in property over and above any indebtedness owed on the property.

Escrow:
The system by which money documents, personal property, or real property is held in trust for another party by a disinterested third party until the terms and conditions of the escrow instructions are satisfied or terminated.

Face value:
The current principal balance on an income stream.

Foreclosure:
A legal proceeding in court to seize property given as security for a debt that is in default.

Funding source (also referred to as Private Capital Investors):
An individual investor or an investment company that buys income streams.

Hypothecation:
Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.

Income stream:
A future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.

Investment-to-value ratio:
A measure of how secure a creditor's position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.  It measures the ratio of the creditor's total investment in a property to the current market value of the property.

Loan-to-value ratio:
A measure of how heavily mortgaged a property is and how likely the owner is to default on his or her debts. This measures the ratio of the amount of the creditor's loan amount to the current market value of the property.

Market value:
The price at which a ready, willing, and informed person would buy something; the price property would command in the current market given its condition, any improvements made, and the quality of the neighborhood.

Mortgage (also called a Deed of Trust or a Trust Deed)
A written instrument that creates a lien by pledging real property as security for a debt.

Note Manufacturing:
In the absence of a property seller's experience in knowing how to conduct buyer due diligence and document and service the sale of a property all in compliance with State and Federal guidelines, the seller may contract with a Note Professional who will, for a reasonable fee, assist with the structuring, due diligence and documentation, and provide guidance on the ongoing servicing and compliance requirements and any subsequent sale of the note(s).

Note Professional:
A Note Professional is a seller finance service provider who can provide both Note Manufacturing support as well as offer to purchase a note at a later date should the note holder need to sell it in whole or in part.

Obligor:
A person, typically the property Buyer, who is responsible for making payments on the note that is created upon the sale of the property and the transfer of title.

Owner financing (also called Seller Financing or advertised as Owner Will Carry):
A type of financing in which the seller of a tangible asset accepts a promissory note as a portion of the purchase price in addition to a down-payment, typically paid in cash.

Partial:
Any part of a payment stream that is less than the full amount due.

Personal guarantee:
A contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.

Private Capital Investors:
There are any number of private investors who will purchase properly manufactured notes. The applicable discount will be greatly influenced by the creditworthiness of the buyer and the quality of the manufactured note.  A Note Professional can be of great service here by helping identify the buyer who will pay the most for a particular note.

Profit and loss statement:
A financial statement that shows a historical record of a business' or person's income and expenses.

Promissory note:
A written promise to pay a specified amount to a specified party over a certain period of time at a specified rate of interest.

Real property:
Real estate.

Replevin:
A legal proceeding in court to seize property (other than real estate) given as security for a debt that is in default.

Seasoning (also referred to as the Payment History):
The length of time payments have been made on a Note or other debt instrument.  The timing of these payments versus their due date greatly impacts the value of the note, meaning if payments are late or missed altogether, the discounted value of  a Note in the secondary cash market would be greatly diminished.

Secondary market (also referred to as the Cash Market):
The marketplace where individuals and businesses can sell privately held income streams to funding sources for cash. (the amount paid will depend on several factors including the credit quality of the creditor, the value of the collateral, note structure, payment history, quality of the documentation, the size of the note, and the remaining term of the note).

Securitization:
The bundling and resale of debt instruments to investors; permitted only for parties licensed and regulated by the Securities and Exchange Commission (SEC).

Security interest:
An interest in property, other than real estate, which is given as security for a debt or other obligation. A security interest is created by execution of a security agreement and is perfected by the filing of one or more financing statements (liens) under the Uniform Commercial Code (UCC) typically in the county where the property is located.

Seller:
The individual(s) selling the real estate to a buyer(s) and creating a mortgage and note is called a Seller.

Seller Finance (also referred to as Owner Will Carry):
Under those conditions whereby a property owner has sufficient positive equity in a piece of real estate and is willing and able to offer self-financing to a qualified buyer who otherwise does not qualify for conventional financing, the seller conducts due diligence on the buyer to qualify his creditworthiness and prepares a mortgage and other documents and later services the note in exchange for an above-average return on the note.

Seller Finance Specialist:
Equivalent by definition to a Note Professional, a Seller Finance Specialist is someone with significant training and experience in providing assistance to clients with the sale and financing of their property when private (seller) financing is appropriate.

Servicing:
The collection and recording of payments of interest and principal, and trust fund items such as fire insurance, taxes, etc., on a note by the borrower in accordance with the terms of the note. Servicing by the lender also consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, and delinquent loan follow-up and analysis, and filing any required notices with the Internal Revenue Service (IRS).

Structure:
The sale of the property can be negotiated using any combination of down payments and unpaid principal balances.  It is important to consider at the time of negotiation how this Structure might potentially impact the value of the Note in the Secondary cash market and to consult with a Seller Finance Specialist (Note Professional) to create a Structure that would maximize its potential value and improve one's options  if the Note were to be sold at a later date.

Subordination:
The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor.

Time value of money:
Concept that addresses the way the value of money changes over a period of time. Said in another way, it captures the simple concept that money today is worth more than the same money will be in five years, and more still than in ten years, because of both the impact on money by inflation and the ability to generate a return on investment during the intervening period of time.

Title commitment:
A commitment on the part of the insurer, once a title search has been conducted, to provide the proposed insured with a title insurance policy upon closing (See Title Policy for more elaboration).

Title insurance:
Title insurance can benefit either the payor or the payee. Should the beneficiary suffer any damages due to clouded or false title to real estate, title insurance recompenses the damaged party to the extent of the damages.

Title policy (can be an Owner's Policy or a Mortgagee's Policy):
An insurance policy that insures a party against loss due to a defective title. The type of policy impacts the ability to transfer the title to the property upon its sale as well as the cost of obtaining each policy.

Uniform Commercial Code (UCC):
Standardized set of guidelines protected by law that set down how business transactions must be conducted.

Whole Loan (as contrasted with a partial loan):
A note holder may someday look to sell the note to an investor.  The Whole note (Loan) may be sold in its entirety, in which case the seller has no further involvement in collecting payments or servicing the note.  A portion of the loan may also be sold, called a "partial", whereby only a stream of payments are sold for a pre-defined period of time, after which time the responsibilities for collecting payments and servicing the note will revert back to the seller.














Copyright 2011 - All rights reserved