FACADE The
exterior wall of a building.
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FACE RATE OF INTEREST The stated
interest rate in a promissory note. Also known as
the contract rate or nominal rate, the face rate of
interest will be less than the annual percentage rate
(APR) if additional charges such as origination fees
and discount points are charged by the lender.
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FACE LIFT Changes other than structural
that result in an improved appearance of a building.
Such things as repairs, paint, new windows, and general
cleaning all serve to improve the appearance of a
building and, thus, give it a face lift.
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FACE VALUE The value of a debt such
as a mortgage as stated in the instrument itself If
current interest rates are greater than the contract
rate of interest, the market value of the debt instrument
will be less than the face value since the instrument
would have to be discounted to generate the market
rate of interest. Conversely, if the contract rate
of interest is greater than current market rates,
the instrument, if sold, will sell for a premium and,
thus, its market value will be greater than its face
value.
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FACTOR Any number or symbol that
when multiplied by another forms a product; the reciprocal
of a rate.
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FACTORS OF PRODUCTION An economic
principle which refers to the inputs necessary to
create goods or services. There are four factors of
production: (1) capital, (2) labor, (3) entrepreneurship
or management, and (4) land. Each factor must be compensated
in order for the owner(s) to be induced to part with
the factor. Since land is the only immobile factor
of production, it must attract the other three factors
of production. As a result, land receives its payment
only after the other factors have been compensated.
This means that real estate is residual. Thus, the
value of real estate is dependent upon how much compensation
is left after the other three factors have been rewarded.
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FAIR CREDIT REPORTING ACT A federal
act which became effective April 1, 1971, and attempts
to regulate the actions of credit bureaus that give
out erroneous information regarding consumers. First,
banks and credit companies must make a customer's
credit file available to the person in question. Further,
the consumer, upon examining the file, has the right
to correct any errors that may appear in the credit
reports. Secondly, if a creditor denies a loan to
an applicant, the applicant must be given the name
and address of the credit bureau that supplied the
credit information to the creditor. Upon request the
credit bureau must supply the consumer with the pertinent
information contained in the applicant's credit file.
Finally, the act limits the access of the consumer's
credit records to people who: (1) evaluate an applicant
for insurance, credit or employment, (2) secure the
consumer's permission, or (3) secure court permission.
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FAIR HOUSING AMENDMENT ACT OF 1988
A federal act which amended the Federal Fair Housing
Act of 1968 to include two new protected classes,
the handicapped and the "familial" status,
or those with children under eighteen. The amendment
became effective March 12, 1989.
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FAIR MARKET VALUE An economic concept
denoting the price, in terms of money, at which a
willing seller and willing buyer will agree when both
parties are acting prudently, knowledgeably, and under
no compulsion.
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FANNIE MAE Nickname commonly used
in reference to the Federal National Mortgage Association
(FNMA).
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FARMER'S HOME ADMINISTRATION (FMHA)
An agency of the U. S. Department of Agriculture that
provides credit to farmers, rural residences, and
certain communities. Currently, FMHA administers two
loan programs for rural housing: (1) a direct loan
program, and (2) a guaranteed loan program. Properties
securing such loans may not be located in urban areas
and, like FHA and VA, FMHA requires that the property
meet certain minimum requirements. Although there
is no statutory loan limit for such loans, the property
must appraise for the contract sales price. Information
on both loan programs is available from any office
of the Farmer's Home Administration.
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FARMLAND A classification of land
which denotes land primarily used for the raising
of crops and or livestock.
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FARM MORTGAGE A loan secured by
agricultural real estate. Such loans are normally
used by farmers to raise capital for the purchase
and operation of their farms.
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FASA Fellow, American Society of
Appraisers. A professional designation awarded by
the American Society of Appraisers to individuals
involved in the appraisal of both real and personal
property.
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FEASIBILITY The reasonable likelihood
of satisfying certain investment objectives within
the context of the market, finances, and other resources
or constraints.
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FEASIBILITY STUDY A detailed analysis
of a real estate project to determine the most profitable
use and the likelihood of the proposed use being a
financial success. The study is often used by the
promoter or developer to inure would-be investors
to participate in the venture and to assist lenders
in making their decision whether or not to loan the
necessary funds.
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FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
An independent agency functioning within the executive
branch of the U. S. Government. FDIC was established
following the run on banks that occurred prior to
the Great Depression and its purpose was to insure
the deposits of all banks who hold FDIC membership.
As a result of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, FDIC currently
insures both bank and thrift deposits. Thrift deposits
are insured through the Savings Association Insurance
Fund (SAIF), while commercial bank deposits are covered
through the Bank Insurance Fund (BIF). The corporation
insures deposits up to a statutory limit for both
banks and thrifts.
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FEDERAL FAIR HOUSING ACT OF 1968
A federal fair housing law which was passed as Title
VIII of the Civil Rights Act of 1968. As originally
passed, the act prohibited discrimination in the sale
or rental of residential dwelling units or vacant
land intended to be used as such on the basis of race,
color, religion, or national origin. Discrimination
on the basis of sex was prohibited by an amendment
in the Housing and Community Development Act of 1974.
The Fair Housing Amendment Act of l988, which became
effective March l3, 1989, added two new protected
classes, the handicapped and the "familial' status,
or those with children under eighteen.
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FEDERAL HOME LOAN BANK BOARD (FHLBB)
A board established by the Federal Home Loan Bank
Act of 1932 which chartered and regulated federal
savings and loan associations. The purpose of the
board in regard to savings and loans was much the
same as that of the Federal Reserve System in regard
to commercial banks. As part of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, the
Office of Thrift Supervision (OTS) was established
to replace the Federal Home Loan Bank Board for the
purpose of chartering, regulating and supervising
thrift institutions.
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FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
In 1970 under the Emergency Home Finance Act, the
Federal Home Loan Mortgage Corporation (FHLMC) or
"Freddie Mac" was created as a wholly-owned
subsidiary of the Federal Home Loan Bank System. Freddie
Mac was established as a secondary mortgage market
for savings and loan associations who are members
of the FHLBS. The creation of FHLMC was of added importance
since S & L's make such a high percentage of the
total conventional residential mortgages and many
these lenders would like to roll over their mortgages.
While Fannie Mae deals heavily in FHA and VA mortgages,
the majority of mortgages in Freddie Mac's portfolio
are conventional. In recent years, this agency has
referred to itself as The Mortgage Corporation.
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FEDERAL HOUSING ADMINISTRATION (FHA)
A federal agency established as part of the 1934 National
Housing Act that insures mortgages made by FHA-approved
lenders on real estate that meets FHA minimum standards.
The establishment of the 1934 Housing Act immediately
resulted in more construction jobs for the unemployed.
This, in turn, helped to stimulate the depressed economy.
In order to provide the means by which these new homes
could be purchased, FHA established an insurance program
to safeguard the lender against the risk of nonpayment
of people purchasing these homes. The result was that
the majority of homes financed were FHA insured. Even
though the percentage of homes insured under FHA coverage
has continued to decrease, the standards and requirements
under FHA programs have been credited with influencing
lending policies and techniques in financing residential
real estate.
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FEDERAL LAND BANKS Regional banks
established as part of the Farm Credit Administration
which are a source of long-term mortgages to farmers.
The Federal Land Banks make first mortgages though
local federal land bank associations to farmers, ranchers,
rural residents, and farm-related businesses. A majority
of the funds used to make these loans come from the
selling of securities by the Federal Land Banks to
investors. Each of the banks is known as 'the Federal
Land Bank of " and is located in the following
twelve cities: Baltimore, Maryland 21203; Berkeley,
California 94701; Columbia, South Carolina 24202;
Houston, Texas 77001; Louisville, Kentucky 40201;
New Orleans, Louisiana 70150; Omaha, Nebraska 68101;
Springfield, Massachusetts 01101; Spokane, Washington
99204; St. Louis, Missouri 63166; St. Paul, Minnesota
55101; and Wichita, Kansas 67202.
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FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
Commonly known as "Fannie Mae", the FNMA
is the largest and best known buyer of existing mortgages.
The Federal National Mortgage Association was originally
organized by the federal government in 1938 to purchase
FHA-insured mortgages. The association was reorganized
in 1968 as a quasi-private corporation whose entire
ownership is private. Fannie Mae raises capital by
issuing corporate stock which is actively traded on
the New York Stock Exchange and by selling mortgages
out of its portfolio to various investors. Over the
past twenty years Fannie Mae has purchased many times
more than it has sold. At the end of 1991 current
mortgage holdings exceeded $100 billion, the majority
being conventional mortgages.
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FEDERAL RESERVE BANK One of twelve
banks located in the twelve federal reserve districts
throughout the United States.
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FEDERAL RESERVE SYSTEM (FRS) The
central bank of the United States which functions
to control the money supply, availability of credit
and interest rates. The FRS is comprised of twelve
Federal Reserve Banks to which all nationally chartered
commercial banks must belong and to which state chartered
banks may choose to join. The system was created by
Congress in 1913 and is governed by a seven-member
Board of Governors each of whom are appointed for
fourteen year terms by the President of the United
States.
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FEDERAL REVENUE STAMP A U. S. revenue
stamp which until January 1, 1968, was required to
be placed on deeds prior to recordation. The rate
was $ .55 per $500 of consideration, and proof that
the stamps had been purchased was evidenced by the
actual placement of the stamps on the instrument being
recorded. Since the end of this requirement in 1968,
some states have passed their own requirements for
revenue stamps.
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FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
(FSLIC) A corporation established in 1934
as an agency of the federal government which insured
the deposits of member savings and loan associations.
Federally chartered S & L's had to maintain membership
and state chartered associations could be members.
As part of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, thrift deposits are now
insured through the Savings Association Insurance
Fund (SAIF) which is operated by the Federal Deposit
Insurance Corporation (FDIC).
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FEDERAL TAX LIEN A federal lien
which attaches to the real property of a person when
that taxpayer has violated either federal estate tax
laws or federal income tax laws. When a person dies
his or her estate is subject to a federal estate tax.
This tax causes a lien to attach on all real and personal
property in the estate for a statutory period of ten
years or until the tax is paid. If a person fails
to pay federal income taxes, government may issue
a tax warrant which, when recorded in the federal
tax do in the county records, attaches a federal tax
lien.
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FEDERAL TRADE COMMISSION (FTC) An
agency of the federal government created in 1914 that
has as its function the promotion of free and fair
competition in interstate commerce the prevention
of unfair and deceptive trade practices. In addition,
FTC enforces the Fair Credit Reporting Act and those
parts of the Truth-in-Lending Act r real estate brokers.
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FEE APPRAISER A person who charges
a fee for rendering his or her opinion as to the value
a parcel of real estate. It is unethical for appraisers
to charge a percentage of t derived value estimate
as their compensation.
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FEE SIMPLE The largest quantum of
ownership recognized by law; also referred to as fee
simple absolute or fee. The owner of the fee simple
has unlimited power to dispose of the interests during
his or her lifetime and upon death the property is
automatically passed on to the owner's heirs and devisees
either by will or by descent. Ownership in this country
is ordinarily in the fee simple form. The only restrictions
on use are those restrictions defined by the law of
nuisance or those necessarily imposed by law in order
to protect the interests of society. A fee simple
owner may convey lesser estates, sell easements, mortgage
the property or do whatever else he or she wishes
with the property so long as others are not harmed
by the improper use of the property. The fee simple
absolute is created by using the words 'to (name)
and his heirs and assigns forever.'
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FEE SIMPLE DETERMINABLE A qualified
fee simple estate created to exist only until the
occurrence or nonoccurrence of a particular event.
The words, "so long as" are ordinarily used
to create the estate.
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FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT
A qualified fee estate which is subject to a power
in the original grantor or the grantor's heirs to
terminate the estate upon the happening of an event.
The termination is not automatic, since the party
with the future interest called the right of reentry
or power of termination must take steps to either
enter upon the property or to bring a court action
to recover the land.
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FEE SIMPLE SUBJECT TO AN EXECUTORY LIMITATION
A qualified fee simple estate which will automatically
pass on to a third person upon the occurrence or nonoccurrence
of a stated event.
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FEE TAIL An estate in land which
was designed to restrict the conveyance of title to
the descendants of the grantee. This estate is established
by a grant in N following words of conveyance are
used, 'to X and the heirs of his body." Effectively
the fee tail created a long series of successive life
estates. This estate was to promote the landlord aristocracy
in England by keeping property in family..
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FELONY A crime more serious than
a misdemeanor.
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FEUDAL SYSTEM A system of land ownership
established in England after the Norman of 1066, in
which all property theoretically resided in the king.
In return for service or other duties the king would
give a feud or fief to a lord.
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FHA A common reference to the Federal
Housing Administration.
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FHA INSURANCE An insurance fee charged
the borrower on all FHA mortgages. The insurance payment
is retained by FHA for use in buying any mortgage
in default that is held by a lender.
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FIDUCIARY A person who essentially
holds the character of a trustee. Real estate brokers
and salespersons are considered by law to be fiduciaries,
thus they have a duty to act primarily for the principal's
(the person who employed them) benefit and not their
own. A fiduciary must act with the highest degree
of care and good faith in relations with the principal
and on the principal's business. 'Me penalties for
failing in fiduciary duties may be quite severe.
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FIEF An interest in land given under
a feudal system. The term "fee,' as used to denote
the extent of one's interest in land, is derived from
the term fief.
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FIFTEEN-YEAR MORTGAGE A loan with
a less than traditional payback period, specifically
one of fifteen years. During the past thirty years,
the vast majority of long-term residential loans have
been made with twenty, twenty-five, and thirty year
payouts. However, in recent years more and more homebuyers
have opted for loans with shorter maturity periods,
such as fifteen-year mortgages. The primary advantage
of a early-payout mortgage is the fact that considerably
less interest is paid over the life of the mortgage
since the principal is borrowed for a shorter period
of time. However, offsetting this advantage is the
fact that since the principal is borrowed for a less
than normal period of time, the principal repayment
each period is greater than with twenty- five and
thirty-year mortgages. Thus, higher monthly payments
eliminate many people from qualifying for fifteen-year
mortgages.
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FILTERING DOWN PROCESS The means
by which housing once occupied by middle- and upper-income
groups becomes available to lower- income families.
Normally the property has physically deteriorated
and thus is less expensive than when originally occupied.
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FINAL VALUE ESTIMATE 'Me estimate
of value reached after the appraiser has analyzed
the data, reconciled the value indications provided
by the application of the various approaches to value,
and made a final judgment.
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FINANCE CHARGES The total of all
costs paid to the lender by the borrower directly
or indirectly as an incident to the extension of credit.
'Me Truth-in-Lending Act requires that consumers be
told of the following charges: interest, finder and
origination fees, discount points, service charges,
credit report fees, and other such charges.
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FINANCIAL FEASIBILITY The likelihood
that a proposed project will attain a cash flow of
s quantity, quality, and duration to allow investors
to recover the capital invested and achieve the necessary
and expected rate of return. Factors to be considered
timing of inflows and outflows of cash, revenues,
costs, debt service, and the of a sale or re-financing.
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FINANCIAL INSTITUTION An organization
that attracts funds through some type of deposit mechanism
lends those funds to individuals or corporations in
order to make an acceptable return. The major financial
institutions involved in financing real estate are
savings and loan associations, commercial banks, mutual
savings banks, life insurance companies, credit unions,
finance companies, and pension funds.
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FINANCIAL INSTITUTIONS REFORM, RECOVERY,
AND ENFORCEM ACT (FIRREA) Federal legislation
enacted in 1989 that changed the regulatory framework
of financial institutions in the United States. Commonly
referred to as the "savings and loan bailout
bill,' FIRREA was a direct result of the insolvency
problems : many savings and loan associations during
the middle and late 1980s. Included act was the creation
of the Savings Association Insurance Fund (SAIF),
which insures thrift deposits, and the Bank Insurance
Fund (BIF) which insures commercial bank deposits.
Both funds are administered by the Federal Deposit
Insurance (FDIC). FIRREA also established the Resolution
Trust Corporation agency created to manage the assets
and liabilities of savings and loan. that became insolvent
both before and after the enactment of the act.
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FINANCIAL INTERMEDIARY A financial
institution that serves as a middleman between depositors
and borrowers. Savings and loan associations, for
example, attract many deposits from individuals. In
turn, these deposits are made available to borrowers
through a loan. The difference between what the financial
intermediary pays to attract deposits and what it
charges on its loan is its gross profit.
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FINANCIAL LEVERAGE The use of borrowed
money to complete an investment transaction. If the
asset purchased with borrowed money offers annual
financial benefits at a rate in excess of the loan's
interest rate, leverage is said to be positive or
favorable. 'Me investor makes money by borrowing.
Conversely, if an asset purchased with borrowed money
fails to increase in value or if it fails to provide
benefits in excess of the interest rate paid on the
borrowed money, then leverage is negative. Leverage
is neutral when the property earns at the same rate
as the interest rate on borrowed money.
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FINANCIALLY FEASIBLE A real estate
project in which the economic objectives of the investor(s)
are satisfied.
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FINANCIAL MANAGEMENT RATE OF RETURN (FMRR)
A modified internal rate of return model designed
to remedy some of the deficiencies of the internal
rate of return (IRR) technique. Two rates are considered
by the FMRR: (1) a safe, liquid after-tax rate, and
(2) a run-of- the mill reinvestment rate.
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FINANCIAL RATIO ANALYSIS A means
by which an investor/lender detects facets of a business
or investment that are within norms as well as those
that become unhealthy. An astute investor uses financial
ratio analysis to compare potential acquisitions and
select the ones offering the greatest potential. By
monitoring constantly changing ratios, it is possible
to detect areas of weakness for both management and
capital employment in order to take steps necessary
to bring ratios back to the desired balance level
of safety and risk.
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FINANCIAL RISK The uncertainty resulting
from the financing of an investment
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FINANCIAL SOLVENCY The expected
normal condition of a business present when current
assets exceed current liabilities.
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FINANCIAL STATEMENT A written statement
of the financial position of a person or company,
showing total assets and liabilities as of a certain
date. Many lenders require a financial statement as
part of a loan application.
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FINANCIAL STRUCTURE The mix of equity
and debt used in the purchase price of an asset.
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FINANCIER A person or financial
institution engaged in the lending and management
of money.
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FINANCING The difference between
the purchase price and the down payment, commonly
referred to as debt or the mortgage. One of the features
distinguishing real estate from some investments is
the ability to finance all or a significant part of
the purchase price with borrowed dollars.
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FINANCING PACKAGE The total of all
loans used to develop and/or purchase a real estate
project.
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FINANCING STATEMENT A written notice
filed in the public records by a creditor who has
extended credit for the purchase of personal property.
The purpose of filing the statement is to establish
the creditor's interest in the personal property which
is the security for the debt but which may become
a fixture when it is attached to real property.
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FINDER'S FEE A payment made by one
party to another for locating a prospect. This payment
is often used in the financing of real estate when
a mortgage banker locates a lender willing to loan
money to a borrower. In addition, in most states real
estate brokers may legally split a real estate sales
commission with another broker who was partly responsible
for bringing about the sale. However, an unlicensed
person may not legally accept a finder's fee from
a real estate broker since by doing so the unlicensed
person is brokering real estate without a license
and is thus in violation of licensing law. The term
is also known as a referral fee.
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FIRE AND EXTENDED COVERAGE INSURANCE
A basic fire insurance policy protecting the insured
against losses suffered from fire or lightning. In
addition, the owner can receive extended coverage
which insures against losses suffered due to windstorm,
hail, explosion, riot or civil commotion, aircraft,
vehicles, smoke, theft, and vandalism and malicious
mischief Coverage of these extra perils normally adds
very little to the premium.
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FIRM COMMITMENT An agreement by
a financial institution to loan a specified sum of
money for a specific time period and at a certain
interest rate, provided all conditions set by the
lender are met by the borrower.
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FIRM OFFER An offer made by a potential
buyer that will not be further negotiated.
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FIRM PRICE A stated sales price
that is fixed and, thus, nonnegotiable. While uncommon
in real estate transactions, occasionally an owner
will put his or her property on the market at a firm
price and will instruct the listing sales broker not
to accept any offer below the listed price.
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FIRST LIEN A legal claim with the
highest priority against a certain property; also
known as a senior lien.
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FIRST MORTGAGE A lien on property
in which the lender’s claims are superior to
the rights of subsequent lenders. Such a lien position
means less risk to the lender and thus normally results
in a lower interest rate charged to the borrower than
that charged on second or junior mortgages. Certain
lenders only make first mortgages due to regulatory
requirements; others limit mortgages to these senior
instruments due to company policy.
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FISCAL YEAR A business year used
for accounting or tax purposes as compared to a cal,
year. The fiscal year of many governmental units,
including the federal govern] runs from July 1 through
June 30 of the following year. Whether or not a government
operates on a fiscal or calendar year is particularly
important in prorating property taxes between buyer
and seller.
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FIXED EXPENSES Expenditures such
as property taxes, license fees, and property insurance
not vary directly given changes in the occupancy rate.
Fixed expenses are on items subtracted from effective
gross income to determine the net operating of property.
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FIXED RATE MORTGAGE A loan carrying
a constant interest rate over the full life of the
m Historically, fixed rate mortgages have been the
norm in permanent financing, particularly residential
real estate. Thus, when a borrower secures a fixed
rate mortgage he or she knows that the lender cannot
raise the interest rate re of what the market rate
of interest is doing. However, in recent years lenders
have in some instances been reluctant to loan money
for a long period of time including in the loan provision
a clause allowing them to vary the rate of in and
when market conditions change.
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FIXING-UP EXPENSES The money spent
to repair and/or refurbish real estate so as to imp
marketability.
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FIXITY OF LOCATION A physical characteristic
of land which makes it subject to the influence of
surrounding land uses. Since real estate space is
fixed in location it cannot be moved. While it is
true that the various elements within the space may
be moved, such as the topsoil or the minerals, the
space itself remains in the same geographic location.
This immobility leads to several legal and economic
results. From a legal standpoint only the legal rights
and not the asset itself can be physically transferred
to a purchaser.
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FIXTURE Personal property which
for some reason, such as the manner of attachment,
has become realty. Such property is also referred
to as chattel real. Examples of fixtures include built-in
cabinets in a kitchen, bathtubs, permanent bookcases,
and other such objects.
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FLAG LOT A parcel of land that is
shaped like a flagpole and flag with the land being
the "flag" and the only access being the
"pole."
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FLAT A floor or part of a floor
in a building designed for occupancy by a single family
for residential purposes.
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FLAT LEASE A type of lease requiring
the tenant to pay equal rent payment each period,
be the period monthly or annually. Rental payments
under this type of lease change during the term of
the lease and thus because of expected inflation generally
used by a landlord when the lease is for a significant
period of time.
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FLEA BAG An inexpensive, run-down
rental property such as an apartment or hotel
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FLEA MARKET A large area either
outdoors or under a roof in which individuals lease
spa the purpose of selling merchandise. The merchandise
sold is normally consumer oriented.
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FLEXIBLE LOAN INSURANCE PROGRAM (FLIP)
An innovative financing technique developed to overcome
the negative amortization aspects of the graduated
payment mortgage. The key to the flip mortgage is
the use of the buyer's down payment. Instead of being
used payment, the cash is deposited in a pledged,
interest-bearing savings account where it serves as
both a cash collateral for the lender and as a source
of supplemental payments for the borrower during the
first few years of the loan.
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FLIP The near simultaneous buying
and selling of a parcel of real estate at an price
for the purpose of leveraging the transaction.
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FLOAT The time period in which a
person has free use of someone else’s money.
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FLOATING RATE A finance term used
to explain the spread on a variable interest rate
loan. Developers and builders often borrow money at
an interest rate tied to the prime rate, for example,
'prime plus two.' This means that if the prime rate
is 10% the builder pays 12% on the money borrowed.
However, if the prime increases to 11%, then the interest
rate charged by the lender floats upward to, in this
case, 13%.
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FLOODINSURANCE Insurance that protects
a property owner from damages resulting from flooding.
Due to the high cost of flood insurance when written
through a private insurance company, Congress enacted
the National Flood Insurance Program in 1968. 'Me
intent of this legislation was to provide insurance
coverage for those people suffering both real and
personal property losses as a result of floods. Due
to the lack of public interest in the program, Congress
enacted the Flood Disaster Protection Act in 1975.
Under this law, no real estate located in a floodplain
area can be financed through a federally regulated
lender unless flood insurance is purchased.
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FLOODPLAIN The land bordering or
surrounding a river or stream that can be under water
when the river or stream are at their high-water mark.
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FLOOR AREA The total of all the
horizontal areas of all the floors in a building.
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FLOOR AREA RATIO (FAR) The relationship
between the floor area of a building and the total
area of the land under the building. Minimum and maximum
floor area ratios are often established as part of
a zoning ordinance.
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FLOOR DUTY A procedure used in many
real estate brokerage offices in which one or more
sales associates are responsible for answering all
telephone inquiries and office visits during a specific
period of time. The benefit to the company is the
assurance that all inquiries will be handled, while
the benefit to the person(s) on floor duty is the
opportunity to acquire new clients that would otherwise
not be known.
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FLOOR PLAN The layout of a building
showing the exact specifications as to size and shape
o each room.
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FLOOR-TO-CEILING LOAN A financing
technique in which the total amount of the loan is
a function of the projected net operating income of
the project. The total amount of the loan is funded
by the lender in two separate payments. The "floor
loan" is made upon satisfactory completion of
the project and may be as high as 50 to 75 percent
of the total loan. The remainder of the loan, the
'ceiling,' is funded only if certain predetermined
occupancy and or net income requirements are met.
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FLOW OF INCOME The total amount
of income projected from a real estate investment
as stated ii either annual figures or the total flow
over the economic life of the investment.
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FOLIO Latin word for "page."
When deeds, promissory notes, subdivision regulations
and other legal instruments dealing with real estate
are recorded in the public land records, they are
assigned a liber (book) volume and a folio (page)
number.
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FORBEARANCE Refraining from action
by a creditor against the debt owed by a borrower
after the debt has become due.
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FORECASTING An estimate of future
events based on present knowledge, facts, theory,
and judgment. Numerous real estate associations and
organizations are constantly forecasting what lies
ahead for their particular membership.
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FORCED SALE The selling of an asset
under less than favorable conditions in order to liquidate
the asset, such as the selling of mortgaged property
through foreclosure by the lender.
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FORECLOSURE A legal procedure by
which mortgaged property in which there has been default
on the part of the mortgager (borrower) is sold to
satisfy the mortgage debt. The most common type of
foreclosure in most states is foreclosure by sale.
Foreclosure by sale takes two general forms: (1) foreclosure
by judicial sale, and (2) foreclosure by power of
sale (also known as foreclosure by advertisement).
While procedures differ from state to state, under
a foreclosure by judicial sale, a petition is usually
filed with the court against the defaulting mortgager
and all persons having junior lien interests in the
property. The petition states the nature of the default,
the amount due, and the property involved.
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FOREIGN CORPORATION A corporation
not incorporated or chartered in a particular state
yet business in that state. Even though it is not
chartered in states where business, a foreign corporation
must consent to certain requirements and before it
may legally operate in the state.
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FORESHORE The part of a parcel of
land lying between the high water mark and the water
mark.
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FORFEITURE Loss of property for
some specified reason such as nonperformance condition
or legal obligation.
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FORGERY Altering a written document
with the intent to injure or defraud someone.
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FORMAL CONTRACT A written contract
under seal that is enforceable because of the way
it is written and does not depend upon sufficiency
of the consideration.
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FORM REPORT A specific format established
for use in presenting the results of an appraisal.
Lenders, government agencies, and certain investors
often require the use of a form report by appraisers
in rendering an opinion as to the value of certain
types of property such as single-family residential
or condominiums.
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FOR RENT BY OWNER (FRBO) Effort
on the part of an owner of real estate to lease his
or her space without employing the services of a property
management firm. Owners of both residential rental
property as well as income-producing property often
manage the property themselves and thus they do not
see the need for a professional management company.
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FOR SALE BY OWNER (FSBO) An attempt
by the owner of real estate to sell his or her property
without using the services of a real estate broker.
Quite often the owner believes that by selling the
property without employing a real estate broker the
commission will be saved and therefore the owner will
end up with more money.
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FORWARD COMMITMENT An agreement
by a lender or investor to either make or purchase
a loan within a certain period of time into the future.
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4-3-2-1 RULE A rule of thumb used
by appraisers in estimating the value of land. The
rule states that in a standard sized lot, 40 percent
of the total value is allocated to the front (street
frontage) quarter of the lot, 30 percent to the second
quarter, 20 percent to the third quarter and 10 percent
to the back quarter. Such an approach is nothing more
than an approximation and should not be used if a
more definitive estimate is desired.
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FRACTIONAL APPRAISAL An appraisal
of one component or legal interest of the whole property.
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FRACTIONAL INTEREST A partial interest
in real estate, such as an easement.
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FRANCHISE A business arrangement
undertaken for the purpose of marketing a product
or service. One party (the franchiser) provides marketing
and selling expertise for a fee to another party (the
franchisee) who in turn sells the product or service
in the marketplace.
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FRAUD A misrepresentation of a material
fact which is made with knowledge of its falsity and
with intent to deceive a party who in fact relies
on the misrepresentation to his or her detriment and
injury. Fraud can result from words spoken or written,
acts, or nondisclosure where there is a duty to inform.
Fraud is a defense against the enforcement of a contract.
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FREDDIE MAC A common name used to
refer to the Federal Home Loan Mortgage Corporation.
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FREE AND CLEAR Title to property
which is unencumbered by any mortgages or other liens.
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FREEHOLD An estate in real property
which continues for an indefinite period of time.
Freehold estates may be inheritable or non-inheritable.
Inheritable estates include the fee simple absolute,
the qualified fee, and the fee tail. Noninheritable
estates include various life estates which are created
by acts of parties, such as an ordinary life estate,
or by operation of law, such as dower and curtesy.
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FREEHOLDER One who owns a freehold
interest in real property.
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FREE MARKET SYSTEM AUCTION An auction
process used by the Federal National Mortgage Association
in which the association accepts bids from approved
lenders as to the amount, price, and terms of existing
mortgages that these lenders wish to sell to Fannie
Mae. Upon deciding how much money it will spend during
a given time period, Fannie Mae notifies the successful
bidders (determined by those mortgages offered for
sale will generate the highest yield to FN@), and
these bidders have a certain period in which they
can choose to deliver the mortgages. Once the mortgages
been delivered to Fannie Mae, the originator of the
mortgage continues to service the loan (collect monthly
payments, escrow property taxes, etc.) and for this
se: the originator receives a servicing fee.
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FREE-STANDING BUILDING A building
which contains only one business. Fast-food franchises
and retail stores are often free-standing buildings.
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FRONTAGE The linear distance of
a parcel of land abutting a road or river.
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FRONTAGE ASSESSMENT An assessment
made by local governments to pay for improvements
s roads. Improvements such as roads or sidewalks can
be paid for by assessing property facing or abutting
the road based on the proportion of a par property's
frontage to the total distance being improved.
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FRONT-END FEE Charges made by a
lender to a borrower for expenses incurred in determining
whether or not a loan will be made. Such expenses
would include credit report appraisal, survey, structural
inspection, and various legal fees. The fee may be
stated as a set amount or as a percentage of the requested
loan. Such fees are not payment. for the use of money
and thus are not considered to be interest.
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FRONT FOOT A property measurement
for purposes of valuation that is measured by the
footage on the street line. When the dimensions of
a lot are given, such as 600, the first measurement,
200, normally refers to the front footage.
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FRONT MONEY Money that must be raised
by a builder/developer before obtain financing in
order to start a project. Front money is needed to
pay for such options on the land, legal fees, feasibility,
and engineering studies, drawings. The money, also
known as seed money, is normally provided by the equity
investor(s) since at this stage in the development
of a project financing has not been finalized.
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FULL DISCLOSURE The obligation to
reveal all material facts. Under agency law a real
estate broker or salesperson acting as an agent is
required to fully disclose all material facts to a
third party. Failing to do so may result in legal
action against the agent. In addition, federal and
state acts such as the Truth-in-Lending Act and the
Interstate Land Sales Full Disclosure Act require
that certain information be made available to the
consumer.
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FULL-PRICE OFFER An offer to purchase
real estate at the exact price and with the exact
conditions stated by the owner. Most real estate offers
are not full-price offers, although in some isolated
markets offers are made above the listing price due
to the high demand and short supply of available property.
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FULLY AMORTIZED MORTGAGE A loan
that is fully repaid at maturity by periodic reduction
of the principal. The first part of each payment covers
interest on the outstanding debt as of the payment
due date and the remainder of the payment reduces
the outstanding debt.
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FUNCTIONAL OBSOLESCENCE A loss in
value within a structure due to changes in tastes,
preferences, technical innovations, or market standards.
The item in question may be curable, such as lack
of air conditioning in Florida, or incurable, such
as exceptionally low ceilings in a warehouse, depending
on the costs of correcting the item as compared to
the benefits expected if the correction is made.
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