Legal Terms

NET LEASE — A lease requiring a lessee to pay charges against the property such as taxes, insurance and maintenance costs in addition to rental payments.

NOTARY PUBLIC — An appointed officer with authority to take the acknowledgment of persons executing documents, sign the certificate, and affix official seal.

NOTE — A signed written instrument acknowledging a debt and promising payment, according to the specified terms and conditions. A promissory note.

NOVATION — The substitution or exchange of a new obligation or contract for an old one by the mutual agreement of the parties.

NULL AND VOID — Of no legal validity or effect.

OBSOLESCENCE — Loss in value due to reduced desirability and usefulness of a structure because its design and construction become obsolete; loss because of becoming old-fashioned and not in keeping with modern needs, with consequent loss of income. May be functional or economic.

OPINION OF TITLE — An attorney’s written evaluation of the condition of the title to a parcel of land after examination of the abstract of title.

OPTION — A right given for a consideration to purchase or lease a property upon specified terms within a specified time, without obligating the party who receives the right to exercise the right.

ORAL CONTRACT — A verbal agreement; one which is not reduced to writing.

PERCENTAGE LEASE — Lease on the property, the rental for which is determined by amount of business done by the lessee; usually a percentage of gross receipts from the business with provision for a minimum rental.

PERSONAL PROPERTY — Any property which is not real property.

PLEDGE — The depositing of personal property by a debtor with a creditor as security for a debt or engagement.

PLEDGEE — One who is given a pledge or a security. (See definition of Secured Party.)

PLEDGOR — One who offers a pledge or gives security. (See definition of debtor.)

POWER OF ATTORNEY — A written instrument whereby a principal gives authority to an agent. The agent acting under such a grant is sometimes called an attorney in fact.

POWER OF SALE — The power of a mortgagee or trustee when the instrument so provides to sell the secured property without judicial proceedings if a borrower defaults in payment of the promissory note or otherwise breaches the terms of the mortgage or deed of trust.

PREPAYMENT PENALTY — The charge payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity.

PRIMA FACIE — Latin meaning first sight, a fact presumed to be true until disproved.

PRINCIPAL — This term is used to mean the employer of an agent; or the amount of money borrowed, or the amount of the loan. Also, one of the main parties in a real estate transaction, such as a buyer, borrower, seller, lessor.

PRIOR LIEN — A lien which is senior or superior to others.

PRIORITY OF LIEN — The order in which liens are given legal precedence or preference.

PROMISSORY NOTE — Following a loan commitment from the lender, the borrower signs a note, promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its payment. The evidence of the debt.

PROPERTY — Everything capable of being owned and acquired lawfully. The rights of ownership. The right to use, possess, enjoy, and dispose of a thing in every legal way and to exclude everyone else from interfering with these rights. Property is classified into two groups, personal property and real property.

PRO RATA — In proportion; according to a certain percentage or proportion of a whole.

PRORATION — Adjustments of interest, taxes, and insurance, etc., on a pro rata basis as of the closing or agreed upon date. Fire insurance is normally paid for three years in advance. If a property is sold during this time, the seller wants a refund on that portion of the advance payment that has not been used at the time the title to the property is transferred. For example, if the property is sold two years later, seller will want to receive 1/3 of the advance premium that was paid. Usually done in escrow by escrow holder at time of closing the transaction.

PURCHASE MONEY MORTGAGE OR TRUST DEED — A trust deed or mortgage given as part or all of the purchase consideration for real property. In some states the purchase money mortgage or trust deed loan can be made by a seller who extends credit to the buyer of property or by a third party lender (typically a financial institution) that makes a loan to the buyer of real property for a portion of the purchase price to be paid for the property. In many states there are legal limitations upon mortgagees and trust deed beneficiaries collecting deficiency judgments against the purchase money borrower after the collateral hypothecated under such security instruments has been sold through the foreclosure process. Generally no deficiency judgment is allowed if the collateral property under the mortgage or trust deed is residential property of four units or less with the debtor occupying the property as a place of residence.