Investing Term Glossary


Accredited Investor
Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors."

The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

1. a bank, insurance company, registered investment company, business development company, or small business investment company;

2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act (ERISA), if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

3. a charitable organization, corporation, or partnership with assets exceeding $5 million;

4. a director, executive officer, or general partner of the company selling the securities;

5. a business in which all the equity owners are accredited investors;

6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;

7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Accrued Interest
Interest that has been earned or recognized but not yet paid or received..

Active Investor
An individual who is both the investment owner as well as the one who runs it, works it, or deals with the day to day operations (ex. President, managing member, or other officers of a company).  An active investor is also an investment strategy where the investor purchases the investment and continuously monitors it for changes in value.

Addendum
An addition or change to an existing contract between two (2) or more parties; something added as an attachment to a contract.

Administrator
An individual or entity that handles data entry, production of statements, phone calls, and other administrative tasks for an IRA, typically a bank or 3rd party that is approved or regulated by the federal government.  This is also a person appointed by a court to administer the estate of a deceased person who left no will.

Affinity Fraud
The name for a type of scam where members of a specific group, demographic, etc are targeted, with the perpetrators possibly attempting to relate to or exploit common characteristics or connection points within the group.

Agency
The legal relationship between a principal and his agent arising from a contract in which the principal engages the agent to perform certain acts on behalf of the principal.

AGI
Adjusted Gross Income: The amount on a tax return before you claim the standard deductions, any itemized deductions, or the deduction for personal  exemptions. Determined when a taxpayer calculates income tax liability on his or her federal income tax return. AGI is determined by adding all sources of total income such as wages and interest income and subtracting certain deductions and adjustments to income

Agreement of Sale
A legal document the buyer and seller approve detailing the price & terms of the transaction.

Amortization
The process of paying the principal and interest on a loan through regularly scheduled payments.

Amortization Schedule
Payment schedule for an investment that shows breakdown of principal and interest. States what a note is worth after each payment

Annual Percentage Rate (APR)
Effective rate of interest rate for a loan per year including fees and points, disclosure of which is required by the Truth-in-Lending Law.

Annuity
Stream of payments over a life expectancy. Systematic equal payments to receive your IRA money without penalty. 5 year minimum (once started, it cannot be cancelled for 5. Years); The payment of a fixed sum at regular intervals.

Appraisal
When a qualified individual assesses the asset and determines a value; A professional opinion of the value of a property by a licensed real estate appraiser.

Appraisal Fee
The fee that a professional real estate appraiser charges to appraise, or estimate the market value of, a property.

Appraisal Report
A written report on the value of a property based on recent sales of comparable property in the area.

Appraised Value
Opinion or estimate of a value of a property, values are determined by one of three methods: comparable sales (residential), replacement cost (insurance), or income approach (commercial).

Arms Length
Not dealing with yourself or any other disqualified individual

Articles of Incorporation
A document, filed with a U.S. state by a corporation's founders, describing the purpose, place of business, and other details of a corporation

Assessed Value
A tax assessor's determination of the value of a home in order to calculate a tax base; the value established for property tax purposes.

Assessment
The estimated value of a piece of real estate or a special levy placed in addition to taxes.

Assets
Anything other than cash. Examples are stocks, bonds, mutual funds, non traditional investments (real estate, tax liens, entities, promissory notes...). An item of useful or valuable property

Assign
Change name, record information, make legal. Gives an individual or entity all responsibility

Assignee
The person to whom an agreement or contract is sold or transferred.

Assignment
The transfer of rights to pay a debt from one party to another, with the original party remaining liable for the debt if the second party defaults; A legally binding document which transfers the ownership of an asset or investment. Not used for land, real estate, or publicly traded items

Assignor
A person who transfers rights and interests of a property; the person who assigns or transfers an agreement or contract to another.

Abstract of Judgment
The summary of a court judgment that creates a lien against a property when filed with the county recorder

Abstract of Title
Historical summary of all of the recorded instruments and proceedings that affect title to a property.

Abstract or Title Search
The process of reviewing all publicly recorded transactions to determine whether any title defects exist that could interfere with a clear transfer of property ownership

ACAT
Automated customer account transfer. Electronic transfer of assets (stocks, bonds...)

Accelerated Cost Recovery System
A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property

Accelerated Depreciation
A bookkeeping method that provides faster property depreciation in the early years of ownership

Acceleration Clause
A clause that provides the mortgagee (lender) the right to demand immediate repayment of the loan balance upon default of the mortgagor (borrower). "Acceleration" is also triggered by the due on sale clause (demands immediate repayment if the home is sold).

Acceptance
A buyers or sellers agreement to enter into a contract and be bound by the terms of the offer; The seller's written approval of a buyer's offer.

Accrued Interest
Interest that has been earned but not paid.

Accumulated Depreciation
In accounting, the amount of depreciation expense that has been claimed to date

ACH
The Automated Clearing House (ACH) Network: The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system governed by the NACHA OPERATING RULES which provide for the interbank clearing of electronic payments for participating depository financial institutions.

Acknowledgment
A declaration by a person who has signed a document that such signature is a voluntary act, made before a duly authorized person.

Acquisition Cost
The price and all fees required to obtain a property.

Acquisition Loan
Money borrowed for the purpose of purchasing a property.

Acre
A two dimensional measure of land equaling 4,840 square yards or 43,560 square feet.

Active Investor
An individual who is both the property owner as well as the one who runs it, works it, or deals with the day to day operations (ex. President or other officers of a company)

Addendum
An addition or change to an existing contract between two (2) or more parties; something added as an attachment to a contract.

Additional Principal Payment
Additional funds outside of the scheduled loan payment to reduce the principal balance and shorten the term of the loan.

Adjoining
Contiguous, attached, sharing a common border.

Adjustable Rate Mortgage (ARM)
A mortgage loan that allows the interest rate to be changed at specific intervals over the maturity of the loan, based on a monitored index; A home loan with an interest rate that periodically adjusts to reflect changes in a specified financial index.

Adjusted Cost Basis
The cost of any improvements the seller makes to the property. Deducting the cost from the original sales price provides the profit or loss of a home when it is sold.

Adjusted Tax Basis
The original cost or other basis of the property, reduced by depreciation deductions and increased by capital expenditures.

Adjustment Period
The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Administratively Feasible
A transaction that has been determined by a custodian to  answer the question if the custodian can process the paperwork. This does not mean the transaction is IRS approved, but as a company, they can administer the transaction.

The review is to ensure the custodian can process the paperwork through their company; the forms are completed, signed, dated correctly, and the supporting documents are titled accurately. This does not mean the transaction was reviewed for the legality of the documents or whether they are complete and accurate.

NOTE: It is the responsibility of the Self-Direct IRA account owner to have investments reviewed by an attorney or tax advisor prior to submitting these documents to ensure that the investment is properly structured.)

Administrator
An individual or entity that handles data entry, production of statements, phone calls for an IRA. Typically a bank or 3rd party that is approved or regulated by the federal government; A person appointed by a court to administer the estate of a deceased person who left no will.

Administrator's Deed
A legal document that an administrator of an estate uses to transfer property.

Adverse Possession
A means of acquiring title to real estate where an occupant has been in actual, open, notorious, exclusive and continuous occupancy of property for the period required by state law.

Affidavit
A written statement, sworn to or affirmed before an officer who is authorized to administer an oath or affirmation.

Agency
The legal relationship between a principal and his agent arising from a contract in which the principal engages the agent to perform certain acts on behalf of the principal.

Agency Closing
When a lender uses a title company or other firm as an agent to complete a loan.

Agency Disclosure
Most states require agents who act for both buyers or sellers to disclose who they are working for in the transaction.

AGI
Adjusted Gross Income: The amount on a tax return before you claim the standard deductions, any itemized deductions, or the deduction for personal. Exemptions. Determined when a taxpayer calculates income tax liability on his or her federal income tax return. AGI is determined by adding all sources of total income such as wages and interest income and subtracting certain deductions and adjustments to income

Agreement for Deed
See Contract for Deed.

Agreement of Sale
A legal document the buyer and seller approve detailing the price & terms of the transaction.

Alienation
To convey or transfer title and possession of property.

Alienation Clause
A loan provision requiring the borrower to pay the balance of the loan in a lump sum if the property is sold or transferred.

All Inclusive Trust Deed
This applies to states that use trust deeds instead of mortgages. It is the same as a wraparound mortgage.

Alternative Mortgage
A home loan program that does not conform to standard fixed-rate mortgage terms.

Amortization
The process of paying the principal and interest on a loan through regularly scheduled payments.

Amortization Schedule
Payment schedule for an investment that shows breakdown of principal and interest. States what a note is worth after each payment

Amortization Tables
Mathematical tables used to calculate a borrower's monthly payment.

Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Amortized Loan
Loan that is repaid in a series of installments each of which contains a portion that is applied to reduce the principal amount of the loan and a portion that is applied to pay interest with each successive payment allocates a larger portion to principal reduction and a smaller portion to interest payment until the outstanding balance is ultimately reduced to zero.

Annual Cap
Maximum amount the interest rate on an adjustable rate mortgage can be raised or lowered in the course of one twelve month period.

Annual Mortgagor Statement
An annual statement to borrowers detailing the remaining principal balance and amounts paid for taxes and interest throughout the year

Annual Percentage Rate (APR)
Effective rate of interest rate for a loan per year including fees and points, disclosure of which is required by the Truth-in-Lending Law.

Annuity
Stream of payments over a life expectancy. Systematic equal payments to receive your IRA money without penalty. 5 year minimum (once started, it cannot be cancelled for 5. Years); The payment of a fixed sum at regular intervals

Anticipatory Breach
A communication that informs a party that the obligations of the original contract will not be fulfilled.

APN
Appraisal Parcel Number. Legal description or identifying information on property (ex. Lot 2, block 3. 000-123-456)

Application Fee
An application fee is charged by some lenders and may include charges for items such as property appraisal and/or a credit report unless those fees are reported separately.

Appraisal
When a qualified individual assesses the asset and determines a value; A professional opinion of the value of a property by a licensed real estate appraiser.

Appraisal Fee
The fee that a professional real estate appraiser charges to appraise, or estimate the market value of, a property.

Appraisal Report
A written report on the value of a property based on recent sales of comparable property in the area.

Appraised Value
Opinion or estimate of a value of a property, values are determined by one of three methods: comparable sales (residential), replacement cost (insurance), or income approach (commercial).

Appreciation
An increase in the value of a home or other property.

APR (annual percentage rate)
A measure of interest that expresses the cost of a mortgage as a yearly rate on the loan balance. The APR assumes the loan is held for its full term. For adjustable-rate loans, the APR assumes the loan's index doesn't change from its initial value.

ARM Index
A publicly published number used as the basis for adjusting the interest rates of adjustable rate loans (ARM).

Arms Length
Not dealing with yourself or any other disqualified individual

Arrears
Mortgage payment includes interest for prior month, or overdue payments in default.
Money which is not paid when due, under a payment plan or amortization schedule. Could lead to enforcement of loan agreement by lender

Articles of Incorporation
A document, filed with a U.S. state by a corporation's founders, describing the purpose, place of business, and other details of a corporation

As a Percentage of the Total Value of the Property
In order for the insured to collect the full amount of a loss.

As-Is
Without guarantees as to condition.

Assessed Value
A tax assessor's determination of the value of a home in order to calculate a tax base; the value established for property tax purposes.

Assessment
The estimated value of a piece of real estate or a special levy placed in addition to taxes.

Assets
Anything other than cash. Examples are stocks, bonds, mutual funds, non traditional investments (real estate, tax liens, entities, promissory notes...). An item of useful or valuable property

Assign
Change name, record information, make legal. Gives an individual or entity all responsibility

Assignee
The person to whom an agreement or contract is sold or transferred.

Assignment
The transfer of rights to pay a debt from one party to another, with the original party remaining liable for the debt if the second party defaults; A legally binding document which transfers the ownership of an asset or investment. Not used for land, real estate, or publicly traded items

Assignor
A person who transfers rights and interests of a property; the person who assigns or transfers an agreement or contract to another.

Assumable Mortgage
A mortgage that can be transferred to another borrower; An existing mortgage which allows the next purchaser of a property to be liable for the payments and other obligations of the note and mortgage. Depending on the type of loan, the assumption of the obligation by this next purchaser may or may not require a qualification and approval process and may or may not release the original mortgagor (borrower) from further liability. A written release from the mortgagee (lender) is required to relieve the original mortgagor of responsibility.

Assume
Taking on the responsibility of someone's debt, but there is no legal contract. Original owner remains on the loan, but someone else pays it for them

Assumption clause
A provision that allows a buyer to take responsibility for the mortgage from a seller.

Assumption fee
A fee the lender charges to process new records for a buyer who assumes an existing loan.

Attornment
A tenant's formal agreement to be a tenant of a new landlord.

Audit
An examination of an individual's tax return by the IRS. The examination of the accounting and financial documents of a company by an objective professional. Performed to determine the company's records' accuracy, consistency, and conformity to legal and accounting principles

Balloon Loan
A loan which is repaid by a series of small, periodic payments until a given date, when either the balance comes due in a single, large payment or the amount of the payments rises significantly.

Balloon Payment
A variable within a note. Payments are made for a certain length of time and when that time is up, the remainder of what is owed is due

Before-tax Income
Total income before any taxes are deducted.

Beneficiary
Beneficial owner can also be an individual or entity who gains benefits after the death of an original owner; The person who receives or is to receive the benefits resulting from certain acts.

Bilateral Contract
A contract under which each party promises performance.

Bill of Sale
a written instrument given to pass title of personal property; A legal document transferring ownership of personal property.

Bond
A written agreement purchased from a bonding company that guarantees a person will properly carry out a specific act, such as managing funds, showing up in court, providing good title to a piece of real estate or completing a construction project. If the person who purchased the bond fails at his or her task, the bonding company will pay the aggrieved party an amount up to the value of the bond; A loan to a company. A note obliging a corporation or governmental unit to repay, on a specified date, money loaned to it by the bondholder

Book Value
The price you purchased something for. The actual dollar amount of funds sent out for the purchase of an asset; The value of a property based on its cost plus any additions, minus depreciation.

Borrower (mortgagor)
The person or company that receives money from a lender (often a bank, credit union or trust co

Breach of Contract
A violation of the terms of a legal agreement, default.

Break-even point
The point in which the owner's rental income matches expenses and debt.

Broker
An individual who acts as an intermediary between two or more parties for the purpose of negotiating a transaction agreeable to all of the parties. In lending, the broker arranges and negotiates loan amounts, interest rates and loan terms between borrowers and lenders. Depending on the type of loan, the state wherein the transaction is occurring and contractual arrangements, the broker may represent the borrower, the lender or not have a fiduciary responsibility to either. (See definition of "fiduciary responsibility" below.).

Brokerage
The act of bringing together two or more parties in exchange for a fee or commission. Common brokerage companies include real estate brokerage and mortgage brokers.

Call Option
A clause in a loan agreement that allows a lender to ask for the balance at any time.

Capital
Money used to create income, either as an investment in a business or an income property; The money or property comprising the wealth owned or used by a person or business enterprise; The accumulated wealth of a person or business; The net worth of a business represented by the amount by which its assets exceed liabilities.

Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

Capital Gain
Increase in value of a capital property (a property other than a principal residence) upon which tax is payable, either upon disposition of the property or the deemed disposition of the property under tax rules.

Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. (See Capital Expenditure).

Carryback Financing
Financing in which a seller agrees to hold back a note for a set amount of the sales price

Cash Flow
The net operating income minus the total of all debt service payments. (See definition of "net operating income" below.); The amount of cash a rental property investor receives after deducting operating expenses and loan payments from gross income.

Cashier's Check
A check the bank draws on itself rather than on a depositor's account.

Caveat Emptor
Latin, meaning "Let the buyer beware."
Maxim which applies to real estate transactions where the onus is on the Purchaser to satisfy herself as to the suitability and condition of the property she is considering for purchase. Vendor is not responsible to the Purchaser for the condition of the property and, unless he is specifically asked, does not generally have an obligation to reveal problems to the Purchaser (except where the defect is hidden, serious and could not be discovered by the Purchaser after reasonably prudent inquiries and investigations).

Chain of Title
A part of a title search. A listing, in chronological order, of successive legal owners of a property, often listing as well the registration particulars of the document by which title is transferred from each owner to his successor in title.
A history of conveyances and encumbrances affecting a title from the time that the original patent was granted or as far back as records are available.

Claim
A right asserted against another party. One might register a claim on title to the property to which the claim applies, file a claim under an insurance policy or file a Statement of Claim in court to assert one's rights.

Clear Title
A title to property that does not have liens, defects or other legal encumbrances.

Closing
The final procedure in which loan and title documents are signed between the buyer and seller and their respective representation; The formal meeting where loan documents are signed and funds disbursed. Note, however, that Federal law requires that funds not be disbursed for three business days on certain loans where personal residences serve as the security. (See definition of "recission" below.)

Closing Costs
The expenses which borrowers incur to complete the loan transaction. These costs may include title searches, title insurance, closing fees, recording fees, processing fees and other charges.

Closing Date
The date on which the seller delivers the deed and the buyer pays for the property.

Closing Statement
An accounting of funds from a real estate transaction, also known as a HUD-1; A document which details the final financial details of a property sale between a buyer and seller and the costs paid by each party.

Cloud on Title
An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title.

Collateral
Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. Also called security

Commercial Mortgage
A mortgage used to buy a commercial piece of property or commercial building.

Commercial Mortgage Broker
A mortgage broker who specializes in commercial mortgage applications.

Commercial Mortgage Lender
A mortgage lender who specializes in the funding of commercial mortgage loans.

Commingling
To allow to mix, as in money belonging to two or more people deposited into the same account and used by each person regardless of the amount they have deposited.
The mixing of customer account-securities with those in a bank or brokerage's own accounts. Usually illegal

Commission
The broker's fee for purchasing or selling securities for a client

Comparable Sales
As part of the appraisal process, those relatively recently sold properties which will be compared to the subject property (the property being appraised) for the purpose of forming an opinion of value for the subject property. The facts and details of the comparable properties will be compared to those of the subject. In an urban setting, to be of credible assistance in this process, comparable sales must have the same use as the subject, have many similarities to the subject in terms of size of house, size of lot, construction, bedroom count, room count, floor plan, amenities, street traffic and be in the same neighborhood and have been sold in the recent past (preferably no more than six months) by way of an "arms length" transaction (i.e., not sold to a relative or friend and not sold due to a forced sale or distress sale) and be within one mile of the subject property. More liberal standards will apply for rural property and some suburban properties but the basic premise holds, the more similar the comparable sales are to the subject property, the more accurate the value assigned to the subject property will be. Lenders will often compensate for the less precise nature of rural appraised values by allowing only lower loan-to-value ratios than those in urban settings, usually 10% lower. (See definition of "loan-to-value" below.)

Comparables
Properties used as comparisons to determine the value of a certain property.

Compound Interest
The interest paid on the principal balance of a mortgage plus accrued interest.

Construction Loan
A short term loan for construction. Lenders usually disburse funds from construction loans in draws according to completion of defined stages throughout the construction process.

Contingent Beneficiary
If all primary beneficiaries are deceased, the second named person, estate, or trust will receive the proceeds of a retirement account upon the account owner's death

Contract
An agreement between competent parties to do or not do certain things for consideration.

Contract For Deed
Also known as a Land Contract or Land Installment Contract. Transfer of a property where the title remains in the Vendor's name until the Purchaser makes the final payment to the Vendor of the Purchase Price
A real estate installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller until all or a specified part of the sale price has been paid, same as land contract.

Contractor
One who contracts to provide specific goods or services.

Contribution
An investment or deposit into an IRA or other retirement plan for a particular tax year. Subject to annual limitations, depending on type of contribution. Out-of-pocket money.

Conventional Loan
A conforming loan with no government guarantee; that is, a Fannie Mae or Freddie Mac loan. (See definition of "conforming loan" above.).

Conversion
Changing property to a different use or form of ownership.

Conversion
The ability to switch a traditional IRA to a roth IRA. Taxable event, the converted amount is added to ordinary gross income for the year and taxed accordingly. Has a $100,000 magi limit

Convertible Adjustable-rate Mortgage
A mortgage which starts as an adjustable rate loan, but contains a provision that allows the borrower to convert the loan to a fixed-rate mortgage during a specified period of time.

Convey
To deed or transfer title to another.

Corporation
A type of business organization chartered by a state and given legal rights as an entity. IRAs can invest into or loan money to. Flow through entity. Owned by shareholders who elect the board of directors. Board of directors determine the direction the company will take and votes on presidents. Presidents control day to day operations

Corporeal
Tangible.

Co-signer
A second party who also signs a promissory note and takes responsibility for the debt.

Counteroffer
Rejection of an offer with a simultaneous substitute offer.

Creative Financing
Any financing arrangement other than a traditional mortgage from a third party lending institution; outside the normal practice of residential financing.

Currency Trading
Exchanging money, assuming whatever currency you buy will be worth more money than the u.s. dollar

Cusip
A nine-character number assigned to each issue of securities by the committee on uniform securities identification procedures to facilitate tracking lost, stolen, or counterfeit securities

Custodian
Holds title to assets. Writes checks. A non-bank. Approved and regulated by the federal government (must have capital / money, experience, personnel)

Debt
When money is lent. An amount of money owed or obligation in the form of bonds, loan notes, or mortgages. Bonds are long term, notes are short term; Any amount one person owes to another.

Debt Financing
An IRA borrows money (from banks, hard money lenders, another IRA) to purchase real estate

Deed
The legal document that transfers property ownership from the seller to the buyer; A document that states who owns property. 3 types of deeds are quit claim, warranty and grant

Deed in Lieu of Foreclosure
A legal instrument in which a borrower conveys property to a lender under a mortgage to save the expense of foreclosure.
The act of giving property back to the lender without foreclosure.
See also quit-claim deed

Deed of Reconveyance
A legal instrument which conveys title from a trustee back to the borrower under a mortgage once the mortgage has been paid out.

Deed of Release
A legal instrument signed by lien claimants or mortgagees which gives up their claim to the property.
See Discharge and Quit-claim deed

Deed of Surrender
A legal instrument in which a person with a life interest gives up that interest to the person with underlying title.

Deed of Trust
A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan; DOT's are similar to mortgages in that they serve as security for a loan by encumbering real estate. However, a mortgage is between two parties (borrower and lender) and a deed of trust involves three parties (borrower, lender and trustee). The trustee holds the property in trust as security for the payment of the debt and can sell the property if the borrower defaults.

Default
When a borrower does not make scheduled payments on time or at all. Failure to make required debt payments on a timely basis or to comply with other conditions of an obligation or agreement; Failure to meet all of the commitments and obligations specified in the mortgage or deed of trust. Defaults usually give the lender the right to accelerate payments and start foreclosure.

Defined Benefit Plan
A corporate pension plan that guarantees a specific level of benefits for participants, usually based on levels of. Compensation and_ years of service

Defined Contribution Plan
A company retirement plan, such as a 401(k) or 403(b), in which the employeee elects to defer some amount of his/her salary into the plan and bears the investment risk

Delinquency
Failure to make mortgage payments on time. Severe delinquency can lead to foreclosure.

Delinquent Mortgage
A mortgage that involves a borrower who is behind on payments. If the borrower cannot bring the payments up to date within a specified number of days the lender may begin foreclosure proceedings.

Deposit
Funds provided by the buyer with an offer to purchase property. Also referred to as "earnest money".

Direction Of Investment
Internal form required for all transactions. Specific forms based on how investments are structured, but titling stays the same (ex. Equity trust company custodian fbo [for the benefit of] client's name IRA)

Disbursement
Sending money from a client's IRA. Paying out in the discharge of a debt or expense

Disclosure
A statement to a potential buyer listing information relevant to a piece of property, such as the presence of radon or lead paint.

Disclosure Statement
Explains in plain language the rules that govern an IRA. Anyone who opens an IRA must receive a current disclosure statement

Discount Points
One point equals one percent of the loan amount. Paying points has the effect of giving the lender a higher yield. Two points on a $100,000 mortgage would cost $2,000 ($100,000 x 0.02); Fees charged by a lender to provide a lower interest rate.

Discounted Mortgages
Buying a property for less than the face value of note

Disqualified Persons
Individuals that cannot do business with an IRA. IRA owner, fiduciary/power of attorney and family members of linear decent (grandparents, parents, spouse, children/spouses, grandchildren/spouses)

Distribution
Money a taxpayer withdraws from a retirement plan such as an IRA or qualified plan to use personally. There are tax consequences for a distribution

Distribution Rollover
The movement of funds from a qualified plan or IRA to another accepting plan. The individual takes personal possession of the funds first. It is a Non-taxable event if rolled over to another qualifying plan within the allotted time. Only 1 rollover allowed per IRA plan per year (12 month period). Funds can be taken out once ever 12 months for 60 days without penalty, but have to be paid back in the same amount as borrowed and cannot exceed limitations. Qualified Plans follow the same 60 day rule but are not subject to the once a year rule.

Dividend
Company profit

Down Payment
The portion of the purchase price paid by a buyer to a seller from sources of funds outside of those provided by a lender.

Draw
A payment made to contractors, subcontractors, home builders or suppliers from the proceeds of a construction loan; a periodic advance of funds from a lender.

Due Diligence
The act of carefully reviewing, checking and verifying all of the facts and issues before proceeding. In lending it is, among other things, verification of employment, income and savings; review of the appraisal; credit report; and status of the title.

Due on Sale Clause
Standard language in a mortgage that states the loan must be repaid upon sale; reservation of lender's right to call the loan due and payable upon sale of the property; If an asset is sold and money is owed to the owner, the owner has to be paid in full.

Distribution
Distributions taken from IRA's before the age of 59 ½. Early distributions for roth IRA's are before the age of 59 ½ and before account has been open for 5 years. All early distributions are added as ordinary income tax for the year and subject to a 10% early distribution penalty unless an exception applies earned income income from a w-2, 1099, or income earned from self-employment.

Earned Income
Needed to qualify for an IRA.

Earned income includes all the taxable income and wages you get from working. There are two ways to get earned income: You work for someone who pays you or you work in a business you own. Taxable earned income includes: Wages, salaries, tips, professional fees, & bonuses (W2); Commissions; Self-employment income (1099); Union strike benefits; Long-term disability benefits received prior to minimum retirement age; Certain Taxable Alimony.

Earnest Money Deposit
Money a buyer provides with an offer to purchase a property. Also called a deposit; a deposit made by a purchaser of real estate to show good faith.

Held in trust, usually by the Listing Agent, and credited to Purchaser off purchase price. May be forfeited if Purchaser fails to complete transaction.

Entity
Business. Private placement

Equity
The difference, in dollars, between the market value of a property and the principal owing on debts secured against the property. The amount of money the owner will be able to keep from a sale transaction once the mortgages are paid out. Also known as "owner's interest."

Equity Loan
A loan to a home owner secured against the equity the owner enjoys in the property.

ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry. ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit. ERISA requires plans to regularly provide participants with information about the plan including information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; requires accountability of plan fiduciaries; and gives participants the right to sue for benefits and breaches of fiduciary duty. ERISA also guarantees payment of certain benefits through the Pension Benefit Guaranty Corporation, a federally chartered corporation, if a defined plan is terminated. Security Administration (EBSA) enforces ERISA. ERISA is sometimes used to refer to the full body of laws regulating employee benefit plans, which are mainly in the Internal Revenue Code and ERISA itself. Responsibility for interpretation and enforcement of ERISA is divided among the Department of Labor, the Department of the Treasury (particularly the IRS), and the Pension Benefit Guaranty Corporation.

Escrow
A neutral third party holds documents and money for a real estate transaction and ensures that all conditions of a sale are met before any disbursement of funds or articles; an agreement between two or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition.

Escrow Account
An account from which funds can be disbursed only for specified reasons; i.e. the money is held in trust for a specific use. In lending, these accounts are most often used to hold and disburse real estate taxes and hazard insurance premiums which have been paid in advance (usually on a monthly basis) by the borrower.

Escrow Agent
A neutral third party who ensures that all conditions of a real estate transaction are met before any transfer of funds or property is recorded.

Escrow Closing
Escrow closes when all conditions of a real estate transaction are met and the title of the property is transferred to the buyer.

Estate
A taxable entity that is established upon the death of a taxpayer. Consists of all the decedent's property and personal effects. Exists until the final distribution of its assets to heirs or other beneficiaries

Estoppel
A doctrine of law that stops one from later denying facts which that person once acknowledged were true and others accepted on good faith.

Eviction
Legal proceeding by a lessor (landlord) to recover possession of property.

Excess Contribution
The amount of an IRA contribution exceeding the allowable limits. If an excess contribution is not properly corrected, an irs penalty applies until corrected.

Exchange
Under Section 1031 of the IRS Tax Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-free, subject to certain conditions.

Face Value
The dollar amount, shown by words and/or numbers on a document.

Factoring
Loaning money to a business on a short term basis.

Fair Market Value
The price at which IRA assets would change hands between a willing buyer and a willing seller when neither has any need to buy or sell and both have reasonable knowledge of the relevant facts. FMV is determined by someone who is independent and qualified

Fannie Mae
The official name of the Federal National Mortgage Association - it is a congressionally chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary mortgage market; Federal National Mortgage Association, a federally chartered corporation that purchases mortgages and packages them to sell as securities.

FDIC
Federal Depositor Insurance Corporation. Insures up to $250,000 of client's money. ETC is not fdic insured, but our banking partner Matrix Capital Bank is.

Federal Housing Administration (FHA)
An agency within HUD that administers many loan programs designed to make housing more available; This government agency provides low-rate mortgages to buyers who make a down payment as small as 3 percent.

Federal National Mortgage Association (FNMA) also know as "Fannie Mae"
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA.

Federal Tax Lien
An encumbrance registered on title to a property securing a tax debt owed by the property owner to the national government.

Fee Agreement
An agreement between a borrower and a broker which normally specifies the relationship between them and the amount of compensation to the broker.

Fee Simple
Absolute ownership of real property.

FHA loans
Mortgages that are insured by the Federal Housing Administration (FHA). The FHA operates loan plans for investors and purchasers of rural property, and provides low-rate mortgages to buyers who make a down payment as small as 3 percent.

Fiduciary
  • Any person offering advice or management for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan
  • Any such employee of the company that serves as your IRA administrator, as well as his/ her spouse, ancestors, and descendants.
  • Any people providing services to your IRA, such as your stockbroker, as well as his/ her employees and their blood relatives.
Fiduciary Responsibility
An obligation to act in the best interest of another party. This type of obligation typically exists when one person places special trust and confidence in another person and that responsibility is accepted.

First Lien
The registered legal claim which stands first in line to enjoy the proceeds of a sale of the property. Liens generally are ordered according to time or registration but various statutes allow some liens (realty taxes) to jump to the head of the line.

First Mortgage
That mortgage which is recorded at the earliest time. The time of recording is the sole criteria. Size of loan and type of mortgage are immaterial. When the first mortgage is paid off and released, the second mortgage (if any existed) becomes the first mortgage

Fixed Payment Mortage
A loan secured by real property which features a periodic payment of interest and principal which is constant over the term of the loan.

Fixed Rate Mortgage
A mortgage with an interest rate that remains the same through the life of the loan.

Flow Through Entity
Taxes on profits are paid by the owner / owners of the entity.

Foreclosure
An enforcement process in which the lender under a defaulted mortgage takes title to the property for the purposes of selling it to recoup monies owed under the mortgage.

Fraud
The illegal act of intentionally misrepresenting or concealing of information in order to deceive or mislead.

Freddie Mac (FHMLC)
Federal Home Loan Mortgage Corporation, a federally chartered corporation that purchases mortgages and packages them to sell as securities; A congressionally chartered institution that buys mortgages from lenders and resells them as securities on the secondary mortgage market.

General Contractor
One who constructs a building or other improvement for the owner or developer.

General Lien
A lien that includes all of the property owned by the debtor, rather than a specific property.

General Partner
A participant who has unlimited liability for the obligations of a partnership

General Partnership
An agreement between two or more individuals to have unlimited liability and run an entity. All investors are active investors

General Warranty Deed
A deed in which the grantor agrees to protect the grantee against any other claim to title of the property.

Grace Period
A specified amount of time in which a borrower may make a loan payment after its due date without penalty.

Gross Income
The total household income before taxes or expenses are subtracted.

Gross Monthly Income
Income before deductions for taxes, social security, saving plans, court ordered child support, etc

Hard Money Loan
A loan that is underwritten with the condition and value of the property as the primary criteria for approval. Secondary issues may include the credit of the borrower, the ability of the borrower to repay the loan and/or the ability of the borrower to manage the property or successfully complete a rehab and sell the property. Owner occupancy, debt ratios and other issues are seldom a factor. Appraisals rather than purchase prices are used to determine value. Cash out purchases are often allowed and are another key benefit. These loans are usually approved within days and are often funded in two weeks or under with times as short as two or three days not uncommon. The cost for the benefits of speed of funding, lax underwriting and other advantages is typically a moderately high interest rate (usually low to mid teens) and high points (usually 5 to 10). (See definition of "underwriting" below.)

Home Equity Line
An open ended line of credit based on a homeowner's accumulated equity.

Home Equity Loan
In the most literal sense, this expression applies to virtually all loans (first mortgages and second mortgages, fixed and adjustable interest rates, credit lines and fully amortizing loans, etc.) placed on an owner occupied property when the loan-to-value after the Home Equity Loan closes is no higher than 100%. That is, it is a loan secured by the available equity of an owner occupied residential property; A loan that allows owners to borrow against the equity in their homes however unlike a home equity line this product provides a defined amount at closing without an option to redraw in the future.

Home Inspection
An examination of a home's condition by a licensed inspector prior to purchase.

Home Inspector
A licensed professional who evaluates the structural soundness and operating systems of a residence.

HUD
Abbreviation of (the U.S. Department of) Housing and Urban Development. HUD is a federal agency that oversees the Federal Housing Administration (FHA) and a variety of housing and community development programs.

HUD-1 Uniform Settlement Statement
A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing for the buyer and seller.

Illiquid Asset
Physical property and investments (not readily available cash);
An asset that may possibly not be easily liquidated.

This term is often used as a deficiency in an action and means that the client must handle the liquidation prior to the continuation of processing.

Improvements
Additions to raw land such as buildings, streets, sewers, etc. that increase the value of the property.

Income Property
Property that is not occupied by the owner but is used to generate income.

Indemnify
To protect another person against loss or damage.

Index
The published cost of money that serves as the minimum basis for determining the interest rate for an adjustable rate mortgage. Among the commonly used indices are the Prime Rate (Prime), the London Interbank Offering Rate (LIBOR), the Cost of Funds (COF) and the 1 year Treasury Bill (1 year T). The particular index is generally, though not always, selected based on how often an interest rate is supposed to adjust. Loans which allow monthly interest rate adjustments commonly use the Prime Rate. Loans that adjust semi-annually may use LIBOR. The 1 year Treasury and the Cost of Funds are often used for loans which adjust on an annual basis. There are other Treasury instruments which are used for 3 and 5 year adjustment periods. The interest rate of the loan is determined by adding a margin to the index. The size of the margin is typically a function of the index used and the credit worthiness of the borrower. Typical margins on a Prime Rate based loan would be 0.0 to 5.0 so that if the Prime Rate were 8.25% and the margin were 2.0 (typical for an "average" borrower), the interest rate would be 10.25% (8.25 + 2.0).

Indexed Rate
The sum of the published index plus a margin. For example if the index were 5% and the margin 2.75%, the "fully indexed rate" would be 7.75%.

In-kind Transfers
Whatever is held at previous custodian is transferred to etc as is. If mid ohio securities is not registered as a broker/dealer firm in the state where clients live, we cannot accept in¬kind transfers

Insolvency
A financial condition in which a taxpayer's or entity's total liabilities or debts owed exceed the total fair market value of assets (cash and/or property)

Interest
The amount a borrower pays for the use of money for a given period of time. Calculated as a percentage of the amount of the loan

Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest Only Loan
The borrower pays only the interest that accrues on the loan balance each month. Because each payment goes toward interest, the outstanding balance of the loan does not decline with each payment.

Interest Paid Over Life of Loan
The total amount paid to the lender for the use of money during the time the money is borrowed.

Interest Rate
The percentage of the loan amount charged for borrowing money; i.e., the cost of the money expressed as a percentage; The fee, expressed as a percentage, charged for a loan.

Investment
An item of value purchased for income or capital appreciation, which is an increase in market value

Investment Property
Real estate that generates income, such as an apartment building or a rental home; Property owned primarily for its potential increased value

IRA
Individual Retirement Account. Any living american with earned income (1099, w2, or income from self-employment) can qualify. Annual contribution limits are established for each type of IRA by the irs. Accounts grow either tax free or tax deferred based on type of account

Irrevocable Trust
The owner can change the beneficiary choice, but the trust becomes irrevocable at the death of the grantor and the beneficiaries cannot be changed for the life of the trust.

IRS
Internal Revenue Service. The federal agency responsible for administering, and enforcing the treasury department's revenue laws, through the assessment and collection of taxes, determination of pension plan qualification, and related activities

Joint Venture
The cooperation of two or more individuals or businesses in a specific enterprise, each agreeing to share profit, loss, and control. Treated as a partnership. Not taxable in its own capacity, but profit or distributive shares that are distributed amongst the associates is reported on their individual tax returns

K1
Used to show profits of a flow through entity. The general partner executes this and forwards to custodian

Keogh
A pension or profit-sharing plan available to self-employed individuals and their employees_ providing tax-deductible contributions and tax deferred income accumulations until withdrawal. Also known as an h.r. 10 plan. As much as 20% of self-employment income can be deposited into a keogh. No restrictions on withdrawals from the account prior to age 59-1/2

Land contract
Person or IRA who owns a piece of property free and clear can sell the property to renters. Also called owner / seller carry back; See Contract for Deed.

Land Sale Leaseback
An arrangement where a person sells property to another but immediately rents it from the purchaser.

Land Trust
A revocable, living trust primarily used to hold title to real estate for privacy and anonymity. Also known as an Illinois Land Trust or Nominee Trust. The land trustee is a nominal title holder, with the beneficiaries having the exclusive right to direct and control the actions of the trustee; Entity that can hold title to a piece of real estate. Has a beneficial owner who is an IRA, person or company who actually owns the land trust which owns the real estate. Has a trustee who has control over the property: if the beneficial owner is an IRA, it is recommended the trustee be a non-disqualified person. Land trusts are used for privacy because no one would know who actually owned the property and because there is limited liability involved (a safeguard against creditors or lawsuits)

Lease
A contract in which, for a rent payment, the one entitled to the possession of the real property (lessor) transfers those rights to another (lessee) for a specified period of time.

Lease Option
A lease combined with an option agreement that gives the lessee (tenant) the right to purchase the property under specified conditions; An IRA owner has the option to purchase the property and has the ability to rent or lease the property to someone else. A purchasing technique to lease the property to someone for a set period of time with an option to buy that property on a future date: the person can rent the property out to someone else at a higher monthly rate and make a profit from charging the higher rent

Lease Purchase
A lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions.

Legal Description
Legally acceptable identification of real estate by government survey, metes and bounds, or recorded plat.

Lender
A bank, savings institution or mortgage company that offers home loans.

Lessee
A person to whom property is rented under a lease.

Lessor
One who rents property to another under a lease.

Leverage
Ability to buy and sell with a profit

Liability
A financial obligation, debt, claim, or potential loss

Lien
A claim on a property of another as security for money owed. Examples of types of liens would include judgments, mechanic's liens, mortgages and unpaid taxes; A tax debt that if it is not paid by a certain date, the bank can take the investment. Documented as public record in the county in which the property resides.

Limited Liability
The most that can be lost is the amount that has been invested. IRA's can only be put in situations where there is limited liability

Limited Partner
Passive investor, does not play an active role in business and has limited liability for the losses of the partnership

Limited Partnership
One in which there is at least one partner who is passive and limits liability to the amount invested and at least one partner whose liability extends beyond monetary investment; Legal entity IRA's can invest into or loan money to. Flow through entity. Has limited liability. Has passive investors. Has it's own tax identification number. Includes general and limited partners (limited partners choose the general partners)

Liquid
Cash. Money market

Liquid Assets
Cash and all other assets that can be converted to cash relatively quickly. Liquid assets can include money in savings and checking accounts, money-market accounts and most CD's.

Liquidation
The process of converting securities or other property into cash

Liquidity
ease of converting assets to cash.

LLC
Limited Liability Company. IRAs can invest into or loan money to. Flow through entity. Has limited liability. Has a managing partner who deals with day to day operations

MAGI
Modified Adjusted Gross Income. Begins with the taxpayer's regular adjusted gross income which is then modified to account for certain types of losses, exclusions, and deductions

Mandatory Distribution (RMD)
When a client is over 70 ½ they must take a percentage of their IRA account as a distribution each year. This does not apply to clients with a roth IRA normal distribution - when a client is over 59 ½ and takes a distribution premature distribution - when a client is under 59 ½ and takes a distribution

Margin
A constant (fixed) amount over an index that determines a lender's yield on an adjustable rate loan. The interest rate of an adjustable rate loan is determined by adding a margin to an index. The size of the margin is typically a function of the index used and the credit worthiness of the borrower. Typical margins on a Prime Rate based loan would be 0.0 to 5.0 so that if the Prime Rate were 8.25% and the margin were 2.0 (typical for an "average" borrower), the interest rate would be 10.25% (8.25 + 2.0). (See definition of "index" above.).

Market Value
The price a piece of property sells for at a particular point in time.
An estimation of the price that could be obtained for a particular asset if it were sold in an arm's length transaction on the current market.

Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable

Medallion Signature Guarantee
A guarantee by a Financial Institution that your signature is genuine and that the financial institution accepts liability for any forgery. Typically required by most custodial firms.

Modification
A change in the terms of a loan agreement.

Modified Annual Percentage Rate (APR)
The modified APR is an index of loan cost based on the standard APR and adjusted for the time the borrower expects to hold the loan.

Mortgage
A lien against real property given by a borrower to a lender as security for money borrowed; A sum of money borrowed to purchase a home using the property as collateral. A mortgage is the legal document that pledges the property as collateral for a loan; A document that shows evidence of debt as well as who owns the property. Recorded. Also known as a deed of trust

Mutual Fund
Investment companies that pool money from many investors. Professional fund managers invest the money in specific types of assets and securities

NASD
National Association of Securities Dealers. Self regulatory.

Net Cash Flow
Investment property that generates income after expenses such as principal, interest, taxes and insurance are subtracted; Income from an investment property after expenses such as principal, interest, taxes and insurance are subtracted.

Net Operating Income (NOI)
From income producing property, the gross income minus the total of all expenses except for debt service. Cash flow is defined as NOI minus the total of all debt service payments.

Net Worth
The worth of a person or company based on the difference between total assets and liabilities.

Non-liquid Asset
An asset such as a house that is not easily turned into cash.

Notarize
To confirm the signature of another in one's official capacity as a notary public.

Notary Public
A designation authorized by law and administered by the government, allowing a designated person to verify and certify signatures and copies of documents.

Note
A written promise to repay a certain sum of money on specified terms; An i.o.u.. Shows terms of debt. Is negotiable/ worth money. Needs amortization schedule o.p.m. - other people's money; A legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time.

Note Broker
An individual who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note.

Note Rate
The interest rate specified in a mortgage note.

Notice of Default
A lender's initial action when a mortgage payment is late and attempts to reconcile the issue out of court have failed.

Offering Circular
An offering circular is a formal written offer to sell securities that sets forth the facts for a business enterprise that a prospective investor needs to make an informed investment decision. The offering circular contains financial information, a description of the security being offered, risk factors, uses of the offering proceeds, business and organization of the company, officers and directors, pending litigation (if any), and other pertinent information. NOTE: Each issuer of securities is unique and consequently more disclosure may be required beyond the information stated in the description, depending upon the individual circumstances.

Operating Agreement
A document that states how an entity will be ran. Also known as a private placement agreement. An agreement between the member of an entity that contains all of the operating details and methods for making decisions, etc.

Option
IRA client has the ability to control a piece of property without actually buying it. An agreement to buy or sell property at an established price on a specified date. Not recorded; the right to purchase or lease a property upon specified terms within a specified period of time; A situation in which a buyer puts down money for the right to purchase a piece of real estate within a set time period but does not have an obligation to buy.

Originator
An individual who works with a borrower to start a loan. Usually an employee of a financial institution, an employee of a broker or an independent contractor affiliated with several brokers, the originator determines the type of loan a borrower probably qualifies for, helps complete an accurate application, gathers documents necessary to get an approval and acts as an intermediary between the borrower and the underwriter.

Owner Financing
A transaction in which the seller of a property agrees to finance all or part of the purchase.

Partnership
An association of two or more persons organized to conduct a business for profit. Not a separate entity apart from its owners or partners. Each partner is liable for all of the business debts, not just his/her proportionate share

Passive Custodian
One in which the account holder directs investment activities of the custodian

Passive Income
Not include as earned income within the IRS requirements include: Earnings & profits from property, such as rental income, interest income, and dividend income; Pensions or annuity income; Social security; Deferred compensation; Unemployment benefits; Alimony; Child Support.

Passive Investors
Silent partners. Has no control over day to day operations of a business

Penalty
Money one will pay for breaking a law or violating part or all of the terms of a contract.

Pension Plan
A retirement plan. Has a plan administrator. Payments of a definite amount are made for a specified period (usually life) from an employer-funded plan to workers who have met stated requirements. Its primary purpose is to provide retirement income

Point
Fees charged by a lender to provide a lower interest rate. One point equals one percent (1%) of the loan amount. Also referred to as a discount point.

Ponzi Scheme
A type of investment fraud involving the payment of returns to existing investors from funds contributed by new investors.  The perpetrators promise to invest the funds in opportunities guaranteed to generate high returns with little or no risk.  The funds are rarely, if ever, invested and are used to pay the “returns” owed to the earlier investors and for the perpetrator’s personal use.

Pre-foreclosure
Foreclosure proceedings have already started, but there may be time to make payments. An opportunity to pay of debt, taxes and whatever is owed

Premature Distribution
A withdrawal from a retirement plan before age 59 ½. Subject to ordinary income tax and a 10% penalty unless certain specific exceptions are met

Primary Beneficiary
The first person, estate, or trust named to receive the proceeds of a retirement account upon the account owner's death. Information on IRA application supersedes any will.

Principal
The amount of money originally borrowed in a mortgage, minus any payments made subsequently.

Principal Balance
Outstanding dollar amount owed on a loan exclusive of accrued interest

Private Bank Concept
The ability for an IRA or investor to go out and borrow other people's IRA accounts to invest in things (mainly real estate)

Private Placement
Buying into a business that is privately owned, not public (ex. LLC or LP)

Private Placement Memorandum
An agreement that tells how a business operates. Also known as an operating agreement

Private Stock
Purchased typically through a C-Corporation.

Probate
The process of establishing the validity of a will before a duly authorized court or person. Once validity is confirmed, the probate court then administers the sale of property as directed by the will or as authorized by the court to settle any financial obligations

Profit
Total revenue minus expenses

Profit Sharing Plan
A defined contribution plan for distributing a predetermined percentage of a company's profits to its employees that are eligible to participate in the plan. Has a plan administrator

Prohibited Transaction
An action in reference to an IRA that is forbidden by the IRS. Listed in the internal revenue code 4975 as well as IRS publications 560 and 590. Listed on the IRS website at www.irs..gov.

Promissory Note
promise to pay a specified sum to a specified person under specified terms; An i.o.u.. A document that states who is paying whom and what the property offers

Property Tax
Tax paid on privately owned property. Property taxes are usually paid semiannually, or monthly if the lender requires. The amount is based on local tax rates and assessed property value.

Proprietor
The sole owner of a trade or business

Proxy
Vote by shareholders

Purchase Agreement
An agreement to buy an individual's property. Down payment/earnest money required to accompany contract. Need to have money transferred for any agreement to be legal

Purchase Money Mortgage
A mortgage which secures a note written on a loan used in the purchase of real estate

Purchase Subject to Mortgage
A purchase in which a buyer agrees to make the monthly mortgage payments on an existing mortgage and the original borrower remains liable if the purchaser fails to make the payments as agreed.

Pyramid Scheme
A fraudulent investment scheme in which the perpetrators promise investors unusually, often impossibly, high returns on their investments.  The fraudsters gain the most benefit from the funds, paying out fake returns to earlier investors from the funds of newer investors.

QRP
Qualified Retirement Plan. A plan that has been approved by the IRS and generally gets preferential tax treatment. Employers can deduct plan contributions made on behalf of eligible employees on the business' tax returns. Ex. 401k, 403b, profit sharing plan, money purchases, defined benefits, keogh / hr 10 plan

Quit Claim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made; a deed that conveys only the grantor's rights or interest in a property, without stating the nature of the rights or interest and with no warranties of ownership; A document that releases a party from any interest in a piece of real estate.

Real Estate
Term for land and all fixtures to land, including buildings and other improvements.

Real Property
The rights to use real estate.

Realtor
Designation given to licensed real estate agents who are members of the National Association of Realtors.

Recharacterization
The ability to convert a Roth IRA back to a Traditional IRA. Non-taxable event. Deadline is April 15th. Usually done because the client realizes that his/her MAGI is over the limit to qualify for Roth Conversion.

Reconversion
A conversion of an amount from a traditional IRA to a Roth IRA where such amount had previously been converted and recharacterized

Reconveyance
The return of title to property to its original owner. May occur as a result of the pay-out of a mortgage or at the end of a limited estate.

Recording Fee
A fee charged by real estate agents for conveying the sale of a piece of property into the public record.

Recourse
Ability of lender to make claims against borrower personally in addition to the collateral.

Redemption Period
Period during which a former owner can reclaim foreclosed property.

Redesignation
An individual who makes an excess contribution to a traditional IRA for a given tax year may in some cases apply the contribution to the next tax year. Redesignation does not dismiss the penalty, but allows the funds to be left in the IRA. Also known as carry-forward

Refinance
Process of a borrower paying off one loan with the proceeds from another.

Refinancing
The process of replacing an older mortgage with a new mortgage.

Rehab
To fix up; the act of restoring, refurbishing, bring back to original condition a piece of Real Estate with the intent to sell at a profit.

REIT
Real Estate Investment Trust. A trust that invests primarily in real estate and mortgages and passes income, losses, and other tax items to its investors
Could be public or private

Remaining balance
The amount of unpaid principal on a home loan.

Residual
Value or income remaining after deducting an amount necessary to meet fixed obligations.

Reverse Mortgage
A special type of loan available to equity-rich, older home owners. Repayment is not necessary until the borrower sells the property. Many downsides exist to these loans; A type of mortgage designed for elderly homeowners with substantial equity by which a lender pays a periodic payment to the borrower; the loan balances increase with interest and payments causing negative amortization.

Revocable Trust
A trust that can be changed or terminated at any time by its creator or another person. Beneficiaries can also be changed

RMD
Required Minimum Distribution. After a traditional IRA holder reaches the age of 70 ½, a minimum amount must be distributed every year. SEP, Simple and some qualified plans also have required minimum distributions

Roth IRA
A tax free retirement account that allows annual non-deductible contributions. Earnings, withdrawals and qualified distributions (once the account has been established for 5 years and the account owner is 59 ½ years of age) are tax free. Premature distributions (before the account has been established for 5 years and the account owner is 59 ½ years old) are added as ordinary income tax for the year and have a 10% penalty, but there are exceptions that apply. Contribution limits for the year are established by the IRS. Must have earned income to qualify.

S Corporation
A corporation that generally pays no tax because profits, losses, and other tax items are passed on and taxed to the shareholders. Legal liability protection is provided to shareholders while double taxation is avoided. IRA's cannot buy shares of s corporations

Sale Agreement
Also known as "Agreement of Purchase and Sale" or "Purchase Agreement." The contract that sets out the terms and conditions agreed to by the purchaser and the vendor in the sale of land.

Sale Leaseback
Sale of property by seller and simultaneous leasing of the same property by seller.

Sales Contract
A contract signed by the buyer and seller detailing the terms of a property sale.

Sandwich Lease
Lease held by a lessee (tenant) who becomes a lessor (landlord) by subletting to another lessee (subtenant), typically the sandwich leaseholder is neither the owner nor the user of the property.

Satisfaction of Mortgage
Written evidence from the lender that a loan has been paid out in full and the borrower released from any obligation to the lender.

Section 8
Privately owned rental dwelling units participating in the low-income rental assistance program created by 1974 amendments to Section 8 of the 1937 Housing Act.

Securities
Any evidence of an interest in corporate stock or stock rights or an interest in any note, bond, debenture or other evidence of indebtedness issued by a government or corporation. Evidences of ownership. Evidence of obligations to pay money or of rights to participate in earnings and profits

Self-dealing
Doing business with yourself or any other disqualified individual. Prohibited

Self-directed
Allows IRA account owners complete diversification when it comes to making investments. Clients use their own knowledge and expertise to come to terms and agreements for their investments. Accounts at etc are truly self-directed

Self-employed individuals
Taxpayers who work for themselves. They decide when, how, and where to work, obtain their own jobs or sales, pay their own expenses, and receive social security and medicare coverage through payment of self-employment tax

Seller Carry-Back
Person or IRA who owns a piece of property free and clear can sell the property to renters. Also called land contract; An agreement where the seller provides financing for a home purchase; also known as Owner Financing.

Seller Financing
The seller allows the borrower to use a portion of the equity in the property to finance the purchase.

SEP IRA
The Simplified Employee Pension Plan or SEP IRA is a small business retirement plan that an employer can establish, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SEP Plan. The employer makes contributions to each eligible employee's SEP IRA on a discretionary basis. Contributions to SEP IRAs are immediately 100% vested and the plan can only receive contributions from the employer.

Servicing (the loan)
The act of collecting periodic payments toward a debt.

Settlement or Closing Fees
Fees paid to the escrow agent (often a title insurance company) for carrying out the written instructions of the agreement between buyer and seller and/or borrower and lender.

Settlement Statement
also known as Closing Statement or HUD-1; A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing for the buyer and seller.

Seventy-Two T or 72T
Refer to Substantially Equal Periodic Payments definition.

Shareholder
An individual or entity that owns shares of capital stock

Sheriff's Deed
The instrument of conveyance for property sold to satisfy a court judgment.

Sheriff's Sale
The forced sale of a property to satisfy a debt or judgment.

Signature Guarantee
A stamp or seal that guarantees the authenticity of a signature. Also referred to as a Signature Medallion Guarantee. A notary public cannot provide a signature guarantee

SIMPLE IRA
Savings Incentive Match Plan for Employees. A retirement plan that allows employees of small firms with 100 or fewer employees and self-employed individuals to make salary reduction contributions to an IRA. The employee contributes up to a defined dollar amount and the employer contributes 1-3% of annual salary up to -a defined. Dollar amount (contribution limits are established by the IRS). Employers do not match until employees contribute. April 15th is deadline to contribute. Account grows tax deferred. At age 59 ½ account. Owners can withdraw money, but at age 70 ½, there is a required minimum distribution. The last day to open an account is October 1st / December 31st for a new company. Can convert to a Roth or Sep. Must file 5305 Simple tax form.

Simultaneous Closing
A closing where all parties close at the same time. An investor finds a new owner a piece of property he has the right to purchase from seller and all 3 parties close at the same time

SIPC
Securities Investors Protection Corporation. Protects up to $500k (inclusive of $100k cash) of securities against insolvency (bankruptcy or fraud)

Sole Proprietor
An individual who owns and runs a business

Sole Proprietorship
A form of business organization with only one owner. The sole owner makes all the decisions and has absolute power. Owner is personally responsible for performance of all contracts and has no protection from lawsuits etc. Personal assets that have no relation to the business are at risk

Special Warranty Deed
Deed in which the grantor limits the title warranty given to the grantee, does not warrant against title defects arising from conditions that existed before grantor owned the property.

Spousal IRA
An IRA designed for a couple when one spouse has no earned income. The maximum combined contribution that can be made each year to an IRA and a spousal IRA is $10,000 (in 2008) or 100 percent of earned income, whichever is less. This total may be split between the two IRAs as the couple wishes, provided the contribution to either IRA does not exceed $10,000 (or $12,000 if over 50)

Stock Certificate
The actual piece of paper that is evidence of ownership of stock in a corporation stock dividend - a corporate distribution of additional stock by a company to its shareholders stock option - a right to buy a given quantity of stock at a specified price stretch IRA - the ability to stretch an IRA over many years. "multi-generational" structured settlement - assignment of a settlement to an IRA. "lump sum"

Stocks
Shares of money in a company which an individual purchases. Evidence of ownership interest in a company

Subject To
Buyer takes title to mortgaged real property but is not personally liable for the payment of the amount due, buyer must make payments in order to keep the property; Buying a piece of property subject to any liens on the property or existing mortgage. No legal responsibilities

Subordinate Loan
A second or third mortgage.

Subordination
A clause or document that permits a mortgage recorded at a later date to take priority over an existing lien.

Subscription Agreement
The signature page listing all of the owners of the entity and their percentage of ownership; a document an officer in an entity signs when he/she joins the entity. It typically states what is being purchased and accompanies the Operating Agreement. May sometimes be combined into one document.

Subsequent Rate Adjustments
The interest rate for adjustable rate loans (ARMs) adjusts at regular intervals. This adjustment period could in some cases differ from the initial interest rate duration period.

Subsequent Rate Cap
A specific limit defined by most adjustable rate loans (ARMs) for the maximum amount the interest rate may increase at each regularly scheduled interest rate adjustment date. This limit may differ from the initial rate cap.

Substantially Equal Periodic Payments (SEPP)
SEPP-also known as a 72T-the option to take substantially equal periodic payments till age 59 ½ or at least 5 years

Sweat Equity
The non-cash value added to a piece of property by the owner, such as do-it-yourself home improvements.

Tangible Personal Property
Assets other than real estate that physically exist (examples are livestock, machinery, equipment, and vehicles)

Tax Deed
The instrument of conveyance when a property is sold by a government body to pay for arrears of taxes.

Tax Deferred
Income whose taxes can be postponed until a later date (examples include. IRA, 401(k), keogh plan, annuity, savings bond and employee stock ownership plan)

Tax Foreclosure
The process leading up to the sale of a property to pay for arrears in taxes.

Tax Free
Money that has already been taxed. Investment in which you don't have to pay taxes on the income the investment earns

Tax Lien
A debt attached to the property for failing to pay taxes; A lien placed against a property for nonpayment of taxes (property and/or personal)

Tax Sale
Sale of property by a governmental body for non-payment of taxes, either by tender or auction.

Title
Evidence of ownership, evidence of lawful possession; The legal document conferring ownership of a piece of real estate.

Title Company
A firm that ensures that the property title is clear and provides title insurance.

Transfer
The ability to move a retirement account from one custodian directly to another (example: traditional to traditional, Roth to Roth). Non-taxable event. Not a distribution. No limit each year

Treasury Index
An index used to determine interest rate changes for adjustable rate mortgages.

Trust
An arrangement whereby property is transferred to a trusted third party trustee by a grantor/trustor, trustee holds the property for the benefit of the beneficiary; A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Taxable entity. Has two parties: 1) beneficiary (owner) and 2) trustee (chosen by the owner, makes decisions with no liability)

Trust Company
A bank with no money. Organization that is engaged as a trustee, fiduciary or agent in handling trust funds, or estates of custodial arrangements or stock transfers or related services

Trust Deed
Conveyance of real estate to a third party to be held for the benefit of another, commonly used in some states in place of mortgages that conditionally convey title to the lender, same as Deed of Trust

Trustee
One who holds property in trust for another to secure performance of an obligation, the neutral party in a trust deed transaction.

UBIT
UBIT is a special tax that Congress created to apply to tax-exempt entities that produce income from business activity rather than passive investments. In addition to churches, charities and non-profits, IRAs are also affected by UBIT. UBIT is income from a trade or business that is not substantially related to a not-for-profit organization's tax-exempt function and that is regularly carried on by the organization. Annuities, interest, royalties, and rent from real and certain personal property are specifically excluded from the definition of unrelated business income

Undivided Interest
an ownership right to use and possession of a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unimproved Property
Land that has received no development, construction, or site preparation (raw land).

Usury
Charging a rate of interest greater than that permitted by state law.

Valuation
The estimated worth or price. The act of valuation by appraisal.

Variable Interest Rate
Amount of compensation to a lender that is allowed to vary over the maturity of a loan, typically governed by an appropriate index.

W-2
Tax form that states earned income

Warranty Deed
Deed that contains a covenant that the grantor will protect the grantee against any and all claims; usually contains covenants ensuring good title, freedom from encumbrances, and quiet enjoyment.

Wholesaling
The rapid turnover of a piece of property by one person who buys it for a certain price then sells it soon thereafter for more.

Wild Deed
An improperly recorded deed

Without Recourse
Words used in endorsing a note to denote the note holder is not to look to the debtor personally in the event of nonpayment.

Wraparound Mortgage
Loan arrangement in which an existing loan is retained and an additional loan is made that equals or exceeds the existing loan.

Yield
Measurement of the rate of earnings of an investment.

Yield spread
A form of compensation some brokers receive from a lender for originating and processing a loan. The yield spread is based on the interest rate of the loan and can usually vary anywhere from zero to 6%.

1031 Exchange
Equity Trust Company does not handle 1031 Exchanges. This is a way of deferring taxes on a real estate sale by buying a new property within a specific period of time. Because the IRA is not subject to capital gains, this cannot be done.

1098
Used to report interest on real estate. ETC can prepare for a fee

1099
Used for independent contracting, interest, distributions (does not have to be earned income). April 15th is cut-off to file. A IRA custodian sends this to their clients.

401 (k)
A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes. In some cases employers will match their employee's contribution dollar-for-dollar. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.

403 (b)
A retirement plan similar to a 401(k) plan, but one which is offered by non-profit organizations, such as Universities and some charitable organizations, rather than corporations. There are several advantages to 403(b) plans: 1) Contributions lower taxable income, 2) Larger contributions can be made to the account, 3) Earnings can grow tax-deferred, and 4) Some plans allow loans. Contributions can grow tax-deferred until withdrawal at which time the money is taxed as ordinary income (which is sometimes a disadvantage).

408 (b)
A simpler alternative to a 401(k) plan available only to companies with 25 or fewer employees, which gives employees the opportunity to make contributions to their SEP accounts with pre-tax dollars and reduce their current year's net income. Also called 408(k) plan or Salary Reduction Simplified Employee Pension (SARSEP) plan.

457 plan
A tax-exempt deferred compensation program made available to employees of state and federal governments and agencies. Similar to a 401(k) plan, except there are never employer matching contributions and the IRS does not consider it a qualified retirement plan. Participants can defer some of their annual income (up to an annual limit), and contributions and earnings are tax deferred until withdrawal. Distributions start at retirement age but participants can also take distributions if they change jobs or in certain emergencies. Participants can choose to take distributions as a lump sum, annual installments or as an annuity. Distributions are subject to ordinary income taxes and the amounts. Can be transferred into an IRA.

5305
Outlines specific retirement needs. Shows what can and cannot be done. Must be IRS approved

5498
Tells the government what a client's IRA is worth. Mailed to clients by May 30th. Not needed to file taxes

5500
Used for qualified plans. Submitted to IRS annually

990-t
Used to figure UBIT. Client provides the custodian with this form by April 15th and the custodian files with the IRS.