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Abatement A reduction or complete extinguishment of a gift in a will where the estate does not have sufficient assets to make full payment. Abstract of title A historical summary provided by a title insurance company of all records affecting the title to a property. Acceleration clause Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan. Account A separate record of an asset, liability, income, or expense of a business. Accounting method The method of recording income and expenses for a business; can be either accrual method or cash method. Accounting period A specific time period covered by the financial statements of a business. Accounting system The specific system of record-keeping used to set up the accounting records of a business. See also single-entry accounting or double-entry accounting. Accounting The process for recording, summarizing, and interpreting business financial records. Accounts payable Money owed by a business to another for goods or services purchased on credit. Money that the business intends to pay to another. Accounts Payable Money owed to another and due to be paid. Accounts receivable Money owed to the business by another for goods or services sold on credit. Money that the business expects to receive. Accrual method Accounting method in which all income and expenses are counted when earned or incurred regardless of when the actual cash is received or paid. Accrued expenses Expenses that have been incurred but have not yet been paid. Accrued income Income that has been earned but has not yet been received. Acknowledgment Formal declaration before a notary public. ACRS Accelerated Cost Recovery System. Generally, a method of depreciation used for assets purchased between 1980 and 1987. Ademption The withdrawal of a gift in a will by an act of the testator that shows an intent to revoke it. For example; by giving the willed property away as a gift during his or her life. Adjustable rate mortgage (ARM) A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower’s risk, the ARM may have a payment or rate cap. See also cap. Administrator/Administratrix One who is appointed to administer the estate of a deceased person who has died without a will or who has died with a will but has not named an executor. The distinction between the two titles (male and female) has largely been removed and administrator is proper usage for either male or female. Advancement A lifetime gift made to a child by a parent, with the intent that the gift be all or a portion of what the child will be entitled to upon the parent’s death. Affidavit A person’s signed and notarized statement. Agent A person who is authorized to act on behalf of another. A corporation acts only through its agents, whether they are directors, employees, or officers. Aging The method used to determine how long accounts receivable have been owed to a business. Agreement A verbal or written resolution of disputed issues. Alimony A payment of support for one spouse provided by the other spouse. May be paid in periodic payments, one lump-sum payment, or a combination of both. May be paid temporarily or on a permanent basis. (Same as spousal support or maintenance.) Alternate Beneficiary A person chosen to receive a gift under a will or trust should the originally chosen beneficiary not be available or surviving. Amend To alter or change. Amendment An addition, deletion or change to a corporate bylaw or article of incorporation. Amenities Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation. Amortization The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan. Ancestor One from whom a person is descended. Annual cap See cap. Annual percentage rate (APR) The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans. Annuity contract A form of investment in which the purchaser is guaranteed a certain periodic payment for life or a certain term. Annuity An insurance contract that pays the insured person during his or her life, rather than paying a beneficiary after the insured person’s death. An annuity is a type of retirement plan. Annulment A legal action that has the result of treating a marriage as if it had never occurred. Appraisal An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property’s ability to produce income. Appraisal Valuation of a piece of property, generally by a person certified to conduct such a valuation. Appreciation A property's increase in value due to inflation or economic factors. APR See annual percentage rate. ARM See adjustable rate mortgage. Articles of Incorporation The charter of the corporation, the public filing with a state that requests that the corporation be allowed to exist. Along with the Corporate Bylaws, they provide details of the organization and structure of the business. They must be consistent with the laws of the state of incorporation. Articles of Incorporation The charter of the corporation, this is the public filing with a state that requests that the corporation be allowed to exist. Along with the corporate Bylaws, it provides details of the organization and structure of the business. The articles must be consistent with the laws of the state of incorporation. Assessment Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance. Asset Anything of value. May be real estate or personal property. Personal property can be tangible or intangible property. Assets Any property that you own. Your assets may consist of real estate or personal property. Your personal property may consist of cash, securities, or actual tangible property. Assignment The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person. Assumed name A name, other than the corporation’s legal name as shown on the Articles of Incorporation, under which a corporation will conduct business. Most states require registration of the fictitious name if a company desires to conduct business under an assumed name. The corporation’s legal name is not an assumed name. Assumed name A name, other than the corporation’s legal name as shown on the Articles of Incorporation, under which a corporation will conduct business. Most states require registration of the fictitious name if a company desires to conduct business under an assumed name. The corporation’s legal name is not an assumed name. Assumption An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan’s interest rate may be lower than current market rates. Attachment The seizure or repossession of property by a governmental agent. Generally, attachment is carried out by a county sheriff or the Internal Revenue Service. Attestation To sign one’s name as a witness to a will. Augmented An augmented estate is your estate left under a will plus the value of property transferred by other means, such as joint tenancies and living trusts. The augmented estate is used to calculate the value of a spousal share of an estate in those states that use this concept. Authorized stock The number of shares of stock that a corporation is allowed to issue as stated in the Articles of Incorporation. All authorized shares need not be issued. Authorized stock The number of shares of stock that a corporation is allowed to issue as stated in the Articles of Incorporation. All authorized shares need not be issued. Automatic stay An court order from the bankruptcy court that goes into effect automatically upon filing for bankruptcy. It orders creditors to stop taking any further action to collect on any debts owed by the debtor filing for bankruptcy including lawsuits, garnishments, foreclosures, and collections. Balance sheet accounts Asset and liability accounts used to prepare business balance sheets. Balance sheet equation Assets = Liabilities + Equity, or Equity = Assets B Liabilities. Balance sheet The business financial statement that depicts the financial status of the business on a specific date by summarizing the assets and liabilities of the business. Balloon mortgage Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full. Bank Trust Account A type of payable-on-death account under which the main account holder retains full and unilateral control of the account until death. Same as a Totten Trust. Bankruptcy Code The U.S. Bankruptcy Code is the set of United States laws relating to bankruptcy. The laws are contained in Title 11, Sections 101-1330 of the United States Code. Bankruptcy Court Rules In addition to the Bankruptcy Code, there are three further sets of rules that govern the procedures in bankruptcy courts Bankruptcy Courts The United States is divided into various bankruptcy court districts. All bankruptcy court districts are referenced by the name of the state (for example, Federal Bankruptcy Court, Idaho District). Many districts are also referenced geographically, if there is more than one district within the state (i.e., Southern District of Illinois). Bankruptcy estate All property, whether real estate or personal property, that is owned by a debtor who files for bankruptcy. Control over the bankruptcy estate is given to the court by filing for bankruptcy. Bankruptcy petition preparer A private non-lawyer paralegal who can assist persons in preparing the legal papers necessary for bankruptcy. He or she cannot, however, provide any legal advice. Preparers are now authorized and regulated by the Bankruptcy Code. Bankruptcy petition A formal request of the court for the protection of the federal bankruptcy laws. Bankruptcy trustee A person who is appointed by the bankruptcy court to handle the bankruptcy estate of a debtor. The trustee will examine the papers, handle the creditors meeting, collect and sell any non-exempt property, and pay off the creditors. Basic Will A simple standardized type of will. Beneficiary One who is named in a will to receive property; one who receives a benefit or gift, as under the terms of a trust. Bequest Traditionally, a gift of personal property in a will. Synonymous with legacy. Now, gift is the appropriate usage for either a gift of real estate or personal property. Biweekly mortgage A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be. Blood Relative A person who is directly related to another through birth descent. Board of directors The group with control of the general supervision of the corporation. They are elected by the shareholders and the board, in turn, appoint the officers of the corporation. Board of directors The group with control of the general supervision of the corporation. They are elected by the shareholders and the directors, in turn, appoint the officers of the corporation. Bond A certificate serving as security for payment of a debt. Bonds backed by mortgage loans are pooled together and sold in the secondary market. Bond A document by which a bonding company guarantees to pay an amount of money if the bonded person does not carry out his or her legal duties. Bonds A form of investment through which a company is indebted to the holder and, generally, pays interest to the holder. Bookkeeping The actual process of recording the figures in accounting records. Bridge loan A loan to bridge the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan. Broker An intermediary between the borrower and the lender. The broker may represent several lending sources and charges a fee or commission for services. Business corporation laws For each individual state, these provide the legal framework for the operation of corporations. The Articles of Incorporation and the Bylaws of a corporation must adhere to the specifics of state law. Business corporation laws For each individual state, these provide the legal framework for the operation of corporations. The Articles of Incorporation and the bylaws of a corporation must adhere to the specifics of state law. Business Interest Ownership of any form of business, such as a sole proprietorship, partnership, corporation, or limited liability company. Business liabilities Business debts. Also the value of the owner’s equity in his or her business. Buy-down Where the buyer pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. Buy-out Provisions Contractual terms contained in a business ownership agreement (such as a partnership agreement) that specify the terms under which other owners may be required or have the option to purchase (buy-out) another owner’s interest in the business, often upon the death of an owner. Buy-out/sell-out provision Provision in a shareholder’s agreement that provide that if a shareholder wishes to either buy all of the outstanding shares of a corporation or sell all of their own shares of the corporation, they must be willing to allow either event to happen. Bylaws The internal rules that govern the management of the corporation. They contain the procedures for holding meetings, appointments, elections, and other management matters. If these conflict with the Articles of Incorporation, the provision in the articles will be controlling. Bylaws The internal rules that govern the management of the corporation. They contain the procedures for holding meetings, appointments, elections and other management matters. If these conflict with the Articles of Incorporation, the provision in the Articles will be controlling. Calendar year Year consisting of 12 consecutive months ending on December 31st. Cap A limit in how much an adjustable rate mortgage’s monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelve-month period. Capital expense An expense for the purchase of a fixed asset; an asset with a useful life of over one year. Generally, must be depreciated rather than deducted as a business expense. Capital stock See authorized stock. Capital stock See Authorized stock. Capital surplus Corporation owners equity. See also retained capital. Capital Initially, the actual money or property that shareholders transfer to the corporation to allow it to operate. Once in operation, it also consists of accumulated profits. The net worth of the corporation. Capital Initially, the actual money or property that shareholders transfer to the corporation to allow it to operate. Once in operation, capital also consists of accumulated profits. The net worth of the corporation, the owner’s equity in a business, and/or the ownership value of the business. Cash method Accounting method in which income and expenses are not counted until the actual cash is received or paid. Cash out Cash paid out for business purposes, such as a refund. Cash All currency, coins, and checks that a business has on hand or in a bank account. C-corporation A business entity owned by shareholders that is not an S-corporation. Subject to double taxation, unlike S-corporations. C-corporation The official IRS designation for a standard shareholder-owned corporation, as opposed to an S-corporation. Certificate of Deposit A form of investment under which a bank issues a certificate indicating that it holds a deposit and will pay a certain rate of interest for a certain term. Certificate of Incorporation See Articles of Incorporation. Note, however, that some states will issue a Certificate of Incorporation after the filing of the Articles of Incorporation. Certificate of Incorporation See Articles of Incorporation. Note, however, some states will issue a Certificate of Incorporation after the filing of the Articles of Incorporation. Certificate of reasonable value (CRV) A Veteran’s Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property. Certificate of title Document rendering an opinion on the status of a property’s title based on public records. Chapter 11 The chapter of the Bankruptcy Code that provides for reorganization (usually of a corporation or partnership). Chapter 12 The chapter of the Bankruptcy Code that provides for an adjustment of the debts of a family farmer. Chapter 13 The chapter of the Bankruptcy Code that provides for an adjustment of the debts of an individual with a regular income. Chapter 7 The chapter of the Bankruptcy Code that provides for liquidation (the sale of the debtor’s non-exempt property and distribution of the proceeds to the creditors). Charitable Organization A group that holds a Federal 501(c)3 charitable organization tax exemption status, and is able to receive tax-exempt donations. Chart of Accounts A listing of the types and numbers of the various accounts that a business uses for its accounting records. Check register A running record of checks written, deposits made, and other transactions for a bank account. Child support A legal, moral, and ethical obligation to provide full care and support for minor children. Children’s Trust A form of trust under which gifts to children may be held in trust beyond the child’s attainment of the legal age of majority. Claim A creditor’s assertion of a right to payment from a debtor. Clause A separate portion of a paragraph or sentence; an article or proviso in a legal document. Close Corporation A corporation operated by a small number of individuals, often family members. Is often exempt from certain state laws and may operate more informally. Also referred to as a closely-held corporation. Close corporation Corporation with less than 50 shareholders that has elected to be treated as a close corporation. Not all states have close corporation statutes. (For information regarding close corporations, please consult a competent attorney). Close corporation Corporation with less than 50 shareholders that has elected to be treated as a close corporation. Not all states have close corporation statutes. (For information regarding close corporations, please consult a competent attorney.) Closed-end mortgage A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also open-end mortgage. Closely held corporation Not a specific state-sanctioned type of corporation, but rather a designation of any corporation in which the stock is held by a small group of people or entities and is not publicly traded. Closely held corporation Not a specific state-sanctioned type of corporation, but rather a designation of any corporation in which the stock is held by a small group of people or entities and is not publicly traded. Closing costs Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. Cloud A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title. Codebtor A person who is jointly liable on a particular debt, either because of cosigning on the debt, acting as a guarantor on the debt, or by virtue of being a spouse or partner of the debtor. Codicil A formally-signed supplement to a will that is used to alter, amend or revoke provisions in the original will. Coercion The application to another of either physical or moral force. Collateral Property used to guarantee payment for a secured debt. Collateral Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan. Commitment fee A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate. Common Law System of law that originated in England based on general legal principles rather than legislative acts. Common stock The standard stock of a corporation that includes the right to vote the shares and the right to proportionate dividends. See also preferred stock. Common stock The standard stock of a corporation that includes the right to vote the shares and the right to proportionate dividends. See also Preferred stock. Common-Law Property Property held by spouse in a common-law state. Can be jointly-held or solely-owned property. The name(s) on the title document is/are the determining factor(s). See Appendix for those states where this system of marital property applies. Common-law property Property in those states that follow common-law property rules. In general, the ownership of common-law property is determined by the name on the title document for the property. This is true for married couples also, with the exception of gifts or inheritances that are received jointly and thus held jointly. See also community property. Community debts Those debts incurred during marriage in those states that follow community-property rules. See also community property. Community property Generally, all income and property that is acquired by either or both spouses during the course of a marriage, except property acquired by individual gift or inheritance. Community property does not include property that was acquired prior to a marriage. In most community property states, both spouses are considered to own an equal share of all of the community property. (See separate property.) Co-mortgagor One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also co-signer. Condominium An individually owned unit within a multi-unit building where others or a condominium owners association share ownership of common areas such as the grounds, the parking facilities, hallways, etc. Conforming loan A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also non-conforming loan. Consent Resolution Any resolution signed by all of the directors or shareholders of a corporation authorizing an action, without the necessity of a meeting. Conservator Temporary court-appointed custodian of property. Construction loan A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full. Consumer handbook on adjustable rate mortgages (CHARM) A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM). Contest Challenge the validity of a will. Contested divorce A divorce where at least one issue has not been settled prior to court. A court must decide any issues that have not been agreed upon in a conntested case. Contingent debt A known debt with an uncertain value that has yet to be resolved by a court. Conventional loan A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration). Convertible mortgage An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term. Corporate record book Contains all the corporate records (except accounting records). Corporate stock transfer book Record of the issuance and transfer of stock certificates. Corporation A business entity owned by shareholders; can be a C-corporation or an S-corporation. Co-signer One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also co-mortgagor. Cosignor A person who has also signed a loan or contract with another and who is jointly liable on the loan or contract. Cost basis Total cost to a business of a fixed asset. Cost of goods sold The amount that a business has paid for the inventory that it has sold during a specific period. Calculated by adding beginning inventory and additions to inventory and then deducting the ending inventory value. Covenants Rules and restrictions governing the use of property. Credit In double-entry accounting, an increase in liability or income accounts or a decrease in asset or expense accounts. Creditor A creditor is a person or entity (corporation, partnership, etc.) who is owed a debt of some type. Creditors may be secured creditors who hold the title or a lien or some form of collateral for the debt. Creditors may also be unsecured creditors who have no security for the debt. Creditors meeting This meeting is held in all Chapter 7 bankruptcies approximately one month after filing. It is attended by the bankruptcy trustee and the debtor(s). It may also be attended by any of the creditors. At this meeting, the bankruptcy papers will be examined, priority claims determined, CRV See certificate of reasonable value. Cumulative voting A voting right of shareholders that allows votes for directors to be spread among the various nominees. This right protects the voting strength of minority shareholders. The amount of votes in cumulative voting is based on the number of shares held times the number of director positions to be voted on. The shareholder can then allocate the total cumulative votes in any manner. Cumulative voting A voting right of shareholders that allows votes for directors to be spread among the various nominees. This right protects the voting strength of minority shareholders. The amount of votes in cumulative voting is based on the number of shares held times the number of director positions to be voted on. The shareholder can then alnlocate the total cumulative votes in any manner. Current assets Cash and any other assets that can be converted to cash or consumed by the business within one year. Current debt Debt that will normally be paid within one year. Current liabilities Debts of a business that must be paid within one year. Current ratio A method of determining the liquidity of a business. Calculated by dividing current assets by current liabilities. Curtailments The borrower’s privilege to make payments on a loan’s principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgages prepayment clause. Curtesy In ancient common law, a husband’s right to all of his wife’s real estate for life upon her death. Now, generally abolished in most jurisdictions and replaced with a right to a certain statutory share of a spouse’s property. Custodial parent The parent with whom a child normally lives. Death Benefits Money, generally from either insurance policies or pension plans, that are payable to the beneficiaries of a decedent. Debit In double-entry accounting, a decrease in liability or income accounts or an increase in asset or expense accounts. Debt ratio A method of determining the indebtedness of a business. Calculated by dividing total liabilities by total assets. Debt Money owed to repay someone. Debt The amount that a business owes to another. Also known as liability. Debtor A debtor is a person (or entity) who owes a debt of some kind. The persons or entities who file for bankruptcy are referred to as debtors in the court papers. Debts A debt is an obligation of some type that is owed to another person or entity. A debt may be secured if collateral of some type has been pledged or if a lien exists against some type of property. A debt may also be unsecured if there is no collateral securing the debt. Debts may also be further classified as contingent, liquidated, unliquidated. See also contingent debt, liquidated debt, or unliquidated debt. Debt-to-income ratio The ratio between a borrower’s monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans). Deceased No longer living; A dead person. Decedent One who has died. Deed of trust A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan. Department of Housing and Urban Development (HUD) The U. S. government agency that administers FHA, GNMA and other housing programs. Depreciation Cost of fixed asset deductible proportionately over time. Descend To come from an ancestor or ancestry. Descendant One who is descended from another. Descent Inheritance by operation of law rather than by will. Devise Traditionally, a gift of real estate under a will. Now, gift is the appropriate usage for either a gift of real estate or personal property. Disability benefits Payments made to a person under a disability insurance plan because of injury, disability, or sickness. Discharge The total elimination of all dischargeable debts. This is the final result of a Chapter 7 bankruptcy. A discharge also prohibits creditors from communicating in any way with the debtor regarding the discharged debts. Dischargeable debts Those debts that may, by bankruptcy law, be discharged (eliminated) by a bankruptcy action. See also non-dischargeable debts. Discount points Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Disinherit prevent deliberately (as by making a will) from inheriting Disposition A final settlement. Disputed debts Those debts that a debtor claims are in error, either in part or in whole. Dissolution of marriage See divorce. Dissolution Methods by which a corporation concludes its business and liquidates. Dissolutions may be involuntary because of bankruptcy or credit problems or voluntary on the initiation of the directors or shareholders of a corporation. Dissolution Methods by which a corporation concludes its business and liquidates. Disnsolutions may be involuntary because of bankruptcy or credit problems, or voluntary on the initiation of the directors or shareholders of a corporation. Dividend A distribution of money or property paid by the corporation to a shareholder based on the amount of shares held. A proportionate share of the net profits of a business that the board of directors has determined should be paid out to shareholders, rather than held as retained earnings. Dividends must be paid out of the corporation’s net earnings and profits. The board of directors has the authority to declare or withhold dividends based on sound business discretion. Dividend A distribution of money or property paid by the corporation to a shareholder based on the amount of shares held. Dividends must be paid out of the corporation’s net earnings and profits. The board of directors has the authority to declare or withhold dividends based on sound business discretion. Divorce A legal judgment that severs the marriage of two people and restores them to the status of single persons. (Same as dissolution of marriage.) Domestic corporation A corporation is a domestic corporation in the state in which it is incorporated. See also foreign corporation. Domestic corporation A corporation is a domestic corporation in the state in which it is incorporated. See also Foreign corporation. Domicile A person’s principal and permanent home. Double taxation The taxation of business profits at the corporate level and the second taxation of those same profits at the individual taxpayer level, when such profits are distributed to a corporate shareholder as dividends. Double-entry accounting An accounting system under which each transaction is recorded twice Dower In ancient common law, a wife’s right to one-third of her husband’s real estate for her life upon his death. Now, generally abolished in most jurisdictions and replaced with a right to a certain statutory share of a spouse’s property. Down payment The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets. Due-on-sale A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument). Duplex Dwelling divided into two units. Durable Power of Attorney A form of power of attorney which is still in force despite the incapacity or disability of the maker. Earnest money Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property. Easement The right one party has in regard to the property of another, such as the right of a public utility company to lay lines. Employee Benefits Money or other benefits that are payable to an employee, such as health-care insurance, travel-expense compensation, etc. Equal Credit Opportunity Act A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act. Equitable division A method of property division in a divorce (or dissolution of marriage) that is generally based on a variety of factors in an attempt to allocate a fair and just amount of property to each spouse. Equity Any debt that a business owes. It is owner’s equity if owed to the business owners and liabilities if owed to others. Equity The value of a debtor’s interest in property that remains after all liens or creditor’s interests (such as a mortgage) are deducted. Equity The value of a property beyond any liens against it. Also referred to as owner’s interest. ERISA benefits Payments made to a person under a pension or retirement plan that qualifies under the Federal Employees Retirement Income Security Act. IRAs, KEOGHs, and many other pensions are ERISA plans. Ask your retirement plan administrator. Escape clause A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period. Escheat Reversion of property to the state, if no family member is found to inherit it. Escrow Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year. Estate Tax A tax imposed on property that passes to another upon death. Estate All property owned by a person. Execution The formal signing of a will. Execution The process of seizing and selling property under a court order or judgment for a money judgment against a person or entity. Executor/Executrix The person appointed in a will to carry out the testator’s wishes and to administer the property. Executory contract A contract that is not fully completed, which has some obligation or action yet to be fulfilled. Exempt property Property that may not be seized, repossessed by a private creditor, or executed against by a government agent because of debts that the owner has incurred. Property may be exempt based on either state or federal law. Expenditure Money that is, or will be, spent by a debtor. Expenses The costs to a business of producing its income. Any money that it has paid or will pay out during a certain period Fair market value The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area. Family Allowance An amount that is allowed or granted to one family. Family farm bankruptcy A Chapter 12 bankruptcy. Similar to a Chapter 13 bankruptcy, but which is available only to those debtors who fit the description of a family farmer. Fannie Mae Nickname for Federal National Mortgage Association (FNMA). Fault-based divorce A type of divorce that may only be granted on a showing that one of the spouses was guilty of some form of marital misconduct. Federal Estate Tax A percentage tax that is imposed upon the estate of a deceased person for the benefit of being able to pass the estate to others upon death. In 2002, the first $1 million dollars of a person’s estate value are fully exempt from this tax, as is all estate property that passes from one spouse to another. The dollar value of the exemption is scheduled to rise to $3.5 million by 2009. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) A quasi-governmental, federally-sponsored organization that acts as a secondary market investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA. Federal Housing Administration (FHA) An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA’s objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. Federal National Mortgage Association (FNMA or Fannie Mae) A private corporation that acts as a secondary market investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available. Fee simple Refers to full ownership. Fee simple The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner’s designated heirs. Also known as fee absolute. FEIN Federal Identification Number, used for tax purposes. FHA See Federal Housing Administration. FICA Federal Insurance Contributions Act. Taxes withheld from employees and paid by employers for Social Security and Medicare. Fictitious name See assumed name. Fictitious name See Assumed name. Fiduciary A person with a duty of care to another. For example, a trustee has a duty of care to any beneficiary of a trust, and thus, is a fiduciary. FIFO First-in, first-out method of accounting for inventory. The inventory value is based on the cost of the latest items purchased. Fifteen-year mortgage A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less. Financial statements Reports that summarize the finances of a business; generally a profit and loss statement and a balance sheet. Fiscal year A 12-month accounting period used by a business. Fiscal-year reporting For income tax purposes, reporting business taxes for any 12-month period that does not end on December 31 of each year. Fixed assets Assets of a business that will not be sold or consumed within one year. Generally, fixed assets (other than land) must be depreciated. Fixed-rate mortgage A mortgage whose rate remains constant throughout the life of the mortgage. Flood insurance The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance. FNMA See Federal National Mortgage Association. Foreign corporation A corporation is referred to as a foreign corporation in all states other than the one in which it is actually incorporated. In order to conduct active business affairs in a different state, a foreign corporation must be registered with the other state for the authority to transact business and it must pay an annual fee for this privilege. Foreign corporation A corporation is referred to as a foreign corporation in all states other than the one in which it is actually incorporated. In order to conduct active businness affairs in a different state, a foreign corporation must be registered with the other state for the authority to transact business and it must pay an annual fee for this privilege. Forgery The illegal production of something counterfeit. Fraternal society benefits Group life or other insurance benefits that are maintained and paid to members by fraternal societies, such as the Elks, Masons, Moose, etc. Fraud A deception deliberately practiced in order to secure unfair or unlawful gain. Fraudulent transfer A transfer of property by a debtor with the intent to defraud creditors. Freddie Mac Nickname for Federal Home Loan Mortgage Corporation (FHLMC). FUTA Federal Unemployment Tax Act. Federal business unemployment taxes. General grounds Fault-based divorce grounds retained by some states. General journal In double-entry accounting, used to record all of the transactions of a business in chronological order. Transactions are then posted (or transferred) to the appropriate accounts in the general ledger. General ledger In double-entry accounting, the central listing of all accounts of a business. Gift A voluntary transfer of property to another without any compensation. Gift This includes amounts from a relative or a grant from the borrower’s employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid. Ginnie Mae Nickname for Government National Mortgage Association (GNMA). Good faith Estimate on closing costs and monthly mortgage payments provided by the lender to the homebuyer within 3 days of applying for a loan. Government National Mortgage Association (GNMA or Ginnie Mae) A government organization that participates in the secondary market, securitizing pools of FHA, VA, and RHS loans. Graduated payment mortgage (GPM) A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period. Grantor The person who creates a trust. Also may be referred to as a settlor. Gross pay The total amount of an employee’s compensation before the deduction of any taxes or benefits. Gross profit Gross sales minus the cost of goods sold. Gross sales The total amount received for goods and services during an accounting period. Gross wages The total amount of an employee’s compensation before the deduction of any taxes or benefits. Grounds The legal basis for the divorce (or dissolution of marriage). The grounds may be no-fault or fault-based. Group Insurance A single insurance policy under which a group of persons is covered. Often, employee insurance plans are based on group insurance policies. Guarantor A person who has agreed to guarantee payment on a debt should the original debtor fail to keep up on the required payments. Guardian of the Person Guardian responsible for the actual care, custody, and upbringing of a minor child. Guardian of the Property Guardian who administers the property or money left to your child(ren). Guardian ad litem Court-appointed legal guardian of a child‚ has legal rights. Guardian A person with the legal power and duty to care for another person and/or a person‚ has property. Hazard insurance A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan. Health aids Items or material that a person uses to maintain his or her own health, such as a wheelchair. Health benefits Payments made to a person under a health insurance policy. Heirlooms Treasured pieces of property that have been passed down from ancestors. Heirs Those persons who inherit from a person by operation of law if there is no will present. Hold-harmless A phrase used to describe an agreement by which one person agrees to assume full liability for an obligation and to protect another person from any loss or expense based on that obligation. Holographic A will that is entirely handwritten by the testator and unwitnessed. No longer valid in most states. Home equity loan A mortgage on the borrower’s principal residence, usually for the purpose of making home improvements or debt consolidation. Home inspection A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold. Homeowners insurance A form of insurance that protects the insured property against loss from theft, liability and most common disasters. Homestead Allowance A monetary allowance given in some states to spouses and children to insure that they are not abruptly cut off from their support by any terms of a Living Trust. See family allowance. Homestead declaration A document that is placed on county property records that asserts your homestead exemption. Filing such a declaration is a requirement in certain states in order to take advantage of your homestead exemption. Check your state’s listing in Appendix B. Homestead exemption A state or federal exemption that protects a personal residence from being seized to pay for the owner’s debts. Is often limited to only a certain dollar value. Household goods Non-disposable items that are used to maintain a household, such as dishes, utensils, pots and pans, lamps, radios, etc. Housing affordability index Indicates what proportion of homebuyers can afford to buy an average-priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors. Housing and Urban Development (HUD) The U. S. government agency that administers FHA, GNMA and other housing programs. Housing expenses-to-income ratio See debt-to-income ratio. HUD See Housing and Urban Development. Incapacitated Being unable to care for one’s self or handle one’s own financial or other affairs. Income approach to value A method used by real estate appraisers to predict a property’s anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space and so forth. Income Property Real estate that is held for a commercial purpose; the generation of income. Income statement Financial statement that shows the income and expenses for a business. Also referred to as an operating statement or profit and loss statement. Income Any money that a business has received or will receive during a certain period. Income Money that is, or will be, earned by a debtor. Income-to-debt ratio See debt-to-income ratio. Incorporator The person who signs the Articles of Incorporation. Usually a person, but some states allow a corporation or partnership to be an incorporator. Incorporator The person who signs the Articles of Incorporation. Usually a person, but some states allow a corporation or partnership to be an incorporator. Indemnify To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred in incorporating. Indemnify To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred in incorporating. Index A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs). Inheritance Tax A tax on property received that is paid by the person who has actually inherited the property. Inheritance The receipt of property from someone who has died. Initial capital The money or property that an owner or owners contribute to starting a business. Insider Any relative of an individual debtor. Insurance benefits Payments made to a person under an insurance policy. Insurance As a part of PITI, the amount of the monthly mortgage payment that does not include the principal, interest, and taxes. See also homeowners insurance. Intangible personal property Generally, property not attached to land that you cannot hold or touch (for example Intangible property Property that has no actual existence, such as stocks, bonds, copyrights, trademarks, etc. These items may be represented by some type of document, but the property itself has no physical existence. See also tangible property. Interest cap See cap. Interest rate The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also Annual Percentage Rate. Interest The amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance. Intestate Distribution A state scheme that is used to determine the distribution of the property of any person who dies without leaving a valid will or another determination of how his or her property is to be distributed upon their death. Intestate To die without leaving a valid will. Invalid Not legally or factually valid. Inventory Goods that are held by a business for sale to customers. Invoice A bill for the sale of goods or services that is sent to the buyer. Involuntary bankruptcy A bankruptcy action that is instituted by creditors against a debtor who has defaulted on debt obligations. IRA Individual Retirement Accounts under Internal Revenue Service regulations. Irrevocable Impossible to retract or revoke. Issued shares Shares of stock in a corporation that have been authorized by the board of directors of a corporation. See also Authorized stock or Treasury shares. Issued shares The number of authorized shares of stock that are actually transferred to shareholders of the corporation. Also referred to as outstanding shares. See also treasury shares. Joint legal custody A form of custody of minor children in which the parents share the responsibilities and major decision-making relating to the child. Genernally, one parent is awarded actual physical custody of the child and the other parnent is awarded liberal visitation rights. (See joint physical custody, sole custody, and split custody.) Joint petition A single bankruptcy petition filed by a husband and wife together. Joint physical custody A form of custody of minor children in which the parnents share the actual physical custody of the child. Generally, an alternating method of custody is used. (See joint legal custody, sole custody, and split custody.) Joint property Property that is held or titled in the name of more than one pernson. (See joint tenancy, community property, and marital property.) Joint Tenancy with Right of Survivorship See joint tenancy. Joint tenancy A form of joint ownership of property by which each joint owner has an equal share in the property. Generally, a joint tenancy is used in connection with a right of survivorship. (See right of survivorship.) Joint tenancy Joint ownership of property in which the owners of the property hold equal undivided ownership interest in the property and in which each owner has the right of survivorship (the survivor will automatically inherit the others interest on death). Joint Tenancy Joint ownership of property under which the surviving owner automatically owns the deceased owner’s share. This is called the right of survivorship. May be abbreviated as JTWROS or joint tenancy with right of survivorship. Joint tenancy See tenancy. JTWROS Joint tenancy with right of survivorship. See joint tenancy. Judgment lien A real estate lien that has been established by a court order or judgment. The lien is recorded on official records and generally must be satisfied before the property is sold. Judgment The final determination by a court of the matter before that court. Jumbo loan A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jurisdiction The power or authority of a court to rule in a particular case. A court must have jurisdiction over both the subject matter of the case and the people innvolved in the dispute in order to have the authority to hear a case and make bindning decisions. Jurisdiction The right and power to interpret and apply the law. The territorial range of authority or control. KEOGH A form of retirement account. Key lot Real estate deemed highly valuable because of its location. Ledgers The accounting books for a business. Generally, refers to the entire set of accounts for a business. Legacy A gift of personal property in a will. Now, gift is the appropriate usage for either a gift of real estate or personal property. Synonymous with bequest. Legal Age of Minority The legal age above which a person may legally enter into contracts and otherwise act in the legal capacity of an adult. Legal court-ordered separation A court order that specifies a couple is separated. Not provided for in all states. Legal custody The right to make all of the major decisions relating to the upbringing of the child. Legal separation A legal lawsuit for support while the spouses are living separate and apart. A legal separation may deal with the same issues as in a divorce, but does not end the marriage. (See separate maintenance.) Lessee A tenant. Lessor A landlord. Letters of Administration The court order that officially appoints a person to administer the estate of another. Letters Testamentary The court order that officially appoints an executor named in a will as the person to administer the estate of the testator. Liabilities Something for which a person is liable, such as a debt. Liabilities The debts of a business. Liability A legal obligation or debt. Lien A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor. Lien A legal claim against property for the payment of a debt. Life Estate Surviving spouse has the full use and enjoyment of any real estate for his or her entire life. Upon his or her death, property will pass automatically to person who has remaining share of estate. Recipient of a life estate cannot leave such property to anyone else. Life insurance A contract under which an insurance company agrees to pay a specified sum to a beneficiary upon the death of the insured person. Life-of-loan cap See cap. LIFO Last-in, first-out method of valuing inventory. Total value is based on the cost of the earliest items purchased. Limited liability company A relatively new form of business entity which provides limited liability for its owners, and an opportunity to be taxed as either a sole proprietorship, partnership, or a corporation. Limited Liability Company A type of business structure where the liability of a firm’s owners are no more than what they have invested in the business. Liquidate To sell a debtor’s property and pay off any debts. To finally settle all debts. Liquidated debt A debt for which a court judgment has been issued. Liquidation bankruptcy A Chapter 7 bankruptcy. A bankruptcy in which all non-exempt property is sold to pay off all debts. Liquidity The ability of a company to convert its assets to cash and meet its obligations with that cash. Liquidity The capability of an asset to be readily converted into cash. Living Trust A form of revocable trust which becomes irrevocable upon the death of the grantor. Living Will A document that can be used to state your desire that extraordinary life- support means not be used to artificially prolong your life in the event that you are stricken with a terminal illness or injury. Loan discount See points. Loan origination fee See origination fee. Loans Payable Loans for which a person owes money to another. Loan-to-value ratio (LTV) The relationship, expressed as a percentage, between the amount of the proposed loan and a property’s appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75 percent loan-to-value. Lock-in The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate. Long-term assets The assets of a business that will be held for over one year. Those assets of a business that are subject to depreciation (except for land). Long-term debts Debts that will not be paid off in one year. Long-term liabilities The debts of a business that will not be due for over one year. Long-term loans payable Money due on a loan more than one year in the future. Long-term notes payable Money due more than one year in the future. Lost future earnings The amount of money awarded in a personal injury lawsuit to cover the amount of future income that the plaintiff is determined to have lost because of the injury. Lump-sum alimony Spousal support made in a single payment or fixed amount, but paid in specific installments. MACRS Modified accelerated cost recovery system. A method of depreciation for use with assets purchased after January 1, 1987. Mailing list A particular column and row arrangement of mailing addresses. It is required by many bankruptcy courts in order to make duplicate mailing labels for notification of creditors and other parties to a bankruptcy. Maintenance costs The cost of the upkeep of the house. These costs may be minor in cost and nature (replacing washers in the faucets) or major in cost and nature (new heating system or a new roof) and can apply to either the interior or exterior of the house. Maintenance See alimony or spousal support. Majority The status of having reached full legal age, with attendant rights and responsibilities Managers In a limited liability company, those persons selected by the members of the company to handle the management functions of the company. Managers of limited liability companies may or may not be members/owners of the company. Managers are roughly analogous to the officers of a corporation. Managing conservator Another name for the parent with custody. Margin The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1. 50 added to a 7 percent index establishes an adjusted interest rate of 8. 50 percent. Marital Property Property which is considered owned by both spouses in a marriage, as opposed to property which is considered owned by each spouse separately. Also referred to as community property in those states which adhere to community property legal concepts. Marital property Term used to describe the property that is subject to division by a court upon divorce or dissolution. Generally, all property that was acquired during a marriage by either or both spouses, except individual gifts and inheritances. Does not generally include property that was acquired by either spouse prior to the marriage. (See community property, joint property, separate property, and non-marital property.) Marital Settlement Agreement A written agreement entered into by divorcing spouses that spells out their rights and agreements regarding property, support, and children. (Same as separation agreement.) Market value The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area. Matured life insurance benefits Life insurance benefits that are currently payable to a beneficiary (because the insured person has already died). Mediator Professional trained in conflict resolution and methods of coaching disagreeing spouses. Members In a limited liability company, those persons who have ownership interests (equivalent to shareholders in a corporation). Most states allow single-member limited liability companies. Minor Child A child who is under the legal age of majority (generally 18 or 21 years old). Minutes A written record of the activities of a meeting. Minutes A written record of the activities of a meeting. Modification A change in the terms of the mortgage note, such as a reduction in the interest rate or change in maturity date. Mortgage banker A lender that originates, closes, services and sells mortgage loans to the secondary market. Mortgage broker An intermediary between a borrower and a lender. A broker’s expertise is to help borrowers find financing that they might not otherwise find themselves. Mortgage insurance Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. Mortgage interest Interest rate charge for borrowing the money for the mortgage. It is a used to calculate the interest payment on the mortgage each month. Mortgage term The length of time that a mortgage is scheduled to exist. Example Mortgage A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage. Mortgage A written statement of a debt owed for the purchase of real estate, under which the property is used as collateral. Mortgagee The lender. Mortgagor The borrower. Motor vehicle Any vehicle that is powered by a mechanical engine. Natural person A human being, as opposed to a corporation which, in some legal situations is treated as a person. Nature of lien The type of lien Necessities Items that are necessary to sustain life. Generally, food, clothing, and medical care are considered necessities. Negative amortization A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan’s principal. The borrower may end up owing more than the original amount of the mortgage. Net income The amount of money that a business has after deducting the cost of goods sold and the cost of all expenses. Also referred to as net profit. Net loss The amount by which a business has expenses and costs of goods sold greater than income. Net pay The amount of compensation that an employee actually will be paid after the deductions for taxes and benefits. Net profit The amount by which a business has income greater than expenses and cost of goods sold. Also referred to as net income. Net sales The value of sales after deducting the cost of goods sold from gross sales. Net wages The amount of compensation that an employee will actually be paid after the deductions for taxes and benefits. Net Worth A person’s net value, determined by subtracting liabilities from assets. Net worth The value of the owner’s share in a business. The value of a business determined by deducting the debts of a business from the assets of a business. Also referred to as owner’s equity. No-fault divorce A type of divorce that may be granted without the necessity of showing that either spouse was guilty of some form of marital misconduct. Non-assumption clause In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender. Non-conforming loan A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming. See also conforming loan. Non-dischargeable debts Those debts that cannot be eliminated in a bankruptcy proceeding. Certain taxes, student loans, alimony, child support, and other debts are non-dischargeable. See also dischargeable debts. Non-marital property Term used to describe separate property in some states that provide for the equitable distribution of property. Generally, non-marital property consists of property acquired prior to a marriage and property acquired by individual gift or inheritance either before or during a marriage. (See marital property, community property, and separate property.) Non-purchase money debt A debt that is incurred other than to purchase the collateral for the debt, such as a home equity loan. Nontaxable income Income that is not subject to any state or local sales tax. No-par value Shares of stock that have no specific face value. The board of directors can assign a value to the shares for sale and can then allocate a portion of the sales price to the paid-in-capital account. No-par value Shares of stock which have no specific face value. The board of directors can assign a value to the shares for sale and can then allocate a portion of the sales price to the paid-in-capital account. Notarize To have a notary public acknowledge the signing of a document. Notary Acknowledgment A formal declaration made to authenticate a witness’s signature to ensure legal validity. Notary Public A person legally empowered to witness and certify the validity of documents and to take affidavits and depositions. Note A signed document that acknowledges a debt and shows the borrower is obligated to pay it. Notes Payable Money owed to another based on a promissory note and that is due to be paid. Notes Receivable Money owed from another based on a promissory note and that is due to be paid. Not-for-profit corporation A corporation formed under state law that exists for a socially worthwhile purpose. Profits are not distributed but retained and used for corporate purposes. May be tax-exempt. Also referred to as nonprofit. Not-for-profit corporation A corporation formed under state law that exists for a socially worthwhile purpose. Profits are not distributed but retained and used for corporate purposes. May be tax-exempt. Also referred to as non-profit. Nuncupative An oral will, usually made during a person’s last illness and later reduced to writing by another. No longer valid in most states. Obituary A written statement regarding a person’s death, usually in a newspaper. Officers Manage the daily operations of a corporation. Generally consists of a president, vice president, secretary, and treasurer. Appointed by the board of directors. Officers Manage the daily operations of a corporation. Generally consist of a president, vice-president, secretary, and treasurer. Appointed by the board of directors. Open-end mortgage A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan. See also closed-end mortgage. Operating margin Net sales divided by gross sales. The actual profit on goods sold, before deductions for expenses. Operating statement Financial statement that shows the income and expenses for a business. Also referred to as income statement or profit and loss statement. Origination fee The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points. Outstanding shares Shares of stock in a corporation that have been authorized by the board of directors of a corporation and that have also been sold to a shareholder and are currently held by a shareholder. Owner‚ has equity The value of an owner’s share in a business. Also referred to as capital. P&I Abbreviation for principal and interest. Paid-in-capital The amount of actual money that shareholders of a corporation have paid to the corporation for the shares of stock in the corporation. Pain and suffering payments The amount of money awarded in a personal injury lawsuit to cover the amount of pain and suffering that the plaintiff is determined to have suffered because of the injury. Par value The face value assigned to shares of stock. Par value stock must be sold for at least the stated value, but can be sold for more than the par value. Par value The face value assigned to shares of stock. Par-value stock must be sold for at least the stated value, but can be sold for more than the par value. Partnership A contract between two or more competent persons for joining together their money, goods, labor, or skill, or any or all of them for the purpose of carrying on a legal trade, business, or adventure. Partnership A relationship between two or more persons who join together to carry on a trade or business. Partnership An unincorporated business entity that is owed by two or more persons. Pass Under Distributed under the terms of a will or clause. Payable-on-death Account An account, generally a bank account, for which a beneficiary is chosen who will receive the proceeds of the account upon the death of the primary account holder. See bank trust account or Totten trust. Payee Person or business to whom a payment is made. Payment cap See cap. Payor Person or business that makes a payment. Pension benefits Benefits that a person receives or will receive upon retirement. Generally received from some type of pension fund. Pension Plan Any plan under which an employee will receive any benefits after the end of his or her employment. Per Capita Equally; share and share alike. For example Per Stirpes To share by representation. For example Perpetual duration Existence of a corporation forever. Perpetual duration The ability for a corporation to have a continuing existence beyond the lives of its founding shareholders. Personal injury causes of action The right to file a suit and claim a right to compensation for personal injuries that may have occurred. Personal property All business property other than land and the buildings that are attached to the land. Personal Property All property, either intangible or tangible, that is not real estate. See also real estate. Personal Property Movable property, as opposed to real estate property. Personal Representative A person who is appointed to administer a deceased’s estate. Modern usage that replaces Executor and/or Administrator. Petty cash fund A cash fund. Considered part of cash on hand. Petty cash register The sheet for recording petty cash transactions. Petty cash Cash that a business has on hand for payment of minor expenses when use of a business check is not convenient. Not to be used for handling sales revenue. Physical custody The right to have the child live with the custodial parent. Physical inventory The actual process of counting and valuing the inventory on hand at the end of an accounting period. Piercing the corporate veil A legal decision that allows a court to ignore the corporate entity and reach the assets of the shareholders, directors, or officers. Piercing the corporate veil A legal decision that allows a court to ignore the corporate entity and reach the assets of the shareholders, directors, or officers. PITI Abbreviation for principal, interest, taxes and insurance. Plant assets Long-term assets of a business. Those business assets that are subject to depreciation (other than land). Points Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point. Possessory lien A right to seize and sell property that attaches to the property by law, such as a moving company’s right to sell property that it has moved and which has not been paid for. Possessory non-purchase money debt A debt that is incurred other than to purchase the collateral for the debt, and for which the creditor obtains possession of the collateral, such as a loan by a pawnshop for a pawned item. Posthumous Child A child born after the father’s death. Posting In double-entry accounting, the process of transferring data from journals to ledgers. Pour-over Will A will under which a trust is the main beneficiary. Predeceased Died before. Preemptive rights A shareholder right that allows shareholders the opportunity to maintain their percentage of ownership of the corporation in the event that additional shares are offered for sale. Preemptive rights A shareholder right that allows shareholders the opportunity to maintain their percentage of ownership of the corporation in the event that additional shares are offered for sale. Preferred stock Generally, stock that provides the shareholder with a preferential payment of dividends, but does not carry voting rights. Preferred stock Generally, stock that provides the shareholder with a preferential payment of dividends, but does not carry voting rights. Pre-paid expenses Expenses that are paid for before they are used (for example Pre-qualification Tentative establishment of a borrower’s qualification for a mortgage loan amount of a specific range, based on the borrower’s assets, debts, and income. Pretermitted Child A child who is left nothing in a parent’s will and there is no intent shown to disinherit. Primary caretaker The parent who provides the majority of the day-to-day care for a minor child. Primary parental responsibility Another name for child custody. Prime rate The interest rate commercial banks charge their most creditworthy customers. Principal The amount of the entire mortgage loan, not counting interest. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes. Priority claims Those claims for unsecured debts that, by law, are to be paid off in a bankruptcy before any other unsecured debts are paid. The most common priority claim is for the payment of taxes. priority debts by law.
Private mortgage insurance (PMI) See mortgage insurance. Probate The court proceeding to determine the validity of a will and, in general, the administration of the property that passes under the will. Profit and loss statement Financial statement that shows the income and expenses for a business. Also referred to as an income statement or operating statement. Promissory Note A written promise to pay or repay a specified sum of money at a stated time or on demand. Proof of Claim by Mail A written statement describing why a debtor owes a creditor money. There is an official form for this. Proof of Service An official statement under oath that a person has delivered to (served) another a specific legal document. Property appraisal See appraisal. Property tax The amount which the state and/or locality assesses as a tax on a piece of property. Proprietorship See Sole Proprietorship. Prorate To proportionally divide amounts owed by the buyer and the seller at closing. Proved To have determined whether or not the document presented is actually the deceased’s will. Provision A stipulation or qualification, especially a clause in a document or agreement. Proxy A written shareholder authorization to vote shares on behalf of another. Directors may never vote by proxy (except in some close corporations). Proxy A written shareholder authorization to vote shares on behalf of another. Directors may never vote by proxy (except in some close corporations). Publication For a will, the statement by the testator that the document that is being signed is his or her will. Purchase money debt A debt that is incurred to purchase the property which is the collateral for the debt. Qualification As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower’s credit history, employment history, assets, debts and income. Quasi-community property Property the spouses may have acquired before they moved to a particular state that would have been community property if they had lived in that state when they acquired it. Quorum The required number of persons necessary to officially conduct business at a meeting. Generally, a majority of the shareholders or directors constitutes a quorum. Quorum The required number of persons necessary to officially conduct business at a meeting. Generally, a majority of the shareholders or directors constitutes a quorum. Rate cap See cap. Reaffirmation of a debt An agreement by a debtor to pay off a debt, regardless of bankruptcy. Must be approved by both the creditor and the bankruptcy court. A reaffirmed debt is not eliminated by bankruptcy, even if the debt was dischargeable. Generally done for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession. Real Estate/Real Property Land and that which is attached permanently to it, as opposed to personal property. Real estate All land and any items that are permanently attached to the land, such as buildings. Real property Land and any buildings or improvements that are attached to the land. Reconciliation The process of bringing a bank statement into agreement with the business check register. Record book The corporate record book provides a written and official tally of the ownership of all of the outstanding shares of stock in the corporation. Recovery period Specific time period for dividing up the cost into proportionate amounts. Redemption of property In bankruptcy, a debtor may purchase personal property that is subject to a creditor’s lien by payment of the market value of the property. Registered agent The person designated in the Articles of Incorporation who will be available to receive service of process (summons, subpoena, etc.) on behalf of the corporation. A corporation must always have a registered agent. Registered agent The person designated in the Articles of Incorporation who will be available to receive service of process on behalf of the corporation. A corporation must always have a registered agent. Registered office The actual physical location of the registered agent. Need not be the actual principal place of business of the corporation. Registered office The actual physical location of the registered agent. Need not be the actual principal place of business of the corporation. Relative A person who is related by blood or marriage to another. Reorganization bankruptcy A Chapter 11 bankruptcy under which a business attempts to reorganize its affairs in order to satisfy its debt obligations. Repossession The taking, by a creditor of a defaulted-upon loan, of the collateral for the loan. Residence The place where a person lives. (Generally, same as domicile.) Residuary Clause A clause in a will or trust that designates a beneficiary of the residuary of an estate. Residuary The remainder of an estate after all debts, taxes, and gifts have been distributed. Residue The remainder of a testator’s estate after all claims, debts, and bequests are satisfied. Resolution A formal decision that has been adopted by either the shareholders or the board of directors of a corporation. Resolutions A formal decision that has been adopted by either the shareholders or the board of directors of a corporation. RESPA Abbreviation for the Real Estate Settlement Procedures Act, which allows consumers to review settlement costs at application and once again prior to closing. Retail price The price for which a product is sold to the public. Retained capital Corporation owner’s equity. See also capital surplus. Retained earnings In a corporation, the portion of the annual profits of a business that are kept and reinvested in the business, rather than paid to shareholders in the form of dividends. Retirement benefits Those benefits that are paid to persons by reason of their retirement from a job or by virtue of their employment for a certain number of years. Revenue Income that a business brings in from the sale of goods or services or from investments. Reverse annuity mortgage A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower’s equity in the home is used as security for the loan. Revocable Trust Another name for Living Trust. Upon death, a Living Trust becomes irrevocable and can no longer be changed or altered in any way. In general, however, any type of trust that can be revoked by the grantor. Revocation The annulment of a will, which renders it invalid. Accomplished either by complete destruction of the original will or by executing a later will that revokes the earlier one. Revoke To void or annul by withdrawing, or reversing. To entirely revoke a will, it must be physically destroyed or otherwise irrevocably damaged. RHCDS Rural Housing and Community Service. Right of first refusal Purchasing a property under conditions and terms made by another buyer and accepted by the seller. Right of rescission When a borrower’s principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan. Right of Survivorship The right of a joint owner of property to automatically obtain ownership over another deceased owner’s share of the property. Generally true in a joint tenancy or a tenancy-by-the-entireties. Right of survivorship The right of joint owners of a piece of property to autonmatically be given the other’s share of the property upon the death of the other owner. Generally, this right must be specifically stated on any documents of title for it to apply. For example Rural Housing and Community Development Service A federal agency that administers mortgage loans for buyers in rural areas. Salary Fixed weekly, monthly, or annual compensation for an employee. Sales income Revenue derived from selling a product of some type Sales Money brought into a business from the sale of goods or services. Salvage value The value of an asset after it has been fully depreciated. S-corporation A specific IRS designation that allows a corporation to be taxed siminlarly to a partnership, yet retain limited liability for its shareholders. S-corporation A type of business corporation in which all of the expenses and profits are passed through to its shareholders to be accounted for at tax time individually in the manner of partnerships. A specific IRS designation that allows a corporation to be taxed similarly to a partnership, yet retain limited liability for its shareholders. Second mortgage A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term. Secondary market A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers of mortgages from the primary lenders and sell them to other investors. Secured claim Any mortgage, deed of trust, loan, lien, or other claim against a property, that is in writing and for which the property acts as collateral. Secured debts Debts for which the creditors have some form of security for their repayment, such as collateral or a lien. Security interest A creditor’s right to possess property held as collateral, upon a debtor’s default on a loan. Self-Proving Affidavit A document that may be completed by witnesses attesting to the signing of a will by which they affirm that they did indeed witness the signing. This affidavit may then be used later in a probate proceeding to prove the signing without the necessity of calling the witnesses to testify in person at the probate court. Separate maintenance A lawsuit for support in a situation where the spouses live separate and apart but are not presently pursuing a divorce or dissolution. (Same as legal separation.) Separate property Property considered to be owned individually by one spouse and not subject to division upon divorce in most states. Separate property genernally consists of property acquired prior to a marriage and property acquired by inndividual gift or inheritance either before or during a marriage. (See marital propnerty, community property, and non-marital property.) Separate Property The property of a spouse in a community property or common-law state that is considered the solely-owned property of that spouse, generally property that is solely owned prior to the marriage and any property that is obtained by gift or inheritance during the marriage. Separation agreement See Marital Settlement Agreement. Service income Income derived from performing a service for someone. Service of process Summons or subpoena. Service of process To accept subpoenas or summonses for a corporation. Servicing The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan. Setoff The application by a creditor of other assets of a debtor to lessen the amount of debt, such as the application of a debtor’s bank account balance to a pay off a defaulted loan. Settlement agreement The written version of a settlement that resolves cerntain issues. It is generally a valid contract. Settlement costs See closing costs. Settlor See Grantor. Shared Property The property of a spouse in a community property or common-law state that is considered property of both spouses jointly. In community property states, this would be all property that is not separate property. In common-law property states, this would be all property that is not separate property and which is actually held in some form of joint ownership, such as tenants-in-common or as a joint tenancy. Shareholder’s equity In a corporation, the owner’s equity of a business divided by the number of outstanding shares. Shareholders Own issued stock of a corporation and, therefore, own an interest in the corporation. They elect the board of directors and vote on major corporate issues. Shareholders Owners of issued stock of a corporation and, therefore, owners of an interest in the corporation. They elect the board of directors and vote on major corporate issues. Short-term loans payable Money due on a loan within one year. Short-term notes payable Money due within one year. Sibling A brother or sister. Signature One’s name as written by oneself. The act of signing one’s name. Signing To affix one’s signature to. Single-entry accounting A business recordkeeping system that generally tracks only income and expense accounts. Used generally by small businesses, it is much easier to use and understand than double-entry accounting. Sole custody A form of child custody in which one parent is given both physical custody of the child and the right to make all of the major decisions regarding the child’s upbringing. Generally, the other parent is awarded reasonable visitation rights. Sole proprietorship A business or trade which is carried on by a single owner, who has chosen not to operate the business as a limited liability company or a corporation. Sole Proprietorship A business that is owned by one owner and is not a corporation or limited liability company. Sole proprietorship An unincorporated business entity in which one person owns the entire company. Sound Mind A legal term that refers to the testator’s ability to understand what gifts you are making and who your chosen beneficiaries are. Split custody A form of child custody in which the actual time of physical custody is split between the parents, with both retaining the rights to participate in decisions regarding the child. Also called divided or alternating custody. Sometimes referred to as joint physical custody. (See joint custody and sole custody.) Spousal support See alimony or maintenance. Spouse’s Right of Election Surviving spouse has a right to a certain share of the deceased spouse’s estate. This right is regardless of any provisions in the will of the deceased spouse that may give the surviving spouse less than this statutory or community property share. Occurs in all states. Spouse’s Share See statutory share. Spouse A marriage partner; a husband or wife. Statutory Share In common-law states, that portion of a person’s property that a spouse is entitled to by law, regardless of any provisions in a will. In community property states, a surviving spouse receives half of all of the community property, regardless of any provisions in a will. Stock transfer book The ledger book (or sheets) in which the registered owners of shares in the corporation are recorded. Stock transfer book The ledger book (or sheets) in which the registered owners of shares in the corporation are recorded. Stock Shares of ownership in a corporation, usually represented by an actual certificate of stock ownership or stock certificate. Straight-line depreciation Spreads the deductible amount equally over the recovery period. Successor Trustee The person who is chosen to manage and distribute trust assets upon either the incapacitation or death of the original trustee of the trust. Supplemental Will Will used to supplement a living trust. Not a pour-over will. Supplies Materials used in conducting the day-to-day affairs of a business (as opposed to raw materials used in manufacturing). Survey A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc. Surviving To outlive; to outlast; as, to survive a person or an event. Survivorship Clause A clause in a trust or will which provides that a beneficiary must outlive the decedent by a certain period of time in order to be considered a rightful beneficiary. Tangible personal property Property not attached to land that you can hold and touch (for example Tangible property Property that has existence, that may be touched. See also intangible property. Tax deed A written document conveying title to property repossessed by the government due to default on tax payments. Tax savings The amount of money that the homeowner is not required to pay the government in taxes because he or she owns a home. Taxes payable Total of all taxes due but not yet paid. Taxes As a part of PITI, the amount of the monthly mortgage payment which does not include the principal, interest, and insurance. Tenancy by the entireties A form of joint ownership of property by wives and husbands only (only in certain states). Similar to joint tenancy with a right of survivorship, but for married couples only. Tenancy Joint tenancy Tenancy-by-the-entireties A form of joint ownership in which two married persons hold title to a piece of property in equal shares and each has an automatic right to the other’s share upon death. Tenancy-by-the-entirety A form of joint tenancy that is only allowed for husbands and wives in certain states. Tenancy-in-common A form of joint ownership in which two or more persons own particular shares of a piece of property. The shares need not be equal and the persons have no legal right to any shares of another upon death. Tenancy-in-common A form of joint ownership under which each owner owns a certain specific share of the property (perhaps one-half or another fraction). Upon the death of a co-owner, the deceased co-owner’s share is passed to the heirs or beneficiaries of that co-owner, not to the other surviving co-owner(s). Compare to joint tenancy. Testamentary The expression of intent to dispose of property by will. Testator/Testratrix A male or female who makes a will. Title insurance A policy issued by a title insurance company insuring the purchaser against any errors in the title search. The cost of title insurance may be paid for by the buyer, the seller or both. Title A formal document establishing ownership of property. Tools Those items that are necessary to perform a certain type of work. For bankruptcy, any items that are used in a trade or business may generally qualify as a tool, including computers, motor vehicles, etc. Totten Trust A type of payable-on-death account at a financial institution that allows a person to name a beneficiary. Similar to a joint account, but the joint co-owner has no rights until the death of the creator of the account. Also known as a bank trust account. Transfer Documents Any documents that may be necessary to formalize the change in ownership of property, such as a deed in the case of real estate, or a title in the case of a motor vehicle. Treasury shares Shares of stock that were issued, but later reacquired by the corporation and not canceled. May be issued as dividends to shareholders. They are issued but not outstanding for terms of voting and quorums. Treasury shares Shares of stock that were issued, but later reacquired by the corporation and not canceled. May be issued as dividends to shareholders. They are issued, but not outstanding for terms of voting and quorums. Trial balance In double-entry accounting, a listing of all the balances in the general ledger in order to show that debits and credits balance. Trust deed See deed of trust. Trust Estate The assets that have been transferred into a trust by a grantor. Trust In general, an arrangement created by one party, the grantor, under which property is held by another party, the trustee, for the benefit of yet another party, the beneficiary. Under a Living Trust, one person may initially be all three of these parties. Trustee A person appointed to administer a trust. In a Living Trust, the trustee and the grantor may be the same person. Truth In Lending Act The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application. Uncontested Divorce A divorce proceeding in which there is no dispute as to any of the legal issues involved. The lack of dispute may be because the other spouse is missing, refuses to participate in the proceeding, or agrees with the other spouse on all issues. Underwriter A professional who approves or denies a loan to a potential homebuyer based on the homebuyer’s credit history, employment history, assets, debts and other factors such as loan guidelines. Unexpired lease A lease that is still in force. Uniform Settlement Statement A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller. Unliquidated debt A known, undisputed debt that has not been the subject of a court action. Unsecured nonpriority debts Those debts that have no collateral pledged and which are not Unsecured priority debts See priority claims. Utility costs Periodic housing costs for water, electricity, natural gas, heating oil, etc. VA loan See Veterans Administration. Vacant Land Real estate on which there are no buildings present. Vacation home See secondary residence. Vacation House Real estate that is owned for the purpose of being used for the owner’s vacations. Validity The quality of having legal force or effectiveness. Variable rate mortgage (VRM) See adjustable rate mortgage. Veterans Administration (VA) The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount. Visitation The right of a parent who does not have physical custody to visit a child or have a child visit him or her. Voiding To make void or of no validity; invalidate. Voluntary bankruptcy A bankruptcy that is voluntarily filed by the debtor in an effort to obtain relief from debts. Wages payable Total of all wages and salaries due to employees but not yet paid out. Wages Hourly compensation paid to employees, as opposed to salary. Wages The amount of money paid on a regular basis for work. Waiver A written document that relinquishes a person’s rights. Walk-through An inspection of a property by the prospective buyer prior to closing on a mortgage. Warranty deed A document protecting a homebuyer against any and all claims to the property. Wholesale price The cost to a business of goods purchased for later sale to the public. Will A formally-signed and witnessed document by which a person makes a disposition of his or her property to take effect upon his or her death. Witness A person who is present and sees another person sign a document. Working capital The money available for immediate business operations. Current assets minus current liabilities. Wrongful death benefits The amount of money awarded in a wrongful death lawsuit to compensate the plaintiff for having to live without the deceased person. Yield The rate of earnings from an investment. Zoning The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.
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