Glossary of Closing Terminology

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Closing Disclosure

A document required by federal law that discloses the cost of the loan, the annual percentage rate, whether there is a prepayment penalty, and the number and amount of all payments necessary to repay the loan.

Contract

A legally binding agreement between two or more parties which creates or modifies a legal relationship. The formation of a contract is generally based upon offer and acceptance.

Deed to Secure Debt or Security Deed

A legal document that pledges property to a lender as security (collateral) for the repayment of the loan. This document is recorded at the county courthouse and puts the world on notice that there is a lien on the property.

Earnest Money

A sum of money paid by a buyer at the time of entering a contract to indicate the intention and ability of the buyer to carry out the contract (usually applied towards the purchase price.)

Foreclosure

A procedure by which the holder of a mortgage or security interest in land providing for the performance of a duty or the payment of a debt sells the property upon the failure of the debtor to pay the mortgage debt and, thereby, terminates the property owner’s rights in the property.

Good Funds

Pursuant to Georgia law, a Closing attorney cannot receive or disburse settlement proceeds unless such proceeds are “Collected” at the time of Closing. “Collected” or “Good Funds” can consist of wire transfers or funds drawn on a Georgia Attorney’s trust account. These are the only forms of payment a Closing Attorney can accept at Closing for amounts in excess of $5,000.00. Funds due at Closing in an amount less than $5,000.00 may be paid by personal check.

Hazard Insurance

A policy insuring individuals against loss to personal dwellings or the contents. Commonly referred to as Homeowners Insurance.

Homeowners Association

An organization responsible for the maintenance and upkeep of common areas, the enforcement of any covenants or restrictions, and/or the collection of dues in a subdivision or condominium complex.

Homestead Exemption

Homestead exemption is a partial exemption from property taxes which can be claimed by residents of the State of Georgia on their primary residence. Homestead exemption results in a reduction in the property taxes assessed against that property. To be eligible for Homestead Exemption in a given year, the owner must have owned and occupied that property on January 1st of that year. Homestead exemption may be filed any time after the Closing date up until April 1st of the following year by taking a copy of your settlement statement and deed to the county Tax Assessors office.

Impound/Escrow Funds

A sum of money that the lender requires to be collected at Closing, and monthly thereafter, for payment of taxes and insurance to be disbursed by the lender when bills become due and payable.

Intangible Tax

A Georgia tax imposed upon long-term indebtedness secured by property. The tax rate is approximately $3 per every $1,000.00 of the loan amount.

Note

Provides information about your loan (term of loan, payments, interest rate, prepayment penalties, etc.). It is this document that creates the obligation for the repayment of the loan debt.

Owner’s Affidavit

This document states that the owner of a particular piece of property knows of no circumstance, such as encroachments, liens, judgments, or other problematic issues, which would prevent the conveyance of clear title to that property.

Power of Attorney

A document that gives another person legal authority to act on your behalf. A Power of Attorney may be “general”, which gives your attorney-in-fact extensive powers over your affairs, or it may be “limited” or “special”, giving your attorney-in-fact permission to handle a specifically defined task.

Prepaid Interest

The interest paid at Closing on a new loan covering the time period between the loan Closing date and the end of the Closing month.

Private Mortgage Insurance

Often referred to as PMI, it is insurance that reimburses a mortgage lender if the buyer defaults on the loan and the foreclosure sale price is less than the amount owed the lender (the mortgage plus the cost of the sale). A homebuyer who pays less than a 20% down payment on their home, may be required by their lender to purchase PMI.

Pro Rate

The act of adjusting, dividing or prorating property taxes, interest, insurance premiums, rental income, homeowner’s association dues, etc., between Buyer and Seller proportionately to time of use or the date of Closing.

Quitclaim Deed

A deed that transfers whatever ownership interest (good, bad or none) the transferor has in a particular property, however, the deed contains no warranty as to the quality of the title being transferred.

Real Estate Tax

Tax levied by local taxing authority against the ownership of real estate.

Settlement Statement (HUD-1)

A statement prepared by a Closing Attorney, giving a complete breakdown of costs involved in a real estate transaction, and the total funds due from or to a party at Closing.

Short Sale

The sale of a piece of property for less than the amount of the outstanding liens on the property. “Short” refers to the lienholder’s agreement to accept a payoff which is short (i.e. less than the full amount owed) in exchange for the release of the lien.

Subordination Agreement

An agreement by which one holding an otherwise senior lien or other real estate interest consents to a reduction in priority vis-à-vis another person or entity holding an interest in the same real estate.

Survey

The process by which a parcel of land is accurately measured and a drawing produced to establish the existing boundary lines, any setback lines, power, utility or other easements and their specific location. A survey is useful for identifying any encroachments or issues such as overlapping driveways, retaining walls, boundary disputes or other potential problems.

Title Insurance

Insurance issued by a title insurance company that protects a Mortgage Lender and/or a property owner against loss if it is later discovered that the title to the property is imperfect.

Title Search

An examination of the deed records in the county in which the property is located to determine whether the record title to the property is good, or whether there are defects in the title.

Transfer Tax

A Georgia tax imposed upon the transfer of property at the rate of approximately $1 per $1000 of purchase price.

Waiver of Borrowers’ Rights

A document that puts the borrower on notice that in the State of Georgia, in the event of foreclosure, prior to the foreclosure there is not a court hearing. Georgia is a “non-judicial” foreclosure State.

Warranty Deed

Typically used to transfer title from the Seller to the Buyer at Closing it is recorded at the county courthouse by the Closing Attorney after the Closing. This type of deed contains a warranty of the validity of the title being transferred. Due to frequent delays in the county recorders’ offices in the State of Georgia, it may take several months for you to receive the original Warranty Deed after the Closing.