Reference
Mortgage Note Glossary
The language of note investing in plain English. These 139 definitions cover the terms you'll see when you sell a mortgage note or read a purchase offer.
A
- Acceleration Clause A note provision letting the holder demand the entire balance at once upon default — the legal trigger that makes foreclosure possible. Loan Terms
- Accrued Interest Interest that has been earned but not yet paid. It is added to a payoff and prorated between buyer and seller at a note sale closing. Loan Terms
- All-Inclusive Trust Deed (AITD) The deed-of-trust version of a wraparound loan — a single instrument that 'wraps' an existing underlying loan that stays in place. Note Types
- Allonge A separate sheet attached to a promissory note used to record an endorsement transferring the note when there is no room left on the note itself. Legal Instruments
- Amortization The process of paying off a loan through scheduled payments that are split between interest and principal over time. Loan Terms
- Annuity A series of fixed payments over time; the term also describes the present-value math used to price a mortgage note's payment stream. Cash Flow Notes
- Anti-Deficiency Statute A state law that limits or bars a lender from pursuing a borrower for the shortfall when a foreclosure sale doesn't cover the full debt. Foreclosure
- Assignment of Mortgage The recorded document that transfers the mortgage or deed of trust (the lien) from one holder to another when a note is sold. Legal Instruments
B
- Balloon Payment A large lump-sum payment due at the end of a note's term, after a series of smaller payments that did not fully pay off the loan. Loan Terms
- Balloon Risk The risk that a borrower cannot pay or refinance a balloon payment at maturity — a key factor a note buyer prices into any note with a balloon. Note Pricing
- Beneficiary In a deed of trust, the lender — the party entitled to receive the loan payments and to benefit from the security interest held by the trustee. Note Parties
- Blank Endorsement An endorsement that is signed without naming a transferee, turning the promissory note into a bearer instrument that whoever holds it can enforce. Note Transfer
- Bond for Deed Louisiana's term for a contract for deed — an installment sale where the seller delivers the deed only after the buyer completes payments. Seller Finance
- BPO (Broker Price Opinion) A real estate broker's estimate of a property's value — a faster, cheaper alternative to a full appraisal that note buyers use to confirm collateral value. Due Diligence
- Business Note A note created when a business is sold with seller financing; valued on cash flow and any collateral, often riskier than a real-estate note. Cash Flow Notes
C
- Cash Flow Note Any income stream that can be bought and sold — including mortgage notes — valued on the size, timing, and reliability of its payments. Cash Flow Notes
- Chain of Title The unbroken sequence of recorded transfers showing how ownership of a property — and of the mortgage lien — passed from one party to the next. Due Diligence
- Charge-Off An accounting move where a lender writes a delinquent debt off its books as a loss — the debt still exists and can be sold or collected. Note Types
- Closing (Note Sale Closing) The final step where the note is transferred and the seller is paid — funds and documents change hands through a neutral escrow or title company. Transaction
- Cloud on Title Any claim, lien, encumbrance, or defect that casts doubt on who truly owns a property — making the title unmarketable until it is resolved. Title & Deeds
- Co-Maker A second party who signs a promissory note as a primary obligor, sharing full responsibility for repaying the debt alongside the main borrower. Note Parties
- Collateral File The package of original loan documents — note, security instrument, assignments, title policy — that proves ownership and the right to enforce a mortgage note. Due Diligence
- Commercial Mortgage Note A note secured by income-producing or commercial property; valued on the asset and its cash flow, and exempt from consumer-mortgage rules. Note Types
- Comparable Sales (Comps) Recent sales of similar nearby properties used to estimate a property's value — the foundation of the valuation behind a note. Due Diligence
- Contract for Deed A seller-financing arrangement in which the seller keeps legal title until the buyer finishes paying, instead of giving the buyer a deed up front. Seller Finance
D
- Deed in Lieu of Foreclosure A voluntary transfer of the property deed from borrower to lender to satisfy the debt and avoid foreclosure — a fast workout exit for a defaulted note. Default & Workout
- Deed of Trust A security instrument used instead of a mortgage in many states, involving a trustee and a power-of-sale clause that enables faster non-judicial foreclosure. Legal Instruments
- Default The borrower's failure to meet the note's obligations — usually missed payments — which triggers the holder's enforcement rights. Default & Workout
- Deficiency Judgment A court judgment against a borrower for the shortfall when a foreclosure sale doesn't cover the debt — available in some states, barred in others. Default & Workout
- Demand Note A promissory note with no fixed maturity date that the holder can call due and payable at any time, simply by demanding repayment. Note Types
- Discount Rate The rate of return used to convert a note's future payments into today's value — higher rates mean lower prices. Note Pricing
- Documentary Stamp Tax A state tax on documents that transfer real estate or evidence debt — notably deeds, promissory notes, and mortgages — best known in Florida and several other states. Closing & Taxes
- Dodd-Frank Act The 2010 financial-reform law whose mortgage provisions — especially ability-to-repay — shape how owner-financed notes on homes must be originated. Compliance
- Down Payment The upfront cash a buyer pays in a seller-financed sale; a larger down payment means more borrower equity and a more valuable, sellable note. Note Pricing
- Due Diligence The investigation a note buyer performs before closing — verifying the documents, title, collateral value, and payment history that support the offer. Due Diligence
- Due-on-Sale Clause A mortgage provision letting the lender demand full repayment if the property is sold or transferred without the lender's consent. Loan Terms
E
- Easement A legal right to use a portion of someone else's property for a specific purpose — such as utilities, access, or drainage — without owning it. Title & Deeds
- Encumbrance Any claim, lien, or right held by a party other than the owner that affects a property's title, value, or use — such as a mortgage, lien, easement, or restriction. Title & Deeds
- Endorsement The signature (and any accompanying instruction) by which the holder of a promissory note transfers it to another party, evidencing the chain of ownership. Note Transfer
- Equity The portion of a property's value above the debt against it — the cushion that protects a note holder and drives note value. Note Pricing
- Equity of Redemption A defaulting borrower's right to reclaim the property by paying the full debt plus costs before the foreclosure sale is completed. Foreclosure
- Escrow A neutral third-party arrangement that holds funds or documents — used both at a note closing and, separately, to collect taxes and insurance with each payment. Note Servicing
- Estoppel Letter (Estoppel Certificate) A signed statement — often from the borrower — confirming the loan's current balance, rate, payment, and that no disputes exist, used to verify a note before purchase. Due Diligence
- Exit Strategy The planned way a note holder will eventually get their money out — the lens a note buyer uses to value any note, especially a distressed one. Note Pricing
F
- Face Value (Par Value) The principal amount stated on the note. Notes rarely sell at face value — they trade at a discount so the buyer can earn a yield. Note Pricing
- Factoring Selling a future receivable or payment stream for immediate cash at a discount — the same principle that underlies buying a mortgage note. Cash Flow Notes
- Fair Market Value (FMV) The price a property would sell for between a willing buyer and seller; it anchors the equity cushion behind a note and the math in foreclosure. Due Diligence
- First Lien Position The senior claim against a property that gets paid first from foreclosure proceeds — the safest, most valuable position for a note holder. Note Pricing
- Forbearance A temporary agreement to pause or reduce payments during borrower hardship, with the missed amounts repaid later — a workout that can lead to a re-performing note. Default & Workout
G
- Grace Period The window after a payment's due date during which it can be made without a late fee or default — a normal note term that affects how delinquency is measured. Loan Terms
- Grant Deed A deed — common in California and a few other states — in which the grantor makes limited warranties that they own the property and haven't already conveyed it or hidden encumbrances. Title & Deeds
- Guarantor A party who promises to pay a debt if the primary borrower fails to — providing a backup source of repayment without being the original obligor. Note Parties
H
- Holder The person in rightful possession of a promissory note who is entitled to enforce it — collect payments and, if secured, foreclose on default. Note Parties
- Holder in Due Course A buyer who takes a note in good faith, for value, without notice of defects — gaining strong protection against many borrower defenses. Legal Instruments
- Hypothecation Pledging a note (or other asset) as collateral for a loan without selling it — a way to raise cash from a note while keeping ownership. Note Financing
I
- Impound Account Another name for an escrow account — funds collected with each payment to pay the borrower's property taxes and insurance. Note Servicing
- Installment Sale A sale where the seller receives payments over more than one tax year; selling the resulting note has tax timing implications worth understanding. Seller Finance
- Interest-Only Note A note where payments cover only interest for a period, leaving the full principal due later — often as a balloon. Note Types
- Internal Rate of Return (IRR) The annualized return that makes the present value of a note's cash flows equal its purchase price — the general way investors measure note returns. Note Pricing
- Investment-to-Value (ITV) The price a note buyer pays divided by the current value of the property securing the note — a key measure of downside protection. Note Pricing
J
- Judgment Lien A lien that attaches to a debtor's property after a court awards a money judgment against them, allowing the creditor to be paid from the property's value. Liens & Priority
- Junior Lien (Second Lien) A lien that ranks behind a senior lien in priority, paid only after the first lien is satisfied — riskier, so it sells at a deeper discount. Note Pricing
L
- Land Contract A common name for an installment sale where the seller finances the purchase and retains title until paid in full — synonymous with a contract for deed. Seller Finance
- Late Fee A charge for a payment made after the grace period; a pattern of late fees signals borrower stress that affects a note's value. Loan Terms
- Lease Option A lease that gives the tenant the right (but not the obligation) to buy the property later at a set price — not a true sale, so no mortgage note exists yet. Seller Finance
- Lien Priority The order in which competing liens against a property are paid from a sale or foreclosure — generally determined by recording date, with key statutory exceptions. Liens & Priority
- Lis Pendens A recorded notice that a lawsuit affecting a property is pending — common in judicial foreclosures and a flag a note buyer checks in title. Default & Workout
- Loan Modification A permanent change to a loan's terms — rate, payment, or term — used to make payments affordable and turn a troubled loan back into a paying one. Default & Workout
- Loan-to-Value (LTV) The loan balance divided by the property's value — a core measure of how much equity protects a loan. Note Pricing
- Lost Note Affidavit A sworn statement used to substitute for a missing original promissory note; it adds risk and can reduce a note's value or complicate a sale. Due Diligence
M
- Maker The party who signs a promissory note and promises to repay the debt — in a real estate note, the borrower. Note Parties
- Marketable Title Title that is free from significant defects, liens, or doubts — clear enough that a reasonable, well-informed buyer or lender would accept it without hesitation. Title & Deeds
- Maturity Date The date on which a note's entire remaining balance is due and the loan must be fully repaid — including any balloon payment. Note Terms
- Mechanic's Lien A lien filed by a contractor, subcontractor, or supplier who provided labor or materials to improve a property but wasn't paid — securing their claim against the property itself. Liens & Priority
- Mortgage (Security Instrument) The security instrument that pledges real estate as collateral for a loan; in many states it requires judicial foreclosure, unlike a deed of trust. Legal Instruments
- Mortgagee The lender in a mortgage — the party that receives the mortgage lien and is entitled to repayment, with the right to foreclose if the borrower defaults. Note Parties
- Mortgagor The borrower in a mortgage — the party who pledges real estate as collateral and is obligated to repay the loan. Note Parties
N
- Negotiable Instrument A signed written promise or order to pay a fixed sum of money that can be freely transferred from one party to another, with the transferee gaining the right to enforce it. Legal Instruments
- Note Broker A middleman who markets a mortgage note to a network of funding sources and earns a fee on the sale, rather than buying the note with their own money. Industry Roles
- Note Buyer An individual or company that purchases mortgage notes and other privately held debt instruments for cash, becoming the new holder entitled to the payments. Industry Roles
- Note Pool A bundle of multiple notes bought or sold together; individual sellers usually sell a single whole note instead. Industry Roles
- Note Rate (Coupon Rate) The stated interest rate written into the promissory note — the rate the borrower pays, distinct from the yield a note buyer earns. Loan Terms
- Note Sale Agreement (Note Purchase Agreement) The contract that governs the sale of a mortgage note — setting the price, the documents to be delivered, representations, and closing terms. Transaction
- Note Servicer (Loan Servicer) A licensed company that collects payments, manages escrow, sends statements, and handles borrower communication on behalf of the note holder. Industry Roles
- Notice of Default (NOD) The formal recorded notice that starts the foreclosure clock, telling the borrower they are in default and must cure or face a sale. Default & Workout
- Novation Replacing an existing obligation or party to a contract with a new one, with all parties' consent — distinct from simply assigning a note. Legal Instruments
- NPL (Non-Performing Loan) A loan in default — typically 90+ days delinquent — valued on the property and likely recovery rather than on a payment stream. Note Types
O
- One-Action Rule A rule in some states requiring a secured lender to pursue a single action — foreclosure on the collateral — before, or instead of, suing the borrower personally on the debt. Foreclosure
- Owner Financing A sale in which the property seller acts as the lender, letting the buyer pay over time instead of getting a bank loan — creating a note the seller can later sell for cash. Seller Finance
P
- Partial Note Purchase Selling only a portion of your note's future payments for cash now, while keeping the rest of the note (and its remaining payments) for later. Selling Options
- Payee The party entitled to receive payments on a note — the note holder. When you sell your note, the buyer becomes the new payee. Industry Roles
- Payment History (Pay Record) The documented record of how a borrower has paid over time — the single strongest evidence of a performing note's reliability and value. Due Diligence
- Payor (Payer) The borrower — the party obligated to make payments on a note. The payor's profile and payment behavior heavily influence a note's value. Industry Roles
- Performing vs Non-Performing Note A performing note is one the borrower is paying on schedule; a non-performing note (NPN) is in default. The distinction drives how the note is valued. Note Types
- Power of Sale A clause in a deed of trust (or mortgage) that lets the property be sold on default without a lawsuit — enabling fast non-judicial foreclosure. Legal Instruments
- Prepayment Penalty A fee charged if a borrower pays off a loan early, compensating the holder for lost interest — restricted on many consumer mortgages. Loan Terms
- Present Value What a stream of future payments is worth in today's dollars — the core calculation behind every note offer. Note Pricing
- Promissory Note The written promise to repay a debt — the IOU that spells out the amount, interest rate, payment schedule, and terms of a loan. Legal Instruments
- Property Tax Lien A lien placed on real estate for unpaid property taxes — typically taking priority over all other liens, including a first mortgage. Liens & Priority
Q
- Quiet Title Action A lawsuit asking a court to declare the rightful owner of a property and eliminate competing claims — used to clear clouds on title that can't be resolved by agreement. Title & Deeds
- Quitclaim Deed A deed that transfers whatever interest the grantor has in a property — if any — with no warranties of title, used mainly to clear clouds or transfer between known parties. Title & Deeds
R
- Re-Performing Note (RPL) A loan that was non-performing but is now paying again, usually after a modification or workout — priced between a non-performing and a clean performing note. Note Types
- Recording Filing a document — like a mortgage, deed, or assignment — in the county land records to make it part of the public chain of title. Legal Instruments
- Recording Fee The charge a county or local government collects to record a real estate document — such as a deed, mortgage, or assignment — in the public land records. Closing & Taxes
- Recourse Whether a lender can pursue the borrower personally beyond the collateral — and, in note sales, whether the buyer can require the seller to buy a note back. Transaction
- Redemption Period (Right of Redemption) A post-foreclosure window in some states during which the former owner can reclaim the property by paying the debt — a risk note buyers must underwrite. Default & Workout
- Reinstatement Bringing a defaulted loan current by paying the overdue amount plus costs, stopping foreclosure and restoring the original payment schedule. Default & Workout
- Rent-to-Own A consumer-friendly label for lease-to-purchase arrangements; like a lease option, it is a rental with a buy-later right, not a sale that creates a note. Seller Finance
- REO (Real Estate Owned) Property a lender owns after an unsuccessful foreclosure auction — the end state when a non-performing note is converted into real estate. Default & Workout
- Residential Mortgage Note A note secured by 1-4 unit residential property — the most common and liquid type of private note bought and sold. Note Types
- RMLO (Residential Mortgage Loan Originator) A licensed professional who originates and underwrites owner-financed loans on residential property to keep them compliant with federal lending rules. Compliance
- RPL (Re-Performing Loan) — Term Usage The secondary-market abbreviation for a re-performing loan, often contrasted with NPL (non-performing) and PL (performing) when categorizing note pools. Note Types
S
- SAFE Act The federal law requiring mortgage loan originators to be licensed or registered, which shapes who can lawfully originate owner-financed home loans. Compliance
- Seasoning The length of time a note has been paid on schedule. More seasoning means a longer track record and usually a higher price. Note Pricing
- Secondary Mortgage Market The marketplace where existing mortgage notes are bought and sold after origination — the reason your note is a liquid, sellable asset. Industry Roles
- Secured Note A promissory note backed by collateral — most often real estate pledged through a mortgage or deed of trust — giving the holder property to seize if the borrower defaults. Note Types
- Seller Financing Another name for owner financing — the seller carries the loan for the buyer, creating a privately held note that can be sold to a note buyer. Seller Finance
- Senior Lien A lien with higher priority than others against the same property, paid before junior liens on default — the more secure position. Note Pricing
- Servicing Transfer The handoff of loan servicing from one servicer to another — required to be disclosed to the borrower when a note is sold. Note Servicing
- Short Sale A sale of the property for less than the loan balance, with the note holder's approval — a workout that avoids foreclosure. Default & Workout
- Simple vs. Compound Interest Simple interest is charged only on principal; compound interest is charged on principal plus accumulated interest. Most mortgage notes use simple interest. Loan Terms
- Special Warranty Deed A deed in which the grantor warrants title only against defects that arose during their own period of ownership — not the property's entire history. Title & Deeds
- Statutory Redemption A state-created right that lets a former owner buy back the property for a set period after the foreclosure sale — by paying the sale price plus costs and interest. Foreclosure
- Structured Settlement A stream of future payments from a legal settlement or insurance award; like notes, these payment streams can be sold for a lump sum at a discount. Cash Flow Notes
- Subject-To Buying a property 'subject to' the existing loan staying in place in the seller's name — a structure that complicates selling any note created on top of it. Seller Finance
- Subordination An agreement that changes lien priority, moving one lien behind another — directly affecting which lender gets paid first on default. Legal Instruments
- Surety A party who is primarily liable for another's debt — the creditor can pursue the surety directly, often without first exhausting remedies against the borrower. Note Parties
T
- Title Insurance A policy that protects against losses from title defects; a lender's/holder's policy protects the note's lien position. Due Diligence
- Title Search An examination of public records to confirm property ownership, the note's lien position, and any liens, judgments, or defects that affect value. Due Diligence
- Transfer Tax A tax imposed by a state, county, or city on the transfer of real estate, usually calculated as a percentage of the sale price and paid at closing. Closing & Taxes
- Trustee In a deed of trust, the neutral third party that holds legal title to the property as security and can conduct a non-judicial foreclosure sale on the lender's instruction. Note Parties
- Trustee Sale (Foreclosure Auction) The public auction that completes a non-judicial foreclosure under a deed of trust's power-of-sale clause — fast and central to recovery on a defaulted note. Default & Workout
- Trustor In a deed of trust, the borrower — the party who conveys title to a trustee as security for the loan and remains obligated to repay it. Note Parties
U
- UCC (Uniform Commercial Code) The body of commercial law that governs negotiable instruments like promissory notes and security interests in personal property. Legal Instruments
- Unpaid Principal Balance (UPB) The remaining principal owed on a mortgage note — the loan amount that still has to be paid back, not counting future interest. Note Pricing
- Unsecured Note A promissory note backed only by the borrower's promise to pay, with no collateral the holder can seize on default — making it riskier and worth far less than a secured note. Note Types
W
- Warranty Deed A deed in which the seller guarantees clear, marketable title and promises to defend the buyer against any title defects — the strongest form of ownership transfer. Title & Deeds
- Wraparound Mortgage A seller-financed loan that 'wraps' an existing underlying mortgage — the buyer pays the seller, who keeps paying the original lender. Note Types
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