The Terminology of Real Estate Law

As a layperson trying to navigate the legal world of real estate, a lot of times the vocabulary used is hard to understand.  Herein, I define some common legal terms and provide examples of the use of those legal terms that are commonly used in real estate law.  This should help one to better understand the verbiage that is being used in real estate transactions and litigation that you may become involved with.

Abstract of Title

Definition:  The written report on a title search which shows the history of every change of ownership and any claims against the property, such as easements, loans, deeds of trust, mortgages, liens, judgments, and real property taxes.

Example:  Homeowners will either have an abstract of title that an attorney will review and provide an attorney’s opinion on the condition of the title or, alternatively, a title insurance policy.  Title insurance policies are more prevalent in today’s world.

Condemnation

Definition:  Also known as eminent domain.  The legal process by which a governmental body exercises its right to acquire private property for public use(s).  Such use(s) include(s) roads, public buildings, drainage.

Example:  Typically, municipalities will make an offer to the homeowners and try to resolve the issue without filing a legal action for condemnation.  This is usually a last resort for those homeowners who will not voluntarily agree to the sale of their real property.

Conveyance

Definition:  A generic term for any written document which transfers real property or real property interests from one party to another.  A conveyance for real property in the State of Wisconsin must be executed by the individual transferring ownership of the real property and such signature must be notarized.  The conveyance of real property is known as a deed.

Example:  When municipalities purchase real property, they secure a warranty deed as part of the conveyance.

Deed

Definition:  The written document which transfers title (ownership) or an interest in real property to another person.

Example:  A conveyance of real property in the State of Wisconsin is a deed.

Easement

Definition:  The right to use the real property of another for a specific purpose.  The easement is itself a real property interest, but legal title to the underlying land is retained by the original owner for all other purposes.  Typical easements are for access to another property, for utility or sewer lines and entry to make repairs on a fence.

Example:  Municipalities may provide an easement for ingress and egress over their respective real property.

Foreclosure

Definition:  The system by which a party who has loaned money secured by a mortgage on real property or has an unpaid judgment, requires sale of the real property to recover the money due, unpaid interest, plus the costs of foreclosure, when the debtor fails to make payment.  The purpose of foreclosure is for the creditor to get paid and to clear the title of the real property from the various encumbrances that appear thereon so it can be sold with merchantable title by the party who ends up purchasing it at the sheriff’s sale.

Example:  A lender may commence foreclosure proceedings to collect on the amount due and to clear the title to the property from any encumbrances that have attached thereto.

Improvement

Definition:  Any permanent structure on real property, or any work on the property which increases its value.

Example:  The building of a structure and/or installation of landscaping on real property are considered improvements to real property.

Legal Description

Definition:  A written description of the real property location that is used in legal documents.  Typically, either a plat description or a metes and bounds description is used.

Example:  Municipalities that purchase real property will have a legal description of the real property.

Mortgage

Definition:  A document in which the owner pledges his/her/its title to real property to a lender as security for a loan described in a promissory note.

Example:  When the bank provides a purchaser of real property with a loan to purchase the real property the lender has the purchaser execute a security interest in the real property, known as a mortgage, which secures the debt against the real property.  A mortgage is typically recorded with the Register of Deeds in the county where the real property is located to make it public record.

Parcel

Definition:  A defined piece of real estate, usually resulting from the division of a large area of land. It can range in size from a small lot to a gigantic ranch.

Example:  Landowners may subdivide a large tract of land into smaller parcels of land that they sell to individual owners.

Personal Property

Definition:  Movable assets (i.e., things) which are not real property, money or investments

Example:  Personal property are things you can figuratively put your arms around and move.  Examples of personal property include but are not limited to cars, furniture and books.

Quit Claim Deed

Definition:  A real property deed which transfers (conveys) only that interest in the property in which the grantor has title. Commonly used in transfers of title between family members, divorcing spouses, or in other transactions between people well-known to each other.

Example:  One municipality may execute a quit claim deed transferring and legal ownership interest in to another municipality.

Real Property

Definition:  All land, structures, firmly attached and integrated equipment (such as light fixtures or a sump pump), anything growing on the land (i.e., Trees, landscaping), and all “interests” in the property, which may include the right to future ownership (remainder), right to occupy for a period of time (tenancy or life estate), the right to drill for oil, the right to get the property back (a reversion) if it is no longer used for its current purpose (such as use for a hospital, school or city hall), use of airspace (condominium) or an easement across another’s property.  Real property should be thought of as a group of rights like a bundle of sticks which can be divided.  It is distinguished from personal property which is made up of movable items.

Example:  When a municipality purchases real property, it purchases the land and anything that is physically attached to the land, like a furnace or water heater, or integrated to the land, like a garage door opener or a remote for an electric fireplace.      

Restrictive Covenant

Definition:  An agreement included in a deed to real property that the buyer (grantee) will be limited as to the future use of the property: no fence may be built on the property, except of dark wood and not more than six feet high; or certain architectural requirements for the improvements on the property (i.e., square footage requirement, restrictions on building materials, pitch for the roof of the house, types of materials that are required in the finish of the improvements (i.e., Stone or brick).

Example:  Restrictive covenants may require the purchaser to obtain approval from the architectural control committee of a homeowner’s association as to the building plans for the improvements the purchaser plans to construct on the real property.

Certified Survey Map

Definition:  A plat map used for the subdivision of land which must be approved by the municipality and county where the real property being subdivided is located and is then recorded with the Register of Deeds.

Example:  If a property owner desires to subdivide land into multiple parcels and sell off some of the other parcels, the county may require that the property owner have a certified survey map prepared of the original tract of land delineating the subdivision of the land, which was approved by the municipality and county and recorded with the Register of Deeds in order for the property owner to sell the smaller parcels of land.

Title

Definition:  Ownership of real property or personal property, which stands against the right of anyone else to claim the property.  In real property, title is evidenced by a deed recorded with the Register of Deeds in the county where the real property is located.

Example:  A warranty deed is a purchaser’s proof of title to the real property.  To make the deed of public record, the purchaser will need to record the deed with the register of deeds’ office.

Title Insurance

Definition:  A policy issued by an insurance company guaranteeing that the title to a parcel of real property is clear and properly in the name of the title owner and that the owner has the right to deed the property (convey or sell) to another.  Title insurance has replaced abstracts of title.  A title insurance policy can either be a lender’s policy or an owner’s policy.  Typically, in a real estate transaction, the seller will provide the purchaser with an owner’s policy of title insurance and the purchaser is responsible for the lender’s policy of title insurance; however, this is all negotiable.  The premium for title insurance is a one-time payment which is paid at the time of the closing of the real estate transaction.

Example:  Should a third-party claim ownership of a property owner’s real property, the property owner will make a claim against their title insurance and the title insurance company will defend the property owner in the claim made by the third-party as to ownership of the real property.

Title Commitment

Definition:  A title search run by the title company in preparation of providing title insurance on real property, showing the exceptions that the title insurance will not insure over, which are encumbrances against the real property.

Example:  The title insurance company provides the purchaser and seller with a copy of the title commitment before closing, showing the exceptions to the title insurance policy, which the purchaser may object to and request the seller cure in order to provide clear and merchantable title to the real property at closing.

Warranty Deed

Definition:  A deed to real property which guarantees that the seller owns clear title, which can be transferred.

Example:  In a typical arms-length real estate transaction, the offer to purchase will require that the seller provides the purchaser with a warranty deed at closing.