Equity Kicker to Escrow Closing

 

Equity Kicker

The equity kicker is a financing arrangement that provides the lender with a portion of the cash flow and/or resale proceeds.  This is obviously a concession to persuade the lender to make the loan; and it is used as an enticement to overcome a financing obstacle (such as low credit scores, minimal down payment or property issues).

Equity Lender

See the Asset-Based Lender entry.

Equity Loan

In the residential mortgage arena, an equity loan is a type of mortgage loan that converts a property’s equity into cash.  If this equity financing involves absorption or repayment of an existing mortgage lien-in addition to cashing equity-then it is often called a cash-out refinance loan.

Equity Participation

Equity participation refers to a real estate finance or investment program in which a lender, seller or co-investor receives a share of the property’s equity.  Compare with the Participation Loan and Housing Equity Partnership entries.

Equity REIT

A type of real estate investment trust that invests in the ownership, financing or management of real estate properties.

Equity Sharing

See the Housing Equity Partnership or Equity Participation entries.

Equity Skimming

A term used to describe different acts, often fraudulent, in the real estate and mortgage industry.  Basically, the culprit profits from the reduction of equity in the property, to the detriment of the borrower and/or lender. For example, loan officers who refinance a property without giving any significant benefit to the borrower-but results in higher loan amounts and less equity-is making a commission profit from the borrower’s loss of equity. A legal example of equity skimming occurs when a property owner uses increasing lines of credit to tap into the equity that has been accrued by his or her property; that investor can then use that liquidated equity to buy other properties. Compare with the Rent Skimming entry.

Equity Trust

The equity trust is a trust that invests for the purpose of owning equity-generating properties, instead of providing financing to real estate investors.

Erosion

Erosion is the wearing away of land through either natural or artificial causes.  This can have legal implications for real estate owners whose property abuts a body of water.  The property’s title will define the parcel’s boundaries as ending at the water’s edge.  As land is eroded and the water’s edge creeps further into the parcel, the actual parcel size begins to shrink.

Errors and Omissions Insurance

Errors and omissions insurance is a policy coverage obtained by brokers and agents to protect themselves from liabilities arising from errors, negligence and mistakes.

Escalator Clause

A provision in a lease, mortgage loan, construction agreement or other contracts that allows one of the parties to increase rental charges, interest rates and other compensation requirements.

Escalation

With leases, escalation refers to the right of the landlord to increase the rental rates based on an index or pre-determined intervals. With mortgage loans, it is the right of a lender to increase the interest rate of an adjustable rate mortgage (ARM) loan agreement.  For example, ARM loans have escalation rights that allow the lender to adjust the loan’s interest rate once every period or based on the movement of an index.

Escape Clause

The escape clause is a provision in a contract or agreement that allows one party to back out of the agreement. It usually requires a trigger, such as when the other party fails to meet a specified condition or if an event occurs.  For example, a sales contract may give the buyer the option of backing out of the agreement for any reason or if the termite inspection discovers infestation. Some sales contract may provide an escape clause for the seller, allowing that seller to cancel the deal if a better offer comes along. The three-day right of rescission that gives homeowners up to three business days after the closing to back out of a refinance loan is a type of escape clause, although it is imposed by federal law.

Escheat

The escheat is a legal doctrine by which property reverts to the state when there is no legal owner.  This can occur whenever the property owner dies without an heir or legal claimant.  If the owner dies without a will, a relative or other claimant can avoid the escheat by filing a claim for the property and paying all the required taxes.

Escrow Account

The escrow account puts control of property or money in the hands of a third party, usually a bank, escrow or title company.  Both the title company and the mortgage lender maintain different escrow accounts-sometimes called “impound” accounts.  The title company’s escrow account collects all closing funds and disburses them to satisfy liens and appropriate parties. With many purchases, the title company will often hold an impound account containing tax payments from and by the seller-which will be applied as soon as the next real estate tax bill arrives. For residential mortgage purposes, the escrow is established and maintained by the lender to pay for future property taxes and insurance premiums.  When it comes time to pay the property taxes and insurance premium, the lender will use the funds in the escrow.

Escrow Agent

The escrow agent is the neutral party that coordinates an escrow closing.  The agent is usually someone from the title company, lender’s escrow department or one of the representing attorneys.

Escrow Analysis

The escrow analysis is a periodic (usually annual) review conducted by a lender on a borrower’s escrow account, to ensure that there is sufficient funds in the account and that the loan servicer is collecting enough funds from the borrower. If the escrow analysis reveals that there is insufficient funds collected (or being collected), the borrower will be informed that his or her escrow payments must be increased.  If the escrow analysis reveals that the lender has collected too much, RESPA laws require a refund once the surplus hits a minimum amount.

Escrow Clause

The escrow clause is a provision in hazard insurance, flood insurance or mortgage insurance policies that indicates the lender (mortgagee) and its assignees as beneficiaries of the insurance policy.  If the subject property is destroyed, the insurer will normally first pay off the existing mortgage balance before disbursing any surplus insurance claims to the home owner.  The exception would be if the insurance disbursements were earmarked directly toward reconstruction.  Otherwise, lenders may be left holding the bag for a large mortgage balance on a property now worth only the land.

Escrow Closing

The escrow closing is commonly used method of closing in which not all of the parties are present.  The parties involved enter into an escrow agreement, and the escrow agent will typically obtain assurances of marketable title, collect all require funds and documents, deposit and disburse funds and record all pertinent deeds and documents.  With escrow closings, the official date of title conveyance is when the title was delivered to the escrow.