Definition:
Security in real estate can have two primary meanings:
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Collateral for a Debt: Property that serves as collateral for a debt. This means that real estate or other assets are pledged as security for a loan or other obligation; if the borrower defaults, the lender has the legal right to take possession of the secured asset.
Example: Real estate serves as security for a mortgage loan. In the event of default on the loan, the lender may sell the property to satisfy the debt.
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Evidence of Ownership: A financial instrument that represents an ownership position or creditor relationship. Securities can include stocks, bonds, mortgages, and shares of beneficial interest, among others.
Examples include:
- Common and preferred stocks,
- Bonds,
- Mortgages,
- Shares of beneficial interest.
The Securities and Exchange Commission (SEC) may define limited partnership interests, and, in certain situations, condominiums and cooperatives as securities.
Examples:
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Mortgage Security: A homeowner’s house serves as security for the mortgage. If the homeowner defaults, the lender can foreclose on the property to recover the loan amount.
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Bond Investment: A bond represents a security that indicates an investor has lent money to a borrower (typically corporate or governmental). The bond includes terms of the loan, interest payments, and the time frame for repayment.
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Stock Certificate: Ownership of a corporation is divided into shares represented by stock certificates, a type of security. These certificates prove entitlement to a portion of the company’s earnings and assets.
Frequently Asked Questions (FAQs):
Q: What is collateral in real estate?
A: Collateral in real estate refers to property that a borrower offers to a lender to secure a loan. If the borrower defaults, the lender has the right to take possession of the property.
Q: Can a condominium be considered a security?
A: Yes, in certain situations, the Securities and Exchange Commission (SEC) may consider condominium units a security, particularly if they are offered with rental services or timeshares.
Q: How do bonds serve as securities?
A: Bonds serve as securities by representing a loan made by an investor to a borrower (typically a corporation or government). The borrower agrees to pay back the principal along with interest at specified intervals.
Q: Are shares of beneficial interest considered securities?
A: Yes, shares of beneficial interest, usually associated with trusts, are considered securities. They represent ownership interest in the trust assets and entitle the holder to a portion of the income generated by those assets.
Related Terms:
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Collateral: An asset pledged by a borrower to secure a loan or other credit, and subject to seizure on default.
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Mortgage: A loan in which property is used as collateral. The borrower makes regular payments to the lender until the loan is paid off or defaults.
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Stock: A type of security that signifies proportionate ownership in the issuing corporation.
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Bond: A fixed-income instrument that represents a loan made by an investor to a borrower.
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Securities and Exchange Commission (SEC): A U.S. government agency that oversees securities transactions, activities of financial professionals, and the stock and options exchanges.
Online Resources:
- U.S. Securities and Exchange Commission: Offers comprehensive resources and regulations on different types of securities.
- Investopedia: Securities: In-depth articles and explanations on various types of securities.
- National Association of Securities Dealers (NASD): Provides resources and regulations on securities trading and investments.
References:
- Brueggeman, William B., and Jeffrey Fisher. “Real Estate Finance and Investments.” McGraw-Hill Education.
- Securities and Exchange Commission. “Report on the Review of the Definition of Accredited Investor.” SEC Official Website, www.sec.gov.
Suggested Books for Further Studies:
- “Real Estate Finance and Investments” by William B. Brueggeman and Jeffrey D. Fisher.
- “The Intelligent Investor: The Definitive Book on Value Investing” by Benjamin Graham.
- “Security Analysis: Sixth Edition” by Benjamin Graham and David Dodd.
- “Understanding Real Estate Investments: Perspectives in Finance and Risk Management” by John D. Finnerty.
