fixture
real estate that was once personal property but became real property when it was attached to real estate
Tests of fixture
1. written document 2. agreement or intent of the parties 3. adaptation 4. Annexation
Severance
process by which fixture becomes personal property
Trade fixture
personal property annexed to leased premises by the tenant as a necessary part of the tenant's business and must be removed prior to the expiration of the lease or it becomes the property of the lessor.
personal property
a right in things of a movable nature
3 physical characteristics of land
non-homogeneity, immobiity, and indestructibility
4 economic characteristics
scarcity, improvements, permanence of investment (fixity), and area preference (situs)
encumbrance (cloud on the title)
A right or interest in a property held by someone who is not the legal owner.
easement by necessity
allows ingress and egress to landlocked property
easement in gross
not created to benefit a dominant estate (utility easement)
easement appurtenant
is annexed to the ownership of another's parcel of land and runs with the land is transferred from one owner to another
easement by prescription
continuous use of property, for 10 years or more without permission of the owner
easement by implication
surface easement that is usually given when a mineral interest is transferred or sold
deed restrictions (deed covenants)
limits the use of land and are private land controls
liens
claims against property
general liens
attach to all property of a debtor that is not exempt from forced sale (judgment lien, estate tax lien and an income tax lien)
specific lien
attach to one or more specific properties (ad valorem tax lien, mortgage, special assessment and an M&M lien)
Ad valorem tax liens
Statutory, involuntary liens placed againt all real property on Jan 1 of each year. Property tax liens have priority over all other liens on the property
Special assessment
creates a lien against only those specific properties which benefit by the improvements. These liens must be disclosed to potential purchasers
Mechanics & Materialmen's Lien (M&M Lien)
claim for the purpose of securing priority payment for work on repairing a building
encroachment
fixture or structure which invades a portion of property belonging to another. To determine encroachments you must get a survey.
license
Permit to use the and of another. Is defeated upon transfer of property
Leasehold estate
a possessory interest for a determined period of time
estate for years
any lease with a definite start and stop date
periodic estate
month-to-month lease
Freehold estates
ownership for an undetermined period of time
fee simple defeasible estate
property is conveyed (deeded) to another party "for so long as" and automatically reverts to the grantor if the property is not used as specified in the grant
fee simple subject to condition subsequent
property conveyed to another "on the condition that" and does not automatically revert to grantor when condition no longer exists
ordinary life estate
estate granted by the owner of a property to a person for that person's lifetime. It cannot be inherited
Pur Autre Vie
life estate that exists "for the life of another
legal life estates
homestead allows for an automatic life estate for a surviving spouse who can keep possession as long as they live and cannot be forced to sell by anyone who may have inherited an interest in the property
Tenancy in Severalty
ownership by one person (individual, corporation, or partnership) alone and thus severed from any other person
tenancy in common
ownership of property by two or more persons with transferable, undivided interest in the property and may be partitioned. Partners can have unequal shares of ownership. Has only unity of possession
Joint tenancy
joint ownership in which both persons have a transferable undivided share that can't be inherited and in partners have equal shares. Has unity of time, title, interest and posession
Tenancy by entirety
form of joint tenancy in which owners are husband and wife
General partnership
ownership by 2 or more persons in wich each partner is liable for losses and obligations of the partnership and all partners participate in the day to day management of the partnership business
limited partnership
have only a monetary interest and are liable only to the extent of their investment in the partnership
corporation
form of ownership in severalty because law considers a corporation a "person". Subject to double taxation because it pays taxes on their profit and shareholders on dividends
limited liability company
pays no taxes on income, which is passed straight through to shareholders
syndicate
where two or more parities work together to develop and/or operate a real estate investment
Mets and Bounds
use terminal points and angles from a point of beginning to obtain legal description
escheat
process by which property reverts to the state when someone dies INTESTATE (leaving no will). State looks for the heirs for seven years
eminent domain
government's right to take private property for public use through the act or the means of condemnation. Owner will be paid market value for property
police powers
include rent control, zoning, health and safey laws
zoning
regulation of structures and uses of property
buffer
separate zones ex. industrial and residential
buffer zoning
step-down zoning where land used are stepped down from a higher use or classification to the lower classifications
spot zoning
zoning variation for a small area that is significantly different from surrounding areas
variance
exception to a zoning regulation that may be permitted if an undue hardship is placed on the property owner by the ordinance
conditional use permit
zoning classification where special conditions are imposed on a permitted use
nonconforming use
use of a property that existed before zoning or a zoning change that no longer conforms to the new zoning
comprehensive plan
a plan to ensure that the city can balance the social and economic needs of the community with the environmental and aesthetic needs
planned unit development (PUD)
special zoning classification, often used with a multi-use or cluster zoning and involves a nonprofit community association
extraterritorial jurisdiction
area outside the city limits that may at sometime in the future be annexed into the city. the seller must inform the buyer if the property i outside the city and may be subject to annexation
deed restrictions
private covenants or land use controls placed on property by the grantor when the property is sold. Attached to land and do not go away when the property is sold.
CC&R's (conditions, covenants, and restrictions)
are a declaration of restrictions that are placed on public records that affect land use for condos
riparian rights
refers to a property owner's rights to use or enjoy the water when the property is located along the bank of a stream or river as long as he doesn't interrupt the water flow
littoral rights
permits ownership of land bordering on the shore of a pond, lake or ocean up to mean vegetation line
accretion
a gradual increase in land by natural causes
alluvion
land that is created in accretion process
erosion
gradual loss of property by natural causes
avulsion
sudden loss of land by an act of nature
Characteristics of property that Affect Value
Demand
Utiity
Scarcity
Transferability
Principle of substitution
no person is justified in paying more for a property than the cost to build a simiar property
principle of conformity
max value is found when there is present a reasonable degree of similarity in the area
progression
when properties in the area cause the value of the subject property to increase
Regression
when properties in the area cause the value of the subject property to decrease
principle of highest and best use
- the use of a property that will give the property owner the greatest economic return and that is legal and economicaly feasible in today's market
market approach
comparables that are sold properties that are very similar to subject property. Used primarily for residential property and land
cost approach
replacement cost based on current construction costs, less depreciation, plus land value. Used for properties without comps or are very run down
Income approach
estimated future benefit of an income stream. Used for income property. Net operating income/cap rate
physical deterioration
ordinary wear and tear. Deferred maintenance is also an example.
functional obsolescence
changes in building arts or buyer's taste
external obsolescense
brought about by actions in the area outside the property (ex. economic)
accrued depreciation
sum of all three forms of depreciation - physical, functional, external
assemblage
combining of two or more tracts of land and usually the combined tract is worth more than the value of the two separate tracts
plottage
increase in value due to assemblage
assessed valuation
official estimate of a value of property for taxation purposes. Related to AD VALOREM (property) tax
economic life
period of time during which imporvements contribute to the value of the property.
unearned increment
value added to property by economic factors in the area
CMA/BPO (competitive market analysis/broker price opinion)
comparioson of recently sold properties and properties that were listed and didn't sell by the broker to determine a list price
Mortgage bankers
provide both funds and servining
mortgage brokers
the middlemen. they do not loan money or service loans. They arrange loans and make commissions like real estate brokers
FHA
Insures owner occupied loans. Each county has a max amount. These are for everyone, no US CITIZENSHIP IS NEEDED and there is no requierment for the borrorwer to be poor
VA
guarantees Veteran ownder occupied loans.
Certificate of reasonable value
an appraisal issued by VA
conventional
not guaranteed or insured by the federal government
blanket mortgage
covers more than one piece of real property developers use
package mortgage
includes personal and real property
wraparound loan
owner financed and seller continues to pay his mortgage without paying if off at time of sale
balloon mortgage
long-term amortization with "balloon" payment at the end of a shorter loan term
budget loan
includes principal, interest, taxes, and insurance. Most of these loans are fully amortized
term loan/straight loan
usually an interest only loan with one principal payment at the end of the term
participation mortgage
lender will share in the equity when the property is sold. Usually for large commercial loans
FNMA (fannie mae)
privately owned corp that buys and sells fha, va, and conventional loans. Raise money by selling mortgage-backed secuirties that are guaranteed by FNMA and not the government
GNMA (Ginnie Mae)
fed agency taht administers special loan or assistance programs. Sells bonds that are guaranteed by the fed
FHLMC (freddie Mac)
deal primarly in the conventional loan market but also pool va and fha loans. bonds are backed by mortgages that they own
deed of trust (lien theory)
three party security instrument used by the borrower (trustor) to pledge the property as collateral for the loan.
deficiency judgment
occurs when the property is foreclosed and the sale does not repay the lender in full
alienation clause
Due on sale Clause" in deed of trust that declares that the entire balance becomes due upon transfer of ownership
acceleration clause
call clause" which gives lender the right to accelerate the note upon default
defeasance clause
requires the lender to release the lien when the debt is paid
amortization
liquidation of a debt by periodic installment payments. Principle and interest decline so that less interest/more principal paid monthly.
Prepayment penalty
extra amount borrower must pay in order to pay off principal prior to maturity
subordination
when one lien holder agrees to switch lien positions with another lender
equity
difference between market value and the indebtedness for the property owner
discount points
mark down interest rate by paying 1% of the loan amount up front
buy down
points when used to reduce the interest rate
discount rate
interest rate a commercial bank p ays when it borros money from the fed
prime rate
interest rate at which banks loan to prime customers
hypothecation
pledging of property as security for a loan
usury
charging of an illegal interest rate
appreciation
increase in the worth of a property
Truth-in-Lending act (Regulation z)
informs the borrower of the true cost of obtaining credit through uniform disclosures
three-day right of rescission
Part of Truth-in-Lending Act. allows borrower to cancel a home loan and walk away without losing money. Applies to junior liens, but not first lien mortgages
advertising
Part of Truth-in-Lending Act. if more than general phrases like "liberal financing available" are made, then full disclosure is required
Real Estate Settlement and Procedures Act (RESPA)
Applies to 1-4 family residential loans that are federally related.
Requires:
1. use of a hud-1 or uniform settlement statement
2. the lender to provide a good faith estimate of closing costs and the special information booklet to the borrower within 3 bu
Equal Credit Opportunity Act
protects against illegal discrimination to ensure that funds are available to all qualified applicants
home mortgage disclosure act
prohibits red-lining
red lining
not serving a specific geographical area in the market
community reinvestment act
lender must demonstrate (by documentation) that it serves the entire community in which it is chartered to do business.
Secure and Fair Enforcement of Mortgage Licensing Act (SAFE)
a residential mortgage loan originator who is an employee or subsidiary of a depository institution will be registered with the federal banking agency having jurisdiction over that institution and will be included in the National Mortgage Licensing System
agency
relationship of trust between agent and principal. Formed when principal has hired the agent
client
when the principal becomes a "client" and the broker becomes his "agent
customer
broker/salesperson does not represent this party and thus does not give them advice, opinions or help in negotiating a sales contract
general agency
relationship between broker as a client and salesperson as his agent in which broker has limited power to bind and limited power to sign. Often occurs in a property management agreement between owner and broker.
Special agency
relationship between broker and client in which there is no power to sign or bind
expressed agency
orally or in writing, agency clearly understood by both parties
implied agency
agency by words/actions, but not expressly stated
ostensible agency (agency by estoppel)
agency by which others assume your authority because of your actions or when a pincipal fails to monitor his agent
agency by ratification
by a prinicipal accepting actions of another after the fact. Implied agency often leads to this kind of agency
agency coupled with a monetary interest
agent has an interest in the property he is representing. ex. agent has a management agreement and a listing agreement on the same property
Sherman Antitrust Act
disallowed price fixing, boycotting, allocation of customers or markets, and tie-in arrangements
price fixing
service providers must set their own fees or commission rates without consulting any other provider
boycotting
two or more service providers agree to not work with the competitor to reduce competition
allocation of customers or markets
two or more service providers get together and divide the market geographically or by customer profile
tie-in arrangements
service provider requires customer to use an assocated service as a requirement for doing business
fair housing laws
prohibit discrimination in connection with selling or renting residential real estate. Protects race, color, religion, sex, national origin, hadicapped, and family status
civil rights act of 1866
covered race only. Lawsuits filed under this act must be taken to federal court
fair housing law of 1968 (Title VIII of Civil rights act of 1968)
covered discrimination on the basis of race, religion, and national origin. Sex was added in 1973
fair housing amendments act of 1988
physically/mentally handicapped added as protected class under fair housing laws
Steering & Channeling
guiding people into or away from any area based on their protected class (violation of fair housing)
blockbusting & panic selling
tactics to induce a person to sell their home based on the anticipated entry of a protected class (violation of fair housing)
Fair credit reporting act (FCRA)
if an action against prospective borrower was based on credit score, the the score must be disclosed to applicant
commingling
putting client money anywhere other than in a trust account
conversion
taking earnest money for broker's own use
bilateral contract
contract in which both parties have specific duties to perform
unilateral contract
contract in which only one party has obligations to fulfill
novation
re-write of contract. ex. converting FHA contact to a conventional form or where you have a substitution of parties
addendum
something added to the base contract with the agreement of both parties
amendment
change to an existin gcontract with mutual agreement of all parties
default
non-performance of a duty under a contract.
default paragraph
paragraph of promulgated form that spells out choices for non-defaulting party
valid
contract that is enforceable by the parties
void
as though it never existed, usually lacking consideration or legal purpose
voidable
may appear to be valid but disaffirmed if one party is incompetent, was under undue influence, or fraud was involved
unenforceable
neither party can enforce contract. Ex. verbal listing where parties agree to a commission
exclusive right to sell
broker is excllusive agent and receives commission even if owner sells the property himself
Exclusive agency
broker is exclusive agent and receives the commission unless the owner sells the property himself
open
owner has multiple brokers and only broker that sells gets commission. Often used by government agencies
net listing
broker keeps all money over the amount the owner wants from the sale of the property
contract for deed (land contract)
does not convey legal title immediately, buyer has equitable title. Title transferred when seller is paid in full
percentage lease
lease in which all or part of the rent is based upon the income of the tenant's business
gross lease
only the monthly rent is paid by the tenanct, which includes all services. No separate charge for utilities, taxes, etc.
Net lease
tenant pays rent plus some or all of operating expenses
ground lease
lessee has a lease on the land only and agrees to build a building on the property. All improvements made by lessee becomes the property of the lessor
hold over tenant
tenant who fails to move out when the lease expires
tenancy (estate) at will
type of leasehold estate created when a holdover tenant has the permission of the owner to stay and the owner continues to accept rent
tenancy (Estate) at sufferance
wrongful holding over without the landlord's consent
sale and leaseback
grantor sells and then leases back the property from the new owner in order to free up capital
constructive eviction
landlord's failure to provide promised life service (water, electricity, etc.) forces the tenant to move out
sub-lease
original lessee leases property to someone else. Original lessee retains liability
assignment
lessee gives up his rights to a property to a third party and is relieved from obligation
distraint
landlord's right to use forced entry and seizure of a tenant's belongings for due rent
option to purchase
contract for the right to purchase specific property within a definite time at a specified price. Since there is no obligation for the purchaser to buy, but the seller is obligated to sell, it is a unilateral rather than a mutual obligation
option money
payment in order to obtain the option to purchase
contingency clause
special conditions in the contract for the seller to meet. If not met, buyer will get his earnest money back
independent contractor
employment between broker and agent with three conditions:
1. a written independent contractor agreement
2. a real estate license
3. payment based on performance, not number of hours worked
mortgagee's title policy
protects the lender, guarantying him that he has a valid lien recorded on the policy
restriction (deed restriction)
limits the use of land
reservations
grantor's ownership rights that are not being conveyed to the new owner (easement, mineral rights)
abstract of title (chain of title)
recorded history of title to property that details every recorded event pertaining to the property. guarantees nothing
deed
conveyance that transfers real property and is not negotiable (cannot be assigned)
conveyance
written instrument that evidences transfer of some interest in real property, not personal property
bill of sale
the way personal property is transferred
general warranty deed
deed in which guarantees and protects against defects. Warrants title to be good from the separation of soil. Only grantor signs the deed, and deeds do not need to be recorded to be valid
special warranty deed
deed in which seller warrants or guarantees the title only against defects arising during the period of his or her tenure or ownership of the property
quit claim deed
deed that gives no warranties or guarantees
patent
a type of deed under the first tranfer of real property out of government ownership to an individual
habendum clause
defines or limits the estate granted in the deed
seisin
grantor warrants that he has both title and possession at the time of the grant and the authority to transfer property
alienation
act of transferring ownership, title or interest in real property from one person to another. 2 types:
1. Voluntary - sale, gift, will
2. involuntary - escheat, eminent domain, foreclosure, adverse possession
adverse possession
property acquired from rightful owner under "adverse" conditions through 10-year provision
Heridaments
property that can be inherited
writ of attachment
freezes assets pending the outcome of a trial
statute of limitation
law pertaining to the period of time during which an action may be brought to the court
partition
lawsuit to ask the court to sever concurrent ownership
closing
when the property actually changes hands
recording
gives constructive notice of ownership and protects against fraudulent sale
capital gains taxes
a tax paid on the profit made from the sale of real property
legal title
freehold interest in property
equitable title or interest
less than freehold interest in property. ex. lease, easement, lien, sales contract, mortgage or a contract for deed
probate
formal judicial proceeding to prove validity of a will
testate
one who dies leaving a valid will
intestate
one who dies without leaving a will. Property will be inherited by their heirs though laws of descent and distribution
executor
person named to administer the estate of a person who leaves a valid will
administrator
court appointed person to handle the estate of an intestate
condominiums
owner holds fee simple interest in the unit and owns from the interior wall to the interior wall and an interest in the common areas
cooperative
ownership of the property is held by a corp and the occupant is a stockholder and has a proprietary lease
time share
owner, must be a real estate licensee, has the right to occupy a particular unit in the project for a specified period of time each year
subdivision
land divided into lots and sold to builders
leverage
effective use of borrowed money to maximize rate of return
homestead
constitutional provision that protects primary residence from foreclosure from all creditors except those who have a lien on the house
deceptive trade practices act
consumer protection act addressing misrepresenting, disparaging, misleading a client. Must file for damages within two years. Designed to protect all consumers, not just in real estate transactions
CERCLA (Comprehensive Environmental Response compensation and liability act of 1980)
made funds available for cleaning up toxic waste
Superfund Amendment and reauthorization act of 1985
amendment to CERCLA providing an "innocent landowners provision" that says if a buyer does reasonable due diligence before buying a property he will not be held responsible later if a hazard is discovered
Environmental Impact Statement (EIS)
report that includes a detailed description of a proposed development and discussed the likely impact on the environment
power of sale claue
allows for mortgages to go through a non-judicial foreclosure
defiency judgment
a judgment the lender must obtain againt a borrower for the balance of a debt owed when the secuirty for a loan is insufficient to satisfy the debt
statutory right of redemption
allows the owner to redeem the property within 6 months for non-homestead property and wihtin 2 years on homestead property if the owner pays the amount of taxes owed plus 25% the first year and 50% the second year
accession
gaining title to improvement as a result of the annexation of fixtures
annexation
process of attaching personal property so that it becomes real property and thus creating a fixture
chattel
personal property
datum
marker used in the survey of elevations
DD 214
veteran's discharge papers - provided to demonstrate eligibility for a VA loan
injunction
what the court will use to enforce deed restrictions
inverse condemnation
occurs when the improvement may not take the property but causes the subject properrty to suffer a loss in value of 25% or more and the condemining entity must pay the owner for that loss
IRS Form 8300
must be filled out when a client brings more than $10,000 in cash to the closing or in earnest money
MIP (mortgage insurance premium)
insurance on the FHA loan
Modification
economic characteristic of land stating that improvements made by man will alter the laue of the land and surrounding properties
parcel
a single piece of property, also called a plot or a lot
remainderman
person who becomes the owner of property at the end of a life estate. Has fee simple interest
residual value
what is remaining after the economic life of a property is gone