California Real Estate II
Terms in this set (216)
Stock of a Mutual Water Company
Owned by the landowners served by the company. Appurtenant to the land. Real property. When parcel is sold, buyer of land acquires ownership of the stock.
An increase in land caused by the permanent withdrawing of a body of water.
Mean high tide line
A property owner's boundary along an ocean
The addition of property by natural means (such as accretion) or unnatural (such as the addition of fixtures -- annexation).
The gradual addition to a shore or bank by the deposit of alluvium.
The sudden and violent tearing away of land, as in floor. Land torn away belongs to original owner, who has one year to reclaim it.
What a person owns. The ownership interest a person has in real property as to a degree, quantity, nature, duration, or extent of interest.
Fee Simple & Life Estate
Two types of freehold estates
Fee Simple Estate
The greatest or least restricted interest an owner can have in real property. Include present as well as future interest in the title.
Characteristics of Fee Simple Estate
Freely Transferable - may be sold or given away
Freely inheritable - may be willed to others
Indefinite duration - in perpetuity -forever
Fee Simple Absolute
Estate has absolutely no limitations or qualifications
Fee Simple Defeasible
Estate may be defeated by a condition subsequent to the grant, which if breached, may change or terminate the estate.
Measured by the life of a person holding it or the life of another. Can be sold, encumbered, or leased, but only for the term of estate. Can be created by deed or will. A present, not future interest in title.
Characteristics of Life Estate
Transferable - Limited to the term of the estate.
Inheritable - only when measured by the life of a third person.
Estate in Reversion
A future interest. The right to future possession and use of property by the person who created the estate. When used in connection with life estates, it means that the estate will pass back to the grantor.
Estate in Remainder
A future interest and the right to future possession and use of property by a third party (remainder man/ person/ remainder).
Rights of a Life Tenant
Borrow money on it (ends when estate terminates)
Less than Free-hold Estate (Leasehold or Chattel Real)
Legal interest in real property held by tenant who is leasing or renting.
Estate For Years
For a fixed term. Does not have to be for only a year. Definite end date. Is not automatically renewable.
Estate from Period to Period
Type of agreement; probably most common for residential use. Also known as periodic tenancy. Typically month-to-month; requires notice to quit. Most common document used is rental agreement. automatically renews each month; requires 30 days notice.
Estate at Will
No written agreement between the landlord and tenant. No agreed upon termination date. However, either party must give 30 day notice to quit.
Estate at Sufferance
Occurs when a tenant occupies the property without paying rent and without the permission of the landlord.
Tenants in Common (TIC)
When parties, none of which are married to each other, jointly own a property. NO RIGHT OF SURVIVORSHIP.
Characteristics of Tenants in Common
Can transfer individual interest to third party
Interest of tenants NEED NOT BE EQUAL
Number of tenants owning a specific parcel is Not limited
Time, Title, Interest, and Possession (T.T.I.P)
Four unities of joint tenancy
Characteristics of Joint Tenancy
Most significant feature RIGHT OF SURVIVORSHIP
Must be created at the same time by the same instrument
Must be specified in the document
Equal interest in property
Separate property can be converted to community property by
May be created by a written agreement, an oral agreement, or by estoppel. All partners personally liable to third parties for partnership debts. Equal right of possession to partnership property. A partner cannot sell, lease, or encumber his interest unless all partners agree.
Must be at least one general partner. Must be a written contract with each limited partner. Liability is limited to the amount of investment. 'other' partner cannot help manage business/property. Created to raise money.
A legal person. Holds title in severalty. Could be a tenant in common, Can NOT hold title as joint tenant. Advantage to stockholder is that person has limited liability; loss is limited to the amount invested
Largest survey areas
Lines that run east and west
Lines that run North and South
6 miles square
Townships are ______ miles?
How many sections are in a township
One mile = _____ft
______ Square Feet = one acre (7/11)
____ acres = one square mile
Distance around a section/ square mile
Distance around a township
Police Power, Eminent Domain, Taxation, Escheat
Government and Real Property - PETE
zoning, building codes, license laws
Examples of police power
Zoning classifications - A
Zoning classifications - R
Zoning classifications - R-1
Zoning classifications - C
Multiple units (condos & apartments)
Zoning classifications - R-3
Allows owner to continue present use that no longer complies with current zoning. Owner may not enlarge improvement or discontinue its use. "grandfathering"
Allows individual owner to vary or deviate from strict compliance with zoning in order to relieve or prevent economic hardship. pertains to land use.
zoning change from dense to less dense usage e.g., commercial to residential. No compensation for change.
Reclassification of a small area of land for use that does not conform to the surroundings.
Subdivision Map Act
Regulates subdivision of two or more parcels. (Municipal level- cities and counties have control over design of subdivision).
Subdivided Lands Act
Applies to subdivisions of five or more parcels. Designed to prevent fraud by misrepresentation and deceit. Regulated by real estate commissioner (state)
Interstate Land Sales Full Disclosure ACT (ILSFDA)
Requires approval for small number of subdivisions and regulates sale of unimproved residential lots sold in interstate commerce. Subdivision is exempt if parcels are 20 acres or more. *Buyer has right of recession if property had not been inspected or if property report was not received.
Agreement to do or not do certain things - a promise. Runs with the land, passes with land to a newer owner. e.g., property may be used only for specific purposes
If in the conveyance of title, which if not met, may result in loss of title to the original grantor or heirs who claim title by forfeiture. *conditions are always stronger than covenants.
condition imposed on the person, not the property, that must be met prior to the transfer of title.
Burdens on property which include money burdens (liens, such as trust deeds, mortgages, taxes, and judgments). * Buyers commonly buy this type of property.
Trust Deeds & Mortgages
Voluntary liens include
Contractor has 60 days
All others (Subs) have 30 days
Time limits for court action If a notice of completion has been recorded.
Everyone has 90 days after the project has been completed
Time limits for court action if a notice of completion has NOT been recorded
Notice of pending litigation concerning title or possession of real property. Must be recorded and once recorded clouds title, pending the outcome of the lawsuit.
Attachment Lien (Writ of Attachment)
Property is held by court order as security for a possible judgment in a pending lawsuit. Valid for 3 years.
When an Abstract of Judgment is recorded, it creates a court ordered general, involuntary lien upon all real property of the debtor located in the county of recordation. Valid for 10 years.
A Writ of Execution
The court orders the sale of property to satisfy a judgment with ________.
The right to enter or use another person's land within definable limits. May be created for any length of time and is irrevocable during the time limit specified.
The land that gets the benefit of the easement
The land that is crossed by the easement, land that is encumbered (burdened) by the easement.
Benefits the land of the dominant tenement. Buyer of dominant tenement automatically receives the easement. Dominant and servient tenements of this easement need not abut (touch) each other.
Easement in Gross
Benefits a person or corporation (e.g., utility easement for power lines).
Express Grant or reservation
Easements That Can not be lost by non-use
Easement by Prescription
Easement recognized by the courts after fulfilling specified requirements e.g., open and notorious use for five continuous years.
Easement by Necessity
Easement created by court to prevent landlocked property.
Merger of dominant and servient tenement
Release by dominant tenement hold with quitclaim deed
Easement by prescription terminates after 5 years of non-use.
Quiet title action in court.
Easements can be terminated in these 4 ways
Occurs when part of an improvement extends over the boundary line between properties. Fences & Buildings are typical forms of this, even roof eave can be ___ if it extends into the airspace of a neighboring lot.
Conveying party in transaction is _______.
Grantee (ee -- receiver)
The receiving party of transaction is _____.
Most common method of acquiring title to real property is by use of?
When the deed is delivered and accepted.
*In escrow - title transfers when recorded
When does title pass ?
Most important type of deed, and one most commonly used, presumed to be fee simple - binds seller to two implied warranties 1) has not previously conveyed title 2) has disclosed all encumbrances on property
Word has to be in granting clause. No warranties with this deed. Used to clear minor defects in title, relinquish any interest in real property, convey good title to real property, clear cloud on title, relinquish title to an adverse possessor.
Deed that is given in return for consideration of love and affection.
Conveys bare legal title back from trustee to the trustor, is used to cancel a trust deed when the promissory note is paid in full. *Related to financing
Sherrif's or Marshal's Deed
Used to convey the debtor's title to the buyer under a court of foreclosure proceeding or the execution of a judgment.
Tax or Controller's Deed
Used to convey title held by the state at the end of a tax sale.
Used to convey the debtor's title to the buyer under a private foreclosure sale. Used when foreclosing.
Transfer of real property by a will is called?
Transfer of personal property by a will is called?
*property itself is a legacy.
Law of Succession
Distribution of the estate is governed by the ______ when there is no will.
*person who receives property under this law is an heir.
The instrument used to transfer title from the government to an individual.
Increase in the land by the permanent withdrawal of a sea or a river.
Formal declaration before a notary public or certain public officials, by the person (grantor) who signed the instrument (deed) that the individual did in fact sign (execute) the document.
Recording real estate documents has the effect of charging (notifying) all persons with the knowledge of their existence.
Consists of express information of a fact - inspect property for visible claims.
Protects an owner or lender up to a specified amount against specified types of loss pertaining to defective or unmarketable title.
Preliminary Title Report and Commitment
States current condition of title. Lists policy exceptions and exclusions: defects and encumbrances that have been discovered or that may exist and which are not covered by the policy.
California Land Title Association (CLTA)
Standard Coverage Policy
Limited coverage primarily for owners that insure against losses from: forgery, fraud, matters of record, improper delivery, lack of capacity. *seller to buyer
American Land Title Association (ALTA)
Extended Coverage Policy
Additional protection, normally required by lenders, that insures against losses from: unrecorded tax & assessment liens, unrecorded mechanic's liens, easements, or encumbrances, water & mining claims, correct survey showing encroachments, rights of parties in possession.
Purpose of ____ is to make sure that the conditions of transfer are met prior to closing. *Deposits of instruments/ and or funds____ instructed to carry out these provisions.
Escrow agents act as agents for principals. They are _____ agents until the close of escrow. After close, they become the separate of either party.
When escrow instructions are executed by both buyer and seller, it means they are _____.
When escrow instructions are executed by an escrow agent, they have been ______.
Real Estate Broker, but escrow usually performs this task
Who is responsible for delivering termite report to buyer?
When a termite report recommends preventative work, who should pay for it?
When a termite report recommends curative work, who should pay for it?
Both reports should be submitted to buyer and seller, and they should decide which report to use.
What should happen in the event that escrow receives two conflicting termite reports?
Usually authorized to call for funding of the buyer's loan
Responsible for reporting the sale to the IRS.
Completion of Escrow means that it is ______
All has been done in escrow, just waiting for closing date.
The selling price appears as _____ on the buyer's closing statement.
Mentioned in a closing statement would be "recurring costs" which mean?
-Agreement between parties
-Court order- interpleader action
Resolution of disputes - Escrow agents can only release funds upon
A detailed accounting of each party's debits and credits (amounts paid and received)
According to Value
Ad Valorem property tax is based?
1% of assessed value, plus amount to cover bonds
Ad Valorem property tax rate is?
Assessment Appeals Board
Hears appeals of property owners who believe they have been over assessed for property tax?
November 1st installment due, December 10th late
February 1st second installment due, April 10nth late
*January 1st proceeds the tax year is the lien date.
Tax Calendar - No Darn Fooling Around
July 1st through June 30th
The fiscal year (for taxes)
______ starts the running of the five year redemption period. If the property taxes are unpaid, the property "sold to the state." Owner remains in possession and can redeem it during next 5 years by paying back all taxes (plus interest and penalties).
Tax exemptions. Homeowners who occupy the home will receive _____ off the assessed value of the property.
Tax exemptions. Veterans can receive _____ off the assessed value of their property. *May not be combined with homeowners exemption.
Occurs if taxes are not paid as of April 10nth
If taxes are not paid by _____, the property is declared in default and costs are added and interest is charged from the beginning of the tax year, July 1st.
Tax collector publishes Notice of Intent to Sell
*property sold at public auction to highest bidder.
Tax Deed is given; title free of all private liens.
If property taxes are not paid for 5 years
Improvement Act of 1911
Each owner is billed a prorated share based on cost per running foot of improvements multiplied by footage of property to improvement. Owner has 30 days from day of notification of cost is mailed to pay this bill. If not paid when billed, balance "goes to bond" lien on the property (in parity with tax liens).
Supplemental Assessments/ Proposition 13
Creates a reassessment event and requires all ownership changes be reported to tax assessor. If transfer was not recorded, must be reported within 45 days of change of ownership. New owner will be taxed from date to the increase in the assessment amount.
Mello-Roos Community Facility Act
Passed in 1982, authorizing levying of special taxes to finance designated public facilities. Seller must inform buyers of this.
County Documentary Transfer Tax
-Typically paid for by the seller- agreed upon in escrow
-Paid on most real estate transfers at recording
-Paid on equity transferred or the total purchase price .55
per every 500.00 for buyers who obtained new financing
- NO SALES TAX on Sale of Real Property
Considered a progressive tax - as taxable income increases, the additional amounts of income are taxed at an increasingly higher rate. straight tax example - SALES TAX
Marginal Tax Rate
The bracketed rate paid on the next dollar earned
Effective Tax Rate
Overall rate that the taxpayer pays on all taxable income. The total tax paid divided by the total taxable income.
-Income from wages, commissions, business profits and
-Income representing a profit from real estate (rent) IF
RECEIVED WHILE PROPERTY IS OWNED
-Does NOT include capital gains
Profits that result from the sale, exchange, or other disposition of assets such as real property.
**Dealer property is excluded.
Results when an owner sells, exchanges, or otherwise disposes of assets for less than he paid for them. *Fully deductible against capital gains.
Tax Deferment Methods
Gains are typically subject to income tax in the year in which they occur. In some situations IRS will allow the recognition of capital gains to be deferred into the future e.g., installment sales and Section 1031 exchanges.
A method of reporting gains for income tax when the sales price is being paid in one or more installments, such as with promissory note, or a lump sum is being paid in a tax year after year of sale.
Tax Deferred Exchanges (section 1031)
*Has to be done before escrow starts
Exchange of eligible real property (like kind property) which allows deferring income tax on potential gain.
-held for investment, e.g., vacant land
-held for production of income
-used in owners trade or business
The extra received or given in a trade (1031 exchange), which is not or like kind. Either cash or equivalent i.e., personal property or note taken back from the other party
Taking over a smaller loan than the existing one. Owner owes less debt, the difference of which is considered boot, which is always taxable (capital gain).
Home Owner's Tax Advantage
Tax payer can deduct taxes on interest on two personal residences.
*can only have one primary residence at a time
Exclusion on Sale of Principal Residence
Single tax payer may exclude 250,000; Married tax payers may exclude 500,000 of the capital gain on the sale of their principal residence.
*can only be done once every 2 years
*must have owned and lived in home as principal
residence for at least 2 of 5 years prior to sale.
Reporting Transfers to IRS
If there is no person responsible for performing the close of the transaction, following persons are responsible in order:
Primary mortgage lender
*copies of 1099 forms must be sent to IRS both seller & buyer.
Foreign Investment In Real Property Tax Act. Every buyer of U.S. real property - through the escrow agent - must, unless exemption applies, deduct and withhold 10% of gross sales price from seller's proceeds to pay capital gains tax.
CAL FIRPTA (Foreign Investment In Real Property Tax Act)
People selling property in California who are not residents of the state, will be charged an additional 3-1/2%
Mutual Consent, Capacity, Consideration, Lawful
CoCa CoLa. 4 Requirements for contracts to be valid and enforceable.
Meets all the requirements - consent, capacity, consideration, Lawful
one or more of contract requirements is DEFECTIVE, which makes contract _______.
Lacks one or more of the essentials of valid contract - No legal effect.
Contract that fulfills all essential elements, but due to laws will not be enforced in court
Statute of Limitations
oral - 2 years
Enchroach/ trespass - 3 years
written - 4 years
title - 5 years
judgments - 10 years
Breach of oral contracts -
Breach of Written Contracts-
Lawsuits to recover Title-
Only one party makes a promise, and is obligated to perform. Promise is accepted by the performance of other party e.g., option
A contract that has been fully performed.
Contract that has not yet been performed.
Changes agreed by both parties to the original contract must be in writing and signed by both parties.
An addition to a contract which all parties agree to by signing or initialing.
Liquidated Damages Clause
In a written contract, provides that if the contract is broken by one of the parties, that party will owe the other (innocent party) a definite stated sum of money.
-less than 3% of sales price, seller can keep deposit
-must be initialed by both parties
5 Basic requirements of a bona fide listing
terms and conditions of sale
address of property
compensation of broker/agent
Buyer withdraws offer before it is accepted
A counteroffer is made
Buyer DIES BEFORE seller accepts offer
Time limit for accepting offer expires
An Offer Terminates when?
The clause is part of the contract only if the buyers have initialed the space provided - agree that they will resolve any differences by ____ instead of by a lawsuit in court of law.
Disclose -- Elect -- Confirm
Three steps to agency disclosure
A _____ interest is sometimes referred to as a chattel real because of the personal interest created through the personal property in the real property
Flat, Fixed or Straight Lease
Rental is fixed sum paid periodically
Lessee pays agreed rent plus operating costs such as maintenance, insurance, and taxes.
Triple Net Lease
When tenant pays ALL agreed upon expenses such as maintenance, insurance, and taxes.
Contains an escalator clause varying rental rates up or down. Increased over time - step up. Rent tied to index - index lease.
Original lessee's interest after they have subleased space
Lease of land only, sometime secured by the improvements placed on the land by the user.
Mortgage / Trust Deed
Two most common security instruments used by lenders in which real property is pledged (hypothecated) as a security for repayment of the loan. *used to secure promissory note; NOT negotiable. Notes are negotiable
Mortgagor (Borrower) / Mortgagee (Lender)
Can go after a deficiency judgment in the event of delinquency. Needs to go through court to foreclose on property (3 months 21 days)
Trustor (borrower) / Beneficiary (Lender)
Trustee (3rd Party performs sale or reconveyance)
Can not go after borrower for deficiency judgment. Borrower signs promissory note and gives lender right to foreclose by way of a trustee sale. Trustor retains legal title.
Negotiable instrument which serves as the evidence of debt. Also called "debt repayment contract."
Holder in due coarse
An innocent party who purchased a negotiable instrument without knowledge of any defects. Loan has been sold.
Straight Note (term note)
The entire principal is paid at maturity. Interest may be paid during the term of the note or at maturity. Generally carry higher interest rates than amortized installment notes.
Amortized Installment Note
Calls for periodic payment of both principal and interest. ____ can be described as the liquidation of financial obligation, such as a loan.
Purchase Money Trust Deed
Trust deed given as part or all of the purchase consideration for the property. It is a loan created for the purpose of securing funds to purchase the property.
Hard Money Loan
Cash including the cash proceeds from a loan as distinguished from credit extended by a seller.
Real Property Sales Contract
Installment Sales Contract
Agreement To Convey
Agreement for purchase and sale
A written contract where the seller (vendor) agrees to transfer title to real property (give a grant deed) to the buyer (vendee), after the buyer has met contract conditions.
A document whereby a seller (vendor) becomes the lender to a buyer (vendee). The vendee's and vendor's relationship is like the trustor and beneficiary.
_____ is equitable owner holding equitable title (right to use and possess). _____ retains legal title. Like buying a car, buyer has possession, finance company holds title until paid in full.
Primary Mortgage Market
Composed of lenders that deal directly with borrowers. Here loans are originated and made up of institutional lenders and non-institutional lenders.
-Mortgage companies usually negotiate and service their
-Do NOT usually make construction loans - short term
-Prefer large long-term loans on existing commercial
* Developer who wants a long term loan to purchase and rehabilitate an existing shopping center would go here for a loan
Savings & Loan Associations
Source for 1-4 family unit home loans.
As a result of deregulation, _____ can pay any amount of interest on money deposited with them.
Prefer Short-term loans
Primary source of construction financing - interim loans
Under the control of the Federal Reserve Board
Federal Reserve Board
1) Adjusting Discount rate - RAISING TIGHTENS market
2) Changing minimum cash reserve requirements
3) Buy/Sell existing government bonds through federal open market committee - SELLING TIGHTENS MARKET
Regulates banks and influences the money supply of the economy by?
Organizations that are not financial institutions
Mortgage Companies/ Mortgage Bankers
Make real estate loans, then sell loans to investors. Will service loans on contractual basis, includes receiving payments and handling the day-to-day supervision of the investment.
Prime source of government insured and guaranteed loan funds as well as conventional loans (not FHA or VA).
The largest source of second-mortgage funds (junior loans). Many times a seller will carry-back a second in the sale of property.
Colleges and universities
mortgage investment companies
Real estate loans make up some of the most important assets of non-financial institutions, these include:
Mortgage Banker (Mortgage Companies)
Often serves as a middleman between investor and borrower.
Often lend their own money
Negotiate loans which are readily salable on the secondary market.
licensed as real estate brokers and are governed by the California real estate law. They bring borrower and lender together but typically do NOT invest in their own funds or service loans.
Tightens money market -- real estate sales -- second trust deeds
Raising discount rates & selling bonds --> ________-->
which decreases ______--> which increases use of ____.
Fannie Mae, FNMA
Government National Mortgage Association
FHLMC, Freddie Mac
Have increased the amount of housing credit available in the economy. Major participants in the secondary mortgage market are?
Federal National Mortgage Association FNMA
Originally a government agency, now a private corporation with shares traded on New York Stock Exchange. Raises money by selling stocks and bonds to investors. **Created for the purpose of increasing the amount of housing credit.
Government National Mortgage Associaton
Federal Agency within the Department of Housing and Urban Development
Federal Home loan Mortgage Corporation (FHLMC)
Works with Fannie Mae and Ginnie Mae to increase the availability of mortgage money and maintain the secondary market for residential mortgages.
Conventional/ Insured Conventional Loans
borrower pays private mortgage insurance (PMI) to MGIC (Mortgage Guarantee Insurance Corporation) to protect lender against losses due to default/foreclosure.... on less than 20% down.
-Loan funds come from approved lenders.
-provides mortgage default insurance.
-Mortgage Insurance Premium (MIP) pays for Mutual
Mortgage Insurance (MMI)
-Higher loan to value ratio - lower down payment
property must comply with MPRs (minimum property
requirements) - establish minimum construction
- INTEREST RATES determined by lender and borrower, not Federal reserve board
-No alienation clause or prepayment penalty
- Points are charged to compensate for lower interest rates
VA (Veterans Administration) Loan
- Certificate of reasonable value (CRV) sets maximum
principle amount on loan - determines if and how much a
down payment will be
-100% financing available - down payment not always
-buyer or seller pays discount points. ___ pays points when refinancing
-No prepayment or alienation clause allowed.
-Loan may be assumed upon approval
CAL Vet Loans - Department of Veterans Affairs
-Made using land contracts
-Adjustable rate loans - interest rate increases, payments
remain the same, term of loan is adjusted to reflect change in interest rate
- 17 year old is eligible and can sign loan documents
- Do NOT charge discount points
This value estimate tends to set the upper limits of value, placing a ceiling upon the value.
The maximum allowable commission on a second trust deed for a period of 3 years or more
Principle of Substitution
The basis for the market data approach?
Gross National Product
The measure of goods and services produced by the nation during any one calendar year?
When a buyer takes property _______ an existing loan, the seller remains primarily liable on the promissory note. Seller signed original note, buyer has no personal liability, in event of default buyer would only lose their equity.
The Income Approach
Used with income-producing property. Future Benefits (profit) is the most important motivation for owning this type of property.
Highest and Best Use
Site analysis is used by appraisers to determine?
Tenants in Common
Each co-owners interest may be conveyed separately.
Elevation Sheets of a Construction Plan
Usually show the exterior sides of the structures as they will appear after completion.
Added to the cost basis and Depreciated
For Federal Income tax purposes, capital expenditures for improvements are
State Board of Equalization
When a business is purchased, a certificate of clearance, or clearance receipt should be issued by
For Federal income tax purposes, tax payer could adjust the cost basis for the addition of a concrete patio because it is considered a ______ .
Convert income into value
Capitalization is a process used to
In a slow Market
Market Data comparison method is relatively unreliable when