National Test Flashcards
(163 cards)
1
Q
Bundle of Rights
A
description of all the rights held by a property owner of real property. However
no owner ever enjoys the full bundle of rights. There are always restrictions placed on these rights by
governments that have jurisdiction over the property
2
Q
Enjoyment (Quiet)
A
That no one has a superior claim on the property
3
Q
Exclusion
A
(Make it private) – The right to privacy, to stop others from entering your property without your
permission
4
Q
Allodial System of Title
A
used in the United States to descript real property ownership. The owner has
complete and absolute control of the real estate. The government has no claim to any ownership rights of
privately owned real estate and the owner has no obligations to the government
5
Q
Land Characteristics
A
Ownership of land can be laterally severed into subsurface rights, surface
rights, and air rights
6
Q
Physical:
A
Land is immobile (geographic location is fixed—can never change), indestructible, and
unique or nonhomog
7
Q
Economic:
A
Scarcity (although there is a substantial amount of unused land, supply in a given location
can be limited) – such as a downtown area; Improvements (placement of an improvement affects
value and use) – a property with a view may be worth more than a property with no view;
Permanence of Investment (improvements represent a large fixed investment) – a property with a
large custom ho
8
Q
Situs:
A
This is also referred to as area preference, people’s choice and preferences for a given area.
Location, location, as areas change, people’s desire to be in a given location can change. This is the
most important economic characteristic of land.
9
Q
Chattel:
A
Referred to as personal property. It’s basically movable. Example: Furniture
10
Q
Bill of Sale:
A
Used to transfer personal property
11
Q
Fixture
A
Personal property, which has been converted to real property by method of attachment,
character and adaptation, or contractual intent of the parties. Examples: Blinds, ceiling fans, and
curtain rods.
12
Q
Appurtenances
A
To land is anything used with the land for the benefit of its owners. Examples:
roadways, easements and condominium parking areas
13
Q
Emblements
A
Cultivated crops are call emblements. They are considered part of the land until time that
they are harvested and then they become personal property
14
Q
Trade Fixtures
A
Articles installed by a tenant and removable by the tenant before the lease term expires.
If not removed, they become the real property of th
15
Q
Encumbrances
A
Any claim, lien, charge, or liability attached to and binding on real property, is an
encumbrance. Encumbrances limit or affect the use and/or title but do not prevent alienation (transfer of
ownership). There are two general classifications of encumbrances: (1) liens that affect the title,
such as judgments, mortgages, mechanics’ liens, and other liens which are charges on property used to
secure a debt or obligation; and (2) encumbrances that affect the physical condition of the property
such as restrictions, encroachments, and easements.
16
Q
Easement
A
Non-possessory interest in land. An easement is classified as an interest in real estate but
is NOT an estate in land. The party that owns the property still has full ownership; the party that
uses the easement only has the right to pass over or use the other party’s land. Easements are
classified as either appurtenant or in gross.
17
Q
easement appurtenant
A
an easement that is annexed to the ownership of another’s parcel of land
and runs with the land. When land is transferred from one owner to another, the new owner takes
ownership subject to the easement. There must be two adjacent tracts of land owned by different parties.
The tract that benefits from the easement is the dominant estate (tenement). The tract on which the
easement exists and is burdened by it is the serviant estate or tenement. The party that benefits from
the use of the easement (dominant estate) must maintain the easement.
18
Q
easement by necessity
A
created when an owner sells a property that has no access to a street or
public right-of-way except over the seller’s remaining parcel of land. All owners have right to ingress to
and egress from their land and cannot be landlocked. It would be necessary for the seller to provide an
easement whereby the buyer can ingress and egress from the land.
19
Q
easement by prescription
A
(also called a prescriptive easement) is when someone has used another’s land for a certain time. The use must be open (not secretive), visible, notorious, and
without the owner’s approval but where the owner readily could learn of it.
20
Q
A license
A
is a personal privilege to enter land and can be given orally or informally. Usually a license is
given rather than a personal easement in gross. A license is permission and can be given and can be
canceled by the property owner. Example: Permission to park in a neighbor’s driveway.
21
Q
easement in gross
A
personal in nature and does not pass with the land. Common examples are
power line easements, billboard site easements, and the like. Commercial easements in gross may be
assigned or conveyed and may be inherited. However, personal easements in gross usually are not
assignable and terminate on the death of the easement owner.
22
Q
How may an easement be created?
A
By express grant (written document) or in a deed, necessity, express reservation, implied grant, implied reservation (implied is created when actions and conduct demonstrate intent), prescription, condemnation, by the sale of land with reference to a plat, or by
estoppel (the owner of the servient tenement orally promises passage then subsequently changes his
mind and refuses access, thereby damaging the owner of the dominant tenement).
23
Q
How may easements be terminated?
A
They may be terminated when the purpose for which they were created ceases, by merger, by release (dominant tenement releases servient tenement), or by
abandonment (discontinued use coupled with the intent to never use again).
24
Q
Restrictions
A
Limits the use of the property such as deed restrictions or restrictive covenants.
Deed restrictions and restrictive covenants have basically the same meaning
25
Encroachment
A fixture or structure which invades a portion of a property belonging to another. To
determine an encroachment, a survey should be done.
26
Open Beach Law
The public is to have perpetual right (granted through prescription, dedication or
presumption) to use public beaches. Even though fee simple title to a lot belongs to an individual
27
Riparian Rights
Permits owner of land adjacent to a non-navigable stream, ownership of the land
under the stream or river to the exact center of the waterway. You also have the unrestricted right to the
water for limited domestic purposes. Owners of land adjacent to navigable streams or rivers own only up
to the mean vegetation line and the remainder belongs to the public.
28
Littoral Rights
Permits the owner of land on lakes and bays ownership to the mean vegetation line.
You have the unrestricted right to enjoy the available water for domestic purposes but own the land
adjacent to the water only up to the mean vegetation line. All land below this point is owned by the
government or other public authority.
29
Appropriation Water Rights
Water use is decided by the State rather than the adjacent owner. The
owner of land adjacent to a water source enjoys use of the water for limited domestic purposes. If
he/she wishes to use the water for another purpose such as irrigating their rice field, they must apply for
and get the appropriate permit from the State. Priority of water rights is established by the date the
permit was recorded. If the property was patented (granted) into private ownership after December 19,
1914, this rule applies.
30
Underground Water Rights
Owners have a right of correlative use of the water under their land.
They may retrieve only the water for which they have a beneficial use for on their own property.
31
Liens
A charge or claim which one person has upon the property of another as security for a debt or
obligation. A lien is created by agreement of the parties, like a mortgage, or by operation of law, like a
tax lien. A lien may be general or specific. A lien may be voluntary or involuntary. A voluntary lien
is created when someone takes out a mortgage loan. An involuntary lien is created by law or statute.
Liens are appurtenant and stay with the property and can bind successive buyers if not cleared at
closing. Title insurance will not protect against unrecorded liens as part of the standard coverage.
32
Involuntary Liens
While a voluntary lien is created by an action on the part of the lienee such as
taking out a mortgage loan to finance the purchase or a home improvement loan; An involuntary lien
takes no action on the part of the lienee and is created by statute, an operation of law, or the decision of
courts of equity. An involuntary lien can either be statutory or equitable. Statutory liens are created by
state law such as the right of the assessing entity (local municipalities, counties, and school districts) to
charge tax to property owners to pay for the costs of operating the governments and public schools.
33
Equitable Liens
Equitable liens arise out of fairness or what is equitable and is based on common
law. A vendor lien (seller’s claim) would be entitled to a seller who transfers ownership to a buyer by
deed and then the buyer does not pay for the property as agreed. The seller would be entitled to place
a lien on the property for damages suffered. A vendee (buyer’s claim) lien would be entitled to a buyer
who pays the purchase price for the property then the seller fails to transfer legal title to the buyer. Both
liens arise based on equity or fairness (custom) and not by specific statute of state law.
34
General Liens
Attach to all property not exempt from forced sale (homestead is exempt). Usually
effects all of the debtor’s property, both real and personal, to include judgments, estate and inheritance
taxes, debts of a deceased person, IRS taxes, and federal judgment liens
35
Specific Liens
Attach to one or more listed properties. In other words, specific liens usually are secured by a particular parcel of real estate and affect only that property. These include mechanic’s liens, mortgages, taxes, special assessments, vendors’ liens, vendees’ liens, surety bail bond liens, and attachments.
36
Mechanic’s Lien (also called “mechanics and materialman”)
A claim for the purpose of priority payment for work and/or materials furnished in erecting or repairing a building (M&M Lien). A type of specific, involuntary, statutory lien. The lien is filed against the land AND improvements. A mechanic’s lien is granted by statute; no such lien existed under common law.
37
Tax Lien
A statutory lien imposed against real property for nonpayment of taxes. A tax lien remains on
the property, until paid, even if the real estate is conveyed to another.
38
Tenancy in Severalty
If the ownership of a property is held by one entity, the estate is said to be a tenancy in severalty or ownership in severalty. The rights of all others have been severed away. The sole owner could be a person, partnership, corporation or any other business form but still, one owner.
39
Tenancy In Common
Ownership by two or more without rights of survivorship. With tenancy in common, each tenant in common may have a different percentage of ownership in the property. If an owner dies, his interest is disposed of according to his will to his devisees or to his heirs under the statutes of decent and distribution, not the other owner as with joint tenancy. If the deed conveying the
property conveys to two or more with nothing else being stated, we know the ownership is tenancy in
common because the creation of joint tenancy must be specifically stated in the deed of conveyance,
that all agree to take ownership as joint tenants.
40
Tenancy in common with a separate agreement
a time share. . Individual owners will use
| the property for a specified amount of time for a specified number of years.
41
Joint Tenancy
Ownership of real property by two or more persons, each of whom has an undivided,
equal, ownership interest WITH the right of survivorship. If one dies, the remaining joint owners equally
share the portion previously held by the joint tenant who died. To establish joint tenancy the deed must
specifically state the intent to take ownership as joint tenants. As joint tenants die, the last remaining
survivor will take ownership in severalty and becomes the sole owner.
42
Tenancy by the Entirety
Ownership by a husband and wife with rights of survivorship
43
Community Property
All property acquired by a husband and wife after marriage is community
property unless it is acquired by gift, will, or inheritance. Upon the death of one’s spouse, the surviving
spouse retains one half of the community property. The decedent’s half will pass by devise or if the
decedent is intestate, their one half of the community property and all separate property will pass by the
5 Statutes of Decent and Distribution. When community property is sold or mortgaged, both spouses must
sign the documents. Both signatures are required to convey homestead rights as well. The interest a
widow has in her deceased husband’s estate would be dower rights. Courtesy rights would be the
husband’s rights.
44
Homestead
a life estate in a family home. The homestead is protected from forced
sale by general creditors. The homestead may be selected from separate property of either spouse or
from their community property. The homestead may be sold for liens against the property including:
mortgages, taxes, mechanic/materialman liens, equity liens, refinance of purchase money lien, or failure
to pay HOA mandatory assessments. Homestead rights may end upon death of the owners, sale of the
property, or abandonment by the owners. Homestead rights do not terminate on the death of the spouse
and extend to minor children until they reach the age of 18. Both husband and wife must sign to sell the
property
45
Freehold Estates
Estates of indeterminable length, existing for a lifetime or forever.
46
Fee Simple Estate
Absolute ownership with all the rights associated with ownership of real property.
Best kind of ownership but still subject to certain limitations. Highest type of ownership interest
recognized by law
47
Life Estate
The three parties to life estate are the Grantor (the fee simple owner who gives the life estate to the grantee), Grantee (Life Tenant) and the Remainderman (who receives the reversionary or remainder interest when the life estate ends). A conventional life estate is a freehold estate limited in duration to the life of the grantee. The life tenant (grantee) enjoys just as a fee simple. They pay taxes, maintenance, and insurance and enjoy that ownership as long as they live. A pur autre vie life estate is based on the life of a third party rather than the life of the grantee and therefore ends on the death of
that party rather than on the death of the grantee. Unlike other freehold estates, a life estate is not
inheritable. It passes to future owners according to the provisions of the life estate and always ends on
the death of the party whose life it is vested in. When the life tenant (or third party) dies, the estate ends
and ownership passes to another individual or returns to the previous owner, regardless, the final owner,
when the life estate comes to an end, is known as the remainderman. While the life tenant enjoys all
the benefits of ownership he/she cannot waste the land or infringe on the remainderman’s rights.
48
Defeasible Fee Estate
The holder of the estate has fee simple title that may end when an event does
or does not occur. When the deed conveyed the property from the grantor to the grantee, a condition
was specified in the deed that would cause the estate to terminate and return to the original grantor or his
heirs or devisees. There are two types of defeasible fee estates. The determinable fee terminates when
the event occurs; the property automatically reverts ownership back to the original grantor or his heirs or
devisees. The second type is fee simple subject to condition subsequent. The only difference
between the two is that when the condition is violated, it is necessary for the original fee simple owner or
his heirs go to court to exercise his right to regain ownership.
49
Leasehold Estate
Conveys rights of possession but not rights of ownership. A lease conveys
possession for an amount of time for consideration (usually rent). There is always a lessor and a lessee
(landlord/tenant). Leaseholds are the other broad classification of estates in land. It is an interest in the
property of another. Those who lease property for owners or help tenants secure property to lease must
have a real estate license.
50
Rule against Perpetuities
designed to put a time limit on the vesting of estates. In general it stops someone from willing away parts of an estate to future generation of unborn heirs. Example: Let’s say the time limit is 15 years and you leave part of your estate to an unborn child. 15 years pass
from your death and that child has not been born yet. That part of the estate will be declared
void and the courts will decide how that part of the estate will be vested.
51
Valid Legal Descriptions
Legal descriptions should only be prepared by a surveyor or a title attorney.
52
Metes and Bounds
(terminal points and angles) or (angles or compass points) the description
generally starts with a benchmark (permanent reference mark) and must return to the point of
beginning (POB). In a metes and bounds description, the surveyor sets out to describe the perimeter of
the property in terms of feet, distance, direction, degrees, and compass points. The survey fails to close
if not returning to the point of beginning, therefore it would not completely encircle a parcel of real
estate.
53
Lot, block, and subdivision
(recorded plat).
54
Rectangular survey system or U.S. government survey
(Longitudes and latitudes, meridians and
| baselines), township tiers, and township squares (36 sections in a township).
55
Monuments:
Physical markers, either man-made or naturally occurring, that mark the corners of the
property. Natural monuments take precedent over linear measurements.
56
Complete legal descriptions can be obtained from
(1) title companies (2) recorded deeds (3)
| recorded deeds of trust (4) recorded mortgage.
57
Survey
The physical limits to where the property rights extend.
58
Datum
A marker used in the survey of elevations.
59
Government Rights in Land
Individual ownership rights are subject to certain powers, or rights, held
by federal, state, and local governments intended to promote the general welfare of the community.
60
Taxation (AD VALOREM)
A property owner must pay ad valorem taxes on an annual basis for all real estate. AD
VALOREM means “according to value”. The appraisal district in which the property is located sets
the value of all property in the district. This charge is to raise funds to meet public needs of the
government. When an improvement is necessary (highway widening) a special assessment tax may
be levied against all those that benefit from the improvement. When either of these taxes is not paid,
they become the primary lien on the property.
61
Tax Protest:
If a property owner feels that their property is assessed incorrectly they may protest the
value though the Appraisal Review Board in the county where the property is located. If the property
owned has protest through the Appraisal Review Board and is still not satisfied with the outcome, they
may appeal to District Court in the county where the property is located
62
Highest priority lien
are when taxes are unpaid, they become an automatic lien and move to first
position regardless of the recorded liens. The property is then sold to satisfy the liens. Taxes
create an encumbrance (financial cloud on title).
63
Tax Abatement
Eliminates or reduces taxes to new companies moving into an area.
64
Variance
The introduction of a new use that varies from the current zoning. Variances are usually
granted when strict compliances with the zoning ordinance or code would cause undue hardship.
65
Non-Conforming Use
The continuation of a use that was permissible prior to the recent zoning change.
It can be “grandfathered-in” as non-conforming. When the use to which the property has been put was in
existence before the zoning law was enacted.
66
Buffer Zones
A transitional area between two areas of different predominant land uses. An example of
a buffer zone would be placing an apartment complex between an area zoned single-family residences
and an area zoned for commercial use
67
Other Controls
Other public controls include subdivision regulations (municipality’s control
over subdivision development), building codes and environmental protection laws.
68
Private Controls
A deed restriction is usually placed on a property by the developer of the property.
These restrictions can refer to:
- Residential or commercial use
- Number of buildings on each lot
- Height, square footage and type of construction material
- Type of construction material
69
Accretion
Land increase caused when water’s movement causes soil deposits and increases the
land. The owner is entitled to additional land so created under riparian accretion.
70
Reliction
New land acquired if water recedes.
71
Avulsion
Sudden loss of land caused by act of nature such as an earthquake. Ownership of land
lost in such ways continues but the use may be lost.
72
Doctrine of Prior Appropriation
Water use is decided by the state. Allocated to users who have permits
73
Title Insurance
A Policy of Title Insurance is a comprehensive indemnity contract under which a
title insurance company warrants to make good a loss arising through defects in title to real estate or
any liens or encumbrances thereon and/or loss from some occurrence that has already happened, such
as a forged deed somewhere in the chain of title. They insure “good and indefeasible title” (Title that
cannot be defeated by a superior claim, set aside or made void.) Remember: Chain of Title is found
in the policy of title insurance and is a history of ownership and lists the grantor, grantee
indexes from the sovereignty of the soil into private ownership (patented), up to where the seller
has derived his title. The seller should be the grantee in the last recorded index.
74
Owner’s Title Policy
A title insurance policy to protect the owner of the property (the buyer).
75
Mortgagee’s Title Policy
A title insurance policy to protect a lender.
76
Right of Subrogation
When a title company makes a payment to settle a claim covered by a policy,
the company acquires all the rights and remedies of the insured party against anyone responsible for
the settled claim.
77
ALTA (American Land Title Association)
An ALTA title policy of title insurance policy
that covers more risks than a standard title insurance policy would. These covers risks such as
unrecorded mechanic’s liens, unrecorded easements, water and mineral rights, facts that may be found
in a survey and the rights of parties in possession of the property but is unrecorded or undocumented.
78
Grantor
The owner who sells or gives the land.
79
Grantee
The purchaser who acquires the title to the land.
80
Who's signature is required for an executed deed?
The deed is executed (or signed) by the grantor. The grantee’s signature is NOT required.
81
Recording a deed
Recording is NOT a requirement of a valid deed. ; however, when a deed is recorded, recording gives
statutory and constructive notice to the world of ownership. Recording protects ownership and
safeguards against fraudulent sale.
82
Requirements of a Valid Deed
- Competent parties (Grantor and Grantee)
- Consideration
- Conveyance (Written instrument that evidences transfer of some interest in property from one person to
another, called a granting clause)
- Execution (Signing and acknowledgement of the Grantor’s signature)
- Legal description
- Delivery and acceptance
83
General Warranty Deed
Guarantees and protects against defects in title. Warrants title to be good from the separation of the soil.
84
Covenant of Seisin
The grantor warrants that he/she is the owner of
| the property and has the authority and the right to convey title to it. (5 implied covenants).
85
Special Warranty Deed
Warrants title against every person lawfully claiming by, threw or under the
current grantor. The grantor has ownership and the authority to sell and has done nothing to damage
the title during the time he has held ownership but doesn’t warrant back to the time the soil was
patented into private ownership.
86
Quitclaim Deed
A quitclaim deed transfers whatever, if any, interest the person giving the deed has in
the property. Used to cure a “defect” in the title. It provides NO guarantees or warranties.
Remember: quitclaim is one word! Quit claim would not be correct!
87
Sheriff's Deed
Given by a court to effect the sale of property to satisfy a judgment.
88
Bargain and Sale Deed
Sometimes called a deed without warranty. Uses the words “grant, bargain
and sell” in the granting clause. It contains no warranties against encumbrances; however, it does
imply that the grantor holds title and possession of the property. Because the warranty is not
specifically stated, the grantee has little legal recourse if defects later appear in the title.
89
Master Deed
An instrument used by a condo developer to convert a single property to a scheme of
individually owned units in a multi-unit building that share an undivided ownership in the common areas
90
Voluntary Alienation
- Exchange: The consideration is other property, rather than money.
- Gift: Consideration is love and affection.
- Sale: Usually by deed.
- Devise: Last will and testament, person who inherits is a devisee.
- Assignment: By an attorney-in-fact, meaning a principle may appoint someone to sign on their behalf with
a power of attorney document. Deeds cannot be assigned.
- Public Dedication: Private land can be transferred for public use or ownership deed, common-law
dedication or statutory dedication
- By Deed: Transfer of fee simple ownership
- Common-law Dedication: When an owner devotes land to public use
- Statutory Dedication: Generally transfers an easement for public use
91
Involuntary Alienation
- Foreclosure: Property is sold to satisfy a mortgage lien, tax lien, or mechanic’s lien.
- Condemnation: The process of acquiring property under the power of eminent domain.
- Adverse Possession: Open, continuous, hostile for the statutory period. There are 3,5,10, and 25 year
statutes.
92
Action to Quiet Title
Forces others that might have a claim on a property to prove the claim or have
the claim ruled invalid by the courts.
93
Partition Action
brought by a co-owner of a property to force the severance of the co-owners. The
property is divided, if possible, or sold and the proceeds are divided by the owners.
94
Acknowledgment
A declaration made by a person to a notary public or other public official authorized
to take acknowledgments, that the instrument was executed by him/her and that it was his/her free and
voluntary act
95
Chain of Title
Shows a history of ownership of the property and establishes a complete line of free title
from the original grant from the sovereignty of the state to the most current property owner
96
Exception vs. Reservation
Exception withholds from the operation of the deed title to a part of the
land such as conveying surface rights but not mineral (subsurface) rights. A reservation is the creation
by the deed of a new right in favor of the grantor such as reserving a life estate, or easement).
97
Habendum Clause
The “To Have and to Hold” clause that defines or limits the quantity of the estate
granted in the premises of the deed. If the language reads the seller will grant and warrant forever then
it is a general warranty deed. If it reads by and through me, it is conveying by special warranty deed.
This clause always follows the granting clause. If there is a discrepancy the granting clause is followed.
98
Doctrine of Relation Back
When a seller deposits his deed in escrow and the sale is completed and
escrow is finished, the deed passes title to the buyer as of the date it was delivered to the escrow agent.
The title relates back to the date on which the deed was deposited in escrow.
99
Title
Ownership in property, supported by evidence of ownership, such as a title insurance policy or an
abstract with an attorney’s opinion attached. While the deed conveys ownership, the title policy or
abstract gives evidence and to the type or quality of that ownership and the rights being conveyed.
100
Marketable Title
Title that is free from reasonable doubt as to who the owner is.
101
Good and Indefeasible Title
A title that cannot be defeated by a superior claim, set aside or made
void. It guarantees against defects in the public records, forged documents, incompetent grantors, and
more.
102
Equitable Title
The right to demand that title is conveyed upon payment of the purchase price. You
have equitable title when both parties sign the agreement.
103
Escrow
The term escrow has two meanings in real estate. The purpose of title escrow is so a
disinterested third party holds the money and/or documents until the terms of the contract are met. The
holder (usually a title company) is the special and impartial agent for both parties and acts in accordance
with the instructions given by both. An escrow account is established on a new loan to collect taxes and
insurance reserve and any interest due from the buyer. The mortgage company will then pay the taxes
and insurance, when due, on the buyer’s behalf.
104
Legal Title
Title that is complete and perfect in regard to the apparent right of ownership and
possession enforceable in a court of law.
105
Doctrine of Equitable Conversion
A doctrine of law that gives title to property to a buyer under an
executory contract in certain situations before legal title has been transferred to the buyer. Upon creation
of a binding contract, the seller holds legal title as security for the purchase price for the buyer, who has
equitable title.
106
Probate
The legal process to determine the validity of a will and establishes the assets of a decedent.
Probate proceedings must take place in the county where the real estate is located. If the will is upheld,
the property is distributed according to the will’s provisions.
107
Last Will and Testament:
An instrument made by an owner to voluntarily convey title to the owner’s
property after his/her death. Title to any real estate passes immediately to the devisee upon the death
of the testator.
108
1031 Tax-Deferred Exchange
Under section 1031 of the IRS Code, real estate investors can defer
taxation of capital gains by making a property exchange. The tax is deferred rather than eliminated.
Properties must be of like kind—income, investment, or residence. Additional capital or personal
property included in a transaction to even out the exchange is called boot. The boot is taxed at the time
of the exchange.
109
Intestate
Legal designation of a person who has died without leaving a valid will.
110
Testate
Person who has died, leaving a valid will. That person is a testator.
111
Executor/Executrix
The man/woman appointed and approved by the court, in a will to carry out the
requests of the will.
112
Hereditaments
Things both personal and real that is capable of being inherited.
113
Deficiency Judgment
A personal judgment against a borrower if the foreclosure sale does not bring
enough to pay the balance owed.
114
Title by Descent
Transfer of title to real or personal property through descent (heirs). No will.
115
Descent Distribution (Intestate Succession):
The title to real estate and personal property of an
intestate decedent passes to his/her heirs. Separate Property: Deceased owner who died without a
will (intestate), spouse and children receive property. Community Property: Without a will, to surviving
spouse if all children are common to both; otherwise, surviving spouse receives half and all the children
of the decedent equally receive half.
116
Devise
The gift of real property by will. A person who receives property by will is a devisee.
117
Bequest
A gift of personal property is known as a legacy or bequest. The person receiving the
personal property is known as a legatee.
118
Leasehold Estate
An interest one has in a lease to occupy a property for the duration of the
agreement.
119
Estate for Years
(Also called Tenancy for Years) A leasehold estate that continues for a “definite
period of time”. It can be for days, weeks or years. It always has a specific starting and ending date.
and it does not automatically renew at the end of the lease. Must be created by “express agreement” (in
writing). An oral lease for less than one year might be enforceable and is the only exception to the
Statute of Frauds requiring any conveyance of any interest in property to be in writing to be enforceable.
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Periodic Tenancy
A month-to-month lease agreement. A landlord and tenant enter into an agreement
that continues for an indefinite length of time without an expiration date. It automatically renews upon
payment of rent.
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Requirements of a Valid Lease
- Competent Lessor (Landlord) and Lessee (Tenant)
- Let and take agreement.
- Adequate consideration
- Adequate description
- Execution
- Term (time period)
- Delivery
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Leases Terminate By
- Expiration (The term ends.)
- Rescission (Agreement between the parties)
- Eviction (Landlord must file an action of forcible detainer to evict)
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Property management
involves leasing, managing, marketing, and overall maintenance of real estate
owned by others. A property manager is usually considered a general agent. They are charged with
some of the same fiduciary duties as the listing broker - care, obedience, accounting, loyalty, and
disclosure.
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Relationship between property manager and owner
Agency Relationship should include
- Describe the property.
- Set the time period of the agreement.
- Define the property manager’s responsibilities.
- State the owner’s purpose, i.e. maximize net income and increase the value of the investment.
- Describe the manager’s authority.
- State the reporting requirements to the owner.
- Set the management fee.
- Allocate the costs to the manager or the owner.
The property manager should develop an operating budget based on anticipated revenues and
expenses and reflecting the long-term goals of the owner.
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Tenancy at Sufferance
One who fails to move out when the lease expires (holdover tenant) without
the consent of the landlord.
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Tenancy at Will:
Is a leasehold estate that exists for as long as both the lessor and lessee desire it to
last. It may be created by express agreement or by operation of the law (including the payment of rent
at regular intervals). The term of tenancy at will is indefinite. Creates a holdover tenant with consent of
the landlord.
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Right of Forcible Entry and Detainer
Also called ACTUAL EVICTION. The landlord’s right to regain
possession of the property when a tenant breaks a lease or improperly retains possession of the leased
premises.
128
Constructive Eviction
A tenant terminates the lease if the tenant can prove the premises have
become uninhabitable because of neglect of the landlord. The tenant must vacate to claim constructive
eviction; not remain and wrongfully withhold rent.
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Assignment vs. Subletting
Assignment transfers all rights and liabilities whereas subletting
transfers only partial rights and no liabilities to the lessor.
130
Graduated Lease:
Provides for rent increase at set future dates
131
Gross Lease
Flat rental amount for a specified period
132
Index Lease
Allows rent increases or decreases periodically based on an agreed index such as the
change in the cost of living index.
133
Triple Net Lease
Flat rental amount plus expenses, i.e., taxes, insurance, maintenance
134
Capitalization Rate
A factor, which if applied to an income stream, will convert that income into an
indication of value. The higher the “cap” rate, the lower the sales price.
135
Economic Life
Period during which a building earns enough income to justify its continued existence.
136
Economic Rent
Rent a property will produce when employed to its optimum efficiency. (100%
occupied)
137
Externalities
Influences outside a property that have a positive or negative effect on its value.
138
Residual Value
What is remaining after the economic life of a property is gone.
139
Regression
Properties that suffer loss because of declining values of surrounding properties.
140
Progression
The worth of a lesser property tends to increase if it is located among better properties.
141
Gross Rent Multiplier
A number that is multiplied by a property’s gross rent to produce an estimate
of the property’s worth; or sales price divided by monthly rental income = GRM.
142
Highest & Best Use
That use which gives the greatest return in money and/or amenities.
143
Plottage Value
Combining and consolidating two adjacent lots into one increases utility and
value. The amount of the increase in value is called plottage value. The act of combining the two
adjacent lots to result in a higher value is called assemblage.
144
Unearned Increment
Value added to land due to increased development and demand, none of
which the owner is responsible for.
145
Principle of Conformity
Appraisal theory that affirms that the maximum value is realized if the use
of land conforms to existing neighborhood standards.
146
Principle of Contribution
The value of any component of property is determined by how much
value the improvement contributes to the value of the whole property.
147
Principle of Competition
This principle states that excess profit always attracts more competition.
Examples occur when a hamburger chain opens on a busy corner; it follows a competing hamburger
chain will soon open on a nearby site.
148
Principle of Increasing & Diminishing Returns
Improvements to the property eventually will reach a
| point at which they no longer add any value to the property.
149
Principle of Substitution
Maximum value of a property will not be above an equally desirable and
valuable substitute property.
PRINCIPLE OF SUBSTITUTION = MARKET DATA APPROACH
150
Market Data Approach
Comparison with known sales of other comparable properties. The principle is
substitution. No one will pay more if the same thing is available for less money.
151
Income Approach:
Capitalization of net income (i.e. value based on income). Used on commercial
and investment properties that produce income
152
Cost Approach
The only approach that uses depreciation. Sometimes called “appraisal by summation” based on the property’s reproduction or replacement cost.
153
Principal Steps in Appraisal Process
- Define problem and accumulate data.
- Apply approaches.
- Process of reconciliation (also called correlation) and verification.
- Final value estimate
- Reporting the appraisal
154
Essentials to Appraisal
```
Report:
Date
Statement of purpose
Opinion of value
Legal description of property
Signature of appraiser
```
155
Reconciliation
The final step in an appraisal process, in which the appraiser reconciles the
estimates of value received from the market data, cost, and income approaches to arrive at a
final estimate of market value for the subject property.
156
Factors that Cause Depreciation
Any condition that adversely diminishes the value of the
| improvements to real property
157
Physical Deterioration
A loss in value because the building is old and weathered. It may also
suffer from lack of maintenance or even vandalism. Can usually be curable
158
Functional Obsolescence
Caused by relative loss of a building’s utility (outdated). Could be
curable but more often is incurable such as an office building that will not accommodate central heat
or air.
159
Economic Obsolescence
Sometimes called “external obsolescence”. This is brought about by
social, environmental, or economic factors outside the property, such as changing neighborhoods,
noise, and pollution. Usually incurable because there is nothing the existing owner can do to remove
the negative element as it is not on his property.
160
Competitive Market Analysis (CMA)
written report prepared by a real estate agent to assist
sellers and buyers with the determination of listing prices and offering prices. A CMA should include:
Homes that have sold within the last few months
161
Transactions Requiring Formal Appraisal
1989, the Financial Institutions Reform, Recovery,
and Enforcement Act (FIRREA) began requiring that a licensed or certified appraiser be used to do
any appraisal in connection with a federally related transaction of $250,000 or above.
162
Straight-Line Depreciation
This is a method used by accountants to depreciate investment
properties for IRS purposes. The IRS sets the economic life of structures depending on what they
are.
163
To determine annual depreciation
take the replacement cost of a building and divide it by the economic life of that building. A property with a replacement cost of $200,000 and an economic life of
50 years would have an annual depreciation of $4,000. Multiply the annual depreciation by the age
of the building for the total amount of depreciation. If this building were 15 years old, the total
depreciation would be
$60,000.
