Arizona Broker Exam - Finance Flashcards
CHAPTER 4 ENCUMBRANCES
TO DO
CHAPTER 5 FORECLOSURE, CARRYBACK DOCUMENTS, FINANCING
TO DO
CHAPTER 6 REAL ESTATE INVESTMENT AND TAXATION
Rate of Return
Investor’s % yield based on property’s income production
Cash Flow
Net spendable income from an investment after operating and fixed expenses including debt service
Cash on Cash Return
Cash made on a cash investment
Equity build-up
Corresponding reduction of principle and growth of equity on a mortgage through amortized payments. Included are gains in property value through appreciation
Internal rate of return
Rate of an investment’s growth mathematically calculated on basis of projected cash flow from the initial investment
Frozen Asset vs. Liquid
Frozen cannot quickly be converted into cash such as RE
Debt Relief
When relieved of a debt, you will receive 1099 and must report it as income on tax return
Limited partnerships
2 or more pool to invest but only 1 organizes and operates the organization (syndicate)
Passive Investors
Limited partners - share profit but not loss. Lose only the amount invested. No voice
General partner
Receives compensation from profits. Voice but responsible for excess losses
Benefit to LP
Able to write off losses and taxed at individual level but subject to passive loss rules, which disallow deductions to offset other income.
Register with Fed. SEC
Master Limited Partnership
Hundreds - register with SEC, can be publicly traded
General Partnerships
2 or more - each shares in profits and decisions. 1 is Trustee to hold title to property
Each shares equally in debt, loss and obligations and possible to lose real and personal property
Must be dissolved if one withdraws, bankrupt or dies
Taxed at individual level
Regular C Corporation
Artifical person, legal entity 1 or more Managed by Board of directors Liability limited to indiv. investment If sued, corp and indiv. assets at risk Double taxation Death does not affect organization - perpetuity until dissolved
S-Corporation
Treated as Partnership for taxes - no corp. tax
Taxed individually based on % of ownership
Can deduct ordinary losses
Capital gains pass through
Liable for amount invested
No more than 100 US shareholders
Limited Liability Companies
Members limited personal liability
Control of a GP
Direct pass-through tax advantage
Not personally liable to creditors or tort victims
Real Estate Investment Trust
At least 100
Exempt form Corporate tax if invest 75% in RE and distribute 95% of annual RE ordinary income to investors. Not double-taxed - each pays normal IT on profits and eligible for capital gains
Central, skilled management, diverse investments, continuity of operations
Disadvantages of REIT
Losses cannot be passed-through
Confined to large RE investments
Must register with SEC
is expensive
Sole Proprietorship
1 owns all
Flexible, easy to organize
Taxed personally
100% liable for losses and could affect personal proeprty
Ordinary Income
10%, 25%, 28%, 33%, 35%
39.6% if over $400,000 or $450,000 joint
Capital Gain
Taxed profits from selling capital assets
Difference between adjusted sales price and basis (investor’s initial cost) of property
20% for income over $400,000 or $450,000 joint otherwise 15%
Capital Gain Losses
Max. Deductible is $3000 per year. Excess carried forward to next year.
Only Investment RE counts toward capital losses, not private residences
Computing Gain
Basis + Acq. Cost + Capital Improvements LESS Depreciation = Adjusted Basis
Sale Price LESS cost of Sale = Adjusted Sale Price
Adj. Sale Price - Adj. Basis = Capital Gain or loss
Sale of Principle Residence
Basis + Acq. Cost + Cap. Imp. = Adj. Basis
Sale Price - Cost of Sale = Adj. Sale Price
Adj. Sale Price - Adj. Basis = Gain
Capital Gain Exclusion
$250,000 or $500.000
Used as home for 2 of 5 years
Renewed every 2 years - can sell every 2 years and get exemption
Home Purchases
First timers can withdraw from IRA penalty free (saves 10% penalty up to $10,000) but pays tax on withdraw
Investment Income Tax
Called Medicare Tax 1/1/3
High Incomes $250,000 joint, $125,000 married filing separately and $200,00 for others pays 3.8% tax on investment income (not just RE)
Installment Sale
Spreads out gain from RE sales over several years reducing seller taxes by keeping them in lower bracket.
Down payment can be any amount as long as there is a future payments in a year other than
the year of sale
Tax Deferred Exchange
Swap properties with tax on gain deferred to later transfer
Like Kind
Income producing properties with same ownership interest
Cannot be fee simple for leasehold interest unless 30 years or more
Boot
To offset disparity in equity or value in property
Taxed
Mortgage Relief
Reduction of debt when one exchanges property with high mortgage for one with low mortgage. Also taxed
1031 Exchange
Purchase price of replacement must be equal or greater than net sale price of relinquished
All proceeds from relinquished must be used to acquire replacement
1031 Like Kind
Property held for productive use in trade or business or held for investment
Rentals, other income property and unimproved land qualify
Unimproved can be exchanged for improved
One property can be exchanged for several or several to one
Not personal or second homes
1031 timelines
180 days from close of escrow of relinquished to acquire replacement
45 days to Identify replacement in writing, signed by investor, received by intermediary or other qualified party
Otherwise transfer will be taxed
Depreciation
Only investment property, not land or private residence
Allows investors to recoup expense of income property by tax deductions over the useful life
Useful Life
27.5 years for residential property
39 years for commercial and industrial
Straight line = yearly in equal amounts
Accelerated only for property purchased before 1987
Business Opportunities
Regulated by UCC
Bulk Transfer Sale
Sale in whole or part of a business or its personal property assets.
Seller (tranferror) provides buyer (transferee) with list of creditors. Buyer does actual notice (registered or certified) and constructive notice (newspaper) of pending sale. 10 day waiting period before transaction can close to protect creditors against seller skipping out with proceeds. Buyer must keep copies of documents for 6 months.
Chattel Mortgage
Personal rather than real property is used as collateral for the loan
Financial Personal Property
Security Agreement creates lien upon Personal Property (chattels)
Security agreement not filed but a short form “Financing Statement - UCC-1) provides notice by being filed and recorded with Secretary of State
Personalty
Personal property
Bill of Sale
Transfers title to personal property
Deed or Assignment (sublease)
Deed conveys title to an interest
Assignment is transfer in writing of interest in lease. Lessee transfers all interest to an assignee
Goodwill
Blue Sky or Habit of Patronage
Saleable, intangible asset arising form good business reputation. A capital but not depreciable asset for tax purposes
Covenant not to compete
Given by tranferor of a business not to open similar business in an agreed area for a period of time. Covenant usually given a value and can be depreciated over its life
CHAPTER 7 RESIDENTIAL FINANCE
FHA
1934 - Federal Housing Administration 1/3 of all home loans
Title 1 - home repairs
Title 11 - Construction, buying or refinancing (203B)
Title 111 - Fannie Mae - to purchase Title 11 loans from primary lenders
FHA Loan
Can amortize Mortgage Insurance over life of loan and pay up-front MIP at closing of 1.75% which may be added to loan.
Annual MIP 1.20% for LTV equal or less than 95% of appraised value OR 1.25% for LTV greater than 95%
Buyer must invest 3.5%
Homes less than 1 year, loan is 90% of AV or SP whichever less
$346,250 max. loan amount in Maricopa
FHA Conditional Commitment
Contingent on FHA (or VA) appraisal - either buyer or seller pays
Escape clause if home does not appraise
Appraisal valid for 120 days
Qualifying for FHA
Cash, credit, collateral, capacity
Score above 580 for max. loan
500-579 = 90% LTV
Under 500 = not eligible
Ratios - 31% front (house payment - PITI/gross monthly income
43% back (LT debt+ PITI/gross monthly income
FHA Assumption Policies (203B)
Owner occupied
Mortgage PITI under the budget
Mortgage payments must be level
No prepayment penalty
Origination fee not to exceed 1% (buyer pays)
Discount points (buyer or seller)depends on Interest Rate
Seller limited to a contribution of 6% of sales price
Secondary financing OK
Impound account required for taxes and insurance
Investor loans no longer made by FHA (non-owner occupied)
VA-Guaranteed Loan
Active duty 181 days (90 days hot war) or 2 years If serve after 9/7/80 and disabled are exempt.
VA guarantees to pay lender dollar amount or percentage of lien in event buyer defaults
Ratios - 41% (house payment, utilities,
maintenance/gross monthly income
Must show sufficient residual income
Certificate of Reasonable Value
States present market value based on VA approved appraisal Valid 6 months or 12 mos. for new Places ceiling on amount of loan 1-4 family units qualifies VA issues guaranteed commitment
Requirements of VA Loan
Owner occupied
Level payments
Origination fee 1%
no pre-payment penalty
Funding fee paid by buyer or seller at closing or added to loan - helps VA recover losses on foreclosed homes and not refunded
Discount points paid by buyer or seller but not financed
Escrow and termite cannot be charged to buyer
VA Guarantee to Lender
Lenders do not loan more than 4x the VA eligibility. VA guarantees $104,250 on $417,000
Conventional Loans
Non-government (non VA-FHA) and conforming (up to $417,000, Fannie Mae and Freddie Mac approved documents and meets underwriter guidelines) or non-confirming (has higher interest rate)
PMI
Private mortgage insurance enables LTV up to 95% of appraised value with assurance of protection above 80%
PMI needed if LTV in excess of 80%
Can be dropped when equity at 78%
Conventional Assumption
NOT assumable on fixed rate and all have “due on sale” clause
Assumable on variable rate if owner occupied
Ratios for Conventional
28% front and 36% back
Front includes PITI and PMI
80-10-10 eliminates PMI
1% origination usually
Variable Rate (ARMs)
Usually no pre-payment penalty
Initial payments lower
Uses T-bill, COFI, LIBOR, MTA indexes
Have 2-6 CAP which means interest rate cannot be adjusted upward more than 2% per year or 6% over the life
Negative Amortization
With Graduated Payment Mortgages and ARMs where initial monthly payments are less than actual amortized amounts and the result is an increasing rather than decreasing balance over the life of the loan
CHAPTER 8 COMMERCIAL FINANCE
Land Loan
50% at 6-8 points for farmers and speculators
Acquisition and Development Loans (A&D)
To pay off land loans and provide money for subdivision improvements. Developer then sells off sites (bulk lots)
Construction Interim Loans
Short term to finance construction. Periodic installments as work progresses and paid off in balloon upon completion with accrued interest
Must provide performance bond
Certificate of Occupancy when completed
Bridge “Gap” Loans
Loan when construction loans are due but permanent loan too expensive. “Buys time” until project sold
Permanent “Take Out” Loans
Pays off all previous loans - “mortgaged out”
Amortized with P & I paid off in regular installments over period of time - alternative is sell
out project or sale-leaseback
Lending Sources
Commercial Banks - short term construction, bridge and land loans
S & L - Long term. A&D, Permanent
Mortgage Bankers and brokers (intermediaries)
Risk
Construction problems Down payment and LTV Foreclosure Resale (Loan value) - greatest risk Payment, credit history
Special Lender Considerations
Regulatory requirement- increase in reserve requirement by Fed could impair lender ability to make loans
Portfolio Balance
Cost of Funds Lender expenses for certificates of deposit and bank operating overhead
Deep Pockets exposure - lawsuites
Procedures
Loan application Credit check Building Plans Appraisal R-41-C.D. by MAI Reference/background checks Loan officer/committee Federal oversight Conditional approval - 3 months-1 year Final approval - 36 days Extended ALTA title policy - required - covers mechanic's liens and other items not in public record Loan escrow Close of escrow
HUD
Block grants to cities and counties in HUD approved areas
Secretary discretionary loans
Urban development action grants
SBA
Guarantee program - lender predicates loan on potential resale value with SBA guaranteeing difference in case of default
SBA will loan max. of 90% on value with 25-30 year term
Alternative sources of capital
Private Placement Going Public - sale of stock Small Business Investment Corporation. Convertible Debenture Issues Venture Capitalists Joint Ventures Seller Carryback Options to purchase Real Estate Sale and Leaseback Syndication
Calculating Return
Return OF investment - recouping investment money
Return ON investment - Profit
Common types of return analysis GRM
Gross Rent Multiplier (GRM) - estimate of market value and how soon OF will be reached - calculated monthly or annually
Sale price/gross rent = GRM (no. of months or years necessary to achieve a return OF investment
to get estimated market value - Sales prices of similar properties are divided by their gross rents to get several GRMs which are averaged and average GRM is then multiplied by gross rent of subject property to produce its estimated market value
Capitalization Rate (CAP)
Divide Net Operating Income (NOI) by sales price
Assumes no debt. NOI is total Gross income less operating expenses
High CAP = lower prices for buyer
Low CAP Rate = high prices for seller
Three formulas to remember using CAP
I/R = V
I/V = R
V x R = I
Cash on cash return (CCR)
Same as CAP if all-cash purchase
Takes into account debt service (mortgage or loan)
NOI/Annual Debt Service = Debt Coverage Ratio which is ratio of Net annual income to debt service.
Does not take into account taxes or future earnings beyond one year
Property Income/Expense Analysis
Analyze existing rents or market comps to determine what rental charges should be
Assume 100% occupancy
Add other income (parking fees, etc.)
Subtract existing vacancies or projected vacancies based on market comps
Subtract credit losses i.e. uncollected rent from tenants not yet evicted
EQUALS ADJUSTED GROSS INCOME
Expenses
Property Tax
Property Insurance
Maintenance and Repair
Operating Expenses
Subtract from Adjusted Gross Income = NOI
Property Value
NOI/CAP rate = property value
Subtract debt service (sum of mortgage payments) from NOI = cash flow
Cash on cash return can then be determined.
Business Opportunity Sales
Requires RE license if sale of business includes RE
Listing Business for Sale
Verification of facts and terms about business
Personal property inventory and value (personalty)
Lease assignment or sale of RE
Goodwill
Purchase contract required if sale of goods exceeds $500
Seller = transferor
Buyer = transferee
Escrow requires lease title insurance, UCC search, Inspections, Liens and Judgment search
Close of Escrow on Business Sale
Assignment of lease
Bill of sale
Seller Carryback
Promissory note
Chattel Mortgage/Chattel Security Agreement - not recorded but creates lien on Personal property
Financing Statement UCC-1 perfects lien on personal property. Filed with AZ Sec. of State
UCC-3 termination statement releases lien from personal property when lien paid off
CHAPTER 14 APPRAISAL
Appraisal
Opinion of value or judgment based on experience
Appraisers
Licensed by AZ Board of Appraisers - Staff or Fee
Appraiser Trade Groups and designations
Appraisal Institute has 2 desigations - Member Appraisal Institute (commercial)
or Resident Member
American Society of Appraisers ASA - business and court cases
National Assn. of Independent Fee Appraisers IFA - general
Review Appraiser - checks work of others
3 Definitions of Value
Relationship of object desired to a potential purchaser
Power of goods or services to command other goods or services in exchange
Present worth of future benefits arising from property ownership - MOST IMPORTANT DEFINITION FOR RE
People create value, appraisers calculate it
4 Characteristics of value
DUST Demand Utility - subjective or objective, tangible or intangible Scarcity Transferability
4 Kinds of Value
Insured
Assessed
Mortgage - lender view
Salvage/residual - at end of economic life
Objective vs. Subjective value
Subjective weighs heaviest because it is intangible, fluid, manipulable like amenities.
Objective is created by the object itself, subjective is created in the mind
Influences on Value
Physical Social Economic Governmental Directional Location
Special land value considerations
Plottage Increment (assemblage) Unearned Increment - increased value doe to forces beyond owner control ie zoning Soil Fertility Soil Percolation Compaction of Soil
Economic Principles of valuation
Highest and best Use Substitution Supply and demand Anticipation Conformity Contribution Progression Regression Market Price - what someone actually paid Market Value - probable price
Appraisal Approaches - Market Data
Comparative Analysis when appraising land and residential property Most reliable gauge of market Based on principle of substitution Listings are ceiling Sales are floor
Market Data Approach - Principle Factors of Adjustment
Date of Sale
Location of Subject property
Physical Features
Terms of Sale
Weigh NOT average factors
Appraisal Approaches - Cost Approach
AKA Summation
Estimate of value based on property’s reproduction or replacement cost less depreciation PLUS value of land
Used for new construction, custom homes, special use or service properties (churches) where comps not available.
Cost Approach - Estimating construction costs
Reproduction cost - cost of original materials to produce exact replica (historic home)
Replacement Cost - using current materials and standards - Quantity Survey (item by item), Unit in Place (cost of complete building systems), Comparative (cost per square foot)
Depreciation
Used in Cost Approach
Loss of value for any reason
Physical - curable or incurable
Functional Obsolesence - curable or incurable
Economic (social obsolesence) - non-curable - outside of property
Depreciation terminology
Economic Life - how long property can be profitably utilized or will retain value in excess of salvage value
Actual age - chronological age
Effective age - subjective age of property - age it is perceived to be
Appraisal Approaches - Income Approach
AKA Capitalization
Based on present worth of future rights to income
i.e. amount of net income property will produce over remainder of its economic life
For dealing with investors and commercial property
Establishing NOI
Scheduled Gross Rental Income LESS vacancies and credit losses =Adj. Gross Income LESS Operating Expenses (Property tax, insurance Utilities, etc. BUT NOT DEPRECIATION AND DEBT SERVICE) = NOI
Capitalization Rate
Rate of return made on capital investments
Cap divided into NOI = estimated capitalization value of property and is the percentage selected for use in the income approach to valuation of improved property. It measures risk involved in an investment
Higher risk = higher Cap rate
Higher CAP rate = lower the value
Higher the value = lower the CAP rate
Reconciliation
AKA correlation
Weighing and analyzing (not averaging) of property using 3 appraising methods
CHAPTER 16 ESCROW AND CLOSING
Escrow Agent
Refers to the title company
Escrow Officer
refers to title clerk
Escrowors
sellers and buyers
Escrowee
Escrow Company
Preliminary Title Search
Find defects in chain (history) of title that would affect marketability
Prorates
Divides Proportionately settlement costs between buyer and seller
Official close of Escrow
All money paid
Documents signed and recorded
Disbursements made
Valid deed is delivered from grantor to grantee usually via mail from county recorder’s office
Double Escrow
Seller uses buyer’s money (deposit) to acquire property in one escrow, then sell it to the buyer in another escrow for profit
Back to back escrow
Person uses one escrow for simultaneous sale of one property and purchase of another eg. seller who sells his house and contracts to buy another, contingent upon the proceeds from first house
Termination of Escrow
Close of escrow
Breach of contract
Mutual cancellation
Forced cancellation
Termination of escrow upon death of buyer or seller
NOT automatic, but in some cases may cause failure of a transaction to close
Interpleader
Neutral third party hired by escrow agency to settle disputes or legal proceeding in which a third party that deposits disputed money with the court
Doctrine of Relation Back
Ensures delivery of deed to grantee even if grantor dies assuming terms of escrow are met. Eliminates specific performance suits against grantor’s heirs
Escrow as dual agent
Escrow agency and officer must remain neutral.
Debits andD Credits
An item usually is debited to the party benefiting from the item while the party relinquishing an item is usually credited in an amount equal to its value
Debit = owed
Credit = due, receivable
CHAPTER 5 FORECLOSURE AND FINANCING
DOCUMENTS - Title Theory
Lender Holds Title
Lien Theory
Borrower holds title - AZ
Hypothocate
Property is collateral while one possesses (Lien theory)
Note
Evidence of debt - not recorded - does not create the lien
Estoppel Certificate
Verify terms of note with person paying the note
Collateral
Security for note
Lien Document
Recorded in county where property located and signed by borrower and Lienee, notarized and legal description of property
Types of Liens - mortgage
Mortgagor = borrower
Mortgagee = lender
Legal title and all rights of ownership with mortgagor
Types of liens - Deed of Trust
Trustor = borrower
Beneficiary = lender
Trustee - holds bare legal title given by trustor - no rights of ownership
Trustee - 3 duties
hold legal title
return legal title to borrower when loan repaid
hold trustee sale if borrower defaults
Trustor - 4 duties
pay debt pay RE taxes and assessments keep property insured abide by all covenants in not day s
Mortgage foreclosure
Judicial Procedure - steps:
Deed in lieu of foreclosure
Forebearance (moratoreum)
Notice of Acceleration 30-90 days calling note due
Court foreclosure action Lis Pendens filed and recorded 90-120 days
Equitable period of redemption - mortgagor can pay debt
Sheriffs foreclosure sale - Writ of Execution 45 days after Court Action
Highest bidder (cannot be mortgagor) gets Certificate of Sale
Statutory Period of Redemption - 6 months mortgagor can stay in premises to pay up
If abandonment - Statutory period is 30 days
Sheriffs Deed = passing of title
Excess monies
Junior lienholders starting with property taxes,
Then mortgagor
If monies less than debt
Deficiency Judgment holding defaulting borrower liable for shortage
Permitted only when property is more than 2 1/2 acres and more than a duplex
If less than 2 1/2 acres and a 1-2 family dwelling there is no deficiency judgment
Deed of Trust foreclosure
Non-judicial Process:
Deed in lieu of foreclosure
Forbearance (moratorium)
Power of Sale - trustor gives to trustee and beneficiary authorizes sale of property
Beneficiary’s Notice to Trustee
Notice of Trustee’s Sale - constructive (recordation) AND Actual (post at house)
90 Day Reinstatement Period - no acceleration
Borrower can pay past due plus interest (cure)
Reinstatement Fee = .005 of existing loan
Trustee Sale
Trustee Deed
Excess Monies from Trustee Sale
Junior Lienholder
Borrower
If Sale less than debt
Deficiency Judgment against trustor except if property is less than 2 1/2 acres and 1-2 family dwelling
Soldiers and Sailors Relief Act
Cannot foreclose on active member of military
Mortgage vs. Deed of Trust
Redemption vs Reinstatement
No acceleration on Deed of Trust
Seller Carryback
If Purchase Money Mortgage: Buyer is mortgagor Seller is mortgagee No deficiency judgment if less than 2/12 acres and 1-2 family dwelling If Deed of Trust: Buyer is Trustor Seller is Beneficiary No Trustee
Constructive Notice on Trust Deed Foreclosure
Recordation and ad in news for 4 consecutive weeks
Actual Notice on Trust Deed Foreclosure
Copy of Trustee Notice to Trustor within 5 days of recordation
To other holders of recorded interest within 30 days
Copy of Trustee Notice posted on property at lest 20 days prior to date of sale
Agreement for Sale AKA Land Contract
Seller = vendor - keeps legal title Buyer = vendee - gets equitable title and possession - makes installment payments
Agreement for Sale Reinstatement Period
Based on Vendee equity: 0-19% = 30days 20-29% = 60 days 30-49% = 120 days 50% or more = 9 months
Agreement for Sale “Notice of Election to Forfeit”
Gives buyer (vendee) additional 20 days to cure default If Forfeit = Affidavit of Completion of Forfeiture, buyer loses all rights and seller gets property back there is no excess or deficiency judgment
Alienation Clause
Due on Sale
Acceleration Clause
Due and payable in full
Default in Prior
Junior lienholder protects position
Subordination Clause
Allows holder of mortgage to let a new mortgage take priority. When junior mortgage has higher interest rate
Assignment of Rents Clause
Lender can have tenant pay rents directly to lender if owner delinquent on mortgage
Defeasance Clause
Recorded to tell the world the loan is paid:
For mortgage = Satisfaction Piece
For Deed of Trust = Deed of Reconveyance
Wraparound
Like Seller Carryback - always a junior and seller obligated on all prior loans
Benefits to seller = Arbitrage which means you are making money on more than one loan
Assumption with Novation
Assumption where buyer takes on 100% of responsibility
Assumption with “Subject To”
Seller continues to be responsible - tied to Due on Sale Clause
Assumption Without Novation
Buyer and Seller Assume 50%
Inchoate
Means “in early stages” and incomplete - in process
CHAPTER 4 ENCUMBRANCES
Easement
Nonpossessory property interest right one person has in land owned by somebody else which gives the holder limited use or enjoyment of the land
Creation of Easement
By necessity (landlocked) By Implication (mineral rights) By Prescription (adverse use over a period of time)
Deed Restrictions
Private controls placed in deeds that limit or prescribe the use of property
Encroachments
Buildings, fences, other structures that reach beyond the owner’s property and illegally encroach upon property of others, or streets and alleys.
Can occur underground, on the surface or in the air.
Liens - specific
Targets only a specific piece of property or parcel of land - eg. mechanics lien
Liens - general
Gives creditor right to all properties of a debtor, real and personal, to satisfy a debt, eg. IRS lien
Voluntary lien
Mortgages
Trust Deeds
Seller Carrybacks
Involuntary liens
Property taxes -specific
Assessments - specific
Attachments - Seizure of real or personal property by court as security of satisfaction of debt - specific
Judgments - court decree, recorded, become liens on all property - general
Mechanics Lien = Specific
IRS - General
Decedent Debt - Liens on estates - general
Legal Procedures in Involuntary liens - Attachment
Lis Pendens - legal action pending - constructive notice
Writ of Attachment - recorded - gives court custody of real property
Garnishment - taking of wages
Legal Procedures in Involuntary liens - Judgment
Remains on defendent credit report 7 years but enforceable for only 5 years:
Recordation
Writ of Execution
Statute of limitations - 5 years to obtain, can extend another 5 years if renew within 90 days of existing judgment expiration. After statutory period = laches meaning plaintiff has waited too long
Priorty - in AZ a judgment lien takes its priority as a lien from date it was recorded
Satisfaction - payment of judgment by defendent and interest is lesser of 10% annually or 1% above prime established at time judgment entered
Mechanics Lien (Inchoate)
Not yet adjudicated but in process
Claimant usually must give 20 day pre-lien notice
Once recorded, its priority is retroactive and reverts to day work began
Word completed when improvement finished, used by owner or given final inspection and written acceptance by owner or govt. agency issuing original building permit
General contractor (or subcontractor) files within 120 days of completion of work
Promissory Note
Evidence of debt
Borrower liability - personally liable if alone
Negotiable - may transfer by endorsement or delivery their legal right to third part
Repayment Plans
Level payments - amortized - repaid in equal periodic payments of P & I. For FHA and VA it also includes taxes and insurance
Installment - non-level P plus I added
Interest only - term or straight with balloon at end
Budget - P, I, T, I - for VA and FHA
Flexible payments - early monthly payments less than amortized amounts with shortfall added to original principle. AKA Graduated Payment Mortgage
Variable Interest and Payment
Equity Participation - Commercial - low interest and downpayment for share in buyer’s equity profit when he sells
Open-end mortgage - Expands with each advance and secured by same mortgage - Home Equity Loans
Construction Loan - Short term - draws or parcel payments
Chattel mortgage
Called Security Agreement - personal property is the security
Package mortgage
Covers RE and appliances and fixture
Purchase Money Mortgage
Given by buyer to seller as part of consideration for purchase of real property
Blanket Mortgage
Covers many parcels or lots - used by developers. Partial release clause releases each parcel from mortgage as it is sold
Junior or Subordinate
Takes second priority to existing mortgage on the same RE - more risk and higher Interest rate. Priority can be exchanged with subordination agreements
Assumption
Involves lender, borrower and seller (old borrower) Procedure: Notify lender Pay assumption fee to lender sometimes escalation of interest Qualify buyer Inclusion of Acceleration Clause Buyer (grantee) assume liability for loan and any deficiency judgment. Seller (grantor) remains liable if buyer defaults
Reduction Certificate
AKA Letter of Assumption - shows interest rate, maturity date, unpaid balance - does not need to be recorded and is only source for current balance
Estoppel Certificate
Mortgagor certifies amount owed, interest rate, date to which interest has been paid. AKA Certificate of no defense or Certificate of no set off
“Or More” provision on Note Payoff
Permits larger monthly payment without prepayment penalty
