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Real Estate > Arizona Broker Exam - Finance > Flashcards

Arizona Broker Exam - Finance Flashcards

1
Q

CHAPTER 4 ENCUMBRANCES

A

TO DO

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2
Q

CHAPTER 5 FORECLOSURE, CARRYBACK DOCUMENTS, FINANCING

A

TO DO

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3
Q

CHAPTER 6 REAL ESTATE INVESTMENT AND TAXATION

Rate of Return

A

Investor’s % yield based on property’s income production

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4
Q

Cash Flow

A

Net spendable income from an investment after operating and fixed expenses including debt service

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5
Q

Cash on Cash Return

A

Cash made on a cash investment

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6
Q

Equity build-up

A

Corresponding reduction of principle and growth of equity on a mortgage through amortized payments. Included are gains in property value through appreciation

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7
Q

Internal rate of return

A

Rate of an investment’s growth mathematically calculated on basis of projected cash flow from the initial investment

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8
Q

Frozen Asset vs. Liquid

A

Frozen cannot quickly be converted into cash such as RE

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9
Q

Debt Relief

A

When relieved of a debt, you will receive 1099 and must report it as income on tax return

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10
Q

Limited partnerships

A

2 or more pool to invest but only 1 organizes and operates the organization (syndicate)

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11
Q

Passive Investors

A

Limited partners - share profit but not loss. Lose only the amount invested. No voice

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12
Q

General partner

A

Receives compensation from profits. Voice but responsible for excess losses

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13
Q

Benefit to LP

A

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

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14
Q

Master Limited Partnership

A

Hundreds - register with SEC, can be publicly traded

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15
Q

General Partnerships

A

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

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16
Q

Regular C Corporation

A 
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
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17
Q

S-Corporation

A

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

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18
Q

Limited Liability Companies

A

Members limited personal liability
Control of a GP
Direct pass-through tax advantage
Not personally liable to creditors or tort victims

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19
Q

Real Estate Investment Trust

A

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

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20
Q

Disadvantages of REIT

A

Losses cannot be passed-through
Confined to large RE investments
Must register with SEC
is expensive

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21
Q

Sole Proprietorship

A

1 owns all
Flexible, easy to organize
Taxed personally
100% liable for losses and could affect personal proeprty

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22
Q

Ordinary Income

A

10%, 25%, 28%, 33%, 35%

39.6% if over $400,000 or $450,000 joint

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23
Q

Capital Gain

A

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%

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24
Q

Capital Gain Losses

A

Max. Deductible is $3000 per year. Excess carried forward to next year.
Only Investment RE counts toward capital losses, not private residences

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25
Q

Computing Gain

A

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

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26
Q

Sale of Principle Residence

A

Basis + Acq. Cost + Cap. Imp. = Adj. Basis

Sale Price - Cost of Sale = Adj. Sale Price

Adj. Sale Price - Adj. Basis = Gain

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27
Q

Capital Gain Exclusion

A

$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

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28
Q

Home Purchases

A

First timers can withdraw from IRA penalty free (saves 10% penalty up to $10,000) but pays tax on withdraw

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29
Q

Investment Income Tax

A

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)

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30
Q

Installment Sale

A

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

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31
Q

Tax Deferred Exchange

A

Swap properties with tax on gain deferred to later transfer

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32
Q

Like Kind

A

Income producing properties with same ownership interest

Cannot be fee simple for leasehold interest unless 30 years or more

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33
Q

Boot

A

To offset disparity in equity or value in property

Taxed

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34
Q

Mortgage Relief

A

Reduction of debt when one exchanges property with high mortgage for one with low mortgage. Also taxed

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35
Q

1031 Exchange

A

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

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36
Q

1031 Like Kind

A

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

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37
Q

1031 timelines

A

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

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38
Q

Depreciation

A

Only investment property, not land or private residence

Allows investors to recoup expense of income property by tax deductions over the useful life

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39
Q

Useful Life

A

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

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40
Q

Business Opportunities

A

Regulated by UCC

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41
Q

Bulk Transfer Sale

A

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.

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42
Q

Chattel Mortgage

A

Personal rather than real property is used as collateral for the loan

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43
Q

Financial Personal Property

A

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

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44
Q

Personalty

A

Personal property

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45
Q

Bill of Sale

A

Transfers title to personal property

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46
Q

Deed or Assignment (sublease)

A

Deed conveys title to an interest

Assignment is transfer in writing of interest in lease. Lessee transfers all interest to an assignee

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47
Q

Goodwill

A

Blue Sky or Habit of Patronage

Saleable, intangible asset arising form good business reputation. A capital but not depreciable asset for tax purposes

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48
Q

Covenant not to compete

A

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

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49
Q

CHAPTER 7 RESIDENTIAL FINANCE

FHA

A

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

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50
Q

FHA Loan

A

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

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51
Q

FHA Conditional Commitment

A

Contingent on FHA (or VA) appraisal - either buyer or seller pays
Escape clause if home does not appraise
Appraisal valid for 120 days

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52
Q

Qualifying for FHA

A

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

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53
Q

FHA Assumption Policies (203B)

A

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)

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54
Q

VA-Guaranteed Loan

A

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

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55
Q

Certificate of Reasonable Value

A 
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
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56
Q

Requirements of VA Loan

A

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

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57
Q

VA Guarantee to Lender

A

Lenders do not loan more than 4x the VA eligibility. VA guarantees $104,250 on $417,000

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58
Q

Conventional Loans

A

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)

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59
Q

PMI

A

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%

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60
Q

Conventional Assumption

A

NOT assumable on fixed rate and all have “due on sale” clause
Assumable on variable rate if owner occupied

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61
Q

Ratios for Conventional

A

28% front and 36% back
Front includes PITI and PMI
80-10-10 eliminates PMI
1% origination usually

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62
Q

Variable Rate (ARMs)

A

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

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63
Q

Negative Amortization

A

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

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64
Q

CHAPTER 8 COMMERCIAL FINANCE

Land Loan

A

50% at 6-8 points for farmers and speculators

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65
Q

Acquisition and Development Loans (A&D)

A

To pay off land loans and provide money for subdivision improvements. Developer then sells off sites (bulk lots)

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66
Q

Construction Interim Loans

A

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

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67
Q

Bridge “Gap” Loans

A

Loan when construction loans are due but permanent loan too expensive. “Buys time” until project sold

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68
Q

Permanent “Take Out” Loans

A

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

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69
Q

Lending Sources

A

Commercial Banks - short term construction, bridge and land loans
S & L - Long term. A&D, Permanent
Mortgage Bankers and brokers (intermediaries)

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70
Q

Risk

A 
Construction problems
Down payment and LTV
Foreclosure
Resale (Loan value) - greatest risk 
Payment, credit history
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71
Q

Special Lender Considerations

A

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

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72
Q

Procedures

A 
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
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73
Q

HUD

A

Block grants to cities and counties in HUD approved areas
Secretary discretionary loans
Urban development action grants

74
Q

SBA

A

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

75
Q

Alternative sources of capital

A 
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
76
Q

Calculating Return

A

Return OF investment - recouping investment money

Return ON investment - Profit

77
Q

Common types of return analysis GRM

A

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

78
Q

Capitalization Rate (CAP)

A

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

79
Q

Three formulas to remember using CAP

A

I/R = V
I/V = R
V x R = I

80
Q

Cash on cash return (CCR)

A

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

81
Q

Property Income/Expense Analysis

A

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

82
Q

Expenses

A

Property Tax
Property Insurance
Maintenance and Repair
Operating Expenses

Subtract from Adjusted Gross Income = NOI

83
Q

Property Value

A

NOI/CAP rate = property value

Subtract debt service (sum of mortgage payments) from NOI = cash flow
Cash on cash return can then be determined.

84
Q

Business Opportunity Sales

A

Requires RE license if sale of business includes RE

85
Q

Listing Business for Sale

A

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

86
Q

Close of Escrow on Business Sale

A

Assignment of lease

Bill of sale

87
Q

Seller Carryback

A

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

88
Q

CHAPTER 14 APPRAISAL

Appraisal

A

Opinion of value or judgment based on experience

89
Q

Appraisers

A

Licensed by AZ Board of Appraisers - Staff or Fee

90
Q

Appraiser Trade Groups and designations

A

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

91
Q

3 Definitions of Value

A

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

92
Q

4 Characteristics of value

A 
DUST
Demand
Utility - subjective or objective, tangible or intangible
Scarcity
Transferability
93
Q

4 Kinds of Value

A

Insured
Assessed
Mortgage - lender view
Salvage/residual - at end of economic life

94
Q

Objective vs. Subjective value

A

Subjective weighs heaviest because it is intangible, fluid, manipulable like amenities.
Objective is created by the object itself, subjective is created in the mind

95
Q

Influences on Value

A 
Physical
Social
Economic
Governmental
Directional
Location
96
Q

Special land value considerations

A 
Plottage Increment (assemblage)
Unearned Increment - increased value doe to forces beyond owner control ie zoning
Soil Fertility
Soil Percolation
Compaction of Soil
97
Q

Economic Principles of valuation

A 
Highest and best Use
Substitution
Supply and demand
Anticipation
Conformity
Contribution
Progression
Regression
Market Price - what someone actually paid
Market Value - probable price
98
Q

Appraisal Approaches - Market Data

A 
Comparative Analysis when appraising land and residential property
Most reliable gauge of market
Based on principle of substitution
Listings are ceiling
Sales are floor
99
Q

Market Data Approach - Principle Factors of Adjustment

A

Date of Sale
Location of Subject property
Physical Features
Terms of Sale

Weigh NOT average factors

100
Q

Appraisal Approaches - Cost Approach

A

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.

101
Q

Cost Approach - Estimating construction costs

A

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)

102
Q

Depreciation

A

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

103
Q

Depreciation terminology

A

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

104
Q

Appraisal Approaches - Income Approach

A

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

105
Q

Establishing NOI

A 
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
106
Q

Capitalization Rate

A

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

107
Q

Reconciliation

A

AKA correlation

Weighing and analyzing (not averaging) of property using 3 appraising methods

108
Q

CHAPTER 16 ESCROW AND CLOSING

Escrow Agent

A

Refers to the title company

109
Q

Escrow Officer

A

refers to title clerk

110
Q

Escrowors

A

sellers and buyers

111
Q

Escrowee

A

Escrow Company

112
Q

Preliminary Title Search

A

Find defects in chain (history) of title that would affect marketability

113
Q

Prorates

A

Divides Proportionately settlement costs between buyer and seller

114
Q

Official close of Escrow

A

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

115
Q

Double Escrow

A

Seller uses buyer’s money (deposit) to acquire property in one escrow, then sell it to the buyer in another escrow for profit

116
Q

Back to back escrow

A

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

117
Q

Termination of Escrow

A

Close of escrow
Breach of contract
Mutual cancellation
Forced cancellation

118
Q

Termination of escrow upon death of buyer or seller

A

NOT automatic, but in some cases may cause failure of a transaction to close

119
Q

Interpleader

A

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

120
Q

Doctrine of Relation Back

A

Ensures delivery of deed to grantee even if grantor dies assuming terms of escrow are met. Eliminates specific performance suits against grantor’s heirs

121
Q

Escrow as dual agent

A

Escrow agency and officer must remain neutral.

122
Q

Debits andD Credits

A

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

123
Q

CHAPTER 5 FORECLOSURE AND FINANCING

DOCUMENTS - Title Theory

A

Lender Holds Title

124
Q

Lien Theory

A

Borrower holds title - AZ

125
Q

Hypothocate

A

Property is collateral while one possesses (Lien theory)

126
Q

Note

A

Evidence of debt - not recorded - does not create the lien

127
Q

Estoppel Certificate

A

Verify terms of note with person paying the note

128
Q

Collateral

A

Security for note

129
Q

Lien Document

A

Recorded in county where property located and signed by borrower and Lienee, notarized and legal description of property

130
Q

Types of Liens - mortgage

A

Mortgagor = borrower
Mortgagee = lender
Legal title and all rights of ownership with mortgagor

131
Q

Types of liens - Deed of Trust

A

Trustor = borrower
Beneficiary = lender
Trustee - holds bare legal title given by trustor - no rights of ownership

132
Q

Trustee - 3 duties

A

hold legal title
return legal title to borrower when loan repaid
hold trustee sale if borrower defaults

133
Q

Trustor - 4 duties

A 
pay debt
pay RE taxes and assessments
keep property insured
abide by all covenants in not
day s
134
Q

Mortgage foreclosure

A

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

135
Q

Excess monies

A

Junior lienholders starting with property taxes,

Then mortgagor

136
Q

If monies less than debt

A

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

137
Q

Deed of Trust foreclosure

A

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

138
Q

Excess Monies from Trustee Sale

A

Junior Lienholder

Borrower

139
Q

If Sale less than debt

A

Deficiency Judgment against trustor except if property is less than 2 1/2 acres and 1-2 family dwelling

140
Q

Soldiers and Sailors Relief Act

A

Cannot foreclose on active member of military

141
Q

Mortgage vs. Deed of Trust

A

Redemption vs Reinstatement

No acceleration on Deed of Trust

142
Q

Seller Carryback

A 
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
143
Q

Constructive Notice on Trust Deed Foreclosure

A

Recordation and ad in news for 4 consecutive weeks

144
Q

Actual Notice on Trust Deed Foreclosure

A

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

145
Q

Agreement for Sale AKA Land Contract

A 
Seller = vendor - keeps legal title
Buyer = vendee - gets equitable title and possession - makes installment payments
146
Q

Agreement for Sale Reinstatement Period

A 
Based on Vendee equity:
0-19% = 30days
20-29% = 60 days
30-49% = 120 days
50% or more = 9 months
147
Q

Agreement for Sale “Notice of Election to Forfeit”

A 
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
148
Q

Alienation Clause

A

Due on Sale

149
Q

Acceleration Clause

A

Due and payable in full

150
Q

Default in Prior

A

Junior lienholder protects position

151
Q

Subordination Clause

A

Allows holder of mortgage to let a new mortgage take priority. When junior mortgage has higher interest rate

152
Q

Assignment of Rents Clause

A

Lender can have tenant pay rents directly to lender if owner delinquent on mortgage

153
Q

Defeasance Clause

A

Recorded to tell the world the loan is paid:
For mortgage = Satisfaction Piece
For Deed of Trust = Deed of Reconveyance

154
Q

Wraparound

A

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

155
Q

Assumption with Novation

A

Assumption where buyer takes on 100% of responsibility

156
Q

Assumption with “Subject To”

A

Seller continues to be responsible - tied to Due on Sale Clause

157
Q

Assumption Without Novation

A

Buyer and Seller Assume 50%

158
Q

Inchoate

A

Means “in early stages” and incomplete - in process

159
Q

CHAPTER 4 ENCUMBRANCES

Easement

A

Nonpossessory property interest right one person has in land owned by somebody else which gives the holder limited use or enjoyment of the land

160
Q

Creation of Easement

A 
By necessity (landlocked)
By Implication (mineral rights)
By Prescription (adverse use over a period of time)
161
Q

Deed Restrictions

A

Private controls placed in deeds that limit or prescribe the use of property

162
Q

Encroachments

A

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.

163
Q

Liens - specific

A

Targets only a specific piece of property or parcel of land - eg. mechanics lien

164
Q

Liens - general

A

Gives creditor right to all properties of a debtor, real and personal, to satisfy a debt, eg. IRS lien

165
Q

Voluntary lien

A

Mortgages
Trust Deeds
Seller Carrybacks

166
Q

Involuntary liens

A

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

167
Q

Legal Procedures in Involuntary liens - Attachment

A

Lis Pendens - legal action pending - constructive notice
Writ of Attachment - recorded - gives court custody of real property
Garnishment - taking of wages

168
Q

Legal Procedures in Involuntary liens - Judgment

A

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

169
Q

Mechanics Lien (Inchoate)

A

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

170
Q

Promissory Note

A

Evidence of debt
Borrower liability - personally liable if alone
Negotiable - may transfer by endorsement or delivery their legal right to third part

171
Q

Repayment Plans

A

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

172
Q

Chattel mortgage

A

Called Security Agreement - personal property is the security

173
Q

Package mortgage

A

Covers RE and appliances and fixture

174
Q

Purchase Money Mortgage

A

Given by buyer to seller as part of consideration for purchase of real property

175
Q

Blanket Mortgage

A

Covers many parcels or lots - used by developers. Partial release clause releases each parcel from mortgage as it is sold

176
Q

Junior or Subordinate

A

Takes second priority to existing mortgage on the same RE - more risk and higher Interest rate. Priority can be exchanged with subordination agreements

177
Q

Assumption

A 
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
178
Q

Reduction Certificate

A

AKA Letter of Assumption - shows interest rate, maturity date, unpaid balance - does not need to be recorded and is only source for current balance

179
Q

Estoppel Certificate

A

Mortgagor certifies amount owed, interest rate, date to which interest has been paid. AKA Certificate of no defense or Certificate of no set off

180
Q

“Or More” provision on Note Payoff

A

Permits larger monthly payment without prepayment penalty

Real Estate (2 decks)

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