Chapter 1 (Real Estate Investment: Basic Legal Concepts)

Question 1

• all that a person owns
• based on rights
• possession and use of real estate

Answer 1

estate

Question 2

• estates in possession

- estates not (yet) in possession (future estates)

Answer 2

estates

Question 3

(Estates rights)

- estates in possession

Answer 3

possessory rights

Question 4

What are 2 types of possessory rights?

Answer 4

• freehold (ownership)

- leasehold (I just rent the space, owned by someone else)

Question 5

What are 2 examples of freehold?

Answer 5

• fee simple (most complete form of ownership)
• life estates (selling the house and the seller stays there till he/she passes away. thats when the title goes to the owner)

Question 6

What are 2 examples of leasehold?

Answer 6

• estate for years (typical commercial lease)

- periodic tenancy or estate from period to period (months, years)

Question 7

simplest most complete; i own my house

Answer 7

fee simple estate

Question 8

subject to leases; renting your house

Answer 8

leased fee estate

Question 9

the tenant’s rights; the one that rents the house; renter’s rights

Answer 9

leasehold estate

Question 10

future estates

Answer 10

non-possessory estates

Question 11

What are 2 types of non-possessory estates?

Answer 11

• reversion (prehaps due to condition)

- remainder (future, say after a “life estate”)

Question 12

Example:
Owning a parking lot and donating it to the city for a park; contribute and donate but with a condition being only if you use it for a park; if it ever fails from being used as a park and converted to a parking garage it would fall back to the owner who donated it.

Answer 12

reversion (prehaps due to condition)

Question 13

Example:

splitting ownership in time, having ownership but as soon as you die, it passes to UTD

Answer 13

remainder (future, say after a “life estate”)

Question 14

anything that might have a right

Answer 14

encumbers

Question 15

secured interest is also referred to as a ___.

Answer 15

lien

Question 16

a secured interest for a debt

Answer 16

lien

Question 17

a non-possessory interest in land. the right is for the use of the land for a special purpose

Answer 17

easement

Question 18

What is an example of an easement?

Answer 18

• rights of way for road access and utility lines
• AT&T comes and digs on your lawn because they have a wire that needs to be repaired and it passes through your property

Question 19

Example:
when an owner of real estate pledges or encumbers his property as a condition for obtaining a (mortgage) loan. the lender is said to have a secured interest.

Answer 19

interest; a right to claim on real property, its revenues, or production

Question 20

1. trust the seller
2. due diligence search
3. title insurance

Answer 20

title assurance

Question 21

• covenants in “Deed” (the document that conveys title)

- different “qualities of deeds

Answer 21

trust the seller

Question 22

• an outside expert gives you a chain of abstracts that lists what was said and the legal opinion is agreeing that it is fine.
• third party opinion

Answer 22

abstract and legal opinion (due diligence search)

Question 23

• contrast with title assurance

- company will underwrite the title; basically replaces the due diligence search

Answer 23

title insurance (insurance)

Question 24

used for conveyance/transfer between a Grantor & Grantee

Answer 24

Deeds

Question 25

What are the types of Deeds?

Answer 25

- General Warranty Deed - Special Warranty Deed - Bargain and Sale Deed - Sheriff's Deed-Trustee Deed - Quitclaim Deed

Question 26

(Type of Deed) - highest quality deed you can get - covenant that the grantor has a good title - covenant that the grantor has the right to convey the property - covenant to compensate the grantee for loss of property or eviction as a result of a superior claim - no encumbrances on title except those noted

Answer 26

general warranty deed

Question 27

(Type of Deed) - less quality deed if you are the buyer but it is still acceptable (I can tell you that for the past 10 years it has been taken care of but i do not know who owned it 40 years ago) - limits the covenants to the ownership duration of the current grantor - no guarantees on the ownership of prior grantors

Answer 27

special warranty deed

Question 28

(Type of Deed) - conveys property without seller warranties - sometimes called an "as-is" deed

Answer 28

bargain and sale deed

Question 29

(Type of Deed) - bargain and sale deed received by a buyer from a foreclosure or other forced sale by sheriff or trustee - no warranties are added - example: county takes over the property and sells it off at an auction process (buyer beware deed)

Answer 29

sheriff's deed-trustee deed

Question 30

(Type of Deed) - no covenants - the least protection to the grantee - grantor conveys whatever right "may exist" - the seller makes no covenants what so ever and does not give you any coverage - example: buying a hose form Mr. Smith and you find out that the title has Mrs. Smith on it too. A lawyer might advise you that she did not sign a ___ saying that she will sign the deed to him so it would clear out the title to make the buyer happy

Answer 30

quitclaim deed

Question 31

- documentation of chain of title meaning who owned this property - title search - study of relevant records - lawyer's opinion on title

Answer 31

abstract and opinion

Question 32

Example: | if someone is not sure that they spouse/partner did not sign a quitclaim deed

Answer 32

clouds on title

Question 33

- one time premium - unseen hazards in the public record (risk is spread among many property owners) - owner's policy (insures the interest of a new owner) - lender's policy (insures the interest of the lender)

Answer 33

title insurance

Question 34

usually the owner pays for this policy; if you have a mortgage on your property the lender is also going to want a separate policy

Answer 34

owners policy

Question 35

while an abstract and opinion method may still be used because of cost considerations, in general title insurance is used. As a genera rule, ___

Answer 35

lenders will require that a buyer use title insurance

Question 36

- recording documents protects the interest of the owner - constructive notice - mechanics liens

Answer 36

recording acts

Question 37

a person is deemed to have whatever information is in the public records - later you can not say that you did not know because the information is out there

Answer 37

constructive notice

Question 38

- may be recorded "after the fact" (usually 60 days) - seller's affidavit (sworn statement that no liens exist) - lien waiver (requested from contractors and suppliers if applicable)

Answer 38

mechanics liens

Question 39

- small little details but important. someone has an interest in the property and it is usually the lender, other groups can also have a lien on the property which is a property that has had construction, if the owner says he or she does not like the work and tells the builder that they don't want it - they can be backdated; work done 12 months ago, the date of the lien is the day he/she did the work and would jump ahead of any finance that has been done; holds up closing on major deals

Answer 39

mechanics liens

Question 40

- police power | - eminent domain

Answer 40

government restriction

Question 41

Examples: | zoning and building codes (these are limits)

Answer 41

police power

Question 42

a relatively expansive; depending on the state, government has relatively broad powers on what property they may take possession of through eminent domain and for what purpose

Answer 42

eminent domain

Question 43

protected by the government and they can impose zoning but you could not turn around and build a power plant because they are zoning

Answer 43

property rights

Question 44

the right for the government to take your property if they need it; should be used for public good and not unncessary

Answer 44

eminent domain

Question 45

- deed restriction - subdivision restrictions - CC&Rs (covenants, codes and restrictions): rules that are put on the deed that are not able to broken

Answer 45

private restrictions