Chapter 5 - Interests in Real Estate

Question 1

What government powers can come into play in real estate?

Answer 1

PETE - Police Power, Eminent Domain, Taxation, & Escheat

Question 2

Police Power

Answer 2

The right of the State to enact laws and enforce them for the order, safety, health, morals and general welfare of the public. Under this right, the government has the right to regulate how US citizens use real property through zoning laws, building codes, health standards, and rent controls.

Question 3

Zoning Laws

Answer 3

laws that separate or divide areas of land into different districts depending of their use (i.e., residential, commercial or industrial)

Question 4

City Planning Laws

Answer 4

laws closely related to zoning laws, but include laws about electrical, sewer, and other facilities that a municipality’s residents use

Question 5

Eminent Domain aka appropriation or expropriation (depending on the state)

Answer 5

The right of the government to acquire private property for necessary public or quasi-public use by condition; the owner must be justly & fairly compensated
EX: constructing public buildings, building/expanding a roadway or railway, establishing National Parks & Forests, preserving places of historic interest…

Question 6

Condemnation

Answer 6

Another word used to describe eminent domain - the act of taking private property for public use by a political subdivision upon payment to owner of just compensation.

Question 7

Just Compensation

Answer 7

fair market value - intended to make sure the property owner is in the same position financially after his/her property is taken through eminent domain. Fair market value refers to what a willing buyer would pay at the property’s highest and best use.

Question 8

Taxation

Answer 8

Enforced charge extracted of personal, corporations and organizations by the government to be used to support government services and programs such as road construction & maintenance, police services, emergency responders, public works department, traffic lights, etc.

Question 9

Mortgage borrowers who do not set aside funds in escrow for their property taxes should understand that most mortgage lenders consider a failure to pay property taxes as the equivalent of ______ on the mortgage loan.

Answer 9

Mortgage borrowers who do not set aside funds in escrow for their property taxes should understand that most mortgage lenders consider a failure to pay property taxes as the equivalent of defaulting on the mortgage loan.

Question 10

Escheat

Answer 10

The reverting of property to the State when there are no identifiable heirs capable of assuming ownership of the property - Last resort. Neither county or municipal governments nor other individuals have the authority to take property by escheat
EX: dying w/o a will or w/o named beneficiaries or an abandoned property w/o identifiable owners or heirs

Question 11

Freehold Interest/Estate

Answer 11

Owner receives complete ownership and full rights (complete, absolute, and undisputed rights) to the property indefinitely.

• -Rights include the right to transfer, gift or sell the property and the rights attached to it
• -3 types of freehold interests

Question 12

Fee Simple Estate

Answer 12

form of freehold estate, representing the greatest interest one can have in real property. An estate that is unqualified, of indefinite duration (as long as taxes are paid), freely transferable and inheritable
–rights are perpetual, meaning there is no fixed duration or time limit with the full rights to sell, transfer, mortgage, encumber, or bequeath the property to others

Question 13

What are the 3 requirements in order for a property to be considered fee simple estate?

Answer 13

The property must be alienable, devisable, & descendible

Question 14

Alienable

Answer 14

property owner’s right to transfer or sell the property to someone else. Fee simple absolute ownership must be alienable

Question 15

Devisable

Answer 15

Owner has the right to create a will or other testamentary document that transfers ownership of the real property to someone else when the owner dies. Fee simple absolute ownership must be devisable.

Question 16

Descendible

Answer 16

Rights of fee simple absolute ownership are inheritable and will pass to subsequent owners. Fee simple absolute ownership must be descendible.

Question 17

Fee Simple Absolute

Answer 17

type of fee simple estate that has no set length as long as taxes are paid and indefinite ownership as long as the legal requirements are fulfilled.

• -inheritable estate in land providing the greatest interest of any form of title
• -Offers the fewest restrictions on land as long as the owner complies with the law and local zoning requirements.

Question 18

Fee Simple Determinable / Fee Simple Defeasible

Answer 18

Type of fee simple estate that will end automatically when the stated event or condition occurs. The interest will revert to the grantor or the heirs of the grantor. In order to create a fee simple determinable estate, the deed must specify some durational terms like “until,” “during,” “while,” “so long as,” or “as long as.”
–type of freehold interest ownership in which certain conditions must be complied with, such as restrictions that the land can only be used for agricultural or educational purposes.

Question 19

Life Estate

Answer 19

type of fee simple estate ownership that allows an individual to retain interest in a property until his/her death, with the permission of the Grantor. The life estate owner has the right to remain on the property as a life tenant, but must appropriately maintain the property.

Question 20

Life Tenant

Answer 20

Owner of a life estate and entitled to certain rights during the measuring lifetime (typically the life tenant’s lifetime). The life tenant is entitled to exclusive use of the property during the period of the life estate, in any way the owner of a fee simple estate could use their property.

Question 21

Remainderman

Answer 21

Person who inherits or is entitled to inherit property upon the termination of the estate of the former owner. Will own the remainder interest in the property after the termination of the prior estate (life estate), so it is possessory interest in real estate.

Question 22

Remainder

Answer 22

An estate which takes effect after the termination of the prior estate, such as a life estate. A future possessory interest in real estate.

Question 23

Reversionary Interest

Answer 23

If a remainderman is not specified, the property reverts back to the grantor after the life tenant passes away. A future interest.

Question 24

Leasehold (nonfreehold) Interest

Answer 24

lease of a property for a defined period of time w/o an expressed ownership of the land. Lessee receives the right to use the land, not own the property.

Question 25

Tenancy for Years aka Estate for Years

Answer 25

type of leasehold interest that involves tenancy for a specific duration with a start date and end date, establishing an arrangement in which a tenant pays rent each year in accordance w/ the terms of the lease agreement.

Question 26

Periodic Tenancy

Answer 26

type of leasehold interest that involves automatic renewal of the lease. It’s created after the initial fixed-term lease expires and can only be terminated when proper notice is given.

Question 27

Tenancy at Will

Answer 27

type of leasehold interest that involves an agreement w/o a specific time frame or end date, not in writing, between a tenant and a landlord. Most tenancies at will can be terminated at any time unless state laws dictate that appropriate notice must be given.

Question 28

Tenancy at Sufferance

Answer 28

type of leasehold interest that involves a holdover tenant - tenant who once had the right to reside at the property has no current legal right to remain on the property based on the expiration or termination of a previous lease agreement.

Question 29

Riparian Rights

Answer 29

The right of a landowner whose land borders on a stream or watercourse to use and enjoy the water which is adjacent to or flows over the owner’s land provided such use does not injure other riparian owners.
–“R” for river (moving body of water)

Question 30

Littoral Rights

Answer 30

The right of a property owner whose land borders on a body of water, such as a lake, ocean or sea, to reasonable use and enjoyment of the shore and water the property borders on.
–“L” for Lake (still body of water)

Question 31

Accretion

Answer 31

accession by natural forces, ex: alluvium

Question 32

Alluvium

Answer 32

The gradual increase of the earth on a shore of an ocean or bank of a stream resulting from the action of the water.

Question 33

Accession

Answer 33

An addition to property through the efforts of man or by natural forces, Ex: accretion or alluvium

Question 34

Avulsion

Answer 34

A sudden and perceptible loss of land by the action of water as by a sudden change in the course of a river.

Question 35

Erosion

Answer 35

The wearing away of land by the act of water, wind, or glacial ice.

Question 36

Encumbrance

Answer 36

claim made against a property by a party that is not the owner (i.e., lender, creditor, government agency, or another homeowner). The purpose of the claim is to somehow inhibit or restrict the homeowner’s ability to use or transfer that property

Question 37

Financial Encumbrance / Lien

Answer 37

claim against a property that signifies a debt is owed to the holder of the lien. Common types of liens include tax liens, mortgages, and mechanic liens. Liens typically need to be paid off before a property can transfer ownership, unless the buyer is willing to assume the burden.

Question 38

General Lien

Answer 38

A lien on all of the property of a debtor.

Question 39

Specific Lien

Answer 39

A lien that attaches to one specific property only.

Question 40

Involuntary Lien

Answer 40

A lien imposed against property without consent of an owner; example – taxes, special assessments, federal income tax liens, etc.

Question 41

Easement

Answer 41

A right, privilege or interest limited to a specific purpose which one party has in the land of another - an authorized encumbrance

Question 42

Equitable Lien

Answer 42

A lien on property imposed by a court in order to achieve fairness, particularly when someone has possession of property which he/she holds for another.

Question 43

Mechanic’s Lien

Answer 43

A security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property.

Question 44

Voluntary Lien

Answer 44

Any lien placed on property with consent of, or as a result of, the voluntary act of the owner, Ex: mortgage

Question 45

Physical Encumbrance

Answer 45

impact the homeowner’s rights to use or enjoy the property - encroachments & easements

Question 46

Deed Restrictions

Answer 46

Limitations in the deed to a property that dictates certain uses that may or may not be made of the property or rules for the home and/or for the plot of land a home sits on
Ex: restrictions on what homeowners can keep in their front yards, restrictions on the main structure itself, restrictions about adding structures to the property or adding onto existing structures, business restrictions, restrictions about how the exterior of the property is maintained and decorated, landscaping restrictions, restrictions on animals, etc.
**Deed restrictions “run with the land” so they will potentially impact everyone who buys and resides on the land (even if they’re not on the most recent deed), unless an expiration date has since passed or a court ruling struck it down
**Not the same as homeowner’s and condo owners’ association rules

Question 47

Covenants, Conditions, and Restrictions (CC&Rs)

Answer 47

The basic rules establishing the rights and obligations of owners of real property within a subdivision or other tract of land in relation to other owners within the same subdivision or tract and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.

Question 48

Statutory Lien

Answer 48

A charge or claim upon property that arises by virtue of specific statutes that address the relationship between the property owner and the party given the ability to place the lien.

Question 49

Encroachment

Answer 49

An unlawful intrusion onto another’s adjacent property by improvements to real property (structure is on the land itself or that something is hanging over a neighbor’s property) - unauthorized encumbrance. EX: building a fence on land that technically belongs to your neighbor or a swimming pool built across a property line
–if a property owner decides to live with their neighbor’s encroachment, they’ll need to fully disclose this to potential buyers when selling their house

Question 50

Dominant Tenement

Answer 50

A parcel of real property that has an easement over another piece of property (the servient estate).

Question 51

Easement Appurtenant

Answer 51

An easement that benefits the dominant estate and “runs with the land”. In other words, an easement appurtenant generally transfers automatically when the dominant estate is transferred.

Question 52

Easement by Condemnation

Answer 52

An easement created by the government or government agency that has exercised its right under eminent domain.

Question 53

Easement by Grant

Answer 53

The creation of an easement by one party expressly transferring the easement to another party.

Question 54

Easement by Implication

Answer 54

An easement that is not created by express statements between the parties; but as a result of surrounding circumstances that dictate that an easement must have been intended by the parties.

Question 55

Easement by Necessity

Answer 55

Parcels without access to a public way may have an easement of access over adjacent land if crossing that land is absolutely necessary to reach the landlocked parcel and there has been some original intent to provide the lot with access.

Question 56

Easement by Prescription

Answer 56

Implied easements granted after the dominant estate has used the property in a hostile, continuous, and open manner for a statutorily prescribed number of years.

Question 57

Easement in Gross

Answer 57

An easement that benefits an individual or legal entity, rather than a dominant estate - right of use in land of another without the requirement that the holder of the right own adjoining land.

Question 58

Servient Tenement

Answer 58

A parcel of real property that is encumbered by an easement of a dominant estate.

Question 59

License

Answer 59

special permission to access or use someone else’s real property for a specific purpose and this right is non-transferrable. If not for the license, entering the real property could be considered trespassing on private property. Ex: fishing license, hunting license

Question 60

Severalty Ownership

Answer 60

Real property that is owned by only one person, trust or business entity. Sole ownership.

Question 61

Concurrent Ownership

Answer 61

Real property that is owned by more than one person, trust or business entity.

Question 62

Community Property

Answer 62

Property acquired by husband and/or wife during a marriage when not acquired as the separate property of either spouse. Each spouse has equal rights of management, alienation and testamentary disposition of community property.

Question 63

Joint Tenancy

Answer 63

Undivided ownership of a property interest by two or more persons each of whom has a right to an equal share in the interest and a right of survivorship, i.e., the right to share equally with other surviving joint tenants in the interest of a deceased joint tenant.

Question 64

Partition

Answer 64

Court proceeding that officially severs co-ownership of a parcel of land or property. Divides real or personal property or the proceeds therefrom among co-owners - may be necessary when there is a disagreement among owners about how to use, maintain, or dispose of real estate

Question 65

Right of Survivorship

Answer 65

The right of a surviving tenant or tenants to succeed to the entire interest of the deceased tenant; the distinguishing feature of a joint tenancy.

Question 66

Tenancy by Entireties

Answer 66

Under certain state laws, ownership of property acquired by a husband and wife during marriage, which property is jointly and equally owned with the right of survivorship. Upon death of one spouse it becomes the property of the survivor.

Question 67

Tenancy in Common

Answer 67

Co-ownership of property by two or more persons who each hold an undivided interest (interest need not be equal), without right of survivorship - meaning that when one owner dies, their share will pass according to their will

Question 68

What are the 4 unities in joint tenancy ownership?

Answer 68

1. Unity of Possession
2. Unity of Interest
3. Unity of Time
4. Unity of Title
   * **All owners have equal rights and responsibilities for the property

Question 69

Trust

Answer 69

A legal relationship under which title to property is transferred to a person known as a trustee. Reasons trusts are used:

1. Creating a trust, and making that trust the owner of real estate and other assets, is one to avoid the expense and hassle of probate court to clear title to real estate and other assets after you die.
2. Making sure assets will pass according to your wishes after you die.
3. To ensure current spouse will have assets they need during their lifetime while making sure children of previous marriages are protected
4. Tax shelter - through credit shelter or disclaimer provisions, people may be able to limit the amount of federal and state estate taxes due after their deaths.

Question 70

Trustee

Answer 70

A person who holds title to property for the benefit of another called a beneficiary - manages the trust assets before they transfer to the beneficiary (often the same person as the trustor)

Question 71

Trustor / Grantor / Settlor

Answer 71

A person who created the trust and conveys (transfers) title to a trustee.

Question 72

Testamentary Trust

Answer 72

A trust which arises upon the death of the testator, and which is specified in his or her will.

Question 73

Living Trust

Answer 73

An agreement where the trustee holds the legal possession of an asset (e.g. real estate) that belongs to another person, the beneficiary, and it is created while the person is alive.

Question 74

Land Trust

Answer 74

A legal agreement where a trustee is appointed to maintain ownership of a piece of real property for the benefit of another party. Helps safeguard their privacy and protects their real estate from liens, title claims, homeowners’ association claims or other litigation.

Question 75

Beneficiary

Answer 75

The recipient of / one who inherits a gift of personal property by will.

Question 76

Partnership

Answer 76

An arrangement in which two or more individuals share the profits and liabilities of a business venture.

Question 77

General Partnership

Answer 77

partnership in which all partners participate in the day to day ops of the business, EX: law firms, medical or dental clinics, and consulting firms.

Question 78

Limited Partnership

Answer 78

partnership in which one or more partners is a partner on paper, with a financial stake in the business, however, s/he is not directly involved with running the business. Limited partners add additional capital to help the business owner run the business without being involved on a daily basis.

Question 79

Corporation

Answer 79

An entity established and treated by law as an individual or unit with rights and liabilities, or both, distinct and apart from those of the persons composing it. Legal entity separate and distinct from their owners (aka shareholders), who are not liable for the company’s debts or obligations, beyond the risk of losing the value of their investment in the business (stock). Being created by law, it may continue for any length of time the law prescribes.

Question 80

Limited Liability Company (LLC)

Answer 80

A business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. LLC has owners, called members, who’s liability is limited to the extent of their investment in the company.

Question 81

Real Estate Syndicate

Answer 81

An organization of investors usually in the form of a limited partnership who have joined together for the purpose of pooling capital for the acquisition of real property interests ~ crowdfunding the purchase of real property

Question 82

Syndicate Investor

Answer 82

must meet the SEC’s definition of “accredited investors” meaning that each investor must have made at least $200,000/year (or $300,000 jointly) over the previous 2 years or they must have a net worth of at least $1 million. Will ultimately earn quarterly returns on their investment.

Question 83

Joint Venture

Answer 83

Temporary business arrangement that exists btwn at least 2 individuals or organizations, combining the talents and skills of each member. Once the joint venture’s objectives and goals are met, the relationship is dissolved. EX: professionals that fix and flip properties together.

Question 84

Condominium

Answer 84

An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are the airspace within the condo unit’s walls, floor and ceiling.

• -each unit is taxed separately
• -owners are permitted to rent out their unit so long as the new tenant abides by the condo rules and bylaws

Question 85

Common Elements

Answer 85

Refers to the spaces in a building shared by residents of the building. These include lobbies, corridors, stairs, elevators, etc.

Question 86

Cooperative

Answer 86

An apartment building, owned by a corporation and in which tenancy in an apartment unit is obtained by purchase of shares of stock of the corporation and where the owner of such shares is entitled to occupy a specific apartment in the building.

Question 87

What legal deadline requirements are involved when condo owners are selling their unit?

Answer 87

• -At least 15 days before the close of the sale, all required info must be provided to the buyer (Required info must be delivered to the buyer w/in 10 days of the seller’s acceptance)
• -Once buyer receives the necessary disclosures, s/he has 5 days to back out of the deal (no reason required)

Question 88

Planned Unit Development (PUD)

Answer 88

real estate structure that includes varied and compatible uses of land w/in a contained subdivision or development. The owner of a property within a PUD is a partial owner of the development’s amenities and common areas, having to pay monthly/quarterly fees to help maintain the common areas.

Question 89

Time-Share

Answer 89

A form of subdivision of real property into rights to the recurrent, exclusive use or occupancy of a lot, parcel, unit, or segment of real property, on an annual or some other periodic basis, for a specified period of time. Owners pay an annual maintenance fee, but are otherwise not responsible for maintenance and upkeep of the property.

Question 90

Homestead

Answer 90

Home and a reasonable amount of land around the home (i.e., no less than 1/4th of an acre but no more than 40 acres)

Question 91

Wisconsin Homestead Exemption

Answer 91

allows WI residents to protect up to $75,000 ($150,000 for married couples) of equity in a homestead from unsecured creditors (i.e., lending institutions that don’t have a secured interest in the property). Secured creditors (who have a right to the interest in the debtor’s assets) do not have to abide by this exemption.