CO Real Estate - Law and Practice (Unit 12-21) Flashcards
The basic costs of owning are home are… (4)
P - principal
I - interest
T - taxes
I - insurance
Charging interest in excess of the maximum rate allowed by law.
Usury
How do you calculate loan origination fees and discount points?
Both are calculated as a percentage of the loan principal amount.
Discount point = 1% of the loan
Process where a debtor retains the right of possession and control of a secured property, while creditor receives an equitable right
Hypothecation
Document issued when a mortgage is paid in full
Satisfaction of Mortgage (filed with public)
State where the mortgagor retains both legal and equitable title to a secured property, while mortgagee has a lien on the property.
Lien theory state - if mortgagor defaults then mortgagee must go through formal foreclosure proceeding
Option for a defaulted mortgagor to buy back the property during a certain period after a foreclosure sale
right of redemption
Third-party security instrument used to convey bare title without the right of possession
Deed of trust
State where the borrower is the trustor who conveys legal title to the trustee but retains equitable title and right of possession
Title Theory State
The right of a lender to accelerate the maturity of debt if borrower defaults
Acceleration Clause
Requirements of lender under the defeasance clause
Lender required to execute a satisfaction of mortgage when the note has been fully paid
When a property is sold “subject to” the mortgage..
Buyer is not personally obligated to pay the debt in full, although they will make payments as normal. If default, and property is foreclosed and sold, the buyer is not responsible for paying any difference
A buyer who purchases a property and becomes personally obligated for the payment of the entire debt means they have…
assumed the mortgage - if seller wants to be completely free from original loan the parties must execute a novation agreement in writing
A clause that provides that when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender (prevents from buyer assuming a super low interest rate)
Alienation Clause (resale clause, due on sale clause, call clauses)
Type of loan where borrower makes periodic payments of interest only, then pays principal in full at end of loan term
Straight Loan / Interest-only Loan
Type of loan where each payment is part interest part principal
Amortized Loan
Type of loan that begins at one interest rate then fluctuates up or down during the loan term based on a specific indicator
Adjustable-Rate Mortgage
Economic indicator that is used to adjust the interest rate on a loan
Index
Loan that uses a fixed interest rate, but payments of principal are increased according to an index or schedule
Growing-equity mortgage
A final payment that is at least twice the amount of any other payment
Balloon payment
Mortgage allowing a homeowner aged 62 or older to borrow money against the equity built up in the home
Reverse mortgage
3 Types of Foreclosure Proceedings
Judicial Foreclosure - property sold by court order after mortgagee has given sufficient public notice
Nonjudicial Foreclosure - used when the security instrument contains a power of sale clause
Strict Foreclosure - appropriate notice is given, then court awards full legal title to lender
If a foreclosure sale doesn’t produce enough cash to pay the loan balance in full the mortgagee may be entitled to
A deficiency judgment
3 main components of the real estate financing market
- Government influences, primarily the FED
- Primary Mortgage Market
- Secondary Mortgage Market
Major Lenders of home mortgage and commercial property loans include:
Savings Associations/Commercial Banks
Insurance Companies
Credit Unions
Pension Funds
Endowment Funds
Investment Group Financing
Mortgage Banking Companies
Mortgage Brokers
Fannie Mae
Freddie Mac
Ginnie Mae
All types of…
Government sponsored enterprises
GSE who’s main function is conventional, FHE-insured and VA loans
Fannie Mae
GSE who’s main function is mostly conventional loans
Freddie Mac
GSE who’s main function is special assistance loans
Ginnie Mae
GSE who’s main function is loans for agricultural and rural utilities
Farmer Mac (Federal Agricultural Mortgage Corporation)
Insurance policy that would provide lender with funds in the event of borrower default
Private mortgage insurance
Loans that are insured by the Federal housing Administration agency
FHA-Loan
Rules of a VA loan qualification
- Qualifying service
- Owner must live on property
- Owner must apply for certificate of eligibility
Loan that includes real and personal property
Package Loan
Loan that covers more than one parcel of lot (can pay off parcels individually)
Blanket Loan
Loans that provides funds at the execution but also secures any future advances of funds
Open-end loan
A loan that takes advantage of the equity built up in a home and allows $100k of interest paid to be tax deductible
Home equity loan
Legislation that requires credit institutions inform borrowers of the true cost of obtaining credit
Regulation Z of the Truth in Lending Act (doesn’t apply to commercial or agricultural loans
How many days must a borrower have to rescind a transaction?
3 business days
Legislation that prohibits discrimination in granting credit based on race, color, religion, national origin, sex, martial status, age and receipt of public assistance
Equal Credit Opportunity Act
Legislation that requires financial institutions to meet the deposit and credit needs of their communities
Community Reinvestment Act
Legislation applied to residential real estate transactions involving new first mortgage loans that is designed to ensure that the buyer and seller are both fully informed of all costs related to closing the transaction
Real Estate Settlement Procedures Act (RESPA)
A sworn statement in which the seller assures the title company that no other defects in the title have occurred since the date of the title examination
Affidavit of title
Law that has changed how buyers, sellers, lenders, mortgage brokers, title agents, and real estate professionals prepare for a closing
Mortgage Disclosure Improvement Act
Kickbacks, fee-splitting for referrals, requiring that the buyer purchase title insurance with a certain company and requiring excessive escrow account deposits are all prohibited under
RESPA
RESPA permits a _____ between a real estate brokerage and a mortgage company when
1. there is a 1 % or more common ownership between the companies (client must be notified)
2. participation is not required
3. other providers are available
4. nothing else of value is received from it
Affiliated business arrangement
Form that highlights the information that historically has been the most important to consumers (interest rate, monthly payment, total closing costs)
Loan Estimate Form
Three tiers of tolerance for closing costs that may or may not change prior to settlement after the Loan Estimate form is issued
- No tolerance - underwriting, loan origination fees, discount points, yield premiums
- 10% tolerance - settlement services if the lender selects the provider
- Unlimited tolerance - settlement services that are out of lender’s control (homeowners insurance, mortgage interest, costs when borrower chooses provider)
Form that itemizes all charges that are normally paid by a borrower and a seller in connection with settlement
Closing Disclosure form
Information booklet provided by a creditor to a mortgage applicant as part of the loan application process including general information about settlement and how to find the best mortgage
Your Home Loan Toolkit
Four ways to create a lien (VISE)
Voluntary - created intentionally by property owner
Involuntary - not a matter of choice, created by law
Statutory - created by a statue
Equitable - arises out of common law
Lien that affects all property, real and personal, of a debtor
General Lien
Lien secured by a specific property
Specific lien
Lien belonging to a provider for the unpaid purchase price of a property when the provider has not taken any other lien or security beyond the personal obligation of the purchaser
Vendor’s Lien (uncommon, typically involved in owner financing)
Taxes based on the value of the property being taxed
general real estate tax, ad valorem tax
Specific, voluntary lien on real estate given to a lender as security for a real estate loan
Mortgage Loan
Specific, involuntary lien that gives security to persons that perform labor or furnish material to improve real property
Mechanic’s Lien
A notice of a possible future lien
Lis Pendens
A court order against the property of another person that directs the sheriff or court to seize or take control of a property, to prevent a debtor from conveying title to unsecured real estate while a court suit is being decided
writ of attachment
General, statutory, involuntary liens that encumber a deceased person’s real and personal property
Estate/Inheritance Taxes
General, statutory, involuntary lien on all real and personal property held by a delinquent tax payer
IRS tax lien
Comparative Market Analysis based on the following:
- recently closed properties
- properties currently on the market
- properties that did not sell
Characteristics that bring value to real estate
Demand
Utility
Scarcity
Transferability
Basic principles of value (11)
Anticipation
Change
Competition
Conformity
Contribution
Highest and best use
Increasing and Diminishing returns
Plottage
Regression and Progression
Substitution
Supply and Demand
Three approaches to value
- Sales comparison approach
- Cost Approach
- Income Approach
Five steps to cost approach
- Estimate value of land at highest and best use
- estimate current cost of constructing buildings and improvements
- Estimate accrue depreciation
- deduct accrued depreciation from cost of construction
- Add the land value to amount from step 4
3 types of depreciation
- physical deterioration
- functional obsolescence
- External obsolescence
Income approach steps
Gross
Income
Vacancy
Expenses
Net operating Income
Equation for calculation value under income approach
Value * Cap Rate = NOI
Gross Rent Multiplier equation (properties with 4 or less units)
Sales price / monthly gross rent = GRM
Gross income multiplier (properties with 5 or more units)
Sales price / annual gross income = GIM
The act of analyzing all three approaches to value and effectively weighing the findings
Reconciliation
Four types of leasehold estates
Estate for years - any definite period
Estate from period to period - indefinite, automatically renewing
Estate at will - indefinite, possession with landlord’s consent
Estate at sufferance - tenant’s previously lawful possession continues without landlord’s consent
When a tenant with an estate for years remains in possession, or holds over, after the lease term expires and no new lease agreement is made - _____ is created
A holdover tenancy
A tenant with a disability must be allowed to make reasonable modifications to a property at the tenant’s own expense under this Act
Americans with Disabilities Act (and fair housing)
Difference between assigning a lease and subleasing
Assignment of a lease transfers the entire leasehold interest to another person. New tenant is then legally obligated to comply with all promises made in original lease.
Subleasing transfers less than the entire leasehold interest. Original tenant remains responsible for rent being paid by the new tenant and for any damage done to rental during sublease term
Clause in a financing instrument used to mortgage leased premises where mortgagee agrees not to terminate the tenancy of lessees so long as they are current in payment, should mortgagee foreclose on the property
Nondisturbance Clause
Right of first refusal…
allows tenant the opportunity to buy the property before the owner accepts an offer from another party
3 Types of Leases
- Gross Lease: landlord pays all taxes, insurance, repairs and other utilities not paid by tenant
- Net Lease: Tenant pays all or most of the property expenses, insurance, taxes and CAM charges plus rent (think Net income for the landlord)
- Percentage lease: fixed rent + % of gross revenue of tenant
Variable Leases
- Graduated lease provides for specific rent increases at set future dates
- Index lease allows rent to be increased or decreased based on CPI
When a tenant wants to purchase a property but can’t find financing quick enough they can enter into a
Lease Purchase (requires a down payment)
Two types of remedies for breach of contract leases
Actual Eviction - landlord remedy
Constructive Eviction - tenant remedy if unit becomes uninhabitable and landlord refuses to fix
Legislation that prohibits discrimination based on raced in every real estate transaction
Civil Rights Act of 1866
Legislation that further prohibits discrimination based on race, color, national origin, religion, familial status, sex, disability
The Fair Housing Act (Title VIII of civil rights act)
Legislation that repealed the requirement that housing intended for those age 55 or older have “significant facilities and services” designed for seniors, now just requires that at least 80% of occupied units have 1 person age 55 or older living in them to apply
Housing for Older Persons Act
Who administers the fair housing act?
Department of Housing and Urban Development (HUD)
Exemptions to the Fair Housing Act
- owner-occupied buildings with no more than 4 units
- single-family housing sold or rented without the use of a real estate professional
- housing operating by organizations and private clubs that limit occupancy to members (assuming membership is non-discriminatory)
Act of encouraging people to sell or rent their homes by claiming that the entry of a protected class of people into the neighborhood will have some sort of negative impact on property value
Blockbusting
Channeling of homeseekers to particular neighborhoods or discouraging potential buyers from considering some areas
Steering
The practice of refusing to make mortgage loans or issue insurance policies in specific areas for reasons other than economic qualifications
Redlining
Three main goals of a property manager
- Achieve owner’s goals
- Generate income
- Preserve and/or add value to the property
An outline that details a property owner’s objectives with the property, as well as what the PM expects to accomplish and how, including financial objectives
Management Plan
Three types of maintenance
- Preventative - regularly scheduled activities such as painting and seasonal servicing of appliances, preserves long-range value and physical integrity
- Repair or corrective - actual repairs that keep building’s equipment, utilities and amenities functioning
- Routine - day-to-day duties and regular upkeep to HVAC and landscaping
Construction alterations to the interior of a building to meet a tenant’s particular space needs (typically made by the PM prior to tenant moving in)
Tenant Improvements
The four alternative risk management techniques
Avoid - remove risk
Control - prepare for emergency before it happens
Transfer - shift to a third party (insurance)
or
Retain - take your chance with risk
Common types of commercial insurance coverage
Fire and hazard
Flood
Consequential loss, use and occupancy - business interruption insurance
Contents and personal property
General Liability - covers risk when the public enters the building & workers comp
Casualty - against theft, burglary, vandalism, machinery damage as well as health & accident insurance
Surety Bonds - protects from losses resulting form an employee’s criminal acts or negligence while working
What helps implement a comprehensive plan and regulates and controls the use of land structures within a designated land-use district
Zoning Ordinances
Some municipalities use these to ease transition from one land use to the other
Buffer zones
If a building exists in a certain way, and a zoning ordinance is introduced that goes against the buildings way of existing that building is considered
A nonconforming use
Grants nonconforming but related land use
Conditional-use permit (special-use)
Permits a prohibited land use to avoid undue harship
A variance
Difference between a subdivider and a developer
Subdivider segments land into parcels
Developer constructs improvements on subdivided parcels
A detailed map illustrating the geographic boundaries of individual lots
Plat map
Limitations on the use of property imposed by a past owner or the current owner by inclusion in the deed to the property that are binding for life
Deed restrictions
These ___Based products can create airborne contaminants that may result in respiratory disaease
Asbestos
Improper removal procedures can make this worse - use proper encapsulation
Product from paint or other sources that can result in damage to the brain, nervous system, kidneys and blood (especially in kids)
Lead
A naturally occurring, colorless, odorless, tasteless, radioactive gas produced by decay of other radioactive substances and needs to be properly ventilated
Radon
A colorless chemical with a strong, pronounced color and used widely in the manufacture of building materials and many household products because of its preservative characteristics
Formaldehyde
Colorless, odorless and tasteless gas that occurs as a by product of burning fuels such as wood, oil and natural gas,
Carbon Monoxide
Consists of more than 200 chemical compounds not found in nature, is flame resistant and often used in electrical equipment
Polychlorinated Biphenyls
Nontoxic, nonflammable chemicals use din refrigerants in air conditioners, refrigerators and freezers and bad for the ozone layer
Chlorofluorocarbons
Can grow on almost any organic substance as long as moisture, oxygen and organic food are present
Mold
Water that exists under the earth’s surface within the tiny spaces or crevices in geological formations
Groundwater
Groundwater forms this, and is the natural level at which the ground is saturated
Water table
Commonly found on sites where petroleum products are used or where gas stations and auto repair shops are located
Underground Storage Tanks
The process of laying two to four feet of soil over the top of a site and then planting grass on it to enhance the landfill’s aesthetic value and prevent erosion
Capping
Defunct, derelict or abandoned commercial or industrial sites many of which may contain toxic waste
Brownfields
Law that provides funds to assess and clean up brownfields, clarifies liability protections and provides tax incentives toward enhancing state and tribal response programs
Small Business Liability Relief and Brownfields Revitalization Act
Law that established a Superfund to clean up uncontrolled hazardous waste sites and to response to spills
Comprehensive Environmental Response, Compensation and Liability Act
Law that creates an innocent landowner immunity status
Superfund Amendments and Reauthorization Act
Law that creates an innocent landowner immunity status
Superfund Amendments and Reauthorization Act
1 mile in feet
5,280 feet
1 rod in feet
16.5 feet
1 mile in rods
320 rods
Area
LxW
Square foot in inches
144 square inches
1 square yard in square feet
9 square feet
1 acre in square feet
43,560 square feet
1 section in acres/miles
640 acres, 1 square mile
Area of triangle
1/2(Base x height)
Volume equation
L x W x H
1 cubic yard in feet
27 cubic feet
Volume of triangular prism
1/2 (Base x height x width)
X bar method
Part / (Total X Rate)
Enter the two known items, if there is a multiplication sign between the two items, you multiply to equal the missing item
likewise if there is a division sign between the two known items, you divide
The states in which the owner gives up legal title of mortgaged real estate are known as
title theory states
Whose signature is necessary for a signed offer to purchase real estate to become a contract?
Buyer’s and sellers
