* Deck 3 *

Question 1

Escrow

Answer 1

Process in which a disinterested third-party holds all money and documents relating to transaction until terms and conditions of escrow have been satisfied

Question 2

Escrow Agents

Answer 2

Attorneys, banks, brokers, insurance companies etc.

Question 3

Escrow Process

Answer 3

1) Select escrow company
2) Deliver purchase contract to escrow holder
3) Open the escrow
4) Complete all items outlined in escrow instructions
5) Close escrow

Question 4

Preliminary Report

Answer 4

Escrow officer orders to start title search. Shows condition of title before the loan/sales transaction

Question 5

California Land Title Association (CLTA)

Answer 5

The standard policy in California. Maybe issued by lender only, buyer only, or both, called a “joint protection standard coverage policy”. Seller and buyer negotiate who pays

Covers – forgeries, active minors and incompetence, failure of delivery of a prior do you need, federal real estate tax liens, acts of an agent whose authority has terminated.

Question 6

American Land Title Association (ALTA)

Answer 6

Extended coverage policy, insurance against items in CLTA.

Gives coverage to lender. Buyer can buy an owner’s policy

Includes a survey/physical inspection of property. Usually required by California lenders or out-of-state lender’s that can’t make their own personal inspection.

Question 7

ALTA-R

Answer 7

Title insurance companies recommend to owners of 1 to 4 unit, owner occupied residence

Policy doesn’t include a survey since property liens are already established by record subdivision maps

Preferred title policy choice for residential properties

Question 8

County Assessor

Answer 8

Determines the amount of real property taxes call “ad Valorum”

Responsible for collecting these taxes which are paid annually or semiannually

Question 9

Proposition 13

Answer 9

Maximum annual tax on real property is limited to one percent of full cash value or Market value, plus a maximum of 2% increase in market value per year

Exemptions:
Proposition 58
Proposition 60&90

Question 10

Proposition 58

Answer 10

Allows transfer of property from one spouse to another or children without triggering reassessment

Question 11

Proposition 60 & 90

Answer 11

Homeowners may be permitted to transfer their current tax with them if all following apply
•55 years and older
• replacement property purchase within two years of original sale
• New home be equal or lesser value

Question 12

Change in ownership statement

Answer 12

Anyone who acquires property subject to taxes must notify county recorder by filling change of ownership statement within 45 days of date of recording.

Question 13

Documentary transfer tax

Answer 13

California tax laws allow city/county tax property that’s transferred

Computed on total price paid, less any assume loans. Rate at $.55 for each $500 of consideration or fraction thereof

Question 14

Progressive tax

Answer 14

Income tax

When rate increases as the amount to be taxed increases

More money made = higher to be taxed

Question 15

Regressive tax

Answer 15

Tax that uses the same way regardless of income tax

Example: state sales tax

Question 16

Installment sale

Answer 16

When buyer makes payment for one property over more than one calendar year. This helps spread game to avoid having entire game taxed in one year.

Question 17

1031 exchange

Answer 17

Tax deferred exchange

Owners can exchange property for another, as long as transaction qualifies 1031 guidelines, if so the exchange is “tax free”

Question 18

Foreign investment in real property act (FIRPA)

Answer 18

Requires a buyer to withhold estimated taxes equal to 15% of sale price and any sale of property owned by foreigner.

Question 19

Financing investment property

Answer 19

• Savings banks
• Commercial Banks
• Life Insurance Companies
• Sellers
• Syndicates

Question 20

Syndicates

Answer 20

Group of two or more people who combine financial resources to achieve investment objectives
 Can be:
Limited partnership
General partnership
Corporation
Real estate investment trust

Question 21

Limited partnership

Answer 21

Two or more people. One general partner has UNLIMITED liability’s for debts and obligations of groups projects.
All other partners have LIMITED liability to capital investment and project

Question 22

General partnership

Answer 22

Two or more people. All partners have UNLIMITED liability for debts and obligations of partnership.

Question 23

Corporation (Syndicates)

Answer 23

A business entity which is separate and apart from its owners ( stockholders)
Has Board of Directors and the stockholders have liabilities that are limited to capital investment

Question 24

Real estate investment trust ( REIT)

Answer 24

Type of real estate investment company that sells ownership shares.

REITS receive special tax considerations and offer high-yield’s to investors

REITS often invest in miles, office buildings, apartments, hotels etc.

Question 25

Benefits to investing

Answer 25

Tax shelter-other tax benefits
Appreciation
Income
Interim use
Stability
Control and use
Refinancing

Question 26

Uniform commercial code (UCC)

Answer 26

Law that standardize is a number of business practices. Requires buyers:
• demands sellers provide the schedule of all tangible property included in sale
• List of all creditors from seller
• Give notice to creditors of the impending sale
Compliance ensures buyers are liable for debts owed prior to sale

Question 27

Three institute of real estate management

Answer 27

• Certified property manager CPM education and experience.
• Accredited residential manager ARM – resident managers, some education and experience
• Accredited management organization AMO- companies that employ at least one CPM

Question 28

Types of property management

Answer 28

• Individual property manager – broker who manages for one owner or number of owners
• Individual building manager- single large property
• Resident manager-lives on property for/part-time basis

Question 29

Estate at sufferance

Answer 29

When a tenant takes legal possession of property, remains on property without owners consent when lease has terminated

Landlord can bring eviction notice

Question 30

Estate at will

Answer 30

Has no time limit. Possession is given with permission but there is no agreement about the rent. Can be terminated by either party at any time with proper notice. In California is 30 day notice

Question 31

Net lease

Answer 31

Tenant pays rent and maintenance and taxes
• net-Net: some, not all, maintenance, insurance, and taxes
• Net-net-net-: pays all taxes, insurance, maintenance, and repairs

Question 32

Gross lease

Answer 32

Tenant pays fixed rent and owner pays taxes, insurance, and other normal ownership expenses

Question 33

Percentage lease

Answer 33

Common in large rental stores. Rent based on a percent of monthly/annual gross sales made on site

Question 34

Graduated lease

Answer 34

Rent payment starts at fixed amount but increases as lease matures. Increase could be based off increased value of property determined by periodic appraisals

Question 35

Residential lease

Answer 35

Require significant amount of financial data on a prospect

Income, employer, drivers license, etc.

Question 36

Institute of real estate management-IREM

Answer 36

• Keep separate accounts for personal funds and client funds and avoid commingling
• Carry a ban on all employees who handle clients funds
• fully disclose all discounts, commissions, and other fees received due to property activity
• Certified property manager CPM
• Accredited residential Manager ARM
• Accredited Management Organization AMO