Interests in Real Estate Flashcards
What are the two types of interests in real estate?
Freehold interests & Non-freehold interests
Freehold Interests
Ownership (you own an house)
Non-freehold Interests
Possessory (like a rental)
What are the three types of freehold estates?
Fee simple absolute, fee simple defeasible, & life estates
Fee simple absolute
Default form of ownership.
Own property absolutely; cannot lose it.
Fee simple defeasible
Something can cause you to lose ownership either by determinable means (you automatically lose the property due to a deed violation) or subject to a condition (subsequent action to take property(like a lawsuit)).
Life estates
Fee simple ownership for as long as you or a named person lives.
Habendum Clause
“To have and to hold.”
Names who will receive the property after you pass away.
What is a life estate “reversion”?
A=Grantor B=Owner
A) gives property to (B). (B) owns property until they die. Once (B) dies, the property ownership reverts back to (A
What is a life estate “remainder”?
A=Grantor B=Owner C=Remainderman
(A) grants property to (B). (B) has ownership until they die. When (B) dies, ownership goes to (C).
*(C) can be anyone named by (A).
What is a life estate “pur autre vie”?
A=Grantor B=Owner C=Remainderman D=3rd party
A) grants property to (B). (B) has ownership until (D) dies. Once (D) dies, the property ownership goes to (C
When purchasing a property what must you do in terms of buying a property when there is a life estate attached to it?
You need to make sure the life estate goes away. Extra paperwork, but nothing extensive. The parties have to agree.
Homestead Act
Protection of a family home from creditors. while you are alive, creditors cannot take your property.
Dower Rights
Say a spouse passes away. They owned the property and didn’t leave anything to the living spouse. These rights allow for the living spouse to have up to 1/3 of the deceased spouse’s real estate.
*Not used in MA.
Severalty
Ownership by 1 person.
Co-ownership
Ownership by 2 or more people.
What are the three types of co ownership?
- Tenancy in common
- Joint tenancy
- Tenancy by the entirety
Tenancy in common
Default form of co-ownership
Inheritable
Example: A group of friends (A, B, &C) buy a piece of property together. (A) dies, then their share of the property is inherited by (A’s) children.
*can sell their share as well.
Joint tenancy
Not the default form of co-ownership.
All parties must: (1) acquire ownership at the same time as the others. (2) all be on the same deed. (3) specify joint ownership.
There is an element of “survivorship”; meaning this type of ownership is not inheritable.
Example: A group of friends (A, B, &C) buy a piece of property together. (A) dies, then their share goes to (B) & (C) equally.
What is the “hybrid” of joint tenancy and tenancy in common.
Say A, B, & C buy a piece of property together. They are joint tenants. Lets say (B) decides to sell their interest in the property to (D). (D) cannot be a joint tenant w/ (A) & (C) because (D) bought in at a separate time on a separate deed. (D) becomes a tenant in common, while (A) & (C) are still joint tenants with each other.
- If (D) passes away, their interests go to their heirs.
- If (C) dies, their interests go to (A). Then (A) owns 2/3 of the property and (D) owns 1/3.
- If (A) dies, their interests go to (C). Then (C) owns 2/3 of the property and (D) owns 1/3.
Tenancy by the entirety
Joint tenancy for married couples.
Offers credit protections:
-Automatic homestead
-Against forced sale for debts of one spouse only.
On divorce, automatically becomes a tenancy in common, unless specified otherwise.
Condominium
Joint ownership of common areas & fee simple ownership of units.
Master Deed
What makes a building a condo, but it sub-divides the building into legally separate properties.
Unit Deed
Separate deed for individual units in a condo.
Who administers the common areas in a condo setting?
The condo Association
Condo Association
Gov. of the whole condo building.
Set up in the master deed.
Administers the building.
Usually there is a corresponding declaration of Trust.
Declaration of Trust
Sets up trustees to administer the condo association.
They deal w. hiring landscapers cleaners, etc.
Bylaws of the Association
Rules governing the condo association.
Example: pet policies, cant leave bikes in hallway
Condo fees
Condo owners pay fees for things like landscaping, snow removal, etc.
These fees are assessed by each unit’s fair market value. Each unit may pay a different amount based on how much a unit contributes to the whole condo’s value.
Super priority lien
Result of not paying condo fees. It is a money claim against a property; super priority means it is ahead of everyone else, the condo association gets to jump ahead to everyone else in the event of a foreclosure, on priority of payments.
6 month of not paying condo fees
Running with the land (condo fees)
If you neglect to pay the condo fees, the association can take your unit.
If you buy into a condo with unpaid fees from the previous owner, you need to make them current or you could lose the unit as well.
6C certificate
Must get this when buying a condo. This states the status of the fees when you buy the unit. It is required in MA.
Could say either that the fees are up to date or that there are delinquent fees.
How do delinquent condo fees affect a title?
Creates a “cloud on the title”, which results in not getting financing for the unit until the fees are paid.
Special assessment
A special charge upping the condo fees for some sort of improvement to the building.
Capital reserves
This is an account where condo tenants pay extra on their condo fees. this account is the condo associations “rainy day funds” in the event something needs to be improved.
Issue is that the tenants do not get this extra money back if they move out and there were no improvements made during their time living in the condo association.
Condo conversion
When you take one building and split it into separate units.
Cooperative
Looks like a condo on the outside, but had a completely different legal structure. The cooperative (LLC) owns the building. The unit "owners" actually do not own their unit. They own a share in the cooperative (LLC). The LLC then leases the property "owners" their units. These are called proprietary leases.
Proprietary Leases
When someone is leased a property through an LLC they own a share in.
Think cooperatives.
What does a coop allow for that a condo doesn’t?
A coop can enforce much more strict guidelines on who can live there, as long as they don’t violate fair housing laws.
Example: Red sox only housing.
Coop Fees
Similar to condo fees.
What is unique about Coop Financing?
Technically the only borrower is the LLC. Not the individuals living in the units. If the LLC defaults on payments, everyone loses their share and thus their property.
Time Shares
Basically condos for a time, rather than space.
Example: instead of getting the second floor or a building, you get the second week of a certain month.
There are maintenance fees.
Can be referred to as “interval ownership”, “….use periods”.
Securities
Shares in companies, debt (bonds), etc.
Purchasing investing rather than real estate.
R/E license doesn’t let you broker these.
3 types of securities
- Syndication
- REIT
- REMIC
Syndication
Corporation that invests in 1 or more pieces of real estate.
Investors receive returns based on performance of those properties that the syndicate invested in.
Example: Say a group of friends buy a piece of rental property. They are paid on how well the rental property does in proportion to their investment.
This is an investment in the cooperation that gets the property instead of the property itself.
Like buying an individual stock.
REIT
Publicly traded portfolio of properties.
Designed to give returns based on how a market or sub-market is doing, other than how an individual property is doing.
Like a mutual fund.
REMIC
Real Estate Mortgage Investment Conduit
Trust that holds mortgages.
Pays investors on the performance of mortgages.
Non-freeholds
Basically rentals.
4 types of non-freeholds
- Leaseholds
- Tenancy at will
- Periodic tenancy
- Tenancy at sufferance
Leaseholds
Written conveyance of possession w/ a fixed timeframe.
Example: A 12 month lease
Tenancy at will
Verbal permission that either party may terminate.
*In MA, a landlord must give you one calendar month to terminate a tenancy at will.
Period tenancy
Automatically renews on some pre-agreed interval until terminated.
Example: A month to month lease.
Tenancy at sufferance
Holdover tenancy w/o landlord permission. (Tennant wont lease after lease.)
Landlord must evict.
Owners of cooperatives receive what for their individual units?
Leases
Condominiums are conveyed via
unit deeds
The main difference between tenancy in common & joint tenancy is that with tenancy in common, when a co owner dies
their interest passes to his/her heirs.
A property owned in severalty has how many owners?
1
A non-freehold interest is an interest that provides a right of
possession.
