Law Flashcards
What is Chattel?
Another word for personal property (as opposed to real property)
Ex. You might confuse your buyers if you asked them, “Was there any chattel of the sellers you wanted to write into the sales contract?” It’s better to use the term “personal property.”
What is the main difference between real property and personal property?
Generally speaking, if the item is permanently attached, it becomes real property. Otherwise, it’s personal property, also called chattel (one of the vocabulary words you’ll need to know). Personal property typically includes things like furniture, fixtures, machinery, or tools.
What are the two common categories of property that are treated as exceptions when categorizing real vs personal property?
Trade fixtures and emblements.
For commercial properties, sometimes affixed items are considered trade fixtures and are therefore the renter’s personal property. Trade fixtures are equipment that is placed on or attached to real estate which the renter uses in their trade or business. An example would be display shelves installed by a business owner in a rented building.
For agricultural properties, emblements are crops produced through cultivation that belong to the tenant during cultivation and after harvest. Like trade fixtures, even though these are attached to the land at some point, they’re still considered the legal, personal property of the tenant.
What are the five basic tests the court uses to determine whether an item is a fixture (it’s part of the real property and should remain) or personal property (it belongs to the seller and can be removed)?
Use the acronym MARIA to help you remember these tests, which are:
- Method of annexation
- Adaptability of item to land’s use
- Relationship of the parties
- Intention in placing item on land
- Agreement of the parties
What is the method of annexation when referring to real vs personal property?
The method of annexation (also known as attachment) refers to whether the item is attached to the property and how permanent the attachment is.
You have to ask yourself whether the item can be removed without causing damage to the property to which it’s attached. If it can’t, it’s considered real property.
What is Adaptability of Items to Land’s Use when referring to real vs personal property?
Adaptation is related to how the item is situated or adapted to the real property.
Even if your stand-alone fireplace were not cemented in, if it were part of an outdoor entertainment area and fit into it in such a way that other fixed items would have to be dismantled to remove the fireplace, it could be argued that the item had been adapted to the environment and must not be removed. Other items that fall under this category are garage door openers or the remote controls of other built-in features that are permanently attached to the property.
What is Relationship of the Parties when referring to real vs. personal property?
The relationship of the parties—if there’s a dispute between the person who added the item and the person who removed it—is another element used to determine whether an item is real or personal property. In general, the courts tend to favor a tenant’s take on an item over the landlord’s, and a buyer over a seller.
What is Severance when referring to real vs personal property?
Severance occurs when an item that was real property becomes personal property by detaching it (severing it) from the land. If Mrs. Goldman had, prior to marketing her property for sale, dug up and potted her rose bushes she would’ve severed them, transforming them from real to personal property.
What is Annexation when referring to personal vs. real property?
The opposite of severance is annexation . This occurs when personal property is attached to real property, which makes it a fixture. So when Mrs. Goldman first brought her rose bushes home from the nursery, they were personal property until she planted them, or annexed them, to the land, making them fixtures and part of the real property.
What are percolating water rights?
Percolating water rights include the right to draw water from underground resources (such as wells) for the landowner’s use.
What are Littoral Rights (pertaining to water rights)?
Littoral rights are the rights of landowners whose lands border commercially navigable closed bodies of water, such as lakes and oceans. To remember this, recall that both littoral and lake begin with L. As with riparian rights, state laws govern littoral rights. Absent other laws, owners with littoral rights have unrestricted use of the water and own the land up to the average high-water mark. Landowners may use the water but may not divert it to deprive others of its use or contaminate it in any way.
What are Riparian Rights (pertaining to water rights)?
Riparian rights are common law rights granted to landowners whose land abuts a natural flowing body of water, such as a river or stream. To remember this, keep in mind that riparian and river both start with R.
Each state has laws governing riparian rights, but in the absence of other laws, landowners own the land to the exact center of a non-navigable waterway and to the edge of a navigable waterway. A navigable waterway is defined as one that’s large enough to support commercial boat traffic. Landowners may use the water but may not divert it to deprive those downstream of its use, or contaminate it in any way.
What is Accretion (pertaining to water rights)?
The process by which water carries rock, sand, and soil and causes land build-up
What is Alluvion (pertaining to water rights)?
New deposits of land that are the result of accretion (common at the mouth of large rivers)
What is Avulsion (pertaining to water rights)?
Loss of land by sudden large-scale changes in water flow
What is reliction (pertaining to water rights)?
Gradual receding of water, which uncovers new land
What does appurtenance mean in terms of real property?
Appurtenance in real property means the inherent or automatic ownership rights that are the natural consequences of property ownership. Property owners may keep, sell, or lease these rights. Some of these rights include:
Profit License Air rights Subsurface rights Water rights
Define surface water
Surface water includes all water in rivers, streams, lakes, wetlands, and other natural waterways. Surface water is owned by the public.
define ground water
Ground water, sometimes called percolating water, is water in underground aquifers (in the soil or rock.)
define tributary ground water
Tributary ground water is all water in natural surface streams and groundwater that’s hydraulically connected to surface water, either because the surface water percolates into the groundwater source, or because the groundwater seeps into surface water bodies.
define non-tributary ground water
Non-tributary ground water is either water that’s separated from surface water by some impermeable layer in the aquifer or water that’s so far from the surface that there’s no connection to surface water
Define Denver Basin
Denver Basin ground water isn’t tributary in nature; it’s drawn from four deep underground aquifers.
what is a water right?
A water right is the right to use (not own) some predetermined portion of Colorado’s water as provided by the court decree or a well permit that defines the water right.
what is the doctrine of prior appropriation (as it pertains to water rights)
The doctrine of prior appropriation states that the first user to divert water from a stream and put it to beneficial used establishes and maintains a senior right over other, later withdrawals from the same stream (junior rights). The doctrine is referred to as a “first in time, first in right” policy.
Alluvion describes new deposits of land that are the result of what natural process?
Accretion
Colorado’s surface water is owned by ___?
The public
How are groundwater rights in CO determined?
According to the doctrine of prior approriation
Based on the doctrine of prior appropriation, which governs the use of surface water in colorado, how are the rights assigned?
The first user to divert the water for beneficial use has the senior water right
In the rectangular survey system, what is a base line?
An east-west line used as a reference point
If you’re selling a property located in a subdivisuion, which form of legal description will you likely see for this property?
Lot and block
how big is a survey section?
one square mile or 640 acres
A __ is a point, line, or surface from which a vertical height or depth is measured.
datum
___ are a legal description used when describing units within a multistory building such as a condominium.
Air lots
A township consists of __ sections, each measuring one square mile
36
What is the difference between a spot survey and an improvement survey?
A spot survey results in an improvement location certificate (ILC) that provides reasonable assurance regarding property boundaries and possible encroachments.
An improvement survey takes the parcel’s boundaries from a land survey plat and adds the location of buildings and hardscapes on the property.
___ is co-ownership with inheritance rights. Owners may sell their interest without the consent of co-owners. Each has an undivided interest in the entire property.
Tenancy in common
__ is a type of estate where a married couple own a property, equal and undivided; they each own the entire estate.
Tenancy by the entirety
__ requires four ownership unities: time, title, interest, and possession.
Joint tenancy
___ is co-ownership without inheritance rights. When one joint tenant dies, the other joint tenants receive the benefit of that share of the estate.
Joint Tenancy
Real property is defined as…
Real property is land + real estate + the bundle of rights
The bundle of rights includes…
rights of possession, enjoyment, exclusion, control, and disposition
What test do you use to determine if something is a fixture?
The MARIA test
- Method of annexation
- Adaptability of item to land’s use
- Relationship of the parties
- Intention in placing items on land
- Agreement of the parties
What are the four economic characteristics of property and the three physical characteristics?
The four economic characteristics of property are: scarcity, improvements, permanence, and area preference.
The three physical characteristics are: immobility, indestructibility, and uniqueness
These characteristics give the property its value.
___ in real property means the automatic ownership rights that are the natural consequences of property ownership, such as minerals, water, and air related to a property. These rights run with the property but can be converted separately from the property.
Appurtenances
Colorado water is administered according to the ____
Doctrine of prior appropriation - which states that water rights are determined by priority of beneficial use. This means that the first person to use water or divert water for a beneficial use or purpose can acquire individual rights to the water.
A ___ estate involves the right to possess, use, and convey real estate, in contrast to a __ estate, which implies no ownership rights
A freehold estate involves the right to possess, use, and convey real estate, in contrast to a leasehold estate, which implies no ownership rights. The interest in a freehold estate can be passed down to heirs (this is called a fee simple estate), or the interest can be valid just for the individual’s lifetime (known as a life estate).
A ___ is also known as a “fee simple absolute.” ___ estates convey all the rights of ownership (otherwise known as the bundle of rights) possible, including use, disposition, and inheritability. This is the ownership you’re likely familiar with, because most titles are held as __ estates. This type of ownership endures for an indefinite period of time.
Fee simple
A __ differs from a freehold estate because it doesn’t convey the entire bundle of rights: the owner only holds the estate for the length of someone’s lifetime (sometimes her own). The owner must pay taxes, property insurance, and any mortgage payment to prevent foreclosure. The owner must also maintain the property so that when the estate ends, whoever gains possession of the property doesn’t face dimished value or use
Life estate
This defines the legal relationship between the parties who sign the lease. It grants possession, but not title, to the tenant, and is for a limited period of time
Leasehold Estate
This is a fixed termination type of lease that may be for a day, week, month, year, several years, or any definite period of time. When the specified date occurs, the lease terminates automatically.
Estate for years
This involves possessory interest that’s automatically renewed at the end of each period specified in the lease. An example would be a month-to-month lease
Periodic Estate
In this type of leasehold, the duration of the release is unknown at the time it’s created.
Estate at will
This is a type of possession in which a tenant stays after the right to possess has terminated.
Estate at sufferance (aka tenancy at sufferance)
This is a tenant who refuses to leave after the expiration of a lease
Holdover tenant
This is a contract that transfers possession for consideration
Lease
This is the one who leases and is placed in possession (tenant)
Lessee
This is the one who leases out, granting temporary possession to another (landlord)
Lessor
__ is a life estate created for the life of another, for example an estate granted to Norman for the length of his mother’s life.
Pur autre vie
Rules governing the relationship between real estate professional and the person being represented are defined in the ____
the law of agency
What is the difference between implied agency and express agency?
An implied agency is one that exists because of the behavior of the participants. There is no written contract.
An express agency exists because a written or oral agreement in place.
What are the OLD CAR fiduciary duties that you owe to your client?
Obedience
Loyalty
Disclosure
Confidentiality
Accounting
Reasonable skill and care
What are the two fiduciary duties that survive agency termination?
Confidentiality and accounting
The duty to account for all money and property ends once all money and property have been accounted for. The duty of confidentiality never ends.
In what situations is agency terminated?
When the client’s goals have been met, the term of the agency agreement expires, or there is mutual dissolution.
Or…
- Upon the broker’s or principal’s incapacitation
- The property involved is destroyed
- The broker or principal declares bankruptcy
- Either the client or the broker revokes the agreement
A ___ is someone who is empowered to do anything the principal could do personally, which means their authority is virtually unlimited.
Universal Agent
A ___ is a licensee who is appointed by the broker to represent one party in an in-house transaction.
Designated agent
Most real estate transactions are special agency; property managers, however, often serve as ___ agents.
General agents
A ___ has responsibility to handle all details of a specific transaction.
General agent
A ___ or specific agent has a limited scope of authority.
Special agent
A relationship in which one party (the principal) authorizes another party (the agent) to act as the principal’s representative in dealing with third parties
Agency
What are the OLD CAR fiduciary duties?
- Obedience
- Loyalty
- Disclosure
- Confidentiality
- Accounting
- Reasonable Care and Diligence
What is a sub-agent?
A licensee from another firm who assists the buyer but represents the listing agent and the seller
What is a single agent?
A broker or salesperson engaged by and representing only one party in a real estate transaction
What is a dual agent?
One broker representing both the buyer and the seller in a single transaction
What is a designated agent?
A licensee authorized by a broker to act as the agent for a specific principal in a particular transaction
What is transactional brokerage?
A broker that helps a buyer and a seller with paperwork but does not represent either party
Which two duties to a client survive agency termination?
Confidentiality and Accounting
What are the three standard types of listing agreements?
Exclusive Right-to-Sell Agreement which allows the listing agent to list the property and receive a commission, no matter who brings the buyer to the seller
Exclusive Agency Agreement where only one broker lists the property. If that broker or any other broker sells the property, the listing agent is owed a commission. However, if the owner finds a buyer/tenant, the owner pays nothing.
Open Listing Agreement is a unilateral agreement in which a seller may contract with many real estate agents to locate a buyer. Only the agent who brings the buyer earns the commission, and if the seller finds the buyer himself, no one is owed a commission.
An agreement that allows the seller to contract with multiple agents but only pay a commission to the agent who locates a buyer is called an ____
Open Listing Agreement
An agreement that allows the seller to work with an agent while still trying to locate the buyer themselves is called an ___. If the seller finds the buyer, a commission is not owed to the agent.
Exclusive Agency Agreement
An ___ allows the listing agent to list the property and receive a commission no matter who brings the buyer to the table.
Exclusive Right-to-Sell Agreement
What is a Net Listing?
an agreement in which the seller specifies a desired price for the property and agrees that the broker’s commission listing will be any amount above that price. Net listings can be written for exclusive right to sell, exclusive agency, or open listings.
Although net listings are allowed in Colorado, they are discouraged by the commission because of the potential conflict of
interest.
What are some of the main reasons a listing agreement, which is a legal contract, may be terminated?
- The sale of the property
- Mutual Agreement
- Expiration
- Agent Abandonment
- Seller’s request (seller may owe commission)
When a licensee represents, advocates solely for, and seeks a sale of the property at the best price and terms available or acceptable to the seller
Seller Agency
A commonly-used exclusive right-to-sell listing agreement furnished by Colorado Association of REALTORS® (CAR)
Exclusive Seller Listing Agreement
When a licensee represents, advocates solely for, and seeks a property purchase at the best price and terms for the buyer
Buyer Agency
The ___ requires certain contracts, such as those involving the sale of real property, to be in writing and signed to be enforceable
The statue of frauds
The ___ is the party who receives the property title
Grantee
The grantor is the seller and the grantee is the buyer.
The ___ is the party who transfers the property title
Grantor
The grantor is the seller and the grantee is the buyer.
A ___ is a written and signed legal document that transfers ownership from one party to another
Deed
Contracts conveying the ownership or interest in real property must be in writing to be valid and enforceable according to the ___.
Statute of frauds
Consideration is compensation for the transfer of a property. This can be ___ consideration (“love and affection”) or ___ consideration (monetary or something with monetary value).
Consideration is compensation for the transfer of a property. This can be good consideration (“love and affection”) or ** valuable consideration** (monetary or something with monetary value).
___ are required in deeds and usually accompany the words, “Subject to all easements and restrictions of record.”
Restrictions and exceptions are required and usually accompany the words, “Subject to all easements and restrictions of record.”
Pertaining to surveying:
__ relate to measurements; __ relate to permanent structures that form the measurement’s starting or ending point.
Metes relate to measurements; bounds relate to permanent structures that form the measurement’s starting or ending point.
What are the two forms of legal property descriptions?
Metes and bounds, and reference to lot and block (found in a plat)
A __ deed does not offer any warranties to the grantee, but simply releases any ownership interest of the grantor and is used to clear title “clouds.”
A quitclaim deed does not offer any warranties to the grantee, but simply releases any ownership interest of the grantor and is used to clear title “clouds.”
A __ deed gives ownership of foreclosed property to the highest bidder.
A referee deed gives ownership of foreclosed property to the highest bidder.
A __ deed may come with or without covenants of warranty.
A bargain and sale deed may come with or without covenants of warranty.
The covenant of __ means the grantor holds the title specified in the deed.
The covenant of “seisin” means the grantor holds the title specified in the deed.
A __ deed provides the strongest and broadest form of title guarantee.
A full covenant and warranty deed provides the strongest and broadest form of title guarantee.
A __ deed provides the following covenants: seisin, right to convey, covenant against encumbrances, quiet enjoyment, further assurances, and warranty.
A warranty deed (aka full covenant and warranty deed) provides the following covenants: seisin, right to convey, covenant against encumbrances, quiet enjoyment, further assurances, and warranty.
The covenant of __ means the grantor defends the title to the grantee against lawful claims of others.
The covenant of warranty means the grantor defends the title to the grantee against lawful claims of others.
The covenant of ___ means the grantee has possession and will not be disturbed in the use and enjoyment of the property.
The covenant of quiet enjoyment means the grantee has possession and will not be disturbed in the use and enjoyment of the property.
__ occurs when property is acquired by adverse possession, descent, eminent domain, escheat, foreclosure, natural processes, or regulatory taking.
Involuntary alienation occurs when property is acquired by adverse possession, descent, eminent domain, escheat, foreclosure, natural processes, or regulatory taking.
___ occurs when a property owner willfully transfers property, by deed or by will.
Voluntary alienation occurs when a property owner willfully transfers property, by deed or by will.
__ is the act of transferring ownership of a property.
Alienation is the act of transferring ownership of a property.
The purpose of ___ is to determine the validity of a will, where one exists, and supervise the distribution of an estate, whether a will exists or not.
The purpose of probate is to determine the validity of a will, where one exists, and supervise the distribution of an estate, whether a will exists or not.
___ is the state’s power to claim the property of someone who died intestate with no heirs or creditors.
Escheat is the state’s power to claim the property of someone who died intestate with no heirs or creditors.
When a person dies, when is an administrator used vs. an executor?
An executor is used when a person dies with a will and that person is named in the will as the executor.
An administrator is used when a person dies without a will
The build-up of land from sand, silt, or gravel over water (think the pond)
Accretion
The land mass formed by the build-up of sand, silt, or gravel over water
Alluvion
The increase of land resulting from the gradual, permanent withdrawal of water
Reliction
The sudden loss or gain of land due to water
Avulsion
The gradual loss of land due to water, wind, or other natural disturbances
Erosion
The addition of value to property through labor or the addition of new materials
Accession
A __ occurs when private property is taken or regulated by a government authority to the detriment of the landowner, and the property owner is deprived of all economically viable uses of the property and cannot get a reasonable investment return.
A taking occurs when private property is taken or regulated by a government authority to the detriment of the landowner, and the property owner is deprived of all economically viable uses of the property and cannot get a reasonable investment return.
__ is the process of the government taking private property through its power of eminent domain.
Condemnation is the process of the government taking private property through its power of eminent domain.
___ is the power of the government to take private land for public use.
Eminent domain is the power of the government to take private land for public use.
The ___ means the soon-to-be-foreclosed-on property owner can redeem his right to the property by paying off all debts and foreclosure fees relating to the property, which can only be done prior to the foreclosure sale itself.
The right of redemption means the soon-to-be-foreclosed-on property owner can redeem his right to the property by paying off all debts and foreclosure fees relating to the property, which can only be done prior to the foreclosure sale itself.
Foreclosed-on properties are conveyed using a __ deed, commonly referred to as a referee’s deed.
Foreclosed-on properties are conveyed using a judicial deed, commonly referred to as a referee’s deed.
___ is the legal process used to determine a will’s validity and to ensure it accurately reflects the deceased person’s wishes.
Probate is the legal process used to determine a will’s validity and to ensure it accurately reflects the deceased person’s wishes.
A ___ happens when the courts grant an individual or an entity (usually a lender or mortgage holder) the right to sell a property
A court-ordered sale happens when the courts grant an individual or an entity (usually a lender or mortgage holder) the right to sell a property
A ___ is a debt against a property. An ___ is the authorized use of another’s property for a specific purpose. An ___ is an affixed intrusion onto another person’s property.
A lien is a debt against a property. An easement is the authorized use of another’s property for a specific purpose. An encroachment is an affixed intrusion onto another person’s property.
An ___ on property title may be monetary or physical. It limits the owner’s use of the property, and can affect its marketability and value.
An encumbrance on property title may be monetary or physical. It limits the owner’s use of the property, and can affect its marketability and value.
___ can take precedence over all other liens, except real estate property tax liens and super liens.
Mechanic’s liens can take precedence over all other liens, except real estate property tax liens and super liens.
In Colorado, for properties in an HOA, ___ have priority over first mortgage liens.
In Colorado, for properties in an HOA, super liens have priority over first mortgage liens.
An ___ is a non-possessory right acquired by one party to use the land of another party for a special purpose.
An easement is a non-possessory right acquired by one party to use the land of another party for a special purpose.
An easement ___ is attached to a specific parcel of land, transfers with the land, and grants the right to use adjoining property. An easement in ___ granted to a specific individual or business entity rather than attached the property itself.
An easement appurtenant is attached to a specific parcel of land, transfers with the land, and grants the right to use adjoining property. An easement in gross granted to a specific individual or business entity rather than attached the property itself.
The ___ estate is the one that suffers the easement; the ___ estate is the one that enjoys the easement.
The servient estate is the one that suffers the easement; the dominant estate is the one that enjoys the easement.
A ___ easement is a voluntary, legal agreement between a landowner and a land trust or government entity that attaches to the land and enforces permanent use and development restrictions.
A conservation easement is a voluntary, legal agreement between a landowner and a land trust or government entity that attaches to the land and enforces permanent use and development restrictions.
What are CC&Rs?
Covenants, Conditions, and Restrictions
Covenants are agreements between two or more parties. If the agreement is violated, ownership-or tenancy, in the case of a lease- can be terminated. So if a landlord and tenant have a covenant that states no pets and the tenant brings in a pet, the lease can be terminated.
Conditions are contingencies on which ownership of a property might be lost if the condition is violated. For instance, a grandmother could pass her property on to an heir on the condition that the heir never marry. If the heir does, ownership would be severed. The property would revert to the grantor or another heir.
Restrictions, or restrictive covenants, are a type of deed restriction imposed by a developer who wants to maintain specific standards in a subdivision that’s still under development. The developer doesn’t want early residents in the development to create issues that will impede future sales. For instance, a deed restriction may involve the types and heights of fencing that may be used. Owners may be prohibited from using plastic fencing, parking their recreational vehicles on the street, or placing basketball hoops where they will be in view of the street.
Regarding restrictive covenants/deed restrictions, to what does the doctrine of laches refer?
The doctrine of laches refers to the enforcement of restrictive covenants. If property owners don’t protect their rights to enforce these covenants, they can lose them.
Describe these governmental powers:
- Eminent Domain
- Escheat
- Eminent Domain: The government power to take private land for public use
citizens. Condemnation is the PROCESS by which the govt exercises eminent domain - Escheat: The state’s power to take property when an owner who has no heirs dies or abandons the property for more than five years
- Taking occurs when a government acquires or regulates private property to the detriment of the landowner, who is deprived of all economically viable uses of the property and can’t get a reasonable return on the property
___ is the power of the government to take private land for public use. ___ is the process of actually taking someone’s property. The government must compensate private owners for property taken through the power of eminent domain.
Eminent domain is the power of the government to take private land for public use. Condemnation is the process of actually taking someone’s property. The government must compensate private owners for property taken through the power of eminent domain.
__ is a governmental power to seize and sell the property of a deceased person when no heirs or creditors can be found.
Escheat is a governmental power to seize and sell the property of a deceased person when no heirs or creditors can be found.
Describe “Taking”
“Taking” occurs when private property is taken or regulated by a government authority to the detriment of the landowner, and the property owner is deprived of all economically viable uses of the property and cannot get a reasonable return on the property.
What is Eminent Domain and Condemnation
Eminent domain is the power of the government to take private land for public use. Condemnation is the process of actually taking someone’s property. The government must compensate private owners for property taken through the power of eminent domain.
What does the planning board do?
The planning board advises all other municipal agencies on land use matters, creates and updates the community’s master plan, and reviews and approves site plans for subdivision development. It will also recommend zoning changes as necessary.
What is the difference between a special use permit and a variance when it comes to zoning?
A special use permit (aka a conditional use permit) allows conditional use in a zone based on those uses and conditions expressly listed in the ordinance. For example, a church could be built in a residential district with a special use permit, on the condition that it has appropriate measures for parking so it doesn’t negatively impact the neighborhood. These require a public hearing but don’t require the property owner to show hardship because of the current zoning.
A variance allows owners to develop a property in a way that’s not normally allowed by the physical or dimensional requirements of the current zoning. It is a permitted deviation in the zoning ordinance requirements. It requires the owner to prove the special circumstances that make the zoning requirements a hardship.
What are the two types of variances?
Area variances and use variances.
An area variance allows the owner to develop a property in a way that’s not normally allowed by the physical or dimensional requirements of the current zoning.
A use variance isn’t used in every municipality. It allows the owner to use the property for a purpose that would otherwise be prohibited by the zoning in place. For example, if the owner wishes to operate a hair salon from his basement when the zoning doesn’t allow commercial operations.
Who creates subdivision regulations?
The planning commission
A __ is the public record of subdivision plats held at the county clerk’s office.
Plat book
What is nonconforming use?
When existing uses that don’t comply with new zoning regulations are permitted to continue
When zoning is first placed in an area or an area is rezoned, any existing uses that don’t comply with the zoning are grandfathered in. This is called nonconforming use. An example is a corner grocery store suddenly finds itself in the middle of a residential neighborhood due to zoning changes. It may stay a corner grocery store, but can’t expand into a big box store
What is the biggest difference between an area variance and a use variance?
A use variance prevents economic loss of the property. An area variance need not show potential economic loss.
An area variance need not show potential economic loss, but it also must not be detrimental to surrounding properties
What is an encumbrance
A limitation on a property title, such as a lien or easement
An encumbrance on real property that usually must be satisfied before the title can be transferred; often used as security for a debt
Lien
What is the difference between voluntary liens and involuntary liens?
In a voluntary lien, the owners agree to have a security placed on themselves or their property.
With an involuntary lien, the creditor places the lien without the owner’s consent via legal means
What is the difference between a specific lien vs a general lien?
Specific lien: attaches to a single property
General lien: affects all of the debtors property, both real and personal
What is Lis pendens?
Lis pendens provides constructive notice, or a warning, to prospective homebuyers that the ownership of a property is in dispute and litigation is pending. Lis pendens can only be filed if a claim is related specifically to the property. By filing a lis pendens, an individual or entity is protecting its claim to the title pending the lawsuit’s outcome
Lis pendens is connected to the concept that a property buyer must assume any litigation that exists pertaining to the property.
What is easement appurtenant and how is it different from easement in gross?
Easement appurtenant is an easement attached to a specific parcel of land that transfers with the land; grants the right to use adjoining property
Easement in gross is an easement granted to a specific individual or business entity rather than attached to the property itself
What is a conservation easement?
A voluntary legal agreement between a landowner and another entity (usually a land trust) that places restrictions on the use of a piece of property.
A ___ is permission to do something on another’s land without actually possessing any interest or ownership in the land.
License
What are CC&Rs? What are the differences between them?
Covenants, conditions, and restrictions - are forms of deed restriction that dictate how an owner can use a property.
Covenants are agreements between two or more parties. If they are violated, in a lease for instance, the lease can be terminated. If a landlord and tenant have a covenant that states no pets and the tenant brings in a pet, the lease can be terminated.
Conditions are contingencies on which ownership of a property might be list if the condition is violated. For instance, a grandmother could pass her property on to an heir on the condition that the heir never marry. If the heir does, ownership would be severed.
Restrictions or restrictive covenants, are a type of deed restriction imposed by a developer who wants to maintain specific standards in a subdivision that’s still under development. For instance, a deed restriction may involve the types and rights of fencing that may be used.
__ is governmental authority to do what’s right for the public good, including zoning ordinances and building codes
Police Power
What is eminent domain?
Government power to take private land for public use
What is Escheat?
State power to claim the estate of a deceased person who left no wills, heirs, or creditors
What is a ‘taking’?
When a govt authority acquires or regulates private property to an owner’s detriment; requires just compensation for the owner
What are the six common zone districts?
- Residence: covers areas used purely for residential purpose
- Office Residence: mixes residential living with office space and small retail space (like a dry cleaners or coffee shop) designed to cater to nearby districts
- Commercial: designates shopping areas that provide jobs for workers and needed goods to residents; encourages adaptive reuse of existing buildings
- Industrial: Delineates space for manufacturing, processing,etc
- Downtown: defines retail, entertainment, institutional, residential, office, and governmental space all in one area
- Agricultural: provides agricultural, recreational, wildlife, open space, farming, and river-oriented areas and uses
What are Overlay zone districts?
Special zoning districts over existing base zones typically to protect special features or areas, e.g., floodplain, view protection, and watershed protection
The Civil Rights Act of 1866 protects the rights of every ___, with. no exceptions for discrimination based on race or color
US Citizen
The Fair Housing Act of 1968 prohibits housing discrimination based on ___
Race, color, national origin, and religion
The Housing and Community Development Act added __ to the list of protected classes in 1974
Sex
In 1988, the Fair Housing Amendments Act extended the federally protected classes to include ___
Familial status and disability
The ___ provided exceptions for housing designed specifically for seniors.
Housing for Older Persons Act of 1995
What act created the Office of Fair Housing and Equal Opportunity?
Fair Housing Act of 1968
What act prohibits discrimination in lending by required lenders to give equal access to credit?
Equal Credit Opportunity Act
What act recognizes all persons born in the US as citizens?
Civil Rights Act of 1866
What are the 7 federally protected classes?
- Race
- Color
- National Origin
- Religion
- Sex
- Familial Status
- Disabilities
In 1988, the ___ Act extended the protection to cover familial status and disability.
In 1988, the Fair Housing Amendments Act extended the protection to cover familial status and disability.
The __ provided exceptions for housing designed just for seniors.
The Housing for Older Persons Act of 1995 provided exceptions for housing designed just for seniors.
The __ Act in the 1970s added sex to the list of protected classes.
The Housing and Community Development Act in the 1970s added sex to the list of protected classes.
The ___ prohibited discrimination based on race, color, national origin, and religion.
The Fair Housing Act of 1968 prohibited discrimination based on race, color, national origin, and religion.
Which act was the first step in reducing discrimination based on race and color.
The Civil Rights Act of 1866 was the first step in reducing discrimination based on race and color.
Race and color are two protected classes, and they are different in meaning. What is the difference?
Race has to do with lineage; color has to do with the color of the skin
What is Redlining, blockbusting, and steering?
- Redlining is when a lender refuses to fund loans in a specific geographic area due to its demographics.
- Blockbusting is encouraging residents to sell by telling them that a predicted demographic change in the area will cause a decline in housing values.
- Steering occurs when real estate professionals limit the choices made available to clients based on assumptions related to a protected class.
In the 1890s, __ legalized segregation, leading to what would be known as the “separate but equal” doctrine.
In the 1890s, Plessy vs. Ferguson legalized segregation, leading to what would be known as the “separate but equal” doctrine.
What are the five elements required for a valid contract?
- Legally competent parties - A party who has the capacity (legal and mental) to enter into a contract. For example, someone who suffers from dimentia is can be considered not competent
- Offer and acceptance: This is also called mutual agreement, or just acceptance. Offer and acceptance occurs only when there is a meeting of the minds, or when the parties are in complete agreement about the purpose and terms of the contract. For example, when a buyer agrees to buy and a seller agrees to sell and all therms are agreed to, this is an offer and acceptance. Another form is one person asking “will you marry me?” and the other person answering “Yes”
- Consent - An essential element of a contract meaning it must be entered into as a free and voluntary act, without undue influence or duress.
- Legal Purpose - The idea that a contract must not propose to do anything illegal; such a contract would be unenforceable
- Consideration - The giving of something of value, which can include the agreement to not do something. Consideration is a required element of a binding contract.
What are the 4 main antitrust violations that can occur in real estate?
Antitrust violations that can occur in real estate include price fixing, group boycotts, market allocation agreements, and tie-in arrangements.
Who brings suits to enforce antitrust laws?
The FTC, Antitrust Division of the DOJ, and state attorneys general all work to bring suits to enforce antitrust laws. Additionally, individuals and businesses can bring suit.
Explain the FTC Act, the Clayton Act and the Sherman Act
The FTC Act created the FTC to investigate and stop unfair competitive practices.
The Clayton Act aids competition by preventing restrictive mergers or acquisitions.
The Sherman Act prohibits competitors from creating agreements that would stifle competition, like price fixing or monopolies.
What are the central elements of an antitrust violation?
The central elements of an antitrust violation involve a contract, a conspiracy between or among competitors to unreasonably restrain trade, or a combination.
An example of ___ is when two or more competitors conspire not to do business with a third, or with a vendor.
An example of group boycotting is when two or more competitors conspire not to do business with a third, or with a vendor.
A ___ is an antitrust violation in which a business refuses to do business with a consumer unless the consumer also purchases products or services from a recommended business.
A tie-in arrangement is an antitrust violation in which a business refuses to do business with a consumer unless the consumer also purchases products or services from a recommended business.
___ is two or more parties conspiring to set their prices at the same or similar level.
Price fixing is two or more parties conspiring to set their prices at the same or similar level.
In real estate, price fixing can also mean an agreement between competitors on the length of a listing, co-op commissions, and other terms.
___ involves the illegal segmenting of the market by competitors to discourage competition and control market segments, which restricts trade.
Market allocation involves the illegal segmenting of the market by competitors to discourage competition and control market segments, which restricts trade.
The reason market allocation is an antitrust violation is that it limits choices for the consumer.
___ occurs when a two or more brokerages agree not to compete for business with each other.
Market allocation occurs when a two or more brokerages agree not to compete for business with each other.
What is the defining characteristic of a per se antitrust violation?
No intent needs to be proven
What is the Uniform Commercial Code?
The UCC requires security instruments (e.g., collateral) to be documented through a security agreement the borrower has signed. The security agreement must include a complete description of the personal property used as collateral. The UCC-1 financing statement, which identifies the real estate involved, must be filed with the recorder of deeds. The recordation of the security agreement and financing statement provides notice to any prospective buyers and lenders that there is a security interest against the personal property (and in some cases, fixtures) related to the land.
The ___ is also known as the “truth in securities” law because it requires disclosure of information about securities through a registration process before they can be sold to the public.
The Securities Act of 1933 is also known as the “truth in securities” law because it requires disclosure of information about securities through a registration process before they can be sold to the public.
A ___ is a tradable financial product that represents a group of cash flow-producing assets.
A security is a tradable financial product that represents a group of cash flow-producing assets.
__ was established in 1980 as a Superfund to respond to spills that may endanger the public health or the environment, and to clean up abandoned or uncontrolled hazardous waste sites.
CERCLA was established in 1980 as a Superfund to respond to spills that may endanger the public health or the environment, and to clean up abandoned or uncontrolled hazardous waste sites.
What are the three levels of liability under CERCLA?
There are three levels of liability under CERCLA: strict (owner is responsible), joint and several (each responsible party is liable), and retroactive (current/prior owners are liable)
CERCLA was amended in __ by ___ to encourage greater citizen decision-making in clean-up, to require the EPA to revise its hazardous ranking system, and to create an innocent land owner immunity status.
CERCLA was amended in 1986 by Superfund Amendments and Reauthorization Act (SARA) to encourage greater citizen decision-making in clean-up, to require the EPA to revise its hazardous ranking system, and to create an innocent land owner immunity status.
What is the Brownsfields Law?
A brownfield is an abandoned or otherwise unused commercial or industrial site with suspected contaminants.
The ___ , created in __, requires the EPA to establish air quality standards for the protection of human health and the environment.
The Clean Air Act, created in 1970, requires the EPA to establish air quality standards for the protection of human health and the environment.
What is a legally competent party?
A party who has the legal and mental capacity to enter into a contract
What does legal purpose mean, when it comes to contracts?
Contracts must be written for a lawful objective
What’s consideration with regards to a contract?
Something of value is given in exchange for something of value
Which contract element requires mutual agreement of terms
Offer and acceptance
Which contract element requires something of value, even a promise to do or not to do something?
Consideration
Which contract element requires age of majority and mental soundness
Legally competent parties
Which contract element requires the contract to be for a lawful reason
Legal purpose
What is required for contract validity only when the nature of the contract is real property?
It must be in writing
Which contract element requires it to be entered voluntarily, without duress or undue influence
Consent
What’s the statute of frauds?
A law that requires that contracts conveying the ownership or interest in real property must be in writing to be valid and enforceable
To summarize, in order to be legally enforceable, Colorado’s statute of frauds requires that all contracts, commitments, and agreements for the sale of real property be in writing and signed by at least the seller. The chances that a brokerage firm’s compliance department will let a contract that all parties haven’t signed slip through are small, though!
What does the parol evidence rule state
Except in limited situations, parties to a written contract can’t introduce oral or written evidence that contradicts or modifies the contract’s terms.
If the seller said she was leaving the curtains but the contract says otherwise and the buyer signed it, someone’s going to have to go shopping for window coverings
What is the difference between a contract that is either valid, invalid, or voidable
A valid contract contains all the essential elements
An invalid contract is one that is missing one or more essential elements
A voidable contract is one that may be cancelled by one or more parties for several reasons. It may be missing an essential element and thus invalid; it may contain a mistake or misrepresentation, or it may have been created or executed by a party under duress
What is an unenforceable contract?
A contract that will not stand up in court, but may still be valid if the parties want to complete performance
What two things can an ‘executed contract’ mean?
An executed contract can mean two different things: a contract signed by the parties, agreeing to all terms, or a contract in which all terms have been fulfilled.
What is the difference between a bilateral contract and a unilateral contract
In a bilateral contract, both parties have obligations; a unilateral contract is one in which there is only one party making a promise, such as a $50 reward to help recover a lost cat.
What does performance of a contract mean?
Performance of a contract means to meet all terms of the contract.
It is possible to partially perform a contract. Partial performance occurs when a party does some, but not all, of what the party has agreed to do.
What does the phrase “time is of the essence” mean with regard to a real estate contract?
The parties agree to proceed in good faith and not unduly delay the process.
What is Novation?
Novation occurs when one party to an existing contract is substituted with a new party (which may be referred to as novation of parties) or when a new contract is substituted for an old one between the same parties (aka novation of contract). With a novation, the new party takes over the rights and duties of the original party, and the original party is no longer obligated under the contract. All parties to the original contract must agree to the ovation.
Novation may substitute the actual contract for another between the same parties for the same purpose. Novation may also replace one (or more) of the original contracting parties with another party or parties.
When a breach of contract occurs, the aggrieved party can remedy the situation in what ways?
Terminate
- Unilateral rescission: Fine, if the other party is not going to meet his obligations, I’m going to terminate.
- Mutual rescission: Okay, this contract isn’t working out for either of us. Let’s put it in writing that we’ve agreed to call it quits
Accept
- Accept partial performance: Although you haven’t met all of your obligations, I’m willing to move forward with the contract anyway.
- Liquidated damages: Things just aren’t working out, so I’m going to cut my losses and accept liquidated damages per our agreement because you didn’t hold up your end of the deal.
Sue
- Sue for monetary damages: All right then. If you don’t want to fulfill your obligations through actions, with the court’s help, I’ll take out what you owe me in cash and call it even
- Sue for specific performance: Hold on! you’re not getting off that easy. With the help of the courts, I’m going to make sure you fulfill the terms of our contract
What is the statute of limitations?
The statute of limitations is a law that states that if legal remedy is sought against a person, the pursuer must bring a court action within a specified period of time (three years in Colorado).
What is Assignment of a contract?
Assignment of a contract means one of the original parties has assigned his or her rights to a new party. It requires the consent of the parties, and the original party may still remain responsible for the terms in the event of a default of the assignee.
In Colorado, contract assignment is done through the Additional Provisions section of the Contract to Buy and Sell Real Estate.
What are the four types of listing agreements available in CO?
- Exclusive Right To Sell. Most often used in CO
- Exclusive Agency listing allows a licensee to represent the seller in either an agency or transaction-broker arrangement. The seller only pays the listing broker’s commission if the listing broker or anyone in the firm procures the buyer
- Net Listing - the licensee keeps anything over the agreed price
- Open Listing - The seller is free to enter into several open agency relationships with other brokers. commission is only paid to the broker who procures the buyer
What is the Colorado Real Estate Commission’s buyer agency agreement called?
Exclusive Right-to-Buy Listing Contract
What is the name of the Colorado form that brokers must provide to an unrepresented buyer?
Brokerage Disclosure to Buyer
Identifying the terms of the buyer broker / buyer agency relationship is the purpose of what document?
The buyer agency agreement
What is a purchase agreement?
A purchase agreement is the type of contract that a potential buyer and the seller of a property enter into when the buyer is interested in purchasing the seller’s property. The agreement is binding and must be in writing and signed by all parties to the agreement.
What three things does a contingency normally include, when talking about an offer on a property?
Contingencies usually include the actions necessary to remove the condition, a deadline for its removal, and who is responsible for the accompanying actions or costs involved.
What is the difference between patent defects and latent defects?
Patent defects are openly visible and could be spotted by a layman, such as water stains on the ceiling or exposed wiring.
Latent defects are concealed, hidden, or likely to only be recognized by a trained professional
Which disclosure is required of the seller for residential properties built prior to 1978?
Lead-based paint disclosure
Which disclosure is prepared by broker for presentation to buyer and seller to identify information that will be used in marketing the property
Square footage disclosure
What are the two types of security instruments that pledge property as collateral for a loan?
Mortgage and deed of trust
A __ attached to a security instrument describes the loan amount and terms, and references the security instrument.
A promissory note attached to a security instrument describes the loan amount and terms, and references the security instrument.
The three basic instruments used to finance real estate are ___
- note with mortgage
- note with deed of trust
- contract for deed
The ___ is a contractual promise to repay that requires certain features to be valid.
The promissory note is a contractual promise to repay that requires certain features to be valid.
How does the foreclosure process differ between properties with a deed of trust and properties with a mortgage?
With a deed of trust, a non-judicial foreclosure is typical, and a borrower has a right to cure the default prior to the auction. But the borrower has no statutory right of redemption after the sale.
With a mortgage, a judicial foreclosure is typical, and a borrower has a right to cure the default, an equitable right of redemption prior to auction, and a statutory right of redemption after the auction.
What are the standard clauses in a security instrument?
Standard clauses in a security instrument include a defeasance or reconveyance clause, late charge provisions, an acceleration clause, and the alienation clause, which is also known as a due-on-sale clause.
A deed of trust uses a ___ clause, which requires the trustee to convey the deed to the homeowner when the loan has been repaid in full.
A mortgage uses a ___ clause, which requires the lender to execute a satisfaction of mortgage when the loan has been repaid in full.
A deed of trust uses a reconveyance clause, which requires the trustee to convey the deed to the homeowner when the loan has been repaid in full.
A mortgage uses a defeasance clause, which requires the lender to execute a satisfaction of mortgage when the loan has been repaid in full.
What is the purpose of a lifting clause in relation to mortgages?
It allows a borrower to refinance a first mortgage without affecting its lien position even when a junior mortgage is in place
What is the difference between Lien theory and Title Theory?
In Title Theory states, the borrower has equitable title, but the lender or trustee holds legal title to the property. Typically a deed of trust is used as a security investment
In Lien Theory states, The borrower holds legal and equitable title, and the lender has a lien against the property. Typically, a mortgage is used as a security investment
CO is a Lien Theory state.
Title theory and lien theory are mainly important because of the ways in which they affect the lender’s ability to foreclose. It’s generally easier and faster to foreclose in a title theory state, because the lender (or the trustee) already holds title to the property.
Colorado is a lien theory state that uses the deed of trust as the typical security instrument in real estate transactions. Colorado code states that the instrument shall be deemed a lien. for most transactions, the instrument will name a public trustee who manages the release when the debt is fully repaid or ensures that proper foreclosure procedures are followed if the borrower defaults
Type of finance instrument in which the promise to repay and the security instrument are both included in the same document
Contract for deed
Clause allowing the trustee (or the mortgagee, in the case of a mortgage) to sell the property in order to recover losses from borrower default using a non-judicial foreclosure process; standard in a deed of trust but may be used in a mortgage
Power of sale
Mortgage provision stating that the borrower will regain full title once the debt is fully repaid; lender is required to execute a satisfaction of mortgage
Defeasance clause
Clause in a deed of trust stating that the borrower will regain full title once the debt is fully repaid; trustee is required to execute a deed of reconveyance to give full title to the trustor
Reconveyance clause
Clause that creates a consequence of making the entire debt immediately due and payable; used in default situations
Acceleration clause
Also known as the due-on-sale clause; allows lender to make entire loan due and payable immediately if the property is sold or otherwise transferred; can affect loan assumptions
Alienation clause
Clause that allows borrower to prepay the loan at any time without penalty
Prepayment clause
A form of pre-payment penalty stating that the borrower can’t pay the loan in full prior to a specific date; allows lender to continue making money from the interest on the loan
Lock-in clause
Allows the security instrument’s lien position to be placed in a lower priority to a new loan using the same property as collateral
Subordination clause
Automatically puts a borrower in default on all loans if the borrower defaults on any loan where the clause is included
Cross-default clause
Protects the borrower’s other assets in case of
foreclosure
Exculpatory clause
Instrument usually used for a new subdivision; requires lender to release a portion of the property from the lien when a part of the debt has been paid
Partial release clause
A seller-financed loan; an option a buyer may use when there’s insufficient cash for a down or to finance the full purchase
Carryback loan
When a buyer takes over a seller’s existing loan; new borrower must meet the lender’s qualification standards
Assumption
Buyer doesn’t assume a loan, but buys the property “subject to” existing financing; buyer gets deed to the property and makes payments on the seller’s loan without notifying lender
Subject to
Process that replaces the original borrower with the new borrower as the maker of the note
Novation
Lender holds legal title to the property; borrower receives equitable title
Title theory
Borrower holds both legal and equitable title to the property, but the mortgage document places a lien on the property
Lien theory
Who’s the mortgagee in a mortgage?
The lender
In a deed of trust, who is the beneficiary?
The lender
In a deed of trust, who is the trustor?
Borrower
What are demand deposits?
Bank deposits - such as checking and savings accounts, must be made available upon demand
What is interim financing?
Generally short term, this kind of financing is obtained to finance a construction project and is usually open-ended
What term does Freddie Mac use to describe its MBS product?
Participation certificate (PC)
How does Ginnie Mae function differently than Fannie Mae and Freddie Mac?
It doesn’t buy loans or issue mortgage-backed securities.
What are the defining characterstics of Fannie Mae, Freddie Mac, Ginnie Mae, Farmer Mac and Federal Home Loan Bank (FHLB)?
- Fannie Mae - can purchase any type of loan, but primarily deals with conventional loans from commercial banks
- Freddie Mac - can purchase any type of loan, but primarily deals with conventional loans from thrifts
- Ginnie Mae - guarantees MBSs that contain loans insured or guaranteed by a US govt agency. Although Fannie, Freddie and Farmer all Guarantee MBSs, Ginnie is the only player whos guarantee is baked by the full faith and credit of the US govt.
- Farmer Mac - purchases agricultural loans and loans from rural lenders
- Federal Home Loan Bank (FHLB) - advances (or loans) its member banks money in exchange for collateral (usually mortgages)
What is disintermediation?
A lack of mortgage funds available from lenders due to the pull out of depositor funds (to make other investments that provided greater yields)
What is a real estate mortgage investment conduit (REMIC)?
An investment vehicle similar to a collateralized mortgage obligation in which an entity is used to pool mortgage loans and issue mortgage-backed securities.
What is a municipal bond?
A bond, often tax exempt, issued by state and local governments. They’re also known as munis
What does PITI stand for in relation to a mortgage payment?
Principal, Interest, Taxes, Insurance
What are the five phases of the residential lending process?
1) Pre-qualification or pre-approval
- Loan pre-qualification: The buyer reports their income, assets, debt, and available down payment to the lender. The lender provides the buyer a pre-qualification letter estimating the amount they might qualify for, without verification. Usually no cost.
- Loan pre-approval: The buyer applies for a loan with a lender, providing income, assets, debt, down payment amount is accompanied by supporting documentation. The lender verifies the information and determine the buyer’s ability to finance.
2) Loan application: completed by buyer after an offer is made and submitted to the lender with supporting documentation.
3) Loan processing: the lender collects documentation from the consumer about income and credit, as well as the property.
4) Underwriting: the underwriter analyzes the completed loan package from the borrower and recommends whether the loan should be approved or denied.
5) Approval or denial decision
To determine a property’s investment quality, lenders calculate loan-to-value ratio (LTVR) based on the lesser of __.
To determine a property’s investment quality, lenders calculate loan-to-value ratio (LTVR) based on the lesser of either the sales price or the appraisal.
Once income is known, the lender’s underwriter calculates what two debt ratios?
Once income is known, the lender’s underwriter calculates two debt ratios: monthly housing expense to income and total payment obligations to income. Ratio threshold will vary by lender.
What is a balloon loan?
Balloon loan: a loan with a lump-sum payment, usually at the end of the loan term. Until the final balloon payment, it’s paid as an interest-only or partially amortized loan.
What is an amortized loan?
Amortized loan: paid in regular installments of principal and interest, and perhaps taxes and insurance.
What is an adjustable-rate mortgage?
In adjustable-rate mortgages (ARMs), the interest rate fluctuates based on the economic index to which it’s tied.
What is a fixed rate loan?
Fixed rate loan: A loan where the principal and interest payment remains the same over the life of the loan.
What is a budget mortgage (PITI)?
Budget mortgage (PITI): a typical amortized mortgage loan that includes principal, interest, taxes, and insurance in each (usually monthly) amortized payment. A common acronym for this kind of loan is PITI (principal, interest, taxes, and insurance).
What is a term or straight-term loan?
Term or straight-term: the borrower only pays the interest on the loan for a set number of years. After the term is over, the borrower must pay off the entire loan principal in a lump-sum payment, or finance principal through another loan.
What is a fully amortized loan?
A fully amortized loan is a constant payment method where the amount of principal and interest paid each month remains the same over the loan term.
What is a straight-line loan (aka constant amortization)
With a straight-line loan (also called constant amortization), the payments change over the term of the loan, with higher payments at the beginning of the loan. (The principal amount doesn’t change, only the interest does.)
What is the equation for determining home equity?
Home’s appraised value - loan debt = equity
Equity is the appraised value of the property minus any remaining debt secured by the property.
How is the loan-to-value ratio (LTVR) calculated?
The loan-to-value ratio (LTVR) is the loan amount divided by the sales price or appraised value of the property, whichever is less.
What is a reverse annuity mortgage?
A reverse annuity mortgage is a loan in which the property owner uses equity to get money out, and as the funds are drawn over time, the bank gains ownership of the property.
With a land contract, who retains the title to the property?
The seller
What is TILA (Truth in Lending Act)
The Truth in Lending Act (TILA) requires lenders, when advertising trigger loan terms, to include all pertinent terms so as not to mislead consumers.
“Trigger” terms in ads that would require the full disclosure of all terms are down payment, payment amount, number of payments, and interest rate (other than APR).
TILA requires that lenders disclose the annual percentage rate, loan terms, and total borrower costs before extending credit to borrowers.
What is illegal property flipping?
Illegal property flipping is property purchased, falsely appraised at a higher value, and then quickly sold.
What are straw buyers?
Straw buyers conceal their real identity behind someone else’s name and credit history.
What is the The Community Reinvestment Act (CRA)?
The Community Reinvestment Act (CRA) was created in response to the practice of redlining. Lenders are required to invest in development and rehabilitation efforts, especially to enable low- and moderate-income individuals and families to afford a home.
What is the The Equal Credit Opportunity Act (ECOA)?
The Equal Credit Opportunity Act (ECOA) prohibits discriminatory practices by lenders from making credit unavailable to people or offered less favorable terms based on protected class status, and not on their credit-worthiness.
What is the Home Mortgage Disclosure Act (HMDA)?
The Home Mortgage Disclosure Act (HMDA) of 1975 requires financial institutions to report and publicly disclose mortgage information to help public officials determine if community housing needs are being met.
Requires financial institutions to maintain, report, and publicly disclose information about their mortgages
The Real Estate Settlement Procedures Act (RESPA) protects consumers by __?
Eliminating illegal kickbacks and referral fees among settlement service providers and requiring lender disclosures as part of a residential real estate transaction involving credit
What is the main difference between a Broker Price Option (BPO) and a Competitive Market Analysis (CMA)?
Broker price opinions (BPOs) are often prepared for lenders as an inexpensive alternative to an appraisal, such as in a prospective short sale situation.
A CMA is an opinion of price arrived at by evaluating the property, its location within the market, its condition, competing properties for sale, recent sales, and current buying tastes and trends.
What is a 1031 Exchange?
A 1031 exchange is a swap of one real estate investment property for another that allows capital gains taxes to be deferred.
What are the three approacahes to value that appraisers use?
Appraisers use a process involving specific data and three approaches to value (sales comparison, cost, and income capitalization). Their report gives a single value.
What are the four factors of value in relation to an appraisal?
DUST
- Demand relates to how popular or desirable a property is—the market’s thirst for that particular property.
- Utility speaks to the function of the property—how can the property be used?
- Scarcity relates to market supply—how rare is this type of property in this price range in this location?
- Transferability is the ease with which another person can purchase the property, (e.g., how marketable the title is).
What entity sets the standards for the appraisal report?
USPAP
Tell me about the sales comparison approach when valuing properties.
When using the sales comparison approach, the appraiser notes the characteristics of the subject property, identifies comparables, makes adjustments to the sales price of the comparables, and arrives at a final opinion of value for the subject property.
The sales comparison approach is based on the value principle of substitution.
Tell me about the cost approach when valuing properties.
The cost approach to value is based on the cost to reproduce or replace the property. It’s calculated using an estimate of the land, the cost to build improvements, and any depreciation to the current structure.
Physical deterioration, functional obsolescence, and external obsolescence are the three forms of depreciation considered when using the cost approach to value.
What are the methods you can use when valuing a property using the income approach?
- GRM (Gross Rent Multiplier) - is used for one-to-four-unit residential income-producing properties. GRM = price/monthly gross rent. You then apply that GRM to a new property
- GIM (Gross Income Multiplier) is essentially the same as GRM but it uses all sources of income rather than only rent. GIM is most appropriate for residential income properties of five or more units.
- Direct Capitalization uses cap rate. Cap rate = NOI / property value.
- Yield capitalization - is similar to direct capitalization, but projects farther into the future than one year. It also considers the potential value of the property upon resale
What is the difference between direct costs and indirect costs in relation to property valuation?
Direct costs: (also known as hard costs) include labor and materials.
Indirect costs: fees and administrative costs required to develop and build, such as zoning and inspection fees.
What is the difference between mortgage value, insured value, and investment value?
Mortgage value - The price a lender believes the property will bring at a foreclosure sale
Insured value - the cost of replacing a building in case of a total loss
Investment value - the return of funds invested
What is USPAP
Uniform Standards of Professional Appraisal Practice; the process appraisers must follow when appraising
In Colorado, the four categories of appraisal qualification are ___
In Colorado, the four categories of appraisal qualification are Ad Valorem Appraiser, Licensed Appraiser, Certified Residential Appraiser, and Certified General Appraiser.
Borrowers must receive the Closing Disclosure (CD) at least __ business days before closing on the loan. Some changes to the CD, such as changes to the interest rate, require a new __-day waiting period.
Borrowers must receive the Closing Disclosure (CD) at least three business days before closing on the loan. Some changes to the CD, such as changes to the interest rate, require a new three-day waiting period.
Borrowers must receive the Loan Estimate within __ business days of loan application.
Borrowers must receive the Loan Estimate within three business days of loan application.
Lenders must provide borrowers with the __ and __ so borrowers understand their options, can compare competing loans, and know exactly how their funds are used at closing.
Lenders must provide borrowers with the Loan Estimate and Closing Disclosure so borrowers understand their options, can compare competing loans, and know exactly how their funds are used at closing.
What does RESPA stand for?
Real Estate Settlement Procedures Act
RESPA is the Real Estate Settlement Procedures Act, which is designed to protect consumers by providing full disclosure of settlement charges and prohibiting practices that will unnecessarily increase settlement charges.
During a closing, a title company issues a __ as its promise to issue a title policy on a property. This commitment outlines
the policy terms, conditions, and exclusions.
title commitment
In general, what do buyer and seller closing costs include?
- Buyer’s closing costs include costs associated with the new mortgage loan and a Colorado documentary fee.
- Seller’s closing costs include payment of the broker’s commission and any costs associated with providing clear,
marketable title to the buyer.
What is the difference between prepaid items and accrued expenses
Prepaid items are expenses that the seller has paid for and not yet used. These will appear as credits for the seller and debits for the buyer.
Accrued expenses are items owed by the seller, and will go in the seller’s debit column.
This defines the legal relationship between the parties who sign the lease. It grants possession, but not title, to the tenant, and is for a limited period of time.
Leasehold estate
What is the difference between an estate for years, a periodic estate, an estate at will, and an estate at sufferance?
- Estate for years has a fixed termination that may be a day, month, year, or any definite period of time. When the specified date occurs, the lease terminates automatically
- Periodic estate automatically renews at the end of each period. An example would be a month-to-month lease
- An estate at will is a lease without an established ending.
- Estate at sufference is when a tenant stays after the right to possess has terminated (they are considered a holdover tenant)
What is the difference between a Lease and a Leasehold Estate?
A lease is a contract that allows a tenant to live on the property.
A leasehold estate is a right of possession for a limited period of time
A lease is a contract that pertains to the leasehold estate
Estates in land are divided into two major classifications: __ estates (those involving ownership) and __ estates.
Estates in land are divided into two major classifications: freehold estates (those involving ownership) and leasehold estates.
__means the tenant has the right to possess the premises in peace, without the landlord invading the premises without permission or removing the tenant.
Quiet enjoyment means the tenant has the right to possess the premises in peace, without the landlord invading the premises without permission or removing the tenant.
What is the difference between a gross lease, a net lease, a triple net lease, a percentage lease, and a ground lease
- A gross lease is one in which the landlord pays all expenses related to the property (e.g., taxes, insurance, and maintenance).
- A net lease is one in which the tenant pays rent plus some of the expense related to the property (e.g., taxes, insurance, and maintenance). In a triple net lease, the tenant (or lessee) pays all three
- A percentage lease is one in which the tenant pays a base rent plus a percentage of gross sales.
- Ground leases are considered a type of net lease usually seen with unimproved land. The landowner leases the ground to a tenant who builds on the property.
__ is the tenant’s right to use a property for the purpose that’s outlined in the lease agreement. If this right is violated and the landlord doesn’t correct it, a tenant has the right to vacate the property with no financial responsibilities.
Quiet enjoyment is the tenant’s right to use a property for the purpose that’s outlined in the lease agreement. If this right is violated and the landlord doesn’t correct it, a tenant has the right to vacate the property with no financial responsibilities.
According to the __, all leases longer than a year must be in writing and signed by the lessee and lessor in order to be enforceable.
According to the statute of frauds, all leases longer than a year must be in writing and signed by the lessee and lessor in order to be enforceable.
An ___ clause in a lease obligates the tenant to attorn (agree to be tenant) to any successor—the lender, or any subsequent purchaser the lender may sell the property to.
An attornment clause in a lease obligates the tenant to attorn (agree to be tenant) to any successor—the lender, or any subsequent purchaser the lender may sell the property to.
An __clause verifies facts that are already in writing: “You agreed to this–sign that you have agreed to it.”
An estoppel clause verifies facts that are already in writing: “You agreed to this–sign that you have agreed to it.”
A ___ clause in a lease notifies tenants that they won’t be evicted if they meet lease terms.
A nondisturbance clause in a lease notifies tenants that they won’t be evicted if they meet lease terms.
An ___ clause stipulates increased rental rates at specific times during the lease term, or requires tenants to pay a proportionate amount of the overall increased utility expense in addition to their base rent.
An escalation clause stipulates increased rental rates at specific times during the lease term, or requires tenants to pay a proportionate amount of the overall increased utility expense in addition to their base rent.
A __ clause stipulates that the tenant will be provided with specific services for an additional rental fee.
A “services included” clause stipulates that the tenant will be provided with specific services for an additional rental fee.
A ___ clause notifies the tenant whether or not sublease or assignment is permitted, and under what circumstances it is permitted.
A sublease/assignment clause notifies the tenant whether or not sublease or assignment is permitted, and under what circumstances it is permitted.
A __ clause stipulates that the tenant is responsible for paying any increase in taxes over the base year’s taxes, in addition to the base rent.
A tax clause stipulates that the tenant is responsible for paying any increase in taxes over the base year’s taxes, in addition to the base rent.
If a landlord wants to notify a tenant that the leasehold interest in the property is subordinate to a mortgage, what clause would be included in the lease?
Subordination clause
What are the elements of a valid lease?
Legally competent parties, mutual agreement, lawful objective, and consideration
What are the main commercial lease clauses?
Sublease/assignment, estoppel, attornment, nondisturbance, escalation, services included, and tax
What are the methods of lease termination?
Llease expiration, mutual agreement, breach of lease, eviction, abandonment, foreclosure, condemnation
When is a Colorado property manager exempt from the requirement to hold a real estate broker’s license?
Onsite residential apartment and condominium managers who are salaried employees and don’t negotiate leases aren’t required to hold real estate licenses.
What do commercial property managers typically do that residential property managers don’t?
The role of a commercial property manager includes lease negotiation. This isn’t generally required of residential property managers.
What is the difference between Actual Eviction and Constructive Eviction?
Actual Eviction is when a landlord goes through the proper legal measures to remove the tenant. The landlord has to have a court order.
Constructive eviction may occur intentionally or inadvertently. It is when the tenant is prevented from the quiet enjoyment of the premises. If the premises have become unlivable due to a breach of warranty of habitability, a tenant may vacate and not be held responsible for lease payments.
This act created the Office of Fair Housing and Equal Opportunity.
Fair Housing Act of 1968
This act prohibits discrimination in lending by requiring lenders to give equal access to credit.
Equal Credit Opportunity Act
HUD enforces the portion of this act that applies to public housing, housing assistance, and housing referrals.
Americans w/ Disabilities Act
This act recognizes all persons born in the U.S. as citizens.
Civil Rights Act of 1866
The two methods property owners and managers can use for determining the amount of insurance coverage they need are __ and __.
Cash value and replacement cost
In 1988, the __ extended the protection to cover familial status and disability.
In 1988, the Fair Housing Amendments Act extended the protection to cover familial status and disability.
The ___ Act in the 1970s added sex to the list of protected classes.
The Housing and Community Development Act in the 1970s added sex to the list of protected classes.
The __ prohibited discrimination based on race, color, national origin, and religion.
The Fair Housing Act of 1968 prohibited discrimination based on race, color, national origin, and religion.
Which act provides consumers with remedies if they become victims of discrimination in the sale, rental, or financing of housing?
Fair Housing Amendments Act of 1988
In 1988, the Fair Housing Amendments Act provided consumers with certain remedies for discrimination, which added teeth to existing laws.
By law, any adverse action taken against an applicant that is based on the credit report must be ______.
Disclosed to the consumer in writing
What type of insurance protects the business if it is unable to produce income due to a covered event?
Business interruption
Prior to a certain act’s existence, there was no legal protection for women who endured sexual harassment from landlords and sellers when they attempted to obtain housing. What’s this act called?
Housing and Community Development Act of 1974
Which act was the first to prohibit any exceptions for discrimination based on race or color?
Civil Rights Act of 1866
Unique among anti-discrimination law, the Civil Rights Act of 1866 recognized all U.S.-born persons as citizens and allowed no exceptions for discrimination based on race or color.
What is the difference between a property management proposal and a property management agreement?
The relationship outlined in the property management proposal is documented and agreed upon in a signed property management agreement.
The purpose of the property management proposal is to document the rights and obligations of the property manager and owner to one another.
What is Business Risk
Risk that an investment will not realize the required return on investor capital
What is Dynamic Risk?
A type of business risk that is uninsurable because it’s determined by economic, tax, and market changes
What is static risk?
INsurable business risk that includes insuring for accident liability, fire, theft, and vandalism
What is financial risk?
Risk that is directly related to leverage: the higher the leverage, the higher the risk
What is capital risk?
1) the ability to secure financing at an affordable rate; 2) the loss of principal amount invested
How do you calculate the GRM of a property?
How is this different than the GIM?
The gross rent multiplier
sales price / monthly gross rent
Gross Income Multiplier: sales price / annual gross income
When do you use GRM vs GIM?
For single-family houses (where the primary use is as a rental property) and for two- to four-family units, you can look at the gross rent multiplier (GRM), which is sales price divided by monthly gross rent.
For larger properties of five or more units, the gross income multiplier (GIM) would be used to determine value. This is sales price divided by the annual gross income.
How do you calculate net income?
Net income is effective gross income less operating expenses
What is the relationship between potential gross income, effective gross income, and gross income?
Potential gross income is income that an investment property could bring if it were leased at full capacity.
Effective gross income is income after losses from vacancies and credit losses are deducted. (also known as gross income)
What is capitalization rate (cap rate) and how is it calculated?
A capitalization rate is the expected rate of return on an investment. It can be calculated using the formula of NOI ÷ V = R (Net Operating Income ÷ Value = Rate).
__ is the process of converting income to value.
Capitalization is the process of converting income to value.
The return of principal at the end of ownership is known as return of investment, or capital __.
The return of principal at the end of ownership is known as return of investment, or capital recapture.
What is assessed value used for?
To calculate property taxes
Name indicators to watch in the real estate market.
Price levels, vacancy rates, new building permits, inventory rates, and sales volume
What is USPAP?
Uniform Standards of Professional Appraisal Practice, the process appraisers must follow when appraising
What is the difference between price, cost, and value?
Price is what the seller accepts and the buyer pays. Cost is what it would take to recreate the property. Value is what the property is worth, usually demonstrated by the market.
What type of lien is placed on a property as a result of a court order?
Equitable Lien
What is the difference between a general lien, specific lien, statutory lien and equitable lien
- a general lien is attached to all property
- a specific lien is attached to only one property
- a statutory lien is placed on the property by statute
- an equitable lien is placed as the result of a court order
What are punitive damages?
Payments in excess of any compensatory damages
What does REO stand for?
Real estate-owned. It means that it’s a lender-owned property that was placed on the lender’s books after a foreclosure
When must the Lead-Based Paint Disclosure be provided to the buyer in CO?
Before accepting the buyer’s offer. The disclosure is to be provided before accepting the buyer’s offer to give the buyer ample time to get a lead risk assessment performed.
What is the definition of a land contract?
Seller financing in which the seller retains legal title.
With seller financing, the seller agrees to provide credit to the buyer for a portion (or sometimes all) of the funds required to close the transaction. The buyer makes payments directly to the seller.
Which clause is used in a security instrument to protect the original note holder if the security instrument is sold and the borrower subsequently defaults?
Non-recourse
