Practice of Real Estate and Disclosures Flashcards
Real Estate Commissioner
- Appointed by the Governor to head the DRE.
- Promulgates Regulations that have the force and effect of Law.
- CA Code of Regulations
- Issues, restricts, suspends and revokes licenses (not the courts)
LICENSES
- Required for any RE act for another for compensation or expected compensation.
- Assisting buyers and sellers
- Answering detailed questions about RE finance
- Property Management
- A principal (for self) buying or selling 8 or more loans
- Introductions do not require a license but solicitation does.
UNLICENSED ASSISTANT
- may not solicit
- may not choose pest control, inspection, etc.
- may not advise borrowers
- may create ads but must be approved by broker
- may assist at open but may not solicit or discuss property or loans.
Real Property
- Land - includes reasonable use of surface, mineral, airspace above land and water rights.
Water Rights
A landowner has the right to make reasonable use of water on, under or adjacent to land.
Water rights may be severed by voluntary transfer, condemnation or prescription.
Riparian Rights
The right to moving water that is the boundary of a piece of land. Owns land to the midpoint of the water. If its navigable, then only owns to the edge of the water.
Owner of riparian rights cannot be accurately determined from an examination of public record.
Littoral Rights
Right to non-moving water.
Fixtures
A fixture is something incorporated into real property. Factors used to determine if something is a fixture: Method of attachment Agreement between the parties Relationship of the parties Intention of the parties Adaptability of the parties
Appurtenances
Things used for the benefit of the land.
Run with the land.
Stock in a mutual water company is appurtenant to the land.
Specific Liens
mechanic's liens trust deed mortgage attachment property tax lis pendens
Agricultural and Horticulture Leases cannot exceed
51 years
Urban Property Leases cannot exceed
99 years
Max Security Deposit
2 months’ rent for unfurnished property
3 months’ rent for furnished property
Security Deposit must be returned within
21 days
Governments transfer lands to individuals by
a patent not a deed
Subdivision Map Act
grants cities and counties over the design of a subdivision
cities and counties develop master plans to show the locations of streets, freeways, commercial districts and seismic activity zones
master plans are implemented by zoning laws
A subdivision of four or less parcels is regulated by Subdivision Map Act only
Subdivided Land Law
Designed to prevent fraud
regulated by the RE Commissioner
A subdivision of 5 or more parcels is regulated by Subdivided Land Law and Subdivision Map Act
Desist & Refrain Order
issued by Commissioner to stop violations of Subdivided Land Law
Final Public Report
Issued by Commissioner when all of Commissioner’s requirements have been met with respect to a subdivision
Buyers must receive a copy.
Subdivider must give copy to buyer and obtain receipt before entering in a binding contract
must be kept on file for 3 years
Brownfield Development
A real estate parcel with the presence or potential presence of hazardous or toxic substances, pollutants or contaminants
Smart Growth
urban planning and transportation theory that concentrates growth in compact walkable urban centers to avoid sprawl
Williamson Act (CA Land Conservation Act of 1965)
gives property owners a reduction in property taxes on agricultural lands in exchange for long-term commitments to retain the land as open space for agricultural use
Timeshare Subdivisions
buyers have until midnight on the 7th calendar day to rescind the purchase contract
After Acquired Title
conveyed by a grant deed
benefits grantee and beneficiary under trust deed
includes any personal property that is later permanently affixed to the property and additional land acquired by the grantee through accretion
Ownership in Severalty
ownership by one person, individual or corporation; sole ownership
Joint Tenancy
Four Unities
Time
Title
Interest
Possession
RIGHT OF SURVIVORSHIP - joint tenants can do anything with their interest except will it; surviving tenant automatically receives interest
not liable to creditors of deceased who hold unforeclosed liens
a joint tenant may sell his or her interest without consent of other joint tenants - new owner becomes a TIC
recording a lien against a joint tenant’s interest does not sever that interest until the lien is foreclosed
corporations cannot hold title as joint tenants
joint tenancy can be severed by voluntary transfer or operation of law
Tenancy in Common
Only requires unity of possession.
May hold unequal interests
Interest may be willed away
One tenant cannot grant an easement
Community Property
husband and wife
each owns 50%
either party can lease for one year or less
contract to sell signed by one spouse is voidable but broker can sue for commission
Metes & Bounds
created by a survey
described boundaries but does not measure land
starts at a fixed point and ends at point of beginning
metes are length
bounds are boundaries
Recorded Tract Map or Lot and Block System
legal description is created by reference to a recorded tract map
Township and Section Method
aka US Govt Rectangular Survey System
A legal description used to described very large pieces of land like desert, ranch and farms.
The starting point is the intersection of a line running east/west called the base line and a line running north and south called a meridian line.
Townships
All of CA divided into Townships which contain 6, 6 mile squares for a total of 36 square miles.
Sections
Townships are divided into 36 one mile squares called sections
Each section contains 640 acres
A quarter section is 1/2 mile by 1/2 mile and contains 160 acres
There are 18 square miles in 1/2 a township
One side of a section is 5,280 feet
Broker as Escrow
Broker may act as escrow and charge a fee if he is an agent for the seller or buyer in the transaction.
If Broker wants to act as escrow for transactions where broker is not an agent, then needs to be licensed as an escrow company but the Department of Oversight.
Must record trust deed within one week of closing.
Termite Reports
Seller should order termite report before the property is listed.
Broker must be certain buyer receives report as soon as possible before closing.
When a termite report recommends preventative work, the buyer usually pays for the work.
Short Rate Refund
seller receives a short rate refund when home is sole and fire insurance policy is cancelled which is less than the prorated amount
Documentary Transfer Tax
collected when a deed is recorded
the tax is based on purchase price minus any existing loan
the purchase price is new money and the loan assume is old money (already taxed)
Tax Rate - .55 for every $500 of consideration or fraction thereof
Property Tax
ad valorem (according to value)
Country Tax Assessor - assess the value of all taxable property in the county every year.
Annual assessments are published in the assessment roll.
Purpose of assessment roll is to establish the tax base
Property is assessed at 100% of taxable value (100% of FMV or full cash value)
County Board of Supervisors - sets the tax rate which is limited by Prop 13 to 1% of the purchase price, plus an amount to cover existing debt
Property Tax Bill - prepared by the Tax Collector. Tax bull assess land and improvements separately but they are taxed at one rate.
Between March 1 and July 1, the county tax assessors compile a list showing the assessed value of all taxable property in the county (the tax rolls) as of March 1. This total is the tax base. Using this, and the budget to run the county, the Board of Supervisors sets the tax rate needed to meet the budget, within the limits set by Proposition 13. The county tax collector applies the rate to each property’s assessed value to determine that year’s individual property tax.
Productivity
The productivity of real estate is the income it produces. Income and value will vary directly and proportionately. Thus, each is a function of the other.
Grant Deed
Contains 2 implied warranties:
1) grantor has not conveyed title to any other person
2) the estate is free from undisclosed encumbrances
A grant deed is the only deed which conveys after-acquired title - any personal property later affixed to the land and additional land acquired by accretion
Contract
Offer Acceptance Communication Capacity of the Parties Consideration Lawful Object
Title Plant
A title plant is a collection of records in the title company’s office. These records are developed from information recorded at the county recorder’s office.
Negotiable Instruments
Freely Transferable in the Market
A) Signed by the maker and payable to order or bearer
B) An unconditional promise
D) Payable on demand or at a definite time
Narrative Form of Appraisal Report
The beginning or cover letter in a narrative form of appraisal sets forth the purpose of the appraisal and the final opinion of value. Everything that follows in this most comprehensive form of appraisal is the appraiser’s data to support the appraiser’s conclusion.
Real Property
Real property consists of (1) land, (2) things affixed to the land, (3) appurtenances, and (4) that which is immovable by law. Two examples of appurtenances are (1) easements appurtenant and (2) stock in a mutual water company. According to the Civil Code, cultivated crops would be personal property if already sold, mortgaged, or growing on leased land (emblements).
Blanket Encumbrance
A blanket encumbrance is one that burdens more than one piece of land. This is possible with a mortgage, trust deed, or mechanic’s lien. Tax liens, however, are levied against only individual parcels of land and therefore cannot be blanket encumbrances.
In a period of inflation, the Federal Reserve Board would take which action to curb inflation?
To curb inflation, the Federal Reserve Board would raise the reserve requirements for its member banks and enter into the bond market in a selling capacity. If the Federal Reserve Board reduced reserve requirements, lowered discount rates, or bought bonds, it would make more money available and create greater inflation.
The bargained rent between the landlord and the tenant that is actually paid by the tenant is known as
Contract rent is the bargained rent that is agreed to under the lease.
For federal income tax purposes, a taxpayer could adjust the cost basis of the personal residence on income tax records for which item?
Cost basis is the same as tax basis. The addition of a capital improvement would constitute an increase to cost basis.
A seller pays four points for a buyer to obtain a loan. The payment of these points by the seller for income taxes would
Reduce the amount of seller’s capital gain. Discount points paid by a seller are treated as an expense of selling, which reduces the seller’s capital gain. It is not treated as interest.
Appraiser Licensing
Any person who is qualified may call himself or herself an appraiser. A license is required, under federal and state law, when the appraiser is valuing for a federally related entity such as a bank, savings and loan, or credit union.
If the Energy Efficiency Ratio (EER) increases in an air-conditioning unit, this would
Increase the efficiency of the unit. An Energy Efficiency Ratio is a ratio of BTUs of work to wattage input, such as 5, 6, or 7 to 1 or 8, 9, or 10 to 1. An air-conditioning unit with an EER rating of 10 would be a much more efficient unit than one with an EER rating of 5 in terms of electrical energy used for the same results.
Prop 13
Proposition 13, passed by the voters in 1978, established the assessed value of property as the “full cash value” as of either (1) the 1975 lien date or (2) the date on which property is purchased, is newly constructed, or changes ownership, increased by not more than 2% per year for an annual inflationary factor.
Statute of Limitations for Broker’s Commision
According to the statute of limitations, action for performance of a written contract for a commission must be brought within four years of earning the commission.
Accretion
Accretion is the gradual build-up of land as the result of the action of water.
Avulsion
Avulsion is the sudden tearing away of land by the violent action of a water course.
Erosion
Erosion is gradual wearing away of land by current, wind, or tide.
Decrelition
Dereliction is land left uncovered by the receding of water from its former bed. This process also called reliction.
Non-purchase Money Loans
The borrower has the right to rescind a loan agreement until midnight of the third business day after the promissory note is signed unless the loan was used to finance the purchase of the borrower’s residence.
Lender Requirements Under RESPA
1) deliver to the borrower the HUD “Settlment Costs; information booklet and a good faith estimate of costs within 3 business days after the loan application is received.
2) Lender cannot charge borrower for preparing the uniform Settlement Statement which must be given to the borrower at or before settlement (close of escrow)
Mortgage Loan Disclosure Statement (Loan Broker Statement)
must be given to the borrower for every loan negotiated by the broker within 3 days of receipt of a completed loan application, or before the borrower is obligated to take the loan (whichever is earlier)
Exclusive Loan Listing
limited to a term of not more than 45 days
Functional obsolescence
Functional obsolescence is inherent within the building and arises from poor or outdated architecture. A declining neighborhood and adverse zoning across the street from the property are economic obsolescence. Rotten mud sills are physical deterioration.
Which is NOT included in the total finance charge under the Truth-in-Lending Act?
Fees for appraisals and credit reports are not included in the finance charge. Regulation Z (another name for the Truth-in-Lending Act) lists among those charges included in the finance charges buyer’s points, finder’s fees, and premiums for mortgage guaranty or similar insurance.
Adverse Possession
There are five essentials for acquiring title by adverse possession: (1) Open and notorious occupation (residence not required); (2) Continuous use for five consecutive years; (3) held under claim of right or color of title; (4) payment of the taxes for five consecutive years; and (5) hostile to true owner, that is, without any degree of permission. A confrontation with the owner is not a requirement.
Replacement Cost
Replacement cost is defined as the cost of constructing an improvement with the same “utility,” but with today’s materials and costs. Reproduction cost is defined as today’s cost of constructing a “replica.”
For purposes of federal income tax, the taxpayer would be able to deduct which expenses for a personal residence?
Mortgage interest payments, prepayment penalties, and real estate taxes are all deductible expenses. Of the other choices, payment of broker’s commission, late charges, and mortgage interest; mortgage payment and capital improvements; and mortgage payment and premium payments on a fire insurance policy, are not deductible. From mortgage payments only the interest is deductible, not the entire payment.
A real property sales contract is defined as an agreement wherein
one party agrees to convey title to another party upon the satisfaction of specified conditions set forth in the contract; AND
does not require conveyance of title within one year from date of formation of the contract.
If the Federal Reserve Bank tightens reserve requirements of member banks, it would usually result in
A greater number of private second trust deeds. By tightening the reserve requirements, the Federal Reserve Bank can decrease the amount of money that is available for loans. This action would create a demand for more private loans in the form of second trust deeds.
An appraiser will take into account the quality of the income by the
Capitalization Rate. The quality of the income refers to the risk involved to the investor. If the risk is quite high, the appraiser will use a higher capitalization rate. He compensates for the risk in the cap rate used.
The value measures applied by an appraiser to establish value of industrial land are
Industrial land is valued in terms of dollars per square foot or per acre.
An agreement with a lender that prohibits early payoff of a loan is known as a(n)
A lock-in clause is a clause that may appear in a note or land contract that prohibits the lendee from paying off the indebtedness before the date set forth in the contract.
Escrow companies normally base their prorations on a year of
360 days
Under which loan would the borrower be required to apply for term life insurance?
The California Department of Veterans Affairs requires each borrower under the Cal-Vet plan to apply for life and disability insurance.
Who benefits MOST from a subordination clause in a trust deed?
A subordination clause benefits the trustor (borrower) by making it easier for the borrower to obtain additional financing using the title of the same property as security. The lender of a prior loan that includes such a clause agrees to relinquish the priority of his or her trust deed to specified financing to be obtained by the borrower at a later date. Without a subordination clause, a construction lender, desiring first position, would be unwilling to finance the improvements unless the first loan was paid.
Warehousing
Mortgage bankers who assemble loans and temporarily hold these portfolios until they can be sold to investors in the secondary mortgage market are said to be warehousing loans.
Elements of a Contract
1) Capable Parties
2) Mutual Consent - offer, acceptance, communication
3) Lawful Object & Consideration
4) Consideration
Statute of Frauds
Contracts which must be in writing are:
1) contracts that cannot be performed within one year of making
2) lease for more than 1 year
3) a listing to sell real property
4) a contract selling real property
5) an agreement to pay the debt of another
6) agreement o pay indebtedness secured by a mortgage or trust deed
estoppel prevents a seller from avoiding performance of a contract to sell RP if the buyer cab provide his reliance on the contract caused him to improve the property,
Enforceable Oral Contracts
1) a lease of RP for less for one year or less
2) a listing contract to sell personal property
3) an agreement between brokers to share a commission
Liquidated Damages
The standard deposit receipt contains a liquidated damages clause that says in the event of a default by buyer, seller shall retain 3% of the purchase price or the amount of the deposit, whichever is less.
When a buyer defaults, the liquidated damages are usually divided equally between the seller and the listing agent.
If a seller who is entitled to claim liquidated damage from a defaulting buyer decides to return the deposit to buyer, the broker is not entitled to a commission.
Open Listing
non-exclusive
owner authorizes broker to act as his agent but the broker only gets paid a commission if the broker if the procuring cause - i.e. responsible for consummation of the transaction
Does not need a termination date.
Exclusive Agency Listing
seller agrees to pay commission to listing agent if his property sells through the listing agent or any other agent but the seller retains the right to sell directly to a buyer and pay no commission.
seller who gives an exclusive listing to one broker and an open listing to a second broker, would be responsible for 2 commissions f the second broker sold the property
must have a termination date
Exclusive Authorization and Right to Sell Listing
seller agrees to only sell through the broker and listing broker gets commission no matter who sells
Must have a termination date.
Net Listing
a listing where the broker’s commission consists of any money left over after the seller receives a fixed amount.
broker must disclose the selling price and the amount of his commission when presenting an offer
Exclusive Authorization and Right to Locate Property
a contract tin which buyer agrees to buy through buyer’s agent only
Typical Listing
Authorizes the broker to accept a deposit as the seller’s agent. If the broker is not authorized to receive a deposit, but receives one anyway then broker is treated as the buyer’s agent for that one act.
Broker Protection Clause
allows the broker to receive a commission if a buyer he introduced to the property buys the property after the listing has expired
Commission Rate Clause
Listings for 4 or less residential units, including mobile homes, must contain the following in not less than 10 point boldface type
The amount or rate of commissions is not fixed by law. They are set by each broker individually and may be negotiable between seller and broker.
Exclusive Probate Listing
May not exceed 90 days
Residential Purchase Agreement
RPA or Deposit Receipt
contract used to write an offer - buyer traditionally gave a deposit accompanying the offer and received a copy of the offer as a receipt
Termination of Offer
All the following terminate an offer:
Revocation - buyer may revoke prior to communication of offer, but may not revoke after seller has accepted
Rejection of Offer - rejection or counteroffer automatically terminates the original offer
Death of Buyer
Expiration - expiration of time limit given in the offer terminates the offer
Hold Deposit
the deposit gives the broker the authority to hold a buyer’s deposit for three business days or until the offer is accepted. If a seller requests the deposit after the offer has been accepted then the broker must obtain written consent of buyer before releasing the check to seller.
Desk Cost
total operating expenses of the office, including salaries, rent, insurance, etc. divided by the number of salespersons
Company Dollar
gross income of brokerage minus commissions paid to salespersons
Creation of Agency
Express Agreement - oral or written
Implied Agreement - created by acts or conduct
Ratification
Estoppel
Scope of Authority
Actual Authority - the authority a principal intentionally confers on an agent, or by want of ordinary care, allows an agent to believe himself to possess
Express Authority (Specific Authority) - created by express agreement between the parties which precisely delineates the activities the agent is authorized to undertake
Ostensible Authority (Implied Authority) - may result from the conduct of the parties
Appraisal
an opinion of the value of a specific property on a given date to indicate the market conditions influencing the value of the property at a particular point in time. It is only valid for that date
Principle of Regression
the value of more expensive homes are pulled down when lesser quality homes are built nearby
Market Value
based on concept of “willing buyer” and a “willing seller”. The most probable price the property should bring on the open market within a reasonable length of time.
Utility Value
subjective - value as the property is used by the owner
Unearned Increment
when property gains value due to inflation or an increase in population
Which approach to a value estimate tends to set the upper limit of value?
The cost to replace a like property usually sets the upper limit of value.
Jones lived in a multiple residential structure. He owns an undivided interest in the property, coupled with an exclusive right of occupancy in his living unit. According to California law, he owns an interest in a
Since the question indicates that the owner has only an undivided interest in the entire property and not a separate interest in any portion thereof, it falls into the community apartment project category.
In accordance with the Real Estate Settlement Procedures Act, the lender must supply the borrower with a Uniform Settlement Statement form
Unless the borrower waives this right under RESPA, the lender must deliver to the borrower a Uniform Settlement Statement at or before settlement. If requested by the borrower, he may inspect the Uniform Settlement Statement during the business day immediately preceding the date of settlement.
A lease for a period of years that is held by the lessor is an example of
Personal Property. While in fact the lessor (landlord) has a freehold estate on the property, she has given a tenant the right to possess the property for a period of time using an instrument called a lease. This lease is a piece of paper and it is the personal property of the landlord (lessor).
If an owner grants possessory rights in real property to another for less than the owner’s interest, this would be identified as a(n)
An agreement by which an owner gives right of possession to another for a term less than the owner’s interest would be a lease.
Silverman is going to make extensive improvements on an old apartment building. Which is MOST important for Silverman to take into account?
The principle of contribution affirms that after a certain point of development is reached, additional expenditures do not produce an appropriate return on the added investment (that is, the return is less than the existing or desired overall investment). Therefore, the owner should base the decision to make extensive improvements on their proper contribution to the net income.
A selling agent who is the exclusive agent for the buyer can do all of these things EXCEPT
An agent who is the “exclusive agent for the buyer” cannot also act as the seller’s agent. If the buyer’s agent also acts as the seller’s agent, there is a dual agency (if disclosed) or a divided agency (if not disclosed) and the agent cannot then be the “exclusive agent for the buyer.” The buyer’s agent can withhold negative information about his client, the buyer, as long as it is not a material fact that the seller might reasonably take into consideration in deciding to accept an offer.
Housing and Financial Discrimination Act
The Housing and Financial Discrimination Act would apply to loans for single-family residences and duplexes not owner occupied. Also, this law is administered by the Secretary of Business, Transportation, and Housing and calls for payment of actual damages not to exceed $1,000. It applies to loans to purchase, construct, improve, or refinance one- to four-unit owner-occupied residences and rehabilitation loans on one- to four-unit dwellings, not owner occupied.
Bilateral Contracts
A promise for a promise creates a bilateral contract; a promise for an act or performance of an act creates a unilateral contract.
A fire insurance policy can be canceled by the insurance company if
A fire insurance policy can be canceled only after written notice has been given to the insured with a reasonable time for cancellation to take effect.
Franklin offered to perform all of the obligations in a purchase contract. This act is considered a
Tender is the act by which one offers to perform under a contract. It is not the actual performance.
Time in which to file a Mechanic’s Lien
90 days if NO Notice of Completion EVERYONE
60 days if YES Notice of Completion PRIME CONTRACTORS
30 days if YES Notice of Completion ALL OTHERS
Time in which to start foreclosure:
90 days from recording of lien
Accepting Deposits
Any form of deposit may be taken by the broker provided it is properly described on the deposit receipt so the seller will be made aware when the offer is presented. The amount, form, and location of a deposit must be disclosed to the principal.
Advertising Promissory Notes
In real estate law there is an express prohibition against implying any yield or return on a promissory note different from the interest rate in the note itself unless the advertisement sets forth both the actual rate and the difference between the outstanding balance of the note and the price at which it is being offered for sale, that is, the discount.
“Off-Site” Improvements in a Subdivision
Offsite improvements add to the usefulness (utility) of the site but are not located directly on it. Examples are streets, curbs, drainage, sidewalks, lighting, and so forth.
Real Property Tax Exemptions
Under state law limited exemptions from local real property taxes for individuals who qualify are senior citizens (and blind and disabled persons), who may defer their taxes; veterans, who receive $4,000 off assessed value; and homeowners, who receive $7,000 off assessed value.
Nominal Rate
The rate specified in the Promissory Note. The word nominal stems from the word name and describes the rate named in the note.
Insurance
Insurance transfers the risk of loss from the insured to the insurance company, changes uncertainty into certainty, and guarantees the cost of replacement.
In assessing the probability relating to the degree of flood hazard in a proposed subdivision pending the construction of adequate corrective measures, the degrees have been standardized as
inundation, sheet overflow, and ponding. When a flood hazard is found to exist within a proposed subdivision, the local agency may issue a flood hazard report that will describe the degree and frequency of flood hazards involved pending the construction of adequate corrective measures. Terms that have become standardized in sections of California that relate to the degree of hazard are inundation, sheet overflow, and ponding.
For a second trust deed of three years or more, the maximum commission is
15%
Cost Basis Adjustment
Cost basis can be adjusted by either adding capital improvements or subtracting depreciation from the cost basis.
Cash Flow
Cash flow refers to the money the investor has at the end of the year after deducting all out-of-pocket expenses from gross income. Do not confuse with net spendable, which is computed by deducting income tax from cash flow. Cash flow refers to the money the investor has at the end of the year after deducting all out-of-pocket expenses from gross income. Do not confuse with net spendable, which is computed by deducting income tax from cash flow.
The housing and construction industry in California is governed by which three laws?
Contractor’s license law, local building codes, State Housing Act
