Real Estate National Exam Ch 15

Question 1

D: Lien

Answer 1

Is a charge or claim against a person’s property made to enforce the payment of money.

Whenever someone borrows money, the lender generally requires some form of security.

Liens can be enforced against a property by a government agency for payment of property tax owed by the owner.

A lien also can be used to force the payment of an assessment or other special charge.

A lien represents an interest in ownership, but it does not constitute actual ownership of the property. It is an encumbrance on the owner’s title.

Liens differ from other encumbrances because they are financial or monetary in nature and attach to the property because of a debt.

If a lien is not paid in the allotted time, the lienholder may foreclose on the lien, potentially forcing the sale of the property as set out by state law.

Depending on how the lien was created, a lienholder may be required to initiate legal action to force the sale of the property or acquire title.

In other cases, the sale of the property can take place without a court hearing.

The debt is paid out of the proceeds of the sale; any remaining amount goes to the debtor.

Once in place, a lien runs with the land and will bind all successive owners until the lien is paid or settled and the title is cleared by the filing of a release of lien by the lienholder.

The existence of a lien does not necessarily prevent a property owner from transferring title to someone else.

The lien might reduce the value of the real estate because few buyers will take on the risk of a property that has a lien on it.

Because the lien attaches to the property, not the property owner, a new owner might lose the property if the creditors take court action to enforce payment.

Question 2

D: Encumbrance

Answer 2

Is any charge or claim that attaches to real property and lessens its value or impairs its use.

An encumbrance does not necessarily prevent the transfer or conveyance of the property, but because an encumbrance is attached to the property, it transfers along with it.

Other encumbrances may be physical in nature and may affect the owner’s use of the property, such as easements or encroachments.

Question 3

D: Voluntary Lien

Answer 3

Is created intentionally by the property owner’s action, such as when someone takes out a mortgage loan.

Question 4

D: Involuntary Lien

Answer 4

Is not a matter of choice; it is created by law and may be either statutory or equitable.

Question 5

D: Statutory Lien

Answer 5

A lien imposed on the property by statute—a tax lien, for example—in contrast to an equitable lien, which arises out of common law.

Question 6

D: Tax Lien

Answer 6

A charge against property, created by operation of law.

Tax liens and assessments take priority over all other liens.

Question 7

D: Equitable Lien

Answer 7

Arises out of common law.

A court-ordered judgment that requires a debtor to pay the balance on a delinquent charge account, and which can be filed in the county where the debtor owns the property, would create an involuntary, equitable lien on the debtor’s real estate.

Question 8

D: General Liens

Answer 8

The right of a creditor to have all of a debtor’s property—both real and personal—sold to satisfy a debt. Is a Ad Valorem tax.

Question 9

what kind of debt would form a general lien?

Answer 9

1. Judgements
2. Estate & Inheritance Taxes
3. Decedent’s Debts
4. Corporate Franchise Taxes
5. IRS Taxes

Question 10

What is the difference between a lien that attaches to real property and personal property?

Answer 10

A lien attaches to real property at the moment it is filed and recorded.

In contrast, a lien does not attach to personal property until the personal property is seized.

Question 11

D: Specific Liens

Answer 11

Are secured by specific property and affect only that particular property.

Question 12

What are the types of Specific Liens

Answer 12

1. Vendor’s Liens
2. mechanics’ liens
3. Mortgage Liens
4. Real Estate Tax Liens
5. Liens For Special Assessments
6. Utilities

Question 13

D: Vendor’s Liens

Answer 13

Is a lien belonging to the vendor (seller) for the unpaid purchase price of the property, when the vendor has not taken any other lien or security, such as a mortgage, beyond the personal obligation of the purchaser.

Vendors’ liens in real estate are uncommon and arise out of the use of owner financing to sell the property.

Question 14

D: Priority Of Liens

Answer 14

Refers to the order in which claims against the property will be satisfied if the property is sold by the debtor.

Question 15

D: First to Record, First In Right (Priority) when talking about liens

Answer 15

In general, the rule for priority of liens is first to record, first in right (priority). In accordance with state law, the priority of payment typically is established by the date the liens are placed in the public record of the county in which the property is located.

If the holder of the first lien to be recorded forecloses on that lien, the proceeds of the property sale are used to pay that lien; if there are any funds remaining, the holder of any other lien is paid, with the former property owner receiving anything that remains after all lien holders are paid off.

The holder of a junior lien (one that comes after an earlier lien) can foreclose on that lien, but the property will still be subject to the lien or liens with higher priority.

Question 16

What are the exceptions to the First to Record, First in Right Priority?

Answer 16

For instance, real estate taxes and special assessments generally take priority over all other liens, regardless of the order in which the liens are recorded.

This means that outstanding real estate taxes and special assessments are paid first from the proceeds of a court-ordered sale.

Question 17

D: junior Lien

Answer 17

An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same property.

Question 18

D: Subordination Agreements

Answer 18

Are written agreements between lienholders to change the priority of mortgage, judgment, and other liens.

Under a subordination agreement, the holder of a superior or prior lien agrees to permit a later lienholder’s interest to take precedence.

Question 19

Ture or False:

An equitable lien arises out of common law.

Answer 19

True

Question 20

An involuntary lien is created by law and is statutory (not equitable).

Answer 20

False

Question 21

What does Ad Valorem mean in latin?

Answer 21

according to value.

Question 22

D: Ad Valorem Taxes

Answer 22

Are based on the the value of the property being taxed and are specific, involuntary, statutory liens.

Question 23

What are the most common exempt properties, from property tax, are owned by?

Answer 23

1. Cities
2. Various municipal organizations (such as schools, parks, and playgrounds)
3. state and federal governments
4. religious and charitable organizations
5. hospitals
6. educational institutions

Question 24

D: Assessment Equalization Factor

Answer 24

A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments.

The ad valorem tax would be based on this adjusted value.

An equalization factor may be applied to raise or lower assessments in a particular district or county.

Question 25

D: Mill

Also give example of how this works.

Answer 25

1/1000 of a dollar or $.001

A tax rate of 0.032, or 3.2%, could be expressed as 32 mills, or $3.20 per $100 of assessed value or $32 per $1,000 of assessed value.

Question 26

D: Tax sale

Answer 26

A court-ordered sale of real property to raise money to cover delinquent taxes.

Question 27

How does Tax Sales work?

Answer 27

A tax sale is usually held according to a published notice after a court has rendered a judgment for overdue taxes, penalties, and administrative costs and has ordered that the property be sold.

The sale is advertised in local newspapers, and a notice of sale is posted on the affected property.

The county sheriff or other public official then holds a public sale of the property.

Because a specific amount of delinquent tax and penalty must be collected, the purchaser at a tax sale must pay at least that amount.

A certificate of sale is usually given to the highest bidder when that bidder pays the delinquent tax amount in cash.

Question 28

D: Certificate of Sale

Answer 28

Is usually given to the highest bidder when that bidder pays the delinquent tax amount in cash.

The certificate of sale gives the holder the right to take possession of the property.

The holder of the certificate of sale may not immediately receive the deed to the property.

Question 29

D: Statutory Right of Redemption

Answer 29

Some states grant a period of redemption after the tax sale.

In this case, the defaulted owner (or the defaulted owner’s creditors) may redeem the property by paying the amount collected at the tax sale plus interest and charges (including any taxes levied since the sale).

If the property is not redeemed within the statutory period, the certificate holder can apply for a tax deed (sheriff’s deed).

The quality of the title conveyed by a tax deed varies from state to state.

Question 30

D: Equitable Right of Redemption

Answer 30

In some states, the delinquent taxpayer may redeem the property any time before the tax sale.

By paying the delinquent taxes plus interest and charges (any court costs or attorney’s fees).

An owner who does not exercise this right may force a sale.

Question 31

D: Special Assessment

Answer 31

Is a tax charged on real estate to fund public improvements to the property, and it creates a lien for the amount of the assessment on the property.

Property owners in the improvement area are required to pay for the improvements because their properties benefit directly from them.

A special assessment is generally paid in equal annual installments over a period of years.

The first installment is usually due during the year following the public authority’s approval of the assessment.

The first bill includes one year’s interest on the property owner’s share of the entire assessment.

Subsequent bills include one year’s interest on the unpaid balance.

Property owners have the right to prepay any or all installments to avoid future interest charges.

Question 32

For large-scale improvement projects such as streets, sidewalks, and water or sewer construction, a may be created?

Answer 32

Local Improvement District (LID)

Question 33

D: Local Improvement District (LID)

Answer 33

Is a specific geographical area formed by a group of property owners working together to fund needed capital improvements. LID taxation is simply a financing method available for the design and construction of public improvements.

Question 34

Yes or No

Can there be a property tax lien if it is not filed in the public record?

Answer 34

Yes

Question 35

Yes or No

Can property be sold for nonpayment of taxes, even if the current owner was not aware of the debt against the property?

Answer 35

Yes

Question 36

Yes or No

Is it possible for the present owner of the house to reclaim it, even if there is a tax sale?

Answer 36

Yes, depending on state laws.

Question 37

D: Mortgage Lien

Answer 37

Is a specific, voluntary lien on real estate given to a lender by a borrower as security for a real estate loan.

It becomes a lien on real property when the lender records the documents in the county where the property is located.

Lenders generally require a preferred lien, called a first mortgage lien.

This means that no other liens against the property (aside from real estate taxes) can take priority over the mortgage lien.

As mentioned earlier, subsequent liens are referred to as junior liens.

Question 38

D: Mechanic’s Lien

Answer 38

Is a specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve real property.

This type of lien is filed when the owner has not fully paid for the work or when the general contractor has been compensated but has not paid the subcontractors or suppliers of materials.

Statutes in some states prohibit subcontractors from placing liens directly on certain types of property, such as owner-occupied residences.

While laws regarding mechanics’ liens vary from state to state, there are many similarities.

According to state law, priority of a mechanic’s lien may be established as of the date the construction began or materials were first furnished; the date the work was completed; the date the individual subcontractor’s work was either commenced or completed; the date the contract was signed or work was ordered; or the date a notice of the lien was recorded, filed, posted, or served. In some states, mechanics’ liens may be given priority over previously recorded liens, such as mortgages.

Question 39

A Mechanic’s Lien is available to who?

Answer 39

1. Contractors
2. Sub-Contractors
3. Architects
4. Equipment Lessors
5. Surveyors
6. Laborers
7. Other Providers

Question 40

To be entitled to a mechanic’s lien, the person who did the work must?

Answer 40

1. Have had a contract with the owner or the owner’s authorized representative such as a general contractor.
2. Must file a notice of lien in the public record of the country where the property is located within a certain time after the work has been completed.

Question 41

D; Notice of Nonresponsibility

Answer 41

If improvements that were not ordered by the property owner have commenced, the property owner should execute a document called a notice of non-responsibility to be relieved from possible mechanics’ liens.

By posting this notice in some conspicuous place on the property and recording a verified copy of it in the public record within the time specified by statute, the owner gives notice that he or she is not responsible for the work done.

This may prevent the filing of mechanics’ liens on the property.

Question 42

D: Judgement

Answer 42

Is a decree issued by a court.

A judgment is a general, involuntary, equitable lien on both real and personal property owned by the debtor.

Judgments expire after a number of years but, in some states, can be renewed indefinitely by the judgment creditor.

Question 43

D: Money Judgement

Answer 43

When the decree establishes the amount a debtor owes and provides for money to be awarded.

Question 44

D: Writ of Execution

Answer 44

To enforce a judgment, the creditor must obtain a writ of execution from the court.

Directs the sheriff to seize and sell as much of the debtor’s property as is necessary to pay both the debt and the expenses of the sale.

Question 45

When does a Judgement become a lien against the personal property of a debtor?

Answer 45

When the creditor orders the sheriff to assess the property and the charge is actually made.

Question 46

A judgment lien’s priority is established by one or a combination of , what? As provided by state law

Answer 46

1. Date the Judgement was entered by the court.
2. Date the Judgement was entered by the court.
3. Date a writ of execution was issued.

Question 47

D: Satisfaction Of Judgement

Answer 47

When real property is sold to satisfy a debt, the debtor should demand a legal document known as a satisfaction of judgment (or satisfaction piece).

Filing the satisfaction of judgment clears the record of the lien. In those states using a deed of trust, a deed of reconveyance must be filed with either the clerk of the court or, in some states, the recorder of deeds.

Question 48

D: Lis Pendens

Answer 48

Is not itself a lien, but rather notice of a possible future lien.

Recording a lis pendens notifies prospective purchasers and lenders that there is a potential claim against the property.

It also establishes a priority for the later lien.

The lien is backdated to the recording date of the lis pendens.

Question 49

D: Writ Of Attachment

Answer 49

To prevent a debtor from conveying title to previously unsecured real estate while a court suit is being decided, a creditor may seek a writ of attachment.

A writ of attachment is a court order against the property of another person that directs the sheriff or other officer of the court to seize or take control of a property.

By this writ, the court retains custody of the property until the suit concludes.

Most attachments arise from an action for payment of an unsecured debt.

Question 50

D: Estate Taxes

Answer 50

are general, statutory, involuntary liens that encumber a deceased person’s real and personal property. These taxes and debts are normally paid or cleared in probate court proceedings.

Question 51

D: Inheritance Taxes

Answer 51

State-imposed taxes on a decedent’s real and personal property.

are general, statutory, involuntary liens that encumber a deceased person’s real and personal property.

These taxes and debts are normally paid or cleared in probate court proceedings.

Question 52

D: Lien For Municipal Utilities

Answer 52

Municipalities often have the right to impose a specific, equitable, involuntary lien on the property of an owner who refuses to pay bills for municipal utility services.

Question 53

D: Bail Bon Lien

Answer 53

A real estate owner who is charged with a crime that will result in a trial may post bail in the form of real estate rather than cash.

The execution and recording of such a bail bond creates a specific, statutory, voluntary lien against the owner’s real estate.

If the accused fails to appear in court, the lien may be enforced by the sheriff or another court officer.

Question 54

D: Corporation Franchise Tax Lien

Answer 54

State governments generally levy a corporation franchise tax on corporations as a condition of allowing them to do business in the state.

Such a tax is a general, statutory, involuntary lien on all real and personal property owned by the corporation.

Question 55

D: IRS Tax Lien

Answer 55

AKA: Federal Tax Lien

Results from a person’s failure to pay any portion of federal taxes, such as income and withholding taxes.

A federal tax lien is a general, statutory, involuntary lien on all real and personal property held by the delinquent taxpayer.

Its priority, however, is based on the date of filing or recording; it does not supersede previously recorded liens.

The same rules apply to most state income tax liens.

Question 56

True or False & Why?

Taking out a mortgage loan is an example of creating an equitable lien.

Answer 56

False

A voluntary lien is created intentionally by the property owner’s action, such as when someone takes out a mortgage loan.

Question 57

True or False & Why?

A special assessment is always a general and statutory lien.

Answer 57

False

A special assessment is always a specific and statutory lien.

Question 58

True or False & Why?

All liens are encumbrances.

Answer 58

True

A lien is a charge or claim against a person’s property made to enforce the payment of money; a lien represents only an interest in ownership; it does not constitute actual ownership of the property.