Review Flashcards
Freehold Estates last how long?
Lasts for an indefinite period of time. Denotes property ownership by the estate holder.
Leasehold Estates last how long?
They expire on a definite date. A leasehold estate involves the right to possess and use, for a period of time, property that is owned by someone else.
Name the two types of Freehold Estates
Fee Simple and Life Estate
Characteristics of Fee Simple Estate
Represent the most complete form of ownership, inheritable, no restrictions on enjoying, leasing, selling or gifting
Characteristics of Life Estate
Lasts only as long as the life of the owner, upon the death, reverts back to original transferor, his or her heirs or another designee. Can be mortgaged, leased, or sold during the holder’s lifetime.
The value and marketability of the estate can be severely restricted due to the uncertainty of its duration.
Name the 4 types of leasehold estates
Estate for years
Estate from Period to Period
Estate at Will
Estate at Sufferance
Characteristics of Estate for Years
Has a definite beginning and end
Not necessary to give notice to landlord to terminate
NO automatic renewal, when its over, its over.
Commonly used with commercial leases and apartment leases.
Characteristics of Estate from Period to Period
Also known as from year to year, periodic tenancy, month-to-month.
Requires proper notice of termination
No definite end date
Characteristics of Estate at Will
Tenant on property without a lease an no agreement. This can be an infinite duration.
Characteristics of Estate at Sufferance
Tenant wrongfully remains on the property without the landlord’s consent after the expiration of the lease.
Title
When a person has the title, you assume that they have everything needed, including documents and records, to prove they actually own the property.
Abstract of Title
Historical summary of grants, conveyances, wills, records, and judicial proceedings that affect the title.
Deed
Usually title is conveyed from grantor to grantee using a deed which must be in writing to be valid.
List the three common ways to get assurance that a Title is good and marketable:
Deeds - provide a warranty as part of the deed
Abstract & Opinion - Search for documents
Title Insurance - protect against unexpected problems
General Warranty Deed
Most complete warranties about the quality of the property. * Most attractive
Special Warranty Deed
Grantor guarantees the title against only those defects that arose during the period of his or her ownership of the property and not against any that existed before.
US Treasury Functions:
Manage Federal Finances
Manage Govt’ accounts and public debt
Supervise national banks and thrift institutions
Enforce Fed finance and tax laws
Who is the head of the Office of the Comptroller of Currency (OCC) and how do they get that position?
The Comptroller, who is appointed by the president and serves a 5 year term.
Who is the director of the Federal Deposit Insurance Corporation (FDIC)?
The Comptroller, who is appointed by the president and serves a 5 year term.
Who is the director of the Neighborhood Reinvestment Corporation?
The Comptroller, who is appointed by the president and serves a 5 year term.
What does the Office of the Comptroller of Currency (OCC) do?
Charters, regulates, and supervises all national banks. They issue rules, legal interpretations, and corporate decisions concerning banking, bank investments, and all aspects of bank operations.
Why was the FDIC created?
Thousands of banks failed in the 1920’s and early 1930’s
What are the three major activities of the FDIC?
Insure banks and thrift institutions up to $250,000
Identifies, monitors and addresses risks to the deposit insurance funds
It limits the effect a bank or thrift institutions failure has on our economy and the financial system.
What is the purpose of the Federal Home Loan Bank System (FHLB)?
Like the FDIC, was created in 1932 to bring stability to savings and loan associations and to renew the public’s confidence.
What does the Federal Home Loan Bank System (FHLB) regulate?
The 12 federal home loan district banks, charged with improving the supply of funds to local lenders that finance loans for home mortgages.
Why was the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) created in 1989?
In the 1980s there was once again wide spread failures to thrift institutions.
What did the Financial Institutions Reform Recover and Enforcement Act (FIRREA) do?
Required Savings & Loans to adopt new capital standards
Transferred the regulatory powers of the Federal Home Loan Bank Board to a new agency, the Office of Thrift Supervision (OTS)
Placed the 12 district Federal Home Loan Banks under control of the Federal Housing Finance Board
Abolished the Federal Savings and Loan Insurance Corporation (FSLIC)
What two new federal deposit insurance funds were established by Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)?
The Bank Insurance Fund (BIF) - insures deposits in commercial banks
Savings Association Insurance Fund (SAIF) - insures deposits in savings institutions, up to 100k per account.
Define Encumbrance
A right or interest in a property held by one who is not the legal owner of the property.
What are the two general classifications of Encumbrances?
One that affects the physical condition, such as restrictions, encroachments and easements.
One that affects the title, such as mortgage, judgments, mechanic’s liens, etc.
Liens have can be characterized in what 4 ways?
Voluntary (agreement)
Involuntary (legal)
General (personal & real)
Specific (particular property)
What are the three basic legal documents that are used to finance real estate in California?
Note and Mortgage
Note and Deed of Trust
Land Contract
What are the two most common types of promissory notes and their characteristics?
Straight Note - Interest only, paid periodically and loan paid off when the note comes due
Installment Note - Principal & Interest are paid periodically
Does a Note need to be tired to a mortgage or a deed of trust to be valid? why?
No, because a note itself is a complete contract. The note is however, the fundamental document upon which the deed or mortgage of trust depend.
Notes must contain at least the following provisions (Acronym IPAIDARMS)
Identity Promise to Pay Amount Interest Rate Due Date Amount of Payment Maturity Date Reference the Real Estate Signatures
Is a mortgage required to be in writing? What form?
Yes, statute of frauds. Although it could be handwritten as long as it conveys the intent of the parties to create a security interest in a property, and any other state specific requirements.
Standard Items on Mortgages:
Identification of participants Granting clause Property description Covenant of Seisin Attachment of note Property taxes Insurance Preservation and maintenance of property clause Defeasance clause Acceleration clause Signatures and acknowledgement
What is a Deed of Trust?
Legal document which transfers title to a property to a third party (trustee) as a security. The lender reserves the right to secure repayment of the loan.
What is the Deed of Reconveyance?
Also known as release deed, when the borrower repays the note, the trustee will re-convey the title back to the borrower.
What is the “power of sale”
Granted in the Deed of Trust. When a borrower goes into default, the lenders right to sell the property and take the proceeds without having to go through the court system.
What is a Land Contract?
It is a complete financing contract in and of itself and is not tired to a note. The seller pledges to convey the title at the time the buyer completes the obligations under the contract.
Under a Land Contract, what does a seller get and what does a buyer get?
Buyer gets possession of the property and equitable title
Seller holds the legal title
Name the three CA Institutional lenders
Commercial Banks
Savings and Loan Association
Life Insurance Companies
Commercial Banks Primarily do what type of loans and why?
Short term, such as construction, home improvement, and manufactured housing loans.
This is because the depositors can request their funds at any time, so they generally do not participate in long term loans, however savings accounts do give them access to longer term funds.
What is the Primary Function of a Savings and Loan Association?
To promote thrift and home ownership. Also known as “Savings Bank” or “Thrifts”
What is a benefit of depositing your savings into a Savings and Loan Association?
They often offer higher interest on their deposits than commercial banks.
Who regulates, who supervises and who insures a State Chartered Savings and Loan institution?
Regulated by the CA Dept of S&L
If it is insured, also supervised by the Federal Housing Finance Board
Who regulates, who supervises and who insures a Federally Chartered Savings and Loan Institution?
Regulated by the Office of Thrift Supervision
Supervised by the Federal Housing Finance Board
Insured by the Savings Association Insurance Fund (SAIF)
under the Federal Deposit Insurance Corporation (FDIC).
Are Savings and Loan Institutions required to obtain insurance?
State Chartered, optional
Federally Chartered, required
According to Gov’t Regulations, the majority of Savings and Loan Association’s Assets must be in what?
Real Estate
Life Insurance Companies are a major source of credit for what?
Shopping centers, office buildings, hotels and motels, industrial buildings and large apartment complexes
How much of a Life Insurance Company’s assets are usually in real estate loans?
1/3, with CA having the largest dollar volume of insurance real estate loans than any other state
Are private lenders exempt from Usury laws?
No, if a loan exceeds the maximum amount it is considered illegal.
Are private sellers exempt from Usury laws?
Yes, a carryback loan made by a private seller can charge whatever amount of interest he or she wishes.
What is a Carryback Loan?
The Seller Acts as the Bank for the Buyer.
Why would a lender use a Mortgage Banker?
When the lender wants to make a real estate loan on a property that is not located in an area where the lender can personally supervise the loan. AKA “Mortgage Correspondent” who receives a fee for originating, processing and closing the loan.
Why are Mortgage Companies usually less regulated than traditional institutional lenders?
Because they are not lending money that belongs to depositors. They often loan their own money from funds they borrowed from a Commercial Bank.
When are REIT’s exempt from corporate tax?
If they invest at least 75% of their assets in Real Estate and distribute 90% or more of their annual taxable real estate income to their investors.
What are the three different types of REIT’s?
- Equity Trust: investors participate as the owners of large and hopefully profitable income producing properties.
- Mortgage Trust: investors loan their money to be used to make mortgages on commercial income properties and get their income from interest, loan origination fees and profits from buying and selling mortgages
- Hybrid
Corporate Real Estate Bonds are used for what? When is it secured?
Method of raising capital for major improvements or equipment.
Secured if backed by mortgage Unsecured (Debenture) if against company’s general asset’s.
What are Municipal Bonds used for?
to finance real estate projects and community improvements such as sewers, road pavings, schools, and parks
What are the two types of Municipal Bonds?
General Obligation (GO Bonds) - benefit community Revenue Bonds - benefit specific populations
What is the difference between an General Obligation Bond and a Revenue Bond?
a GO bonds are backed with tax funds, Revenue Bonds are repaid using revenue generated by the specific project the bonds are issued to fund. Ex. Tolls collected on a toll bridge built by Revenue Bonds.
How to Community Redevelopment Agencies (CRA’s) finance redevelopment, and some residential and commercial developments?
Redevelopment Projects are financed by GO Bonds
Residential & Commercial can be financed through tax-exempt mortgage revenue bonds.
Junior Financing is dealt with mostly by which institutions?
Private Loan Companies
What is Junior Financing?
Second deeds of trust that allow borrowers to pull out some of the equity in their property for other purchases, such as autos, furniture, etc.
What is Regulation Z of the Truth in Lending Act?`
The lender must disclose the true cost of the credit being offered, so that borrowers can compare all the credit terms available to them. Also provides 3 day right to rescind.
What is an endowment?
Transfer of money or property which is donated to an institution, with the stipulation that it is invested, keeping the principal intact.
What are the characteristics/benefits of an endowment donation?
Allows donation to have a greater impact over a long period of time than if spent all at once, due to compound interest.
Endowment funds are permanent, so fund managers choose safe investments.
Good source for mortgage financing for commercial and industrial, due to the returns.
Which Article of the CA Business and Prof code governs loan brokers?
Article 7
Loan Brokers are limited to what restrictions regarding first and second trust deeds?
First Mortgages under $30k- 5% principal loan of less than 2 years, 5% for loans more than 2 years but less than 3, 10% for loans 3 years or longer
Second Mortgages under $20k - 5% for principal less than 2 years, 10% for more than 2, less than 3, 15% for 3 years or more
What are the limitations on fees for making a loan?
Cannot exceed 5% or $390, whichever is higher. Regardless of the size of the loan, the broker may charge the borrower only the actual costs and expenses paid, and not exceed $700.
How much is the Loan Origination Fee, typically?
1%
Define Points
One time service charge to the borrower for making the loan. Prepaid interest that the lender charges to get additional income on the loan. The points are usually equal to 1% of the loan amount.
Define Discount Points
Charges to offset any losses the lender might suffer when selling the loan to the secondary mortgage market. A means of raising effective interest rate.
1/8% for each discount point. So a charge of 4 points would increase a 7.25% mortgage to 7.75% yield.
