Nc Real Estate Broker Pre-Licensing Exam: Post-Midterm Key Definitions

Front 1

Residential Rental Agreements Act: Landlord Duties

Back 1

-Keep unit fit & habitable
-Commons area safe (Law of Negligence)
-Agent is considered landlord

Front 2

Rental Agreements Act: Tenant Duties

Back 2

Responsible for damages, disposal of trash, cleanliness
-Comply w/ building code
-Batteries for smoke detector
-Pay rent, unless court order or constructive eviction

Front 3

Retaliatory Eviction

Back 3

-Renters have right to:
-Complain to govrtnmrnt agency
-Request repairs
-Exercise legal rights under lease, state & federal law
-Orgainze together (w/ other tenants)

Front 4

Constructive Eviction

Back 4

Common law doctrine, if unit is uninhabitable landlord is given proper notice, the tenant can leave & quit paying rent

Front 5

Eviction Procedures: Summary Ejectment

Back 5

-Summary Ejectment filed through district court
-Tried before magistrate in small claims court
-Criminal activity can bring about an "expited eviction"

Front 6

Permitted Use of Tenant Security Deposits

Back 6

May keep....
-Nonpayment of rent
-Damage (not normal wear & tear)
-Breach of lease term
-Cost of re-renting (if unit no rented)
-Unpaid bills

Front 7

Tenant Security Deposit Act

Back 7

Landlord/Agent Duties
-Return deposit w/in 30 days
-Week to week: 2 weeks deposit
-Month to month: 1 1/2 months
-Aything more, 2 months max
-Per fees OK UNLESS it's a service animal

Front 8

Eviction Procedures: Wrong Way

Back 8

-No "self help" evictions
-"Kick them out"
-Change the locks
-Post false legal notice
-Seize or destroy personal property

Front 9

Vacation Rental Act

Back 9

-Applies to landlords/agents
-Rent < 90 days
-Tenant has permanent residence elsewhere-Rental must be fore vacation or leisure
-Licinsee may pay referral to non-licensee
-Expidited eviction procedure

Front 10

Vacation: Trust Funds

Back 10

-Tenant refund if property not avaiable
-Deposits in trust account
-May charge cancelation/reservation fee
-New owner must comply w/ leases for 6 months

Front 11

Transient Occupancy

Back 11

Stay in hotel NOT covered under NC Residential Ental Agreement Act

Front 12

Public Housing Section 8

Back 12

-Tenants in government subsidized housing
-More rights
-Can only be evicted for "good cause", for example loss of job is NOT good cause
-Entitled to "procedrual due process"

Front 13

Gross versus NET Lease

Back 13

-Gross, fixed or flat: Landlord pays for some or all operating expenses (residential)
-NET LEASE: tenant pays some or all operating expenses (commercial) same as NET TENANT

Front 14

Lessee's Right to Quiet Enjoyment

Back 14

A good, clean non-defective title held by Landlord will provide "quiet enjoyment"' and continued possession.

Front 15

Property Management

Back 15

-Established though agency contract
-LOADS principle
-Property manager gets paid a % effective gross income (gross rents - vacancy)
-Must meet statutory requirements & laws

Front 16

Property Management: Fair Housing

Back 16

-Cannot say apartment is rented if not
-Can discriminate based on credit/finances
-Can NOT differ terms based on protected classess
-Can NOT advertise in discriminatory manner

Front 17

Lien Theory vs Title Theory

Back 17

Lien:
-Promissory note
-NOT used in NC
-2 party mortgage:Mortgagee(lender, right to foreclose)/Mortgagor(buyer holds title)
-Lender goes to court for foreclosure

Title theory:
-Deed of Trust
-3 party mortgage:Beneficiary(lender, can ask trustee to foreclose), Grantor(borrower, equitable title), Trustee (holds legal title),
-Lender uses "Power of Sale Foreclosure"

Front 18

Borrower's Right (Equity) of Redemption

Back 18

Defaulted borrower has right to pay off the full mortgage + expenses prior to foreclosure,

Front 19

Statutory Redemption Period

Back 19

-After the foreclosure sale, 10 day redemption period during which mortgagor can pay full balance+expenses.... Or another qualified buyer can submit bid 5% (called upset bid) more than last bid.

Front 20

Acceleration Clause

Back 20

Lender "speeds up" debt repayment (i.e., if borrower makes late payments), usually forcing borrower to sell. (Without, lender would have to sue everytime payments are late)

Front 21

Deficiency Judgment

Back 21

If foreclosure proceedings doesn't satisfy the lender's expense, they may file a personal judgment against the defaulting borrower.

Front 22

Prepayment Penalty Clause

Back 22

If a borrower pays off a loan early, they have to a a penalty.

Not allowed...
-in NC for loans < 170K. Or
-Principal dweling
-1-4 family dwelling
-FHA, VA or loans sold to the 2ndary mortgage market.

Front 23

Due on Sale Clause (Alienation Clause)

Back 23

-Triggered by sale, seller must pay off loan immidiately,
-A loan without is assumable
-Without release of liability, seller is liable under loan assumption

Front 24

Promissory Note vs Dead of Trust

Back 24

Promissory note (lien theory):
-A personal promise is given to lender
-Allows for a deficiency judgment against the buyer
-Made good only by the Deed of Trust

Deed of Trust (title theory):
-3 Party Mortage
-Property is put up as collateral for loan
-"Power of Sale" gives trustee right to foreclose.

Front 25

Interest Rates & Federal Reserve Board

Back 25

-Interest rates profound effect on real estate
-Federal Reserve Board controls $ supply & interest rates
-Purpose: growth w/out inflation or unemployment

Front 26

Federal Reserve: Money Supply

Back 26

-Controls % reserve deposit funds, amount of funds for lending
-Controls money supply by buying os selling goverment securities

Front 27

Federal Reserve: Discount Rate

Back 27

-The rate of interest members borrow from the Federal Reserve
-Altering discount rate effects all other interest rates

Front 28

Types of Mortgages

Back 28

Conventional (non-governemt)
-28%(PITI/Loan)/36%(PITI+installment debt)/Loan
-20% down, no PMI

FHA:
-29%/41%
-MIP
-Assumable w/out release of liability. Aft 12/1989, buyer must be qualified

VA:
-41%
-Certificate of Eligibility, given to veterans
-Certificate of Reasonable, VA's Appariased Value
-Restoration of entitlement, when loan paid off, veteran can get another loan
Assumable. After 3/1988, buyer must be qualified.

-Rural Economic & Community Development (formerly Farmer's Home Administration or FmHA): direct loan from the government

-Purchase Money Mortgages or Purchase Money Deeds of Trust: Seller Financing. Borrower hold title.

-Installment land sale: seller financing. SELLER hold title.

Front 29

Adjustable Rate Mortgages

Back 29

-Interest Rate fixed for a few years (perhaps below market), then increase fixed % per year up to a fixed total amount.
-Possibility of negative amortization, i.e. balance increases

Front 30

Construction Loans

Back 30

-House under construction is collateral
-High Risk Loan = Higher intereest rate & shorter term

Front 31

Mortgage Banker vs Mortgage Broker

Back 31

-Banker: full line of lending service
-Broker: Agent or broker of a lender that brings together a borrower and a lender

Front 32

Secondary Mortgage Market

Back 32

-FNMA (fannie mae) buys FHA, VA and coventional mortgages
-GNMA (ginnie mae) only buys FHA & VA. Government owned.
-FHLMC (freddie mac) buys mostly conventional

Front 33

Underwriting

Back 33

Process of reviewing...
-Borrower;s credit
-Credit Report
-Verification of deposits/assets
-Income stability/odds of continued employment
-Income verified
-Value of collateral
-Evaluating risks

Front 34

Property Analysis

Back 34

-Appraisal done to verify market value & LTV
-Title opinion
-Title insurance protects lender
-No insurance - no loan

Front 35

Loan Analysis

Back 35

-Lender will look at "yield" or "profit"
-Longer loan term - higher risk
-Lender will look how much borrower is investing (down payment)
-PMI <= 20%

Front 36

Truth in Lending

Back 36

-Lender must give "full disclosure" of all credit charges
-Regulation Z: truthful advertising
-Must disclose APR
-Disclosure w/in 3 buisiness days

Front 37

Market Value

Back 37

Highest price a property should bring in a fair, open market

Front 38

Price vs Value vs Cost

Back 38

-Price: actual sales price
-Value: what the public is willing to pay in an open market
-Cost: cost of labor & materials

Front 39

Highest & Best Use

Back 39

The most probable and profitable use of the property. i.e., commercial use vs residential.

Front 40

What is a CMA?

Back 40

-CMA IS informal estimate of value used by agents
-NOT an apparaisal by a State Licensed Appraiser
-DO NOT CALL A CMA AN APPRAISAL

Front 41

Sales Comparison Approach Review

Back 41

-most COMMON appraisal
-select 3 closed COMPARABLE properties much like the SUBJECT
-LOCATION most imprtant factor
-make all adjustments to COMPARABLES
-If comparable is superior, SUBTRACT
-If comprab;e is inferior, ADD
-

Front 42

Cost Approach

Back 42

-Used for unique propertie: schools, churches...
-Estimate value of land (sales comparison)
-calculate current cost of improvments (reproduction cost: exact duplicate vs replacement cost: similar-same purpose), less accrued depreciation
-Considers the effective age
-Use the breakdown method of depreciation

Square foot method vs Unit-in-place method vs quantity survey method

Front 43

Types of Depreciation

Back 43

-Physical deterioration (curable or incurable)
-Function obsolescence (curable or incurable)
-Economic or locational(environmental or external) (incurable), i.e., next to a nuclear plant

Front 44

Income Approach

Back 44

(NOI) NET OPERATING INCOME=gross rents/other income - vacancy losses-operating expenses

Operating expenses: taxes, insurance, maintenance, repairs... Does NOT include mortgage payment.

Capitilization rate: NOI/Sales Price for comparable.


-A smaller capitilization will increase value
-A larger capitilization will decrease value

Front 45

Gross Rent Multiplier

Back 45

Sales Price/Rental Income = Gross Rent Multiplier

Monthly rental: 650, Sales price: 82,000. GRM=126.2

Front 46

Discovering Reconcialtion

Back 46

-Process by which an appraiser uses different appraisal methods to discover value of property
-Sales comparison approach deemed best

Front 47

Property Insurance

Back 47

-Property/casualty insurance: protects insured from lossess to property/improvements
-Liability insurance: covers losses to third persons ot their property
-Package insurance: includes both types

-Condition: limits/qualifies insuree or insured, i.e. theft reported to police
-Exclusion:eliminates coverage for certain item, i.e. tornado
-Endorsement:includes coverage for a certain item

Front 48

Types of Home Owners Insurance

Back 48

-HO-1: basic form. Included liability.
-HO-2: Named peril policy. Only named perils are covered. Better than HO-1.
-HO-3: All risk form, most common. Better than HO-2, because perils do not need to be named.
-HO-4: tenants/renters policy. Covers tenants personal property & damage they cause to landlord's proeprty.
-HO-6: condominium owners
-HE-7 all-risk form, for very expensive properties

Front 49

RESPA - Real Estate Settlement Procedures Act

Back 49

Consumer protection:
-Information booklet
-"Good faith Estimate of Closing Costs" at time of loan application
-Standard HUD 1 Closing Form
-Review closing doc: 24 hours prior to closing
-Escrow account restrictions
-No referral fees or gift to agents

Front 50

Types of Leases

Back 50

-Gross, Flat or Fixed: land lord pays all operating expenses (residential)
-Net: tenant pays some or all operating expenses (commercial)
-Percentage lease: owner get's % if gross or net income. Usually in addition to a based net lease.
-Graduated lease:lease amount will increase in the future
-Index lease:increased or decreased based on some index, such as cost of living
-Ground lease:Land lease so tenant can build a building.
-Oil & Mineral Lease
-Full Service:base amount + prorated share of common operating expenses, like in a shopping mall

Front 51

Usury Laws

Back 51

Prevents overcharging on interest rates. Colorado & Delaware: no usury laws, why credit card companies are based there.

Front 52

Finance Terms

Back 52

-Debt Service (P&I) principal & interest
-Amortization: killing(paying) off the loan
-Loan factor:monthly debt service (P&I) for every $1,000 borrowed
-Equity: difference between market value & what is owed
-Usry laws: prevent overcharging on interest rates
-Discount points: interest paid up front
-Yield: investor's profits
-Origination fee: admin fee to process loan. Usually % of loan amount
-Loan to Value Ratio (LTV): loan value/sales price.

Front 53

Types of Loan Repayment Terms

Back 53

-Fixed Rate/Level Payment
-Adjustable Rate (ARM) - probable negative ammortization
-Graduated Payment (GPM), negative amortization on early payments
-Growing Equity Mortgage (GEM): fixed interest rate, but principal payments increase.
-Term (straight): interest only
-Shared appreciation mortgage (SAM): lender provides sub-market interest rates in exchange for profits from future sale
-Baloon: interest & principal payments w/ baloon payment at end of term
-Buydown: points paid to temporarily or permanantly reduce interest rate. 1 point 1/8% decrease in interest rate.

Front 54

Appraisal Concepts: Concepts of Value

Back 54

DUST:
Demand
Utility
Scarcity
Transferability

Front 55

Appraisal Concepts: Factors influencing Property Value

Back 55

-Social Ideas & standards (1950: 2BD/2BA/no garage; 2000:3BD2.5BA/2 car garage)
-Economic forces (interest rates, money supply, employment)
-Government activities (monetary policy, taxes, zoning, schools)
-Physical or Environmental Forces (water supply, climate)

Front 56

Types of Leasehold Estates

Back 56

-Estate for Years: automatic termination after some period of time (weeks, months, years
-Estate from period to period: automatic renewal after a definite initial period, until terminated by either party w/ required notice
-Estate at will: termianted by any party at anytime w/ no required notice
-Estate at sufferance: landloard must evict illegal holdover tenant

Front 57

Lease

Back 57

A conveyance from a landlord, the owner of real estate (lessor) to a tenant (lessee) that transfers right of possession and use of an owner's property for a specified period of time.

Leases > 3 years must be written.

Front 58

Mortgage Loan Instruments

Back 58

-Promissory note, or financing instrument. Written promise owner signs agreeing to repay debt. A promissory note is negotiable, i.e. can be transferred to a 3rd party.
-mortgage, or deed of trust. Security investment that pledges property to lender as security or colatteral for a debt.

Front 59

Types of Loans

Back 59

-Purchase money mortgages: owner financing, borrower holds title. Seller hold lien on property. NOT entitled to a deficiency judgment.

-Package loans: loan for real property, fictures and appliances. Popular for furnished condo units.

-Blanket mortgages: covers more than 1 parcel of land, used to finance subdivision developments.

-Wraparound loans, also called overriding or all-inclusive. Lender/seller offers loan to buyer to pay for a smaller loan at lower interest rate.

-Open end mortgage: line of credit or equity line.

-Construction loan

-Sale & lease back: used by business that need cash for working capital

-Reverse annuity: regular payments made to borrower based on principal. Used buy retirees.

Front 60

PMI (Private Mortgage Insurance)

Back 60

Initial policy: .4% of loan amount (goes on line 902 on HUD).

PMI renewal policy: .35% loan balance. 1+ months in escrow (line 1002 of HUD)