Re License Exam

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fiduciary standard

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legal standard that holds a licensee to the highest ethical standards that the law provides

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professional real estate services

Back 2

services that require a person to have an Illinois real estate license in order to perform those services on behalf of clients, customers, and consumers

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express agency

Back 3

An agency relationship based on a formal agreement between the parties

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express agreement

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contract

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implied agency

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An agency relationship resulting from the parties' behavior

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implied agreement

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occurs when the actions of the parties indicate that they have mutually consented to an agency

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buyer agency agreement

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An express agency relationship between a buyer and a sponsoring broker

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listing agreement

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An agency relationship between a seller and a sponsoring broker generally is created by a written employment contract

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gratuitous agency

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agency with no compensation/fee

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universal agency

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a written power of attorney is required to create it

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general agent

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may represent the principal in a broad range of matters related to a particular business or activity. The general agent may, for example, bind the principal to any contract within the scope of the agent's authority. A property manager is typically considered a general agent to the property owner. Brokers and managing brokers are general agents to their sponsoring broker.

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special agent

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authorized to represent the principal in one specific act or business transaction only, under detailed instructions. A real estate licensee usually is a "special" agent to a client. If hired by a seller, the licensee is limited to finding a ready, willing, and able buyer for the property. A special agent for a buyer (buyer's agent) has the limited responsibility of finding a property that fits the buyer's criteria.

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designated agent

Back 13

authorized by the sponsoring broker to act as the agent of a specific principal. A designated agent is the only licensee in the company who has a fiduciary responsibility toward that principal. When one licensee in the company is a designated agent, the others are free to act as agents for the other party in a transaction. In this way, two licensees from the same real estate company may represent opposite sides in a property sale without entering dual agency.

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Single Agency

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When an agent or firm represents only one party (buyer, seller, landlord, or tenant) exclusively in a real estate transaction

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buyer agency

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established by contract, agreement or implication. The buyer's agent may receive a fee from the buyer or share in the seller-paid commission to the listing sponsoring broker or both, depending on the terms of the agency agreement.

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law of agency

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defines the rights and duties of the principal and the agent - the Real Estate License Act of 2000 is given precedence in defining legal real estate agency concepts

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Riparian rights

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common-law rights granted to owners of land along the course of a river, stream, or similar body of flowing water; generally include the unrestricted right to use the water

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littoral rights

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whose land borders commercially navigable lakes, seas, and oceans. Owners with littoral rights enjoy unrestricted use of available waters but own the land adjacent to the water only up to the mean high-water mark (see the figure below). All land below this point is owned by the public.

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accretion

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increases in the land resulting from the deposit of soil by the water's action (such deposits are called alluvion or alluvium). If water recedes, new land is acquired by reliction.

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erosion

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the gradual and imperceptible wearing away of the land by natural forces such as wind, rain, and flowing water. Fortunately, erosion usually takes hundreds of years to have any noticeable effect on a person's property. Flash floods or heavy winds can increase the speed of erosion.

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Avulsion

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the sudden removal of soil by an act of nature. It is an event that causes the loss of land much less subtly than erosion. A major earthquake or a mudslide, for instance, can cause an individual's land holdings to become much smaller very quickly.

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Doctrine of Prior Appropriation

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used in states where water is scarce - the right to use any water, with the exception of limited domestic use, iscontrolled by the state rather than by the landowner adjacent to the water.

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police power

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the power to enact legislation to preserve order, protect the public health and safety, and promote the general welfare of its citizens

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Eminent domain

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the right of the government to acquire privately owned real estate for public use

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Condemnation

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the process by which the government exercises eminent domain, by either judicial or administrative proceedings. In the taking of property, just compensation must be paid to the owner, and the rights of the property owner must be protected by due process of law.

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quick-take

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a summary proceeding in which a plaintiff/condemnor may obtain immediate fee simple title to real property, including the rights of possession and use

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Equity in Eminent Domain Act

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The law places the obligation on government to prove that an area is blighted before forcing property owners to sell their property for private development projects. In addition, the act helps property owners receive fair market value for their property, requires relocation costs for displaced residents and businesses, and pays attorneys' fees when property owners successfully sue to keep their property.

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Taxation

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a charge on real estate to raise funds to meet the public needs of a government

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escheat

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ownership is transferred to the COUNTY when there are no heirs or will

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estate in land

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the degree, quantity, nature, and extent of an owner's interest in real property; must allow the holding and enjoyment of the property either now or in the future, and must be measured according to time

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Freehold estates

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last an indeterminable amount of time (life or forever)

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Leasehold estates

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last for a fixed period of time. They include estates for years and estates from period to period. Estates at will and estates at sufferance also are leaseholds, though by their operation, they are not generally viewed as being for fixed terms.

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fee simple estates

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unlimited duration - pass to heirs or as provided by will

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fee simple absolute

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the highest interest in real estate recognized by law; absolute ownership

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fee simple defeasible

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subject to occurrence of nonoccurence of some specified event

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fee simple determinable

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a fee simple defeasible estate that may be inherit; qualified by a special limitation - so long as, or while, or during

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future interests

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the right of re-entry and possibility of reverter

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life estate

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a freehold estate limited in duration to the life of the owner or the life of some other designated person or persons. Unlike other freehold estates, a life estate is not inheritable. It passes to future owners according to the prearranged provisions of the life estate.

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life tenant

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entitled to the rights of ownership; rights are not absolute; life tenant's ownership may be sold, mortgaged, or leased, but it is always subject to the limitation of the life estate

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Remainder interest

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the person to whom the property will pass when the life estate ends

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Reversionary interest

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The creator of the life estate may choose NOT to name a remainderman. In that case, the creator will recapture ownership when the life estate ends.

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homestead

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a legal life estate in real estate occupied as the family home; Every homeowner in Illinois is entitled to a homestead estate up to a value of $15,000 for a single person and $30,000 for a married couple

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encumbrance and lien

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a claim, charge, or liability that attaches to real estate; restrictions, easements, licenses, and encroachments

lien - usually monetary charges

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Deed restrictions

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private agreements that affect land use; they "run with the land," limiting the use of the property and binding to all grantees. Deed restrictions are enforced by an owner of real estate and are included in the seller's deed to the buyers

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easement

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the right to use the land of another for a particular purpose

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appurtenant easement: servient and dominant tenement

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attached to the ownership of one parcel and allows the owner the use of a neighbor's land; parcel over which the easement runs is servant, parcel it benefits is dominant

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party wall

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an exterior wall of a building that straddles the boundary line between two lots, or it can be a commonly shared partition wall between two connected properties; each side owns one half and has an easement on the other half; can be a fence too

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easement in gross

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an individual or company interest in or right to use someone else's land

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easement by necessity

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created when an owner sells a parcel of land that has no access to a street or public way except over the seller's remaining land

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Easement by prescription

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the claimant has made use of another's land for 20 years; the use must be adverse, exclusive, under claim of right, and continuous and uninterrupted

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easement by condemnation

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acquired for a public purpose, through the right of eminent domain. The owner of the servient tenement must be compensated for any loss in property value.

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license

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personal privilege (not a right) to enter the land of another for a specific purpose

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encroachment

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when all or part of a structure (such as a building, fence, or driveway) illegally extends beyond the land of its owner or beyond the legal building lines

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fee simple estate in severalty

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where title is held by one individual

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fee simple estate in co-ownership

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where title is held by two or more individuals

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fee simple estate in trust

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where a third individual holds title for the benefit of another; grandfather (trustor), mother (trustee), grandchild (beneficiary)

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Tenancy in Common

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each tenant holds an undivided fractional interest in the property; Because the co-owners own separate interests, they can sell, convey, mortgage, or transfer their individual interests without the consent of the other co-owners. However, no individual tenant may transfer the ownership of the entire property. When one co-owner dies, the tenant's undivided interest passes according to the co-owner's will, heirs, or living trust.

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Joint Tenancy

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unity of ownership; Upon the death of a joint tenant, the deceased's interest transfers directly to the surviving joint tenant(s)

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Tenancy by the Entirety

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each spouse has an equal, undivided interest in the property; on the death of one spouse, the survivor automatically becomes the sole owner

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Community property

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based on the idea that a husband and wife, rather than merging into one entity, are equal partners in the marriage. Under community property laws, any property acquired during a marriage is considered to be obtained by mutual effort

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Separate property

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real or personal property that was owned solely by either spouse before the marriage; any property purchased with separate funds during the marriage

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marital property

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husband and wife acquire joint rights in all property acquired after the date of marriage for the duration of the marriage

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partnership

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association of two or more persons who carry on a business for profit as co-owners

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general partnership

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all the partners participate in the operation and management of the business and share full liability for business losses and obligations

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limited partnership

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consists of one or more general partners as well as limited partners. The business is run by the general partner or partners. The limited partners are not legally permitted to participate, and each can be held liable for business losses only to the extent of her investment

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corporation

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a legal entity (an artificial person) created under the authority of the laws of the state from which it receives its charter. A corporation is managed and operated by its board of directors

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syndicate

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two or more people or firms joined together to make and operate a real estate investment

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joint venture

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a form of partnership in which two or more people or firms carry out a single business project. The joint venture is characterized by a time limitation resulting from the fact that the joint venturers do not intend to establish a permanent relationship.

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limited liability company (LLC)

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the limited liability offered by a corporate form of ownership and the tax advantages of a partnership

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Condominium

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the owner of each unit holds a fee simple title to the unit; also own a specified share of the undivided interest in the remainder of the building and land

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cooperative

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a corporation holds title to the land and building. The corporation offers shares of stock to prospective tenants

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proprietary lease

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The purchaser becomes a shareholder in the corporation by virtue of this stock ownership and receives a proprietary lease to the apartment for the life of the corporation

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Time-share ownership

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permits multiple purchasers to buy interests in real estate, usually a resort property. Each purchaser receives the right to use the facilities for a certain period of time

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time-share estate

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includes a real property interest in condominium ownership

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time-share use

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a contract right in which a third party retains ownership of the real estate

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partition

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Any joint tenancy may be severed by mutual agreement of all cotenants, by conveying to third parties, or through a partition suit in the courts

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legal description

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detailed way of describing a parcel of land for documents such as deeds and mortgages that will be accepted in a court of law

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survey

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the process by which boundaries are measured by calculating the dimensions and area to determine the exact location of a piece of land

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metes-and-bounds method

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oldest type of legal description; Metes = distance, bounds = compass directions or angles. Relies on a property's physical features to determine the boundaries and measurements. Always starts at a designated place on the parcel. The boundaries refer to linear measurements, natural and artificial landmarks, and directions. Always ends back at the POB so that the tract being described is completely enclosed

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monuments

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natural and artificial landmarks

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point of beginning (POB)

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A metes-and-bounds description always starts at a designated place on the parcel

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Rectangular (Government) Survey System

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established to standardize descriptions of land; based on two sets of intersecting lines: principal meridians and base lines

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principal meridians

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used in rectangular survey system; run north and south

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base lines

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used in rectangular survey system; run west and east

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how many principal meridians are in the US?

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37

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township lines

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Lines running east and west, parallel to the base line and six miles apart

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township tiers

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strips of land designated by consecutive numbers north or south of the base line

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Ranges

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The land on either side of a principal meridian is divided into six-mile-wide strips by lines running north and south, parallel to the meridian. These north-south strips of land are called ranges. They are designated by consecutive numbers east or west of the principal meridian

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Townships

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are six miles square and contain 36 square miles (23,040 acres). When the horizontal township lines and the vertical range lines intersect, they form township squares

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Sections; which section is for schools?

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Each township contains 36 sections. Each section is one square mile, or 640 acres. (Can be divided into halves (320 acres) and quarters (160 acres)) Sections are numbered 1 - 36. Section 1 is always in the NE corner. The numbering proceeds right to left, beginning in the upper right-hand corner. From there, the numbers drop down and snake. By law, each section number 16 is set aside for school purposes

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Correction lines

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The Earth is round, so range lines gradually approach each other.

Every fourth township line, both north and south of the base line, is designated a correction line. On each correction line, the range lines are measured to the full distance of six miles apart.

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government check

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the irregular area created by correction lines; about 24 miles square

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fractional sections

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Undersized or oversized sections

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government lots

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Areas smaller than full quarter-sections were numbered and designated by surveyors. These lots can be created by the curvature of the earth, by land bordering or surrounding large bodies of water, or by artificial state borders

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lot-and-block (recorded plat) system

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Uses lot-and-block numbers referred to in a plat map filed in the public records of the county where the land is located; often used to describe property in subdivisions and urban areas

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plat map

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the land is divided into numbered or lettered lots and blocks, and streets or access roads for public use are indicated. Lot sizes and street details must be described completely and must comply with all local ordinances and requirements

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Air lots

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composed of the airspace within specific boundaries located over a parcel of land

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datum

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a point, line, or surface from which elevations are measured or indicated

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Benchmarks

Back 99

permanent reference points that have been established throughout the United States. They are usually embossed brass markers set into solid concrete or asphalt bases. While used to some degree for surface measurements, their principal reference use is for marking datums.

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voluntary lien

Back 100

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

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statutory lien

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created by statute. A real estate tax lien, then, is an involuntary, statutory lien. It is created by statute without the property owner taking it on voluntarily

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equitable lien

Back 102

created by a court to ensure the payment of a judgment as well as by agreement

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General liens

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affect all the property, both real and personal, of a debtor. This includes judgments, estate and inheritance taxes, decedent's debts, corporate franchise taxes, and Internal Revenue Service taxes

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Specific liens

Back 104

secured by specific property and affect only that particular property. Specific liens on real estate include mechanics' liens, mortgage liens, real estate tax liens, and liens for special assessments and utilities. They can also secure personal property, as when a lien is placed on a car to secure payment of a car loan.

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Subordination agreements

Back 105

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 junior lienholder's interest to move ahead of her lien

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tax liens

Back 106

real estate levied against specific parcels of property

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Ad valorem

Back 107

Latin for "according to value." Ad valorem taxes (general real estate taxes) are based on the value of the property being taxed. They are specific, involuntary, statutory liens

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equalization factor

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may be applied to raise or lower assessments in a particular district or county. The basic assessed value of each property in the area is multiplied by the equalization factor to acquire an "equalized assessment," then any exemptions are subtracted, and last, the tax rate is applied

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Appropriation

Back 109

the way a taxing body actually authorizes the expenditure of funds and provides for the sources of the funding

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tax sale

Back 110

Real estate taxes that have remained delinquent for the statutory period can be collected through this

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tax deed

Back 111

the successful bidder in a tax sale will receive a certificate of purchase which will turn into a tax deed if no redemption is made within the statutorily prescribed period

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redemption

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Prior to the time of a tax sale, the owner and any other party with a legal interest (except undisclosed beneficiaries of a land trust) may redeem the property and stop the sale by paying the delinquent taxes, applicable interest, and publication costs

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Special assessment taxes

Back 113

taxes levied on real estate to fund public improvements to the property. Property owners living nearest to the improvements are required to pay for them because their properties benefit directly from the improvements

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Special Service Areas (SSAs)

Back 114

special taxing districts in municipalities that are established by ordinance, often at the request of developers of new housing subdivisions, in order to pass on the costs of the streets, landscaping, water lines, and sewer systems to homeowners who reside within the SSA. The SSA assessments pay off the municipal bonds that are issued to pay for the infrastructure. Assessments are billed annually on property tax bills, generally for a period of 20 to 30 years

Front 115

mortgage lien or deed of trust lien

Back 115

a voluntary lien on real estate given to a lender by a borrower as security for a real estate loan - typically the first lien, it takes priority over other liens

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mechanic's lien

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a specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve real property. The lien attaches as of the date when the work was ordered or the contract was signed by the owner.

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judgment

Back 117

an order issued by a court that settles and defines the rights and obligations of the parties to a lawsuit; a general, involuntary, equitable lien on both real and personal property owned by the debtor

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Lis pendens

Back 118

a special notice recorded when a lawsuit has been filed but is pending. It notifies prospective purchasers and lenders that there is a potential claim against the property

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Attachments

Back 119

while a court suit is being decided, a creditor may seek a writ of attachment. By this writ, the court retains custody of the property until the suit concludes

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estate taxes

Back 120

federal; general, statutory,involuntary liens that encumber a deceased person's real and personal property

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inheritance taxes

Back 121

state; general, statutory,involuntary liens that encumber a deceased person's real and personal property

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contract

Back 122

a voluntary agreement or promise between legally competent parties, supported by legal consideration, to perform (or refrain from performing) some legal act

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express contract

Back 123

exists when the parties state the terms and show their intentions in words. An express contract may be oral or written

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implied contract

Back 124

the agreement of the parties is demonstrated by their acts and conduct.

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bilateral contract

Back 125

both parties promise to do something; one promise is given in exchange for another

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unilateral contract

Back 126

one-sided agreement. One party makes a promise to induce a second party to do something. The second party is not legally obligated to act

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executed contract

Back 127

all parties have fulfilled their promises: the contract has been performed

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executory contract

Back 128

one or both parties still have an act to perform. A sales contract is an executory contract from the time it is signed until closing: ownership has not yet changed hands, and the seller has not received the sales price. At closing, the sales contract is executed

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offer and acceptance

Back 129

must be in writing; buyer is offeror, seller is offeree;

Front 130

Consideration

Back 130

something of legal value offered by one party and accepted by another as an inducement to perform or to refrain from performing some act. There must be a definite statement of consideration in a contract to show that something of value was given (or promised) in exchange for the other party's promise

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valid contract

Back 131

it meets all the essential elements that make it legally sufficient or enforceable

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void contract

Back 132

has no legal force or effect because it lacks some or all of the essential elements of a contract

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voidable contract

Back 133

appears on the surface to be valid but may be rescinded or disaffirmed by one or both parties based on some legal principle. If it is not disaffirmed, a voidable contract may nevertheless end up being executed

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unenforceable contract

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may seem on the surface to be valid; however, neither party can sue the other to force performance

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Assignment

Back 135

transfer of rights or duties under a contract

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Novation

Back 136

Substitution of a new contract for an existing contract; occurs when a new, clear contract with all the accepted changes is signed by all the parties.

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breach of contract

Back 137

violation of any of the terms or conditions of a contract without legal excuse

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specific performance

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asking the court to force the buyer or the seller to do something because they breached the contract

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conversion

Back 139

using escrow funds for personal use

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equitable title

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interest in the land that both buyer and seller have until the delivery and acceptance of the deed. May give the buyer an insurable interest in the property

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Uniform Vendor and Purchaser Risk Act

Back 141

specifically states that the seller bears any loss that occurs before the title passes or the buyer takes possession

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liquidated damages

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To avoid a lawsuit if one party breaches the contract, the parties may agree on a certain amount of money that will compensate the non breaching party - liquidated damages is that money

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contingencies

Back 143

* The specific actions necessary to satisfy the contingency
* The time frame within which the actions must occur
* Who is responsible for paying any costs involved

Most common: mortgage, inspection and property sale

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option

Back 144

a contract by which an optionor (generally an owner) gives an optionee (a prospective purchaser or lessee) the right to buy or lease the owner's property at a fixed price within a certain period of time

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land contract

Back 145

the seller (also known as the vendor) retains legal title. The buyer (called the vendee) takes possession and gets equitable title to the property. The buyer agrees to give the seller a down payment and pay regular monthly installments of principal and interest over a number of years. The buyer also agrees to pay real estate taxes, insurance premiums, repairs, and upkeep on the property.

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Installment contracts

Back 146

commonly used in Illinois when creative seller financing is needed to consummate a sale

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Title

Back 147

the right to ownership of the property; includes bundle of rights; serves as evidence of ownership in court

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deed

Back 148

The document by which the owner transfers the title to another; must be recorded to give public notice of new ownership

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Voluntary alienation

Back 149

The owner may voluntarily transfer title by either making a gift or selling the property. To transfer during one's lifetime, the owner must use some form of deed of conveyance.

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grantee

Back 150

The person who acquires the title; must be specifically named,

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grantor

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The owner who transfers the title; must be 18+, sound of mind, name must be spelled correctly and consistently

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granting clause

Back 152

states the grantor's intention to convey the property

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acknowledgment

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(also called notarization) is a formal declaration that the person who signs a written document does so voluntarily and that her signature is genuine -- not essential to the validity of the deed, but necessary to hold up in court

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general warranty deed

Back 154

provides the greatest protection of any deed; The grantor defends the title against herself and against all others as predecessors in title

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special warranty deed

Back 155

* Warranty that the grantor received title
* Warranty that the property was not encumbered during the time the grantor held title, except as otherwise noted in the deed

the grantor defends the title against herself but not against previous encumbrances

Front 156

Bargain and sale deed

Back 156

contains no express warranties against encumbrances. It does, however, imply that the grantor holds title and possession of the property.

Front 157

quitclaim deed

Back 157

provides the grantee with the least protection of any deed. It carries no covenants or warranties and generally conveys only whatever interest the grantor may have when the deed is delivered; frequently is used to cure a defect, called a cloud on the title

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Deed in trust

Back 158

the means by which a trustor conveys real estate to a trustee for the benefit of a beneficiary

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Trustee's deed

Back 159

used when a trustee conveys real estate held in the trust to the beneficiary. The trustee's deed must state that the trustee is executing the instrument in accordance with the powers and authority granted by the trust instrument

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how much transfer tax is charged for the state?

Back 160

.50/$500 of the sales price

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how much transfer tax is charged for the county?

Back 161

.25/$500 of the sales price

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involuntary alienation

Back 162

Title to property may be transferred without the owner's consent ; usually carried out by operation of law—such as by condemnation or a sale to satisfy delinquent tax or mortgage liens

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Adverse possession

Back 163

squatter's rights; involuntary transfer after 20 years of uninterrupted possession. - Open, notorious, continuous/uninterrupted, hostile, adverse to the true owner's possession

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intestate

Back 164

without a will

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testate

Back 165

with a will

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testator

Back 166

the person who makes a will

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will

Back 167

an instrument made by an owner to convey title to real or personal property after the owner's death

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devise

Back 168

The gift of real property by will

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devisee

Back 169

a person who receives property by will

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legacy or a bequest

Back 170

The gift of personal property by will

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legatee or beneficiary

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a person who receives the personal property by will

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Probate

Back 172

formal judicial process that

* proves or confirms the validity of a will,
* determines the precise assets of the deceased person, and
* identifies the persons to whom the assets are to pass.

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habendum clause

Back 173

Some states require this to define ownership taken by the grantee; begins with the words to have and to hold. Its provisions must agree with those stated in the granting clause. If there is a discrepancy, the granting clause prevails.

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Recording

Back 174

the act of placing documents in the public record; serves as public notice

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Constructive notice

Back 175

legal presumption that information may be obtained by an individual through due diligence

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Actual notice

Back 176

means not only that the information is available but also that someone has been given the information and actually knows it

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Priority

Back 177

refers to the order of rights in time. Many complicated situations can affect the priority of rights in a parcel of real estate—who recorded first, which party was in possession first, who had actual or constructive notice

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Chain of Title

Back 178

the record of a property's ownership. Beginning with the earliest owner

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suit to quiet title

Back 179

court action used to establish ownership when there is a cloud on the title because of a broken chain

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title search

Back 180

examination of all of the public records to determine whether any defects exist in the chain of title

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Marketable Title Act

Back 181

title searches must go back at least 40 years; if there is a possibility of litigation it needs to go back 75 years

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abstract of title

Back 182

summary report of what the title search found in the public record

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certificate of title

Back 183

statement of opinion regarding title status on the date the certificate is issued

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abstract and attorney's opinion of title

Back 184

used as evidence of title, does not protect against defects that cannot be discovered from the public records

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Title insurance

Back 185

contract under which the policyholder is protected from losses arising from defects in the title

Front 186

subrogation

Back 186

When a title company makes a payment to settle a claim covered by a policy, the company generally acquires the right to any remedy or damages available to the insured. This right is called subrogation

Front 187

Real Estate License Administration Fund

Back 187

to which license fees and other funds initially go

Front 188

Real Estate Research and Education Fund

Back 188

for research and scholarships

Front 189

Real Estate Recovery Fund

Back 189

a consumer-oriented fund for compensating consumers harmed by licensees' actions

Front 190

Real Estate Audit Fund

Back 190

for conducting audits of special accounts

Front 191

Real Estate Administration and Disciplinary Board ("the Board")

Back 191

acts in an advisory capacity to the Real Estate Coordinator regarding matters involving standards of professional conduct, discipline, and examination; conducts hearings on disciplinary actions against persons accused of violating the Act or the rules

Front 192

mortgagor

Back 192

the borrower - pledges the land to the lender as security for debt

Front 193

mortgagee

Back 193

the lender

Front 194

title-theory

Back 194

the mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title

Front 195

lien-theory

Back 195

the mortgagor/borrower holds both legal and equitable title. The mortgagee/lender simply has a lien on the property as security for the mortgage debt

Front 196

intermediate mortgage theory

Back 196

based on the principles of title-theory states but still requiring the mortgagee to formally foreclose to obtain legal title

Front 197

defeasance clause

Back 197

stipulates that such title must be fully reconveyed, or released back, to the mortgagor at the time the debt is repaid in full

Front 198

Acceleration

Back 198

asking for the loan to be paid in full based on the borrower's having broken the original promise to repay with regular payments

Front 199

hypothecation

Back 199

a borrower is required to pledge specific real property as security (collateral) for the loan. The debtor retains the right of possession and control, while the creditor receives an underlying equitable right in the pledged property

Front 200

promissory note

Back 200

the borrower's personal promise to repay a debt according to agreed terms

Front 201

note

Back 201

when signed by the borrowers, it becomes a legally enforceable and fully negotiable instrument of debt

Front 202

usury

Back 202

Charging interest in excess of the maximum rate allowed by law

Front 203

loan origination fee

Back 203

The processing of a mortgage application is known as loan origination; fee charged by most lenders to cover the expenses involved in generating the loan

Front 204

discount points

Back 204

= 1% of purchase price

the interest rate that a lender charges the borrower for a loan might be less than the yield (true rate of return) an investor demands - so they charge points.

# depends on difference between interest rate and the required investor yield AND how long the lender expects it will take the borrower to pay off the loan

Front 205

prepayment penalty

Back 205

if the borrower tries to pay off the loan before it is supposed to end, some lenders charge this to make up for the lack of interest earned over the remaining loan time

Front 206

deed of trust

Back 206

conveys naked title or bare legal title—that is, title without the right of possession

Front 207

satisfaction of mortgage

Back 207

release of mortgage or mortgage discharge -when the note has been fully paid

Front 208

release deed / deed of reconveyance

Back 208

trustee executes and delivers this when the loan has been paid off in full; conveys the same rights and powers that the trustee was given under the deed of trust; should be acknowledged and recorded in the public records of the county where the property is

Front 209

alienation clause

Back 209

when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at the current market interest rate

Front 210

land contract

Back 210

the buyer agrees to make a down payment and a monthly loan payment that includes interest and principal directly to the seller; payment also may include real estate tax and insurance reserves.

seller (called the vendor) retains legal title to the property during the contract term, and the buyer is granted equitable title and possession until completion

Front 211

nonjudicial foreclosure

Back 211

used when the security instrument contains a power-of-sale clause; no court action is required

Front 212

Judicial foreclosure

Back 212

allows the property to be sold by court order after the mortgagee has given sufficient public notice

Front 213

Strict foreclosure

Back 213

1. appropriate notice must be given to the delinquent borrower

2. court establishes a deadline by when the balance of the debt must be paid in full.

3. court awards full legal title to the lender. No sale takes place

Front 214

deed in lieu of foreclosure

Back 214

friendly foreclosure; mutual agreement rather than lawsuit. disadvantage is that the mortgagee takes the real estate subject to all junior liens; the lender usually loses any rights pertaining to FHA or private mortgage insurance or VA guarantees.

Front 215

equitable right of redemption

Back 215

after default, the borrower (or any other person who has an interest in the real estate, such as another creditor) pays the lender the amount in default, plus costs, the debt will be reinstated and regular payments may be resumed - up to 7 MONTHS in IL

Front 216

deficiency judgment

Back 216

if a foreclosure sale does not produce enough to pay off the debt entirely, the lender may be entitled to a personal judgement against the borrower for the balance of the money

Front 217

sheriff's deed

Back 217

the owner of the certificate of sale (from a auction) will receive this and gain possession of the property 31 days after the judgment

Front 218

judicial/sheriff's sale

Back 218

Each defendant to the suit must be given written personal notice of the sale, and public notice of the sale must be published in a newspaper of general circulation

Front 219

certificate of sale

Back 219

this is what a successful bidder gets at a sheriff's sale, not a deed. Once the sale is confirmed by the court, they will receive a sheriff's deed

Front 220

impound/escrow/trust account

Back 220

Many lenders require that borrowers provide a reserve fund to meet future real estate taxes and property insurance premiums.

Front 221

Federal Reserve System (the Fed)

Back 221

maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate

Front 222

primary mortgage market

Back 222

the lenders that originate loans - make money available directly to borrowers

Front 223

Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)

Back 223

requires that each individual state must license and register mortgage loan originators

Front 224

Mortgage Loan Originator (MLO)

Back 224

anyone who, for compensation or expectation of compensation, takes a residential mortgage loan by phone or in person.

Front 225

secondary mortgage market

Back 225

helps lenders raise capital to continue making mortgage loans; loans are bought and sold only after they have been funded

Front 226

Fannie Mae

Back 226

provides a secondary market for mortgage loans; deals with conventional, FHA and VA loans

Front 227

Government National Mortgage Association (Ginnie Mae)

Back 227

a division of the Department of Housing and Urban Development (HUD), organized as a corporation without capital stock; administers special-assistance programs and guarantees mortgage backed securities using FHA and VA loans as collateral.

Front 228

Federal Home Loan Mortgage Corporation (Freddie Mac)

Back 228

provides a secondary market primarily for conventional loans

Front 229

straight loan/interest-only loan (also known as a term loan)

Back 229

non amortized loan; divides the loan into two amounts; The borrower makes periodic payments of interest only; pay the principal in full at the end of the term

Front 230

amortized loan

Back 230

the payment partially pays off both principal and interest

Front 231

Adjustable-rate mortgages (ARMs)

Back 231

originate at one interest rate, fluctuates up or down based on an objective economic indicator

Front 232

index

Back 232

undeterminable economic indicator that is used to adjust the interest rate in the ARM loan

Front 233

growing equity mortgage (GEM)

Back 233

uses a fixed interest rate, but payments of principal are increased according to an index or a schedule

Front 234

loan-to-value ratios, or LTVs

Back 234

the ratio of debt to value of the property: ex, if property is worth 100k and loan is 90k, LTV is 90%

Front 235

Conventional loans

Back 235

most secure loans, LTVs are usually the lowest because you make a downpayment of at least 20%; security is provided just by the mortgage; the gov't is not involved

Front 236

private mortgage insurance (PMI)

Back 236

One way a borrower can obtain a mortgage loan with a lower down payment; the borrower purchases an insurance policy that provides the lender with funds in the event the borrower defaults on the loan

Front 237

Homeowners' Protection Act of 1998

Back 237

PMI must terminate automatically when the borrower reaches a 22 percent equity position based on the original value of the property at the time the loan was originated with no allowance for appreciation or depreciation

Front 238

FHA loan

Back 238

insured by the Federal Housing Administration; competitive rates with other loans, high LTV rates; more restrictions than a conventional loan

Front 239

mortgage insurance premium (MIP)

Back 239

up front premium charged at closing for using FHA

Front 240

VA loan

Back 240

assists veterans in financing the purchase of homes with little or no down payments at market interest rates

Front 241

certificate of reasonable value (CRV)

Back 241

issues by the VA; states the property's current market value based on a VA-approved appraisal

Front 242

purchase-money mortgage (PMM)

Back 242

often referred to as seller financing; note and mortgage created at the time of purchase when the seller agrees to finance all or part of the purchase price and consists of a first or junior lien depending on whether prior mortgage liens exist

Front 243

package loan

Back 243

includes real and personal property

Front 244

blanket loan

Back 244

covers more than one parcel/lot; usually used to finance subdivisions; can be used to finance the purchase of improved properties or to consolidate loans

Front 245

wraparound loan

Back 245

enables a borrower with an existing mortgage or deed of trust loan to obtain additional financing from a second lender without paying off the first loan

Front 246

open-end loan

Back 246

the interest rate is fixed on initial amount, but can be charged at market rate for future advances; allows the borrower to "open" the mortgage to increase the loan amount back to the original amount

Front 247

construction loan

Back 247

lender commits to full loan amount, but distributes funds in payments during construction - only pay interest on the monies that have been disbursed

Front 248

Sale-leaseback

Back 248

used to finance large commercial or industrial properties - land and building are bought by investor and then leased back to the original seller who uses it for business

Front 249

buydown

Back 249

a way to temporarily (or permanently) lower the initial interest rate on a mortgage or deed of trust loan - pay a larger chunk at closing to reduce the interest rate by 1-2% for approx. 2 years

Front 250

Home equity loans

Back 250

a source of funds using the equity built up in a home

Front 251

Regulation Z

Back 251

requires that credit institutions inform borrowers of the true cost of obtaining credit

Front 252

Truth in Lending Act

Back 252

a consumer must be fully informed of all finance charges and the true interest rate before a transaction is completed

Front 253

trigger terms

Back 253

certain terms cannot be used in advertising for lenders, due to Regulation Z. Exs: down payment, monthly payment, dollar amount of the finance charge, or term of the loan

Front 254

Equal Credit Opportunity Act (ECOA)

Back 254

lenders cannot discriminate based on: race, color, religion, national origin, sex, marital status, age (provided they are legal), dependence on public assistance. If they want to reject an application, they must inform the applicant why

Front 255

Community Reinvestment Act (CRA)

Back 255

financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small farms

Front 256

Federal Deposit Insurance Corporation (FDIC)

Back 256

review lending activities and CRA

Front 257

Real Estate Settlement Procedures Act (RESPA)

Back 257

designed to ensure that buyer and seller are fully informed of all settlement costs

Front 258

margin

Back 258

premium added onto the index (used for ARMs) - represents the lender's cost of doing business

Front 259

leasehold estate

Back 259

A tenant's right to possess real estate for the term of the lease

Front 260

estate for years

Back 260

a leasehold estate that continues for a definite period of time - has specific beginning and ending dates

Front 261

estate from period to period

Back 261

created when the landlord and tenant enter into an agreement for an indefinite time

Front 262

holdover tenancy

Back 262

when a tenant with an estate for years remains in possession after the lease is over - landlord's acceptance of rent is seen as acceptance of this tenancy. Can last up to a year, or the length of time equal to the length of the original lease if less than 1 year

Front 263

estate at will

Back 263

gives the tenant the right to possess property with the landlord's consent for an unspecified or uncertain term - not usually used in IL, more often periodic tenancy

Front 264

Estate at Sufferance

Back 264

when a tenant who lawfully possessed real property continues in possession of the premises without the landlord's consent after the rights expire

Front 265

Letters of intent

Back 265

usually used for more complex commercial leases - sets forth the basic agreement between the parties that both parties' attorneys can then use to prepare the lease from

Front 266

implied warranty of habitability

Back 266

landlord is in violation of this if they do not provide: drinkable water, hot water, heat, electricity, smoke detector, bathroom/toilet, removal of rodent/insect infestations, building code violations

Front 267

Assignment

Back 267

When a tenant transfers all of his leasehold interests to another person, the lease has been assigned. The new tenant is legally obligated for all the promises the original tenant made in the lease.

Front 268

nondisturbance clause

Back 268

a mortgage clause stating that the mortgagee agrees not to terminate the tenancies of lessees who pay their rent should the mortgagee foreclose on the mortgagor-lessor's building.

Front 269

gross lease

Back 269

tenant pays a fixed rent, and the landlord pays all taxes, insurance, repairs, utilities, and the like connected with the property

Front 270

net lease

Back 270

tenant pays all or some of the property charges in addition to the rent

Front 271

triple-net lease, or net-net-net lease

Back 271

tenant pays all operating and other expenses in addition to rent. These expenses include taxes, insurance, assessments, maintenance, utilities, and other charges related to the premises.

Front 272

percentage lease

Back 272

The rent is based on a minimum fixed rental fee plus a percentage of the gross income received by the tenant doing business on the leased property

Front 273

ground lease

Back 273

When a landowner leases unimproved land to a tenant who agrees to erect a building on the land

Front 274

cash rents & sharecropping

Back 274

when agricultural landowners lease land to tenant farmers - can be paid in cash rents (agreed on rental amount in cash in advance) or sharecropping (a % of profits/losses when the crop is sold)

Front 275

actual eviction

Back 275

legal process in which landlords can regain possession if tenant breaches lease

Front 276

constructive eviction

Back 276

if property becomes unusable for tenant because of conscious neglect of landlord - tenants have right to abandon property

Front 277

property manager responsibilities

Back 277

1. Achieve the objectives of the property owners
2. Generate income for the owners
3. Preserve and/or increase the value of the investment property

Front 278

management plan

Back 278

prepared by property manager - outlines owner's objectives w/property, what the manager expects to accomplish and how. PM evaluates owners goals, neighborhood market and the specific property

Front 279

management agreement

Back 279

creates general agency between the property manager and owner. it is the contract between them

Front 280

Americans with Disabilities Act (ADA)

Back 280

property manager is responsible for making sure a building meets the ADA requirements - all must have full/equal access to all facilities. Achievable modifications must be done

Front 281

risk management

Back 281

how to deal with risk? avoid(remove source of risk), control(prepare for emergencies), transfer(shift risk onto another party) or retain(decide risks are too small to make a change)

Front 282

Surety bonds

Back 282

cover an owner against financial losses resulting from an employee's criminal acts or negligence while performing assigned duties

Front 283

workers' compensation acts

Back 283

A building owner who is an employer must obtain a workers' compensation policy from a private insurance company

Front 284

multiperil policies

Back 284

offers the property manager a "package" of standard commercial coverages, such as fire, hazard, public liability, and casualty

Front 285

appraisal

Back 285

an opinion of value based on supportable evidence and approved methods

Front 286

Broker's Price Opinion (BPO)

Back 286

a less-expensive alternative of valuating properties often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections - real estate licensees perform these for a fee

Front 287

value

Back 287

* Demand
* Utility—The property's usefulness for its intended purposes
* Scarcity
* Transferability—The relative ease with which ownership rights are transferred from one person to another

Front 288

market value

Back 288

the most probable price that a property should bring in a fair sale

Front 289

anticipation

Back 289

value is created by the expectation that certain events will occur

Front 290

conformity

Back 290

maximum value is created when a property is in harmony with its surroundings

Front 291

highest and best use

Back 291

single use to which a property may be put, or the use that is most likely to be in demand in the near future

Front 292

law of increasing returns

Back 292

As long as money spent on improvements produces an increase in income or value

Front 293

law of diminishing returns

Back 293

At the point where additional improvements do not increase income or value

Front 294

plottage

Back 294

the amount that value is increased by after a successful assemblage of lots - 2 lots turn into 1 may be greater value than the 2 separate

Front 295

assemblage

Back 295

The process of merging two separately owned lots under one owner

Front 296

regression

Back 296

the worth of a better-quality property is adversely affected by the presence of a lesser-quality property

Front 297

progression

Back 297

the value of a modest home would be higher if it were located among larger, fancier properties

Front 298

substitution

Back 298

the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property

Front 299

cost approach

Back 299

value of land

current cost of constructing improvements

accrued depreciation

take current cost - depreciation + land value

Front 300

Replacement cost

Back 300

the cost to construct an improvement similar to the subject property using current construction methods and materials, but not necessarily an exact duplicate

Front 301

Reproduction cost

Back 301

construction cost at current prices of an exact duplicate of the subject improvement, including both the benefits and the drawbacks of the property

Front 302

Square-foot method.

Back 302

The cost per square foot of a recently built comparable structure is multiplied by the number of square feet (using exterior dimensions) in the subject building

Front 303

Unit-in-place method

Back 303

replacement cost of a structure is estimated based on the construction cost per unit of measure of individual building components, including material, labor, overhead, and builder's profit

Front 304

Quantity-survey method

Back 304

quantity and quality of all materials, the labor and indirect costs

Front 305

Index method

Back 305

A factor representing the percentage increase of construction costs up to the present time is applied to the original cost of the subject property. Because it fails to take into account individual property variables, this method is useful only as a check of the estimate reached by one of the other methods.

Front 306

depreciation

Back 306

loss in value due to any cause compared with today's cost of replacement.

Front 307

Physical deterioration

Back 307

curable: something in need of repair, that if fixed would increase in value equal to or above the cost

incurable: correction is not economically possible or wouldn't contribute enough to the value of the property

Front 308

Functional obsolescence

Back 308

curable: physical or design features that could be replaced/redesigned at a cost that would bring up the value

incurable: cannot be easily remedied

Front 309

External obsolescence

Back 309

caused by negative factors not on the subject property, such as zoning, environmental, social, or economic forces, the depreciation is always incurable

Front 310

straight-line method

Back 310

economic age-life method - The property's cost is divided by the number of years of its expected economic life to derive the amount of annual depreciation

Front 311

economic life

Back 311

the period during which the structure is expected to remain useful for its original intended purpose

Front 312

capitalization (or "cap") rate

Back 312

determined by comparing the relationship of net operating income to the sales prices of similar properties that have sold in the current market

For example, a comparable property that is producing an annual net income of $15,000 is sold for $187,500. The capitalization rate is $15,000 divided by $187,500, or 8 percent

Front 313

gross rent multiplier(GRM)

Back 313

1-4 units

Value divided by income = multiplier

Front 314

gross income multiplier (GIM)

Back 314

5+ units

Value divided by income = multiplier

Front 315

Reconciliation

Back 315

analyzing all 3 methods of value for a property

Front 316

comprehensive plan/master plan

Back 316

goals of the local government for land planning

Front 317

buffer zone

Back 317

a strip of land separating land dedicated to one use from land dedicated to another use

Front 318

bulk zoning (or density zoning)

Back 318

to control density and avoid overcrowding by imposing restrictions such as setbacks, building heights, and percentage of open area or by restricting new construction projects

Front 319

aesthetic zoning

Back 319

specify certain types of architecture for new buildings

Front 320

incentive zoning

Back 320

to ensure that certain uses are incorporated into developments, such as requiring the street floor of an office building to house retail establishments

Front 321

taking

Back 321

when land is taken for public use through the government's power of eminent domain or condemnation, the owner must be compensated

Front 322

Inverse condemnation

Back 322

property is condemned because its use and value are diminished due to an adjacent property's public use. Ex: property along a newly constructed highway may be inversely condemned. The property itself was not used in constructing the highway, the value may be significantly diminished due to the construction of the highway close to the property

Front 323

conditional-use permit

Back 323

If owners want to propose changes to the existing zoning in order to use their property somewhat differently, they can apply for this - a variance to allow a use that does not meet current zoning requirements

Front 324

variance

Back 324

exception in zoning regulation - to qualify, owner must demonstrate unique circumstances, and prove why they are harmed and burdened by the regulation

Front 325

plat

Back 325

detailed map that shows blocks, sections, streets, public easements, and monuments in the prospective subdivision

Front 326

clustering

Back 326

if you slightly reduce the lot size and cluster the lots in a different pattern, you can create a lot more open space in the subdivision

Front 327

Restrictive covenants

Back 327

are limitations to the use of property imposed by a past owner or the current owner and are binding on future grantees

Front 328

covenants, conditions, and restrictions (CC&Rs)

Back 328

private rules set up by the developer that set standards for all the parcels within the defined subdivision

Front 329

Interstate Land Sales Full Disclosure Act

Back 329

required land developers to register subdivisions of 100 or more non-exempt lots with HUD and to provide each purchaser with a disclosure document called a property report;

gives purchaser right to revoke contract until 12AM on the 7th day after signing. If developer does not provide property report before signing, they can bring action to void the contract w/in 2 years after signing

Front 330

Illinois Land Sales Registration Act of 1999.

Back 330

regulates the offering, sale, lease, or assignment of any improved or unimproved land divided into 25 or more lots and offered as a part of a common promotional plan

Front 331

Title VIII of the Civil Rights Act of 1968

Back 331

prohibits discrimination in housing based on race, color, religion, and national origin

Front 332

Fair Housing Act

Back 332

prohibits discrimination on the basis of race, color, religion, sex, disability, familial status, or national origin

Front 333

Department of Housing and Urban Development (HUD)

Back 333

administers the Fair Housing Act, distributes equal housing opportunity poster

Front 334

Exemptions to the Fair Housing Act

Back 334

- owner occupied with 4 or less units

- did not use licensee

- housing operated by private clubs that limit to members

- discriminatory ads are not used

- SFH owned by a person who does not sell more than 1 every 2 years and does not own more than 3 such homes at a time

Front 335

Americans with Disabilities Act

Back 335

employers need to make reasonable accommodations;

Front 336

Home Mortgage Disclosure Act

Back 336

requires that all institutional mortgage lenders with assets in excess of $36 million and one or more offices in a given geographic area make annual reports. The reports must detail all mortgage loans the institution has made or purchased, broken down by census tract. This law enables the government to detect patterns of lending behavior that might constitute redlining.

Front 337

Asbestos

Back 337

fire-resistant mineral that was once used extensively as insulation and to strengthen other materials; used to cover pipes, ducts, and heating and hot water units, floor tile, exterior siding, roofing products, linoleum flooring materials, joint compounds, wallboard material, backing, and mastics

Front 338

Radon

Back 338

naturally occurring, colorless, odorless, tasteless, radioactive gas produced by the decay of other radioactive substances; measured in pico curies; action level is 4 pCi/L

Front 339

Formaldehyde

Back 339

colorless chemical with a strong, pronounced odor, is used widely in the manufacture of building materials and many household products because of its preservative characteristics; comes from the off-gassing of pressed-wood

Front 340

Urea-formaldehyde foam insulation (UFFI)

Back 340

if improperly mixed, it'll result in strong emissions shortly after

Front 341

Carbon monoxide (CO

Back 341

colorless, odorless gas that occurs due to incomplete combustion as a by-product of burning such fuels as wood, oil, and natural gas. Furnaces, water heaters, space heaters, fireplaces, and wood stoves all produce CO as a natural result of combustion

Front 342

Polychlorinated biphenyls (PCBs)

Back 342

flame resistant and were often used in electrical equipment; banned in 1979

Front 343

Chlorofluorocarbons (CFCs)

Back 343

nontoxic, nonflammable chemicals containing atoms of carbon, chlorine, and fluorine; safe until their vapors rise to the upper atmosphere - they deplete the ozone layer -- recommend upgrading to energy-efficient appliances

Front 344

Electromagnetic fields (EMFs)

Back 344

all electrical appliances produce them - the concern is when high-voltage power lines produce them