Real Estate

Front 1

Dislosure standard - commercial v. residential?

Back 1

commercial - sophisticatd buyer; caveat emptor

residential - seller disclosure of material deficiencies

Front 2

Sophisticated buyer standard - seller requirements

Back 2

1.) defect open to observation OR discoverable on reasonable inspection
2.) buyer must have an unimpeded opportunity to examine property
3.) seller may not engage in fraud

Front 3

Elements of fraud under sophisticated buyer standard

Back 3

1.) intential misrepresentation
2.) buyer harm by misrep
3.) defect undiscovered after performing due diligence
4.) proof by clear and convincing evidence

Front 4

Residential disclosure standard - seller requirements

Back 4

1.) at K or before
2.) must disclose material deficiencies
3.) that it has actual knowledge of

Front 5

What constitutes a violation of the residential disclosure standard?

Back 5

- silent seller
- fraud
- misrepresentation

Front 6

What are the elements for a claim of fraudulent concealment for violation of the residential disclosure standard?

Back 6

1.) non-disclosure of a material fact
2.) that is known to seller
3.) with the intent to induce buyer to buy property
4.) and knowledge that if buyer was aware that he would have viewed the sale differently
5.) buyer relied on inducement which caused him to buy the property
6.) buyer was damaged as a result
7.) proof by clear and convincing evidence

Front 7

What are the two exceptions to the residential disclosure requirement?

Back 7

matters of public record and matters which are patentaly obvious

Front 8

What does a seller typically want from a RE K?

Back 8

- MONEY
- firm, locked-up deal AND if not wants house on market
- make no assurances
- if developer -> may want 1.) construction must begin in certain amount of time and 2.) regulating aesthetics

Front 9

What does a buyer typically want from a RE K?

Back 9

- free and clear title
- lock up property BUT ability to back out of K if certain conditions are not met

Front 10

Want conditions might a seller want in a RE K?

Back 10

- right to buy
- right to inspection
- right to secure financing
- right to sell home
- survival clause!

Front 11

What might both buyer and seller want from K?

Back 11

- attorney approval clause
- risk of loss addressed
- closing date specified

Front 12

What might commercial buyer want?

Back 12

- seller is true owner and right to convey
- seller not aware of any enviro issues, etc.
- adequate due diligence period
- title not conveyed by shell co.

Front 13

Elements of a RE K

Back 13

1.) offer
2.) acceptance
3.) consideration
4.) mental capacity (understand buying or selling prop in conformance w/specific conditions)
- lawful purpose
- in writing

Front 14

Elements of the writting requirement

Back 14

1.) subscribed
2.) party to be charged
3.) contains all essential terms (i.e. - price!)

Front 15

Risk of loss Rules and Preferred Approach

Back 15

Maj - buyer (equitable title -> can force seller to perform)
Min - seller
Best - who has possession

Front 16

Types of damages

Back 16

1.) monetary damages
2.) specific performance
3.) rescission
4.) liquidated damages

Front 17

What is Lis Pendens

Back 17

A formal notice that the P/buyer's attorney files in the county recorder's office that says the real estate is the subject of a lawsuit for SP. (only availabe for SP lawsuit)

Front 18

Assignability v. assumability

Back 18

assignability - seller maintains liability
assumability - relieves seller of liability

Front 19

Two documents composing a mortgage

Back 19

- promissory note (debtor promises to repay)
- mortgage (debtor conveys secruity interest in land)

Front 20

2 Mortgage Theories

Back 20

- title theory: mortgage is conveyance of legal title
- lien theory (maj. and IL) - only a mortgage; no property interest transferred; anytime you place property as collateral for loan, does not matter what deed you use - its considered a mortgage!

Front 21

Type of Loan Products Available

Back 21

- Standard Fixed Rate (interest only amortization and neg. amortization included)
- ARMS
- Graduated pymnt
- Reverse equity
- Home equity

Front 22

Loan Considerations

Back 22

- How mobile are you?/How long do you plan to stay?
- What are interest rates?
- How are extra paymnts dealt with?
- What is the amortization period?

Front 23

What is securitized financing?

Back 23

A way you may be able to get something resembling a fixed rate loan for a commercial RE project. Banks bring in investors to invest in portfolio which is being marketed to borrowers. BUT lots of restrictions on how you can use the property. Also called participation loan.

Front 24

3 Phases of Financing New Construction

Back 24

1.) construction loan (loan to acquire the land acquisition and construction of a building)
2.) GAP, bridge, or swing loan (completion of building to before it is leased)
3.) Permanent loan

Front 25

Yield-maintenance formula

Back 25

Lender calculates the $$ they would have made over the course of the years so that if you pre-pay it, the formula will calculate the interest that has yet to be paid and that will be the penalty that must be paid to get out of the loan

Front 26

Steps in judicial foreclosure process

Back 26

1.) default (borrower defaults and lender accelerates)
2.) equity of redemption (anytime before foreclosure can redeem by brining current
3.) foreclsoure (strict - title; judicial - lien)
4.) If judicial foreclosure -> statutory redemption (period designated by statute after foreclosure during which the debtor can buy back property @ judicial sale price)

Front 27

Full recourse mortgages

Back 27

Usually used w/: most home purchases and new construction before all of property is leased

Front 28

Deficiency judgment

Back 28

What lender can use to go after your other assets if sale of home isn't enough to whip out your debt.

Front 29

Nonrecourse loans

Back 29

Most commercial mortgages

Exceptions:
- environmental
- fraud
- waste

(Carve outs - non recourse unless you commit fraud or something like it)

Front 30

Commercial loan clauses (presmied upon sophisticated parties)

Back 30

- Waiver of redemption
- Waiver of jury trial

Front 31

Deed in lieu

Back 31

Debtor in default just drops keys off and says take it BUT don't take it b/c take all of the liens that have attached to the property.

Front 32

Types of title issues

Back 32

- Easements
- License
- Encroachment
- LIens
- Covenants and Restrictions

Front 33

Types of Easements

Back 33

- easement appurtent (serves the property)
- easement in gross (serves the person and/or the purpose i.e. - utility)

Front 34

Ways to Create an Easement

Back 34

- implied easement (easements by necessity)
- expressly granted easement
- easement by prescription

Front 35

Easement by necessity requirements

Back 35

1.) easement needed to have means of ingress or egress to property
2.) most efficient easement route
3.) party seeking easement must pay for right thru condemnation process
4.) any road constructed by the easement holder is held to be a public road

Front 36

ways to expressly grant an easement

Back 36

- reservation (reserve it to yourslef in a deed conveying the property)
- conveyance (convey by legal descripotion coupled w/a deed or on its own)

Front 37

elements of easement by prescription

Back 37

open
notorious
hostile
adverse
continuous (IL 20 years)

Front 38

Compare easement by presciption to adverse possession

Back 38

- adverse possession get property right; easement just get use
- adverse possession also requires that the use be exclusive; more than one person could use an easement

Front 39

What is tacking?

Back 39

When evaluating continuos requirement of easement by prescription or adverse possession, new owner can "tack" their years of use onto the previous owners.

Front 40

requirements of all easements

Back 40

- must be conveyed for a specific purpose (i.e. - ingress and egress)
- must be reasonable in terms of reasonable access to property

Front 41

Compare license to easement

Back 41

- License is revocable; easement is not

Front 42

Types of liens

Back 42

- home equity liens
- judgment liens
- confession of judgment
- tax lien
- assessment lien
- mechanic's lien

Front 43

What is a confession of judgment?

Back 43

clause in a note that allows bank to go in and get a judgment entered against you if you default. In IL, these are not valid if loan was for personal purpose - must be for 100% business purpose. If judgment entered against you -> have 30 days to contest. (can be filed w/o hearing)

Front 44

Covenant and restriction requirement

Back 44

can't discriminate based on color, religion, race, etc. (but efffectively do do so economically b/c can put buliding requirements, etc)

Front 45

Requirements for obtaining injunction or TRO for violatino of covenant or restriction

Back 45

- can't let a covenant breach go and then say it is restricted after the fact
- if you let one person violate -> must let everyone

Front 46

Ways to deal w/issue re: relation back theory and mechanics liens

Back 46

- Rescind K -> sign financing agreement -> have lender record mortgage -> resign K
- No lien K (but these bad b/c no consideration)
- distribution of $$ directly to subs and partial lien waivers in return (have title insurance company do it -> buy coverage to insure against their mistake)

Front 47

Issue w/obligatory v. discretionary advance

Back 47

Open ended mortgage: you draw on mortgage when need for $$ arises (interest advantage) When does lien attach?
- If obligatory -> at time of signing.
If discretionary -> when $$ is dispersed -> before dispursing each time make sure no intervening liens have attached to property.

Front 48

Turnkey project

Back 48

Builder builds and deeds over @ end. At time of deeding want to get affidavits from general and sub. Also get insurance coverage.

Front 49

Elements of a deed

Back 49

- names of grantors
- precise legal description
- "good and valuable consideration"
- magical words of conveyance (IL - "convey")
- comply w/statutes that various states have enacted
- excted by someone who has the necessary legal capacity, age and sound mind
- signed by all owners and notalized in some states

Front 50

Types of deeds

Back 50

- general warranty deed
- special warranty deed
- quitclaim deed

Front 51

What is general warranty deed?

Back 51

warranties provided for all encumbrances that have ever occured against the property and apply to all title that the seller now owns or hereinafter seller acquired

Front 52

What warranties apply in IL just by using word "warranty"?

Back 52

- warranty of seisin (I own it)
- right to convey title
- covenant against encumbrances (warranty that the deed is valid and clear against any encumbrances)
- covenant of warranty (indemnification for any violation or breaches of warrany)

Front 53

Exception usually contained in general warranty deeds

Back 53

any easement or prescription that is recorded or apparant (if commercial -> attach Schedule B - don't rely on attorney knowing to look - in this case, however, seller still might be liable if title insurance forgets one but succesfully got out of paying claim)

Front 54

Special warranty deed

Back 54

warranty only for the period of time in which seller had ownership -> only promising that no title defects have arisin or will arise due to the acts or ommission of the grantor duing the time in which they owned property

Front 55

Why buy special warranty deed?

Back 55

b/c aren't really relying on seller's promises but rather the title insurance

Front 56

Quitclaim deed

Back 56

take title as is - no reps of ownership
increasingly used in commercial setting (if insist on general -> companies usually just do shell trick)

Front 57

warranty v. quitclaim

Back 57

issue if you don't get deed to land until day after you deed it to someone else
- w/warranty you are o.k. BUT
- w/quitclaim saying only conveying what you have at time of delivery of deed -> don't have anything -> quitclaim is worth nothing ("after acquired" clause)

Front 58

Types of involuntary transfers

Back 58

- prescriptive easement
- adverse possession
- escheat
- eminent domain (Kelo - economic development = legit public purpose)

Front 59

Ways to describe property

Back 59

- townships and sections
- meets (distances) and bounds (boundaries)
- plat of subdivision

Front 60

Issues w/meets and bounds

Back 60

- make sure you don't use natural boundaries that will erase over time
- descriptions/measurements aren't always exact -> use "approximately"

Front 61

Plat of subdivision

Back 61

map of subdivision is divided into lots and each lot given a number. then recorded in country recorder's office so can sell by reference to lot number. should locate physical description and make sure fence boundaries, etc. line up

Front 62

Types of residential ownership

Back 62

- tenancy in common
- joint tenancy
- tenancy by entirety

Front 63

Negating the presumption

Back 63

Tenancy in common is presumption. Should always negate and then tell which other type you are taking under

Front 64

tenancy in common

Back 64

2 or more parties have a seperate, but undivided interest in property. presumed equal interest unless otherwise state.

no survivorship rights

Front 65

suit for partition

Back 65

parties can bring suit for partition and ask the court to divide the property based on each's share

Front 66

joint tenancy

Back 66

2 or more parties have a seperate, but undivided interest in property BUT on death of one, his interest automatically passes to other outside of probate

Front 67

requirements of joint tenancy

Back 67

4 unities
- time
- title
- interest
- possession

must occur simultenaously. if one severed -> jt is severed (straw man)

Front 68

tenancy by entirety

Back 68

each party has undivided interest in whole

- only available for H&W
- only for primary residence
- same consequences as joint tenancy w/o 4 unities

Front 69

adv of tenancy be entirety

Back 69

protects against judgmnts liens against one of the two parties

BUT parties get divorced or one w/o judgment lien dies first -> judgment lien will attach so long as judgment line still valid

Front 70

land trust defined

Back 70

tenants who would otherwise be tenants in common form a type of partnership & select a trustee to own the bare legal title. trustee only acts pursuant to the power of directed vested in the benefitical owner.

Front 71

land trust - adv/dis

Back 71

adv:
- flow through taxation/beneficial ownership
- interests are easily conveyable
- simple and easy to create
- liability - judgmnt liens canNOT be held against it BUT mechanic's liens can

dis:
- canNOT be used anymore to secret the ownership b/c must filed a memo int he record's office and accompany w/revene stampe w/sale price

Front 72

general P

Back 72

similar to land trust except the partners form a gp which hold title

Front 73

general P - adv/dis adv

Back 73

adv:
- tax flow through
- depreciation
- interest deductions

disadv:
- all P's joint and severally liable

Front 74

joint venture

Back 74

gp only for specific purpose and for a limited time

same adv/disadv as gp

not recognized in all states

Front 75

LP

Back 75

must have at least one gp (w/unlimited liability). rest limited in liability to money put into deal

Front 76

LP - adv/disadv

Back 76

adv:
- limited liability
- flowthrough tax

disadv:
- losses flowing through from passive partners are not deductible

Front 77

corps

Back 77

separate taxable entity

4 imp characteristics
- limited liablity
- free transferability of interest
- centralized management
- continuity of life

disadv: tax structure

Front 78

check the box regulation

Back 78

generally prefer flowthrough income to avoid double taxation -> historically would chose a P for purposes of holding RE BUT today have check the box - entities can check the box indicating how they want to be taxed

Front 79

Sub S corp

Back 79

elects to be taxed like a partnerhsip w/in 60-90 dyas of incorporation

Front 80

sub s copr adv/disadv

Back 80

adv:
- limited liability
- flow through
- shareholders pay themseleves minimum wage

BUT - you must treat sh's all the same and can't have more than 75 of them

Front 81

LLC

Back 81

PERFECT FOR RE

every member has limtied liability

dis:
- can be costly to form BUT

adv:
- flowthrough
- limited liability
- don't have to treat all members the same AND can have more than 75
- all types of other entites can be members of LLC
- all members can share in management duties
- IL: can adopt the partnership or corporate form of management - doesn't matter

Front 82

REIT requirements

Back 82

- election
- managed by 1 or more trustees or directors
- beneficial ownership evidenced by trasnferable shares
- beneficial ownership in at least 100 people
- 80-90% of activity in RE
- must buy and sell RE and make loans on RE
- do not usually borrow > 30% of land value

historically used for lending purposes but today for owernship!

Front 83

REIT adv/disadv

Back 83

dis:
- huge expense
- can't keep $/retained earnings - must invest in more RE

Adv:
- limited liability
- generally held like a mutual fund -> very liquid

Front 84

early possession issues

Back 84

- buyer gets to get a good look @ the property -> do inspection before move in
- liability and possibility of loan not going through and property off of the market and buyer living at property -> consider: pier dim rent or early move in agreement

Front 85

late possession

Back 85

- seller trashes property after closing -> final inspection after seller moves out and hold earnest money as security deposit. charge per diem rent to cover insurance, daily loan charge

Front 86

types of recording statutes

Back 86

- notice
- race notice
- race

Front 87

race

Back 87

whoever records first wins -> notice does not matter

reasoning: recording process should control

BUT unfair if subsequen purchaser has notice of a prior purchaser and buys anyway b/c not recorded and gets priority b/c he races to record first

Front 88

race notice

Back 88

to get priority, a subsequent purchaser must take title w/o notice of the prior conveyance and must record 1st

If takes title BUT fails to record first -> subsequent purchaser looses out -> unfair to subsequent purchaser

Front 89

notice

Back 89

rule: if a subsequent purchaser has no notice of a prior conveyance at the time he takes title -> he prevails

reasoning: the first purchasers failure to disclose caused the subsequent purchaser's problem -> between the two the sub should preval

Front 90

IL recording state

Back 90

race notice (simmons) BUT not explicit trump language of the notice requirement

Front 91

what must you be to be protected by the recording statutes?

Back 91

a bona fide purchaser for value

Front 92

types of notice

Back 92

- actual
- constructive
- implied
- imputed

Front 93

ways around inherent risk in recording states

Back 93

dry close: title company closes and everything put in escrow and THEN go search the records and only whey they get clear indication that ther is nothing in the record they dispurse

gap coverage: insure gap between commitment and recordiation BUT usually does not apply if insured had notice

Front 94

order of improtance of factors in determining investment value today

Back 94

1.) cash flow
2.) appreciation
3.) tax advs

Front 95

different levels of zoning restriction

Back 95

- state
- county
- city (1 1/2 mile rule)

If two conflict -> the city wins. Village of Chatham v. Sangamon County.

Front 96

takings cases

Back 96

lucas (beachfront property): gov. has to pay if they deprive landowner of ALL economic benefit of the land

dolan (hardware store and bike path for increased traffic): rough proportinoality test - taking must be roughly proportionate to teh impact of a development

amoco oil v. city of schamburg - uphold dolan and also does a prelim nexus test (is there any connnection at all b/w impact and the taking)