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96 Cards in this Set

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Dislosure standard - commercial v. residential?
commercial - sophisticatd buyer; caveat emptor

residential - seller disclosure of material deficiencies
Sophisticated buyer standard - seller requirements
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
Elements of fraud under sophisticated buyer standard
1.) intential misrepresentation
2.) buyer harm by misrep
3.) defect undiscovered after performing due diligence
4.) proof by clear and convincing evidence
Residential disclosure standard - seller requirements
1.) at K or before
2.) must disclose material deficiencies
3.) that it has actual knowledge of
What constitutes a violation of the residential disclosure standard?
- silent seller
- fraud
- misrepresentation
What are the elements for a claim of fraudulent concealment for violation of the residential disclosure standard?
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
What are the two exceptions to the residential disclosure requirement?
matters of public record and matters which are patentaly obvious
What does a seller typically want from a RE K?
- 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
What does a buyer typically want from a RE K?
- free and clear title
- lock up property BUT ability to back out of K if certain conditions are not met
Want conditions might a seller want in a RE K?
- right to buy
- right to inspection
- right to secure financing
- right to sell home
- survival clause!
What might both buyer and seller want from K?
- attorney approval clause
- risk of loss addressed
- closing date specified
What might commercial buyer want?
- 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.
Elements of a RE K
1.) offer
2.) acceptance
3.) consideration
4.) mental capacity (understand buying or selling prop in conformance w/specific conditions)
- lawful purpose
- in writing
Elements of the writting requirement
1.) subscribed
2.) party to be charged
3.) contains all essential terms (i.e. - price!)
Risk of loss Rules and Preferred Approach
Maj - buyer (equitable title -> can force seller to perform)
Min - seller
Best - who has possession
Types of damages
1.) monetary damages
2.) specific performance
3.) rescission
4.) liquidated damages
What is Lis Pendens
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)
Assignability v. assumability
assignability - seller maintains liability
assumability - relieves seller of liability
Two documents composing a mortgage
- promissory note (debtor promises to repay)
- mortgage (debtor conveys secruity interest in land)
2 Mortgage Theories
- 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!
Type of Loan Products Available
- Standard Fixed Rate (interest only amortization and neg. amortization included)
- ARMS
- Graduated pymnt
- Reverse equity
- Home equity
Loan Considerations
- 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?
What is securitized financing?
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.
3 Phases of Financing New Construction
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
Yield-maintenance formula
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
Steps in judicial foreclosure process
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)
Full recourse mortgages
Usually used w/: most home purchases and new construction before all of property is leased
Deficiency judgment
What lender can use to go after your other assets if sale of home isn't enough to whip out your debt.
Nonrecourse loans
Most commercial mortgages

Exceptions:
- environmental
- fraud
- waste

(Carve outs - non recourse unless you commit fraud or something like it)
Commercial loan clauses (presmied upon sophisticated parties)
- Waiver of redemption
- Waiver of jury trial
Deed in lieu
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.
Types of title issues
- Easements
- License
- Encroachment
- LIens
- Covenants and Restrictions
Types of Easements
- easement appurtent (serves the property)
- easement in gross (serves the person and/or the purpose i.e. - utility)
Ways to Create an Easement
- implied easement (easements by necessity)
- expressly granted easement
- easement by prescription
Easement by necessity requirements
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
ways to expressly grant an easement
- reservation (reserve it to yourslef in a deed conveying the property)
- conveyance (convey by legal descripotion coupled w/a deed or on its own)
elements of easement by prescription
open
notorious
hostile
adverse
continuous (IL 20 years)
Compare easement by presciption to adverse possession
- 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
What is tacking?
When evaluating continuos requirement of easement by prescription or adverse possession, new owner can "tack" their years of use onto the previous owners.
requirements of all easements
- must be conveyed for a specific purpose (i.e. - ingress and egress)
- must be reasonable in terms of reasonable access to property
Compare license to easement
- License is revocable; easement is not
Types of liens
- home equity liens
- judgment liens
- confession of judgment
- tax lien
- assessment lien
- mechanic's lien
What is a confession of judgment?
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)
Covenant and restriction requirement
can't discriminate based on color, religion, race, etc. (but efffectively do do so economically b/c can put buliding requirements, etc)
Requirements for obtaining injunction or TRO for violatino of covenant or restriction
- 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
Ways to deal w/issue re: relation back theory and mechanics liens
- Rescind K -> sign financing agreement -> have lender record mortgage -> resign K
- No lien K (but these bad b/c no consideration)
- distribution of $$ directly to subs and partial lien waivers in return (have title insurance company do it -> buy coverage to insure against their mistake)
Issue w/obligatory v. discretionary advance
Open ended mortgage: you draw on mortgage when need for $$ 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.
Turnkey project
Builder builds and deeds over @ end. At time of deeding want to get affidavits from general and sub. Also get insurance coverage.
Elements of a deed
- 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
Types of deeds
- general warranty deed
- special warranty deed
- quitclaim deed
What is general warranty deed?
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
What warranties apply in IL just by using word "warranty"?
- 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)
Exception usually contained in general warranty deeds
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)
Special warranty deed
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
Why buy special warranty deed?
b/c aren't really relying on seller's promises but rather the title insurance
Quitclaim deed
take title as is - no reps of ownership
increasingly used in commercial setting (if insist on general -> companies usually just do shell trick)
warranty v. quitclaim
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)
Types of involuntary transfers
- prescriptive easement
- adverse possession
- escheat
- eminent domain (Kelo - economic development = legit public purpose)
Ways to describe property
- townships and sections
- meets (distances) and bounds (boundaries)
- plat of subdivision
Issues w/meets and bounds
- make sure you don't use natural boundaries that will erase over time
- descriptions/measurements aren't always exact -> use "approximately"
Plat of subdivision
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
Types of residential ownership
- tenancy in common
- joint tenancy
- tenancy by entirety
Negating the presumption
Tenancy in common is presumption. Should always negate and then tell which other type you are taking under
tenancy in common
2 or more parties have a seperate, but undivided interest in property. presumed equal interest unless otherwise state.

no survivorship rights
suit for partition
parties can bring suit for partition and ask the court to divide the property based on each's share
joint tenancy
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
requirements of joint tenancy
4 unities
- time
- title
- interest
- possession

must occur simultenaously. if one severed -> jt is severed (straw man)
tenancy by entirety
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
adv of tenancy be entirety
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
land trust defined
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.
land trust - adv/dis
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
general P
similar to land trust except the partners form a gp which hold title
general P - adv/dis adv
adv:
- tax flow through
- depreciation
- interest deductions

disadv:
- all P's joint and severally liable
joint venture
gp only for specific purpose and for a limited time

same adv/disadv as gp

not recognized in all states
LP
must have at least one gp (w/unlimited liability). rest limited in liability to money put into deal
LP - adv/disadv
adv:
- limited liability
- flowthrough tax

disadv:
- losses flowing through from passive partners are not deductible
corps
separate taxable entity

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

disadv: tax structure
check the box regulation
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
Sub S corp
elects to be taxed like a partnerhsip w/in 60-90 dyas of incorporation
sub s copr adv/disadv
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
LLC
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
REIT requirements
- 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!
REIT adv/disadv
dis:
- huge expense
- can't keep $/retained earnings - must invest in more RE

Adv:
- limited liability
- generally held like a mutual fund -> very liquid
early possession issues
- 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
late possession
- 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
types of recording statutes
- notice
- race notice
- race
race
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
race notice
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
notice
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
IL recording state
race notice (simmons) BUT not explicit trump language of the notice requirement
what must you be to be protected by the recording statutes?
a bona fide purchaser for value
types of notice
- actual
- constructive
- implied
- imputed
ways around inherent risk in recording states
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
order of improtance of factors in determining investment value today
1.) cash flow
2.) appreciation
3.) tax advs
different levels of zoning restriction
- state
- county
- city (1 1/2 mile rule)

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