Real Estate Finance

Front 1

Realtor

Back 1

Must be licensed member of National Association of Realtors

Front 2

Broker

Back 2

Site licensed individual who advises in the sale and purchase of real estate (most generic)

Front 3

ERS (exclusive right to sell)

Back 3

property may only be sold by that broker/agent; this is what the broker wants

Front 4

EAL (exclusive agency listing)

Back 4

Seller or that broker may sell the property

Front 5

OL (open listing)

Back 5

Seller may sign with as many brokers as he wants, whoever sells the property gets the commission; seller wants this but no broker would sign it

Front 6

FSBO (for sale by owner)

Back 6

Facially no broker agreement

Front 7

Comparables

Back 7

Recent sales and listings in the area; compare age, square footage, improvements, etc.

Front 8

MLS

Back 8

Multiple listing services; broker may post listing here to solicit buyers from subagents

Front 9

4 times when commission is due

Back 9

1.Broker produces ready, willing, and able buyer

2. Seller withdraws from sale

3. Seller sells directly or through another agent

4. Seller sells within X time to party solicited by broker

Front 10

Liquidated Damages clause

Back 10

Doc specifies amount to be paid in the event of a K breach (if you breach, you pay $X)

Front 11

Test for enforceable LD clause

Back 11

1. Parties must intend for the amount to be damages, not punitive

2. Amount must be reasonable pre-estimate of what actuals might be

3. Measure of reasonable is as of the date of signing the agreement (not breach)

Front 12

Procuring cause doctrine

Back 12

If the property is sold by the seller beyond the base term of the listing agreement to someone who became aware of the property due to the efforts of the broker, commission is due

Front 13

Ellsworth Dobbs rule

Back 13

Seller is not liable for commission if seller is not in default and buyer is the one who breaches

Front 14

Traditional commission rule (Drake v. Hosley)

Back 14

Broker entitled to commission when a broker produces a buyer ready, willing, and able to purchase the property on seller's terms, even if the sale is not completed

Front 15

Earnest Money

Back 15

Money paid to confirm a contract, goes toward down payment; NOT consideration, just "is this buyer serious?"

Front 16

Statute of Frauds

Back 16

Agreement for transfer of real property in the excess of one year must be in writing and signed by the party sought to be bound

Front 17

Elements of SOF

Back 17

1. Identify the parties

2. Identify the property

3. Identify the price

Front 18

Johnston v. Curtis

Back 18

Oral modifications of material terms of K are subject to SOF

Front 19

Covenant

Back 19

Promise, gives rise to breach of K

Front 20

Condition

Back 20

Clause or element, terms of which must be met, otherwise the obligation to perform is released

Front 21

Credit quartet

Back 21

1. Principal

2. Interest

3. Term

4. Amortization

Front 22

Discount point

Back 22

Reference to dollar amount you can pay lender to buy down a lower interest rate

Front 23

Origination fee

Back 23

Charge by lender to give you a loan, 0.5-3% of loan amount at closing

Front 24

Remedy at law

Back 24

Non-breaching party may sue for actual damages

Front 25

How to measure damages (sales k)

Back 25

-If seller defaults: FMV - K price

-If buyer defaults: K-price - FMV

Front 26

English damages rule

Back 26

Limits buyer's recovery to return deposit unless seller willfully refuses to convey or is guilty of fraud/deceit

Front 27

American damages rule

Back 27

Majority rule; benefit of the bargain, compensatory damages and consequential damages are permitted

Front 28

Requirements for specific performance

Back 28

1. Remedy in equity available whenever remedies at law are not adequate

2. Must be capable of enforcement by judicial decree (i.e. not requiring 3rd party to give up the property)

3. Mutuality of remedy (equally available to buyer and seller)

Front 29

English rule for insurance proceeds

Back 29

Insurance policy is personalty; buyer bears the risk of loss

Front 30

American rule for insurance proceeds

Back 30

If an insurance policy covers the loss, it will be given to buyer or put toward repairs; buyer bears the risk of loss

Front 31

Massachusetts rule for insurance proceeds

Back 31

If there is an insurance payment, it belongs to the seller; seller bears the risk of loss

Front 32

Merger clause (K formation)

Back 32

Where there is a closing, the terms and conditions found in the final document control

Front 33

Survival clause (K formation)

Back 33

Must include in final documents that certain clauses survive the final closing (to avoid merger clause)

Front 34

Common law elements of the deed

Back 34

1. Premises

2. Habendum and addendum

3. Covenants

4. Testimonial

5. Acknowledgement

Front 35

Contemporary elements of the deed

Back 35

1. Date

2. Grantor

3. Grantee

4. Consideration

5. Estate

6. Description of property

7. Warranty clause

8. Exceptions to warranty

9. Execution

10. Witnesses

Front 36

General warranty deed

Back 36

Contains all 6 covenants

Front 37

Limited warranty deed

Back 37

Could be the absence of 1+ covenants, OR any title exceptions, OR warranties only as claims under the grantor

Front 38

Quitclaim deed

Back 38

Absence of all deed covenants

Front 39

Present deed covenants

Back 39

1. Of seisin (possession)

2. Of authority to convey

3. Against encumbrances

Front 40

Future deed covenants

Back 40

1. Of general warranty

2. Of quiet enjoyment

3. Of further assurances

Front 41

Notice statute

Back 41

No premium on race to courthouse; protect BFP against prior purchases

Front 42

Race-Notice statute

Back 42

Premium on the race to the courthouse; protects the BFP against prior purchaser if he records first

Front 43

Race status

Back 43

Premium on the race to the courthouse, protects purchaser against prior purchaser whether he has actual notice or not, if he records first

Front 44

Tract index system

Back 44

Entire jurisdiction creates an index according to geography; easy for title searcher, tough in dense urban areas

Front 45

Torrens registration system

Back 45

Like cars; court-issued certificate of ownership describing who has it and encumbrances

Front 46

Grantor/grantee index

Back 46

Most commonly used; follow the names, must track property backward through grantors the forward through grantees

Front 47

Constructive notice

Back 47

What records reveal

Front 48

Actual notice

Back 48

Someone (reliable source) tells you something

Front 49

Inquiry notice

Back 49

Would cause a reasonable person to ask questions; i.e. actual possession

Front 50

Shelter principle

Back 50

Once title comes into the hands of a BFP by virtue of protection of the recording acts, who then records, purchasers from that BFP are protected

Front 51

Problem of the Wild Deed

Back 51

Protect the integrity of the grantor-grantee index; do not require to find the previously recorded deed

Front 52

Problem of easements and covenants

Back 52

Jurisdictions split over whether B is under an obligation to find the conveyance; good practice to search all contiguous property

Front 53

After-acquired title

Back 53

Jurisdictions are split, majority hold for the final purchaser

Front 54

Late recorded deed

Back 54

Jurisdictions are split, majority hold for the final BFP

Front 55

Scope of title insurance policy

Back 55

Covers the title, not the quality of premises

Front 56

Standard exceptions to title warranty

Back 56

1. Rights to parties in possession not shown of record

2. Current year property taxes

3. Matters that accurate survey would reveal

4. Covenants, easements, HOA, etc.

Front 57

Mechanic's liens

Back 57

People who do work on a house, owner agrees to pay so mechanic starts, but then owner sells the house without paying; not of record

Front 58

Mortgage

Back 58

A security instrument and promissory note

Front 59

Non-recourse debt

Back 59

No one personally liable on the note; can only enforce the mortgage

Front 60

Security instrument

Back 60

Transfer of real property as security for performance of an obligation

Front 61

Support mortgage

Back 61

A mortgage not for payment; must be capable of liquidation at any point in time

Front 62

Mortgage brokers

Back 62

Salesmen, bring the parties to the table and leave

Front 63

Mortgage banks

Back 63

Can borrow directly from these, all will give mortgages

Front 64

Fannie Mae

Back 64

Federal national mortgage association

Front 65

Ginnie Mae

Back 65

Government national mortgage association

Front 66

Freddie Mac

Back 66

Federal home loan mortgage corporation

Front 67

Secondary mortgage market

Back 67

Purchase and sale of a mortgage that has already been created

Front 68

CMO

Back 68

collateral mortgage obligation

Front 69

MBS

Back 69

mortgage backed security

Front 70

REMIT

Back 70

real estate mortgage investment conduit (popular in 1980s)

Front 71

Pool of derivatives

Back 71

slices of a different pools of mortgages

Front 72

Loan servicing

Back 72

Collection of interest, principal, escrow payments each month; lays on top of the secondary mortgage market

Front 73

MERS

Back 73

Allows for completely electronic mortgage holding and transfer; caused problems in 2009 because banks were foreclosing without holding the PNs

Front 74

Fair Housing Act

Back 74

covers race, color, religion, sex, handicap, familial status, national origin

Front 75

Civil Rights Act

Back 75

Covers race discrimination only

Front 76

Equal Credit Opportunity Act

Back 76

Covers race, color, religion, national origin, sex, *marital status*

Front 77

Home Mortgage Disclosure Act

Back 77

Not much bite, requires disclosures; tracks data to see if lenders are only lending to certain types of people

Front 78

Redlining

Back 78

Yes drawing a red line on maps around neighborhoods they wouldn't give mortgages to

Front 79

Abusive lending practices

Back 79

High interest rates, prepayment premiums, balloon payments, credit life insurance, origination fees, flipping, loans based on equity not income

Front 80

Truth in Lending Act

Back 80

Disclosure act for lender

Front 81

Home Ownership Equity Protection Act

Back 81

Addresses loans based on equity not income; creates category of high-cost loans

Front 82

Georgia Fair Lending Act

Back 82

Was the strongest anti-predatory lending statute; if any abusive lending practices used, loan becomes unenforceable; amendments have removed all enforcement mechanisms

Front 83

Dodd-Frank Act

Back 83

Created the CFPB; premier federal agency dealing with residential financing

Front 84

The Credit Quartet

Back 84

1. Principal

2. Interest

3. Term

4. Amortization

Front 85

How much should housing costs be

Back 85

28-32% of your income

Front 86

PMI/MIP

Back 86

Insurance policy issued to insure ME that if loan goes into default and there's a foreclosure, policy will cover ME

Front 87

Negative amortization

Back 87

Monthly payments not enough to cover accrued interest, so gets added to the principal each month

Front 88

Balloon payment

Back 88

Special payment of principal not contemplated by normal amortization

Front 89

Interest only mortgage

Back 89

Loan in which there is no amortization, not paying any principal each month

Front 90

Basis point

Back 90

1/100 of 1%

Front 91

Adjustable rate mortgages

Back 91

Interest rates change with the benchmark; only get one if ARM is 2 points below fixed rate

Front 92

5/1 mortgage

Back 92

Interest rate is fixed for 5 years, annually adjustable every year after

Front 93

2/28 mortgage

Back 93

Interest rate is fixed for 2 years, then for the next 28 years it's adjustable

Front 94

Option ARM

Back 94

Tell lender what you can pay and he will create a bundle; dangerous because you don't know what you're getting

Front 95

Reverse equity mortgage (HECM)

Back 95

Bank receives a mortgages from you, then gives you money each month; only works when owner owns the house and short on cash

Front 96

Home Equity Line of Credit (HELOC)

Back 96

Adjustable mortgage, allows you to withdraw money (like on a debt card) and increase your mortgage

Front 97

Title theory

Back 97

Creditor owns property with a defeasible fee; gives greater rights post-foreclosure; "security deed"

Front 98

Lien theory

Back 98

Right of creditor to make claim against the property; Lender has no common law right to enter, possession remains with MR; "mortgage" narrowly

Front 99

Strict foreclosure

Back 99

Extends until law date, then the debt is due

Front 100

Equity of redemption

Back 100

Begins at inception of mortgage; MR must pay the entire debt to redeem; ends when foreclosure begins; cannot be clogged

Front 101

Equitable mortgage

Back 101

Finding that the transaction should be treated as a mortgage (which then carries protections, like the EOR); does not apply to ILCs!!!

Front 102

Absolute deed

Back 102

"I'll give you $5k, sign this QD. I won't record it if you pay me by X"; can be construed as an equitable mortgage

Front 103

Factors to determine intent of parties in equitable mortgage

Back 103

1. Relationship between the parties

2. Whether parties had access to legal counsel

3. Sophistication and circumstances of parties

4. Adequacy of consideration (total loaned to net equity)

5. Whether grantor retained possession of the property

Front 104

Factors in finding an equitable mortgage

Back 104

1. Does a debt exist

2. Relationship of parties

3. Whether legal assistance was present

4. Sophistication of parties

5. Adequacy of consideration

6. Possession (if debtor already there, intend to remain, etc.)

Front 105

Installment land contract

Back 105

An agreement between the buyer and seller whereby seller allows buyer to buy his property, move in and make payments towards the purchase price over X number of years; upon completion of payments, seller gives buyer title to property

Front 106

Russell v. Richards

Back 106

Can assign your interest in ILC (state will enforce as written, sophisticated parties)

Front 107

Watkins v. Eads

Back 107

KY rule: Forfeiture clause in an ILC is per se invalid; analogous to strict foreclosure, not OK because it clogs EOR; get mortgage-like remedies on the day you sign the ILC

Front 108

Peterson v. Harwell

Back 108

At some point during the life of ILC, you get mortgage-like remedies; still not a mortgage

Front 109

Second mortgage

Back 109

Transfer of an interest in real property as security for the performance of an obligation which is subordinate to a prior mortgage

Front 110

Characteristics of second mortgages

Back 110

1. Higher interest rates

2. Shorter term

3. Smaller equity cushion

4. Maybe additional closing cost

Front 111

Cross-default clause

Back 111

If MR defaults on senior debt, it is also deemed a default on the junior debt

Front 112

PMM narrowly defined

Back 112

A mortgage taken back by the seller, given by the buyer, as part of the purchase price in transferring the property; seller financing

Front 113

PMM broadly defined

Back 113

Any mortgage given to any MR, the proceeds of which are used to purchase the property; note: does not include refinancing

Front 114

Seller WRAP

Back 114

A subordinate mortgage where seller takes back financing; involves the transfer of property

Front 115

Owner WRAP

Back 115

No transfer of property; but combines M1 and M2 for lower interest rates for O

Front 116

Chilivis v. Tumlin Woods

Back 116

ILC is an encumbrance, triggers DOE clause (but not DOS clause)

Front 117

Title theory and rents

Back 117

Lender has rights immediately upon execution of document, can take back possession

Front 118

Lien theory and rents

Back 118

Lender doesn't have a right except to turn to court in default

Front 119

Subordination clause

Back 119

Agreement to change place in line

Front 120

Non disturbance agreement

Back 120

Agreement by senior party to lessee to not disturb possession rights if lessee will change places in line

Front 121

Attornment

Back 121

Lessee promises to perform all obligations of lease to ME

Front 122

Assignment of rents

Back 122

Document in which MR assigns to ME the right to the rents; should be in closing documents

Front 123

In re Millette

Back 123

Majority rule; recording A/R gives priority as to the date of recordation

Front 124

Starkman; default rule of casualty losses

Back 124

Insurance proceeds go to MR to rebuild not to ME when MR has not yet defaulted; acceptable for some money to restore LTV ratio

Front 125

Casualty losses and eminent domain

Back 125

Full taking = MR gets money to the extent of the debt

Partial taking = restoration to pre-loss LTV ratio

Front 126

Dual nature of mortgage transfers

Back 126

One entity holds the M and PN at the same time; holds the rights to foreclose and enforce payment

Front 127

Subject to

Back 127

Not promising anything; only original MR still liable on PN

Front 128

Assumption

Back 128

Assuming liability for the debt; MR can sue original owner or new owner who assumes the debt

Front 129

Theories of liability for assumption between new owner and MR

Back 129

1. Privity of K

2. ME is a third party beneficiary

3. Suretyship

Front 130

Middleton v. Hancock

Back 130

Assumption must be express; "take over" or continuation of payments is not enough

Front 131

DOS clause

Back 131

Accelerates the debt in the event of a sale

Front 132

DOE clause

Back 132

Accelerates the debt in the event of an encumbrance

Front 133

Fidelity Federal v. De la Cuesta

Back 133

federal regulation preempts state law; DOS clauses are enforceable

Front 134

Garn St. Germain Act

Back 134

-If you die and property goes to your wife --> no DOS trigger

-Subordinate lien doesn't by itself trigger DOS clause

-Carveouts only for residential property <5 dwelling units

Front 135

Article 9 of UCC

Back 135

Deals with secured transactions of personalty and intangibles; can be involved with REF when it comes to things like hotel rooms

Front 136

Article 3 of UCC

Back 136

Negotiable interest law found here

Front 137

Negotiable instrument elements

Back 137

1. Instrument signed by the maker

2. Unconditional promise to pay a sum certain

3. Payable on demand or at a specific date

Front 138

Transfer of negotiable instrument

Back 138

Requires assignment and negotiation

Front 139

Assignment requirements for negotiable instruments

Back 139

1. Physical transfer of the instrument itself

2. Original payee must endorse it in favor of the new one

Front 140

Negotiation requirements for negotiable instruments

Back 140

1. Transfer must be for value

2. Must be in good faith

3. Without notices of defenses or claims of the maker

Front 141

Holder in Due Course

Back 141

Must involve the transfer of a negotiable instrument

Front 142

Fraud in execution

Back 142

Real defense; defeats HDC status; forgery, signed by someone under age to make , extorted thru criminal activity, mental incapacity

Front 143

Fraud in inducement

Back 143

Personal defense; does not defeat HDC status

Front 144

Involuntary prepayment and penalties; 3 approaches

Back 144

-Contract formalism = enforce the penalties

-Federal regulation prohibits prepayment penalties due to DOS/DOE for residential properties

-Courts split regarding penalties and insurance or eminent domain

Front 145

Contributing factors to high foreclosure rates

Back 145

1. Low equity - low down payments (LTV often 95%)

2. Low equity - HELOCs

3. Option ARMs

4. Teaser rates

5. Low income/no income

6. Refinancings in rising markets

7. Minimal appraisal standards

8. Predatory lending

9. Push for first time home buyers

Front 146

Graf

Back 146

Contract formalism; enforce acceleration of debt even if only one day has gone by

Front 147

Marshaling

Back 147

When a senior creditor has access to 2+ pieces of property, and a junior creditor has access to only one piece, upon request of junior creditor the senior creditor may be required to first go after the property that is not encumbered by the junior claim

Front 148

Elements of marshaling

Back 148

1. Must be 2+ parcels/funds which secure the debt

2. Must be 2+ creditors involves

3. One of the creditors has access to only one of the funds

Front 149

Strict foreclosure

Back 149

Debtor must pay by law day, otherwise belongs to lender; does not involve sale at auction; origin from defeasible fee

Front 150

Judicial foreclosure

Back 150

Used by just under half of US jurisdictions; file a complaint then have public auction of property if court finds a default

Front 151

Power of sale foreclosure

Back 151

Used in slight majority of US jurisdictions; no judicial involvement, appoint an agent to sell property on the courthouse steps

Front 152

Short sale

Back 152

P buys at FMV below debt, lender consents and releases the M

Front 153

Questions to ask before a short sale

Back 153

1. Is there subordinate debt?

2. Have you resolved the liability on the PN?

Front 154

SRR

Back 154

By statute, debtor has another right to redeem property; begins at foreclosure, terminates after statutory period; property redeemed for f-sale price

Front 155

Foreclosure by OJL

Back 155

Revive the debt in hands of M1 purchaser. ME-2 conducts sale. Buyer may purchase property encumbered by M1. Sale will only occur if FMV > M1

Front 156

Redemption by OJL

Back 156

ME-2 tenders to M1 purchaser at time of foreclosure; now ME-2 holds M1 and M2; redeeming he debt, not the property

Front 157

Citicorp v. Pessin

Back 157

Neither foreclosure or redemption, but likely available as equitable remedy; court grants strict foreclosure to give ME-2 60 days to pay full amount of M1 debt to get the property

Front 158

Power of sale foreclosure notice

Back 158

Just required to publish in newspaper (1x week for 4 weeks usually); hard to get OJL here

Front 159

You (Ga. S. Ct. case)

Back 159

Don't need standing to get foreclosure; odd holding, opens door for collusive behavior; don't need to show how you got the mortgage, just that you're claiming ownership

Front 160

Baskurt v. Beal

Back 160

Gross inadequacy of f-sale price coupled with procedural defect may be enough to set aside an f-sale; here, lender could have sold off a parcel of land rather than all grouped together to minimize harm to MR

Front 161

In re Edry

Back 161

Failure of auctioneer to properly advertise property + f-sale price inadequacy = invalidate foreclosure

Front 162

Bankruptcy court

Back 162

Judges get more flexibility and discretion; used to be able to get f-sales 2 years prior to bankruptcy petition set aside, but not anymore

Front 163

Mennonite (SCOTUS)

Back 163

Foreclosure of government tax lien is state action; must make reasonable efforts to identify all parties with an interest and give them an opportunity to be heard (due process issues, publication not enough)

Front 164

Funderburke

Back 164

State action if there's a tax lien; notice by publication not enough

Front 165

Fannie Mae/Freddie Mac/Ginnie Mae as state actors

Back 165

So far, lower courts are making a private market participant exception; not state actors

Front 166

Stadium Apartments

Back 166

SRRs not enforceable under federal law; don't subject the government to the laws of individual states

Front 167

Scope of SRR

Back 167

Some limit to MR, some allow any subordinate party who's interest was terminated to redeem

Front 168

Scramble

Back 168

First party to file for SRR wins

Front 169

Double recovery

Back 169

ME buying property at it's own f-sale and then suing for deficiency

Front 170

Rationales of anti-deficiency legislation

Back 170

1. Risk spreading = spreading the risk of economic collapse beyond homeowners to banking industry

2. Double collecting (*this is the real winner*)

Front 171

Types of anti-deficiency legislation

Back 171

1. FMV limits

2. PMM limits

3. One action rules

Front 172

FMV limits (anti-deficiency)

Back 172

Action on note for deficiency shall be limited to Debt - FMV (not debt - f-sale price)

Front 173

PMM limits (anti-deficiency)

Back 173

-Narrow = cannot collect a deficiency, only foreclose, debt is non-recourse

-Broad = deficiency actions banned in all residential PMMs

Front 174

One action limit

Back 174

Lender must bring all lawsuits at once (F/C and PN liability), otherwise you waive it; occurs in judicial foreclosure states

Front 175

Super-priority status

Back 175

A PMM has priority above a pre-existing judgment against the borrower; must all be in the same county

Front 176

Merger doctrine (for interests)

Back 176

When the party holds the fee and a lesser estate, the two estates merge into the fee; will only be applied if it was the clear intent of the parties

Front 177

Deed in lieu

Back 177

Transfer from MR to ME to avoid foreclosure; allows bank to own property free and clear

Front 178

Questions to ask before deed in lieu

Back 178

1. Are there subordinate claims?

2. Has the liability and status of the debt been resolved?

Front 179

After-acquired property clauses

Back 179

Clause in security instrument; automatically attaches when MR acquires new property; creates an indeterminate amount of property that is security for the debt

Front 180

When AAP clauses are typically used

Back 180

1. Railroad property

2. Developer in process of acquiring an entire city block

Front 181

Open-Ended Clause

Back 181

In the security instrument; property is security for an indeterminate amount of debt

Front 182

Forced place insurance

Back 182

If you drop your insurance policy, lender will take a new one out

Front 183

Future advances

Back 183

Things related to the underlying property may be attached to the debt (think: new roof)

Front 184

Dragnet clause

Back 184

Mortgage stands as security for PN and any other loan made in the future for any purpose, and for any debt that you have that the bank acquires

Front 185

Canal National Bank v. Becker

Back 185

OE clause limited to same type of debt of original transaction, or requires express reference to mortgage as security for the original debt

Front 186

Ways to limit OE clauses

Back 186

1. Requirement of state maximum

2. Same kind of debt or property

3. Ex contractu or ex delicate (debt must be result of K)

4. Same parties

5. Express reference to mortgage

6. Obligatory/optional distinction (obligation = secured, optional = unsecured)

7. Cut-off notice provisions

Front 187

Reservation of rights

Back 187

In the security instrument, what rights are reserved in favor of the ME to modify the debt with a subsequent owner (and what are the reasonable expectations of an ME-2)

Front 188

Typical modifications reserved

Back 188

Changes in the credit quartet (indebtedness/principal, interest, term, amortization)

Front 189

Equitable conversion

Back 189

If specific performance is available, then the court will find that property belongs to the buyer once the sales k is executed (and sometimes recorded); means liens against seller cannot attach after sales k