Texas Real Estate Exam (National Portion)

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Real Property

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consists of land, improvements attached to the land, benefits, rights, and ownership interests that go with the land.

Mineral, air and water rights are all considered part of real property.

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Appurtenance

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is often used to describe rights, privileges or improvements that belong to and pass with the land.

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Improvements

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are man’s additions to the land such as buildings and landscaping.

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Waste (the opposite of improvement)

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is the legal term for property deterioration.

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Land

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begins at the center of the earth and extends above the earth. Therefore, we have subsurface, surface and air rights.

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Mineral rights

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consist of rights to subsurface land and profits. These may or may not be included in the sale of real property

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Air Rights

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consist of the right to use open space above your land. Air rights can be sold or leased. They can also be transferred by easement as in elevated highways. Air rights can be taxed separately from the land.

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Water rights.

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Water can be used for domestic reasons. The flow cannot be interrupted and the water cannot be contaminated. The state has the right to refuse to grant water rights. One reason for this is a scarcity or shortage of water. The terms riparian, littoral and appropriative all refer to water rights.

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Riparian Rights

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The right to use water from a river or stream that borders your property would be ________________.

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Littoral rights

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The right to use water from a lake or ocean would be _____________________.

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Non-navigable waterfront property

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landowners may own to the middle of a body of water.

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For navigable waterfront property

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landowners own to the vegetation line. Building piers will not extend your property line.

The state owns all navigable water.

Generally, all water in rivers, creeks or streams belongs to the state.

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Prior Appropriation

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is a theory of water law based on the idea that “first in time is first in right.”

The first landowner to claim water rights has the exclusive right to take all the water for specific beneficial uses. Subsequent owners of nearby properties cannot claim water rights.

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Land has three physical characteristics:

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1. Nonhomogeneity - no two pieces are exactly alike. A more current term is uniqueness.Each piece of land is unique.

2. Immobility - land cannot be moved - a person must go to the land.

3. Indestructibility - durability - it will always be there.

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Land has four economic characteristics:

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1. Scarcity

2. Modification

3. Fixity

4. Situs

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1. Scarcity

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in short supply where demand is great – (a lot in Manhattan is more valuable than a lot in upstate New York.) Scarcity is usually based on geographic considerations.

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2. Modification

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- land use and value are greatly influenced by improvements made by man to land and to surrounding parcels of land.

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3. Fixity -

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- land and buildings and other improvements to land are considered fixed or permanent investments – they are not liquid assets.

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4. Situs -

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- location preference, or location from an economic rather than a geographic standpoint. (This can change over time as people change.)

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Personal property

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is a right or interest in something of a temporary or movable nature and includes anything not classed as real property.

It is also called chattel or personalty.

Ownership is transferred by a Bill of Sale. When personal property is included in a sale, an addendum may be attached to the contract to describe the details of the transaction.

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A fixture

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is personal property that has been attached in such a way as to make it real property.

A fixture is never freestanding.

The process of attaching may also be called annexation.

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The word “installed”

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often indicates a permanent attachment.

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Annexation

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The process of attaching

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“severed”, or severance.

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The process of real property becoming personal will be described

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Tests of a fixture

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1) method of attachment,

2) adaptation to the property (custom built as opposed to stock items),

3) and the intention of the parties attaching the fixture.

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Trade Fixtures Acquiring property in this way is called accession. Accession and annexation are sometimes usedinterchangeably.

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are fixtures installed by a tenant in order to carry out a business, and they may always be removed from leased property prior to the termination of the lease.

If trade fixtures are not removed prior to the termination of the lease, they become real property and pass to the landlord.

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Accession

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If trade fixtures are not removed prior to the termination of the lease, they become real property and pass to the landlord.

Acquiring property in this way is called ______________________.

Accession and annexation are sometimes used interchangeably.

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A legal description

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is created and determined by a surveyor. It is a necessary part of a contract or conveyance (deed, listing, sales contract, etc.) in order for that document to be enforceable.

It is one of such certainty and accuracy that one can go to the ground and identify the land.

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The following methods of land description are legal:

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1) Metes and bounds

2) Lot, block, and subdivision descriptions

3) Monuments

4) Rectangular Survey System, also known as the Government Survey System,

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Metes and bounds (land description)

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descriptions use terminal points and angles and always have a p.o.b.(point of beginning). This method uses compass directions, degrees, and minutes. The pointof beginning is also the end, so that the land described is completely defined. This description might include the use of street names. This is the oldest and most common method of land description

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Lot, block, and subdivision descriptions

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descriptions are derived from a recorded map, called a plat. This is the most common description used in residential listing agreements.

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Monuments

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are permanent surveyors’ markers. A property is described as being a certain distance and direction from the marker. Monuments are rarely used alone to describe property. Monuments are often the starting point for a metes and bounds description, and can be essential to the accuracy of that description. Monuments can be man-made - an iron pipe, or natural - a stand of timber, an old oak tree, etc.

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The Rectangular Survey System, also known as the Government Survey System,

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takes into consideration base lines, and meridians, townships and sections. Townships and Sections are located in Ranges.

* One township contains 36 sections.

* Each section contains 640 acres, which is 1 square mile.
* Each acre contains 43,560 square feet.

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Vertical land descriptions

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are used for air rights. The sale of units in multi-story buildings would include vertical descriptions.

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A street address

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is not a legal description.

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A plat

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is a map of a town, section or subdivision.

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A plot

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is a map or layout of improvements on a property site. The property site is also called a lot or parcel.

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Physical descriptions of property

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specify land and building size, and types of construction.

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Land and building area

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are measured by square feet, acres, square miles, townships, and sections.

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A mile

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is 5280 feet long....

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Construction

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can be on-site - built from the ground up, or off site -

prefabricated buildings often called modules or modular construction.

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Types of construction

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include masonry, brick, stucco, or framed with cement board or siding.

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Property descriptions

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should also include utility information, availability, hookups, and water and sewer information.

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An encumbrance

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is a limitation on your rights.

It may also be a cloud on the title.

Examples include liens, reservations, encroachments, leases, easements, deed restrictions, licenses, adverse possession, and lis pendens.

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The legal method of removing an encumbrance

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is to release it, or get a release.

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A lien

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When the mortgage is recorded, if it is the first recorded claim, it will be the first priority lien

A lien is a charge against property as security for a debt.

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A voluntary lien

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is created by the lienee’s or borrower’s actions, like taking out a mortgage or home improvement loan. Filing or recording the mortgage creates a lien.

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A mortgage

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is not effective or enforceable until it is recorded.

When the mortgage is recorded, if it is the first recorded claim, it will be the first priority lien.

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An involuntary lien

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is created by law and can be statutory or equitable (common law).

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Statutory law

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always takes precedence over common law.

Examples of statutory liens include federal tax liens, ad valorem (according to value) tax liens, judgment liens, and mechanics and materialmens’ (m&m) liens. (Note: An m&m lien can be placed on a property when materials have been delivered or work has begun.)

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Equitable liens (common law)

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and include seller (vendor) or buyer (vendee) liens.

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Liens

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can be specific or general.

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A specific lien

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attaches to one or more specific or named properties (Example: a mortgage).

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A general lien

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attaches to all the property of the debtor, not exempt from forced sale (Example: a judgment or IRS lien).

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Recording

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is required for a judgment to become a lien.

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Writ of execution

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If a party wins a judgment and is unable to collect, that party can secure a ______________ from the courts to enforce payment of the lien.

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A reservation

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imposed by the grantor, withholds title to a part of the land described in the deed (Example: an easement or mineral rights).

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encroachment

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When a structure or improvement overlaps onto another’s property it is an ________________.

Encroachments must be disclosed. The determination of an encroachment requires a survey.

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doctrine of laches

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A listing agent discloses an encroachment, a buyer’s agent recommends a survey. In the case of an encroachment, the injured party has the right to demand the removal of the encroachment. A failure to assert that right in a timely manner can lead to the loss of that right. In law, this is called __________________.

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An easement

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allows limited use or enjoyment of another’s land. It is a right in land and should be created in writing and recorded. It is use without possession.

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Easements

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can be created by express (written or verbal) or implied (by actions or evidence) grant, agreement, reservation, limitation or prescription, necessity, or condemnation.

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condemnation

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The government will take an easement by ____________________ for itself, the utilities or the railroads. Easements can be terminated by merger (acquiring the adjacent property), release, or abandonment.

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Dominant Estate

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If you have two parcels of land with a road across one parcel, the owner who crosses over the other’s land is dominant. The dominant estate would be landlocked without the easement, in most cases.

The dominant estate benefits from the easement

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Servient Estate -

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The property with the road that provides access to the dominant estate.

Servient estate is encumbered.

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Easement Appurtenant

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The most common reason for this type of easement is entry and exit from the property. Access roads from Servient to Dominant Estate.

It goes with the land, and the landowner owns the easement.

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An Easement in Gross

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belongs to a person or corporation. An example is a utility easement. No matter who owns the land, the easement still belongs to the utility company. It does not go with the land.

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A party wall

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can also be considered a type of easement. It is shared by owners on both sides. Both owners have rights of ownership and responsibilities for maintenance.

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A license

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is permission to do a particular act upon the land or property of another. A theater ticket or sports event ticket is a license that grants use of one seat for one performance. A license is similar to an easement, but of much more limited duration. It is not a right in land. It is often given verbally and easily revoked.

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Adverse Possession (squatter’s rights)

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occurs when property is acquired from the rightful owner through the Statute Of Limitations. Occupancy must be hostile, visible, actual, continuous, and distinct for the statutory period. Required occupancy time differs from state to state, and can be a minimum of 3 years and a maximum of 25 years depending on circumstances.

It is 10 years in Texas.

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tacking

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may be used to reach the required number of years for adverse possession. Tacking is adding one party’s period of possession to a previous occupant’s period of possession.

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Lis pendens

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is a recorded notice filed against a specific property, meaning that some form of lawsuit has been filed, but not yet resolved in court. A lis pendens may become the responsibility of a new owner, if not settled prior to closing.

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An estate

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is an interest in real property.

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A freehold estate

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is ownership.

A freehold estate is of indeterminate length (it has no termination date),

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Bundle of Rights.

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All the legal rights that attach to the ownership of real property including but not limited to the right to sell, lease, encumber, use, enjoy, exclude, will to heirs, etc. are called the ____________________.

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Fee Simple or Fee Simple Absolute

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Ownership with the greatest bundle of rights - the best type of ownership - is called _______.

The owner has all the available rights to the property and can always pass it to his or her heirs.

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non-freehold estate

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(lease-hold) which has a termination date.

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Defeasible Fee or Conditional Fee (also called “qualified fee” or “even qualified defeasible fee)

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is ownership with conditions or terms, which if violated, could cause the ownership interest to be defeated or terminated. When the ownership is defeated, it reverts, or goes back, to the original grantor or the grantor’s heirs.

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A life estate

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is ownership for the duration of someone’s life.

The owner is called the life tenant.

The life tenant has all the rights and duties of an owner, except the right to choose who will get the property upon his or her death.

If the life tenant leases the property and then dies, the lease expires

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Remainderman

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The person who gets the property after the life estate is ended is the ____________________.

The remainderman gets fee simple.

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life estate pur autre vie.

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If the life estate is based on the life of someone other than the life tenant, this is called a ______________________

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Information on Life tenant

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The life tenant has all the rights and duties of an owner, except the right to choose who will get the property upon his or her death. If the life tenant leases the property and then dies, the lease expires. If the life tenant sells his or her interest in the property, this has no effect on the remainderman. In other words, the buyer of the life estate would have to vacate the property upon the death of life tenant and would not receive a refund of the purchase price.

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life estate with reversion.

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If a life estate is set up so that at the end of the life estate the property goes back to the original owner, this is called a __________________.

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Estate in severalty or sole ownership.

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Ownership by one person is called _________. Corporations orPartnerships often hold title this way. If only one signature is required to sell a piece of property,then there is only one owner.

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Tenancy in common

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Ownership by two or more without rights of survivorship is called tenancy in common. This is the most common type of joint ownership. It is an estate of inheritance.

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A condominium

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is multi-unit housing with individual ownership of apartments and tenancy in common ownership of the common areas.

Upon your death, your share goes to your heirs, at probate. Unequal shares are permitted. You may sell your share without the permission of the other owners of any other instructions, the title company will always assume tenancy in commonwith equal shares.

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Joint tenancy.

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Ownership by two or more with rights of survivorship is called _________________.

Upon your death, your share goes to surviving co-owners, immediately

This is sometimes called a “poor man’s will” as it eliminates the need for a will. Joint tenancy overrides a will. This is not an estate of inheritance.

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To prevent any accidental cases of joint tenancy, there are four unities required for this type of ownership

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– time, title, interest and possession.

All owners acquire their interest at the same time, from the same legal document. Their shares are equal and undivided - each owns a percentage of the whole, rather than a piece of the whole.

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Partition

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is a procedure to divide the co-tenant’s interests in real property. It can be a court or voluntary action. Partition would divide the property into pieces and end the joint tenancy.

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trust

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If a property is held by one party for the benefit of another then that property is held in ______.

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syndicate.

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When two or more parties join together to create and operate a real estate investment we call this a ______________.

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Tenancy by the entirety

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is a specific type of joint tenancy where the co-owners are husband and wife. One advantage of this type of ownership is that it avoids probate. (This is also true of joint tenancy.)

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tenants

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can indicate owners, as in joint tenants and tenants in common

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Some special types of ownership

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include time shares, condominiums and cooperatives.

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Time Share .

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- part ownership of a property coupled with the right to exclusive use of it for a specified number of days per year, without the responsibility of full ownership. This can be called “interval ownership.” It is tenancy in common ownership. This is most often used for resort or vacation properties.

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Cooperative or “Co-op” –

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– land and buildings are owned by a corporation. Tenants own shares in the corporation, and have a proprietary lease on their units. The corporation pays for the mortgage, property taxes and maintenance of the building. The residents have a personal property interest in their units and the common areas.

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Condominiums –

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– laws referred to as horizontal property acts are generally the base for condos. Each unit is a separate legal ownership and each resident arranges his or her own financing. Property taxes are assessed on each unit separately. Taxes are based on the assessed value of the unit, which is based on its market value. It is not necessary for the taxing authority to assess and tax the common areas separately. Monthly condominium fees have nothing to do with taxes for the common areas. Condominium managers work for resident owners and their main responsibility is to preserve property values. Condominium residents are required to observe by-laws.

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Police Power

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is the power given to a municipality to regulate and control the character and use of property for the health, safety and general welfare of the public.

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Zoning

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is the most common example of police power. Zoning regulations are local laws to control land use. Zoning can include master planning. A master plan is a comprehensive guideline for the long-term physical development of a particular area. Mixed land use is designed to meet the needs of future residents. Master planning is a process and zoning can be used to implement the plan.

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a non-conforming use.

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A change in zoning may result in__________.

This use was permissible under former rules, but new rules prohibit it. A non-conforming use is allowed to continue as it is considered grandfathered. The non-conforming use is automatic, no hearing or application process is required. A non-conforming use cannot be altered or expanded without permission, but it can be sold to a party who wishes to continue the existing use. If the property is destroyed, the non-conforming use may not be rebuilt without permission. (Note – there is no violation of zoning here.)

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variance

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If your property violates zoning, you may request a ____________. A variance may also be requestedprior to construction. Adding on to the front of a building would usually require a variance. Theprocess to obtain a variance is to apply to the zoning committee. A hearing will be scheduledand all neighborhood property owners will be invited to the hearing to voice any objections theymight have to the variance. A variance goes with the property when the property is sold.

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A conditional use or special use

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can be granted by a zoning committee or deed restrictions (HOA). This use would benefit the neighborhood, like a school within a residential neighborhood.

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Type of conditional use -

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is a PUD – a planned unit development. A PUD zone allows for a higher population density with houses clustered together, leaving more green area open for parks and recreation. A non-profit community association is organized to provide maintenance of the common areas. An extra tax may apply to property owners in a PUD.

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permission

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A property owner may be given ______________.

to use his property in a particular way prohibited by zoning or HOA rules. This permission belongs to the person, not the property, and does not pass to a purchaser of that property. In order for zoning rules to be changed, public hearings must be held but the ultimate decision rests with the zoning committee.

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A buffer zone

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is an area of land separating one land use from another, such as residential from commercial. The buffer zone is located between incompatible uses. The buffer zone is a transitional use. Example: single family, apartments, retail. The apartments are the buffer zone.

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Police power

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provides the government with the right to establish building codes. Specific construction requirements are set by building codes (plumbing, electrical, etc.)

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Environmental Impact Statement (EIS)

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For government projects, an __________________

will be done. An ____ is done to determine the effect of a project on the community. The report includes a detailed description of the proposed project.

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Police power gives the government the right

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to regulate special land types for the public good including coastal properties, floodplains and wetlands. It also allows for the regulation of environmental hazards on land.

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Eminent Domain

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is the right of the government to take private property for public use through the action of condemnation. This is the only time the government must compensate property owners.

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inversecondemnation.

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When an individual forces the government to buy his or her property, this is called _________________.

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test

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test

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Taxation – Property taxes

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are the highest priority lien on real property. Property taxes are ad valorem taxes,

Unpaid taxes create an automatic lien on property. At foreclosure, property taxes are always paid first.

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Assessed value

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is the value of your property for tax purposes. The tax rate times the assessed value will tell you the yearly taxes. Lists of assessed values for all the properties in a taxing district are found in the assessment rolls. These can be used for comparison purposes.

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Tax rates

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are often expressed as dollars per hundred dollar of valuation. In that case, a tax rate of $2.50 means the property owner will pay $2.50 of tax for every $100 of taxable value. In some cases a mill rate is used. This is a tax rate per thousand. Therefore, a rate of 25 mills means the property owner will pay $25 dollars of tax for every $1000 of taxable value.

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property sales tax

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Some states have a ___________, usually paid by the seller of real property at closing.It can be called a “transfer tax” or a “deed tax.” It can be expressed as mills or as a rate perhundred.

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a special assessment tax

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If the local government is providing a benefit to a limited number of property owners, suchas curbs or sidewalks in a neighborhood, _______________ may be levied against onlythose property owners who benefit from the improvement. In a real estate sale with an unpaidbalance on a special assessment, the special assessment is usually paid by the seller, but couldbe prorated at closing.

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municipal improvement district

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If property is located in a ____________ the property owner will receive atax bill, similar to a special assessment, until the improvement is paid for, or the improvementdistrict designation is removed. In other words, this can be temporary or permanent.

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Local governments

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_______________ use property taxes to cover their expenses because real property is an asset that cannot be hidden.

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Escheat

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Property reverts to the state when someone dies leaving no will and no heirs or kindred. ______________ can also be used if property is abandoned. The purpose of ___________ is to ensure that no land remains unowned.

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CC&Rs - deed covenants, conditions andrestrictions. CC&R’s

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The most common private controls of land use are ___________ are commonly referred to as Deed Restrictions, or Deed Covenants. HOA(Home Owner Association) regulations are like deed restrictions, but usually apply to condominiumcomplexes.

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Deed Restrictions

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are imposed to control land use, development and methods and materials for construction. Style and appearance requirements can also be enforced (garages facing the rear of the property etc.).

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Declaration of Restrictions.

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Deed Restrictions are found in a recorded document called a _______________. They are imposed by the grantor. Violation can result in civil court action brought by other property owners who are bound by the same deed restrictions. The court will issue an injunction to enforce the restrictions. In some cases, deed restrictions and zoning can both exist. If this is true, whichever is most restrictive or limiting must be obeyed. Deed restrictions are permanent in most cases, and do not expire. They control present and future owners and tenants.

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alienation.

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A change of ownership of real property is called ___________.

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Voluntary alienation

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occurs when an owner transfers title to another.

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Conveyance

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Voluntary alienation usually involves a written document called a _________________.

A __________ is any instrument or document that transfers an interest in real property. Ownershipis most often transferred by deed, patent, power of attorney, or will.

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Involuntary alienation

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________ usually happens in court as in foreclosure, bankruptcy, condemnation, escheat, adverse possession, reversion of defeasible fee, partition, or inheritance without a will. __________ can also occur from natural causes including accretion, avulsion, erosion, and reliction.

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Requirements for a Valid Deed

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* Grantor and Grantee -
* Consideration
* Words of conveyance

* Execution - the grantor must sign the deed.
* Delivery
* Legal description of the property

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(Requirements for a Valid Deed)

Grantor and Grantee in a valid deed

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must be competent

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(Requirements for a Valid Deed)

Consideration -

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legal consideration can be “good” or “valuable. “Love and affection” is an example of good consideration. Money is valuable consideration.

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(Requirements for a Valid Deed)

Words of conveyance

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the granting clause - a written statement that indicates transfer of some interest in real property from one person to another.

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(Requirements for a Valid Deed)

Execution

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the grantor must sign the deed

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(Requirements for a Valid Deed)

Delivery

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title does not pass until the deed is delivered and accepted. Delivery can be into escrow. Delivery must be made during the life of the grantor.

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Deeds

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need not be dated, signed by the grantee, or recorded.

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General Warranty Deed

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- guarantees and protects against defects. It offers the buyer the best protection. Warrants title to the sovereignty of the soil. It is the most common deed and the one mentioned in the sales contract. A buyer who wishes to ensure that the seller is conveying good title should request a General Warranty Deed.

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Special Warranty Deed

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– guarantees title only against defects arising under the grantor’s period of ownership. Defects existing before that time are not covered.

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Bargain and Sale Deed

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– a deed with only one covenant. (Trustees, executors, sheriffs, and officers of the court use this.) This deed does not provide any warranties about the condition of the title, but only promises the grantor has the right to convey the title.

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Quitclaim Deed -

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- a deed that gives NO warranties or guarantees and offers the least protection. It is used to clear a cloud on the title or to cure a defect in title.

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Deeds often contain covenants and warranties to the buyer. The five most common are:

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1. The covenant of seizin – the grantor claims to be the owner with the right to sell the property2. The covenant of quiet enjoyment – the grantor promises the new owner will not be disturbedwith claims against the property3. The covenant of further assurance – the grantor is responsible for any documentation neededto ensure title is transferred to the grantee4. The covenant against encumbrances – the grantor promises that all encumbrances have beendisclosed5. The covenant of warranty forever – the grantor’s promises have no expiration date

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1. The covenant of seizin

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– the grantor claims to be the owner with the right to sell the property

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2. The covenant of quiet enjoyment

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the grantor promises the new owner will not be disturbed with claims against the property

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3. The covenant of further assurance

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- the grantor is responsible for any documentation needed to ensure title is transferred to the grantee

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4. The covenant against encumbrances

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– the grantor promises that all encumbrances have been disclosed

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5. The covenant of warranty forever

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– the grantor’s promises have no expiration date

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patent.

Back 143

When the government transfers title to an individual it uses a ____________.

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dedication.

Back 144

When a developer turns over the streets in a subdivision to the local government, this is called ________. This is accomplished by recording the plat plan.

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Real property

Back 145

can also be transferred to a new owner as part of the estate of the deceased.

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testator.

Back 146

A party who makes a will is the _________.

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testate.

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One who has a valid will is _____________

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executor.

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The person named in the will to settle the estate is called the

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Title by Devise.

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Inheritance by will gives ____________.

The property is the devise and the heir is the devisee.

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intestate.

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One without a will is _________. The court will appoint an administrator to settle the estate of anintestate person. The heirs will inherit real property according to the Laws of Descent and will haveTitle by Descent.

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probate.

Back 151

The judicial process to prove or confirm a will, or to settle the estate of a party who dies intestate is called ____________.

Front 152

Involuntary Alienation

Back 152

occurs when the court orders partition of the property.

Front 153

Foreclosure

Back 153

is the legal process instituted by a trustee, lien holder or creditor, after a debtor’s default on his or her payments. In other words, the lender begins the foreclosure. Any excess money left over from the forced sale is given to the debtor. In the event of a shortage, the lender may sue the borrower for a Deficiency Judgment. Foreclosure under the Deed of Trust ends when the trustee delivers Trustee’s Deed to the buyer.

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deed in lieu of foreclosure

Back 154

An alternative to foreclosure is ________. this is sometimes called “friendly foreclosure” or “voluntary deed.” The lender accepts a deed from the borrower. The lender must also accept any junior liens on the property. This would be the fastest way for the lender to get title to the property.

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Redemption –

Back 155

At any time up to the moment of the foreclosure, the borrower has the right to step in and pay what is owed and reclaim property forfeited due to mortgage default. This is his or her equity of redemption, or equitable redemption. A lender would almost always prefer equity of redemption to deed in lieu of foreclosure.

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notice of foreclosure by certified mail 21 days before the foreclosure sale.

Back 156

There are legal guidelines for notices to be provided in the event of a foreclosure. The lender mustsend the____________ There is norequirement that the borrower receive the notice, only that the lender sends it. The notice of foreclosuremust be posted at the door of the county courthouse and filed in the County Clerk’s office.With a traditional mortgage (not a Deed of Trust) the foreclosure will be recorded as a lis pendens.

Front 157

power of sale clause.

Back 157

With a traditional mortgage foreclosure is judicial, but with a Deed of Trust it is non-judicial,due to the ________.

Front 158

Short Sale –

Back 158

A sale of secured real property that produces less money than is owed the lender – the lender releases its lien so property can be sold to the new purchaser. The lender often requires that brokers adjust their commissions on these transactions. The lender saves the delay and expense of foreclosure. A short sale will result in a negative note on the credit report of the defaulting borrower and a loss of as much as 200 points in credit score, but is better than a foreclosure.

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Real-estate owned or REO is a class of property owned by a lender—typically a bank, governmentagency, or government loan insurer

Back 159

is a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction. A foreclosing beneficiary will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the beneficiary will legally repossess the property. This is commonly the case when the amount owed on the home is higher than the current market value of this foreclosure property, such as with a high loan-to-value mortgage following a real estate bubble. As soon as the beneficiary repossesses the property, it is listed on their books as REO.

Front 160

RECORDING TITLE •

Back 160

* Recording is not a requirement of a valid deed.
* Recording gives constructive notice of ownership. This is notice to the world and protectsagainst fraudulent sale. Taking possession of property also gives constructive notice ofownership.
* Recording is always done in the county where the property is located.
* A document must be acknowledged before it can be recorded. It must also be in English.
* An acknowledgment is a declaration to a notary authorized to take oaths that the signature isa free and voluntary act. An acknowledgment verifies the signature.

Front 161

Title

Back 161

is both the ownership of something and the legal evidence of that ownership – a deed.

Front 162

Types of real estate title

Back 162

include clear or good title, marketable title, and equitable title. Clear or good title can be transferred to another.

Front 163

Marketable title

Back 163

is title that a reasonable buyer would accept as clear.

Front 164

Equitable title

Back 164

is an interest created by a legal document, such as that held by a buyer with a signedsales contract, who has not yet gone to closing. The buyer has an equitable estate, or equitable title.

Front 165

A title insurance policy

Back 165

agrees to compensate or reimburse the insured against any losses sustained as a result of defects in the title, other than those exceptions listed in the policy. Protection is for forged deeds, illegal acts of trustees, guardians, or attorneys, false claims of ownership and human error in copying and recording. The loss or destruction of records is also covered. A standard title policy will not provide protection for survey or boundary problems. Additional coverage can be purchased for these issues.

Front 166

The title insurance company

Back 166

will defend the title at its own expense, as well as pay any claims against the property, if the title proves to be defective. Title insurance will not pay for defects known to the buyer prior to the policy being issued.

Front 167

Title insurance

Back 167

must compensate owners for defects missed by the title company in its search process.

Front 168

Premiums

Back 168

are paid one time. A new policy must be issued each time the property changesownership, or is refinanced.

Front 169

Title policies

Back 169

may contain a subrogation clause. This clause allows the title company to assume the rights of a buyer with respect to any claim against a seller, if the title company has made payments to that buyer to satisfy that claim.

Front 170

Title Policies

Back 170

Unlike other types of insurance, protection is for the past not the future.

Front 171

Abstract of Title.

Back 171

A title search is done. This is an examination of public records to compile an _______. An ______is a complete history. Included in the abstract is a chain of title - a list of all owners from the first until today.

Front 172

Attorney

Back 172

A title company_______ views the abstract and renders an opinion of title.

Front 173

A title report

Back 173

(snapshot of title at the present time) is prepared. This obligates the title insurance company to issue a title policy when any curative requirements have been met. Payment of premium will result in the policy being issued. The owner’s policy will protect the buyer up to the purchase price. The lender’s or mortgagee’s policy will protect the lender up to the outstanding loan balance. (The lender’s coverage declines as the debt is satisfied.) The policy is received at closing

Front 174

The State Board of Insurance

Back 174

sets premiums for Title policies in many states, including Texas.

Front 175

“cloud on the title”.

Back 175

Any claim or encumbrance that may superficially injure the title to a property or cast doubt on the title’s validity is called a

Usually, property cannot be conveyed (transferred to another) as long as the cloud exists.

Front 176

Property cannot be conveyed (transferred to another) as long as the cloud exists. How can one fix.

Back 176

A quitclaim deed can sometimes be used to fix the problem. Ifno one is available to sign a quitclaim, then a court procedure to cure or quiet the cloud can be used.This is called an “action to quiet title” or a quiet title suit.

Front 177

Market value

Back 177

The most significant type of value forreal estate licensees is _________. It is defined as the price a willing seller will sell for,and the price a willing buyer will pay, when neither is acting under exceptional pressure. _______ is also defined as the most probable price._______is most commonly associated with theprice a party pays for a property.

Front 178

There are four basic characteristics of value:

Back 178

(DUST)

* Demand – there must be a demand for the item and the purchasing power to acquire it
* Utility – the item must be needed or wanted
* Scarcity – there must be a limited supply
* Transferability – the item must be able to be sold – ownership rights must be transferable

Front 179

An appraisal

Back 179

is an opinion. It is an estimate of value. The accuracy of the appraisal depends on the integrity and competency of the appraiser and the availability of the needed information.

Front 180

Appraisers

Back 180

use principles of value to help them arrive at their final opinion.

Front 181

(principles of value)

Highest and Best Use

Back 181

- the legal use that gives the greatest return in money and/or amenities.(Example: commercial parking is more valuable than residential parking)

Front 182

(principles of value)

Principle of Substitution

Back 182

- sets an upper limit on price. Maximum value of a property is set by the cost of acquiring a similar substitute property. This principle is used to demonstrate the need to price correctly. An overpriced property will not sell.

Front 183

(principles of value)

Principle of Conformity -

Back 183

states that maximum value is found when there is a reasonable degree ofsimilarity or sameness.

Front 184

(principles of value)

Principle of Increasing and Decreasing Returns -

Back 184

invest in property whenever each dollar investedwill return a dollar or more of increased value and stop when each dollar invested returns less thana dollar in value. Do not over-improve a property.

Front 185

(principles of value)

Principle of Contribution -

Back 185

-the value of a part is determined by its contribution to the total value ofthe property rather than by its cost.

Front 186

(principles of value)

The Principle of Regression

Back 186

the presence of lower-valued properties in the neighborhood leadsto a decline in the value of your property. Conversely, the presence of higher-valued properties willincrease the value of your property and this is called progression.

Front 187

(principles of value)

The Principle of Competition –

Back 187

an increase in competition will result in decreased profits for currentproviders. Competition lowers prices.

Front 188

(principles of value)

The Principle of Change –

Back 188

change is constant and is reflected in values. Appraisers must makeadjustments for changes in market conditions, and for time. An appraisal is only considered to be goodfor six months.

Front 189

(principles of value)

The Principle of Anticipation –

Back 189

purchase price is affected by the expectation of future appeal andbenefits

Front 190

(principles of value)

The Principle of Balance –

Back 190

mixed land use should result in maximum value for all propertiesinvolved (master-planned communities demonstrate this principle).

Front 191

There are three basic approaches to appraisal:

Back 191

1) market data or sales comparison,

2) income or capitalization method, and

3) replacement or reproduction cost approach.

Front 192

1. The market data approach

Back 192

is used primarily in residential appraisals. It involves comparisons with known sales in the same area. An appraiser should have 3-5 sales no more than six months old. In using this approach, the appraiser will add to the value of comparables when the subject property has more amenities, and deduct from the comparables when the subject property has less. In choosing comparables, the best choice will be the one with the least number of adjustments, regardless of cost.

Front 193

2) The income approach

Back 193

is used for income-producing properties. The conversion of an income stream into an indication of value is known as capitalization.

Generally, if a property has rent, then use the income approach.

Front 194

3. The cost approach

Back 194

is used for unique properties, (churches or government buildings).It is also used when there are no comparables for a particular property.

Land Value + Building Reproduction Cost - Depreciation = Value-

OR

Land Value + Replacement Cost - Depreciation = Value

Front 195

Reproduction cost

Back 195

would be the cost to exactly duplicate a building. ____ is the costto build a building of similar size and usefulness using today’s methods and materials.When using the cost approach, the appraiser uses the market data approach to place a value onthe land, because the value of the land is heavily dependent on location.The cost approach is most accurate for new construction.

Front 196

The appraiser considers three types of depreciation in the cost approach

Back 196

1) physical deterioration

2) functional obsolescence and

3) economic or external obsolescence.

Front 197

1. Physical deterioration

Back 197

is ordinary wear and tear. It is curable. This has the least impact on the appraisal because all buildings have it (chipped paint, worn flooring).

Front 198

2. Functional obsolescence

Back 198

is brought about by factors in the property. It is often or mostly curable (inferior materials to cut costs, curb appeal, not enough baths/bedrooms).

Front 199

3. Economic obsolescence

Back 199

is a loss of value due to outside factors. This is also called externalobsolescence, and is incurable (zoning, air pollution, noise, traffic, jobs, etc.) It is also calledenvironmental obsolescence.

Front 200

In addition to the principles of value, an appraiser

Back 200

must be aware of the other factors that can affect value including, market cycles, political actions, economic forces, physical or environmental forces and sociological forces.

Front 201

assemblage or plottage.

Back 201

Combining several parcels of land into one is called ________. The result is usuallyincreased usability and value of land. Although a______ mean the same thing, assemblageis more often used to describe the action while plottage is used to describe the increased usabilityand price.

Front 202

The 5 steps in the appraisal process are:

Back 202

1. State the purpose of the appraisal.

2. Collect and verify information about the property.

3. Estimate value using all three approaches, or as many approaches as needed to get the best result.

4. Reconcile the estimates by determining weighted averages. This step is necessary because the third step will result in up to three different values. Reconciliation completes the process of determining an exact number rather than a range of value.

5. Prepare the report. It may be oral, in a letter, on a form, or a narrative report

Front 203

Although there is no USPAP (Uniform Standards of Professional Appraisal Practice) requirement for the use of a particular form for an appraisal,

Back 203

lenders will require the Fannie Mae appraisal formif the purpose of the appraisal is to secure residential financing.

Front 204

A Comparative Market Analysis (CMA)

Back 204

is a tool used by licensees to help sellers determine a realistic price for their property – a _______ compares a subject property to current listings, recent sales, and even expired listings of unsold properties. The information from expired listings is the least important part of the____. The result of a ______ is a range of value for a property rather than an exact price. It is not an appraisal. This is also called a competitive market analysis.