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276 Cards in this Set
- Front
- Back
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What is the Michigan Occupational Code?
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The law that sets all the rights and obligations of licensees.
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How many members sit on the Real Estate Board?
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Nine membersFour year terms not more that two consecutiveSix have real estate licensesThree represent the public
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How long is a license good for?
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All licenses expire on October 31 of a three year term. 2006
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Latent Defect
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A defect that is hidden but known to the seller. Can not be revealed by ordinary inspection.
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Silent Fraud
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Not disclosing Latent Defect.
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Material Facts
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Have direct effect on value. Bad furnace.Licensee required to disclose.
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Non-Material Facts
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Have no effect on value. Seller lost job.No Duty to disclose.
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Seller's Disclosure Statement
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Sellers of residential properties(1-4 families) must complete.Real Estate offices must make available even if not client.If purchaser signs offer without disclosure may back out and get deposit back.
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Agent's Duty
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Disclose defects KNOWN to agent or should have been known.
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State Position RE: Disclosure
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Disclosure of Material Facts shall not be considered grounds for disciplinary action.
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Patent Defect
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Obvious DefectCan be discovered as result of a reasonable inspection.
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Innocent Misrepresentation
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Innocent misstatement of factsFurnace new so must be OK....bad installation
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Listing Agreement
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Must be signed by all parties holding title.Listing owner must be given true copy
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AD VALORUM
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Taxes are paid according to VALUE
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ASSESSED VALUATION
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Value placed on property for tax purpose.Not the APPRAISED VALUE
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ASSESSMENT RATE
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Ratio between Appraised value and Assessed value50% in Michigan
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What is 1 mill?
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1 mill is 1/10 of a cent. .00150 mills = .050 = 5% = $5.00/$100.00
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TAX CALCULATION
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TAX DUE _________________________________ ASSESSED VALUE x TAX MILLAGE
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Property appraised value is $80,000, tax rate is $6.00/$100.00. How much in tax is paid?
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Assessed Value = $80,000 x 50% = $40,000Tax = $40,000 x 6% = $2400.00
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Tax due is $1200. Appraised value $60,000. What is tax rate?
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$1200.00 / $30,000 = .04 = 4% = 40 mills
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Special Assessments
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Charges assessed for improvements by local government that improve property
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Property appraised at $73,250 and tax rate is $2.80 per hundred of assessed value. What is tax due?
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$73250 / 2 = $36,625 ? $1025.50 _____________________________ $36,625 x 2.8%
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DEED RESTRICTIONS
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Restrictive CovenantA provision in the deed aimed at controlling the present and future use of the land. Placed by seller (grantor) to restrict buyer's use.(grantee)
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Which is used.. Deed Restriction or Zoning Ordinance
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The most restrictive
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Three methods of LEGAL DESCRIPTIONS
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Lot-Block-Subdivision MethodGovernment Rectangular Survey MethodMetes and Bounds
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Lot-Block-Subdivision Method
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Description identifies properties by reference to a subdivision plat filed by developer
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GOVERNMENT RECTANGULAR SURVEY
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Base lines - Latitude - East/WestMeridian Lines - Longitude - North/SouthRange Lines - North/South every 6 milesTownship Lines - East/West every 6 milesTownship - 6 square miles 640 acres
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One Acre
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43,560 Square Feet
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A parcel of land 242ft x 450ft sold for $50,000. What was the price per acre?
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242 x 450 = 108,900108,900/43,560 = 2.5 acres$50,000/2.5 = $20,000/acre
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How many acres in the N1/2 of SE1/4 of SE1/4 of SE1/4 of Section 7?
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640 acres in one sectionSE1/4 160 acresSE1/4 40 acresSE1/4 10 acresN1/2 5 acres
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METES AND BOUNDS
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Always starts at POB Point Of BeginningSurveyor uses a MONUMENT.Discription of distances and angular measurements.
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Setback Ordinance
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Distance from lot edge where building can be erected
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Gross Living Area
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Area of a structure measured usuing external dimensions
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What is not included in Gross Living Area(GLA)?
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Area below gradeGarages and decksBathrooms and bedrooms below grade
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Appurtenances
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Rights, privileges and improvements conveyed when ownership of property is transfered, unless specified.
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Name types of Appurtenances
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Easements Easement appurtenant Easement in Gross
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What is an Easement?
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Right to use a part or all of property. Right to install and maintain sewers, phone lines, etcRight of passage(ingress-egress)
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Two major types of easements
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Easement AppurtenantEasement in Gross
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What is Easement Appurtenant
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Benefits neighboring propertyPasses with and is appurtenant to the landTwo estates or tenements involved Dominant Servient
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What are the names of the two estates involved with easment appurtenant?
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Dominant Estate (property that benefits from easement) Dominant Tenant (owner of dominant estate)Servient Estate (property that is subject to easement and encumbered by it)Servient Tenant (owner of servient estate)
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What is a Party Driveway?
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Two owners of adjoining lots share all or part of same driveway
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What is a Party Wall?
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Single wall located on a lot line that separates two parcels
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What does Run With The Land mean?
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Easement appurtenant remains as an encumbrance on land after sale, gift etc. even without mention of it
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What is an Easement in Gross?
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Conveys right to use the land of anotherMay or may not run with the landBelongs to person or entityServient estate but no dominantTwo types Personal Easement Commercial Easement
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What is a Personal Easement?
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Given to a personDoes nor run with the landMay not be assignedTerminates with sale of servient estate or death of holder
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What is Commercial Easement?
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Runs with the landCan be assignedDoes not terminate with sale of servient estateGranting rights to erect billboardsUtility easements for gas and electric
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Who maintains the easement?
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Negotiated at the time easement is obtainedGeneral rule-Party that benefits maintains Gas company maintains gas line Neighbors sharing driveway will share
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How are easements gotten?
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A GrantEasement by ReservationEasement by NecessityGovernment CondemnationEasement by Prescription
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Easement by Grant
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Written document that specifically grants an easement to another person
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Easement by Reservation
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A person may transfer ownership in a property but withhold the right to use a portion of the property
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Easement by Necessity
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Court ordered easement for benefit of a landlocked parcel.
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Easement by Government Condemnation
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Easement is obtained by government for public use.Government purpose only...not developer
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Easement by Prescription
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Obtained as a result of a trespass situationContinues for the statutory period. 15 yrsTrespass must be open, continuous and notoriousClaimant has burden of proof
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How do you terminate an Easement?
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Merger of Dominant and Servient EstatesRelease by Dominant tenantNecessity no longer exists when by necessityLack of use abandonment or prolonged non use
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What are Encumbrances?
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Liens, mortgages, taxes, leases, easements, judgements, deed restrictions, possibly encroachments that may burden the property are said to run with the land.
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What is a Homeowner's Association?
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In condominiums and subdivisionsProvides regulations for maintaining property values ex pets, speed, noiseLICENSEE'S ROLE -Make purchaser aware of binding bylawsInform purchaser of association fee
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Brokerage Fee
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Broker is free to negotiate any amount of commission agreeable between broker and principalSalesperson can only receive commision from his employing brokerReferral Fee is payable from broker to brokerPayment after termination should be done
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What adds to ASSESSMENT OF PROPERTY VALUE
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LOCATIONDESIRABILITY(DEMAND)- buyers that are willing, able and have financial meansSCARCITY(SUPPLY)-Are there other similar properties in same area that will competeUTILITY-The type of use..does it satisfy the need of a certain buyerTRANSFERABILITY- Ease of transfering land
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What are ANTICIPATED CHANGES?
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Changes known to the community that may have a positive or negative effect.Examples: new landfill, toxic waste dump new highway, change in zoningAgent should make herself aware of anticipated changes as part of duty.
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What are the types of DEPRECIATION?
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Physical - Ordinary wear and tearFunctiional Obsolescence - Outdated design, not enough parking, one bathroomEconomic Obsolescence - crime, pollution, high unemployment, noise from airport
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What are the two types of FUNCTIONAL OBSOLESCENCE?
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Curable - can be corrected, house with no garage and enough land to build oneIncurable - Cannot be corrected - no space to build a garage
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What are the three types of PROPERTY VALUATION?
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Market Value(Fair Market Value) - What a willing buyer will most probably pay a willing seller under no duressArm's Length Transaction - transaction in a competitive market that leads to a fair sale with knowedgable buyer and sellerMarket Price - Actual selling price of property
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Property Valuation Approaches
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Sales Comparison Approach (Market Data Approach)Replacement Cost ApproachIncome ApproachIncome Approach - Gross Rent Multiplier
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What is SALES COMPARISON APPROACH?
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Known as Market Data ApproachValue is estimated by using recently solds
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What is REPLACEMENT COST APPROACH?
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Land is appraised without buildingCost of reconstructing building as a new unit is estimatedACCRUED DEPRECIATION is determined and subtracted from the construction costto arrive at valueSQUARE FOOT METHOD
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What is the INCOME APPROACH?
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Used to estimate value on income propertyVALUE=NET OPERATING INCOME/CAPITALIZATION RATENet operating income(NOI)-Gross rent-Operating ExpensesCash Flow=NOI-Debt ServiceCapitalization Rate(CAP) Rate of return an investor would receive on investment
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What is NOI if the gross rent for the for the year was $55,000 and the following expenses were considered: Taxes $4000.00, Insurance $3000.00, Utilities $500.00/mo.What is cash flow if Debt Service is 1000/mo
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Utilities 500 x 12= 6000/yr55000-4000-3000-6000= 42000 NOI42000-12000=30000 CASH FLOW
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What is INCOME APPROACH (GRM)?
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For small income property such as house or duplex. VALUE= GRM x Monthly or Yearly rent
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If property was sold for $250,000 and brought in gross rents of $10,000/yr. What would property be evaluated at with $15,000/yr gross rents?
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GRM = 250,000/10,000 = 2525 x 15000 = 375,000
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What are the two types of PROPERTY?
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Real land, improvements, trees, air above, subsurface rights, water rights, anything attached permanentlyPersonal (CHATTEL) movable good on real property SEVERANCE = Act of detaching a fixture from real estate turning it once again into chattel
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How do you determine if /chattel or a FIXTURE?
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Method of attachmentAgreement between partiesIntention of the parties (shelving in grocery store even though attached are personal propertyPlants Annual are personal Perennial are real estate
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What are RIPARAIN RIGHTS?
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Rights enjoyed by land owners on streams, rivers, inland lakes.Owners have rights of use may not interrupt flow.
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What are LITTORAL RIGHTS?
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Rights of owners on large navigable rivers, lakes, oceans.Owners own land up to high water mark Erosion Accretion-increase in land form deposits Reliction-Land exposed when watrer permanently recedes
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What are the two types of OWNERSHIP IN REAL ESTATE?
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Severalty - Ownership by one individual or corporationConcurrent Estate - Held by more that one person
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What are the types of ownership called CONCURRENT ESTATE?
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Tenants in commonJoint tenancyTenents by the entireties Community property
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What is TENANTS IN COMMON?
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Form or real estate ownershipOwners may own differnt share amountsOwners share undivided possessionNo right of survivorship - gos to heirsTenants take ownership at same or different timesEach may sellPARTITON SUIT - Asking court to split
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What is a PARTITION SUIT?
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In concurrent estate - Tenets in commonOne or more co-tenets ask court to order splitting of interest when voluntary agreement cannot be reached
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What is JOINT TENANCY?
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In real estate ownership - Concurrent EstateRight of survivorshipUnity of possession - Parties share undividedUnity of interst share equal interestUnity of time-all take title at same timeUnity of title-all take title on same deed
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What are TENANTS BY THE ENTIRETIES?
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In real estate ownership-concurrent estateProperty deeded to husband and wifeEach owns ENTIRE propertyRights of survivorshipBoth must sign to sellEach own 100% not 50% like in JTWROS
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What is COMMUNITY PROPERTY?
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In real estate ownership - concurrent estateNot in MichiganBoth husband and wife equally own property acquired during marriageInherited property or property purchased with inherited funds exemptNeed both signatures to sell
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In condo ownership what are COMMON ELEMENTS?
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Portions of multi-unit structure owned by as tenents in commonEX: club house, swimming pool, yards
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In condo ownership-What are LIMITED COMMON ELEMENTS?
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Elements shared by a number of co-owners only
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In condo ownership-What is OWNERSHIP OF CONDOMONIUMS?
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Each condo is owned as a separate parcelOwned in FEE SIMPLE
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In condo ownership-What are TYPES AND FORM OF CONDOMINIUMS?
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Offices in an office buildingApartment buidings including high-risesTownhousesShoppong centersWarehousesHome sites
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What is Condominium Association and what does it do?
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Consists of ownersOperates development according to BYLAWSGoverned by BOARD OF DIRECTORSResponsible for maintenance, cleaning. etcMaintains insurance for common areas and structural portion of property
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What is a CONDOMINIUM FEE?
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ASSOCIATION FEEExpense assessed to all to operate condo associationMaintenance and insurance of common elementsNot tax deductible if primary residence
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What is TIME-SHARED OWNERSHIP?
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Mutiple owners buy weeks.Each owner can use it for a certain period through the yearMaintenance and other expensed prorated
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What is the HORIZONTAL PROPERTY ACT?
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The condominium ActThe Strata ActDevelopers of newly constructed units furnish each buyer with plain talk disclosure.Purchase not binding until 9 business days after disclosure
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How do you create a condominium?
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Plat map identifying the unitsLegal description of the landList of value of land and each unitPercentage of common areasBylaws and details re: condo association
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What is a COOPERATIVE?
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Land and improvements owned by corporationLeaseholders own stock in corporationStock is personal property not real estateShareholders called COOPERATORSLeaseholders control cooperative through stock ownership
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Two types of interests in Real Property
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FREEHOLD ownership in property it is of an indeterminable length obtained through inheritance or deedNON-FREEHOLD leasehold estate less than a lifetime considered personal interest
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Types of FREEHOLD ESTATES
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FEE-SIMPLE ESTATESDEFEASABLE FEE ESTATESLIFE ESTATESLIFE ESTATES GRANTED BY LAW
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What are FEE-SIMPLE ESTATES?
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Highest form of interest in real estateAlso known as FEE-SIMPLE ABSOLUTEEstate of inheritance can run indefinitelyUpon death goes to heirs
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What are DEFEASABLE FEE ESTATES?
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Also called FEE SIMPLE DEFEASABLECan be defeated/terminatedOccurence/non-occurence of event may termConsists of FEE SIMPLE DETERMINABLE FEE SIMPLE CONDITIONAL
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What is FEE SIMPLE DETERINABLE?
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Type of DEFEASABLE FEE ESTATESReal estate given for a purposeOwner MUST doEx: Land given to college as long as used for educationTitle reverts back to grantor or grantor estate if violated
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What is FEE SIMPLE CONDITIONAL?
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Type of DEFEASABLE FEE ESTATETerminates upon violation of a certain activity that owner MUST NOT DOEstate does not terminate until grantor gets court orderEx: Property is conveyed on condition of no alcohol consumption on property. If violated former owner has right to get back property.
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What are LIFE ESTATES?
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Form of FREEHOLD ESTATESGranted to a person for their lifetimeNot estate of inheritanceAfter death estate can revert or be given elsewhereTwo types ORDINARY LIFE ESTATE PUR AUTRE VIE ESTATE
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What are the two types of LIFE ESTATES?
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ORDINARY LIFE ESTATE-Duration is limited to lifetime or owner Upon death of owner, property reverts back to grantorPUR AUTRE VIE ESTATE-Granted for life of third party other that present owner and grantor
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What is ESTATE IN REMAINDER?
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Type of LIFE ESTATEThird party to whom title will pass upon death of life tenent.Person is called REMAINDERMAN
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What is ESTATE IN REVERSION?
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Type of LIFE ESTATEProperty reverts back to grantor from life tenentGrantor holds a REVERSIONARY INTEREST
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What are LIFE ESTATES GRANTED BY LAW?
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called Legal Life EstatesDOWER RIGHTS CURTESYHOMESTEAD
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What are DOWER RIGHTS?
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Husband owns property aloneWifes life estate in husbands real property conveyed to her upon deathIn order to bar wife must sign upon sale even though she does no own propertyInterest is 1/3 in MichiganDoes not apply if husband owns property with other as JTWROS
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In LIFE ESTATES what are CURTESY RIGHTS?
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Wife owns property alone without husbandHusband's life estate in wife's property conveyed to him upon her deathHusband gets ? in Michigan
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What is NON-CONFORMING USE?
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The use of the land that does match the zoning law
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What is a GRANDFATHER CLAUSE?
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Allows continuation of a non-conforming use because it preceeded a zoning change
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What is a ZONING VARIANCE?
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Allows the introduction(by government) of a non-conforming use.
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What is a SETBACK ORDINANCE?
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Distance from lot edge to where building is erected
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What is a LISTING AGREEMENT?
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Legal employment contract from seller
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What does a buyer sign if the broker is working for him?
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BUYER BROKER AGREEMENT
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Loyalty goes to the ....?
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Client
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Who employs the broker?
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PRINCIPAL (Client)Opposite party is the customerPrincipal is owed trust and loyaltyCustomer is owed fsirness and honesty
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What is a SUB-AGENCY?
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An agent of an agent.A salesperson is a sub-agent of the broker.A co-operating(selling )broker becomes a sub-agent of the listing broker
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What is a FIDUCIARY?
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The relationship between an agent and principal is called a FIDUCIARYThe broker is also called the FIDUCIARY.
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What does DUAL AGENCY mean?
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Agent represents opposite parties in a transaction.Legsl with written consent only.
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What are the different types of AGENCY agreements?
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DESIGNATED AGENCYSPECIAL AGENCYGENERAL AGENTUNIVERSAL AGENT
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What is a POWER OF ATTORNEY?
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Legal document that authorizes a person to act on behalf of another as their ATTORNEY-IN-FACT.
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What is a DESIGNATED AGENCY?
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Broker may degisnate individual salespersons as exclusive agents of their clients
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What is SPECIAL AGENCY?
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Principal authorizes agent to represent him in a specific matter and given him limited authority to that effect.
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What is a GENERAL AGENT?
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Agent is authorized to represent principsl in a range of matters. Uses general power of attorney making agent an ATTORNEY-IN-FACT
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What is a UNIVERSAL AGENT?
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One who is authorized to represent principal in ALL matters
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How do you CREATE AN AGENCY?
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EXPRESSED AGREEMENT-Written listing or buyer agency contract stating "I am your agent"IMPLIED AGENCY-Leading a person to believe that agent is representing him
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What is AGENCY DISCLOSURE?
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Provided by agent to buyers, sellers etc before they disclose any confidential information to agent. Purpose is to state agent's position as to who he represents.
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What is PROCURING CAUSE?
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Effort a agent contributes that results in a sale.
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What are the responsibilities of AGENT to PRINCIPAL?
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TRUSY, LOYALTY, SKILLCARE AND OBEDIENCEACCOUNTING FOR FUNDS AND ACTIONS
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What type of LISTING AGREEMENTS are there?
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EXCLUSIVE RIGHT TO SELL-Broker is employed as SOLE AGENT and promised a fee no matter what if property sells.EXCLUSIVE AGENCY LISTING-Gives broker right to sell. May sell himself without paying commission. Listing broker protected of other broker sell propertyOPEN LISTING-Multiple brokers only one gets paidNET LISTING/BUYER AGENCY-Broker can sell or buy at set price. Illegal in Michigan
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What is a PROTECTION CLAUSE?
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Inserted in listing agreement that protects broker incase a buyer he finds returns after listing expires and buys the property.
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CIVIL RIGHTS ACT OF 1866
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Prohibits discrimination because of RACE, without exceptions
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CIVIL RIGHTS ACT OF 1968
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TITLE 8Prohibits discriminationbecause of race, color, religion or national origin
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HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974
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Prohibits discrimination based on sex, and requires the use of an EQUAL HOUSING OPPORTUNITY poster
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THE MICHIGAN PERSONS WITH DISABILITIES CIVIL RIGHTS ACT
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July 28, 1976Defines the civil rights of persons with disabilities
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THE MICHIGAN CIVIL RIGHTS ACT
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ELLIOT LARSONApproved on January 13,1977Prohibits discrimination because of age and marital status with regards to emplyment.....height and weightAmended June 9, 1992 to include familial staus
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FAIR HOUSING ADMENDMENT ACT OF 1988
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Prohibits discrimination because of disability(mental or physical) and familial status (families with children)REFUSE TO PERMIT-at expense of disabled, reasonable modifications of premises, can require depositMULT-FAMILY DWELLINGS- after March 13, 1991. A 4 or more unit apartment complex must have ground floor accessible or elevator
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AMERICANS WITH DISABILITIES ACT(ADA)
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July 26, 1990Requires public facility and employers to make accomodations for disabled
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What are the remedies of those who feel they have been discriminated against?
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MICHIGAN CIVIL RIGHTS COMMISSION within 6 monthsTHE LOCAL COMMISSION OF HUMAN RELATIONSFILING PRIVATE CIVIL LAW SUIT, Circuit Court
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What are EXEMPTIONS to FEDERAL FAIR HOUSING LAWS?
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Sale of rent of single-family house. Owner can not have interest in more that 3 housesRooms in dwelling, not more that four families, owner lives in one unitReligious groups operating for other than commercial reasonsPrivate Clubs,not for commercial useFor senior citizens housing against those not 55 if 80% of units comply.
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What are PROHIBITED ACTS OF DISCRIMINATION?
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ADVERTISING can't indicate preferencesPREVENTING THE INSPECTION of propertyBLOCKBUSTING DISCRIMINATION BY FINANCIAL INSTITUTIONS
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What is a contract?
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A binding legal agreement between two or more parties who agree to conduct business.
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What are the contents of a contract?
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1 - Offer and acceptance2 - Valuable consideration3 - Legal capacity4 - Legal objectivity
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Offer and Acceptance
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Mutual AssentMeeting of the Minds
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The person who makes the offer is known as...
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Offeror
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Theperson receiving the offer is....
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the offeree
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Acceptance of an offer or a counter offer must be...
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Absolute not partial
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What is an Amendment?
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A contract used to amend the terms of a purchase agreement that is necessary after offer and acceptance.
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What is a contingent offer?
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An offer that bears a condition... subject to financing.
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Time is of the essense
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Time limit expressed on the contract is not flexible
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Valuable Consideration
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May be money or equivalentUnilateral - Exchanged for an act - ListingBilateral- Promise is exchanged for another promise - Accepted offer to purchase
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What is legal capacity?
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Persons entering into contract must be of legal age and sound mind
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What is legal objectivity?
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In contractsA contract for illegal purpose is void.
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Enforceability of contracts
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Valid contract - legally bindingVoid contract - Missing an essential element - may not be enforcedVoidable contract - Entered to under duress or misleadUnenforceable contract - not enforceable by court action
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What is Statue of Frauds?
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Requirescertain contracts to be in writing in order to be enforcable
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Contract related expressions Misrepresentation
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Innocent Misrepresentation An innocent mistatement of fcts
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Contract related expressions Fraud
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An intentional mis-statement of facts
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Contract related expressions Silent Fraud
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Act if wuthholding information regarding concealed property defects
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Contract related expressions Duress
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Use force against someone to enter a contract
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Contract related expressions Menace
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To threaten someone with force in order to enter a contract
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Contract related expressions Undue influence
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A close party has taken advantage of another to influence him so consent and understanding seriously impaired
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Contract related expressions Reality of consent
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Parties entered contracts with free will
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Contract related expressions Specific performance
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Court action to make breaching party to perform under terms of contract
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Contract related expressions Liquidated damages
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Amount of money paid to fully satisfy any damages suffered
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Contract related expressions Rescission
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The termination of a valid contract turning to status quo
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Contract related expressions Executory contract
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Contract signed by all parties but not perfomed in full yet.Once performed the is Executed Contract
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Contract related expressions Equitble Title
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Legal interest buyer acquires after signing a sales contract
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Contract related expressions Uniform vendor and purchaser risk act
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Seller bears any loss before buyer gets leagal title or takes possession
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Contract related expressions Caveate Emptor
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Latin - Let buyer bewareBuyer buys under own risk and should inspect property before purchase.
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Methods of Agreements
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Expressed ContractImplied Contract
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Expressed Contracts
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Agreed upon explicity between parties
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Implied contracts
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Making it know that you will act to fulfill a certain obligation
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How do you transfer rights in contracts?
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To AssignNovation of Contract
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Assignment of a contract
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A legal instrument used to pass rights and obligations from a contract party to another
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Novation of a Contract
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Substitution of a new contract in place of an existing one or substitution of a party with another
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Breach of Contract
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Violation of any of the terms or conditions of a contract without legal excuse
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The innocent party in a breach can:
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Buyer may ask for refundSeller may keep depositEither may sue for damagesEither may aue for specific performance
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How can a contract be terminated?
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Performance RecisissionOperation of the LawLegal contingency ExpirationRevocation RejectionImpossibility of Performance
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Termination of a ContractPerformance
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The purpose for which contract was done has been satisfied
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Termination of a ContractRecission
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Termination of a valis contract and returning to Status Quo
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Termination of a ContractOperation of the Law
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Termination for a legal reasonMinor, Fraud
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Termination of a ContractLegal contingency
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Can not get financing
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Termination of a ContractExpiration
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Time limit
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Termination of a ContractRevocation
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Offeror takes back
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Termination of a ContractRejection
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Offeree rejects
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Termination of a ContractImpossibility of Performance
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Cant continue lease when office burns down
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Option Contract
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Optionor give optionee right to buy property at fixed price for a stated time period for a fee
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Bundle of Rights
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Rights to own real eatate as a freehold eatate possession, enjoyment, lease, sell, will, mortgage etc
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Capital Gains on Sale of a Home
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Pricipal residence exempt up to $250,000/$500,000Must have lived in for 24 mo out of last 60 months
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Income Tax on Real Eatate Investments
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Income tax - RentsTax Shelter - DepreciationCapital Gains - Long term - 1yr 15%Tax Deferred Exchange - like exchange
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Two types of surveys
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Mortgage Survey(Report) Shows drawing of house and how it sits on landStake Survey - Actually establishes boundaries
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Assessing Buyer's Price Rnge
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Credit CheckIncome VerificationJob StabilityMeeting with Mortgage Officer
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Current Market ConditonsHow effect value
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Employment TrendsInterest RatesNew ConstructionForeseen enviromental problems (landfill)
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Services to Landlords
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Advertise PropertyEvaluate Rental MarketObtaining TenentsScreening Tenants
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Property ManagementMaintaining Fiduciary Responsibility to Owners
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Manager has written contractManager has trust/loyalty to owner/prinicpalPrinipals interest above agentsSepatate accounts for rents/depositsAgency disclosure is required by lawManager to act in good faith showing, collecting, books, maintenance
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Net Operating Income
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Projected Income-Vacancy-Operating ExpensesNot debt service
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Return on Investment
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NOI/Investment
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Cash Flow
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NOI-Debt Service
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Enviromental Hazards
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AsbestosLead-Based PaintPolycholorinated biphenyls(PCB)RadonUnderground storage tanksUrea FormaldehydeWater Quality
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Lease Agreements used in PM
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Estate at WillEstate for YearsEstate from Period to PeriodEstate as Sufferance
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Lease AgreementsEstate at Will
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Estate for undetermined duration usually month to monthEither party can terminate by notice
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Lease AgreementsEstate for Years
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Lease with predetermined durationLegal liability if lease contract is violated
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Lease AgreementsEstate from Period to Period
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Estate from year to yearAutomatic equal renewalsMight be month/month or yr/yr after lease expires
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Lease AgreementsEstate at Sufferance
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Tenent occupies with landlord's consent and then consent withdrawn
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Leasehold Estate
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Interest of a tenent in property acquired under a lease
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Leased Fee
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Landlord's interest in leased premises
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Reversionary Right
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Gives landlord right to lease property after tenent vacates
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Types of Leases
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NetGrossEscalatorPercentage LeaseGraduate LeaseIndex LeaseGround LeaseOil and Gas Lease
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Types of LeasesNet
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Tenent pays lease plus percent of operating expenses...taxes, insurance and maintenance
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Types of LeasesGross
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Tenent pays fixed rent
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Types of LeasesEscalator
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Escalation ClauseFor increased taxes, insurance, maintenance
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Types of LeasesPercentage Lease
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Reatil storeBase rent plus 1% gross sales
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Types of LeasesGraduate Lease
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Step-up LeaseLower first rentsEscalation Clause
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Types of LeasesIndex Lease
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Rent adjustments based on predetermined index CPI
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Types of LeasesGround Lease
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Lease of landUsually long termBuilding erected
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Types of LeasesOil and Gas Lease
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Owner get percent of profitsCompany looks for oil and gas
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Lease Terms
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Right of First RefusalLease with OptionFixtures ClauseSub-Lease ClauseAssignment of Lease ClauseLease runs with the land
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Lease TermsRight of First Refusal
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Allows tenant to match a purchase price offered by third party
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Lease TermsLease with Option
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Lets tenant purchase or obtain additional lease termSpecified price and termExpiration date
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Lease TermsFixtures Clause
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Allows fixtures installed by tenant to be removed
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Lease TermsSub-lease Clause
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Can prohibit tenant from sub-leasingIf can sub-lease Sub-lessorSub-lessor - sandwich leaseSub-lessor not released from liability
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Lease TermsAssignment of Lease
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Can prohibit assignment without lessor's consentIf can assign transfers rights and obligationsAssignor still liable unless released
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Lease TermsLease runs with the land
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When ownership transfers, lease continues to be binding
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Termination of Lease
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Performance - ExpirationMutual(Bilateral) agreementEvictionOperation of the Law - Bankruptcy, condemnation tax sale
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Title Search
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Title is searched by inspecting chain of recorded instruments- deeds, land contracts, assignments, mortgages
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Constructive Notice
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Public notice, results from recording an instrument
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Rules of Constructive Notice
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Does not have to be recorded to be validRecorded will have direct effect on searchInstuments recorded chronologicallyLaw presumes buyer has checked public record
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Encumbrances
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Leins, easements, mortgages,
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Marketable Title
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Free from clouds or defects
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Unmarketable Title
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Does not mean non-transferableCertain defects must be clearedClouds that must be cleared ex unpaid tax bill
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Title Insurance
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A policy that protects from: Unrecorded instruments Forged instruments and deeds Undiscloded or missing heirs Any info attorney might have missed
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Types of Title PoliciesOwner's
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Usually provided by seller - in amount of purchase price - Protects purchaser from losses due to title defects
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Types of Title PoliciesLender's
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Insures lender's interest in property agains?>t losses due to defective title
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Title ProblemsCloud on the Title
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Defects affecting marketability of title
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Title ProblemsQuieting Title Suit
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Court ordered hearing held to determine land ownership
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Title ProblemsSeller's Affidavit
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Seller required by title insurance company to sign not aware of any clouds
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Title ProblemsSubrogation Clause
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Clause in title policy that allows insurance company who pays claim to seek reimbursement from party causing cloud
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Title Abstracts
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Summary of recorded encumbrances ...now title insurance
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Liens
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A charge against property that provides security for debt
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Types of Liens
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Statutory - property tax, income taxEquitable - Usually placed as result of civil dispute
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Applicability of Liens
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Specific lienGeneral(Blanket) lien
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Specific Lien
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Applies to certain property onlyParcel is subjectMechanic's Lien, Real Estate Tax Liens, Special Assessments, Mortgage Lien
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General (Blanket) Lien
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Applies to a group of properties an individal ownsFederal/State Income Tax Liens
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Lis-Pendens
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Legal document giving notice of lawsuit affecting property
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Writ of Attachment
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Obtained to stop owner from selling property until lawsuit re ownership has been settled
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Purpose and Procedure of Settlement
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Licensee's RoleSeller's RoleBuyer's RoleClosing in Escrow
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SettlementLicensee's Role
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Broker must supervise in person or near phoneBroker must prepare closing statement with charges/creditsSalesperson should be present but not requiredFinal responsibily with listing broker
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SettlementSeller's Role
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Sign documents - Deed, Land Contract etcReceive fundsPay off liens
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SettlementBuyer's Role
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Deliver fundsSign closing statement
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SettlementClosing in Escrow
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Funds and/or documents held with broker until ...
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RESPA
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Real Estate Settement Procedures Act
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RESPA Definition
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Federal Law regulates and standarize settlement practices1st or 2nd mortgages on 1-4 family homesInform buyers and sellers of their chages and credits.
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Obligation of Settlement Agent
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Verify identity of all partiesParties to sign all documentsFunds and documents distributed to proper peopleSent to Register of DeedsProper IRS and State forms filed
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Deed
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An instrument used to transfer title to real estate
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Deed Contents
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Names and AdressesClause of conveyanceTo have and to hold(Habendum Clause) How conveyedDeed RestrictionsValuable considrerationLegal descriptionExecutionDelivery and acceptanceRecording
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Types of Deeds
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WarrantyQuit claimJudicial
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Types of Deeds - Warranty
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GeneralSpecial WarrantyBargain and Sale
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Types of Deeds - Warranty - General (Full)
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Contains ALL deed covenantsCovenant of SeisinCovenant against emcumbrancesCovenant of quiet enjoymentCovenant of warranty of titleCovenant of further assurance
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Types of Deeds - Warranty -Special Warranty
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Conveys title but guarantees only against claims from grantor's period of ownership
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Types of Deeds - Warranty - Bargain and sale deed
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Conveys title only
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Types of Deeds - Quit claim
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Bad NewsUsed to relinquish interest in property from grantorNo assurance of ownership or quality of title
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Types of Deeds - Judicial
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Ordered by the courtExecutor's Deed - ProbateAdministrator's deedGuardian's deedTrustee's deedSherriff's deed
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Other settlement documents
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Bill of SalePrommissory noteMortgageSeller financing instruments
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Transfer Tax
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Revenue Stamps-by seller, .55 per $500.00 None if <$100.00 or no money exchangedState Tax-by seller, upon recording $3.75 per $500.00
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Rights of others
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EasementsLicense-permission granted to enter land for specific purposeEncroachmentAdverse PossessionGovernment Powers
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Government Powers
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TaxationEminent DomainPolice powersEscheat -Prop to state when no heirs
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Adverse possession
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Person occupies land for 15 years (MI) then seeks court order to recieve title.Quieting Title Suit
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Types of Financing
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Purchase Money Mortgage-Seller is mortgage holderLand Contract- Title not transfered. Seller has naked title.Deed of Trust-title transfered to trustee
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Repayment Methods
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Conventional MortgageUnconventional - with gov insurFully Amortized - Paid offFixed Rate - Adjustable Rate ARMChattel Mortgage - Lien on personal Prob
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Repayment Methods 2
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Open-end - line of creditBudget - with escrowWrap-around - 2nd positionJunior - 2nd mortgageConstruction-short term,draws
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Repayment 3
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Graduated Payment lower earlyBlanket-over mult prop partial release clauseBalloon-lump sum at endReverse-RAM-rev annuity mort
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Repayment 4
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Nonamortized loan-interest periodically due bal lump sumPackage-home and furnitureBridge-temp loan to buy 2nd house until 1st sold
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Repayment 5
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Buy down mortgage-extra points to lower interest rateShared appreciation lender partic. in future apprecParticipation lender gets income
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Forms of financing
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FHA Federal Housing AuthorityFMHA-Farmer's Home AdministrationVA Veteran's Administration
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FHA Fereal Housing Authority
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Under HUD Departent of Housing and Urban Developement Insures loans Appraisal required Owner occupied FHA Conditions(must be fixed
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FMHAFarmers Home Administration
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Dept of AgricultureFarming areasGuarrantees loansInsures loans initiated by agency
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VA Veterans Administration
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Service readjustment ACT 1944 Must be veteran No downpayment Owner occupiedFunding Fee 2% 0 down, 1.5 5%, 1.25 10%
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Secondary Mortgage Markets Federally Chatered
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Ginnie Mae(GMNA) Freddie Mac(FHLMC)Fannie Mae((FNMA)
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GMNAGovernment National Mort AssocGinnie Mae
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Government Owned Div of HUDPurchase FHA low yield high risk
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FHLMCFederal Home Loan Mort CorpFreddie Mac
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Orig. for funding of Federal savings and loansRaises money by selling bondsPrimarily conventional loans
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FNMAFederal National Mortgage AssocFannie Mae
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Purchase FHA,VA and conventionalBuys pool of mort in exchange for mort backed securuities.Federally chartered but acts like corp.
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