• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

Card Range To Study



Play button


Play button




Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

171 Cards in this Set

  • Front
  • Back
What are the 2 different approaches to negotiating the terms of a Complex Real Estate Transaction during the deal making phase?
1) Letter of Intent Approach 2) Purchase Agreement Approach
Describe the LOI Approach (as opposed to Purchase Agreement Approach)
Reach agreement on the terms; both sign the LOI; move to the Due Diligence Phase; Purchase agreement is not signed until closing;
Problems with LOI Approach (as opposed to Purchase Agreement Approach)
Enforceability - No agreement until the purchase agreement is signed.
Advantages of LOI Approach (as opposed to Purchase Agreement Approach)
1) faster 2) Less burdened by legalese
"If you use a LOI Approach, what other agreement should you be sure to get signed?"
Right of Entry Agreement
Describe Purchase Agreement Approach (as opposed to Letter of Agreement Approach)
All the terms and conditions are agreed to before entering into the Due Diligence Phase; All essential terms are dealt with up front
Problems with Purchase Agreement Approach (as opposed to Letter of Intent Approach)
Much slower and more convuluted
Advantages with Purchase Agreement Approach (as opposed to Letter of Intent Approach)
"This is an honest-to-goodness contract; Raises all known issues before spending money on due diligence; If you have performed $50 in due diligence, you may be able to sue for damages or specific performance;"
Elements of a Formal Purchase Agreement
1 Parties; 2 Identy of the Property; 3 Purchase Price; 4 Escrow; 5 Type of Deed; 6 Risk of Loss/Condemnation and Prorations; 7 Remedies; 8 Right of Entry; 9 Warranties and Representations; 10 Contingencies; 11 Closing Cost
Formal Purchase Agreement - Parties - What to Watch For
"Names must be spelled correct; Individuals must warrant they are single or spouse must sign as well; Under Arkansas Law, if a married person owns property, the spouse has dower/curtesy interest in the property. For corporations, Arkansas Secretary of State, go to corporations, search for corporations, go to incorporations."
Formal Purchase Agreement - Parties - Arkansas law bars dower and curtesy after how many years?
28-11-203: If spouse has not asserted his/her right after 7 years of the date the conyance was recorded
Formal Purchase Agreement - Types of legal descriptions? Why Is It Important?
"Metes and Bounds; Lot and Block (aka Platted Legal Description). Important b/c Equity may give you damages, but not much, if you have wrong description. "
Formal Purchase Agreement - Legal Description - Describe Metes and Bounds
Defining the boundaries of the property through the use of measurments and references to fixed points
Formal Purchase Agreement - Legal Description - 2 Common Errors in Metes and Bounds
1) Failure to Close 2) Use of inappropriate marker or reference point
Formal Purchase Agreement - Legal Description - Describe Lot and Block
a landowner can plat his property by taking a survey with metes and bounds legal description of various lots and labeling the lots (Lot 9 Block 2 of the…). Then the plat is filed in the county real estate records that can be referenced in the future
Formal Purchase Agreement - Legal Description - Three drawbacks for Lot and Block
"1) metes and bounds legal description must be prepared before they can be platted; 2) undeveloped land is seldom platted before it is developed in a Complex Real Estate Trans; 3) If you want to buy a portion of a lot, then you have to get the metes and bounds description for the portion you want to buy; "
Formal Purchase Agreement - If you break up your property below 5 acres you have to do what?
"go through metes and bounds and plat it. Filing a plat is not a matter of right, it’s a privilege. Means they are about to stick it to you."
Formal Purchase Agreement -What are Exactions?
Fees tacked on to lots; fire; water
Formal Purchase Agreement - How to properly identify a property in a purchase agreement?
Describe the property with as much detail as possible; accept the fact that the agreement may not be enforceable until it is amended with a more accurate description; warn the client; Use a map with hand drawn boundaries for good measure; Tax Parcel ID Numbers even though they are practically useless
What else should be described when Identifying the Property in the Purchase Agreement?
"What is included in the property (buildings, crops, can seller move fixtures, can seller harvest timber, mineral rights, etc.)"
Formal Purchase Agreement - Purchase Price - What questions should you ask Client?
Is there a floor or ceiling on the purchase price? Is unusable land excluded? What if survey reveals far less/more property than originally thought?
Formal Purchase Agreement - Escrow - What issues should you raise?
"Which Title Co, how much earnest money, who will hold the deposit/earnest, cash or letter of credit, deposit is credit or independent consideration for the purchase agreement, refundability"
Formal Purchase Agreement - What are the different types of deeds?
"General Warranty Deed, Special Warranty Deed, Quitclaim deed, Limited warranty Deed"
Formal Purchase Agreement - Describe a General Warranty Deed
"Seller promises that he owns the property, the property is free of encumbrances and the seller will defend buyer against all claims by third parties."
Formal Purchase Agreement - Describe a Special Warranty Deed
Seller promises he has the right to transfer and he has not personally created any encumberances. No promises about predecessors.
Formal Purchase Agreement - Describe a Quitclaim Deed
No promises or warranties whatsoever. Only appropriate to convey lesser interets (such as easements) or settle disputes (such as property line disputes)
Formal Purchase Agreement - Describe a Limited warranty deed
issued by the state because of failure to pay taxes. 90% of time the state screws it up.
Formal Purchase Agreement - Most appropriate way to sell land?
Modified General Warranty Deed
It carves out the encumbrances that exist

Provides that there are no encumbrances or defects of title.

Never let a client buy property where the deed stats that transfer is subject to all matters of record or fact(Makes it a quitclaim deed);

Compromise- subject to all matters of record;

Permitted Exception - subject to the “permitted exceptions”- in title insurance policy, there is a list of the permitted

exceptions- this list is the things that the title insurance co will not insure. Special exceptions from title search is usually transferred to exceptions to general warranty deed.

Title insurance basically just gives you what the title company missed and from fraud.
Formal Purchase Agreement - Should you sell your neighbors house with a quitclaim deed?
"No. Buyer could still pursue a common law fraud claim; Also, there is a tort called slander of title which allows you to be sued if you maliciously clutter the title to someone else's property."
Formal Purchase Agreement -Risk of Loss, Condemnation and Proratons - what is the worry?
Catastrophe prior to closing: typically sale continues with abatement of purchase price; If significant then the buyer may cancel;
Formal Purchase Agreement - Remedies - What does professor recommend?
Limit S remedy to retention of deposit as liquidated damages; B has right ot specific performance or sue to recover due diligence expenses; five to ten days after notice to cure;
Formal Purchase Agreement - What concerns should be discussed in the right of entry?
actions that disrupts existing tenants and damages to property due to entry
Formal Purchase Agreement - What are 7 common Warranties and Representations
M) maintenance of the property in its existing condition;
A) authority to enter into the agreement
D) facts that could affect the ability of the buyer to develop
E) environmental condition;

L) possible litigation affecting the property;
U) existence of unrecorded interests in the property;
V) violations of any laws;
Formal Purchase Agreement - How can seller limit his Warranties and Representations
Add to the best of sellers knowledge or limit to only breach of specific warranties
Formal Purchase Agreement - What are typical Closing Cost Paid by Seller
"drawing the deed, recording the deed, title insurance"
Formal Purchase Agreement - What are typical Closing Cost Paid by Buyer
"survey, appraisal"
Formal Purchase Agreement - What are typical Closing Costs are split?
"revenue stamps, title company closing fee"
What are two categories of ancillary agreements?
1) Buyer-Seller Agreement; 2) Buyer-3rdpty Agreement
Ancillary Agreements - What are the most common ancillary agreements?
"Easments, restrictive covenants and development agreements"
Ancillary Agreements - Easements - What are the 8 common types of easements to consider?
"Access, utility, parking, drainage, detention, permanent slop, temporary grading/excavation, temporary construction"
Ancillary Agreements - Restrictive Covenants - What are four common types of restrictive covenants in CRET?
"Prohibit competitor stores, forbidding non-family-friendly uses, Covenant to Open, Covenant of Continous Operation"
Ancillary Agreements - Restrictive Covenants - Describe a Development Agreement
"Between the parties on how to build the shopping center; Not a construction contract; Contemplates who is responsible for building what, how the cost will be apportiened, when construction must be complete"
Ancillary Agreements - Restrictive Covenants - What is a big box retailer?
"75,000+ square feet"
"At closing, what must seller have?"
Marketable Title - free and clear of alll liens and other encumbrances
What is title insurance
A policy that guarantees that thebuyer and buyer's lender that there is good marketable title.
"Title Insurance has a controversial law, what is it? "
"only requires title insurance to go back 30 years. You can ask for more. If they refuse, go to another agent. This may not be good enough to protect against restricted covenants"
Private mortgage interest; insurance policy that bank may force you to buy if you are a higher credit risk
Due Dilligence - What 5 matters were covered?
Title Review 2) enviornmental site assesment 3) zoning approval 4) wetlands compliance and 5) floodplain issues
Due Dilligence - What is title review
"Ordered when purchase agreement is signed; title agent looks at the legal description and tries to generalte a preliminary commitment (typically takes 3d to 2wks), once you get prelim. Commit ask for special exception docs."
Due Dilligence - title review - Is title commitment and title insurance the same?
No. title commitment is an offer of title insurance upon the terms and conditions listed in the commitment
Due Dilligence - title review - What is on Schedule A of the Title Commitment
"Name of underwriter, commitment id number, effective date, issue date, name of propsed insured, amount of the policy, name of the proposed lender, amount of the propsed lender policy, title insurance form, name of current owner, ownership interest of the current owner (fee simple), legal description"
Due Dilligence - title review - What is on Schedule B-I of the Title Commitment
Requirements that must be fulfiled
Due Dilligence - title review - What is on Schedule B-II of the Title Commitment
"The heard of the commitment: all the standard exceptions (can be removed for a fee) and special exceptions (easements, restrictive covenants)"
Due Dilligence - title review - what is a blanket easement
"Easement that fails to define or specify either the location, width, length or other dimensions of the strip of property actually utilized; AKA floating right of ways or floating easements; Utility company were notorius for utilizing; valid in AR See Bradley v. Arkansas Louisiana Gas Co"
Due Dilligence - title review - what are endorsements?
special addendums to the tilte policy insuring against specific risks or changing the terms and conditions of the title policy.
Due Dilligence - title review - what are the 5 endorsements discussed?
"1) Waiver of Arbitration, 2) Survey (guarantees the survey is accurate); 3) Comprehensive (catch all to insure against certain private property restrictions) 4) Contiguity (insures that parcels of land are contiguous) 5) Access (insures that property abuts an open, named public street)"
Who manages Enviornmental Issues for Arkansas?
"1) EPA- environmental protection agency 2) ADEQ-delegated authority from EPA to ADEQ. ADEQ does outstanding job for most part handling federal laws and has kept EPA happy, so EPA hasn’t really been involved."
Envirionmental Assessment - Two Main Types of ESA's
Transational Screens (does not satisfy the all appropriate inquiries test rqd by EPA) and Phase I Reviews;
Envirionmental Assessment - Describe the Phase 1 ESA
Starts with a text of 30-40 pags but should total 250+ pages; attempts to identify Recognized Enviornmental Conditions (RECs). Identfication does not mean contamination. They have to come out and look at the property.
Envirionmental Assessment - Describe the Phase 1 Continuation
"AKA Limited Site Investigation; Once REC's are flagged, Phase II created a customized plan to further investigate the RECs; Phase III remediation of the problems; No Further Action Letter (NFA) is given after ADEQ says you are clean;"
Innocent Landowner defense
many nuances; essentially, if you innocently take property and you did not contaminate, you can walk away and all you lose is the property. It’s not a pure defense to liability, b/c you can still lose cost of land. IF you want to qualify for this defense, must complete all appropriate inquiries before acquiring title to the property. Hire environmental consultants that are qualified.
Zoning Approval - 3 keys to remember
"cities have no obligation to rezone, you must convince them; 2) just because it is properly zoned does not mean you have the right to build 3) get permission from the city to subdivide"
What is Geotech
"process of testing soils to see if they are capable of supporting the building. Typicall done through borings that are dug into the ground and then the soils are tested. Isn’t as big of an issue in LR as in other states b/c we have a lot of rock here, so most soil is good to build on. But, there are patches of expansive clay in WLR that may cause serious settlement issues. Typicall not an issue with residential house (Wood and masonry) but with commercial building(Steel frames/beams, etc). Example- See leaning tower of piza."
What Are Traffic Studies
"Often will have to do study on traffic and see what your buildings effect will be on traffic study. Many cities will mandate that a traffic study will be done to determine impact of traffic to area and what if anything needs to be done to mitigate the harm to the traffic. Hypo- Megamall- yes, it’ll increase traffic. May need to widen roads, add traffic signals, change timing of traffic signals."
Welands Compliance - Describe It
"Requires any developer disturbing waters of the US (including wetlands) to hold a valid 404 permit issued by the corps; Get a wetland scientist to perform a wetlands delineation; If wetlands are present the corps and engineers must determine the extent of any disturbance; Damages are usually multiples; You cannot touch wetlands even if you own them. Farmers often have a sepecial exemption"
Welands Compliance - Wetlands Delineation - What is easier to obtain: 404 nationwide or 404 Indivdiual
404 Nationwide; How much wetlands are we disturbing…if less than ½ acres in aggregate, then you are the nationwide approval process. If you are disturbing more than ½ acre then you are in the individual approval process. The process in the industry is the 404 process, wetlands dilineation process. Looking for 404 nationwide permit or 404 individual permit. Important industry jargon.
channel of where water is supposed to go when it rains
Where water may go when overflow of floodway
The risk of flooding as determined by FEMA
10-year flood plain
at least 10% chance every year that there will be enough rain to cause the area to flood.

X Year Flood Plane: 1 / X = precent chance of a flood occuring per year
500-year flood plain
0.2% chance annually of flood
Base Flood
AKA 100 year flood plain
Base Flood Elevation
The height, relative to the mean sea level, that has a one percent chance or greater of flooding in a given year as determined by FEMA and adopted by your local jurisdiction.
Floodplain Issues - Describe It
Identifies whether any of the property is affected by flooding; FEMA is responbile for working with communities and enforcing ordanices that meet the minimum floodplain management requirements of National Flood Insurance Program (NFIP). It is illegal by federal lawy to build in a floodway
Floodplain Issues - NFIP Participation
"Voluntary participation. Many communities in AR participate. If a community does not participate in NFIP, property owners cannot receive financing for projects within a Special Flood Hazard Area (SFHA)."
Conditional Letter of Map Revision (CLOMR)
"Has to be submitted by certified engineer and says FEMA this is reason why we don’t think its in flood plain and what we’re doing to make it out of flood plain. Take a look and see if you agree. FEMA says you’re right, if you do the steps you said. Typically takes about 6 months. Promise from FEMA that if you do what you said you were going to do then FEMA will give you a LOMR."
Letter of Map Revision; banks can rely on LOMR legally to decide not to require flood insurance
Three Types of Endangered Species
"1) potentially threatened- also watch list…not protected by federal law; they are thinking about protecting them, but not protected today. 2) Threatended- Means species is at serious risk of extinction; they are protected. Typically you can do a type of relocation. 3) Endangered- on the verge extinction; most federal protection; probably wont be able to relocated"
How do you get determination of whether you threaten species?
"4) Determination Letter-write them letters and give them map of property- are you aware of any threatened species that use this for habitat. a. United States Fish and Wildlife b. Arkansas Game and Fish Commission"
"Native American grave protection act- anything that is native American burials, cultural native American artifacts, etc. you can go to jail for messing with these improperly. If you hit this issue, it usually kills the project. Usually takes a couple years to work through it."
National historic preservation act
"National historic preservation act (Aka “Section 106”- what triggers controls on certain types of..); 106 says any time there is an undertaken 106 compliance kicks in…an undertake in one of three scenarios: o 1)federal govt is an actor o 2) if project is in anyway supported by federal dollars; $1fed dollar taints the whole project. o 3) anytime federal permit is involved.
What do a lot of project have to do? 404 wetlands triggers 106
• National registry of historic places • State registry of historic places • Advisory council on historic preservation
National Historic Preservation Act - APE
"i. At beginning of project, you are supposed to define the APE: Area of potential Effect. Ex. Building condos on gettyburg. Can’t build on ground b/c owned by fed govt. but, how close can you get? There was a lawsuit about Gettysburg and the developer lost…would have affected the aesthetic around the battlefield. ii. The notices iii. Stop, look, listen, do as you will 1. Sect. 106 doesn’t mean you can’t ever build something that would cause adverse effects to these historic sites. But, you have to show a good faith effort that you went through the process…typically takes around 2 years."
Surveys - Boundary
Boundary- land boundaries and building locations (most common- ID’s the boundaries of the property); very basic survey; most boundary surveys are “retracements”-meaning the surveyor is doing nothing but retracing what other surveyors have done in past and verifying nothing has been placed over the previous survey pins. 99% are simple retracements.
Surveys - Topographic
"the elevation points on a particular piece of land; extremely expensive- $25-35k to do full detailed, approx. 10 acres. Typically only done when you have a major construction."
Surveys - As built
surveyor surveys all structures on the property as well and where they are at. Banks will require this so that they can verify what they paid for got built.
Public Land Survey System (PLSS)
" a way of subdividing and describing land in the United States; 37 Principal Meridian States; • Each legal description is going to start out telling you township, range, and section. If you have this, you can go to gov’t map and get down to 1 sqaure mile to where the property is located. Each section is then divided into quarters. Each quarter is 160 acres. Each quarter is further subdivided into other quarter sections which are 40 acre blocks.(one square mile is 640 acres). o Once you get to 40 acre section; then legal description usually shifts to geometric descriptions."
Closing Elements - Title Agency Closing Documents
1. Settlement Statement (a/k/a HUD-1); 2. Proration Calculation Forms; 3. Entity Transferor Form; 4. Lien Release Form; 5. Seller's Affidavit; 6. Final Title Commitment and/or Pro Forma; and 7. Instrument of Conveyance.
Closing Elements - Lawyer Closing Documents - 2 Main Documents
(i) request for an insured closing letter; and (ii) closing instruction letter.
Closing Elements - Lawyer Closing Documents -Request for an insured closing letter
promising indemnification for the bad acts of the title agency
Closing Elements - Lawyer Closing Documents -Request for an closing letter instrution
explaining how the lawyer wants the closing handle
Closing Elements - New York Style Markup
"New York-Style Markup: title agent takes final title commitment... scratches through and initials B-I requirement, scratches the Date on Schd A and changes the date/time moment of closing"
Closing Elements - Pro Forma
"when all the requirements are fulfilled, the title agent scratches out Pro Forma, initials, and the Pro Forma becomes actual and enforceable policy. Do not give the funding authorization letter until you rcv the the signed Pro Forma."
Post Closing - 3 Steps
"Loose ends, get recorded copies of all docs that were filed with the county clerk, call the county tax assessor and request a copy of the tax assessment (confirm new name and legal descr)"
Post Closing - Do we have any 2-county-seats?
Yes. 10 counties have 2-county-seats. Be sure they're filed in the proper one.
Lenders - Banks Are Generally Exempt from Arkansas Usury Laws
True. AR Constitution is 5% above the Fed. Discount Rate. Since it was abolished, the Supremem Court set it at 5% above the new primary rate (Pakay v. Davis)
Lenders - Common types of Sureties
1) the property 2) future income related to the property 3) other property owned by the borrower 4 guarantees from other parties 5) participation agreements from lenders 6) self help repayment assurance enforcers
Mortgagor is the borrower; Mortgagee is the lender
Loan Documentation - What are the key documents?
1) Loan Agreement 2) Promissory Note 3) Mortgage 4) Guarantee Agreement
Loan Documentation - What is a loan agreement and what are the key terms?
The basic foundational document for a loan. Key terms include 1) loan amount 2) loan disbursement plan 3) repayment schedule 4) Interest Rate 5) Prepayment 6) Use of the Loan Proceeds 7)Surety and Collateral 8) Reps and Warrants 9) Affirmative Covenants 10) Indemnification 11) Events of default and remedies
Loan Agreement - What are the basic considerations?
1) freq. of payments 2) amoutn of interest paid with each payment 3) amoun of principal repaid with each payment 4) other amounts included in the payment 5) whether a balloon payment is incorporated 6) where the payments are made 7) consequences of late payments
Loan Agreement - What are the various interest rate indexes described?
1) WSJ Prime Rate 2) Fed Discount Rate 3) Fed Funds Rate 4) London Inter Bank Offered Rate 5) Tbill
Loan Agreement - Interest Rates - What is a basis point?
Equal to 0.01% or 1/100th of 1%

Usually used for interest rate. For example, 4.67% rate increases by 10 basis points to 4.77%
Loan Agreement - Surety and Collateral - What formula do you use to calculate Loan Amount?
CollateralValue * LTV = Loan Amount
Loan Agreement - Surety and Collateral - Office bldg with FMV of $1M but I borrowed $950,000. What is the LTV ratio?
LTV ratio is 1 to 95 or (1:95) or 95%
Loan Agreement - Reps & Warrants - what are usually representations of the borrower
1) authority 2) enforceability 3) No environmental problem 4) zoning or similar authorization
Loan Agreement - What is an Affirmative Covenant? What are common affirmative covenants?
"A promise from the borrower to take certain actions. Common affirmative covenants: insurance, taxes, legal existence, remittance of insurance proceeds, requests for info, estoppel certificates, books and records, compliance with laws, inspections, repairs, minimum net worth, notice of material events, no bankruptcy, no death without permission, flood insurance (expensive and reqd if w/i a 100yr flood plane)"
Promissory Note - Promise to pay - What is required in a promissory note to be negotiable?
1) Unconditional promise 2) to pay 3) a specific sum of money 4) on demand or at a definite time 5) To bearer or to order 6) No other undertaking or promise
Promissory Note - Promise to pay - What is a Holder in Due Course?
innocent party who purchases a negotiable instrument for value without knowledge of any problems related to the promissory note. The HDC can enforce thepromissory note against the maker under nearly all circumstances
Promissory Note - Promisory Note - Does a buyer prefer a negotiable or non negotiable note?
Buyers prefer a nonnegotiable promissory note; Lenders prefer a negotiable promissory note;
Promissory Note - what is a usury savings clause?
"is a provision in the note designed to protect the lender from usury claims by stating that the interest due under the note will automatically be reduced if the amount of interest charged violates the usury laws. It's very questionable whether usury savings clauses are enforceable in court, but attorneys usually throw them in to be on the safe-side."
Mortgage - what is a mortgage?
The mortgage is the instrument used to secure the lender's interest in the real estate.
Mortgage - what are the key provisions?
1) Granting Language 2) amount of debt and repayment schedule 3) covenants and conditions 4) Final payment date 18-40-103
Mortgage - What right does the granting language give the lender?
Fee simple absolute with retention ability to retain to reposes and possiblity of reverter upon fulfilling the obligation of the loan
Mortgage - What is the credit enhancement tool?
"Anything that makes a loan less risky, like collateral or a guarantee agreement (promise from someone else to repay the loan)"
Mortgage - Guarantee Agreement Typical terms
1) Joint and Several Liab 2) Pro Rata Guarantee 3) Waivor of Statuory and Common Law Defenses
Investors - What Is an Equity Investor?
people who invest money in the entity that is undertaking the CRET expecting a return on the investment.
Equity Investors - What are the five broad sources of securities law (2 fed and 3 state)
(i) the Securities Act of 1933; (ii) the Securities Exchange Act of 1934; (iii) Securities and Exchange Commission (SEC) Regulations; (iv) the Arkansas Securities Act (Ark. Code Ann. §§ 23-42-101 et seq.); and (v) Arkansas Securities Department Regulations.
Equity Investors - Typical Steps
Disclosure through Offering Memo and registration BEFORE any OFFER is made
Equity Investors - Offering Memorandum
Certain defined information that must be provided to investors. This disclosure is generally done in the form of an offering memorandum.
Equity Investors - How to Violation
Offering alone is a violation
Equity Investors - Exemptions
"there are certain circumstances where you can avoid the full application of securities law by meeting certain requirements such as 1) total size, 2) sophistication, 3) wealth of investors, and 4) the geographic scope of the exemption."
Equity Investors - What is a Rule 506/Reg D Exemption
Rule 506 sometimes referred to as a Reg D Exemption is a popular exemption because it preempts state securities law. Great if investors are in multiple states. Still requires registration with State.
Equity Investors - What is a Rule 506/Reg D - 8 Specifics
1) No dollar cap. 2) Prohibis general advertising. 3) Permits direct solicitation. 4) Restricted shares 5) finacial statements prepared by CPA 6) skip the offering memo unless there is 1 unaccredited investor 7) Allows unlimited number of accredited investors 8) 35 non-accredited investors
Equity Investors - What makes someone accredited?
"(i) have a net worth of at least $1,000,000; or (ii) have income exceeding $200,000 ($300,000 joint income with a spouse) the last two consecutive years with a reasonable expectation of the same income level in the current year"
Equity Investors - Integration Doctrine - 5 factors to determin if multiple offers should be merged
(i)different offerings are part of a single plan of financing; (ii) whether the offerings involve issuance of the same class of security; (iii) whether the offerings are made at or about the same time; (iv) whether the same type of consideration is received for each offering; and (v) whether the offerings are made for the same general purpose.
Investors - What Is an Capital Investor?
"person who buys some aspect of the CRET (as opposed to buying a portion of the entity that is undertaking the CRET). The purchase infuses money into the CRET, and the capital investor expects a return on the investment. "
Investors - Three types of capital investors
(i) ground lease landlords; (ii) sale-leaseback landlords; and (iii) tax credit purchasers.
Capital Investors - Ground lease
Triple Net; long term; tenant is responsible for 1) maintenance 2) taxes 3) Insurance
Capital Investors - Ground lease - Types of maintenance
1) total 2) shell mainteance 3) HVAC
Capital Investors - Ground lease - Insurance Questions
Who pays? Commercial General Liability required?
Capital Investors - Ground lease - Right of First Refusal
Tenant gets option to purchase before selling to public
Capital Investors - Ground lease - What options does LL have for Bad Tenants
surrender vs. sublet on tenants behalf; removal of tenant property; Indemnification
Capital Investors - What is a Sale Leasbacks
"(think mortgage) disguised as a landlord-tenant relationship. It is identical in many ways to a ground lease, but with characteristics that have a great deal in common with more traditional loans"
Capital Investors - What is a Sale Leasbacks
"Owner of a business sells his property to a third-party but retains all rights (and obligations) to maintain and operate the property. Sale-leasebacks are often paired with rights to repurchase, rights of first refusal and, sometimes, rights to buy the property back after the end of the lease for a nominal amount."
What is the leasehold estate?
What are you leasing? description
Doctrine of Surrender
"The doctrine of surrender at common law was desiged to be landlord friendly. What it has evolved into now is it typically hurts landlords. In many leases, there’s going to be a clause where the parties waive the common law surrender. Surrender- if a tenant moves out, the landlord has a right to treat the vacancy as a surrender of the property at which time the landlord can go in and change locks and release to somewhere else free and clear of the tenant’s interest. Bad part- accepting the tenant’s surrender through words or deeds terminates the lease and releases the tenant from any further liability."
Mitigation Doctrine
mitigation of damages…instead I’m going in and reletting the premises on your behalf to mitigate your damages…now you pay the shortfall. Make sure you’re doing as mitigation of damages instead of doctrine of surrender.
Remove Tenants in Arkansas
"1) Basic eviction statute- which is generally despised by anyone rather than residential folks. Works pretty well in residential. Significant flaws in commercial; • Most of the time evicition is more of a formality to get a court order. 2)Forcible detainer- separate statute that gives right to remove someone with the sheriff who does not have lawful right to be there. Same statute to use if you have a squatter"
Landlord Lien
"Have lien on property of tenant. Arkansas it’s a low level lien. In texas, it’s a higher priority."
Memorandum of lease
document reported that records the property is leased. Usually one or two pages that spells out main details. Doesn’t list amount of rent(Keep that confidential); usually only says term and right of refusal.
Advantages of Lease Backs
Great way to get around USURY law and also there’s preferential tax treatment to rent also typically it has longer terms
Tax Credit Purchase - Give an example
"Project is awarded $100,000 a year in tax credits for ten years. Developer will partner with investor to syndicate the credits. Investor makes capital investment of $900,000, which the developer will to build. The partnership will be structured so that 99.99% of the tax credits go to the investor each year."
Tax Credit Purchase - Syndication Market
Market for buying/selling tax credits
Redevelopment Districts (AKA TIF districts) - Explain
"most common form of govt subsidized development; Amendment 78 passed in 2000, allows cities and counties to form and revitalize economically depressed areas. This allowed these community to capture the INCREASE OF PROPERTY TAX revenue generated by a CRET to pay for public improvements through a tax increment financing (TIF)"
Redevelopment Districts (AKA TIF districts) - Assessed Value
20% of actual value
Redevelopment Districts (AKA TIF districts) - What is 1 Mill?
$0.001; Usually pledged to specific govt function
Redevelopment Districts (AKA TIF districts) - What is Millage Rate?
Total # of applied mills
Redevelopment Districts (AKA TIF districts) -Annual Taxes
Annual Taxes = Assessd Value X ($0.001 X millage rate)
Redevelopment Districts (AKA TIF districts) - Example
"district formed, current assessed val is $1M; District current $50,000 taxes annually (based on a millage rate of 50 mills) property taxes are calculated by multiplying the assess val of property by the millage rate. $1,000,000 X ($0.001 X 50) = $50,000 per year"
Redevelopment Districts (AKA TIF districts) - Capture of the TAX INCREMENT
"If after development, district is worth $10M then the annual taxes would be: $10M x ($0.001 x 50) = $500,000 per year. This is a tax increment of $450k "
Redevelopment Districts (AKA TIF districts) - City of Fayetteville v. Washington Co.
Ended TIF financing; Excluded first 25 mills of the city's total milage rate. This is in addition to the millage rate already pleaged to 1) libraries 2) county hospitals 3) police/fireman funds.
Improvement Districts - Describe
Special districts formed by a city to create new property tax within the district for the purpose of directing the new tax revenue to pay for infrastructure improvements within the district
Improvement Districts - Describe
1) Group of landowners or developer define an area 2) developer gets consent of the majority in via a petition 3) Developer determines how much to raise the prop tax which covers the amount he wants the district to borrow 4) city council approval
Improvement Districts - How is the consent of the majority determined?
Majority (51%) based on assessed value
Improvement Districts - What if assessed values go even higher than expected after improvements?
district can reduce the tax rate as long as the district is still able to make its bond payments.
Subdivision - Define Size of 1 Quarter with respect to a Regular Section
1 Section is one-mile square; 1 Section has 4 Quarter-Section (160 acres each); 1 Quarter-Section is broken into 4 Quarter-Quarter-Sections (40 acres each)
"Subdivision - How to define NW 1/4, NE 1/4, Sec. 34 "
State the smallest first: the Northwest quarter of the Northeast quarter of Section 34
Lis Pendens
"File in real estate transaction. From the moment that hits file any transaction involving property is subject to the outcome of the case. Be careful though, Arkansas will count this as a tort if it’s frivolous. "
Standard realtor forms
Copyrighted. Not in the Public Domain.
First Question to Ask in a Purchase Agreement
Is it a comprehensive or simple agreement?
Typicall Obstacles of Improvement Districts
1) forming the district 2) getting financing- 20 mill bond; 3) physically bringing water out there
Arkansas Statute of Limitations for breach
5 years
Delivery at closing should include what?
seller conveys the property immediately free of any other possessor. 1) Existing tenants are moved over using an estoppel certificate which makes existing tenants attorn to you and 2) have seller convey the lease
Transfer Tax in Arkansas
"Land valued over one hundred; $3.30 per thousand dollars, rounded up to the nearest thousand of the sale price. Ex. Purchase price $999,999.00 $1,000,000/1000=$1000; 1000 * 3.30
Purchase Price - Square Footage of an Acre?
43,560 Purchase Price = Price per Square Foot X 43,560 X Number of Acres
A deed has a Transfer tax in Arkansas of $165. What was the purchase price of the property?
$165.00 / $3.30 * $1,000.00 = $50,000.00

So, between $49,000.01 to $50,000
What does a husband/wife get in Arkansas under Dower/Courtesy?
1/2 Fee Simple Absolute in All Real Property;

If spouse has descendants, then it is 1/3 life estate;
Typically 3 different agreeemnts;

1) Subordination - agreemetn by the tenant of a brrower agrees that their interest in the property is subordinate to teh bank lien.

2) NonDisturbance - As long as tenant is not in default, the bank will not foreclose the leashold agrement, even though the tenant has agreed to be subordinate to the lender

3) Attornment - Tenants agreement to hold the land as the tenant of a new landlord
Bring Down Certificate
All reps and warranties buyer/seller made prior to now are still true today.
CERCLA stands for...
Comprehensive Environmental Response, Compensation, and Liability Act