Term
| 7 Special characteristics of Real Estate |
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Definition
| 1.Fixed location 2.Uniqueness 3.Interdependence of land uses 4.long life 5.long-term commitments 6.Large transactions 7.Long gestation period |
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Definition
| consists of legal interests in land and things permanently attached to the land. |
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Definition
| includes legal interests in all other types of property. |
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| Synonym for Personal property |
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Definition
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Definition
| personal property that becomes part of the real property when it is attached to the land or a building . |
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| collections or bundles of ownership interests in real property. |
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| Two types of land estates: |
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| Fee Simple Absolute Estates |
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Definition
| The fullest most complete set of ownership rights one can possess in real property. |
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| synonym for Fee Simple Absolute Estate |
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Definition
| fee estate or fee simple estate |
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Definition
| refers to the rights of use and possession (but not ownership) held by a tenant as a result of a lease agreement with a property owner. |
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Definition
| specification of the exact boundaries of the land being conveyed. |
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| Three common methods for determining legal description |
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Definition
| 1. metes-and-bounds 2.rectangular survey system 3.Plats |
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| Where do you obtain a legal description of an existing property? |
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Definition
| tax office or other public records |
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Definition
| original way to achieve a formal description. Metes indicate distance and Bounds indicate direction. |
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| Rectangular survey system is based on what? |
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Definition
| Principal meridians running north and south, and base lines running east and west. |
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Definition
| engineers' drawings of parcels of real estate that show the streets, blocks, and lots, as they actually exist. |
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Definition
| a claim on a property as either security for a debt or fulfillment of some monetary charge or obligation. |
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Term
| Two types of specific liens |
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Definition
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| most common encumbrance; pledging the property as collateral in return for a loan for the property. |
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| protects those who provide labor or materials for real estate improvements, including suppliers, architects, engineers, landscapers, carpenters, plumbers, and similar workers. |
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| may be filed on either personal or real property, most commonly by a court "judgement" |
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Definition
| right given to one party by a landowner to use the land in a specified manner. |
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Term
| Two types of traditional easements |
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Definition
| 1.Easement appurtenant 2.easement in gross |
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Definition
| exists when an easement is legally connected to an adjoining property. Contains a dominant estate and a servient estate |
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Definition
| there is no dominant estate, only a servient estate; i.e. a utility company |
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| most upsetting; allows individuals to acquire title to land they do not own because they have openly possessed it for a statutory period of time, usually 7-20 years. |
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Term
| Four restrictions of property rights: |
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Definition
| 1.Taxation 2.Eminent domain 3.Police power 4.Escheat |
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Definition
| ad valorem tax; levied as a percentage of the value of the property |
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Definition
| a government can acquire property for a public use, even if the owner doesn't want to sell, as long as the owner receives just compensation. |
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Definition
| governments have the power of regulation, which give them the ability to protect the public health, safety, morals, and general welfare. |
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Definition
| property goes to gov't in the event of owner death without will or living relatives |
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Term
| Necessary elements of a valid deed: |
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Definition
| 1.ID of the parties 2.Consideration given for the conveyed interest 3.Legal description of the property 4.Specification of the interests conveyed 5.Signatures of the proper parties |
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Term
| Additional elements of a deed: |
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Definition
| warranty deed, special warranty deed, bargain and sale deed, and quitclaim deed |
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Definition
| the grantor makes promises that cover the traditional covenants and warranty. The granto assures the grantee that no liens or encumbrances other than those on public record exist against the property. |
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Definition
| similar to a warranty deed except the special warranty deed limits the extent of the grantor's warranties to events that occurred during the grantor's period of ownership |
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Definition
| implies the grantor has title to the property and the right to convey it but does not contain any express covenants as to the title's validity. |
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| Synonym for Bargain and Sale Deed |
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Definition
| warranty deed without covenants or grant deed |
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Definition
| transfers any interest that the grantor may have in the property described but does not imply that the grantor has any valid interest in it. |
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Definition
| specialized deeds that are named for the signer, and the warranties given, if any. i.e-executor's deed |
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Definition
| a policy that insures the title received by the grantee against any deficiencies that may have been in existence at the time title was transferred. |
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Definition
| reveals the ownership history, or chain of title, of a property. May show that the seller has good title, or it could show that the seller is only one of several parties claiming to on the real estate being sold. |
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Term
| Three (most common) types of contract contingencies: |
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Definition
| financing contingency, title contingency, inspection and repair contingency |
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Definition
| classified by duration of term, type of use, and method of rental payment |
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Term
| Four types of duration of use: |
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Definition
| 1.Tenancy for a stated period 2.Tenancy from period to period 3.Tenancy at will 4.Tenancy at sufferance |
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Term
| Tenancy for a stated period: |
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Definition
| conveys the property to the tenant for a stated period of time, sometimes called the term. May be fore any length of time from on month to many years. |
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Term
| Tenancy from period to period |
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Definition
| is of indefinite duration; the tenancy does not terminate until proper notice is given by either party. Commonly exists from month to month and is renewed automatically and the end of each month. |
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Term
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Definition
| may be terminated by either party at any time. Landlord required to give 30 days notice. |
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Term
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Definition
| tenant continues to occupy property after the expiration of the lease period. The tenant has no right to the property and remains there at the sufferance of the landlord. |
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Definition
| the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Sale must take place under certain conditions. |
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| Five conditions whereby the sale must take place IOT be considered in assessing Market Value |
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Definition
| 1.buyer and seller are typically motivated 2.both parties are well informed or well advised, and acting in what they consider their best interests. 3.A reasonable time is allowed for exposure in the open market. 4.Payment is made in terms of cash in U.S. dollars or terms comparable. 5.The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions by anyone associated with the sale |
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Term
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Definition
| the worth of a property to a particular investor, based on that investor's personal standards of investment acceptability; refers to the value to a specific buyer |
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Definition
| price actually paid, not necessarily market value |
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Definition
| a systematic procedure employed to arrive at an estimate of value and convey that estimate to the appraisal user. |
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Term
| Six steps to appraisal process |
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Definition
| 1.Definition of the problem 2.Data selection and collection 3. Highest and best use analysis 4.Application of the three approaches to value 5.Reconciliation of value indications into a final value estimate 6.Report of defined value. |
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Term
| Sales Comparison approach |
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Definition
| selection of "comparables" or recently sold properties that are roughly similar to the subject property; critical to the market value estimate. |
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Term
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Definition
| after data on comparable sales have been gathered, they must be adjusted to make them reflect the subject property as accurately as possible. |
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Definition
| site value plus the production costs of the improvements tend to set the upper limit to value. |
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Term
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Definition
| value based on the principle of anticipation, which implies that purchasers buy properties in expectation of receiving future benefits. Derived from the future value of all future cash flows |
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Term
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Definition
| 1.gestation 2.youth 3.maturity 4.incipient decline 5.clear decline 6.accelerating decline 7.death or abandonment |
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Term
| Characteristics for first three: Gestation, Youth, and Maturity |
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Definition
| both property values and residents' incomes generally are rising |
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Term
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Definition
| housing prices and rentals decline as more affluent families leave the neighborhood. |
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Definition
| become substandard; owners make only minimal repairs, and properties deteriorate noticeably. Financial institutions may avoid investing in the area. Housing densities and the consequent need for public services increase dramatically , though they are not provided. |
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| Accelerating decline and abandonment |
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Definition
| only the lowest-income residents remain, and unemployment rates are high. Landlords cease making repairs and often abandon their buildings when they are no longer profitable |
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Definition
| pledge of property to secure a debt;a legal document that grants title to the borrower |
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Definition
| the charging of interest to borrowers left in possession of their property. |
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Term
| Two theories providing debt security |
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Definition
| 1.Lien Theory 2. Title theory |
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Term
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Definition
| where legal title of mortgaged property resides with the mortgagor with the mortgage as a lien against the property. |
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Definition
| a lender can occupy a property upon default because they receive title when the mortgage not is signed. |
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Term
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Definition
| written promise to repay debt |
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Term
| Typical provisions of a promissory note |
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Definition
| prepayment clause, acceleration clause, due-on-sale clause |
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Definition
| the borrower has the right to prepay any or all of the principal any time before it is due without penalty. |
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Term
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Definition
| lays out fees in relation to default. during default, the lender may accelerate the full amount of principal that has not been paid and any interest that is owed on that amount. |
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Term
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Definition
| must pay full amount remaining upon resale. replaced assumable mortgages |
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Term
| Typical Provision of a security instrument |
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Definition
| to protect the lender in case of default. |
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Term
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Definition
| the process of siezing control of the collateral for a loan and using the proceeds from its sale to satisfy a default debt. |
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Term
| Judicial foreclosure(deed taken) |
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Definition
processed through the court; starts with notice and complaint by the lender
-homeowner must be served a notice and given opportunity to be heard in court |
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Term
| Non-Judicial Foreclosure(deed taken) |
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Definition
more efficient
-without court intervention
-must notify homeowner |
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Term
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Definition
| using the "deed-in-lieu of foreclosure" the note holder claims the title and takes posession of the property bac kin full satisfaction of the debt |
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Term
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Definition
when the home < amount of loan
-the lender may pursue other assets of the borrower |
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Term
| Alternative Security Instruments |
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Definition
| Deed of trust and short sale |
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Term
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Definition
| originated to convey title to a third party; trustee's title to the property lies dormant as long as the borrower meets the terms of the debt. In the event of default, the trustee sells the property to pay off the debt to the lender who is the beneficiary of the trust. |
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Term
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Definition
a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property.
-releases lien, but does not absolve the borrower of the remaining balance owed.
-mitigates additional fees and costs to both parties |
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Term
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Definition
process of creating a new loan agreement between a borrower and lender.
-occurs in primary market |
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Term
| Primary role of the Federal Housing Administration (FHA) |
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Definition
| to act as an insurance company for private lenders who originate loans for home purchases, repairs, and improvements. |
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Term
| Reason for secondary market |
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Definition
| Maturity mismatch; creates assets to balance out the liabilities inherent to a bank. |
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Term
| Characteristics of the FHA |
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Definition
created in 1934 to restore confidence in nation's finance market
-developed lending standards that reduced lender's risk
-promoted the use of long-term, fully amortized loans
-establishes a mortgage insurance program |
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Term
| Effects of mortgage insurance |
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Definition
| lenders are willing to lend at a lower interest rate. |
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Term
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Definition
| cash, conventional, gov't (FHA) |
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Term
| Private Mortgage Insurance (PMI) |
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Definition
-competes with FHA
-same benefits as with FHA
-cheaper than FHA but higher down payment required |
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Term
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Definition
Federal National Mortgage Association
-created in 1938 to buy mortgages from lenders and serve as a clearinghouse for the secondary mortgage market.
-provided FHA-insured oans to low-income borrowers in remote areas who would not otherwise have access to the mortgage market
-when private in '68 |
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Term
| Government National Mortgage association (GNMA) |
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Definition
-created in 1968
-took over Fannie Mae's role of providing subsidized loans to borrowers. |
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Term
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Definition
-6.6 trillion
-75% from 1-4 family homes |
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Term
| Uniform Residential Loan Application |
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Definition
| standardized form used by FHA and everyone else. |
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Term
| Uniform Loan App. includes what? |
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Definition
-borrower's income, assets and other info.
-Credit score |
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Term
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Definition
must observed the following:
Equal Credit Opportunity Act
Consumer Credit Protection Act
RESPA |
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Term
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Definition
Real Estate Settlement Procedures Act, requires the following:
-Information booklet
-Good faith estimate
-Prohibits kick-backs
-right to copy appraisal
-requires use of HUD-1
-Limits amount of money that can be required in an escrow or impound account
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Term
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Definition
| Mortgage Debt ratio (front-end-ratio) and Total Debt ratio (back-end-ratio) |
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Term
| Sources of Commercial Mortgage Market Capital |
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Definition
1.Individuals
2.Pension funds
3.Life Insurance companies
4.Commercial banks
5.Investment companies oriented around commercial real estate |
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Term
| Commercial Financing Underwriting |
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Definition
| the process of evaluating the risk of an applicant and the property being pledged as collateral and deciding whether or not to approve the loan. |
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Term
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Definition
-more concerned with properties cash flow potential
-operating income must be 15% to 20% more than debt
-debt coverage ratio of 1.2 or 1.2
-LTV of 70%-75% is max |
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Term
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Definition
Business risk
Financial Risk
Purchasing Power risk
Liquidity risk |
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Term
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Definition
| the uncertainty arising from changing economic conditions that affect an investment's ability to generate returns. |
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Definition
| risk a associated with default |
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Definition
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Term
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Definition
| the possibility of loss resulting from not being able to convert an asset into cash quickly. |
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| Advantages of Real Estate Investing |
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Definition
-intermediate cash flows (routine)
-Ending Appreciation-After tax equity retention
-Portfolio diversification
-Leverage |
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