Presentation on theme: "Real Estate Lori Chapman"— Presentation transcript:
1 Real Estate Lori Chapman Principals ofReal Estate Lori Chapman
2 Virginia Real EstateWho must have a license: Any person who or business entity that performs or advertises brokerage services must be licensed by the REB (Real Estate Board)Real Estate Broker &Real Estate SalespersonAttorney’s representing a client, auctioneers, individual person and an employee selling for an employer, do not require a real estate license.
3 Virginia Real EstateReal Estate Broker- …any person or business entity, including, but not limited to, a partnership, association, corporation, or limited liability corporation, who for compensation or valuable consideration(i) sells or offers for sale, buys or offers to buy, or negotiates the purchase or sale or exchange of real estate, including units or interest in condominiums, cooperative interest… for time shares in a time-share program…or(ii) who leases or offers for lease, or rents or offers for rent any real estate or the improvements thereon for others.Attorney’s representing a client, auctioneers, individual person and an employee selling for an employer, do not require a real estate license.
4 Virginia Real EstateReal Estate Salesperson- ..any person, or business entity of not more than two persons unless related by blood, or marriage, who for compensation or valuable consideration is employed either directly or indirectly by, or affiliated as an independent contractor with, a real estate broker, to sell, or offer for sell, to buy or offer to buy, or to negotiate the purchase, sale, or exchange of real estate, or to lease, rent or offer for rent, any real estate, or to negotiate leases thereof, or of the improvements thereon.Attorney’s representing a client, auctioneers, individual person and an employee selling for an employer, do not require a real estate license.
5 Virginia Real EstateFirm- sole proprietorship (nonbroker owned) that is not owned by a principal broker.Principal Broker- individual broker designated to assure firm compliance & communication with the Real Estate BoardSupervising Broker- or a managing broker that supervise the office activitiesAssociate Broker- one that practices as a salesperson but holds a brokers licenseSole Proprietor- an individual who owns a real estate firm, if licensed then acts as principal broker if not then must designate a licensed broker to be principal broker.Licensee- any person…. That holds a license issued by the REB to act a broker or salespersonStandard Agent- a broker or salesperson that acts or represents a client.Independent Contractor- broker/salesperson that acts for or represents a client with a written contract- not to be confused w/tax purposes.
6 Introduction to Real Estate CHAPTER 1 Real Estate SpecializationProfessional OrganizationsTypes of Real EstateThe Real Estate Market
7 Real Estate Specialization Brokerage-bringing people togetherAppraisal- estimating the value of real propertyProperty Management- managing & protecting an owner’s investment/returnFinancing- arranging/providing funds to purchaser real propertySubdivision & Development- splitting a larger parcel into smaller pieces & improvingCounseling- competent,independent information & adviceEducation- opportunities to practitioners & consumersOthers- practice of law, corporations,government agencies
8 Professional Organizations NAR-National Association of REALTORSNAREB-National Association of Real Estate BrokersAIREA-American Institute of Real Estate AppraisersASA-American Society of AppraisersNAIFEA-National Association of Independent Fee AppraisersREEA-Real Estate Educators AssociationREBAC-Real Estate Buyer’s Agent CouncilNAEBA-National Association of Exclusive Buyer’s AgentsBOMA-Building Owners & ManagersIREM-Institute of Real Estate ManagementCIREI-Commercial Investment Real Estate InstituteASREC-American Society of Real Estate Counselors
9 Types of Real EstateResidential- single family dwellings, duplexes, triplexes , fourplexes, apartments, townhouses, condominiums,mobile homes,…..Commercial-office buildings, retail stores, shopping centers, air parks, marinas…..Industrial-factories, industrial parks,warehouses, power plants…Agricultural-farms,ranches,orchards,vineyards,feedlots, hatcheries,timberland..Special Purpose- churches,schools, cemeteries,government owned propertyEach type of property can be separated- Sales market where ownership is transferred from seller to buyer, Rental market where rights to occupy & enjoy for a certain period of time.
10 The Real Estate Market Market Place- where goods are bought & sold Supply & Demand are economic forces that set prices1. Characteristics of real estate effecting supply & demand:UniquenessImmobilityEffect of natural disasters/changes in markets2. Prices drop with increased supply3. Prices raise with decreased supply
11 Factors affecting Supply / Demand 1. Labor force2.Construction cost3. Government controls at all levels4. Government fiscal & monetary policiesDemand1. Population2. Demographics- make up of population3. Employment & wages- where & how money is spent/ perceived job security
12 Real Property Law CHAPTER 2 Land- to the earth’s center & upward to infinity (including trees & water)Real Estate-the land & all things permanently attached by nature & man (improvements)Real Property- the real estate plus interest, benefits & rights inherent in the ownership of real estateSurface rights- may be sold/ leased to othersSubsurface rights- substances in the ground/may be sold or leasedAir rights-may be sold or leased. Solar &/or sunlight have become issues in recent years.Personal property- All property that does not fit the definition real property .An item of real property may be changed to personal property through severance AND an item or personal property may become real property by annexation
13 Ownership of Real Property/Bundle of legal rights The concept comes from old English lawThe Bundle of legal rights include the rights of:Possession- the right to occupyControl-the right to determine certain interest for othersEnjoyment- possession without harassmentExclusion- legally refusing to create interest for others/keep others from enteringDisposition-determining how the property is disposed of
14 Title to real property- right to ownership Deed – the actual paper that shows ownership- where title is passedPersonal Property / ChattelsAll property that is not and/or do not fit the description of real property
16 FixturesAn article that was once personal property but has been affixed to land or building so long that the law recognizes it as part of the real estateLegal test:The intention of the annexureThe method of the annexationThe adaptation to real estateThe existence of an agreement
17 Trade fixture Tenant’s personal property An article owned by a tenant & attached to rental space or a building for operating a businessTenant’s personal propertyMust remove on or before the last end of leaseNot removed becomes the owners real property
18 Importance in a real estate transaction- to avoid confusion items that are to be included or excluded should be clarified in the listing agreement and/or the sales agreement
19 Characteristics of Real Estate that affect its Nature & Use Economic characteristics SIPASCARCITY –Land of a particular quality or location may be limitedIMPROVEMENTS-They can affect the improved or surrounding parcels either favorably or unfavorablyPERMANENCE OF INVESTMENT- improvements are considered to create fixed investmentsAREA PREFERENCE-or situs-peoples choice of area- the most important economic characteristic
20 Physical Characteristics Immobile Indestructible Unique Immobile – the geographic location of landIndestructible – land is durable & indestructibleUnique – nonhomogeneity or heterogeneity – no two piece of land are alikeIIU
21 Laws Affecting Real Estate Specific areas of law important to Real Estate PractitionersLaw of ContractsGeneral Property LawLaw of AgencyState Real Estate License LawFederal RegulationsZoning & Land Use LawsEnvironmental regulationsFederal, state & local tax lawsReal Estate license lawTo protect the public interest by promoting confidenceAll 50 states, D.C. & Canadian provinces require licensingState laws are similar but differ in detailsSpecific education & personal requirements for licensureExam requiredCertain standards of ethical & personal conduct requiredSome state require continuing education for renewalReal Estate Practitioners may not act as attorneys
22 Home Ownership CHAPTER 3 ReasonSign of financial stabilityInvestment- appreciation/depreciation: income tax deduction/exclusion of gain from taxIntangible benefitsOwnership- single, married with children, “empty nesters”…..Types of housing-Single family, Apartments, Condominiums,Cooperatives,Planned urban development (PUD), Converted use, retirement communities, High rise developments, Mobile homes, Modular homes, Time-shares
23 Housing Affordability Mortgage terms, including types of loans, availability, interest rates and monthly paymentsOwnership expenses: insurance,real estate taxes, utilities & maintenanceAbility to meet mortgage payment/ Most important economic considerationPITI/PMI
24 Qualifying for a loan: 28/36 Gross income $54,000 : 12 =$4,500x %$1,260$1, Total monthly debt $650 =$1,910needs to be <36%$4,500 x 36%= $1,620in this case the persons debt is too high, needs to be $360 or less
25 Investment considerations Tax benefits: Income deductions, Mortgage interest, Real estate taxes,certain loan origination/discount fees, loan prepayment penaltiesCapital gain: Lifetime exclusion of $250,000/ $500,000 married couples/must have lived there for 2 years, keep good recordsIn Practice- Real estate practitioners should tell their clients to consult a tax professional
26 Homeowner’s insurance Basic policy: fire, lighting, vandalism, theft, lose…Broad-form: falling objects (weight of ice/snow), collapse, water/steam-plumbing….Comprehensive: further available coverageCondo/apartment: unit & contents not the structureMost policies have a coinsurance clause80% of replacementLoss settlement of actual cash value (replacement less depreciation) or prorated by dividing the % of replacement cost actually covered by policyFederal Flood Insurance ProgramAdministered by the Emergency Management Agency (FEMA)Program subsidized flood damage insuranceRequired on all properties located in flood prone areas (flood plains) that have federally related financingMaps of flood probe areas prepared by the Army Corps of Engineers
27 Real Estate agent represents the interest of the buyer Prior to entering into a brokerage relationship the licensee must advise a person of the following: -Types of available Brokerage relationships -Brokers compensation -Whether the commission will be shared with another brokerBuyer BrokerReal Estate agent represents the interest of the buyerDesignated AgentReal estate agents of the same company represent the buyer/seller or tenant/landlord , Broker remains Dual agentDual AgentReal estate agent represents the interest of both, buyer/seller or tenant/landlordSub-AgentReal Estate agent that is not a buyer broker or listing agent, is working with the buyer/tenant but has no writing agreement but is an agent of the seller.Non-AgentReal Estate agent that represents neither buyer/seller or tenant/landlord, but is facilitator in the real estate transaction
28 Virginia Real Estate CHAPTER 1 VIRGINIA IS A STATUTORY STATECommon Source Information Company- person or entity that gathers or distributes real estate information, MLS or REALTOR.com, etc…In Virginia , compensation nor use of an information center creates a brokerage relationship
29 Virginia Real Estate CHAPTER 1 Agency- any relationship when a real estate licensee acts for or represents a person by that person’s express authority in a real estate transaction. This can be changed by entering into a written agreement that alters the relationship, specifies the duties.Brokerage relationship- contractual relationship between broker and client.Client- a person that has entered into a brokerage agreement.Customer- anyone else involved in the buying/selling/renting/exchanging… of real estate.
30 END OF CLASS See you Chapter 4 of the yellow book & Chapter 1 of the maroon bookGoodnight
32 Law of Agency Common Law -Rules of society Statutory Law - Enacted by legislatures & other governing bodies
33 Agency CHAPTER 4Agent-the individual who is authorized & consents to represent the interest of another, in real estate the firm is the agentSubagent-the agent of the agentPrincipal-the individual who hires & delegates to the agent the responsibility representing his/her interestAgency- the fiduciary relationship between the principal & the agentFiduciary- the agent is held in a position of special trust & confidence by the principalClient-the principalCustomer-the third party, some sort of service is providedNon-agent-facilitator, transaction broker…..Consensual agreement-Common Law- rules of societyStatutory law- enacted by legislatures and other governing bodiesThe Principal can be the buyer , seller, owner or tenant
34 Fiduciary duties COALD A fiduciary relationship is one of trust & confidence between employer (principal) and employee (agent)Difference between client & customerCommon law of agency duties:Care- by use of skillObedience- obeying the principal’s instructionsAccounting- financial (deposits), files (3yrs), conversion/commingling/illegalLoyalty- interest above all/ ConfidentialityDisclosure- offers,interest of parties, value, pricing
35 Creation of Agency The principal delegates & the agent consents to act Express agency- Listing AgreementThe parties state the terms of the agreement & express their intentions either orally or in writingIn real estate normally in written rather than orally: listing agreement or buyer-agencyImplied Agency-Buyer Agency AgreementBy actionsUnintentionally, inadvertently or accidentally could create an undisclosed dual agencyCompensationDoes not determine agencyKeep in mind that although a person pays the compensation to an agent does not mean that person is the principal
36 Termination of Agency Death or incapacity Destruction or condemnation of the propertyExpiration of terms of the agreementMutual agreementBreach by either partyBy operation of law- (bankruptcy)Completion or fulfillmentException: agency coupled with interest-the agent has an interest in the subject of the agency (such as the property being sold)Cannot be revoked by the principalDoes not automatically terminate at the principal’s death
37 Types of Agency Relationships Limitations on an Agent’s authorityUniversal agent-no limits on authority/power of attorney/attorney in factGeneral agent-one that represents the principal in a range of mattersReceives power to enter into contracts on behalf of the principal within the scope of authority(property manager)Special agent-Limited agent-special power of attorney- one who represents the principal in one specific transaction under detailed instruction: Agent cannot bind principalCreated by the terms of the listing agreement/buyer-agencyDesignated agent- one who is authorized by the broker to act as the agent of a specific principalOthers in the office free to act for another partyBroker may be in position of dual agency, disclosure requiredVaries from state to state
38 Single agency… continued Single agency-the broker represents one party, either the seller or the buyer, a third party is a customerSeller as principal-The broker becomes the agent of the sellerThe relationship is established by a listing agreementThe buyer is the customerThe broker may utilize other brokers who become subagentsSub agency- the broker appoints other cooperating brokers who have fiduciary responsibilities as the listing brokerOffered through MLSCreated by offer of cooperation and/or compensationOther brokers may accept or reject subagency offer
39 Buyer as principal Owner as principal The broker becomes the agent of the sellerThe relationship is established by a buyer-agency contractBroker is responsible to the buyer to locate real estateOwner as principalThe broker is responsible to the owner to manage or lease the owner’s real estateThe relationship is established by a property management agreement or listing contract
40 Dual AgencyThe broker represents two principals in the same transactionDisclosed dual agency-both principal must be informed and consent to dual representation.Undisclosed dual agency- the action of the parties can create an agency relationship where none was intended
41 Disclosure of agency Mandatory Choices for representation Who the agent representsThe advantages and consequences of representation
42 Agency Statue Exercise reasonable care & skill in performing duties Obey client’s specific instructionsAccount for all money & property receivedDisclose material factsPerform according to brokerage agreement termsKeep confidential all confidential information received from clientGenerally comply with terms of statue
43 Customer- Level of Services Duties to the customerReasonable care & skillHonest & fairDisclosure of all facts known to agent that materially affect the propertyDisclosure of environmental hazardsLead paint, asbestos, toxic waste, contaminated soil/water,etc…Opinion versus factOpinions must be stated as agent’s opinionFacts must be accurateFraud- intentional misrepresentationPuffing- exaggeration, it’s legal provided the statement is not considered fraudulentNegligent misrepresentation- if the broker is ignorant of a fact but should have knownLatent defectsA hidden structural defect that wouldn’t be found under ordinary inspectionStigmatized propertiesVirginia prohibits disclosure of HIV-positive, AIDS
44 Virginia Real Estate CH 1 Since 1995VIRGINIA IS A STATUTORY STATEPrior to entering into a brokerage relationship the licensee must advise a person of the following: -Types of available Brokerage relationships -Brokers compensation -Whether the commission will be shared with another brokerCommon Source Information Company- person or entity that gathers or distributes real estate information, MLS or REALTOR.com, etc…In Virginia , compensation nor use of an information center creates a brokerage relationship
45 Virginia Real EstateAgency – any relationship in which an agent acts or represents a person’s express authority in a real estate transaction. The parties can enter into another type of relationship with a written agreement (independent contractor)Brokerage relationship- contractual relationship between client and brokerDesignated agentDual agentClient- contractual agreementCustomer- non contractual agreement
46 Virginia Real Estate Duties To ClientPerform to the terms of the contractPromote the interest by 1. seeking sale/lease for the terms of the contract 2. Present all offers 3. Disclose all material facts 4. AccountabilityCONFIDENTIALITY- FOREVEROrdinary careComply with all laws & regulationsTo CustomerMust treat honestlyCan’t knowingly give false informationMust disclose all material adverse facts of the property
47 Virginia Real Estate Additional Disclosure: Buyer Broker- whether buyer will occupy the property as main residenceProperty Management- same as a client duties other than agent is a general agent to the ownerOral agreements are legal in Virginia but they are not enforceable
48 Virginia Real Estate Chapter 1 Brokerage RelationshipEstablishing:Type of brokerage relationship/buyer broker,dual, -designated, non –agentBroker’s compensationWhether broker will share commission with another brokerTermination:expiration date (90 day default)mutual agreement to terminatedefault by either partyAgents withdrawal when client refuses to consent to disclose dual agencyCONFIDENTIALITY- FOREVER
49 Virginia Real Estate Chapter 1 Disclosure requirementsAgency law requires full disclosure of any existing brokerage relationshipFirst substantive discussion about specific propertyOnly the person who is not the client has to sign “The Disclosure of Brokerage Relationship” formDual Representation must be made to all partiesImputed Knowledge- client nor broker is liable for misrepresentations of the other, provided they didn’t know or shouldn't have known of the information
57 Real Estate Brokerage Chapter 5/63 History of BrokerageFormerly, one-office, family –run operationCommon law dictates caveat emptor was the ruleMLS became the widely used industry serviceBuyers began to question & demand representation
58 Real Estate Brokerage Chapter 5 License LawsPurpose:Establish basic & continuing education requirementsDefine actives requiring licensingDescribing acceptable standards of conduct & practiceEnforce standards through disciplinary system……..
59 Real Estate Brokerage Chapter 5/64 License LawsEach state has a licensing authority/commission/board with the power to :Issue licenseMake real estate information available to licensee & publicEnforce the statutory real estate lawAND adopt a set of rules & regulations that have the same force & effect as any law
60 Real Estate Brokerage Chapter 5/65-70 Brokerage- Bringing people together in a real estate transactionBroker- One who is licensed to sell, buy, exchange or lease real property for others & charge a fee for serviceBusiness formSole proprietorshipCorporationPartnershipIndependentFranchise………………….
61 Real Estate Brokerage Chapter 5//65 Operation- Management of businessSet effective office policiesMaintain space and equipmentDirect staff and sales activesMastering the real estate transactionReal Estate Assistant/TechnologyAn array of responsibilities, marketing, organizer, facilitator ..May or may not be licensed, reduce abilities if not licensedTechnology- Computers, digital camera, cell phone, voice mail, , internet, computer programs/ publisher/adobe writer/contact manager… on & on..
62 Real Estate Brokerage Chapter 5/67 Broker-Salesperson relationshipThe employing Broker is directly responsible for supervising all salesperson’s real estate activitiesThe salesperson is responsible only to his/her employing broker. All activities must be performed in the name of the employing brokerSalesperson cannot receive compensation from anyone other than own broker
63 Real Estate Brokerage Chapter 5/67.. Independent Contractorvs. EmployeeBroker should have a standardized employment agreement that definesnature, obligations & responsibilitiesEmployee- adhere to office hours, attend sales meetings, meet certain sales quotes, etc…A broker must withhold taxes, social security, unemployment, etc…Independent Contractor- The broker may control what the salesperson does, broker cannot require/dictate activities, example, certain hours of work, require attendance to sales meetings. Salesperson pays their own tax withholdings.
64 Real Estate Brokerage Chapter 5/68 IRS has 3 requirements to be an independent contractorMust have a real estate licenseA written contract with the broker that specifies that the salesperson will not be treated like an employee for federal tax purposesAt least 90 % of income must come from sales production NOT on hours worked
65 Real Estate Brokerage Chapter 5/68 Broker’s compensationMust be negotiated between the principal and the brokerUsually a % of the sales price/rent or could be a fixed dollar amountBroker is entitled to compensation when:The sales contract has been , executed(signed) by a ready, able and willing buyerThe contract has been accepted and executed (signed) by the sellerCopies of the contract are in the hands of all partiesIf the seller defaults the broker is entitled to a commission
66 Real Estate Brokerage Chapter 5/69 To be entitled to a commission an individual must be:A licensed brokerProcuring cause of the saleEmployed by the buyer or seller under a valid contractProcuring cause- started an unbroken chain of eventsReady, Able & Willing Buyer:To buy on the seller’s terms & ready to complete the transaction
67 Real Estate Brokerage Chapter 5/69-70 Salesperson’s compensationMust be contained in an agreement between broker & salespersonMay be a fixed salary, % of commission, draw from or graduated spilt100 % program w/monthly feesMath examples
68 Real Estate Brokerage Chapter 5 Transactional brokerage: not an agent to either buyer or sellerReferred as Non-Agent, facilitator, coordinator,or contract broker
69 Real Estate Brokerage Antitrust Chapter 5/71-73 Brokers/salespeople are PROHIBLTED to:Price fixing- setting pricesGroup Boycotting-conspire against another business or withhold patronageAllocations of customers- divide the market placeTie-in agreements – tie first sale to the purchase of anotherPenalties:-Maximum $100,000 3 years in prison-Corporation: Up to $1,000,000-Civil Suit: Suffered party may collect triple the actual damages & attorney fees
70 Real Estate Brokerage Chapter 5/73 Fee-for-ServiceVarious duties, bundle of services, on stop shopping, etc…
71 Math THE DRESS What is the % of profit $20Profit% of Cost::$8025 %XBUY A DRESS FOR $80$20::$8025%XSELL IT FOR $100
72 : : X PART RATE (% of Whole) WHOLE (100 %) (Equivalent to Rate) PART is a portion of the WHOLE - Your office space WHOLE – Building RATE -- % of your office space to the buildingPART(Equivalent to Rate)::RATE (% of Whole)WHOLE (100 %)X
73 MathPART(Equivalent to Rate)::RATE (% of Whole)WHOLE (100 %)X
74 Math Commission .94 : : Net price : .94 List Price $200,000 $212,765 X :(6% comm)List Price$200,000::.946% comm.$212,765X
77 Employment Contracts CHAPTER 6 ListingListings are personal service contracts between the broker & seller(principal)Creates an employment contractMost state require them to be in writing to be enforceable in courtContractsVoluntary agreementEssential elements of a valid contract:A. Competent parties, must be of legal age & mentally competentB. Offer & Acceptance- “meeting of the minds”ANY OFFER or COUNTEROFFER MAY BE WITHDRAWN AT ANY TIEM PRIOR TO ACCEPTANCE BY THE OFFEREEC. Must be legalD. ConsiderationE. Description of propertyF. Written & SignedContract classificationsExpressed- state terms & show intentions in words, maybe verbal or writtenImplied- agreement by actions or conductBilateral- both parties promise to do something, one promise for anotherUnilateral- only one party makes a promise, if the 2nd party complies, the 1st party is obligated to keep promise, such as an option or open listingE.Executed- both parties has completed their promiseF.Executory-something remains to be done by 1 or both partiesLegal effects of a contractValid- complies with all essentials of a contract: binding & enforceable on both partiesVoid- lacks an essential element of a valid contract, has no legal effectVoidable- appears to be valid on its surface but isn’tUnenforceable- appears to be valid but neither party can enforce it… oral promise to pay a commissionDischarge of contractPerformance- all terms carried outSubstantial performance- party remains liable because the contract was not completed exactly as requiredMutual agreement- parties agree to cancelOperation of law- voided by law- voided by a minor or fraud or expiration of the statue of limitationsDefault / breach of contractBuyer recourseRescind/terminate & recover deposit/earnest moneySue for specific performanceSue the seller for damagesSeller recourseDeclare the contract forfeitedRescind the contract & keep all or part of the deposit as liquidated damagesSue for damagesEarnest money depositGiven as evidence of intention to carry out the terms of the contract-good faith1. Usually held by held by the broker in a special trust/escrow account2. Cannot be commingled with broker’s operating funds3. The amount is a negotiable amount4. A deposit is not legally required to create a validOptionsContract by which optionor(seller)gives optionee(prospective buyer) the right to but at a fixed price w/in a stated time.The optionee pays the fee for the option right & assumes no obligation to make any further payments until optionee decides w/in a specified time to exercise the option right or let it expire.Installment contract/contract for deed/land contractMeans of financing a purchase: buyer gives the seller a nominal down payment and regular periodic payments over a number of years, including interestLegal title to real estate remains in the vendor’s (seller) name during the term of the contractThe vendee (purchaser) takes possession when the contract is executedThe vendee will not receive the deed to the property until the entire purchase price has been paidThe vendee has the equitable title during the life of the contract.Other real estate contractsA. Counteroffer- new offer made in response to an offer receivedB. Amendments- to amend/change language in an offer or listingC. Cancellation agreement- used to terminate a transaction, used to get a contract releaseD. Leasing agreement- agreement to occupy propertyE. Addendum- adds additions terms and conditions to a contract
78 Listing Chapter 6/79 Exclusive agency Open Exclusive right to sell One Broker is appointed as sole agent for seller & is entitled to compensation regardless of who procurers the buyerExclusive agencyOne Broker is appointed as sole agent for seller & is entitled to compensation regardless of who procurers the buyer, EXCEPT the sellerOpenNon-exclusive, any number of brokers including the seller can procure the buyer
79 Special Provisions/Issues Chapter 6/80 ListingMLS- Multiple listing serviceOption listing- Broker has right to purchaser propertyNet listing- Broker may claim all proceeds above the net amount to seller ( illegal in most state/unethical in most others , ILLEGAL in VA)Option Listing- Gives the Broker the the right to purchase the property
80 Termination Chapter 6/81 Fulfillment of purpose Expiration of date stated in agreementDestruction of propertyChange in property use (zoning/eminent domain)Transfer of title by operation law (bankruptcy)Mutual consentDeath/incapacity of either partyBreach/cancellation by either party (party may later be liable for damages)Bold where listing & Buyer are sameUnderline only listing
81 Expiration Chapter 6/81 Must state a definite termination date Automatic extension clauses & the wording of some contracts are prohibited by licensing authorities in some jurisdictionsSome provided broker protection clauses, for procuring cause
82 Listing Process Chapter 6/82-83 Cma- Competitive market analysis- comparison of similar properties, sold, for sale & that didn’t sellNet- the amount the seller will receive at closingMarket Value- what the market will bear
83 Math Commission .94 : : Net price : .94 List Price $200,000 $212,765 X :(6% comm)List Price$200,000::.946% comm.$212,765X
84 Listing Process Chapter 6/85-92 ListingsREIIIZIP FORMS
85 Buyer Employment Broker-Buyer Agent Principal- Buyer Purpose- to find suitable propertyFiduciary relationship(Statutory in Virginia)
86 Buyer Exclusive Exclusive agency Open completely exclusive agreement Buyer legally bound to compensate whether property is located or notExclusive agencyLimits Broker’s right to compensationBuyer free to find propertyOpenNon-exclusiveBuyer may enter into similar agreement with other Brokers
88 Special Provisions/Issues BuyerExplain agency agreementParties rights & responsibilitiesCompensationFlat feeRetainerSource- either party/seller or buyerAlways negotiableBuyer financial information
89 Virginia Specific Chapter 2/14-17 Net listings are illegal in VirginiaListing agreements:Sellers must receive a copy of the signed listing agreement & all blanks need to be filled inMust have a termination dateMust clearly state commission rate
90 Virginia Specific Chapter 2/17/22 Disclosure/DisclaimerA seller/landlord of a 1-4 unit property must supply a purchaser, tenant,….. With either.Purchase/tenant….may terminate the contract:within 3 days of receiptwithin 5 days of postmarkprior to settlementprior to occupancyprior mortgage application calls for
91 Virginia Specific Chapter 2/22 Disclosure cont…If purchaser elects to terminate & falls within the guideline no penalties will be incurred.ORIf Purchaser chooses not to void then remain silentLoses rights to terminate upon:- time of loan application with termination right clause- settlement/occupancy occursBuilder does not have to provided disclosure/disclaimer ONLY disclose material defects that violate building code
92 Virginia Specific Chapter 2/26 Disclosure/Disclaimer forms must contain Megan's Law noticeEXEMPTIONS FROM DISCLOSURE:COURT ODERED TRANSFER- to settle an estate- a writ of execution-foreclosure-trustee in bankruptcy-condemnation by way of eminent domain-suit of specific performance
93 Virginia Specific Chapter 2/26 EXEMPTIONS FROM DISCLOSURE: cont….Voluntary transfer:Between co-ownersRelativesDivorce settlementTo /from governmental entity, housing authority/agencySale due to failure to pay, Fed/State/Lo TaxesFirst sale of a home
94 Virginia Specific Chapter 2/26-27 DISCLOSURE: cont….Buyers recourse-Any action must be commenced within 1 year from date the disclosure was delivered or if no delivery then within 1 year of settlement/occupancyOwner not liable for reliable 3rd party information or what the owner reasonably believed to be true.Agents like owner.
95 Virginia Specific Chapter 2/27 Stigmatized propertyRefers to any property that is made to be undesirable by an event or circumstances that has not actual effects on the physical property.VIRGINA prohibits the disclosure of any discussion of HIV-positive or AIDS
96 Interest in Real Estate CHAPTER 7 Government PowersGovernmentInterestEncumbrancesWater
97 4 Government Powers PETE Chapter 7/103-105 Police power- Preserve order,protect the public health & safety, and promote the general welfare of the citizens ( protection laws, zoning ordinance& building codes…..)Eminent domain- the right to acquire privately owned property for public use. Condemnation is the process by which the Gov’t exercises the rightTaxation- A charge on real estate to raise funds for public useEscheat- when the owner dies & having no heirs or will property goes to the state, intended to prevent abandon/ownerless property
98 Estates in Land Chapter 7/105 defines the degree of quantity,nature & extent of owner’s interest in real propertyTo be an estate in land , an interest must allow possession (either now or in the future) & must be measurable by durationFreehold- indeterminable length of time (lifetime or forever)/ indefeasible feeLeasehold- fixed period of timeFee Simple estate- or fee simple absolute/estate of inheritance/fee ownership- the HIGHEST interest in real estate recognized by law- Holder is entitled to all rights to the property, only limited by PETEContin…
99 Estates in Land Chapter 7/106-107 Fee simple defeasible/ defeasible fee-condition subsequent new owner must NOT perform some action or activity(owner retains right to reentry), need to go to courtSpecial limitation or fee simple determinable- if violated, reverts back to former owner no need to reenter or go to courtBoth considered future interest & can be passed on to heirsContin….
100 Estates in Land Chapter 7/107-109 Life Estate- limited in duration to the life of the owner or some the designated person(s), that person(s) may sell their interest in the life estate , it passes to future owners based on provisions of the life estateConventional life estate- by deed during owners life or will upon death, life tenant has the rights to the property until their death, then passes on to another as stipulated in the owners will or back to ownerPur autre vie- similar to a conventional life estate other than it’s measured by another life
101 Estates in Land Chapter 7/108 Creator of a life estate plans for the future ownership by naming a:Remainder- Remainderman is the person to whom the property will pass to when the life estate endsReversion- Reverts back to the owner of the property when life estate ends
102 Estates in Land Chapter 7/109 Legal life estate- Dower/Curtsey- Wife/Husband-Not created voluntarily by owner, by the state,for the nonowner spouse after the death of the owning spouse. Receives 1/3 to ½ interest of the property(doesn’t apply in community property states).Homestead- depending upon the state, a certain portion of the home/property is protected from creditors. Mortgages, real estate taxes or loans for improvements to the house.
104 Encumbrances Liens Chapter 7/110 Encumbrance is a right or interest in a property by another than that of the fee ownerLien- Monetary, security for a debt or obligation. If not repaid then property maybe sold to satisfy the lien.Deed Restrictions- covenants, restrictions & conditions, private agreements typically made by the owner of the land. Can effect the use of the land.
105 Encumbrances Easements Chapter 7/111-113 Easement is the right to use the land of another for a purposeAppurtenant easement- Annexed to the ownership of one parcel & used for its benefit on the land of another--Servient tenement- owns the lands in which the easement is on--Dominant tenement- owns the land that benefits from the easementEasement in gross- an individual interest in or a personal right to use the land of anotherParty wall easement- used for a wall that straddles the property lines of adjacent properties w/different ownersEasement by necessity- arising because owners must have e ingress and egress from their land
106 Encumbrances Easements Chapter 7/113 Easement by prescription- arising from continuous, exclusive use of the property without the owner’s approvalOpen, notorious, visibleTackingEasement by condemnation- acquired for a public purpose, requires compensation for loss in property value
107 Encumbrances Easements Chapter 7/112 Creating an easement- BY:Expressed grant in a deed from the owner of the propertyExpress reservation by the grantor in a deed of conveyanceUseImplication
108 Encumbrances Easements Chapter 7/113-114 Terminating an easement-BY:When the purpose fro which it was created no longer existsThe owner of either the dominant or servient tenement becoming the owner of both properties(merged)Release of the right of easement to the servient tenementAbandonment of the easementThe nonuse of a prescriptive easement by it’s ownerAdverse possession by the owner of the servient tenemtDestruction of the servient tenement(party wall)Court decision of a quiet title action against someone claiming an easementExcessive use (change in property use)Above isn’t automatic
109 License- The privilege to use another’s land for a specific purpose Chapter 7/114License- The privilege to use another’s land for a specific purposeEncroachment- anything extending from one property across the property line onto another parcel or beyond legal building setback lines
110 Water Chapter 7/115-116 end of Chapter Riparian rights- rights granted to owners along a non-navigable river or streamLittoral rights- rights granted to an owner along an ocean or large lakeAccretion- increase in land resulting from deposit of soilErosion- Loss of soil by gradually wearing awayAvulsion- sudden removal of soil due to an act of naturePrior appropriation- the right to use water is controlled by the state rather than by the adjacent landowner. A person must show a beneficial use for the water, such as crop irrigation, in order to secure water rightsDoctrine of prior appropriation-the right to use any water, except for limited domestic use, is controlled by the stateControl of land usePublic land use control- under police power, each state has the authority to adjust regulations required for protecting public health, safety, and the general welfare.1. Zoning- local zoning laws that regulate & control the use of the communityA. Nonconforming- existence prior to passage of zoning- allowed to continue (if property is destroyed then it can not be rebuilt using previous zoning)B. VarianceC. Conditional permitD. Down zoningE. BufferF. Sot zoningG. Planned unit development – mixed use2. Building codes3. City plan specifications- a master plan4.Subdivision restrictions5.Environmental protection laws-A. Federal- Clean Air….B. State- their own environmental lawsB. Private land use control-restriction specified by ownerC. If building codes & a deed restriction conflict the more restrictive of the two takes precedence.PAGE 43 start
111 Virginia Specific Chapter 3/30-32 Eminent Domain-also referred to as “taking”, just compensation must be paid to the owner, that is considered as fair market value. Payment of just compensation is a prerequisite to passing of the title. A genuine but ineffectual effort to purchase the property needs to occur prior to condemnation proceedings- DISCLOSECurtsey/Dower- does not exist in Virginia- NO WILL descent & distribution is used, where property passes to the surviving spouse and othersIntestate- If no will is left then the property goes to theThe spouse receives 1/3 & remainder is distributed amongst the decedent’s child or their decedentsAdd here what VA excluded
112 Virginia Specific Chapter 3/33-34 Augmented Estate- When the surviving spouse objects to how the property is leftHomestead- UNSECURED DEBTS One can hold real or personal property exempted from unsecured loans. Total value not to exceed up to $5,000 plus $500 for each dependent….. The exemption does not apply against:Claims for purchase price of the homestead propertyMechanics liensClaims for taxesClaim must be made by deed in case of real property & inventory list under oath for personal propertyA few things may be withheld, family bible, wedding rings, burial plots..Add here what VA excluded
113 Virginia Specific Chapter 3/33-34 Easements-Easement by Prescription- 20 yrsIn a court action to establish :Adverse, under a claim of right,exclusive,continuous, uninterrupted, with knowledge and acquaintance of owner
114 Forms of Real Estate Ownership CHAPTER 8 SeveraltyCo-OwnershipTrust
115 Severalty Co-Ownership Trust Title is held by one individual Tenancy in commonJoint TenancyTenancy by the entiretyCommunity PropertyTrustLiving & TestamentaryLand Trust
116 Tenancy In Common 2 or more owners Undivided fractional interest Unity of possessionEach may encumber or convey their interestEach is inheritableEveryone owns a specified fraction of the property NOT specified space
117 Joint Tenancy Right of survivorship(common law) 4 unities- required to create a Joint TenancyPossessionInterestTimeTitleTo terminated if you can’t agree then you have to file a court action to partition the propertyIt has to occur at the same time & titleHas to be done through a deed or will NOT as an after factVirginia does not have automatic right of survivorshipTerminating Joint Tenancy anytime one of the unities is broken ( assuming 2 people are involved BUT if 3 or more then new one has Tenancy in Common and remaining people have Joint Tenancy
118 Tenancies by entirety Only for married couples Right of survivorship Spouses have equal and undivided interest (only way to sell the property is both people sign the deed) considered one legal unityTermination – J’S Judgment Sale DAD Divorce, Agreement & Death
119 Community Property Spouses are Equal Partner Anything acquired during the marriage is community property- Both Real & Personal PropertyAnything you have before the marriage or received during the marriage by gift or inheritance is separate propertyNo right to Survivorship – Death of 1 spouse leaves ½ to surviving spouse and other ½ according to willVirginia doesn’t have Community Properties
120 Trust Parties to a Trust Trustor – creates the Trust Trustee – Manages the TrustBeneficiary – Receives the benefits
121 Living TrustPut something into Trust while your alive
122 Testamentary TrustThe will puts the Trust into effect going upon your death
123 Land TrustOnly assetUsually the Trustor & Beneficiary are the same personPublic records do not name beneficiaryLand Trust usually goes for definite time if not specified usually for 20 yearsVIRGINIA
124 Legal Descriptions Legal description- used to identify a property 3 Methods of describing Real EstateMetes and BoundsRectangular surveyLot and block
125 Mete and Bounds-oldest way legally describe property. Chapter 9/140Mete and Bounds-oldest way legally describe property.POB- point of beginning and continue to the next boundary. Use linear measurements, natural & artificial landmarks ( monuments) and directions always end back at the POB.The actual distance between a monument over rides any linear measurement description.
126 Rectangular survey Government Survey CHAPTER 9 Principal meridian linesRun North to SouthBase linesRun West to EastBoth are located in reference to degree of longitude & latitudeEach principal meridian is named & is crossed by its own base lineThe rectangular survey system affects specific land areas within the boundaries
137 SECTIONS 36 sections in a township Numbered 1 – 36, starting upper right cornerEach section is 1 mile square & contain 640 acresBy law Section 16 is reserved for school purposesSections are divided by Halves (320) & Quarters (160)Correction lines- are required to overcome the effect of the earth’s curvature on range lines- every 4th township line is a correction line- guide meridians run North & South at 24-mile intervals from the principal meridian- adjustments are made on the North & West boundaries of a township (sections 1-7,18,19,30)
138 Fractional sections & government lots Undersized or oversized sections are classified as Fractional lotsAreas smaller than full quarter-sections are designated as Government lotsThey are used to correct survey errors and physical disparitiesReading a government survey legal description and calculating the size of a tract of landStart at the end of the description and work backwards to the beginningBegin size calculations from the right hand side with section containing 640 acres, then divide by each fraction given as you move to the left (the beginning of description)Metes & Bounds descriptions within the rectangular survey systemtracts are too small to be described by quarter sectionsWhen tract does not follow the lot or block lines of recorded subdivisionWhen a tract does not follow the section, quarter-section or fractional section lines
140 Lot and Block system recorded plat This system uses a recorded subdivision plat mapIt requires a survey plat by a licensed surveyor or land engineerIdentified properties may later be re-subdividedThe system is used in all states, sometimes in conjunction with other legal descriptions
141 Preparing a SurveyUsed to locate a given parcel of land & can also amend a legal descriptionShows the location & dimensions of the parcelSpot survey includes the location of buildings on the landRequires the use of a licensed surveyor or land engineer
142 Measuring ElevationsCondominium laws require a legal definition of the horizontal property rights included with each unit (air lots), air lots specific boundaries above landDatum – defined as the mean sea level at New York Harbor, a point, line or surface from which elevations are measuredBenchmark – permanent reference point throughout the United States, primarily used for marking datums, embossed brass markers
143 Land Units & Measurements Area x Cost per sq. ft. or per acreConvert the acreage to square feet before multiplying1 acre = 43,560Insert examples
144 Real Estate Taxes & Other Liens Chapter 10/158 Lien- a charge against property that provides security for a debt of the property ownerEncumbrance- any charge or claim that burdens the title to real property, lessens its value or impairs its use. Including liens & claimsLiens may be voluntary or involuntaryStatutory or equitable & general or specific
145 Real Estate Taxes & Other Liens Chapter 10/158-159 Voluntary Lien- created intentionally– mortgageInvoluntary – Not created by choice:Statutory lien- created by statue- real estate taxEquitable- created by common law- based on court of fairnessVendor lien- belongs to a vendor for the unpaid balance of a purchase price for land
146 Real Estate Taxes & Other Liens Chapter 10/159 VISE - 4 ways ways to create a liens, Voluntary, Involuntary, Statutory, EquitableGeneral lien- Judgments, inheritance taxes, IRS taxes.. effect all property, real and personal property-on real property the lien attaches the moment it is filed, personal property attaches once the property is seized.Specific liens- secured by specific property & effects only the specific property, mortgage, mechanic’s lien….
147 Real Estate Taxes & Other Liens Chapter 10/159-160 Liens run with the PROPERTY not the person when properly establishedPriority of liens- typically it’s 1st come 1st served. Real estate tax and special assessment taxes don’t apply to this rule, those are paid 1st, then as the time the lien is recorded in a public place is the order of placement.Subordination agreement- when one lien hold gives up their place in line (order) of recording.General Tax– Ad Valorem Tax specific, involuntary, statutory liens. Imposed by:States, counties…….Some state exempt cities, state & federal governments, hospitals….. senior citizens, veterans….
148 Real Estate Tax Liens Chapter 10/162-163 Assessment-the valuation of the property’s worth, based on fair market valueEqualization-used to achieve uniformity throughout statewide tax assessmentsTax rate- “mill” usually 1/1,000 of a dollar or $.001, can be mill-per dollar or in dollars per hundred or in dollars per thousandTax bill- amount due, calculate the tax assessment x tax rateEnforcement of tax lien- Lien placed against the property, if not paid then a tax sale is enforced, the owner has the EQUITABLE RIGHT OF REDEMPTION, to pay the taxes along with additional cost to the property prior to the sale.
149 Real Estate Taxes & Other Liens Chapter 10/166-167 Special Assessment- not used much anymore, however if assessed, the cost of the improvement is divided amongst those that benefitMortgage liens-or in some states called a Deed of Trust –involuntary, used to secure the purchase of a property. Lenders usually require a preferred lien, 1st mortgage lien, all others would be junior liens.Mechanic's lien- when improvements have been made to the property and the person that performed the work wasn’t paid. Varies from state to state.Judgments- a decree issued by a court. Normally used to satisfy a debt that is delinquent. Creditor obtains a writ of execution, where then a sheriff is allowed to enter the property and seize property, real or personal.
150 Real Estate Taxes & Other Liens Chapter 10/167 Lis pendens – puts people on notice that litigation is pending and could effect the title of property.Attachment- prevents a debtor from selling the property until a suit is settled, the creditor must post a bond if creditor doesn’t win the debtor received the bondEstate and Inheritance tax- are general, involuntary & statutoryMunicipal Utilities- imposes a specific, equitable involuntary lien on the property
151 Real Estate Taxes & Other Liens Chapter 10/167-168 Bail Bond Lien- specific,statutory, voluntary lien against property, no show in court, property is sold.Corporation Franchise Lien- general,statutory, involuntary lien against property owned by the corporationIRS tax lien- general,statutory, involuntary lien against real and personal property. Does not supercede other liens.
152 Virginia Real Estate Chapter 4/37-38 Co-OwnershipTenancy in Common- can be created as follows:Express limitation- 2 or more peopleGrant- interestDevise/grant- equal sharesBreakup- in joint tenantsDissolving- of tenancy by the entirety- divorce or mutual agreement
153 Virginia Real Estate Chapter 4/37-38 Joint tenancy-similar to other states, everyone has to share the same interest- Virginia has abolished automatic right to survivorship, unless THE DEED expressly creates the right to survivorshipTenancy in Partnership-Subject to partnership agreementPartner’s rights are not individually assignablePartners rights are not subject to creditorsOn the death of a partner his share passes to the other PartnersPartner can transfer property behave of the Partnership
154 Virginia Real Estate Chapter 5/54-55 An incorrect description of a property does not invalidate the deed IF after enough information is available it the property can be identified4 types of surveysSubdivision platBoundary surveyHouse locationPhysical or as – built
155 Virginia Real Estate Chapter 6/58 TAX LIENSUniform taxation- Tax rate and mode of assessing be same for like propertiesExemptions:Burial grounds & cemetery lots owned by a company &/or individualReligious groupsPublic libraries & non profit educational institutes………….Assessment- Taxes run with the land. Responsible from the date of purchase to the end of the year, at closing taxes are prorated.
156 Virginia Real Estate Chapter 6/59 Past-dueTaxes currently due & payableAt closing the above 2 will be collected from the seller and paid.Taxes not yet due- The seller will be charged the prorated amount and the buyer will be credited the amountPrepaid – The seller will receive a credit for the amount not used and the buyer will be charged that amount
157 Virginia Real Estate Chapter 6/59-61 New construction- Taxes are based on the time a certificate of occupancy is issued, then proratedLeases- a perpetual leaseholder/owner pays the taxes & normally in a net lease the tenant pays the taxesTax lien- Over rides ALL liens. Virginia allows any unpaid US tax take priority to other liens.On 3rd anniversary of non payment property may be sold30 days before action is taken, a notice is mailed to last known address, notice of the sale must be placed in newspaper for 30 to 60 days prior to sale.Property owner may pay the taxes plus…….. Prior to the sale DATESpecial Assessment…. Notice must be sent to adjacent property owners
158 Real Estate Contract Chapter 11/173 STATUTE OF FRAUDS- MUST BE IN WRITING TO BE ENFORCEABLE Contract- a voluntary agreement,a promise between competent parties, supported by legal compensation, to perform or reframe some legal act.VOLUNTARY- Can not be forcedAGREEMENT/PROMISE- legally enforceableLEGALLY COMPETENT PARTIES- considered legally capableLEGAL CONSIDERATION- something of value & legalLEGAL ACT- can’t be illegal
159 Real Estate Contract Chapter 11/173-174 Contract – Depending upon how it’s created: EXPRESSED- parties state the terms and show there intentions in WORDS. Maybe oral or writtenIMPLIED- the agreement between parties by acts or conductBILATERAL- Both parties agree to do something listing/salesUNILATERAL- One side agrees to do something OptionEXECUTED- When all parties have completely performed all requirementsProperty has closedEXECUTORY- Property has not closed, an act still to perform- contingency
160 Real Estate Contract Chapter 11/174-176 VAILD CONTRACT- elementsOFFER & ACCEPTANCE- An offer has to be made by one party (offeror) & accepted by the other party (offeree) Mutual assent/meeting of the minds- A counteroffer voids the 1st offer- An offer maybe revoked at anytime prior to receiving the acceptance- Both parties must be notified of the acceptance in order for their to be a contractCONSIDERATION- something of value (money)LEGALLY COMPETANCT PARTIES- mentally competent & over the age of 18CONSENT- No undue duress, fraud…LEGAL PURPOSE- Can’t be for illegal purposes
161 Real Estate Contract Chapter 11/176-177 VALID- it becomes enforceable- meet all legal elementsVOID- lacks legal elements/ not enforceable/ no meetings of the mindsVOIDABLE- A contract that appears to be valid but where one party may void based on sometime period of a condition or the contract lacks a legal principle (minor, mentally ill, drunk)UNENFORCEABLE – seems valid but is unenforceable, typically an oral contract
162 Real Estate Contract Chapter 11/177-178 Discharged of ContractsTERMINATEDPerformance “time is of the essence” MUST close within that time frame. Otherwise should have a time frame if not then “act” should be performed in a reasonable time frameAssignment- pass your rights/obligations (delegated) onto another 3rd party (assignee) , you may still be reasonable for the terms of the contract unless specifiedNovation – replacing the original contract with another contract, could be same parties or a new party, must have both parties consent……….
163 Discharged of Contracts TERMINATED Chapter 11/178-179 Breach- one party doesn’t perform to the contract, non- defaulting party may sue the defaulting partyBuyer may sue the seller- Suit for specific performance- to convey the property OR Damages- for cost & hardshipSeller may sue the buyer- for damages or the purchase price, where the seller tenders the deedStatute of limitations – time limitation to bring suit against a party
164 Real Estate Contract Chapter 11/178-179 OTHER REASONS:Partial performanceSubstantial performanceImpossibility of performance- an act cannot be legally performedMutual agreement- Both agreeOperation of law- altered, minor, fraudRescission- on party may terminate and all monies (deposit) returned
165 Real Estate Contract Chapter 11/179 The Sales ContractThe ESSENTAIL ELEMENTS Offer & acceptance, Consideration, Legally competent parties, Consent, Legal purposeSales PriceLegal descriptionStatement of type of title/deed (general,special)Kind of title evidence (title search)Terms & Conditions
166 Real Estate Contract Chapter 11/180-182 OfferCounterofferAcceptanceBinderEarnest Money deposits &(accounts)Equitable title Quickclaim deedDestruction of premisesLiquidated damages
167 Real Estate Contract Chapter 11/183 ….Parts of a contract…Purchaser’s nameDescription-Address & Legal descript.Seller’s namePurchase price, financingAmount of deposit & down paymentClosing dateEvidence of title policy (search)Condition (damaged/destroyed)Default (liquidated/specific)ContingenciesSignatures & dates of signaturesDisclosure of agency……………
168 Real Estate Contract Chapter 11/184 ….Parts of a contract…Personal property & real propertyWarranties on systems & personal prop.Identifying any leased equipmentWho & where closing will take placeDistribution of escrow fundsPayment of any outstanding debtsWalk Thru/ final inspectionAgreement of documents and delivery of
169 Real Estate Contract Chapter 11/184 Contingencies- Additional conditions in a contract. Mortgage, inspections, property sale, etc..Action Time frame Who’s responsibleEscape clause or Kick out clause- Seller retains right to continue to market property, purchaser may have right to satisfy contingencyAmendments & Addendums-Amendments- agreed upon changes after the contract is ratifiedAddendums- agreed upon additions during negotiating a contractDisclosures- Agency of relationship & property Disclaimer/Disclosure
170 Real Estate Contract Chapter 11/185-186 OPTION- Where owner (optionor) gives the purchasers/lessee(optionee) the right to buy/lease at a certain price for a certain timeLAND CONTRACT- very similar to owner financing BUT, Seller retains title and buyer take possession and gets equitable title to the propertyLEASE-Between tenant/landlord or lessor/lessee- exclusive possession of land/property for a specified time and costESCROW AGREEMENT- an agreement between buyer/seller & escrow holder- a contract with a deposit/escrow
171 Virginia Real Estate Chapter 7/67/78 Statue of Frauds- Must be in writing to be enforceable, transferable.Can be oral, statue doesn’t invalidate an oral contract. Unenforceable after a year.Power of attorney –Must be specify the transaction and parties, must be notarized & recorded with the deedTitle- A buyer should expect marketable title to the propertyEquitable title- gives the buyer an insurable interest- VA places the risk of loss on the buyer.Warranties- VA caveat emptor buyer bewareExisting:New Construction:
172 Transfer of Title Chapter 12/192 Title – the rights to or ownership of land/ evidence of ownershipVoluntary alienation- sale, gift or willDEED is the document that is recorded that transfer ownershipThe OWNER/GRANTOR signs the deed & the GRANTEE acquires title
173 Transfer of Title Chapter 12/192-194 Requirements for a valid DeedGrantor- Of age(18), sound mind, correct spelling of name(s)Grantee- Must state a full nameConsideration- some type of $ or giftGranting clause- for how long, life… this is when the type of interest is stated, joint tenancy, tenants in common…Habendum clause- used to clarify what type of ownership is being conveyed
174 Transfer of Title Chapter 12/194-195 Legal consideration-accurate legal descriptionExceptions& reservations- must be recorded with deed, covenants, easements, special conditions…..Signature- all grantors must sign/ power of attorney is possibleAcknowledgement- stating that the grantor voluntarily signs and is normally done so in front of a notary .Delivery & acceptance- Title hasn’t transferred until the deed is delivered from the Grantor to have been accepted by the GranteeExecution of Corp. deed- Conveyed only by authority of bylaws &/or BOD, if all or large portion is being transferred, may need to have shareholders approval & ONLY authorized officer can sign deed
175 DEEDS Chapter 12/196GENERAL WARRANTY- THE GREATEST protection to the buyer. The warranties include: Grantor has…..- Covenant of seisin: the rights to convey title- Buyer can recover full purchase price if broken.-Covenant against encumbrances: that the property is free from liens, encumbrances, other than normal &/or what’s recorded. Purchaser may sue to recover cost to remedy.- Covenant of quiet enjoyment: free from 3rd party interest, if title is inferior then grantor could be held liable for damages- Covenant of further assurance- provide to buyer necessary documents to provide good title-Covenant of warranty forever- to compensate grantee forever the loss sustained
176 Transfer of Title Chapter 12/197-198 SPECIAL WARRANTY- Grantor received title & not encumbered while they held titleBARGIN & SALE- Grantee has little recourse to recover damages, grantor is release their rights…. Bankruptcy saleQUITCLAIM- Grantor receives the very least protection from the Grantor, to clear a title quicklyDEED IN TRUST- Deed from Trustor to Trustee for the beneficiaryRECONEYANCE- when the trustee transfer the title back to the TrustorTRUSTEE’S- the trustee conveys real estate held in the trust to anyone other than the TrustorDEED EXECUTED PURSUANT TO A COURT ORDER- court ordered or will full consideration vs. &10 & other….
177 Transfer of Title Chapter 12/199 Grantors tax- a tax charged to record the deed into public records, there are some exemptions, gifts, government bodies,charitable organizations…In this case the rate is .50 per $500 of valueValue ($324,000) : Unit($500)X Rate per Unit (.50 cents)648 x .50= $324
178 Transfer of Title Chapter 12/200 Involuntary alienation- property transfer against owners consent- condemnation, delinquent taxes, dies intestate w/no heirs….Transfer by adverse PossessionAnother form of involuntary transfer, a person makes claim,takes possession and makes claim of the title. Usually ALL of the following must happen:Open- obvious to everyoneNotorious-known by othersContinuous & uninterruptedHostile- w/o true owner’s consentAdverse to the true owner’s possessionStatutory time frame can be from 5-30 years, from state to state
179 Transfer of Title Chapter 12/201-203 By Will – An instrument used upon ones death to convey real & personal property. The testator( person who makes the will) leaves the “gift” of real property by will is the(devise) and the person who receives it is the devisee.For title to pass to the devisee, upon the death of the testator the will must be filed in court and probated.Probate- legal procedure to verify the validity of the will and accounting of assets.A will cannot supercede dower/curtsey rightsLegal requirements of a will-Only a valid and probated will can transfer title of property. Testator must be of legal age and sound mindProbate proceedings-- Person who possess the will is the executor- To see that all assets are distributed correctly- Debts are paid- Distributes property to heirs- In the state in which the deceased resided &/or another county where property is owned
180 Virginia Real Estate Chapter 8/80 Requirements for a valid deedGrantor w/legal capacityGranteeConsiderationGranting clauseAccurate legal description of propertyAny relevant exceptions or reservationsSignature of GrantorDelivery & acceptanceGrantor can sometimes be a grantee as wellGrantee- Legally competent, full name & can be to a nonexistent person
181 Virginia Real Estate Chapter 8/80-81 Competence – A minor may convey property BUT may be repudiated after he/she attains majority.Habendum Clause- rarely usedPower of Attorney- Acceptable BUT affidavits & sworn statements cannot be signed by POA, lender may not allow POA because of truth in lending requirementsMUST BE RECORDED if not it’s as if the deed wasn’t signed
182 Virginia Real Estate Chapter 8/81-82 Transfer taxes & fees-Recordation fee- Deed State fee is $.15/$ & county/city is 1/3 of that $.05/$100Grantor Tax- $.50/$500Tax on deed of trust- calculated the same way as recording fee, use applicable rate for area.Transfer & clerk fees- a fee for miscellaneous papers to be recorded.Rule of thumb-Buyer pays for “new” items & seller pays for “old” items* Recording fees are based on Purchaser price or value of grantor’s equity
183 Virginia Real Estate Chapter 8/82-83 Adverse Possession- Necessary to show actual, hostile, exclusive, visible and continuous possession for 15 yearsMust be hostile and without true owner’s permissionTransfer of deceased’s propertyNo will is valid unless it is in writing. Must be signed by the testator or by someone under the direction of the testator & state clearly that it is to be in his/her name.Can be in the testator’s handwriting (holographic will) if witnessed in the presence of at least 2 witness, they must sign it as well. Testamentary intent must be on the face of the paper itself.
184 Virginia Real Estate Chapter 8/84 Va is silent on an oral or deathbed willAll heirs and spouses must sign as grantors
185 AMOUNT SELL WANTS TO NET $300,000 .94 (94%) SELLER’S NETAMOUNT SELL WANTS TO NET$300,000.94 (94%)$319, Equals the amount the property needs to be listed forRound up to $319,150
186 Original CostSALES PRICE : % OF PROFIT = ORIGINAL COST$125,000 : 1.3% =$96,153 IS ORIGIANL COSTTo double check yourself:$96,153 X 1.3% =$124,998.90ROUND UP
187 Mortgage Qualifying Ratios 28/36PITI/PMI- Principal, interest, taxes, insurance & private mortgage insurancePITI/PMI no more than 28% of total gross monthly incomeTotal housing allowance (28%) plus monthly debts cannot exceed 36% of monthly gross income$60,000 yearly income : 12 months =$5,000 monthly incomeX 28% maximum monthly housing allow.$1,400 PITI/PMI+ $400 monthly debt$1,800 : 36% = $5,000 OKAY
188 Real Estate Commission split with agent & company on a 55agent /45 company split Sales price $364,000Commission rate x %Commission $25,480Agent share x 55%$14,014Company share $25,480x %$11,466
190 Title Records Chapter 13/209 Recording – Any written document that affects any estate , right, title, or interest in land MUST BE recorded in the county where the land is located to serve public notice. To be eligible for recording a document must be drawn & executed according to the recording acts of the stateNotice – Giving notice 3 typesCONSTRUCTIVE – diligent inquiry – Properly recorded documents serves as notice to the worldACTUAL- direct knowledge someone that has searched the public records & inspected the property/ they can’t use lack of constructive notice to justify a claimINQUIRY- law assumes a reasonable person would inquiry more into the propertyPriority – Order of rights in time who recorded 1st, who has possession……. law
191 Title Records Chapter 13/211 Unrecorded - ????? Example ???????Chain of title – the order in which tile is recorded (passed) Trace ownership through the years, if there is an unbroken chain then (gap) then there’s a cloud on the title that needs to be resolved, court action, a suit to quiet title, each claimant is allowed to present evidence then the judge rules.Title search & Abstract of Title – Title search- examination of all public records to determine if there are any defects in the chain of title. Starts with present owner & goes back years. Some states have adopted the Marketable Title Act this extinguishes certain interest & cures certain defects, goes back to
192 Title Records Chapter 13/212 Marketable Title – Disclose no serious defects & does not depend upon doubtful questions of law or fact to prove its valid-Doesn’t expose purchaser to hazards of litigation or threaten the quiet enjoyment of the property-Convinces a reasonably well-informed & prudent person that he/she could, in turn,sell or mortgage the property-Unmarketable title can still be transferred but its defects may limit or restrict its ownership-Typical sales contract requires the seller to deliver marketable title to the buyer-Customary for a preliminary title search be conducted after sales contract is signed to give the buyer opportunity to review & seller time to cure defects before settlementIt’s important to sure any defects/restriction before closing, a buyer cannot be forced to accept what they didn’t bargain for in the contract.
193 Title Records Chapter 13/212 Proof of Ownership- evidence of title: deed by itself not sufficientCertificate of Title- Statement of opinion of the title’s status as of the date of the certificate-Based on a title search-Prepared by a title company, licensed abstractor or attorney-Imperfect because unrecorded liens, rights of parties in possession & hidden defects such as forged deeds, marital interest or fraud cannot be detected.Abstract & attorney’s opinion- May be used in some areas as sufficient evidence-An opinion issued on basis of abstract-Imperfect because of the same conditions that affect a certificate of title
194 Title Records Chapter 13/213-214 Title Insurance- Insures the policyholder against loss due to defects in the title other than those exceptions identified in the policy (unlike other insurance policies, title insurance insure against past occurrences)- Based on the title search-Preliminary report of title(commitment to issue policy) issued describing policy to be issued & includes: Name of partyLegal description of propertyEstate or interest coveredCondition & stipulationsSchedule of exemptions-Premium paid (one closing)-Insurer’s liability cannot exceed face amount ofpolicy unless there is an inflation rider-When the title company makes a payment it generally acquires the rights to any remedy or damages available to insurer- SUBROGATIONSEE PAGE 214 TABLE
195 Title Records Chapter 13/214 COVERAGE-Standard coverage- Normally insures the title as it is known from public record & hidden defects as forged documents, conveyance by incompetent grantors, incorrect marital statements & improperly delivered deedsExtended coverage- As provided by the American land Title Association policy, includes standard items & protects the homeowner against defects that maybe discovered upon inspection of the property, rights of parties in possession, examination of survey & certain unrecorded liensExclusions- not everything is covered, zoning, water rights, easements, taxes…TYPES OF POLICIES--Owner’s- Owners, heirs equityLender’s- Mortgage amount, reduces as principal amount is paid down-Leaseholder’s- the tenantCertificate of sale- property purchased in a court sale
196 Title Records Chapter 13/214-215 Torrens System- A legal registration system used to verify ownership & encumbrances . Provides evidence of title verses searching the public records. Owner submits an application, it is submitted to the courts clerk, if applicant proves they are the owner then a certificate of title is issued.UNIFORM COMMERCIAL CODE-DOES NOT APPLY TO REAL PROPERTY UCC , Governs the documents when personal property is used as collateral. A lender requires that a security agreement be signed & a financial statement be given, it identifies any real property that may be involved.
197 Real Estate Financing Chapter 14/221-222 Mortgage- is a voluntary liens on the real estate, the Mortgagor (borrower) pledges the property as collateral to the Mortgagee (lender) (for money)Title theory- Mortgagor gives title to the Mortgagee and he/she keeps equitable titleLien theory-Mortgagor keeps the legal and equitable title to the property, Mortgagee has a lien on the property, if Mortgagor defaults then Mortgagee must foreclose, offer property for sale. Some states allow the Mortgagor (owner) the right to redeem the property for a certain amount of time after the sale.Intermediate theory-Similar to title theory but Mortgagor must foreclose to obtain legal title
198 Real Estate Financing Chapter 14/222-223 One cannot convey anymore than what one owns. Interest/ fee simple, condo & the same goes for a mortgage…..The are TWO parts to a mortgageMortgage loan instruments:Promissory note- otherwise known as the note or financing instrument, The Mortgagor executes(signs) the note as a promise to pay back.Mortgage- or otherwise known as deed of trust, security instrument , creates the lien on the property.Hypothecation- the pledging of property, must have a debt to secure in order to have an effective deed of trustDeed of trust- Title without the right to possession, the deed is given as security for a loan to a third party called a trustee. Trustee holds title on behalf of the lender beneficiary, the holder of the note. The conveyance establishes the actions that will be taken if the Trustor, borrower defaults.
199 Real Estate Financing Chapter 14/224 Provisions of the note- promissory note executed by the borrower/maker/payor is a contract in itself. Normally it states the debt, time & method of payment and interest rate.If it’s not tied to a mortgage or deed of trust then it’s called an unsecured note, normally a short term loan.A REAL ESTATE LOAN is a SECURED loan & ALWAYS includes security… a mortgage or deed of trust.A note is a negotiable instrument the bank or whomever holds the note is the payee, it may be transferred to a third party, 1. Assigning or 2. DeliveryDATES SHOULD BE CLEARLY STATED
200 Real Estate Financing Chapter 14/224-225 Interest- The charge for using money.Arrears-due at the end of the monthAdvance- due at the beginning of the monthUsury- To protect consumers from unscrupulous lenders. Usury- when a lender charges interest in excess of the maximum rate .Loan origination fee- Processing a loan is called loan origination, the fee is used to cover the expenses involved for processing. 1 point = 1% of the loan amount.Discount points – A fee charged the borrower to make up the difference between the interest rate charged for the loan & the yield (true rate of return)an investor demands.The number of points charged depends on 2 factorsDifference between interest rate & required yieldHow long lender expects the borrower will take to pay off the loan
201 Real Estate Financing Chapter 14/225 Prepayment penalty- a charge for paying off a loan early- not all mortgages have thisLENDERS MAY NOT CHARGE A PREPAYMENT FEE ON FEDERAL GOVERNMENT LOANS OR THOSE SOLD TO FANNIE MAE/FREDDIE MAC.Freddie MacFannie Mae
202 Real Estate Financing Chapter 14/225 Provisions of a MortgageThe property is the security for the debtIdentifies the lender & borrowerAccurate legal descriptionBoth mortgage document & deed of trustIncorporate the terms of the note and should be signed by all parties that have an interest in the real estate .Borrower’s duties:Payment in accordance to the termsPayment of real estate taxesInsurance/ HomeownersKeep in good repairFailure to comply can result in default causing the mortgage company to foreclose, normally there is a 30 day grace period.
203 Real Estate Financing Chapter 14/226-27 Acceleration clause- allows the lender to foreclose (call the loan earlier than stated time) should borrower default.Assignment of Mortgage- The lender may sign over the note over to a 3rd party.Defeasance clause- requires the lender to execute a Satisfaction/release/discharge, this document returns all of the rights the borrower had signed over to the lender for the mortgageRelease deed- once the loan has been completely repaid the beneficiary makes a written request to the trustee to release the deed/deed of reconveyance to the trustor, giving back all the rightsEscrow account/impound/trust- Reserve for taxes, insurance…. At closing normally 1 –2 monthly cost is collected and then collected monthly with you house payment
204 Real Estate Financing Chapter 14/228-229 Flood Insurance- Requires that if a property is in a flood plan then the borrower must have flood insurance, as of October 1996 if the lender has knowledge that a property is now in a flood plan area then the borrower has 45 days to insure the property if not then the lender will and charge the cost back to the borrowerAssignment of rents- If the secured property involves rental property, a borrower may assign the rent to the lend in case of default. Title theory states it’s automaticSubject to & Assuming- Subject to is when the property being purchased has a mortgage and the purchaser buys the property and continues to make the payments, if Purchaser defaults the property is foreclose d upon, any outstanding amount may/could be the original borrower’s responsibilityAssuming- Purchaser assumes the responsibility of payments/terms if he/she defaults then & not enough money comes from the sale then a deficiency judgment is filed against the assumer and could be against borrower if not released
205 Real Estate Financing Chapter 14/229 Alienation clause- Due on sale/resale clause/call clause- allows the lender to call the loan & used to prevent a mortgage from being assumed if the lender wants to raise the interest rateRecording the Mortgage or Deed of Trust- In the recorder’s office of the county in which the property is located, gives public notice of borrower’s obligations. If the Torrens system is used then must be entered on the original Torrens certificatePriority- In order of which they are recorded. A first deed of trust or mortgage is 1st in lien, a 2nd mortgage is next & so on… Unless one agrees to subordination which then steps back to the other loans.
206 Real Estate Financing Chapter 14/229-231 Land Contract- Installment contract /contract on deed. Vendee is the buyer & vendor is the seller. Monthly payments are made to the seller who retains title to the property until the loan has been fulfilled. If Purchaser defaults the seller keeps all monies paid to he/she.Foreclosure: the legal procedure when the borrower defaults on the loanThree types of foreclosure proceedings: All require that the borrower be given prior notice before the sale:Judicial- Property sold by court order. The lender accelerates the loan, the lender’s attorney files a suit to foreclose, after court procedures the property is ordered sold. Public notice then sold to the highest bidder.Nonjudicial- - when there is a power-of-sale clause . The trustee records public notice, advertises the sale and amount due, after selling the property a notice of sale/affidavit is recorded.Strict foreclosure-No sale takes place, the lender records the proper papers if the borrower doesn’t pay by the time set then the courts award full legal title to the lender.
207 Real Estate Financing Chapter 14/231 Deed in lieu of Foreclosure- A friendly way for the lender to take back the property, but has it’s down falls, if there are junior liens they pass onto the lender as well. This is still a adverse element on the borrower’s credit.Redemption- Gives defaulting borrower the equitable right of redemption, prior to the foreclosure sale to pay the amount due plus any expenses involved.Some states allow the defaulting borrower the right to redeem the property AFTER the sale. Normally a year, the borrower has statutory right of redemption . Borrower may raise the money needed and pays the court. Courts may appoint a receiver to take charge of the property, collect rents…. During the redemption period.
208 Real Estate Financing Chapter 14/231-232 Deed to Purchaser – If redemption is not made then the successful bidder( new owner ) gets whatever type of title the previous owner had, the deed contains no warranties.Deficiency Judgment- When the amount of money from a foreclosure sale doesn’t cover then total cost a deficiency judgment is issued against the borrower &/or anyone else that endorsed or grantors of the note, anyone that was involved with the written agreement.BUT if there is any more left over from the sale then the borrower receives those funds.
209 Real Estate Financing Practices Chapter 15/236 There are 3 basic components to the real estate financing market1. Government influences2. The primary mortgage market3. The secondary mortgage market
210 Real Estate Financing Practices Chapter 15/236 Federal Reserve System- (Fed)The role is to create sound credit conditions, help counteract inflationary & deflationary trends and create a favorable economic climate.There are 12 federal reserve districts in the country, each served by a federal reserve bank .All nationally chartered banks must join the Fed & purchase stocks in their districts reserve bank
211 Real Estate Financing Practices Chapter 15/237 Federal Reserve System-RESERVE requirements - regulates the flow or money & interest rates in the market place by controlling the members reserve requirements & discount rate, regulate the money supply through the Federal Open Market Committee, which buys and sells securities on the open market.-The Fed requires the members to keep a certain amount of assets as reserves.By increasing it’s reserve requirements it limits the amount of money available for loans which increase interest rates which can slow down a market.
212 Real Estate Financing Practices Chapter 15/237 Fed- Discount rates- Fed members can borrow money from the district banks. The discount rate is the rate that the Feds charge to its member banks. The Federal Funds rate is the rate the Feds recommend its members to charge each other on short term loans. This is the basis on which the bank will charge loan customers.The Prime rate is strongly influenced by the Feds discount rate, the interest rates charged for mortgages are slightly higher than the prime
213 Real Estate Financing Practices Chapter 15/237-238 Primary Mortgage Market- The lenders that make mortgage loans, they view a mortgage/loan as an investment, a way to make money. Income is realized from these 2 sources:Finance charges, collected at closing, discount points & loan origination points.Recurring income, the interest collected during the term of a loan
214 Real Estate Financing Practices Chapter 15/238 A few of the major primary lendersThrifts- Savings associations & commercial banks Fiduciary lenders-Subjects to regulations set by government agencies such as:Federal Deposit Insurance Corporation (FDIC)Financial Institute Reform, Recovery & Enforcement Act of 1989 (FIRRES) created Office of Thrift Supervision (OTS)Insurance companies –-Invest much of their premium income in profitable enterprises, such as long-term real estate loans- Prefer income-producing commercial & industrial propertiesInvest in residential loans by purchasing large blocks of government backed loans from the Federal National Mortgage Association (FNMA)and other mortgage warehouse agencies
215 Real Estate Financing Practices Chapter 15/238-239 Credit unions – Cooperative organizations that require membership to borrow & recently have began making long term 1st & 2nd loansPension funds- Funds channeled through mortgage bankers and mortgage brokersEndowment funds – Source for financing low risk commercial & industrial property, commercial banks & mortgage bankers handleInvestment group financing – Very popular for large real estate projects, funds come from such sources as partnerships and investment trusts
216 Real Estate Financing Practices Chapter 15/239 Mortgage banking companies – are not mortgage brokers, Originate real estate loans using funds borrowed from others as well as their own funds, often serve as intermediaries between investors & borrower for a service fee, usually organized as stock corporations, subject to fewer restrictions than othersMortgage brokers- Are not lenders, Act as intermediaries between borrows & lenders, locate borrowers, process their loan applications & submit to lenders, do not service the loan once it has been made.
217 Real Estate Financing Practices Chapter 15/239-240 The Secondary Mortgage MarketWhere loans are bought and sold after they have been fundedRoutinely lenders sell the loans to the secondary market to avoid interest rate risks & to realize a profit, it also helps to continue funding the lenders (replenish their funds). Lenders will continue to collect the payments from the borrower then passes it on to the investor, lenders collect a fee for this service.
218 Real Estate Financing Practices Chapter 15/240-241 Warehousing agenciesFannie Mae- deals in conventional , FHA and VA loans, it is organized as a privately owned corporation that issues its own stock& provides a secondary market for loans. Buys large pools/blocks of mortgage from lenders in exchange for mortgage backed securitiesGinnie Mae- Entirely a governmental agency, a division of HUD, Department of Housing Development, corporation without capital stock, administers special assistance programsIn tight markets/high interest rates Ginnie mae & Fannie Mae can join forces (tandem plan) , allowing Fannie Mae to buy high-risk/low-yield loans & Ginnie Mae guaranteeing themFreddie Mac- Provides a secondary market for primarily conventional loans, has the authority to pool loans& sell bonds in the open market with the mortgage as the security.
219 Real Estate Financing Practices Chapter 15/241-242 Financing TechniquesStraight loans- Term loans/non- amortized loans, periodic payments of interest only with the entire principal balance due at the end of the loan term, generally used for home improvements/ 2nd mortgages, simple interestBalloon payment loans- periodic payments are not sufficient to fully repay the principal amount, it’s practical amortized but has principal owed at the end of the loanAmortized loans- direct reduction loans, each payment is the same amount, amount applied to interest decrease with each payment, the amount applied to the principal increases with each payment ,15,20 & 30 amortization, most are paid in monthly installments, some quarterly/semi annually.
220 Real Estate Financing Practices Chapter 15/242-245 Adjustable rate mortgages- ARM Interest fluctuates, therefore the repayment loan amount changes as well. Typically the interest rate is based on the index rate plus a margin (1 to 2 %) over there Treasury bill rate.-The rate cap is the amount the interest rate can change each time.-Typical ARMs are either a periodic or life-of-the-loan(aggregate) periodic, may change any one time or aggregate rate cap stays the same for the life of the loan.-To prohibit unaffordable payments, there’s a payment cap ,that’s the maximum the rate can exceed, which could result in a negative amortization (higher loan balance).-The adjustment period sets how often the rate may change.-Conversion option is offered by the lender to the borrower to convert the ARM to a fixed rate.
221 Real Estate Financing Practices Chapter 15/245-24524 Growing equity mortgage-GEM rapid loan payoff , Increase in payments during the term of the loan reduces the principal, Borrower’s equity grows faster. Normally used when borrower’s income grow as the payments increaseReverse-annually mortgage- RAMs Lender makes regular monthly payments, line of credit or 1 lump sum made to the borrower. Repaid upon sale of property or death of borrower
222 Real Estate Financing Practices Chapter 15/246-247 Loan programs are normally based on their LOAN TO VALUE LTVThe lower the ratio of debt to value the higher the down payment, which mean more security to the lenderConventional Loans- viewed as the most secure loan because the LTV ratio is lowest. Traditionally the ratio is 80% of the purchase price or appraised vale whichever is less.- Borrower needs to qualify for the loan, 28/36 ,a conforming loan, allows the lender to sell the loan to the secondary market- A non- conforming loan ( higher than 28/36 & 95% LTV higher than 33/38
223 Real Estate Financing Practices Chapter 15/247 Private Mortgage Insurance- PMIInsurance that protects the lenders loan amount should the borrower default. Required by the lender when LTV is higher than 20%, monthly premiums require until value is below a certain amount.FHA- Part of the Federal Housing Administration & HUD/Department of Housing Urban Development. Competitive with Conventional mortgages . Most common loan 203(b)allows:A higher LTV, borrower is charged a percentage of the loan for a premium for FHA insurance & monthly Insurance (MIP)FHA approve appraiser requiredSets standards for type & construction typeSet limited loan amount for regions, purchaser must contribute 3%98.75% sales price/appraisal < &/or 97% $125,000/90% & 90% of remainderPRE-PAYMENT- Lender allows for pre payment, but may charge 30 days of interest if no notice is given……………………………………….
224 Real Estate Financing Practices Chapter 15/251 …….. Assumption: Loan made before 12/1986, pretty must acceptable to assume by anyone, After 12/1896 allowed possiblePoints- If the seller pays more than 6 points then its lender recalculates the price accordinglyVA- Guaranteed loans- for little or no down payment authorizes the guarantee of home loans for eligible veterans, 90 days of active duty.., minimum of 181 days of active service during 7/26/47 –9/6/80, 2 full years service during peaceful time after 9/7/80, 6+ yrs of continuous reservistThe Vet applies for a certificate of eligibility, this doesn’t grantee a loan only that they are eligible.The borrower pays a loan origination fee, as well as a funding fee, normally 2-3 %1st time 2%/after that 3%Assumption rules- VA loans made after 3/1/88 require approval of buyer & agreement + a $500 fee, may remain liable &/ or released.
225 Real Estate Financing Practices Chapter 15/252-253 Farm Service Agency-FSA- Farmers Home, A division of the Department of Agriculture, helps purchase or improve rural properties/farms & single family homes, has guaranteed loans & direct loans, loans for low/moderate low interest rates.Farm Credit System- provides loans, doesn’t take deposits, loan funds are raised through the sale of Systemwide bonds& notesOthers-Purchase Money Mortgage- The buyer normally puts makes a down payment, assumes the loan & seller finances remainedPackage loans- includes the real estate & personal propertyBlanket loan- Normally used for several parcels of loan, it allows for property to be release while the loan remains on the remainder amount
226 Real Estate Financing Practices Chapter 15/253-255 Wraparound loans- all inclusive loan, the new lender assumes responsibility of the payment of the existing loan and gives the borrower a new increased loan at a higher interest rate. 1st lender must approveOpen End- Secures a note by the borrower from the lender & any future advances, similar to an equity lineConstruction- Periodic payments/draws, made to general contractors or the owner, before each payment the lender has an inspection of the property, normally higher interest rateSale & leaseback- The seller sells the house then leases the house back from the buyerBuydowns- A way to lower the interest rate on a loan normally form the first couple of years, points are paid to reduce the interest rateHome Equity- A loan against the equity in the property, it becomes a junior lien to the 1st deed of trust
227 Real Estate Financing Practices Chapter 15/256 Truth and Lending Act & Regulation Z- require lending institutes to disclose the true cost of obtaining credit. Used to compare cost form various lenders & to avoid uninformed use of credit.Truth & Lending- The consumer must fully understand the cost involved in the loan, points, fees, finder’s fees, service charges, interest…The ARP- the annual percentage rate for the loan-Regulation Z- applies to $25,000 or less for families & household use & to secure financing for a residential use-Creditor is defined as one who extends credit more than 25 times a years or more than 5 times years if the transaction includes a dwelling as security.-Subjects the credit to finance charge or contract for payments in more than 4 installments
228 Real Estate Financing Practices Chapter 15/256-257 3 day right of rescission- most Regulation Z but not to residential purchase money or 1st deed of trust/ does apply to refinancingAdvertising for real estate financing- Must give annual percentage rate & total amount of finance chargesIf any specific loan terms are mentioned then all terms must be included, such as cash price, required down payment…..Penalties for noncompliance include-Liability to the consumer for twice the amount of the finance charge with a $100 minimum & a $1,000 maximum-Court cost, attorney’s fees & actual damages-Fines of up to $10,000 for each day a violation continues after an administrative order enforcing Regulation Z is given or for engaging I unfair or deceptive credit practices-For willful violations, up to $5,000 fine or one year in prison or both
229 Real Estate Financing Practices Chapter 15/257 Federal Equal Credit Opportunity- ECOA- Prohibits lenders & those who grant or arrange credit to consumers from discriminating on the basis of:RaceColorReligionNational originSexMarital statusAge(provided applicant is of legal age)Dependence on public assistance (welfare)Lenders & creditors must inform rejected applicants, in writing within 30 days, why credit was denied or terminated
230 Real Estate Financing Practices Chapter 15/258 Community Reinvestment Act of 1977 (CRA)- Financial institutes are expected to meet deposit and credit needs of community, participate in development & rehabilitation projects & loan programs.Law requires statement by lender:defining geographic boundaries of communityIdentifying type of community reinvestment credit offeredComments from public about lender’s performance in meeting community needs-Real Estate Settlement Procedures Act (RESPA)- created to provide the parties to a residential real estate transaction involving new financing with the disclosure of all settlement charges
231 Real Estate Financing Practices Chapter 15/258-259 Computerized Loan Origination CLO & Automated Underwriting--An electronic network for handling loan applications provides lists of mortgage lenders, rates and terms-Real Estate agents may assist buyer in selection of lender & applying for loan on screen-Broker may earn fees up to ½ point of loan amount, borrower must pay feeAutomated underwriting procedures shorten loan approval time-lowers cost of application-reduces lender’s time on approval process-strengthens buyer’s offer to purchase by including proof of loan approval