Presentation on theme: "Real Estate Lori Chapman Principals of. Virginia Real Estate Who must have a license: Any person who or business entity that performs or advertises brokerage."— Presentation transcript:
Real Estate Lori Chapman Principals of
Virginia Real Estate Who 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 Salesperson
Virginia Real Estate Real 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.
Virginia Real Estate Real 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.
Virginia Real Estate Firm - 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 Board Supervising Broker- or a managing broker that supervise the office activities Associate Broker - one that practices as a salesperson but holds a brokers license Sole 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 salesperson Standard 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.
Introduction to Real Estate CHAPTER 1 Real Estate Specialization Professional Organizations Types of Real Estate The Real Estate Market
Real Estate Specialization Brokerage- bringing people together Appraisal- estimating the value of real property Property Management - managing & protecting an owner’s investment/return Financing - arranging/providing funds to purchaser real property Subdivision & Development - splitting a larger parcel into smaller pieces & improving Counseling - competent,independent information & advice Education - opportunities to practitioners & consumers Others- practice of law, corporations,government agencies
Professional Organizations NAR-National Association of REALTORS NAREB-National Association of Real Estate Brokers AIREA-American Institute of Real Estate Appraisers ASA-American Society of Appraisers NAIFEA-National Association of Independent Fee Appraisers REEA-Real Estate Educators Association REBAC-Real Estate Buyer’s Agent Council NAEBA-National Association of Exclusive Buyer’s Agents BOMA-Building Owners & Managers IREM-Institute of Real Estate Management CIREI-Commercial Investment Real Estate Institute ASREC-American Society of Real Estate Counselors
Types of Real Estate Residential- 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 property Each 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.
The Real Estate Market Market Place - where goods are bought & sold Supply & Demand are economic forces that set prices 1. Characteristics of real estate effecting supply & demand: a.Uniqueness b.Immobility c.Effect of natural disasters/changes in markets 2. Prices drop with increased supply 3. Prices raise with decreased supply
Factors affecting Supply / Demand Supply 1. Labor force 2.Construction cost 3. Government controls at all levels 4. Government fiscal & monetary policies Demand 1. Population 2. Demographics- make up of population 3. Employment & wages- where & how money is spent/ perceived job security
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 estate Surface rights - may be sold/ leased to others Subsurface rights - substances in the ground/may be sold or leased Air 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
Ownership of Real Property/Bundle of legal rights The concept comes from old English law The Bundle of legal rights include the rights of: –Possession- the right to occupy –Control-the right to determine certain interest for others –Enjoyment- possession without harassment –Exclusion- legally refusing to create interest for others/keep others from entering –Disposition-determining how the property is disposed of
Title to real property- right to ownership –Deed – the actual paper that shows ownership- where title is passed Personal Property / Chattels All property that is not and/or do not fit the description of real property
Classification of Fixtures Fixtures & Trade Fixtures
Fixtures An 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 estate Legal test: –The intention of the annexure –The method of the annexation –The adaptation to real estate –The existence of an agreement
Trade fixture An article owned by a tenant & attached to rental space or a building for operating a business –Tenant’s personal property –Must remove on or before the last end of lease –Not removed becomes the owners real property
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
Characteristics of Real Estate that affect its Nature & Use Economic characteristics SIPA S CARCITY – Land of a particular quality or location may be limited IMPROVEMENTS- They can affect the improved or surrounding parcels either favorably or unfavorably P ERMANENCE OF INVESTMENT- improvements are considered to create fixed investments A REA PREFERENCE-or situs- peoples choice of area- the most important economic characteristic
Physical Characteristics Immobile Indestructible Unique I mmobile – the geographic location of land I ndestructible – land is durable & indestructible U nique – nonhomogeneity or heterogeneity – no two piece of land are alike IIU
Laws Affecting Real Estate Specific areas of law important to Real Estate Practitioners Law of Contracts General Property Law Law of Agency State Real Estate License Law Federal Regulations Zoning & Land Use Laws Environmental regulations Federal, state & local tax laws Real Estate license law To protect the public interest by promoting confidence All 50 states, D.C. & Canadian provinces require licensing State laws are similar but differ in details Specific education & personal requirements for licensure Exam required Certain standards of ethical & personal conduct required Some state require continuing education for renewal Real Estate Practitioners may not act as attorneys
Reason –Sign of financial stability –Investment- appreciation/depreciation: income tax deduction/exclusion of gain from tax –Intangible benefits Ownership - 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 Home Ownership CHAPTER 3
Housing Affordability Mortgage terms, including types of loans, availability, interest rates and monthly payments –Ownership expenses: insurance,real estate taxes, utilities & maintenance –Ability to meet mortgage payment/ Most important economic consideration –PITI/PMI
Qualifying for a loan: 28/36 Gross income $54,000 : 12 = $4,500 x 28% $1,260 $1,260 + Total monthly debt $650 =$1,910 needs to be <36% $4,500 x 36%= $1,620 in this case the persons debt is too high, needs to be $360 or less
Investment considerations –Tax benefits: Income deductions, Mortgage interest, Real estate taxes,certain loan origination/discount fees, loan prepayment penalties –Capital gain: Lifetime exclusion of $250,000/ $500,000 married couples/must have lived there for 2 years, keep good records –In Practice- Real estate practitioners should tell their clients to consult a tax professional
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 coverage Condo/apartment: unit & contents not the structure Most policies have a coinsurance clause 80% of replacement Loss settlement of actual cash value (replacement less depreciation) or prorated by dividing the % of replacement cost actually covered by policy Federal Flood Insurance Program Administered by the Emergency Management Agency (FEMA) Program subsidized flood damage insurance Required on all properties located in flood prone areas (flood plains) that have federally related financing Maps of flood probe areas prepared by the Army Corps of Engineers
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 broker Buyer Broker Real Estate agent represents the interest of the buyer Designated Agent Real estate agents of the same company represent the buyer/seller or tenant/landlord, Broker remains Dual agent Dual Agent Real estate agent represents the interest of both, buyer/seller or tenant/landlord Sub-Agent Real 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-Agent Real Estate agent that represents neither buyer/seller or tenant/landlord, but is facilitator in the real estate transaction
Virginia Real Estate CHAPTER 1 VIRGINIA IS A STATUTORY STATE Common 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
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.
END OF CLASS See you Chapter 4 of the yellow book & Chapter 1 of the maroon book Goodnight
Designated Client Agent Broker
Law of Agency Common Law -Rules of society Statutory Law - Enacted by legislatures & other governing bodies
Agency CHAPTER 4 Agent- the individual who is authorized & consents to represent the interest of another, in real estate the firm is the agent Subagent- the agent of the agent Principal- the individual who hires & delegates to the agent the responsibility representing his/her interest Agency- the fiduciary relationship between the principal & the agent Fiduciary- the agent is held in a position of special trust & confidence by the principal Client- the principal Customer- the third party, some sort of service is provided Non-agent- facilitator, transaction broker….. Consensual agreement-
Fiduciary duties COALD A fiduciary relationship is one of trust & confidence between employer (principal) and employee (agent) Difference between client & customer Common law of agency duties: –Care- by use of skill –Obedience- obeying the principal’s instructions –Accounting- financial (deposits), files (3yrs), conversion/commingling/illegal –Loyalty- interest above all/ Confidentiality –Disclosure- offers,interest of parties, value, pricing
Creation of Agency The principal delegates & the agent consents to act Express agency- Listing Agreement –The parties state the terms of the agreement & express their intentions either orally or in writing In real estate normally in written rather than orally: listing agreement or buyer- agency Implied Agency-Buyer Agency Agreement –By actions –Unintentionally, inadvertently or accidentally could create an undisclosed dual agency Compensation –Does not determine agency –Keep in mind that although a person pays the compensation to an agent does not mean that person is the principal
Termination of Agency Death or incapacity Destruction or condemnation of the property Expiration of terms of the agreement Mutual agreement Breach by either party By operation of law- (bankruptcy) Completion or fulfillment Exception: 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 principal –Does not automatically terminate at the principal’s death
Types of Agency Relationships Limitations on an Agent’s authority Universal agent -no limits on authority/power of attorney/attorney in fact General agent -one that represents the principal in a range of matters –Receives 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 principal –Created by the terms of the listing agreement/buyer-agency Designated agent - one who is authorized by the broker to act as the agent of a specific principal –Others in the office free to act for another party –Broker may be in position of dual agency, disclosure required –Varies from state to state
Single agency… continued Single agency-the broker represents one party, either the seller or the buyer, a third party is a customer Seller as principal- The broker becomes the agent of the seller The relationship is established by a listing agreement The buyer is the customer The broker may utilize other brokers who become subagents Sub agency- the broker appoints other cooperating brokers who have fiduciary responsibilities as the listing broker Offered through MLS Created by offer of cooperation and/or compensation Other brokers may accept or reject subagency offer
–Buyer as principal The broker becomes the agent of the seller The relationship is established by a buyer-agency contract Broker is responsible to the buyer to locate real estate –Owner as principal The broker is responsible to the owner to manage or lease the owner’s real estate The relationship is established by a property management agreement or listing contract
Dual Agency The broker represents two principals in the same transaction Disclosed 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
Disclosure of agency Mandatory Choices for representation Who the agent represents The advantages and consequences of representation
Agency Statue Exercise reasonable care & skill in performing duties Obey client’s specific instructions Account for all money & property received Disclose material facts Perform according to brokerage agreement terms Keep confidential all confidential information received from client Generally comply with terms of statue
Customer- Level of Services Duties to the customer –Reasonable care & skill –Honest & fair –Disclosure of all facts known to agent that materially affect the property Disclosure of environmental hazards –Lead paint, asbestos, toxic waste, contaminated soil/water,etc… Opinion versus fact –Opinions must be stated as agent’s opinion –Facts must be accurate Fraud- intentional misrepresentation Puffing- exaggeration, it’s legal provided the statement is not considered fraudulent Negligent misrepresentation- if the broker is ignorant of a fact but should have known Latent defects –A hidden structural defect that wouldn’t be found under ordinary inspection Stigmatized properties –Virginia prohibits disclosure of HIV- positive, AIDS
Virginia Real Estate CH 1 Since 1995 VIRGINIA IS A STATUTORY STATE 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 broker Common 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
Virginia Real Estate Agency – 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 broker Designated agent Dual agent Client- contractual agreement Customer- non contractual agreement
Virginia Real Estate Duties To Client –Perform to the terms of the contract –Promote the interest by 1. seeking sale/lease for the terms of the contract 2. Present all offers 3. Disclose all material facts 4. Accountability –CONFIDENTIALITY- FOREVER –Ordinary care –Comply with all laws & regulations To Customer –Must treat honestly –Can’t knowingly give false information –Must disclose all material adverse facts of the property
Virginia Real Estate Additional Disclosure: –Buyer Broker- whether buyer will occupy the property as main residence –Property Management- same as a client duties other than agent is a general agent to the owner Oral agreements are legal in Virginia but they are not enforceable
Virginia Real Estate Chapter 1 Brokerage Relationship –Establishing: Type of brokerage relationship/buyer broker,dual, -designated, non –agent Broker’s compensation Whether broker will share commission with another broker -Termination: -expiration date (90 day default) -mutual agreement to terminate -default by either party -Agents withdrawal when client refuses to consent to disclose dual agency CONFIDENTIALITY- FOREVER
Virginia Real Estate Chapter 1 Disclosure requirements Agency law requires full disclosure of any existing brokerage relationship First substantive discussion about specific property Only the person who is not the client has to sign “The Disclosure of Brokerage Relationship” form Dual Representation must be made to all parties Imputed Knowledge- client nor broker is liable for misrepresentations of the other, provided they didn’t know or shouldn't have known of the information
Monday March 22, 2004 Chapter #5
Math THE DRESS What is the % of profit $80 $100 : : X : : X BUY A DRESS FOR $80 SELL IT FOR $100 25% Profit % of Cost Profit $ % $80
Math :: X PART (Equivalent to Rate) RATE (% of Whole) WHOLE (100 %)
Math Commission Net price :.94 (6% comm) List Price $200, % comm. $212,765 :: X
Commission split $6,400 Total commission $3,200 Broker AAAA $3,200 Broker BBBB Co 45% = $1,440 Agent Matt 55% = $1,760 Co 45% = $1,440 Agent Lori 55 % = $1,760
Math 28/36 GROSS YEARLY INCOME : 12 = MONTHLY INCOME MONTHLY INCOME X 28% = PITI/PMI MONTHLY DEBT + PITI/PMI < 36%
Real Estate Brokerage Chapter 5/ 63 History of Brokerage 1.Formerly, one-office, family – run operation 2.Common law dictates caveat emptor was the rule 3.MLS became the widely used industry service 4.Buyers began to question & demand representation
Real Estate Brokerage Chapter 5 Purpose: Establish basic & continuing education requirements Define actives requiring licensing Describing acceptable standards of conduct & practice Enforce standards through disciplinary system…….. License Laws
Real Estate Brokerage Chapter 5/64 Each state has a licensing authority/commission/board with the power to : –Issue license –Make real estate information available to licensee & public –Enforce the statutory real estate law AND adopt a set of rules & regulations that have the same force & effect as any law License Laws
Real Estate Brokerage Chapter 5/65-70 Brokerage- Bringing people together in a real estate transaction –Broker- One who is licensed to sell, buy, exchange or lease real property for others & charge a fee for service Business form –Sole proprietorship –Corporation –Partnership –Independent –Franchise………………….
Real Estate Brokerage Chapter 5//65 Operation - Management of business –Set effective office policies –Maintain space and equipment –Direct staff and sales actives –Mastering the real estate transaction Real Estate Assistant/Technology -An array of responsibilities, marketing, organizer, facilitator.. -May or may not be licensed, reduce abilities if not licensed Technology - Computers, digital camera, cell phone, voice mail, , internet, computer programs/ publisher/adobe writer/contact manager… on & on..
Real Estate Brokerage Chapter 5/67 Broker-Salesperson relationship –The employing Broker is directly responsible for supervising all salesperson’s real estate activities –The salesperson is responsible only to his/her employing broker. All activities must be performed in the name of the employing broker –Salesperson cannot receive compensation from anyone other than own broker
Real Estate Brokerage Chapter 5/67.. Independent Contractor vs. Employee Broker should have a standardized employment agreement that defines nature, obligations & responsibilities Employee - 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.
Real Estate Brokerage Chapter 5/68 IRS has 3 requirements to be an independent contractor –Must have a real estate license –A written contract with the broker that specifies that the salesperson will not be treated like an employee for federal tax purposes –At least 90 % of income must come from sales production NOT on hours worked
Real Estate Brokerage Chapter 5/68 Broker’s compensation –Must be negotiated between the principal and the broker –Usually a % of the sales price/rent or could be a fixed dollar amount –Broker is entitled to compensation when: The sales contract has been, executed(signed) by a ready, able and willing buyer The contract has been accepted and executed (signed) by the seller Copies of the contract are in the hands of all parties If the seller defaults the broker is entitled to a commission
Real Estate Brokerage Chapter 5/69 To be entitled to a commission an individual must be: –A licensed broker –Procuring cause of the sale –Employed by the buyer or seller under a valid contract Procuring cause- started an unbroken chain of events Ready, Able & Willing Buyer: To buy on the seller’s terms & ready to complete the transaction
Real Estate Brokerage Chapter 5/69-70 Salesperson’s compensation –Must be contained in an agreement between broker & salesperson –May be a fixed salary, % of commission, draw from or graduated spilt –100 % program w/monthly fees Math examples
Real Estate Brokerage Chapter 5 Transactional brokerage: not an agent to either buyer or seller –Referred as Non-Agent, facilitator, coordinator,or contract broker
Real Estate Brokerage Antitrust Chapter 5/71-73 Brokers/salespeople are PROHIBLTED to: Price fixing - setting prices Group Boycotting -conspire against another business or withhold patronage Allocations of customers - divide the market place Tie-in agreements – tie first sale to the purchase of another Penalties: -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
Real Estate Brokerage Chapter 5/73 Fee-for-Service Various duties, bundle of services, on stop shopping, etc…
Math THE DRESS What is the % of profit $20 $80 : : X : : X BUY A DRESS FOR $80 SELL IT FOR $100 25% Profit % of Cost Profit $80 25 % $20
PART is a portion of the WHOLE - Your office space WHOLE – Building RATE -- % of your office space to the building :: X PART (Equivalent to Rate) RATE (% of Whole) WHOLE (100 %)
Math :: X PART (Equivalent to Rate) RATE (% of Whole) WHOLE (100 %)
Math Commission Net price :.94 (6% comm) List Price $200, % comm. $212,765 :: X
Commission split $6,400 Total commission $3,200 Broker AAAA $3,200 Broker BBBB Co 45% = $1,440 Agent Matt 55% = $1,760 Co 45% = $1,440 Agent Lori 55 % = $1,760
Math 28/36 GROSS YEARLY INCOME : 12 = MONTHLY INCOME MONTHLY INCOME X 28% = PITI/PMI MONTHLY DEBT + PITI/PMI < 36%
Employment Contracts CHAPTER 6 Listing 1.Listings are personal service contracts between the broker & seller(principal) 2.Creates an employment contract 3.Most state require them to be in writing to be enforceable in court
Listing Chapter 6/79 Exclusive right to sell –One Broker is appointed as sole agent for seller & is entitled to compensation regardless of who procurers the buyer Exclusive agency –One Broker is appointed as sole agent for seller & is entitled to compensation regardless of who procurers the buyer, EXCEPT the seller Open –Non-exclusive, any number of brokers including the seller can procure the buyer
Special Provisions/Issues Chapter 6/80 Listing MLS - Multiple listing service Option listing - Broker has right to purchaser property Net 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
Termination Chapter 6/81 Fulfillment of purpose Expiration of date stated in agreement Destruction of property Change in property use (zoning/eminent domain) Transfer of title by operation law (bankruptcy) Mutual consent Death/incapacity of either party Breach/cancellation by either party (party may later be liable for damages) Bold where listing & Buyer are same Underline only listing
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 jurisdictions Some provided broker protection clauses, for procuring cause
Listing Process Chapter 6/ Cma- Competitive market analysis- comparison of similar properties, sold, for sale & that didn’t sell Net- the amount the seller will receive at closing Market Value- what the market will bear
Math Commission Net price :.94 (6% comm) List Price $200, % comm. $212,765 :: X
Listing Process Chapter 6/85-92 Listings REIII ZIP FORMS
Buyer Employment 1.Broker-Buyer Agent 2.Principal- Buyer 3.Purpose- to find suitable property 4.Fiduciary relationship(Statutory in Virginia)
Buyer Exclusive – completely exclusive agreement –Buyer legally bound to compensate whether property is located or not Exclusive agency –Limits Broker’s right to compensation –Buyer free to find property Open –Non-exclusive –Buyer may enter into similar agreement with other Brokers
Buyer Broker agreement Chapter 6/94-96
Special Provisions/Issues Buyer Explain agency agreement Parties rights & responsibilities Compensation Flat fee Retainer Source- either party/seller or buyer Always negotiable Buyer financial information
Virginia Specific Chapter 2/14-17 Net listings are illegal in Virginia Listing agreements: Sellers must receive a copy of the signed listing agreement & all blanks need to be filled in Must have a termination date Must clearly state commission rate
Virginia Specific Chapter 2/17/22 Disclosure/Disclaimer A 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 receipt –within 5 days of postmark –prior to settlement –prior to occupancy –prior mortgage application calls for
Virginia Specific Chapter 2/22 Disclosure cont… If purchaser elects to terminate & falls within the guideline no penalties will be incurred. OR If Purchaser chooses not to void then remain silent Loses rights to terminate upon: - time of loan application with termination right clause - settlement/occupancy occurs Builder does not have to provided disclosure/disclaimer ONLY disclose material defects that violate building code
Virginia Specific Chapter 2/26 Disclosure/Disclaimer forms must contain Megan's Law notice EXEMPTIONS 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
Virginia Specific Chapter 2/26 EXEMPTIONS FROM DISCLOSURE: cont…. Voluntary transfer: –Between co-owners –Relatives –Divorce settlement –To /from governmental entity, housing authority/agency –Sale due to failure to pay, Fed/State/Lo Taxes –First sale of a home
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/occupancy Owner not liable for reliable 3 rd party information or what the owner reasonably believed to be true. Agents like owner.
Virginia Specific Chapter 2/27 Stigmatized property Refers 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
Interest in Real Estate CHAPTER 7 Government Powers –Government –Interest –Encumbrances –Water
4 Government Powers PETE Chapter 7/ P olice power- Preserve order,protect the public health & safety, and promote the general welfare of the citizens. ( protection laws, zoning ordinance& building codes…..) E minent domain- the right to acquire privately owned property for public use. Condemnation is the process by which the Gov’t exercises the right T axation- A charge on real estate to raise funds for public use E scheat- when the owner dies & having no heirs or will property goes to the state, intended to prevent abandon/ownerless property
Estates in Land Chapter 7/105 defines the degree of quantity,nature & extent of owner’s interest in real property To be an estate in land, an interest must allow possession (either now or in the future) & must be measurable by duration Freehold- indeterminable length of time (lifetime or forever)/ indefeasible fee Leasehold- fixed period of time Fee 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 PETE Contin…
Estates in Land Chapter 7/ 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 court –Special limitation or fee simple determinable- if violated, reverts back to former owner no need to reenter or go to court Both considered future interest & can be passed on to heirs Contin….
Estates in Land Chapter 7/ 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 estate –Conventional 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 owner –Pur autre vie- similar to a conventional life estate other than it’s measured by another life
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 ends Reversion- Reverts back to the owner of the property when life estate ends
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.
Encumbrances Liens Easements Licenses Encroachments
Encumbrances Liens Chapter 7/110 Encumbrance is a right or interest in a property by another than that of the fee owner Lien- 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.
Encumbrances Easements Chapter 7/ Easement is the right to use the land of another for a purpose Appurtenant 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 easement Easement in gross- an individual interest in or a personal right to use the land of another Party wall easement- used for a wall that straddles the property lines of adjacent properties w/different owners Easement by necessity- arising because owners must have e ingress and egress from their land
Encumbrances Easements Chapter 7/113 Easement by prescription- arising from continuous, exclusive use of the property without the owner’s approval –Open, notorious, visible –Tacking Easement by condemnation- acquired for a public purpose, requires compensation for loss in property value
Encumbrances Easements Chapter 7/112 Creating an easement - BY: –Expressed grant in a deed from the owner of the property –Express reservation by the grantor in a deed of conveyance –Use –Implication
Encumbrances Easements Chapter 7/ Terminating an easement -BY: –When the purpose fro which it was created no longer exists –The owner of either the dominant or servient tenement becoming the owner of both properties(merged) –Release of the right of easement to the servient tenement –Abandonment of the easement –The nonuse of a prescriptive easement by it’s owner –Adverse possession by the owner of the servient tenemt –Destruction of the servient tenement(party wall) –Court decision of a quiet title action against someone claiming an easement –Excessive use (change in property use) Above isn’t automatic
Chapter 7/114 License- The privilege to use another’s land for a specific purpose Encroachment- anything extending from one property across the property line onto another parcel or beyond legal building setback lines
Water Chapter 7/ end of Chapter Riparian rights - rights granted to owners along a non-navigable river or stream Littoral rights - rights granted to an owner along an ocean or large lake Accretion - increase in land resulting from deposit of soil Erosion - Loss of soil by gradually wearing away Avulsion - sudden removal of soil due to an act of nature Prior 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 rights Doctrine of prior appropriation -the right to use any water, except for limited domestic use, is controlled by the state
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- DISCLOSE Curtsey/Dower- does not exist in Virginia- NO WILL descent & distribution is used, where property passes to the surviving spouse and others Intestate- If no will is left then the property goes to the The spouse receives 1/3 & remainder is distributed amongst the decedent’s child or their decedents
Virginia Specific Chapter 3/33-34 Augmented Estate- When the surviving spouse objects to how the property is left Homestead- 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 property –Mechanics liens –Claims for taxes Claim must be made by deed in case of real property & inventory list under oath for personal property A few things may be withheld, family bible, wedding rings, burial plots..
Virginia Specific Chapter 3/33-34 Easements- Easement by Prescription- 20 yrs –In a court action to establish : –Adverse, under a claim of right,exclusive,continuous, uninterrupted, with knowledge and acquaintance of owner
Forms of Real Estate Ownership CHAPTER 8 Severalty Co-Ownership Trust
Severalty –Title is held by one individual Co-Ownership –Tenancy in common –Joint Tenancy –Tenancy by the entirety –Community Property Trust –Living & Testamentary –Land Trust
Tenancy In Common 2 or more owners Undivided fractional interest Unity of possession Each may encumber or convey their interest Each is inheritable
Joint Tenancy Right of survivorship(common law) 4 unities- required to create a Joint Tenancy –Possession –Interest –Time –Title To terminated if you can’t agree then you have to file a court action to partition the property
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 unity Termination – J’S Judgment Sale DAD Divorce, Agreement & Death
Community Property Spouses are Equal Partner Anything acquired during the marriage is community property- Both Real & Personal Property Anything you have before the marriage or received during the marriage by gift or inheritance is separate property No right to Survivorship – Death of 1 spouse leaves ½ to surviving spouse and other ½ according to will
Trust Parties to a Trust Trustor – creates the Trust Trustee – Manages the Trust Beneficiary – Receives the benefits
Living Trust Put something into Trust while your alive
Testamentary Trust The will puts the Trust into effect going upon your death
Land Trust Only asset Usually the Trustor & Beneficiary are the same person
Legal Descriptions Legal description- used to identify a property 3 Methods of describing Real Estate Metes and Bounds Rectangular survey Lot and block
Chapter 9/140 Mete 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.
Rectangular survey Government Survey CHAPTER 9 Principal meridian lines –Run North to South Base lines –Run West to East The rectangular survey system affects specific land areas within the boundaries Both are located in reference to degree of longitude & latitude Each principal meridian is named & is crossed by its own base line
Base line Meridian line
TOWNSHIP TIERS Run East and West,parallel to the base line and are 6 miles apart 6 miles wide stripes of townships that are numbered North to South of the base line
RANGE 6 miles apart and run North & South parallel to the principal meridian 6 miles wide of townships that are numbered East & West of the principal meridian
Township Squares The intersection of a township stripe & a range strip 6 miles square & contains 36 square miles
township 6 north, Range 2 east of the principal meridian Township Square(s) 6 miles square Contain 36 square miles
Section in a Township
SECTIONS 36 sections in a township Numbered 1 – 36, starting upper right corner Each section is 1 mile square & contain 640 acres By law Section 16 is reserved for school purposes Sections are divided by Halves (320) & Quarters (160) Correction lines - are required to overcome the effect of the earth’s curvature on range lines - every 4 th 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)
Fractional sections & government lots -Undersized or oversized sections are classified as Fractional lots -Areas smaller than full quarter-sections are designated as Government lots -They are used to correct survey errors and physical disparities Reading a government survey legal description and calculating the size of a tract of land -Start at the end of the description and work backwards to the beginning -Begin 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 system -tracts are too small to be described by quarter sections -When tract does not follow the lot or block lines of recorded subdivision -When a tract does not follow the section, quarter-section or fractional section lines
Lot and Block system recorded plat Identified properties may later be re-subdivided This system uses a recorded subdivision plat map It requires a survey plat by a licensed surveyor or land engineer The system is used in all states, sometimes in conjunction with other legal descriptions
Preparing a Survey Used to locate a given parcel of land & can also amend a legal description –Shows the location & dimensions of the parcel –Spot survey includes the location of buildings on the land Requires the use of a licensed surveyor or land engineer
Measuring Elevations Condominium laws require a legal definition of the horizontal property rights included with each unit (air lots), air lots specific boundaries above land Datum – defined as the mean sea level at New York Harbor, a point, line or surface from which elevations are measured Benchmark – permanent reference point throughout the United States, primarily used for marking datums, embossed brass markers
Land Units & Measurements Area x Cost per sq. ft. or per acre Convert the acreage to square feet before multiplying 1 acre = 43,560 Insert examples
Real Estate Taxes & Other Liens Chapter 10/158 Lien- a charge against property that provides security for a debt of the property owner Encumbrance- any charge or claim that burdens the title to real property, lessens its value or impairs its use. Including liens & claims Liens may be voluntary or involuntary Statutory or equitable & general or specific
Real Estate Taxes & Other Liens Chapter 10/ Voluntary Lien- created intentionally– mortgage Involuntary – Not created by choice: –Statutory lien- created by statue- real estate tax – Equitable- created by common law- based on court of fairness Vendor lien- belongs to a vendor for the unpaid balance of a purchase price for land
Real Estate Taxes & Other Liens Chapter 10/159 VISE - 4 ways ways to create a liens, Voluntary, Involuntary, Statutory, Equitable General 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….
Real Estate Taxes & Other Liens Chapter 10/ Liens run with the PROPERTY not the person when properly established Priority of liens- typically it’s 1 st come 1 st served. Real estate tax and special assessment taxes don’t apply to this rule, those are paid 1 st, 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….
Real Estate Tax Liens Chapter 10/ Assessment- the valuation of the property’s worth, based on fair market value Equalization- used to achieve uniformity throughout statewide tax assessments Tax 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 thousand Tax bill- amount due, calculate the tax assessment x tax rate Enforcement 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.
Real Estate Taxes & Other Liens Chapter 10/ Special Assessment- not used much anymore, however if assessed, the cost of the improvement is divided amongst those that benefit Mortgage 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, 1 st 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.
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 bond Estate and Inheritance tax- are general, involuntary & statutory Municipal Utilities- imposes a specific, equitable involuntary lien on the property
Real Estate Taxes & Other Liens Chapter 10/ 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 corporation IRS tax lien - general,statutory, involuntary lien against real and personal property. Does not supercede other liens.
Virginia Real Estate Chapter 4/37-38 Co-Ownership Tenancy in Common- can be created as follows: –Express limitation- 2 or more people –Grant- interest –Devise/grant- equal shares –Breakup- in joint tenants –Dissolving- of tenancy by the entirety- divorce or mutual agreement
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 survivorship Tenancy in Partnership- Subject to partnership agreement Partner’s rights are not individually assignable Partners rights are not subject to creditors On the death of a partner his share passes to the other Partners Partner can transfer property behave of the Partnership
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 identified 4 types of surveys 1)Subdivision plat 2) Boundary survey 3)House location 4)Physical or as – built
Virginia Real Estate Chapter 6/58 TAX LIENS Uniform taxation- Tax rate and mode of assessing be same for like properties Exemptions: Burial grounds & cemetery lots owned by a company &/or individual Religious groups Public 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.
Virginia Real Estate Chapter 6/59 Past-due Taxes currently due & payable At 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 amount Prepaid – The seller will receive a credit for the amount not used and the buyer will be charged that amount
Virginia Real Estate Chapter 6/59-61 New construction- Taxes are based on the time a certificate of occupancy is issued, then prorated Leases- a perpetual leaseholder/owner pays the taxes & normally in a net lease the tenant pays the taxes Tax lien- Over rides ALL liens. Virginia allows any unpaid US tax take priority to other liens. On 3 rd anniversary of non payment property may be sold 30 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 DATE Special Assessment …. Notice must be sent to adjacent property owners
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 forced AGREEMENT/PROMISE - legally enforceable LEGALLY COMPETENT PARTIES - considered legally capable LEGAL CONSIDERATION- something of value & legal LEGAL ACT- can’t be illegal
Real Estate Contract Chapter 11/ Contract – Depending upon how it’s created: EXPRESSED- parties state the terms and show there intentions in WORDS. Maybe oral or written IMPLIED- the agreement between parties by acts or conduct BILATERAL- Both parties agree to do something listing/sales UNILATERAL- One side agrees to do something Option EXECUTED- When all parties have completely performed all requirements Property has closed EXECUTORY- Property has not closed, an act still to perform- contingency
Real Estate Contract Chapter 11/ VAILD CONTRACT- elements OFFER & 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 1 st 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 contract CONSIDERATION- something of value (money) LEGALLY COMPETANCT PARTIES- mentally competent & over the age of 18 CONSENT- No undue duress, fraud… LEGAL PURPOSE- Can’t be for illegal purposes
Real Estate Contract Chapter 11/ VALID- it becomes enforceable- meet all legal elements VOID- lacks legal elements/ not enforceable/ no meetings of the minds VOIDABLE - 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
Real Estate Contract Chapter 11/ Discharged of Contracts TERMINATED Performance “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 frame Assignment - pass your rights/obligations (delegated) onto another 3 rd party (assignee), you may still be reasonable for the terms of the contract unless specified Novation – replacing the original contract with another contract, could be same parties or a new party, must have both parties consent……….
Discharged of Contracts TERMINATED Chapter 11/ Breach - one party doesn’t perform to the contract, non- defaulting party may sue the defaulting party Buyer may sue the seller- Suit for specific performance- to convey the property OR Damages- for cost & hardship Seller may sue the buyer- for damages or the purchase price, where the seller tenders the deed Statute of limitations – time limitation to bring suit against a party
Real Estate Contract Chapter 11/ OTHER REASONS : Partial performance Substantial performance Impossibility of performance - an act cannot be legally performed Mutual agreement - Both agree Operation of law- altered, minor, fraud Rescission - on party may terminate and all monies (deposit) returned
Real Estate Contract Chapter 11/179 The Sales Contract The ESSENTAIL ELEMENTS Offer & acceptance, Consideration, Legally competent parties, Consent, Legal purpose Sales Price Legal description Statement of type of title/deed (general,special) Kind of title evidence (title search) Terms & Conditions
Real Estate Contract Chapter 11/ Offer Counteroffer Acceptance Binder Earnest Money deposits & (accounts) Equitable title Quickclaim deed Destruction of premises Liquidated damages
Real Estate Contract Chapter 11/183 ….Parts of a contract… Purchaser’s name Description-Address & Legal descript. Seller’s name Purchase price, financing Amount of deposit & down payment Closing date Evidence of title policy (search) Condition (damaged/destroyed) Default (liquidated/specific) Contingencies Signatures & dates of signatures Disclosure of agency……………
Real Estate Contract Chapter 11/184 ….Parts of a contract… Personal property & real property Warranties on systems & personal prop. Identifying any leased equipment Who & where closing will take place Distribution of escrow funds Payment of any outstanding debts Walk Thru/ final inspection Agreement of documents and delivery of
Real Estate Contract Chapter 11/184 Contingencies - Additional conditions in a contract. Mortgage, inspections, property sale, etc.. Action Time frame Who’s responsible Escape clause or Kick out clause- Seller retains right to continue to market property, purchaser may have right to satisfy contingency Amendments & Addendums- Amendments- agreed upon changes after the contract is ratified Addendums- agreed upon additions during negotiating a contract Disclosures- Agency of relationship & property Disclaimer/Disclosure
Real Estate Contract Chapter 11/ OPTION - Where owner (optionor) gives the purchasers/lessee(optionee) the right to buy/lease at a certain price for a certain time LAND CONTRACT - very similar to owner financing BUT, Seller retains title and buyer take possession and gets equitable title to the property LEASE - Between tenant/landlord or lessor/lessee- exclusive possession of land/property for a specified time and cost ESCROW AGREEMENT - an agreement between buyer/seller & escrow holder- a contract with a deposit/escrow
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 deed Title- A buyer should expect marketable title to the property Equitable title - gives the buyer an insurable interest- VA places the risk of loss on the buyer. Warranties- VA caveat emptor buyer beware Existing: New Construction:
Transfer of Title Chapter 12/192 Title – the rights to or ownership of land/ evidence of ownership Voluntary alienation- sale, gift or will DEED is the document that is recorded that transfer ownership The OWNER/GRANTOR signs the deed & the GRANTEE acquires title
Transfer of Title Chapter 12/ Requirements for a valid Deed Grantor- Of age(18), sound mind, correct spelling of name(s) Grantee- Must state a full name Consideration- some type of $ or gift Granting 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
Transfer of Title Chapter 12/ Legal consideration- accurate legal description Exceptions& reservations- must be recorded with deed, covenants, easements, special conditions….. Signature- all grantors must sign/ power of attorney is possible Acknowledgement- 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 Grantee Execution 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
DEEDS Chapter 12/196 GENERAL 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 3 rd 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
Transfer of Title Chapter 12/ SPECIAL WARRANTY- Grantor received title & not encumbered while they held title BARGIN & SALE- Grantee has little recourse to recover damages, grantor is release their rights…. Bankruptcy sale QUITCLAIM- Grantor receives the very least protection from the Grantor, to clear a title quickly DEED IN TRUST- Deed from Trustor to Trustee for the beneficiary RECONEYANCE- when the trustee transfer the title back to the Trustor TRUSTEE’S- the trustee conveys real estate held in the trust to anyone other than the Trustor DEED EXECUTED PURSUANT TO A COURT ORDER- court ordered or will full consideration vs. &10 & other….
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 value Value ($324,000) : Unit($500) X Rate per Unit (.50 cents) 648 x.50= $324
Transfer of Title Chapter 12/200 Involuntary alienation - property transfer against owners consent- condemnation, delinquent taxes, dies intestate w/no heirs…. Transfer by adverse Possession Another form of involuntary transfer, a person makes claim,takes possession and makes claim of the title. Usually ALL of the following must happen: 1.Open- obvious to everyone 2.Notorious-known by others 3.Continuous & uninterrupted 4.Hostile- w/o true owner’s consent 5.Adverse to the true owner’s possession Statutory time frame can be from 5-30 years, from state to state
Transfer of Title Chapter 12/ 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 rights Legal requirements of a will- Only a valid and probated will can transfer title of property. Testator must be of legal age and sound mind Probate 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
Virginia Real Estate Chapter 8/80 Requirements for a valid deed Grantor w/legal capacity Grantee Consideration Granting clause Accurate legal description of property Any relevant exceptions or reservations Signature of Grantor Delivery & acceptance Grantor can sometimes be a grantee as well Grantee - Legally competent, full name & can be to a nonexistent person
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 used Power of Attorney - Acceptable BUT affidavits & sworn statements cannot be signed by POA, lender may not allow POA because of truth in lending requirements MUST BE RECORDED if not it’s as if the deed wasn’t signed
Virginia Real Estate Chapter 8/81-82 Transfer taxes & fees- Recordation fee- Deed State fee is $.15/$100 & county/city is 1/3 of that $.05/$100 Grantor Tax- $.50/$500 Tax 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
Virginia Real Estate Chapter 8/82-83 Adverse Possession- Necessary to show actual, hostile, exclusive, visible and continuous possession for 15 years Must be hostile and without true owner’s permission Transfer of deceased’s property No 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.
Virginia Real Estate Chapter 8/84 Va is silent on an oral or deathbed will All heirs and spouses must sign as grantors
SELLER’S NET AMOUNT SELL WANTS TO NET $300, (94%) $319, Equals the amount the property needs to be listed for Round up to $319,150
Original Cost SALES PRICE : % OF PROFIT = ORIGINAL COST $125,000 : 1.3% = $96,153 IS ORIGIANL COST To double check yourself: $96,153 X 1.3% =$124, ROUND UP
Mortgage Qualifying Ratios 28/36 PITI/PMI- Principal, interest, taxes, insurance & private mortgage insurance PITI/PMI no more than 28% of total gross monthly income Total housing allowance (28%) plus monthly debts cannot exceed 36% of monthly gross income $60,000 yearly income : 12 months = $5,000 monthly income X 28% maximum monthly housing allow. $1,400 PITI/PMI + $400 monthly debt $1,800 : 36% = $5,000 OKAY
Real Estate Commission split with agent & company on a 55agent /45 company split Sales price $364,000 Commission rate x 7% Commission$25,480 Agent share x 55% $14,014 Company share $25,480 x 45% $11,466
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 state Notice – Giving notice 3 types CONSTRUCTIVE – diligent inquiry – Properly recorded documents serves as notice to the world ACTUAL- direct knowledge someone that has searched the public records & inspected the property/ they can’t use lack of constructive notice to justify a claim INQUIRY- law assumes a reasonable person would inquiry more into the property Priority – Order of rights in time who recorded 1 st, who has possession……. 1- law
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
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 settlement It’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.
Title Records Chapter 13/212 Proof of Ownership - evidence of title: deed by itself not sufficient Certificate 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
Title Records Chapter 13/ 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 party Legal description of property Estate or interest covered Condition & stipulations Schedule of exemptions -Premium paid (one closing) -Insurer’s liability cannot exceed face amount of policy 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- SUBROGATION SEE PAGE 214 TABLE
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 deeds Extended 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 liens Exclusions- not everything is covered, zoning, water rights, easements, taxes… TYPES OF POLICIES- - Owner’s- Owners, heirs equity Lender’s- Mortgage amount, reduces as principal amount is paid down -Leaseholder’s- the tenant Certificate of sale- property purchased in a court sale
Title Records Chapter 13/ 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.
Real Estate Financing Chapter 14/ 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 title Lien 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
Real Estate Financing Chapter 14/ One cannot convey anymore than what one owns. Interest/ fee simple, condo & the same goes for a mortgage….. The are TWO parts to a mortgage Mortgage 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 trust Deed 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.
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. Delivery DATES SHOULD BE CLEARLY STATED
Real Estate Financing Chapter 14/ Interest- The charge for using money. Arrears-due at the end of the month Advance- due at the beginning of the month Usury- 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 factors -Difference between interest rate & required yield -How long lender expects the borrower will take to pay off the loan
Real Estate Financing Chapter 14/225 Prepayment penalty - a charge for paying off a loan early- not all mortgages have this LENDERS MAY NOT CHARGE A PREPAYMENT FEE ON FEDERAL GOVERNMENT LOANS OR THOSE SOLD TO FANNIE MAE/FREDDIE MAC. Freddie Mac Fannie Mae
Real Estate Financing Chapter 14/225 Provisions of a Mortgage The property is the security for the debt Identifies the lender & borrower Accurate legal description Both mortgage document & deed of trust Incorporate 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 terms Payment of real estate taxes Insurance/ Homeowners Keep in good repair Failure to comply can result in default causing the mortgage company to foreclose, normally there is a 30 day grace period.
Real Estate Financing Chapter 14/ 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 3 rd 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 mortgage Release 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 rights Escrow account/impound/trust- Reserve for taxes, insurance…. At closing normally 1 –2 monthly cost is collected and then collected monthly with you house payment
Real Estate Financing Chapter 14/ 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 borrower Assignment 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 automatic Subject 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 responsibility Assuming- 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
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 rate Recording 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 certificate Priority- In order of which they are recorded. A first deed of trust or mortgage is 1 st in lien, a 2 nd mortgage is next & so on… Unless one agrees to subordination which then steps back to the other loans.
Real Estate Financing Chapter 14/ 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 loan Three 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.
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.
Real Estate Financing Chapter 14/ 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.
Real Estate Financing Practices Chapter 15/236 There are 3 basic components to the real estate financing market 1. Government influences 2. The primary mortgage market 3. The secondary mortgage market
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
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.
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
Real Estate Financing Practices Chapter 15/ 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: 1.Finance charges, collected at closing, discount points & loan origination points. 2.Recurring income, the interest collected during the term of a loan
Real Estate Financing Practices Chapter 15/238 A few of the major primary lenders Thrifts- 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 properties -Invest in residential loans by purchasing large blocks of government backed loans from the Federal National Mortgage Association (FNMA) and other mortgage warehouse agencies
Real Estate Financing Practices Chapter 15/ Credit unions – Cooperative organizations that require membership to borrow & recently have began making long term 1 st & 2 nd loans Pension funds - Funds channeled through mortgage bankers and mortgage brokers Endowment funds – Source for financing low risk commercial & industrial property, commercial banks & mortgage bankers handle Investment group financing – Very popular for large real estate projects, funds come from such sources as partnerships and investment trusts
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 others Mortgage 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.
Real Estate Financing Practices Chapter 15/ The Secondary Mortgage Market Where loans are bought and sold after they have been funded Routinely 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.
Real Estate Financing Practices Chapter 15/ Warehousing agencies Fannie 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 securities Ginnie Mae- Entirely a governmental agency, a division of HUD, Department of Housing Development, corporation without capital stock, administers special assistance programs In 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 them Freddie 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.
Real Estate Financing Practices Chapter 15/ Financing Techniques Straight 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/ 2 nd mortgages, simple interest Balloon 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 loan Amortized 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.
Real Estate Financing Practices Chapter 15/ 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.
Real Estate Financing Practices Chapter 15/ 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 increase Reverse-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
Real Estate Financing Practices Chapter 15/ Loan programs are normally based on their LOAN TO VALUE LTV The lower the ratio of debt to value the higher the down payment, which mean more security to the lender Conventional 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
Real Estate Financing Practices Chapter 15/247 Private Mortgage Insurance- PMI Insurance 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 required -Sets standards for type & construction type -Set limited loan amount for regions, purchaser must contribute 3% % sales price/appraisal < &/or 97% $125,000/90% & 90% of remainder -PRE-PAYMENT- Lender allows for pre payment, but may charge 30 days of interest if no notice is given……………………………………….
Real Estate Financing Practices Chapter 15/251 …….. Assumption: Loan made before 12/1986, pretty must acceptable to assume by anyone, After 12/1896 allowed possible Points- If the seller pays more than 6 points then its lender recalculates the price accordingly VA- 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 reservist The 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 % 1 st 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.
Real Estate Financing Practices Chapter 15/ 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& notes Others- Purchase Money Mortgage- The buyer normally puts makes a down payment, assumes the loan & seller finances remained Package loans- includes the real estate & personal property Blanket loan- Normally used for several parcels of loan, it allows for property to be release while the loan remains on the remainder amount
Real Estate Financing Practices Chapter 15/ 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. 1 st lender must approve Open End- Secures a note by the borrower from the lender & any future advances, similar to an equity line Construction- Periodic payments/draws, made to general contractors or the owner, before each payment the lender has an inspection of the property, normally higher interest rate Sale & leaseback- The seller sells the house then leases the house back from the buyer Buydowns- A way to lower the interest rate on a loan normally form the first couple of years, points are paid to reduce the interest rate Home Equity- A loan against the equity in the property, it becomes a junior lien to the 1 st deed of trust
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
Real Estate Financing Practices Chapter 15/ day right of rescission- most Regulation Z but not to residential purchase money or 1 st deed of trust/ does apply to refinancing Advertising for real estate financing- Must give annual percentage rate & total amount of finance charges If 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
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: Race Color Religion National origin Sex Marital status Age(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
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 community -Identifying type of community reinvestment credit offered -Comments 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
Real Estate Financing Practices Chapter 15/ 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 fee Automated 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