Realty School Chap 1

vocab to remember

accretion

The owner of a piece of property which borders water may find that the

property has become a little larger due to a process of accretion, where the action of water

has added to the land. Increases in land due to accretion of alluvial (washed up) deposits

belong to the land owner (accession).

riparian rights

are common-law rights granted to owners along the course of a river or

stream. They generally allow the landowner unrestricted use of the water as long as the

owner does not alter the flow or contaminate the water in any way. On smaller streams that

are not navigable, the owner typically owns the land under the water, out to the exact center

of the stream. On larger, navigable streams and rivers, the owner owns only to the edge of

the water.

avulsion

The sudden removal of soil by an act of nature can cause a landowner’s

property to become much smaller very quickly.

littoral rights

describe the rights of owners whose land borders large (commercially

navigable) lakes, seas, and oceans. These owners have claim only to the high-water mark

of water that borders their property.

erosion

conversely, an owner may find that wind, rain, or flowing water has removed land through the process of erosion and replaced it with water. The missing land no longer belongs to the land owner

land

is defined as the surface of the earth, extending

upward to infinity and downward to the center of the earth.

It includes all things that are attached to the surface of the

earth, like trees and shrubs, and the water that exists on

and below the land. Land also includes the soil and

minerals below the surface (termed the subsurface) and the

air above the earth’s surface (termed the airspace).

Most laws that control the ownership of land are state and

local in nature, especially those that cover minerals and

water.

Real estate

is defined as the land, as described above, plus all improvements, which are

the man-made artificial things attached to the land. Notice the term artificial describes the

man-made things that we know as buildings, fences, driveways, swimming pools, etc.

bundle rights

Possession – the right to possess and occupy the property

• Control – the right to control the property; to use it for any legal purpose

• Enjoyment – the right to use the property in any legal way

• Exclusion – the right to keep others from having access to the property

• Disposition – the right to sell, will, transfer, or dispose of the property

subsurface rights

are the rights to natural resources that exist below the surface of the

earth. These can be sold or conveyed separately from the land, and the conveyance can be

split among several buyers. Thus, a farmer with a 100-acre farm could sell the rights to

subsurface oil to one buyer and the rights to subsurface coal to another buyer.

air rights

an be a significant part of the land and may have great value. Many large

buildings in large cities have been constructed using the air rights above other objects like

railroad tracks or parking lots.

water rights

can also be sold, but since water moves across the land, the sale of water

rights is a complex legal process, normally regulated by the state. In wetter areas, like the

Great Lake states, water is relatively plentiful and regulation is minimal. In the water-scare

states in the southwest, water control and water laws are relatively more complex.

prior appropriation

means that the government has already taken and reserved the water

rights for the government and can sell or lease those rights separately.

personal property

is defined as all property which can be owned by an owner but does not

fit the definition of real property. One important definitional difference is that personal property

can be moved. This still leaves a broad range of personal property items, from potted plants to

manufactured homes. Chattel is another term synonymous with personal property.

manufactured homes

pose an area of special interest to real estate agents. Since they

are manufactured in a factory and moved to a site where they are parked or installed,

manufactured or mobile homes are usually classified as personal property in most states.

However, if they are permanently affixed to the land, and the land is included with the sale,

manufactured homes can sometimes be classified as real property.

Trees and crops

seem similar but they are defined differently from a real estate point of

view. Trees, rocks, bushes, and other landscaping that does not require cultivation on an

annual basis are considered part of the land and are therefore real property. Fruit,

vegetables, nuts, grasses, grains and other annually cultivated crops are known as

emblements or fructus industriales, and are considered personal property.fixtu

fixtures

are items of personal property that have been

permanently attached (attachment) to land or a building, so that

they become part of the real property. Examples of fixtures are

display racks, alarm systems, heating systems, elevators, kitchen

cabinets, etc. When buildings are transferred from one owner to

another, the contractual definition of an item as a fixture (real

property) can be controversial. Over time a test of intent has been

developed to help define the status of a fixture. To understand intent, it is necessary to determine if the item was installed permanently on the

property, or was it designed to be removed sometime in the future. Over time, the courts have

defined three legal tests to determine if an item is real property (a fixture) or personal property.

deed

transfers title of

real property while a bill

of sale transfers

ownership of personal

property. The typical

closing will include both

documents.

method of annexation

How permanent is the attachment? Can the item be easily

removed or will it cause damage to the building to remove the item?

adaption to real estate

For example, a refrigerator is usually considered personal

property, but if built into the kitchen cabinetry, with panels that match the other kitchen

cabinets, it is probably a fixture.

Have the parties agreed to its status in an offer to purchase?

If so, that will become a

determinant. For example, if the buyer’s offer to purchase specifically identifies and includes

an item, it is probably real property.

Trade fixtures in commercial spaces

Trade fixtures fall into a special category. They are

installed in a rented space by a tenant, for the tenant’s use – the tenant’s “trade.” Unlike regular

fixtures which become real property, trade fixtures are the property of the tenant and must be

removed by the final day of the tenant’s occupancy. Some examples are bowling alley

equipment, a pizza oven, or kitchen equipment in a restaurant. If they are not removed upon

vacating the property, they become property of the landlord through accession.

Location/Area Preference

Location is often the most important characteristic affecting the

value of a piece of property. Area preference refers not only to a property’s geography, but

to people’s preference for a particular area. This characteristic is often expressed as

“location, location, location.”

Scarcity

There is quite a bit of land around us, but much of the earth’s surface is covered

by water, and a great deal of the remaining land is unused or uninhabitable, so we generally

think of what’s left as finite and scarce.

Improvements

The construction of a building, or otherwise putting land to work in some

way, can dramatically raise the value of a piece of property. But, utilizing the land in an

undesired manner such as establishing a dump or landfill on a property will lower its value.

Durability/Permanence of investment

Buildings, both residential and commercial,

represent a large investment of capital and labor. So, do the infrastructure investments in

sewerage, utilities, drainage, and landscaping. We think of investments in land to be long

term and relatively stable.

immobility

While some characteristics of a parcel of land can be changed by paving, or

by moving dirt around, or by digging, the parcel of land is still there, in the same place, and

immobile.

Indestructibility

In addition to being immobile, land is also indestructible. It is permanent.

Deterioration of buildings built on the land may decay and reduce the desirability of the

land, but buildings can eventually be demolished and the land returned to its prior state.

Uniqueness

This concept refers to the idea that no two parcels of land are exactly the

same. While they may seem similar, each parcel is unique and differs from its neighbors in

some way (non-homogenous/non-homogeneity).

Metes and bounds

The least common, this type of a system relies on a description of

metes (distance and direction) and bounds (landmarks or boundary edges) to define the

borders of a parcel of land. This system goes back several hundred years and was the

first method used to convey a legal description. A metes-and-bounds description of a

piece of property uses a point of beginning (POB), and then directions and linear

measurements to define the borders of the property, finally returning to the POB.

Lot, block, and subdivision

The third method, and the

one most used in metropolitan areas is the lot, block, and subdivision system. In this

method, a plot of land is surveyed, and then divided into blocks and lots, streets, access

roads, utility easements, parks, etc. Then, the blocks and lots are assigned numbers and

letters. The resultant drawing is called a plat map or subdivision plat. Once approved by

the local municipality, the subdivision plat is duly recorded and becomes part of the legal

description of each property. It is also the legal description used on deeds and required

for homestead forms.

Police Power

Police power represents the

government’s right to regulate for the benefit of

the general health and welfare of its citizens.

There are several important police power

matters, including subdivision regulations,

building codes, and health codes.

Public Controls – Governmental Powers:

• Police Power

• Eminent Domain

• Taxation

• Escheat

• Zoning Ordinances

Subdivision regulations

The community will normally adopt minimum standards for

subdivisions. These would contain regulations such as street widths, provisions for

sidewalks and street lights, drainage provisions, lot size, house size, house styles, roof

material, exterior finishes, and a host of other matters which the community chooses to

regulate. So long as the requirements are reasonable, they would normally withstand

any court challenge.

Health codes

Like building codes, the health and safety of the community is not going

to be left in the hands of the business community. Health codes provide for minimum

standards regarding a wide variety of matters, ranging from food handling and

preparation standards, to general sanitation standards, to various forms of signage like

“Wash Your Hands Before Returning to Work,” and other similar matters. The citizen

expects the food and water supply to be safe and healthy and that public facilities such

as restaurants, theaters, hotels, hospitals and other facilities offer safe environments.

Transfer tax

Transfer taxes are sometimes referred to as conveyance taxes, revenue

stamps, documentary stamps, or deed stamps. A transfer tax is a state tax, collected

locally, based upon the value of real property when it is sold. It is normally paid by the

seller at closing and is based upon a declaration of value.

Example: If the transfer tax in the state is $2.55 per $500.00 of value (or any portion

thereof), the sale of a $300,000 home would result in a transfer tax of?

Solution: $300,000 ÷ 500 = 600 “taxable units” x $2.55 = $1,530.00

If the price were $300,200, the calculation would be:

$300,200 ÷ 500 = 600.4 taxable units becomes 601 x $2.55 = $1,532.55

Recording fees

Recording fees represent a state established charge for the recording

of documents in the public records of the county. For example, a county recorder might

charge $14.00 for the first page of a document and $1.00 for each additional page. Each

document is considered and priced separately.

Property tax

Example: The market value of the property is $360,000. The state assessment

ratio is 35% and the tax rate in the taxing district for the home is $2.9299 per $100

of assessed value. What are the annual taxes?

Solution: $360,000 market value x .35 assessment ratio = $126,000 assessed value

$126,000 ÷ 100 = 1,260 units of $100.00

1,260 units x $2.9299 tax rate per $100 of value = $3,691.67 annual tax

Escheat

The concept of escheat is based on the fact that all land, within the boundary of

a state, needs to be owned by someone, either the federal, state, county, township, or city

government, or by a private owner.

As the right to inherit real and personal property has long been a founding principle, a

process had to be formulated as to what happened if a person died owning real or personal

property, but who had left no will directing its disposal and had no heirs living at their death.

The solution is the concept of escheat.

If a person dies with no will, and after a reasonable search no heirs are found, the property

will pass to the state by escheat.

In some states, if the property were taken by escheat, and the deceased had a spouse

living at the time of death, the property would pass to the spouse, although the spouse is

not an “heir,” a person related by blood. If there are no heirs, and no living spouse, and the

state receives the property by escheat, the property is sold and the proceeds of the sale are

placed in a state fund.

Enabling acts

The general rule is that the regulation of the land within its borders is

the function of the state. However, as time has passed and population has spread, it

became ineffective for the regulation of the use of land within the state to be done from the central state government. By way of the enabling acts, the state government

delegated this power to local governments where decisions were made for the individual

circumstances of a community.

Master plan

Each local government, be it county or city, typically develops a master

plan for the community. The master plan should take into consideration the needs of the

community, the location of various uses of land, the potential for conflict between uses,

and the orderly growth of the community. A person considering the purchase of land

should be able to look at the master plan and get a good idea what land uses will be

available in which area and if conflicting or undesirable uses exist or are planned for the

future. Implementation of the master plan is accomplished by the zoning process.

Zoning

The zoning of a property establishes what uses are available for a given

parcel. The categories of uses generally found in zoning ordinances are:

o agricultural

o residential

o commercial

o industrial

o governmental

Each category will have several different layers dealing with either the density of the

population permitted, as in residential, or the potential for conflict as in agricultural,

commercial, or industrial property.

Residential zoning contains many density levels which describe the number of dwellings

per size of parcel, normally stated as so many housing units per acre. R-1 zoning may

provide for 4 units per acre, or about ¼ acre lots, while R-2 might require a minimum lot

size of 7,000 square feet or about 6 units per acre.

Non-conforming use (NCU)

Generally, an NCU happens when a property is put to a

given use, perhaps a small “Mom & Pop" grocery store with a gas pump out in the rural

area of a community where there are no zoning ordinances. Time passes and now the

community has grown beyond the store with residential development. In this case, a

commercial use would not be permitted in the residential area, but as the store and gas

pump were there first, and is otherwise a legal use, Mom and Pop would be

grandfathered in as non-conforming use. They could continue their operation until one of

the following happened:

o the use is discontinued (it could not be restarted without zoning approval)

o the structure is destroyed (it could not be rebuilt without zoning approval)

o the use is expanded (expansion of the existing use would require zoning approval)

o the ownership changes (the new owner would have to get zoning approval)

Variances

A variance is a request for some leeway in using a parcel which violates

the zoning regulations.

Example: A family wants to add a room on to their home. The zoning for their parcel

says there can be no structure built closer than 15 feet from the back property line (a

distance termed the setback). In order to make the plans for the room work, they

need to be able to build within 13 feet of the back property line. They may apply for a

variance. If the zoning authority felt that granting the variance was appropriate, the

family could go forward with their building and exceed the rear property line setback.

Conditional use permit (CUP)

Many uses do not have a specific zone in which they

are to be put. If the use does not conflict with the surrounding area, then a CUP could

be granted.

Example: A hospital wants to build on a vacant parcel located in a predominantly

residential area. After a public hearing, if the zoning authorities find that the

parcel’s use as a hospital site would provide greater benefit than harm for the

area, a CUP would be granted.

Spot zoning

represents the zoning authority's decision to rezone a small area in a

zone different from the surrounding parcels. It should be done sparingly, otherwise,

there would be little value to having a master plan, especially if rezoning is made too

easily and too frequently

when a local government changes the zoning for a single property or small area to a different use than the surrounding land, often controversially, potentially benefiting one owner while conflicting with the master plan, but can be legal if justified for the public good, like a needed clinic in a residential zone, or illegal if arbitrary and favoring private interests over community plans. It differs from variances and is challenged when it creates an unjustified, isolated zone (like a factory in a residential area) that harms neighbors, though it can be valid if consistent with the overall plan for community benefit, such as affordable housing. 

Setback

The required distance between structures is referred to as a setback.

Typically, single family dwellings will have a 5 to 7 foot side yard setback requirement.

This is largely a life-safety matter. If one house catches on fire, with the total setback

between the burning house and the next door neighbor of 10 to 14 feet, chances are

improved that the neighbor’s house will not catch on fire. Front yard setbacks improve

view lines for traffic and improve life-safety. Rear yard setbacks serve the fire protection

issue as well as providing some additional privacy to the homeowners.

Buffer zones

are required separations between conflicting uses. They are often an

area of land zoned for a use that smoothly transitions from one use to another. As an

example, a housing development is separated from a commercial shopping center by a

park. Or a school is separated from a bar by a minimum of 1,500 feet. In each case, the

buffer zone provides separation from conflicting uses and promotes life-safety and the

general welfare of the community.

Up zoning or down zoning

If additional uses are added to those already available for

a property, this is considered an up zone and would normally add value to the property.

If uses which a property already had are taken away, this would represent a down zone

and may reduce the value of the property. Down zoning could be considered a taking

under eminent domain, thus requiring compensation to the property owner who has lost

value due to the down zone.

Height and density zoning

The height of a structure can be regulated by zoning.

Zoning can also regulate the density of population on a parcel. The density of structures

can be regulated on a parcel. Normally, this regulation would be to assure adequate

areas for parking.

Planned Unit Development (PUD)

In a PUD, one will find a combination of housing,

recreational amenities, and commercial uses all in one “planned development.”

Encumbrances

An encumbrance is defined as a burden

upon the title to the property, even though

great benefits may be derived by the

owner as a result of the encumbrance. An encumbrance is not an estate and does not

allow possession, but it may obstruct the use or value of the property. If it is a monetary

encumbrance, it is referred to as a lien. Non-monetary encumbrances include deed

restrictions, CC&Rs (Covenants, Conditions, and Restrictions), easements, licenses, and encroachments that affect the use of the

property.

Deed of trust or mortgage

When a purchaser needs money to buy a house, the

buyer may encumber the property with a mortgage or deed of trust to receive the

financing.

Property tax lien

State and local governments have the right to assess property

taxes to provide for the costs of governing and providing services such as fire and

police protection, schools, streets, sewers, libraries, etc. These are the benefits the

property owner theoretically receives in exchange for the encumbrance of taxes

against their property.

Mechanic’s lien

created by state law to protect those persons who provide labor

or materials to improve another’s property, this lien is effective as of the date of first

work or first delivery of materials; not the date it is filed in the public records.

General lien

Once a person has sued another in court and has obtained a final

judgment, in order to collect on the judgment, it is often necessary to file the

judgment in the public records which then creates a general lien against all of the

property the judgment debtor owns in the jurisdiction.

Lis Pendens

Sometimes, an aggrieved party wants to file a lien, but cannot do so

because the law suit is still in process. Should the plaintiff discover the owner is

trying to sell the home, which will likely make the attachment of a lien useless, the

plaintiff may consider a lis pendens (lien pending). Placed in the public records, the

lis pendens gives notice that litigation is pending concerning the property. A lis

pendens tends to prevent the property from being sold before the dispute is

resolved.

Writ of attachment

If the plaintiff in a law suit believes the defendant is disposing

of his assets to avoid a possible judgment, the plaintiff may seek a Writ of

Attachment from the court. If the court agrees, the court will issue the writ, which has

the effect of preventing the transfer of the assets until the lawsuit is concluded.

Writ of Execution

If the plaintiff in a law suit obtains a final judgment against the

defendant, the plaintiff may request a Writ of Execution to assist in the collection of

the judgment. The court will issue the writ of execution to the sheriff which directs the

sheriff to seize all property of the defendant in the jurisdiction, sell it, and apply the

proceeds against the judgment.

Deed restrictions

– An owner of a piece of property may want to put certain

restrictions on the future use of the property. These restrictions would be put in the

deed. They would have been agreed to by the prospective owner, or that person

should not go forward with the transaction.

Example: The owner of a property doesn’t want the property to ever be used for

the sale of alcoholic beverages. The owner, therefore, put such a restriction in the

deed, and all future owners of the property would be bound by the restriction. The

deed restriction is said to run with the land, meaning the restriction remains even

after future transfers of title. This is a limiting restriction and could be enforced by

court action.

Conditions, Covenants, and Restrictions (CC&Rs)

In some communities,

subdivisions have been superseded by master planned communities, which take the

subdivision idea one step further. Many of these master planned communities

develop plans that include recreation centers, parks, playgrounds, and other

amenities, as well as reserved spaces for schools, churches, retail establishments,

and other facilities. Many master planned communities are gated, so as to restrict

access to residents.

Common interest communities (CICs)

have been formed in many communities

across the nation. Their purpose, within a community of homes (often one organized

by a new home builder), is to set standards of behavior and living for a defined

community. This is done through the establishment of conditions, covenants &

restrictions (CC&Rs) that all homeowners agree to follow when they buy a new or

previously-owned home in the community.

Homeowner association (HOA) regulations

Originally associated with

condominium ownership, homeowner associations can now exist at several levels

within the real estate community. Many newer planned developments have HOAs that control even more aspects of a community than the CC&Rs. The additional HOA

documents are part of the CIC resale package. These typically include the

community's governing documents, the association by-laws, a current financial

statement and operating budget, information regarding pending litigation, a copy of

the minutes from a recent board meeting of the association, as well as the CC&Rs.

Easements

An easement is the right of someone other than the owner to use part of a

property for a specific purpose. Easements are typically recorded with the legal

description, noted on a plat map, or otherwise part of the property records. In most

states, there are easements for the utility companies on almost every property. On

others, there may be easements for access to other properties that would otherwise be

landlocked.

Easement by necessity

All owners of property have a right to access to and from

their property by use of the “public way.” The public way is defined as a dedicated

public street or highway open for the use of the public. Should a person find that they

have purchased property which does not have ingress (entrance) or egress (exit) to

the public way, they may force the creation of an easement by necessity. This

generally will involve court action and the court will seek to find the least intrusive

method to give the landlocked

property owner access to the public

way

Easement appurtenant

All owners

of neighboring property may decide to

create an easement to allow one of

the owners to cross over the land of

the other. The purpose of crossing is

unimportant to the concept of an

easement appurtenant.

Easement in gross

This easement does not have a dominant tenement, only a

servient tenement. The most common examples of an easement in gross are utility

easements. If the property owner wants electric service to his property or gas,

water, sewer, cable television, or any other service which requires the utility provider

to come onto the property, the utility provider will require an easement. Normally

these types of easements are created in the subdivision plat, but could be created at

a later date. The easement in gross also runs with the land.

Easement by prescription

Seldom seen in modern times, these easements

arose through one party’s conspicuous use of a portion of another’s property to

cross over. The use would have to have been for a “prescribed,” long period of time,

varying by state; would have to be without the permission of the landowner; would

have to be continuous; and would have to be “hostile” meaning contrary to the rights

of the owner of the property being crossed. If all of these requirements were met,

the party crossing the property would be able to obtain a court order granting them

an easement by prescription. This concept is based on the principle that an owner

of land must exert their rights of ownership, or run the risks of losing them.

License

the giving of permission by the landowner to allow another to come upon the

land for specific purposes. The license is a privilege and is revocable. You have a gardener who comes on your property each week to mow

your yard and trim your hedges. This is known as a “business invitee” as you have

given the gardener license to come on your land and render you the service. If you

fired the gardener, this would revoke his license, and if he had come onto your

property later, he would potentially be committing a trespass.

Profits

the giving of permission by the landowner to allow another to come onto the

land for the limited purpose of removing crops, timber, soil, etc. Here the person

receiving profits is neither a trespasser, nor a license holder, and has no easement. He

is there for a very limited purpose which can be revoked at any time. Profits are not

seen often in modern times, but are still found in farming areas where the public is

issued a “profit” for picking up fruits or vegetables missed by the harvesters.

Encroachment

exist when a thing (not a person) extends over the property line of

another’s property without the permission of the property owner. Encroachments can be

buildings or portions thereof, such as an overhanging second story roof line.

Encroachments may be intrusions across property lines by driveways, fences or walls,

trees, shrubs, or other growing things.