Real Estate Exam part 2

Fee simple with executory interest

Automatic reversion to some third name

Fee simple subject to a condition subsequent

No automatic reversion

Fee simple determinable 

Automatic reversion of interest to grantor when violated 

Non-freehold

Created by lease agreement

“Bundle of legal rights”

Remainder

Third party

No rights to occupy the property

Encroachments

intrusion on a person’s territory,  rights, etc.

Variance

permits a change in the specifications required by the zoning ordinance

Restrictive covenants

apply and bind successive owners of the property

Eminent domain

the condemnation of private property for public use

Escheat

reversion of property to state when one dies intestate (no will) with no legal heirs

The cost approach to value

• estimating buildings replacement costs

  • Requires the value of the land to be calculated separately form the value of the improvements 

  • 5 steps:

    • Estimate value of land

    • Estimate replacement cost

    • Estimate accrued depreciation (economic life)

    • Estimate depreciation from cost new

    • Add depreciation value to the land value

Gross rent multipliers

best for residential 

Used as a guideline for estimating value based on the relationship of sales prices to the rental income

Reconciliation

• Analyzing the results obtained from the three approaches to value 

  • The sales comparison approach to value

  • The cost approach to value 

  • The income approach to value

Installment contract

Owner financing

Seller keeps title to property

Promissory note

makes the borrower personally liable for the debt 

Satisfaction of mortgage

once loan is paid in full, lender will record a satisfaction piece to have the lien removed from property

Subordination agreement

an existing mortgage loan that can have its lien priority lowered

Secondary

• Includes:

  • Fannie mae, freddie mac, ginnie mae

    • Buys FHA loans make from primary market

A fully amortized loan

• Fixed payments and interest

• Last and first payments are the same

• Payable in periodic installments that are sufficient to pay the principle in full during the term of the loan

A straight loan

• Interest only (no principle)

A partially amortized loan

• Fixed payment and interest

• Last payments are balloon

Purchase money mortgage

• Owner financing

• Buyer gets title

Open-end mortgage 

Borrower is pre-approved for up to a predetermined amount, borrower can make draws on the loan periodically

A lis pendens

a notice that a lawsuit is pending

Statute of frauds

contracts must be in writing

Statute of limitations

sets deadline with in lawsuits can be filed

Substitution

property’s value based on equally desirable substitute properties 

Subordination

makes other debts secondary to the claim of the mortgage lender

Disposition

allows for the tenant to sublet or assign the lease

Repossess

to take back property

Net

requires tenant to pay part or all operational and maintenance costs

Gross

requires landlord to pay all operational cost

Devise

conveyance of title right by will

Deed in trust

a third party holds title to property on behalf of someone else

Demise

conveyance by lease agreement

Eminent domain

the power of the government to take private property for public use

Escheat

the reversion of real estate to the state because of the lack of heirs or other persons legally entitled to own the property

Estoppel

oral expressions of an intent to abandon, do not terminate an easement unless in writing or accompanied by action 

Defeasance clause

ends the mortgage when all payments are made, transferring title to the property back to the mortgagor and terminating lender's interest in the property

Granting clause

in the premises paragraph of the deed that conveys the rights and privileges of ownership