Real Estate Transactions Practice Flashcards

Comprehensive practice vocabulary flashcards covering real estate transactions, contracts, recording acts, and foreclosure terminology.

Cost Allocation for Deeds and Title Insurance

In a real estate transaction, the Seller typically pays for the preparation of the Deed while the Buyer pays for a Title Insurance Policy.

Financing Contingency

A contract clause that allows a Buyer to terminate the contract if they are unable to obtain a specific loan, such as a 30 year fixed rate mortgage at $6.5\%$, as provided for in the agreement.

Breach of Contract and Earnest Money

If a Buyer notifies a Seller they will not be closing due to unforeseen circumstances not in the contract, the Seller is generally entitled to keep the earnest money deposit because the court will refuse to rewrite the contract to add a new contingency.

Risk of Loss

The legal principle determining which party bears the cost of damage (such as fire) occurring prior to closing; if it remains with the Seller, the Buyer may prevail if the Seller sues for specific performance without making repairs.

Special Assessment Lien

A levy, such as the $2,500$ fee in the Blue Heron subdivision, used to finance improvements like a new sewer system that benefits specific lots.

Marketable Title

A title free from reasonable doubt; defects the Seller must cure include unpaid taxes and options to purchase granted to third parties.

Contractual Timeframes

Specific dates that should be set in a real estate sales contract, including the Closing date, Date of Possession, and dates for delivery and review of evidence of title.

Exclusive Right to Sell Agreement

A listing agreement stating that the broker is entitled to a commission regardless of whether the owner or someone else sells the property.

Proration at Closing

The proportional division of expenses between Buyer and Seller, commonly including real estate taxes and prepaid insurance.

Equitable Conversion

A doctrine where the buyer is considered the equitable owner of the property once the contract is signed, despite legal title not yet passing.

Specific Performance with Price Abatement

A court order requiring the sale to proceed but at a reduced price because the property has been significantly damaged, such as by fire.

No Deal, No Commission Clause

An agreement provision that prevents a real estate agent from collecting a commission if the sale fails to close, specifically because a contingency like financing was not met.

Anti-clogging Rule

A legal rule that prevents a mortgagee from enforcing a provision that requires a mortgagor to convey title by deed upon default, bypassing the foreclosure process.

Necessary Parties (Foreclosure)

Parties that must be named as defendants and served in a foreclosure lawsuit to ensure the goal of the foreclosure is met.

Power of Sale Foreclosure

A non-judicial foreclosure process where the parties agree that a private sale can be held without court action.

Title Insurance Coverage

Owner's policies typically insure against defects such as forged deeds, defectively acknowledged deeds, and indexing failures at the recorder's office.

Caveat Emptor

The older doctrine of 'buyer beware' which holds that there are no implied warranties of quality in the sale of real estate.

Quitclaim Deed

A deed that transfers only whatever interest the grantor has without any covenants for title, limiting the grantor's liability if title is later found to be unmarketable.

Judicial Foreclosure Process Final Event

The termination of the statutory redemption period following a foreclosure sale.

Dangerous Patent Defect

A visible or obvious defect (like certain wiring problems) that might deter a buyer from purchasing a home if disclosed.

Notice Type Recording Act

A statute where a subsequent purchaser for value prevails over a prior unrecorded interest only if they had no notice of that interest.

Race Recording Act

A statute where the first person to record their interest in real property prevails, regardless of notice of prior claims.

Purchase Subject to Mortgage

An arrangement where a buyer takes property which remains encumbered by an existing mortgage, but the buyer does not become personally liable for the debt.

Bona Fide Purchaser (BFP)

A purchaser who pays fair market value for property and lacks notice of any prior claims or unrecorded interests.

Illinois Residential Real Property Disclosure Act

A statute requiring sellers to complete a form indicating their awareness of defects; however, it does not fully protect buyers from latent defects.

Ready, Willing, and Able Buyer

A legal standard where a broker has earned their commission by producing a purchaser who is prepared to buy on the seller's terms.

Liquidated Damages Clause

A provision stating that if a party defaults, a pre-determined amount (often the earnest money) will be forfeited as damages because actual damages are hard to calculate.

Mortgage Assumption

An agreement where the buyer takes on personal liability for the seller's existing mortgage, which the seller typically prefers as it may release them from liability.

Ejectment Lawsuit

A legal action brought by a party claiming ownership to remove another person who is in possession of the real property.

Grantee Taking Subject to Encumbrances

A deed provision stating the buyer accepts the property with existing restrictions, such as zoning ordinances or drainage easements, relieving the grantor of liability for them.

Lander (as Gift Recipient)

A person who receives property as a gift and is therefore not a 'purchaser for value' under certain recording statutes.

Non-Exclusive (Open) Listing Agreement

An agreement where many brokers can work to sell a property, and only the one who produces the actual buyer gets the commission.

Releasing a Lien at Closing

The act of producing a signed document to clear an outstanding debt, which allows a seller to convey clear and marketable title at the time of closing.

Fixed-rate Mortgage Loan

A loan that protects the purchaser against rising interest rates by maintaining a constant interest rate throughout the term.

Ascertainable Monetary Value Requirement

The rule that a mortgage securing a promise to perform an action (like building a boat dock) is valid if the value of that promise can be reasonably determined.

Remedy for Default after Assumption

The lender may foreclose on the land and/or sue both the original borrower and the assuming buyer for the underlying debt.

Purchase-money Mortgage Priority

A security interest given to the lender of the funds used to purchase the property, though its priority can still be affected by recording statutes.

Right of Inspection

A contractual right for a buyer to have the property examined by a professional, which must be explicitly provided for in the real estate sales contract.

Exclusive Agency Agreement

A listing agreement where the broker is entitled to a commission unless the owner sells the property themselves.

Fraud in Real Estate Sales

A legal ruling that may occur if a seller knowingly fails to disclose significant problems (like sewer or air conditioning issues) represented as functional in the contract.

Seller Financing

Also known as purchase money financing from the seller; an arrangement where the seller lends the purchase price to the buyer instead of a third-party lender.

Judicial Foreclosure

A court-supervised process used to reclaim real estate when a buyer defaults on a mortgage provided by the seller or a bank.

Drainage Easement

A specifically recorded interest allowing the flow of water across a property, which may prevent improvements like tennis courts.

Schedule B Exceptions

A section of a Title Commitment that lists items excluded from title insurance coverage, such as existing mortgages or recorded plat restrictions.

Encroachment

A situation where a structure (like a house or playhouse) extends over a lot line or into a setback area on a neighbor's property.

Fee Simple Estate

The highest form of property ownership, though it can still be subject to judgment liens, easements, or record title strips vested in others.

Arson and Real Estate Contracts

If a building (like an inn) burns down due to arson before closing, the issues of specific performance and return of earnest money depend on the jurisdiction's risk of loss rules.

3.5\% Interest Rate Cap

A specific financing contingency parameter in a contract that might cause the agreement to become null and void if the buyer cannot find such a rate.

Latent vs. Patent Defect

Latent defects are hidden issues (like sewer problems), whereas patent defects are those that should be discovered during a standard inspection.

Adjustable Rate Mortgage (ARM)

A loan with an interest rate that changes periodically, such as resetting every 6 months, which does not protect against rising economic interest rates.