are 144 midterm 1

Real Property

Land and everything permanently attached to it

personal property

all property not classified as real property, moveable

estate

all that a person owns

estate in possession

entitles its owner to immediate enjoyment of the rights to that estate

estate not in posession

future rights to property

freehold estate

an estate in real property which continues for an indefinite period of time

leasehold estate

an estate that gives the holder (tenant) a temporary right to posession, without title

fee simple estate

absolute ownership with all the rights associated with ownership of real property

life estate

an interest in real or personal property that is limited in duration oto the lifetime of its owner or some other designated person or persons

examples of freehold estates

fee simple and life estate

reversion

when the holder of an estate in land conveys to another person a present estate in the property that has fewer ownership rights than the grantors own estate and retains for the grantors heirs the right to take back at some time in the future

remainder

future estate for the third person

example of future estates (non posessory)

remainder and reversion

estates for years

most common leasehold estate. Specifies an exact duration for the tenancy

estates from year to year

estate from period to period, month to month, and periodic tenancy

examples of leasehold estates

estates from year to year and estates for years

interest in real estate

a right or claim on real property, but considered less important than estate

security interest

a creditors right to use collateral to recover a debt

easement

the right to use the land for another for a particular purpose

title assurance

"The means by which buyers of real estate:
1. Learn in advance whether their sellers have and can convey the quality of title they claim to possess.
2. Receive compensation if the title, after transfer, turns out not to be as represented."

title

links an individual who owns property to the property itself

abstract of title

historical summary of the publicly recorded documents that affect a title

titles exist only for

freehold estates

deed

the offical document transferring ownership from seller to buyer

general warranty deed

a deed in which the grantor fully warrents food, clear title to the premises. Use in most real estate deed transfers, offers the greatest protection of any deed.

special warranty deed

identical to general warranty deed except that the covenant against encumbrances only applies to the time the grantor owned the property

bargain and sale deed

conveys property without sellar warranties. Sometimes called an "as is" deed

quitclaim deed

offers the least protection against defects in the title and conveys to the grantee whatever interest the grantor had

three general methods of title assurance

general warranty, special warranty, quitclaim deed

abstract and option method

"1. Search of the Title Record

2. Lawyer studies the record and gives an expert opinion of the character of the title"

title insurance

a type of insurnace that protects the buyer if problems with the title are found later. Helps for unseen risks that may occur in the future. Preferred method

owners policy of title insurance

issued to the buyer and protects the buyer

lenders policy of title insurance

title insurance issued for the unpaid mortgage amount to protect the lender against title defects

constructive notice

Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

mechanics lien

A statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building. Paid "after the fact".

lien

a claim on the property of another as security for a debt

deed restrictions

clauses in a deed limiting the future uses of the property

promissory note

a document that serves as evidence that debt exists between borrower and lender and contains the terms in which the loan must be repaid

prepayment priviledge

a clause in mortgage allowing the borrower to make an early cash payments that are applied toward the principal, a priviledge, not a right

prepayment penalty

a fee charged if you repay a loan before the agreed upon time

acceleration clause

a statement in a credit contract that requires you to repay the entire loan immediately if you miss a payment

nonrecourse clause

the borrower is not personally liable for debt

default

failure to pay back a loan

forebearance

lenders believe that borrowers will make up payments and don’t declare default

loan assumability

clause indicates under what conditions, if any, a borrower will be allowed to substitute another party in his place, who will then assume responsibility for remaining loan payments

assignment clause

gives the lender the right to sell the note to another party without approval of the borrower

future advances

"-Borrower can ask for additional funds up to an agreed upon amount (fixed or % of property value) under the same terms of the original loan

-May be some interest rate adjustment"

release of lien by lender

lender agrees to release the lien on the property when the loan is fully repaid

mortgage

a long term loan extended to someone who pledges property as security for the debt

note

a written obligation that serves as evidence of debt that exists between a borrower and a lender. It contains the terms at which the loan must be repaid and the rights and responsibilities of both parties.

mortgagee

lender

mortgagor

borrower

funds for taxes and insurance

Unless waived by the lender or prohibited by law, the borrower must make monthly payments to cover taxes and hazard insurance. If applicable, the borrower must also pay flood insurance and mortgage insurance installments

charges and liens

The borrower is liable for paying any charges, liens, or other expenses that may have priority over the mortgage or trust instrument.

hazard insurance

Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

preservation and maintenance of the property

the mortgagor is required to keep the property in good condition and not engage in any behavior destructive to the property

due on sale clause

allows the mortgagee to accelerate the debt when the property, or some interest in the property, is transferred without the written consent of the mortgagee. Protects lender's security interest.

borrowers right to reinstate

the right to quit foreclosure if all things have been paid off

lender in posession

after acceleration or abandonment, the mortgagee can enter the property and collect rents until foreclosure occurs

future advances

loans to be made by a secured party in the future, that is, after the original security agreement is signed

open end mortgage

A loan containing a clause which allows the mortgagor to borrow additional money without rewriting the mortgage.

subordination clause

A clause in which the holder of a mortgage permits a subsequent mortgage to take priority. Subordination is the act of yielding priority. (junior debt)

assumption of mortgage

Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

property covered by mortgage

loan not only includes land and buildings but also easements and fixtures.

after acquired property

property that is added after aquiring the property (pool adds value)

senior mortgage

a loan with the first lien or priority on a property

junior mortgage

any mortgage recorded after the first mortgage (usually short term, higher interest)

recording the mortgage

recorded in public records to establish priority of liens

seller financing

take back a mortgage as part or full payment of the purchase price

purchase money mortgage

any mortgage given by a buyer to secure payment of all or part of the purchase price of a property

technical default

"Violations of the terms of the documents other than failing to make payments.
Borrower will typically be required to rectify the situation but does not usually lead to foreclosure."

foreclosure

the seizure of proeprty from borrowers who are unable to repay their loans

workouts

to avoid bankruptcy proceedings, creditors may prefer private negotiated adjutments of creditor-debtor relations

judicial foreclosure

allows the property to be sold by court order after the mortgagee has given sufficient public notice

deed of trust

a deed to real property, which serves the same purpose as a mortgage, involving three parties instead of two. The third party holds naked title for the beneficiary of the lender. Beneficiary (lender), trustor (borrower) and trustee (third party)

tax lien

a legal claim by a government entity to take an individuals property or income when their taxes are not paid in full

bankruptcy

a legal process to get out of debt when you can no longer make all your required payments

real rate of interest

minimum rate of interest tha tmust be earned by savers to induce them to divert the use of resources from present consumption to future consumptions

inflation

a general increase in prices and fall in the purchasing value of money

nominal interest rate

the interest rate as usually reported without a correction for the effects of inflation

real interest rate

nominal interest rate - inflation rate

default risk

risk that a borrower will not pay the interest and or the principal on a loan

interest risk

interest rates go up or down, you may affect the cost of borrowing or the profits you earn when you save or invest

interest rate risk

the risk of capital losses to which investors are exposed because of changing interest rates

anticipated inflation

inflation that is expected

unanticipated inflation

inflation that is not expected

prepayment risk

risk that the borrower will prepay the mortgage when interest rates fall

liquidity risk

the risk that an asset cannot be sold on short notice without incurring a loss

legislative risk

the risk that new laws reduce the value of a security

fixed rate mortgage

a home loan that has a fixed interest rate for the entire term of the loan

amortization

the process of repaying the loan over time

constant payment mortgage (CPM)

constant monthly payment at a fixed interest rate

accural rate

the periodic rate at which interest is due on a mortgage. This may differ from the pay rate

balloon payment

a final loan payment that is much larger than the regular monthly payments

loan closing costs

"Loan Closing Costs + Additional Charges
- Loan Origination Fees: Cover origination expenses
- Loan Discount Fees - ""Points"" : Used to raise the yield on the loan
- Borrower trade-offs: points vs. Contract rate

-1 Point = 1 % of the loan amount"

interest rate risk

the possible reduction in returns associated with changes in interest rates

adjustible rate mortgage (ARM)

a mortgage with an interest rate that increases or decreases during the life of the loan