Real Estate Law Tuesday 6/9 - Comprehensive Real Estate Study Notes: Market Statistics, Property Taxes, and Liens, and Regulatory Framework

Albuquerque Rental Legislation and Media Literacy

City Council Legislation: The Albuquerque City Council has introduced legislation designed to make it more difficult to operate as a landlord or rental property owner within the city.
Timely Response Rules: This legislation establishes specific timelines for landlords to respond to tenants. If a landlord fails to meet these response deadlines, they are essentially labeled as a "slumlord," although the explicit term might not be used in the legal text.
News Consumption and Source Cultivation:
- It is critical for real estate professionals to cultivate a variety of news sources, regardless of their personal feelings toward the editorial staff of those sources.
- Differing perspectives report vital information that must be included in professional calculations and analysis. If information isn't heard or read, it cannot be factored into professional decision-making.

Real Estate Market Statistics and GAAR Data

Source of Information: Statistical data for the Albuquerque metro area is available for free to the public via the Greater Albuquerque Association of Realtors (GAAR) at gaar.com.
May Metro Area Statistics:
- New Listings: There were $1261$ new residential properties added for sale in May.
- Closings: There were $955$ successful closings during the month.
- Median Sales Price: The median sales price for the metro area was $375,000. The median is the price falling exactly in the middle of a list of properties ranked by price.
- Average Sales Price: The average sales price for the month was $431,506.
- Median vs. Average Logic: The spread between the median ($375,000) and the average ($431,506) indicates that while the midpoint price is lower, there were a significant number of higher-priced houses sold which pulled the calculated average higher.
- Percent of List Price Received: The data shows a rate of $98.9\%$ . This means successful offers are coming in very close to the original list price (e.g., almost the full amount for a $200,000$ listing).
- Days on Market: The average days on market is $39$ days. This is a slight increase from $37$ days in the previous year. This metric measures the time from the opening of a listing to the signing of a sales contract, approximately a month and a third.

New Mexico Property Tax Principles

Ad Valorem Taxation: In New Mexico, property taxes are "ad valorem," which translates to "add the value." Taxes are based directly on the value of the property being taxed.
Purpose: These taxes fund a wide variety of local government services.
The Tax Calendar:
- The tax period is a calendar year (January 1 through December 31).
- An involuntary statutory lien is attached to all private property owners on January 1.
Assessment Process:
- April 1 (Assessor's Notice): The county assessor sends a notice on "April Fool's Day" regarding the value of the real property. This notice breaks the value down into the assessed value of the land and the assessed value of the improvements (structures) on the land.
- Tax Ratio: New Mexico uses a tax ratio of $33.3333\%$ or one-third ( $\frac{1}{3}$ ). Only one-third of the assessed value is actually subject to taxation.
Personal Exemptions:
- Head of Household: Provides a $2,000$ reduction. Note that this definition differs from the federal tax code's head of household filing status.
- Qualified Veteran: Provides a $4,000$ reduction.
- Disabled Veteran: Special provisions exist based on the level of service-connected disability.
- Application of Exemptions: These exemptions are subtracted from the assessed value before the one-third ratio is applied; they are not direct credits off the final tax bill.

Millage and Tax Calculations (TAM Formula)

The TAM Circle Formula:
- $T$ = Annual amount of property taxes in dollars.
- $A$ = Assessed value of the property.
- $M$ = Fractional amount or mills required for calculating taxes.
Defining Millage: Millage is a value that gives a fractional value to a dollar.
- A mill is one-tenth of a penny, or $0.001$ of a dollar ( $0.001$ being the "Magic Number").
Conversion and Calculation:
- To get the millage rate ( $M$ ), divide the total revenue needed by the taxing authority by the total assessed value of all property in that jurisdiction.
- Example: $\frac{14,000,000}{350,000,000} = 0.04$ .
- Units of value: Taxes are often expressed as a dollar amount per unit of value (e.g., $70\,\text{per unit}$ or $3.50\,\text{per } 100$ ).
- To turn a fractional expression into a decimal for the TAM formula, divide the bottom number into the top number (e.g., $\frac{3.50}{100} = 0.035$ ).

Tax Billing and Delinquency

Billing Timeline:
- October 10: The county treasurer sends the bill, comparing jurisdiction needs with the values established in April.
- November 10: The formal due date for the tax payment (at least the first half).
- December 10: The payment becomes delinquent if not paid.
- April 10 (Following Year): Due date for the second half of the payment.
- May 10 (Following Year): The second half becomes delinquent.
Sale for Delinquent Taxes:
- Property can be sold for delinquent taxes after three years of delinquency but must be sold by the fourth year.
- Properties are sold via auction at the courthouse in the county where the property is located. Listings are found on the New Mexico taxation website or in local newspapers.

Encumbrances, Liens, and Priority

Types of Encumbrances: An encumbrance is an umbrella term for things that limit property use or ownership, including:
- Encroachments: Physical intrusions (e.g., a fence or tree branch over a property line).
- Easements: Rights of use.
- Setbacks: Building restrictions.
- Liens: A specific type of encumbrance with "teeth," meaning the state or a creditor can force a sale to satisfy the debt.
Mechanic's and Materialman's Liens:
- Contractors file these when owners do not pay for work or materials.
- Filing Deadlines: $120\,\text{days}$ for non-residential properties and $90\,\text{days}$ for residential properties.
- Perfection: The lien must be filed at the courthouse with documentation (contracts, invoices, etc.).
- Statute of Limitations: These liens are enforceable for $2\,\text{years}$ from the date of perfection.
Lien Priority: Determines who gets paid first during a foreclosure sale.
1. Property Taxes: Always the highest priority, above all other liens including IRS liens.
2. Special Assessments (SADs): The second highest priority.
Special Assessment Districts (SAD): These are localized taxes for specific improvements like paving dirt roads or installing sewer lines. They apply only to properties receiving the improvement and are often based on "front feet" of the property along the road.

Real Estate Documents and Water Rights

GIS Resources: The website www.cabq.gov/gis provides essential property details in Albuquerque, including ownership, legal descriptions, school districts, crime stats, and whether the property is in a Special Assessment District.
Water-Related Terms (Slide 88):
- Accretion: Slow addition of soil by water action.
- Reliction (Dereliction): The receding of water resulting in dry land (e.g., at Elephant Butte Lake during a drought).
- Avulsion: The sudden loss of land by water (e.g., a flood changing a river course).
- Erosion: The gradual wearing away of land.
Riparian vs. Littoral Rights:
- Riparian: Rights along non-navigable flowing water (rivers/streams). Property line usually extends to the center of the bed.
- Littoral: Rights along navigable bodies of water (lakes/oceans). Property line stops at the average seven-year edge of the water.

Questions & Discussion

Dialogue on Probate and Mortgages:
- Question: What happens if a person dies with a mortgage?
- Response: The property goes into probate. Lenders are notified and generally move the file to a specialized department to deal with the estate. If the estate has cash, the administrator or executor can pay the mortgage to keep it active. Judges can also issue "stay" orders to give the estate breathing room.
- Question: What if there is no will (Intestate)?
- Response: If there is no will, there is no designated executor. The court must appoint an administrator, which adds significant time and congestion to the process.
- Dialogue on Trusts:
- Question (Daniel): Is a living trust better than a will?
- Response: A living trust (revocable trust) operates "extra-probate," much like life insurance. The trust is an entity that does not die, so assets held in it avoid the probate process entirely. It is generally more expensive to set up ($4,000-$5,000) but more convenient for heirs.

Practice Problems: The TAM Formula

Problem 1 (Slide 91):
- Market Value: $90,000$ .
- Tax Ratio: $30\%$ .
- Tax Rate: $3.50\,\text{per } 100$ .
- Step A (Assessed Value): $90,000 \times 0.30 = 27,000$ .
- Step M (Millage): $3.50 / 100 = 0.035$ .
- Calculation (T): $27,000 \times 0.035 = 945$ .
- Answer: Annual taxes are $945.00$ .
Problem 2 (Slide 93):
- House Value: $120,000$ .
- Tax Ratio: $60\%$ .
- Tax Rate: $4.25\,\text{per } 1000$ .
- Step A: $120,000 \times 0.60 = 72,000$ .
- Step M: $4.25 / 1000 = 0.00425$ .
- Step T: $72,000 \times 0.00425 = 306$ .
- Final Step: The question asks for "semiannual" tax.
- Calculation: $306 / 2 = 153$ .

Upcoming Quiz and Study Guide

Format: 15 multiple-choice questions taking place Friday during class. It is open-book and online via a provided URL and passcode.
Grading: Scores above $70$ provide bonus points. Scores below do not count against you but serve as a self-assessment.
Key Study Areas:
- Two-page "Estates and Land" chart (Ownership vs. Possession).
- Private limitations (CCR, HOA) and Government limitations (PETE).
- Commission Rule Part 17 and Part 19 (Broker duties and relations).
- Disclosure requirements for broker duties (page one of the purchase agreement).
- Real vs. Personal Property terminology.
- Fee Estates, Community Property, and Encumbrances.
- Property Tax calculations and deadlines.