Comprehensive Michigan Real Estate Study Notes

Michigan Real Estate Licensing and Professional Conduct

• Broker Role: Supervises all activities including sales, leasing, advertising, mortgage arrangement, and business sales. Must be properly licensed.

• Associate Broker: Licensed as such but must work for a broker.

• Real Estate Salesperson: Must be a person (not an entity), works for a broker, and is licensed under them.

• Board of Real Estate Brokers and Salespersons: Created by Article 25; consists of 9 members appointed by the governor ($3$ representing the general public); serve $4$-year terms.

• Licensing Requirements: Section $339.601$; Article $29$ requires a license for selling others' property. Exemptions exist under Section $339.2503$ for owners selling their own property unless they meet specific "tests" (e.g., $5$+ sales in $12$ months, spending half their time in real estate).

• Employment Procedures: Licenses are mailed to the employing broker; pocket cards are sent to the salesperson. If changing jobs, licenses/pocket cards are valid for up to $45$ days during the transfer. If a broker's license is revoked, all associated licenses are suspended.

• Conduct and Advertising: Licensees must provide a written agency disclosure. All advertising by salespersons or associate brokers must be supervised by the broker. Trust account records must be kept for $3$ years. Service provision agreements must be signed before performance.

• Penalties: Section $339.602$ allows for license suspension, revocation, and fines up to $\$1,000$.

Property Rights, Fixtures, and Ownership

• Land Ownership: Extends from "heaven to hell" (surface, air rights, and subsurface rights).

• Real Property: Concept of a "bundle of rights" including possession, quiet enjoyment, disposal, and encumbrance.

• Joint Tenancy: Ownership of real estate by more than one person.

• M.A.R.I.A. Formula for Fixtures: Method of attachment, Adaptability, Relationship of parties, Intent, Agreement.

• Trade Fixtures: Personal property used in a business; generally removable by the tenant.

• Emblements: Seasonal crops considered personal property of the cultivator.

• Economic Characteristics: Scarcity, Location (Situs), Improvements, and Non-liquidity.

• Physical Characteristics: Immobility, Indestructibility, and Uniqueness.

Homeownership, Tax, and Insurance

• Tax Deductions: Mortgage interest, discount points (prepaid interest), and property taxes are deductible on Schedule A of Form $1040$.

• Capital Gains: Based on the difference between sale price and acquisition cost. Top rate is $23.8\%$ ($20\%$ plus $3.8\%$) for high earners (Single >$\$200,000$, Married >$\$250,000$).

• Depreciation: Residential structures use $27.5$ years; commercial structures use $39$-$40$ years. Land cannot be depreciated.

• $1031$ Exchange: Allows trading like-kind investment properties to defer capital gains. Replacement properties must be identified within $45$ days.

• Insurance Forms:

  • HO-3: Special form (most common).

  • HO-4: Tenant coverage.

  • HO-6: Condominium insurance.

  • HO-7: Mobile home insurance.

Public and Private Land Use Controls

• Government Ownership: Covers local, state, and federal levels for public interest, conservation ($1/3$ of U.S. land), and urban renewal.

• Comprehensive/Master Plan: Establishes framework for development, including zoning and bulk regulations.

• Zoning: Regulates allowed uses (Residential, Commercial, Manufacturing), lot size, and density via Zoning Maps and Resolutions.

• Floor Area Ratio (FAR): $\text{Total Building Floor Area} \div \text{Lot Area}$.

• Building Envelope: The maximum $3\text{D}$ space where a building is allowed.

• Variances: Exceptions granted for area (dimensional) or use (non-conforming).

• Michigan Land Division Act (1967): Governs the subdivision of land; requires approval if parcels are smaller than $40$ acres.

• Building Codes: Protect health and safety; based on the International Building Code ($IBC$).

• Americans with Disabilities Act ($ADA$): Requires specific standards such as $32$-inch door widths and $1:12$ ramp slopes.

• Interstate Land Sales Full Disclosure Act (1968): Protects against out-of-state fraud for subdivisions with $25$+ lots.

• Michigan Right to Farm Act (1981): Protects commercial farmers follow Generally Accepted Agricultural and Management Practices ($GAAMP$) from nuisance lawsuits.

Interests in Real Estate and Encumbrances

• Government Powers ($P.E.T.E.$): Police power, Eminent Domain (requires "just compensation"), Taxation, and Escheat.

• Freehold Estates:

  • Fee Simple Absolute: Greatest interest of any form of title.

  • Fee Simple Determinable: Ends automatically upon a specified event.

  • Life Estate: Lasts only for the duration of a specific person's life (includes Reversionary and Remainder interests).

• Water Rights: Riparian (rivers/moving water) and Littoral (lakes/oceans).

• Liens:

  • Involuntary: Tax liens, Judgment liens, and Mechanic's liens.

  • Voluntary: Mortgages.

  • Priority: Generally "first in time, first in right," but tax liens often take precedence.

• Easements: Right of use for a specific purpose. Includes Easements in Gross (utilities) and Appurtenant (runs with the land).

• Encroachment: Unauthorized physical intrusion onto another's property.

Leasehold Estates and Property Management

• Types of Estates: Estate for Years (fixed term), Periodic Estate (period-to-period), Estate at Will, and Estate at Sufferance (holdover).

• Lease Types:

  • Gross Lease: Landlord pays all operating costs.

  • Net Lease: Tenant pays rent plus some or all expenses ($N$, $NN$, or $NNN$).

  • Percentage Lease: Rent based on a percentage of gross business receipts.

• Michigan Truth in Renting Act (1979): Requires a specific notice in at least $12$-point bold font regarding legal rights.

• Landlord-Tenant Relationship Act (Michigan):

  • Security Deposit: Maximum $1.5 \times$ monthly rent.

  • Early Termination: Allowed for seniors or medical reasons if living there $13$+ months; immediately for domestic violence.

  • Timeline: $30$ days for itemized damage lists; landlord must file court action within $45$ days if damages are disputed.

Forms of Ownership, Deeds, and Title

• Ownership Forms: Severalty (sole), Tenancy in Common ($TIC$), Joint Tenancy ($JTWROS$), and Tenancy by the Entirety (married only).

• Legal Descriptions: Metes and Bounds, Government Survey (townships are $6 \times 6$ miles with $36$ sections; section = $640$ acres), and Lot and Block.

• Deeds:

  • General Warranty Deed: Best protection for buyer; defends title forever.

  • Special Warranty Deed: Guarantees only during grantor's ownership.

  • Quitclaim Deed: Transfers grantor's interest with no warranties; often used for family transfers.

• Michigan Transfer Tax: Seller's responsibility; state rate is $\$3.75$ per $\$500$; county rate is $\$0.55$ per $\$500$.

• Title Safeguards: Chain of title, Abstract of title, and Title Insurance (Standard vs. Extended).

Financing Principles and Underwriting

• Secondary Market: Fannie Mae ($FNMA$), Freddie Mac ($FHLMC$), and Ginnie Mae ($GNMA$).

• Michigan Usury Law: General limit is $5\%$; written contracts allow up to $7\%$.

• Mortgage Types: Conventional, FHA (insured), and VA (guaranteed - requires Certificate of Eligibility).

• Loan Documents: Promissory Note (debt evidence) and Mortgage or Deed of Trust (security).

• Foreclosure (Michigan): Allows judicial and non-judicial. Redemption periods are typically $6$ or $12$ months.

• Legislation:

  • $TILA/Reg Z$: Requires disclosure of $APR$ and finance charges; "trigger terms" in ads.

  • $RESPA/Reg X$: Prohibits kickbacks (Section $8$); requires Closing Disclosure ($CD$) $3$ business days before closing.

  • $ECOA/Reg B$: Prohibits credit discrimination based on protected classes.

Appraisal and Agency

• Appraisal Elements ($DUST$): Demand, Utility, Scarcity, Transferability.

• Approaches to Value: Sales Comparison (residential), Cost Approach (unique/new builds), Income Approach ($NOI \div \text{Cap Rate} = \text{Value}$).

• Fiduciary Duties ($OLD CAR$): Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable Care.

• Antitrust Laws: Prohibit Price Fixing, Group Boycotts, Market Allocation, and Tie-In Agreements.

• Fair Housing: Bans discrimination. Civil Rights Act of $1866$ (race) has no exceptions. MI Elliott-Larsen Act ($ELCRA$) adds age, marital status, height, and weight.

Environmental Issues

• Lead-Based Paint: Mandatory disclosures for "Target Housing" built before $1978$.

• Radon: EPA action level is $4.0\,pCi/L$.

• Section $201$ (Michigan): Requires sellers to disclose known hazardous waste concentrations or underground storage tanks ($USTs$).