CA Real Estate

Page 1: Land Ownership and Legal Concepts

Allodial System

• A system of land ownership where anyone has the right to own land.

Bill of Sale

• Document used for transferring ownership of personal property.

Bundle of Rights

• Refers to the rights of an owner which include:

  • Possess: Right to occupy.

  • Control: Right to direct the property's use.

  • Enjoy: Right to use property free from interference.

  • Sell: Right to transfer ownership.

  • Lease: Right to rent out property.

  • Mortgage: Right to borrow against the property.

  • Dispose: Right to get rid of the property.

U.P.T.E.E Acronym Explained

• Use: Property usage rights.

• Possess: Right to control the property.

• Transfer: Right to sell, gift, or add to a will.

• Encumber: Rights to secure loans against the property.

• Enjoy: Right to the benefits derived from property ownership.

Chattel

• Item of personal, movable property; often used to refer to slaves in historical contexts.

Community Property

• Property acquired during marriage that is owned equally by both spouses.

Concurrent Ownership

• Ownership held by two or more persons simultaneously.

Condemnation

• Legal process for government to seize private property for public use, often referred to as eminent domain or a "taking".

Condominium

• A residential unit in a building or complex that is owned individually but shares common areas.

Consumer Financial Protection Bureau (CFPB)

• A U.S. government agency designed to regulate financial products and services, to protect consumers.

Cycle of Market Changes

• A pattern affecting property values and demand with four phases:

  1. Recovery

  2. Expansion

  3. Hyper Supply

  4. Recession

Deed

• Official document that transfers ownership from seller to buyer.

Deed of Trust

• Legal document using real estate as loan collateral:

  • Borrower (trustor) gives legal title to trustee as security for a loan.

  • Trustee sells property if borrower defaults.

Deregulation

• The process of removing government regulations in specific markets.

Page 2: Financial Regulation and Real Estate

Examples of Deregulation

• Airline Deregulation: Act of 1978 increased competition and lower prices.

Disintermediation

• Removal of intermediaries like brokers from real estate transactions.

Dodd-Frank Wall Street Reform and Consumer Protection Act

• 2010 legislation aimed at preventing future financial crises by regulating financial institutions and increasing consumer protection.

English Common Law

• Concept of real estate covering land and permanent structures like buildings; rights and interests are also included.

Eminent Domain

• Government's power to take private property for public use.

Equitable Title

• Right to obtain full ownership of property despite another party holding legal title.

Fannie Mae

• U.S. government-sponsored enterprise (GSE) enhancing credit flow in housing by working with mortgage lenders.

Fee Simple Absolute

• Type of property ownership with:

  • Complete Ownership: Full control over property.

  • No Conditions: No restrictions on land use.

  • Indefinite Duration: Can be inherited.

Page 3: Types of Property Ownership

Freddie Mac

• Government-sponsored enterprise buying mortgages to promote affordable housing.

Freehold Estate

• Ownership granting rights to possess land uninterrupted.

Ginnie Mae

• Federal agency backing mortgage-backed securities to facilitate home ownership.

Hereditaments

• Property items capable of being inherited.

Hypothecation

• Using property as loan collateral without giving away ownership.

Joint Tenancy

• Legal arrangement with equal ownership among multiple individuals.

Land Contract

• Seller accepts a down payment, with title passing only after the total is paid.

Leasehold Estate

• Rights of tenants to use property for a specified period based on lease agreements without ownership.

Legal Title and Mortgage

• Legal Title: Documented ownership permitting use, sale, and control.

• Mortgage: Loan using real estate as collateral, crucial for home purchases.

Partnership in Real Estate

• Joint venture for investment and management of properties, pooling resources and sharing profits and risks.

Personal Property

• Movable items (e.g., automobiles).

Police Power

• State power to enact laws for health, safety, and morals including zoning laws.

Primary Market

• Initial sale of new properties to buyers directly from developers.

Lien

• Legal claim against property used as collateral for a debt; failure to repay allows creditor to claim the property.

Page 4: Property Finance and Ownership

Legal Title

• Documented proof of property ownership.

Leverage

• Using borrowed money to control larger assets, maximizing investment potential.

Property

• Any valuable item owned or controlled.

Ranchos

• Large rural properties focused on agriculture.

Real Property

• Land and all permanent attachments.

Roman Civil Law

• Defines property that is immovable and permanent.

SAFE Act

• Legislation aimed at reducing mortgage fraud and enhancing consumer protection.

Savings Associations

• Financial institutions accepting deposits and offering residential mortgages (S&Ls).

Page 5: Mortgage Markets and Regulations

Secondary Mortgage Market

• Market where existing properties are bought and sold, not newly developed ones.

Security Agreement

• Document outlining collateral terms for a loan, ensuring lender interest if borrower defaults.

Tax Reform Act of 1986

• Restructured taxes, lowering top rates and modifying capital gains tax on property sales.

Tax Relief Act of 1997

• Provides tax benefits for sellers of personal residences or investments.

Tenants in Common

• Shared property ownership without survivorship rights among individuals, interests can vary.

Thrifts

• Institutions specializing in savings and real estate financing, including savings banks and loan associations.

Time-Shares

• Property ownership model allowing multiple individuals the right to use the property for designated durations.

Trade Fixtures

• Items installed by tenants that can be removed when the lease ends.

Zoning

• Regulations governing how land and properties can be used, affecting property values and development.

Page 6: Real Estate Market Dynamics

Real Estate Cycle

• Repeats when demand exceeds supply, influencing market conditions and valuation.

Lenders' Cash Supply

• In low demand areas, lenders may purchase loans in the secondary mortgage market.

SAFE Act of 2008

• Aims to reduce fraud in mortgage lending activities.

Property Pricing Examples

• A 1,500 sq. ft. house can vary drastically in price across locations due to local market conditions.

Housing Market Demographics

• Religion is not a typical demographic factor in real estate cycles, while age and family size greatly impact demand.

Increasing Property Value

• Rezoning a property can enhance its value without physical improvements.

Real Estate Finance

• Works within the credit economy, where reliance on borrowed capital is termed leverage.

Disintermediation

• Results from more withdrawals than deposits in a banking system.

Important Aspects of Real Estate Financing

• Includes collateral, leverage, and hypothecation.

Leverage Context

• Utilizing others' savings for real estate investments.

U.S. Total Mortgages

• By July 2018, outstanding mortgages exceeded $13 trillion, highlighting substantial real estate debt levels.

Qualities of Real Estate as Collateral

• Stability and intrinsic value significantly contribute to its attractiveness as loan collateral.

Page 7: Current Housing Demands and Rates

Housing Market Demand

• Aging population and varied family structures affect demand for:

  • Condominium projects

  • Affordable detached homes

  • Congregate living centers

Financial Indicators

• Annual Percentage Rate (APR): Total cost of borrowing expressed annually, inclusive of all costs beyond interest.

• Discount Rate: Federal Reserve's rate charged to banks, influencing broader economic money supply.

• Discretionary Income: Income remaining after essential expenses, impacting spending potential.

• Disposable Personal Income: Money remaining after taxes, significant for housing demand.

Regulatory Financial Bodies

• FDIC (Federal Deposit Insurance Corporation): Protects bank deposits.

• Federal Reserve System: U.S. central bank managing monetary policy.

• Federal Funds Rate: Key interest rate for overnight bank loans, affecting mortgage rates.

• FHLB (Federal Home Loan Bank): Provides funding to banks for housing development.

Page 8: Understanding Money Supply and Interest Rates

Money Supply Measures

• M1: Liquid cash and checking accounts.

• M2: Includes M1 and slightly less liquid forms of money.

• M3: Contains M2, plus larger deposits and funds.

Nominal Rate

• Basic interest rate on loans before considerations of fees or inflation.

Office of Thrift Supervision (OTS)

• Regulated savings banks ensuring financial stability.

Open-Market Operations

• Buying/selling government financial assets to influence economic conditions.

Personal Income Rates

• Prime Interest Rate: Rate for most creditworthy clients influenced by Federal Reserve policy, affecting borrowing costs.

Regulation Z

• Mandates disclosure of loan terms, enhancing consumer knowledge of lending terms.

Reserve Requirements (RR)

• Regulations dictating minimum reserves banks must hold, impacting lending conditions.

U.S. Treasury

• Governs federal finances, impacting interest rates and housing market through various debt instruments.

Treasury Securities

• Treasury Bonds: Long-term securities influencing mortgage rates.

• Treasury Notes: Mid-range maturities affecting economic conditions.

• Treasury Bills: Short-term securities impacting investment preferences and prices.

Page 9: Economic Fundamentals Affecting Real Estate

Disposable Personal Income

• Income after taxes, crucial for assessing housing market demand.