study guide b2
Condos: Ownership involving several owners holding divided title to individual units and an undivided interest in common elements.
CCRs: Covenants, conditions, and restrictions governing condominiums established in the condominium declaration.
PUDs: Planned unit developments that combine different land uses such as housing, recreation, and businesses.
MUDs: Mixed-use developments that include high-rise developments combining offices, stores, theaters, and apartments.
Sole Proprietorship: Title to the business is held by one person.
General Partnership: Each partner is responsible for debts up to the limit of their own private resources.
Limited Partnership: Limited partners invest capital but have less management control than general partners.
Corporation: A legal entity controlled by a board of directors.
Title Transfer
Voluntary Transfer: Voluntary alienation; conveyance of title by sale or gift.
Public Grant: Voluntary transfer where the government gives land to a private party (land grants).
Private Grant: Transfer where title is moved from one private party to another.
Public Dedication: Transfer of title from a private owner to the government (e.g., land for parks).
Deed: Written instrument by which title to real property is transferred.
Warranty Deed: Guarantees that the title is good.
General Warranty Deed: Gives the best guarantee of title; guarantees title before and during the time the seller owned the property.
Special Warranty Deed: Guarantees the title only for the time the seller actually owned the property.
Quitclaim Deed: Makes no guarantee; the grantor simply states that he has no claim on the title.
Bargain and Sale Deed: Better than a quitclaim but not as good as a warranty deed; has no explicit guarantees but does imply title is good.
Bargain and Sale with Covenant: Ensures that the grantor has done nothing to encumber the title; this effectively turns it into a special warranty deed.
Involuntary Transfer: Transfer without the owner's consent.
Eminent Domain: The right to take private property for public use.
Condemnation: The action of taking private property for public use.
Escheat: When an owner dies with no will and no heirs, his property reverts to the state.
Adverse Possession: Claiming title by possession of the property for a statutory number of years.
Notarial Will: A formally prepared will, witnessed and signed.
Holographic Will: Entirely in the testator's own handwriting, dated and signed, but not witnessed.
Nuncupative Will: Made orally by testator who is near death.
Mystic Will: In writing, signed, sealed, and notarized with 3 witnesses.
Testate: One who dies having a will.
Intestate: When there is no will.
Legatee: One who inherits property in a will.
Probate: A court proceeding that establishes the validity of the will and allows the instructions of the will to be carried out.
Executor, Executrix: Appointed in the will to carry out the instructions of the will (executrix = female).
Administrator: A person appointed by the court to carry out the instructions of the will.
Devise: Property transferred by will.
Devisee: The person to whom such property is transferred.
Transfer by Accession
Accretion: Transfer by accession whereby there is a gradual increase in property size as the result of some natural or artificial process.
Alluvion: The deposits created by accretion.
Reliction: Transfer by accession caused by exposure of land due to receding water.
Erosion: Transfer by accession caused by the soil wearing away.
Attachment: Transfer by accession from artificial means such as improvements or fixtures.
Notice
Constructive Notice: Recording something in the public records.
Actual Notice: First-hand information such as telling someone face to face.
Acknowledgment: A statement that an act was done of the person’s free will.
Attorney’s Opinion: An opinion based on examination of the history of the title of a property.
Abstract of Title: A brief summary of all recorded instruments which affect the title.
Encumbrances
Chain of Title: A continuous linking of ownership stretching back to the first owner.
Title Insurance: Offers financial protection if the title is not good.
Governmental Encumbrances
Police Powers: Laws to protect the health, safety, morals, and welfare of the public (e.g., zoning laws).
Enabling Acts: Acts which give the state authority to enact police powers.
Eminent Domain: The right of government to take private property for public use.
Escheat: The power of the government to take ownership of property when there are no heirs and no will.
Taxation: Ad valorem (property) taxes and special assessments.
Special Assessments: Taxes imposed on a specific portion of the community to cover improvements to that area only.
Private Encumbrances
Private Liens: Mortgages, vendor's lien, vendee's lien, mechanic's lien, judgments.
Mortgage: Pledges real property as security for a debt.
Vendor's Lien: Used with purchase money mortgage (owner financing).
Vendee's Lien: Lien placed by a buyer to cover his deposit or other interest in a property.
Mechanic's Lien: Placed by workmen to recover cost of unpaid labor and materials.
COMPETITION: The active demand for real estate in short supply.
CONFORMITY: The principle that properties that are similar in style, size, quality, etc. will maintain a higher value.
CONTRIBUTION: The value of a particular component of a property.
EXTERNALITIES: Conditions outside the property which affect the value of the property.
HIGHEST AND BEST USE: The use which will bring the highest price for a particular property.
PROGRESSION / REGRESSION: The effect that inferior and superior properties in the same vicinity have on each other. The superior property will add value to the inferior property and the inferior property will decrease the value of the superior one.
SUBSTITUTION: When two commodities are similar, the one with the lowest price will attract the greatest demand. The basis for the Sales Comparison approach.
SURPLUS PRODUCTIVITY: If there is a difference in value in two similar properties, the difference is attributed to the land or location.
COST APPROACH: Method of estimating value by calculating the cost to build it.
REPLACEMENT COST: The cost at current prices to replace a building with one of equivalent utility.
REPRODUCTION COST: The cost at current prices to produce an exact duplicate of a building.
PHYSICAL DEPRECIATION: Loss in value due to wear and tear.
FUNCTIONAL DEPRECIATION: Loss in value due to outdated design or technology.
EXTERNAL DEPRECIATION: Loss in value due to conditions outside the property.
CURABLE DEPRECIATION: Any type of depreciation in which the amount of money spent to correct the deficiency is less than the resulting increase in value.
INCURABLE DEPRECIATION: Any type of depreciation in which the amount of money spent on correcting the deficiency is greater than the resulting increase in value.
EFFECTIVE AGE: The apparent age of the property based on the condition of the property.
ECONOMIC LIFE: The period of time over which a property may be expected to be useful.
SALES COMPARISON APPROACH: A technique for estimating the value of property by comparing it to similar properties in the same area.
INCOME APPROACH: Estimates the present worth of a property's expected future income.
GROSS RENT MULTIPLIER: A rough estimate of the value of rental property based on gross rents; use monthly rent for residential, yearly for commercial: GRM x Rent = Value.
EQUITABLE RIGHT OF REDEMPTION: Additional time within which to pay a debt, from the time of default to the actual foreclosure sale.
Prepayment Penalty: A penalty for early payment of the loan.
Satisfaction of Judgment: Cancels the note when the debt is paid.
Escalation Clause: Gives the lender the right to increase the rate of interest during the length of the mortgage.
Covenants: Promises (usually within a mortgage or deed).
Alienation Clause: Makes the mortgage non-assumable; also known as "due on sale clause."
Subordination Clause: Lender gives permission for a subsequent loan to assume first mortgage rights.
Trust Deed: Similar to a mortgage, but it adds a 3rd party, the trustee, to oversee the trust agreement.
Trustor: The borrower in a trust deed.
Beneficiary: The lender in a trust deed.
Trustee: An impartial party appointed to oversee the trust agreement.
Deed of Reconveyance: In a trust deed, transfers title back to the trustor when the loan is paid off.
Contract for Deed: Owner financing in which the owner retains title until the debt is paid; also known as installment land contract, conditional sales contract, or agreement to convey.
Purchase Money Mortgage: Owner financing in which the buyer receives legal title at time of sale and the property becomes collateral for the loan.
Foreclosure: The right of the lender to sell the collateral property to redeem the debt.
Strict Foreclosure: If the property sells for more than the debt, the lender profits.
Foreclosure by Sale: The lender is required to refund to the borrower any profit from the sale of the foreclosed property.
Deficiency Judgment: A judgment against the borrower by the lender when the lender does not get the full amount of the debt from the foreclosure. To get a deficiency judgment, the lender must have the property appraised before the sale.
Deed in Lieu of Foreclosure: "Friendly foreclosure." The borrower gives the property to the lender and the lender cancels the debt.
Loan Qualifying: Also called underwriting. The process of determining the risk to the lender for making a loan.
LTVR: Loan to Value Ratio; the loan amount divided by the value.
Private Mortgage Insurance (PMI): An insurance policy covering the part of a loan that is above and beyond the standard 80%.
FHA Loan: A government-backed loan in which the loan is insured by FHA in case of default. FHA loans are exempt from the usury law.
VA Loan: A government-backed loan in which the loan amount is guaranteed. The amount guaranteed is determined by a Certificate of Eligibility. No down payment required.
Entitlement: The loan guarantee amount which the veteran is eligible to receive on a VA loan.
Certificate of Eligibility: States the amount of entitlement for which the veteran is eligible.
Certificate of Reasonable Value (CRV): States the market value of the property being purchased with a VA loan.
Discount Points: Rate Equalization Factors. Pre-paid interest that gives the borrower a lower interest rate.
Blanket Mortgage: Covers several properties.
Package Mortgage: Loan secured by both real and personal property.
Wrap-Around Mortgage: Used in owner financing; combines equity and money owed into a second mortgage.
Adjustable-Rate Mortgage: A loan in which the interest rate fluctuates according to some external index such as the prime lending rate or consumer price index.
Reverse Mortgage: Regular monthly payments are made to the borrower based on the equity in the property.
SALE AND LEASEBACK: A financing arrangement in which a company sells its land and building to an investor as a means of raising capital, then leases it back.
LOAN ORIGINATION FEE: A fee charged by the lender for making the loan, usually 1% of the loan amount.
MORTGAGE BROKERS: Act as intermediaries by finding lenders and arranging the loan.
MORTGAGE BANKERS: Set up the loan using their own funds and service the loan.
SECONDARY MORTGAGE MARKET: Buys loans from primary lenders.
FANNIE MAE: FNMA - Federal National Mortgage Association; buys FHA and VA insured loans.
GINNIE MAE: GNMA - Government National Mortgage Association; buys loans for federal housing programs for low and moderate-income households; under HUD.
FREDDIE MAC: FHLMC - Federal Home Loan Mortgage Corporation; buys mortgages from savings and loans.
MAGGIE MAE: MGMC - Mortgage Guarantee Mortgage Corporation; private organization which buys and sells mortgages.
TRUTH IN LENDING LAW: Requires lenders to provide borrowers with financing information about their loan.
REGULATION Z: Enforces truth and lending law; establishes guidelines for:
Disclosure of loan cost.
Borrower's right of rescission.
Fair advertising practice.
TRUST FORECLOSURE:
FORECLOSURE BY SALE:
RESPA: Real Estate Settlement Procedures Act; covers disclosure of settlement costs of closing; applies only to first mortgage transactions financed by federal programs.
CAPITAL GAIN: The profit gained from the sale or exchange of an asset; can be deferred by making property exchanges within 24 months.