Real Estate Principles Flashcards

Introduction to Real Estate

Real estate is more than just owning a house or land; it's about possessing a bundle of rights, which essentially represents the title to the real estate. This title grants the owner the right to use, enjoy, share, and lease the property.

The deed is the legal document that facilitates the transfer of real estate property rights from a seller to a buyer upon closing.

Title vs. Deed:

• Title: Refers to the intangible rights associated with real estate ownership.
• Deed: A physical document used to transfer those rights from the seller to the buyer.

Ways to Transfer Real Estate:

• Selling rights from a seller to a buyer (most common).
• Willing rights through inheritance upon someone's death.
• Legally acquiring rights through adverse possession.

Rights in Real Estate

While a homeowner possesses a bundle of rights, other entities may also hold rights in the same property:

• Government (Uncle Sam): Taxation rights. Failure to pay property taxes can lead to foreclosure.
• Mortgage Companies: Lenders have the right to foreclose if mortgage payments are not made.
• Easements: The right to cross over a property. Railroads and utility companies often hold easement rights.

Definition of Land:

Land is a specific spot on Earth extending from the center of the Earth upwards to infinity. Ownership of land can include mineral rights below the surface and air rights above it.

Physical and Economic Characteristics of Land

Physical Characteristics:

• Immovable: Land cannot be moved.
• Indestructible: Land cannot be destroyed.
• Unique: Every piece of land is different.

Economic Characteristics of Value:

• Location (Situs): Location, location, location drives land value.
• Scarcity: Limited availability increases value.
• Improvable: Land can be developed, enhancing its value.

Definition of Real Estate

Real estate includes land plus all appurtenances.

Land: A spot on the earth that goes down to the center and up to infinity.

Appurtenance: A right, privilege, or improvement permanently attached to the land, that runs with the land

Examples of Appurtenances:

• Natural Appurtenances: Trees, streams, etc. that run with the land.
• Man-Made Appurtenances: Houses, buildings, etc.
• Mineral Rights: Oil, natural gas. These pass with the sale of land unless otherwise noted.
• Air Rights: Rights related to the use of airspace above the land.
• Water Rights

Personal Property

Personal property is anything that is not real property. Items are easily movable such as chairs, cameras, and desks.

Chattel: Another term for personal property. The word originates from "cattle," which are movable.

• A chattel mortgage means personal property is used as security for a loan.

Transfer of Personal Property:

• A bill of sale is the instrument used to transfer personal property.
• A deed is the instrument used to transfer real estate.

Changes in Real Estate

Real estate and personal property can change forms.

• Severance: The process of converting real estate into personal property such as cutting down a tree turns it to lumber.
• Fixture: An item that was once personal property but is now attached to real estate, thus becoming real estate. Examples include ceiling fans and kitchen cabinets.

Disagreements on Fixtures:

When a seller and buyer disagree, a judge will consider:

• Method of Attachment: How permanently the item is attached.
• Intention of Attaching Parties: What was the intent when attaching the item?
• Adaptation of the Article: Can the item be used elsewhere?

Acronym: MIA (Method, Intention, Adaptation) to help remember.

Trade Fixtures:

Trade fixtures are items installed by a commercial tenant for business use, considered personal property.

• Tenants can typically take trade fixtures at the end of the lease. Items not taken become the landlord's property.
• Tenants can remove trade fixtures even if it causes damage, provided they repair the damage.

Emblems:

Emblems are growing crops in a field (e.g., corn, wheat). They are considered personal property allowing the seller to harvest them even after the sale in a one time harvest.

• Whoever plants the crops gets to harvest them, even after selling the land.

Rights in Property: Government vs. Private

Government Rights:

The government retains four basic rights in all real estate for the good of the community:

• Taxation: The right to tax real estate. Taxes support schools, roads, and public services. Non-payment can lead to foreclosure.

• Police Power: The power to regulate and keep order related to building codes, and flood maps.

  • Zoning laws dictate land usage.
  • Building codes ensure structural safety.
  • Flood maps identify flood-prone areas.

• Eminent Domain: The government's right to take private property for public use.

  • Tenant is also eligible for money compensation under eminent domain.
  • The property owner receives compensation (fair market value).
  • Entities include federal, state, local governments, public schools, railroads, and utility companies.

• Escheat: The right of the government to take private property when someone dies intestate (without a will) and has no heirs.

  • Also applies to abandoned property where taxes are not paid.

Condemnation:

The process used to take property when the government exercises eminent domain.

Private Rights: Estates

An estate is a possessory interest in real property which means they are occupying the property.

• Estate: The degree, quantity, nature, and extent of ownership interest in real property.

Ways to Occupy Real Estate:

• Freehold Estate: Ownership with no definite ending date, duration of at least a lifetime, and is inheritable.
• Leasehold Estate: Renting or leasing for a definite, limited period of time.

Freehold Estates

Freehold signifies ownership

Types of Freehold Estates:

• Fee Estate: Inheritable.

  • Fee Simple Estate: Maximum rights a person can have in real estate.
  • Conditional Fee (Defeasible Fee): Ownership subject to certain conditions.
    • For example, property deeded for use as a school.
    • If conditions are not met, ownership may revert to the original owner.
    • It is inheritable with the same conditions attached.

• Life Estate: Non-inheritable, ownership for the duration of someone's life.

  • Life Estate in Reversion: Property reverts back to the grantor or grantor's heirs upon the life tenant's death.

    • The grantor has a possibility of a right of reverter upon the death of the grantee.

  • Life Estate in Remainder: Property goes to a third-party remainder man upon the death of the life tenant.

    • The remainder man receives fee simple title.
    • If the remainder man dies before the grantee, property goes to the remainder man's heirs.

    Grantor vs. Grantee:

    • Terms ending in "-or" (e.g., grantor) are givers.
    • Terms ending in "-ee" (e.g., grantee) are receivers.

  • Reservation of a Life Estate: A seller transfers property but retains a life estate for the seller's lifetime.

  • Par Autre Vie: A life estate based on the life of a third party.

  • Dower/Courtesy Laws: Life interest a spouse receives upon the death of the other spouse.

    • Dower: Wife receives upon husband's death.
    • Courtesy: Husband receives upon wife's death.

  • Homestead Exemption: Protection of a family home from judgments for debts.

    • Does not apply to real estate taxes or home mortgages.

Life Estate Considerations:

• Sale: A life estate can be sold, but the buyer will eventually lose the property upon the life tenant's death.
• Lease: A life estate can be leased, but the lease becomes void upon the life tenant's death.
• Mortgage: A life estate can be mortgaged.
• Waste: A life estate cannot be wasted (i.e., allowed to deteriorate beyond normal wear and tear).
• Will: A life estate cannot be willed (except in per autre vie cases).

Ways to Take Title to an Estate

Ways People Can Take Title to Property

• Severalty: Ownership by one person or entity, cut off from everyone. (Sever = Cut off).
  • Corporations take title in severalty.
• Concurrent Estates: Ownership by two or more people.
  • Tenancy in Common: Individual interest in group ownership.
    • Ownership interest may be unequal.
    • Each party has an undivided interest in the property
    • Inheritable to the heirs
    • Tenancy in Common (TC) think "To the Children" (TC).
      Suit to Partition relates to Tenancy in Common and is when one of the owners institutes a court action to force the sale of all of the property by all the parties.
  • Joint Tenancy: Unity of ownership with the Right of Survivorship
    • Requires four unities: Time, Title, Interest, Possession (TTIP).
      • This means all owners must take title at the same time, on one deed, with equal ownership interest and an undivided interest in the property.
    • If a person dies, his or her's ownership goes to the surviving owners.
    • Must be an intentional act to be joint tenants.
    • Joint tenancy is terminated when any of the four unities are destroyed.
  • Tenancy by the Entireties: Very similar to Joint Tenancy only requiring a husband and wife ownership requirement.
    • This requires a right of survivorship and TTIP.
  • Community Property:
    • Separate property is property acquired before marriage.
      • Individual spouses retain sole ownership interest.
    • Community property is property acquired during marriage.
      • Spouses have equal interest in the property.