Real Estate

Syllabus and Notes

Class One

I. Role in Real Estate Process

Understanding concepts - performing tasks

Two phases

Contract I pay for this.

You pay for that.

Sets rights and duties

Closing Documents

Doing everything in contract.

Giving life to the contract.

Contract could be three pages and closing documents 50 pages.

Buyers

Sellers

Realtor Listing Agent }

Selling Agent }Could be same person or different. Share money. Represent Sellor.

Lender

Appraiser

Insurance

Survey

Credit Agency

Tax Authority

Government Authority

Title Search Title Insurance Company

Probate – Record deed

Historical Overview

English Common Law

Real Property vs. Personal Property

Buying property is different than buying a car.

Real property is permanently attached

They is a gray area between real property and personal property.

Example: Cut a tree on your property, have it milled into boards and use them to construct a house. It was real then personal then real.

II. Basic Concepts of Real Property

Distinction between personal property and real property

Degrees (Quality) of ownership in land

Freehold

Fee simple absolute

Do what you want with it subject to Governmental regulation. Most common residential type.

The highest form of ownership. An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Also known as "Fee" or "Fee Simple Absolute."

Fee simple conditional

As long as you................you can do whatever you wish. What happens is you do not follow the conditions? It reverts back to the original grantor. You could attach a condition and it could then go to Mr. X which would be a Remainder (third party).

A fee estate conditioned by the provisions of the grantor or the grantor's heirs that some action occur in order to complete its conveyance. Should the condition not occur the estate is defeated and it returns to the original grantor.

Life Estate

You grant free hold interest but retain life estate. Does it have to be measured in your life. You can sell life estate but when you die it passes on to person in the original contract. A life estate can be better than a long term lease because it gives you more rights.

An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.

Non Freehold / Lease

Estate for Years

Any time frame. Has a start and stop date.

An estate limited to a term of years. An estate for years is commonly called a "lease." Upon the expiration of the estate for years, the property reverts back to the former owner.

Estate year-to-year

Can have any time frame. Periodic tenancy. Can be month to month and could be terminated by landlord also.

Tenancy At Will

You have a right to possession but without agreement or specific terms.

Occupying real property that is owned by someone else until the landlord provides a termination notice of the tenancy (typically thirty days by state law or stipulated in agreement), which can be provided at any time. Tenancy at will is created by an agreement between the tenant and landlord and cannot be conveyed by the tenant to someone else because the landlord controls the right to occupy.

Tenancy At Sufferance

At one time you had a right to be there but now you have no right to be there. Non-payment is the typical reason.

Difference between Trespass and Eviction.

In trespass you never had a legal right to be there.

In Eviction at one time you had a legal right to be there but no longer have that right.

A tenancy that is "held over" after an expired lease but before the landlord has insisted that the tenant vacate (quit) the premises. The tenant is bound by the terms of the lease (including paying rent) that existed before it expired in a tenancy at surface. A tenancy at sufferance differs from a "tenancy at will" is that the later was created by an agreement.

Incorporeal Rights

Easement

Right to use land in a certain manner. Most common is ingress and egress. Twenty foot easement for access road. Utility companies use easement. Can use it if you do not interfere with their use of it and visversa.

the right to use the real property of another for a specific purpose. The easement is itself a real property interest, but legal title to the underlying land is retained by the original owner for all other purposes. Typical easements are for access to another property (often redundantly stated "access and egress," since entry and exit are over the same path), for utility or sewer lines both under and above ground, use of spring water, entry to make repairs on a fence or slide area, drive cattle across and other uses. Easements can be created by a deed to be recorded just like any real property interest, by continuous and open use by the non-owner against the rights of the property owner for a statutory number of years, typically five ("prescriptive easement"), or to do equity (fairness), including giving access to a "land-locked" piece of property (sometimes called an "easement of necessity"). Easements may be specifically described by boundaries ("24 feet wide along the northern line for a distance of 180 feet"), somewhat indefinite ("along the trail to the northern boundary") or just for a purpose ("to provide access to the Jones property" or "access to the spring") sometimes called a "floating easement." There is also a "negative easement" such as a prohibition against building a structure which blocks a view. Title reports and title abstracts will usually describe all existing easements upon a parcel of real property. Issues of maintenance, joint use, locking gates, damage to easement and other conflicts clog the judicial system, mostly due to misunderstandings at the time of creation.

Profits

Mineral rights

Timber rights

License

Right to a temporary use of land.

Permission from the government to perform a certain act, conduct a certain business or occupation, operate machinery or vehicles after the ability to do so safety has been proven, or use property for certain purposes. 2) n. Document that proves that one has the authority to do something under governmental authority. 3) n. Private grant to use real property for a certain purpose, such as to put on a concert. 4) n. Private grant to use intellectual property, such as a musical composition or patent. 5) v. To grant permission by private agreement or governmental authority.

Hybrid Forms of Interest

Reverter n. Synonymous with reversion.

Grant a fee simple arrangement and it reverts back if a condition is meet or not meet.

In real property matters, returning the real property to the grantor or his/her heirs after all of the property's interests given to others have been terminated. For example: a) George Generous deeded property to the local hospital district for "use for health facilities only." The hospital is torn down eventually and the property which is now vacant, reverts to George's descendants. b) George wills the property to his sister's children only, who later died without children. When the last grandchild dies the property reverts to George's descendants. Reversion is also called "reverter."

Remainder

Conveyance with condition. Then X has a remainder. It could pop up later.

In real property law, interests in real property that remains after another interest in the property concludes, such as full title after a life estate (the right to use the property until one dies). Remainders must be created by a deed or will. For example: Patricia Parent deeds Happy Acres Ranch to her sister Sally for life and upon Sally's death to Charla Childers, Sally's daughter, or Charla's children if she does not survive. Charla has a remainder, and her children have a "contingent remainder," which they will receive if Charla dies before title passes. A remainder differs from a "reversion," which gives returns title to the property grantor (upon Sally's death, in the example) or to the grantor's descendants. Reversions do not need to be spelled out in a deed or will, and can automatically transpire by "operation of law."

Forms of Ownership

Singular

Deed is sold.

Tenancy In Common

Ownership with two or more people.

Example: You have ½ of undivided interest.

Business often uses tenancy in common.

Title to property (real or personal) which is held by two or more people with each having an "undivided interest" in the property and equal right to use the property, even if the percentage of interests are not equivalent or the living spaces are of different sizes. Tenancy in common is not similar to "joint tenancy," so there is no "right of survivorship" if one of the tenants in common dies, and each interest may be sold separately, mortgaged or willed to another. While a joint tenancy interest automatically passes to the survivor, if a tenant in common dies, there must be a probate (court supervised administration) of the estate of the deceased to transfer ownership in the tenancy in common.

Joint Tenancy

Right of survivorship. Two people own property, one dies the other owns it all. Example: parent and child.

Real property ownership that enables each party to own an undivided interest in the entire parcel of property, with each having the right to use all of it and the right of survivorship (upon death of one tenant, the other receives title to the entire property). Survivorship may be attained by the surviving tenant recording an “affidavit of death of joint tenant,” which describes the property and the deceased tenant, attaches a copy of the death certificate and is sworn to by the surviving joint tenant. While the process avoids probate of the property, tax consequences may be incurred that should be discussed with an accountant when the original deed is recorded. Joint tenancy should not be used if the owners do not want survivorship to occur. In instances involving common ownership between a parent and a minor child, joint tenancy should not be used since the property cannot be transferred in the future without a court order to appoint the parent guardian of the child’s estate. Additionally, the property and proceeds would be under court control until the child is no longer a minor. The estate tax limitation on a first spouse’s death could be lost in community property states because some courts have found that joint tenancy presumes that the property is not community property. A bank account held in joint tenancy also presumes a right of survivorship, but this presumption can be overcome by evidence that the account was really the property of only one, and the joint tenancy was for convenience.

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Tenancy By The Entirety

Abolished in this state. Can be held only by husband and wife.

A husband and wife's joint ownership of title, where both have the right to the entire property, and the right of survivorship upon the death of one of the spouses. Many states use tenancy by the entirety, which is similar to "community property" in the seven states that recognize that type of property ownership.

III. Deeds

Elements of a deed

Deed -- transfer bundle of rights

Deed – document that transfer those rights and evidence of that transfer

When deed delivered method of perfecting the title

Deliver Deed – take it to Probate

Example: Years later you lose deed or with title. Probate perfects your rights and gives you your right.

You do not sign over your own deed. You make a new one. Once the deed is recorded the document is just a document of conveyance.

Pro Se – without attorney

Deed – effective for transfer, formalized chain of title

Joe Smith Bob Jones

Grantor Grantee

Grantor Index Grantee Index

Bob Jones Jane

Grantor Index Grantee Index

Look up in Grantor Index. Uses instrument number. Trace chain of title back to land-grant.

Date

DATED DATE - Indicates the date a document was executed (signed), rather than the date of recording (recording date).

Presumption is date title passed. This presumption can be overcome.

There must delivery of deed.

There must be conveyance of deed.

The presumption is date delivered is date conveyed but other things are more important in determining priority.

Parties

• Grantor

One who grants property or property rights.

Holds title and desires to transfer it. Do not have recite marital status.

• Grantee

One to whom a grant is made. Generally, the buyer.

To whom title is transferred. Have to recite martial status. John Doe, married single divorced. This is done for homestead property since the spouse has certain legal rights. Not done on investment property.

Consideration

Anything which is, legally, of value, and induces one to enter into a contract.

Money, etc., exchanged for deed. Conveyance valid without consideration since you can just give the deed to someone. On deed it usually a dollar amount listed as consideration. If you do not want anyone to go the the probate office and look up the selling price you can put for $10 and other good considerations.

Granting or conveyancing clause

One of the many types of deeds used to transfer real property. Contains warranties against prior conveyances or encumbrances. When title insurance is purchased, warranties in a deed are of little practical significance.

Clear title pases from one to another: grant, bargain, convey, sell.

Legal description

A method of geographically identifying a parcel of land, which is acceptable in a court of law.

Clearly defines the property. Lot 4 Second Survey Plat 2 Map Book 6.

Recital, or “being” clause

Setting forth in a deed or other writing some explanation for the transaction. For example: A deed may state that the property is being transferred in lieu of foreclosure.

Recites where they got the property. It references back to the Chain of Title.

Encumbrances or restrictions Incumbrance

A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

Example: Easement – must convey subject of that easement. Set out any restriction. Assuming a mortgage would be included.

Habendum clause

The clause in a deed, following the granting clause, which defines the extent of the estate of the grantee.

This reaffirms the full conveyance.

Covenant or warranty clauses

WARRANTY - A legal, binding, promise, given at the time of a sale, whereby the seller gives the buyer certain assurances as to the condition of the property being sold. Warranties as to real property have taken on a lesser role with the increase of the use of title insurance.

This is implied but it is in there.

Execution clause

To complete; to fulfill a purpose, such as to execute an instrument, meaning to sign, seal (modern usage, to notarize), and deliver.

Signature line. This recites who is signing it and if they are signing it in some capacity. Grantee and spouse must sign for homestead.

Signatures

The Uniform Commercial Code defines a signature as any mark made with present intention to authenticate a writing. Company policy of banks, for example, or local governmental offices, such as the county recorder, may have stricter requirements.

Acknowledgment

A written declaration by a person executing an instrument, given before an officer authorized to give an oath (usually a notary public), stating that the execution is of his own volition.

It is made by a Notary but it more than just a notarized document. It goes further. They came before me, knew the contents of what they were signing and were not forced.

Types of deeds

General warranty

• Covenant of seisin

(sees-in) Possessing and having title of real property. The word is an old feudal term that is located in some old deeds. Refers to an ownership in fee simple (full title to real property).

I have got possession of the land.

• Covenant of good right to convey

I have the right to sell the property.

• Covenant against encumbrances

There are no strings attached except for the ones set in the deed.

• Covenant of quiet enjoyment

The right of an landlord or tenant to use the property without disturbances.

No one will evict you.

• Covenant of warranty

I will defend all claims against your title.

• Covenant of further assurances

I would do whatever is necessary to make the deed good such as correct typos.

Limited Warranty (special)

I have done anything to the title but not making a full, clear declaration. It is often used in commercial transactions. For other cases you have Title insurance which a company examine the title and commit to insure you have a good title.

Quitclaim deed

Deed to real property that reassigns only the interest in the property that the grantor has title. Quitclaims are often issued to family members, divorcing spouses, or between other people who know each other well to transfer title or interest in title. Also used to resolve questions of full title when a person possibly has an unknown interest in the property. Quitclaim deeds do not warrant good title, unlike grant deeds and warranty deeds that guarantee (warrant) that the grantor has full title to the property or the interest the deeds indicates is being conveyed.

No warranty. Whatever interest I have in the property I convey to you. Often used in family land or for clearing up the title. Example: Son lives on fathers property. Father leaves no will or deed to the land. Brother and sister both file Quitclaim deeds so the title can pass to the chosen son.

Fiduciaries deed

Grantor is conveying the tile in some capacity such as executor of an estate. a trustee of a trust. It is a duty to care for the business of someone else.

Sheriff's deed or clerk's deed

A deed given at the sheriff's sale in foreclosure of a mortgage.

There is a judgment against you and you do not settle the matter. The Sheriff is authorized to sell your property so the judgment can be settled.

Clerk's Deed. Husband runs off or will not sign deed. A Clerk's Deed is issued by the Circuit Court.

Warranty Deed Homework Notes:

To the undersigned

Spouse must sign if it homestead property. Example: Male and wife, Husband and Wife. So is a homestead property?

Difference between mortgage and deed amount. The tax rates are different for deed and mortgage. Example: the deed is taxed at 50¢ per $500 value while the mortgage is taxed at 15¢ per $100 value. So you detail the amount. Example $80,00 of consideration recited herein was derived from a purchase money mortgage. Or in English: $80,000 of the purchase amount came from a purchase money mortgage.

If it is not a homestead purchase detail in the deed why spouse is not signing. Example: This property does not constitute the homestead of the grantee or grantee's spouse as defined in Code of Alabama Section 6-10.2 and the Constitution of the State of Alabama. In English: This is not a homestead purchase as defined in applicable laws and regulations.

IV. Surveys

Map or plat made by a licensed surveyor who measures land and charts its boundaries, improvements, and relationship to the property surrounding it. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.

PropertySurveyDiagram

Definitions

Graphic description of real property, property line, easements and other things. The survey certificate should match the deed. Common method of comparison is for one person to read and the other to follow along proofreading. There may be more than one legal way to describe a piece of property.

Role in survey analysis

Steps in a survey

Point of reference

POINT OF BEGINNING (POB) - A term used in metes and bounds descriptions. The description will start with the words "Beginning at a point" and end with "to the point of beginning".

Metes and bounds

(meets and bounds) n. Surveyor's description of a piece of real property. The legal description includes carefully measured distances, angles, and directions and is differentiated from a street address or parcel number. Metes and bounds descriptions must be recorded in official county records on a subdivision map and in the deeds when the boundaries of a parcel or lot are first drawn.

In the Southern United States in the State-Land states, land is surveyed in the indiscriminate metes and bounds system. This survey system uses natural land features, such as trees and streams, as well as neighboring land owners, along with distances to describe plots of land. An example of a deed which uses the metes and bounds land description is shown below with the land description emphasized.

In indiscriminate metes and bounds, distance is measured in 16 1/2 foot lengths which are interchangeably known as poles, rods, or perches. Note that 320 poles = 1 mile. The directions are measured in degrees as compass bearings, beginning with the first direction listed and moving toward the second direction. Thus "north 50 east" in the deed below means 50 degrees east of north and "south 30 west " means 30 degrees west of south.

Frequently, the description of the tract does not define a closed figure. There may be slight gaps or crossings where the end and the beginning to do not meet exactly.

Rectangular surveys

A system of describing land by base lines and meridian, townships and sections. Also called U.S. government survey system or sectional property description.

Section

Basic unit of the system, a square tract of line one mile by one mile containing 640 acres.

Township

36 sections are ranged in a 6 by 6 array, measuring 6 miles by 6 miles. Sections are numbered beginning with the northeast-most section, proceeding west to 6, then south along the west edge of the township and to the east.

Range

Assigned to a township by measuring east or west of a Principal Meridian

A specific township is identified as being north or south of a particular baseline and east or west of a particular principal meridian. For example, T3N, R1E of the 3rd Principle Meridian is the third township north of the baseline in the first range east of the Third Principle Meridian.

Subdivision surveys

A map submitted by a subdivider to the proper governmental body for approval in order to establish a subdivision. When the map is approved and recorded, it becomes the basis for the legal description of the subdivision.

subdivisiondiagram.jpg

Townsite or subdivision survey and plat required—Contents. When any person wishes to lay out a townsite or subdivision, he shall cause the same to be surveyed and platted, which shall particularly describe and set forth all the streets, commons, or public grounds, and all blocks, lots, parcels, or tracts within such third class municipality or subdivision, giving the names, width, courses, boundaries, and extent of all such streets.

V. Mortgages and Financing

Definitions

Mortgage homework due in two classes

There are two instruments:

1^st is a promissory note

2^nd is mortgage

Mortgage is give by the Borrow to the Bank

Mortgage – Secures a obligation to repay loan. It is like a Deed in that it is a conveyance of real estate. You receive the Deed and then sign over Mortgage to the Lender. Once the Lender is paid they will release you from the mortgage.

Mortgagor

Seeks Funds.

The individual who borrowed funds and pledged his/her real property as security for the lender's money

Mortgagee

Lends money. They receive the conveyance of the mortgage.

The business or person who makes a loan which is secured by the person's real property who owes him/her/it money.

Lender

A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."

Borrower

The party receiving funds that must be repaid, usually with interest.

Form and content of mortgage

Writing

Has to be in writing.

A real estate contract must be in writing

Parties

The full name of the parties must be on the contract.

Consideration

The dollar amount of money lent. The money is lent in consideration of the mortgage.

Anything which is, legally, of value, and induces one to enter into a contract.

Obligations

You must repay the money in accordance with the promisary note.

Conveyance clause

It must be clear what is being transferred. The Legal Description is the way you do this.

CONVEYANCE - Transfer of title to land. Includes most instruments by which an interest in real estate is created, mortgaged, or assigned.

Warranty of title

Title insurance is used to cover this potential problem,

Maintenance/repairs

Burden is on the borrower to maintain property.

Keeping a property in condition to efficiently serve its intended purpose.

Taxes and insurance

You must pay taxes and insurance. Most mortgage companies establish as escrow account to pay for taxes and insurance. If not borrower has to send proof of payment to them. They want to know quickly, on a monthly basis, if the taxes and insurance are being covered.

TAX AND INSURANCE ESCROW - See: Impound Account.

"IMPOUND ACCOUNT"

Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Damage/waste

You must take action to protect the property.

DAMAGES - (1) Money recoverable by one suffering a loss or injury. (2) The loss of value to property adjoining a property taken in condemnation proceedings, rather than the value of the property taken.

Condemnation

Eminent Domain and how to handle it. Example: Have a $100,000 property with a $80,000 mortgage. If eminent domain is used to take half of the property for $50,000 there is wording in the document to ensure that mortgage holder receives their share of the allocation rather than the property owner receiving the money and using it on other things.

1. The taking of private property for public use. Consent of the owner is not required but fair compensation must be paid. See also: Eminent Domain. 2. Declaring property unfit, usually for violations of health and/or safety codes.

Security agreement

Sometimes used for carpet and appliances.

A "catch all" term used to describe many different types of debtor- creditor relationships, such as a chattel mortgage, trust receipt, inventory liens, etc.

Rights of conveyance/assumption

Assumable mortgages are not very common since the person assuming the mortgage may not be qualified. There is usually some language in the document about this stuff. In the 70/80's loans were 12% and all loans were assumable. So you had a mortgage at 6% and could let someone assume it the loan sharks were not getting their pound of flesh. So they took out the White-Out and got rid of the assumable mortgage clause.

Default

Default is not honoring or non-performance in terms of a promissory note.

Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

Enforcement rights

Foreclosure. The borrow defaults and the mortgage holder can use an attorney to sue you and you have to pay for it. Or they can somebody for the note.

Execution and acknowledgment

Signing the document. The Acknowledgment Clause is exactly like a Deed in that you know the contents, you sign the document voluntary and aware of the conditions.

Types of Mortgage Financing

There are two main types used. Variable and Fixed.

Fixed rate mortgages

There is a set interest rate. The total payment could change due to taxes and insurance

A mortgage in which the interest rate does not change during the entire term of the loan.

Variable rate mortgages

The rate reflects market rate. Could be adjusted monthy or some set term.

Renegotiable rate mortgages

The rate is fixed for a time and then subject to renegotiation. If not agreement have to pay it off. It is more often used in commercial loans.

A real property loan calling for an adjustment in the interest rate at a given time. Example: A loan with a 15 year amortization is adjusted to current interest rates after 2 years. The lender agrees to make the adjusted loan at the new rate as long as the old loan is not in default. The Federal Reserve Board allows the original loan to be treated either as a balloon payment loan or a variable rate loan. However, points must be figured into the A.P.R. based on the time or renegotiation (2 years rather than 15).

Adjustable rate mortgages

The loan in is adjusted at some defined interval and is geared to some standard. Treasury Bills are commonly used.

It usually has a cap or the amount the rate can move per period.

AdjustableRateIndex.jpg

When the Index goes up or down the loan fluctuates in accordance with the agreeded upon margin.

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

Graduated payment mortgages

GraduatedPaymentDiagram.jpg

FHA 245 Payments start low but they increase over time. The interest is fixed but the payments increase. Example: Medical/Lawyer just out of school. Income should rise in the future and be able to manage the increased payments. Allows you to purchase more house in anticipation of increased income in the future.

A mortgage or deed or trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments. The payments then increase as (theoretically) the buyer's earnings increase. See also: G.E.M.

Buy-down mortgages

BuyDownDiagram.jpg

Bait and switch. Used in new homes.

Markup a $100,000 house to $120,000 and tell the borrower you will give $20,000 on the loan which can be used to pay interest up front. The problem occurs when there is foreclosure and the house is only worth $100,000 but they still owe $120,000. Used in Texas at one time in the boom/bust cycles.

Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

FHA mortgages

Federal Housing Authority. They “Insure” loans and do not lend money. They put together programs for Lenders to participate in. FHA usually lowers the amount of down payment needed to purchase a home. Most lender want 20 percent and an FHA package would only require a 5 percent down payment. If there is a default the Lender would file a claim with the US Government. In real terms they convey the property to the FHA and they re-sell it on the market.

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

VA mortgages

Veterans Affairs. They “guarantee” the mortgage and any foreclosure would be done in the name of the VA????? Most VA packages do not require a down payment.

A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

FNMA mortgages

Federal National Mortgage Association. They purchase blocks of mortgages of the same type and sell them on the secondary market. They want their mortgages to be consistent – same type of mortgage, same notes, same qualification and other related similarities.

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA).

Shared appreciation mortgages

Not used anymore. Example: The loan is made at 9 percent (low rate during a high rate cycle) but the lender and borrower both share in any appreciation of the property. The Savings and Loan mismanagement operation put them out of existence.

A financing arrangement under which the lender offers a lower interest rate in return for a percentage of the appreciation (profit) when the property is sold.

Balloon mortgages

BalloonMortgageDiagram

Typical loan is for 30 years and you pay at a monthly rate typical for a 30 year mortgage. The kicker is the loan comes due in, for example, 3 years and you have to pay it off or find someone to refinance the loan. It is often used in commercial property.

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Purchase money mortgage

The seller of the property hold the loan. The seller holds the finance.

A mortgage given from buyer to seller to secure all or a portion of the purchase price. (2) Any mortgage from which the funds are used to purchase the property.

Figuring Last Payment Homework

For first payment figure:

Take closing date

1^st day April – Last Day March

Add 30 years and back up 1 month

Watch Jan 1

You must back up the year also

Example: Jan 1, 05

Dec 1, 34

Next Class

Settlement Process

Settlement Statement

Pro-rated taxes

Pro-rated Interest

VI. Settlement/Closing Procedures

Role of the paralegal

Steps in the process

Analysis of sales agreement

Lenders instructions

Title examination and title insurance

TITLE INSURANCE - Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.

Making it through the HUD-1 Settlement Statement

A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."

VII. Contract of Sale

Elements of typical sales agreement

Parties

Date

Legal description

An expanded and unique description of a property that is used on legal documents, such as deeds and deeds of trust. Recorded documents generally require a legal description sufficient to locate and identify the property without oral testimony.

Fixtures

Personal property that becomes real property when attached in a permanent manner to real estate.

Purchase price and term of payment

Condition of title

Settlement date

Possession

Being in physical control of land or personal property, whether the owner or not. Possession may be lawful or wrongful.

Apportionment of taxes/rents/interest

Recording cost

Recording

The act of writing or entering an instrument in a book or public record, usually in the office of the county clerk and recorder. Such recording constitutes notice to all persons of the rights or claims contained in the instrument. This type of notice is called "constructive notice" or "legal notice."

Default and remedies

Contingencies

• Financing

• Sale of existing house

• Zoning changes

• Perc tests

PERCOLATION (PERK) TEST - The test to determine the capability of the soil to absorb liquid, both for construction and septic systems.

Warranty clauses

Miscellaneous provisions

• Final inspection

• Termite bond

  Termite bonds are very different. Make sure your bond has a treatment provision as well as a repair provision. I have seen many bonds that will treat for termites if they are found but would not repair any damage. Damage can be much more than the treatment.

Signatures

IX. Landlord/Tenant Law

Leasehold estates

Periodic tenancy

An agreement to rent from period to period. The period is determined by the rental payment (weekly, monthly, yearly, etc.).

Tenancy at will

A tenancy which may be terminated at the will of either the Lessor or lessee.

Tenancy at sufferance

A tenancy which arises when a tenant holds over after expiration of his lease.

Termination of the leasehold

Expiration

Mutual cancellation

Breach

Destruction

Constructive eviction

Elements of a lease

Description of lease premises

Description of the parties

Durational requirements

Consideration/rent

Purposes

Assignment/subletting

Security deposit

Insurance provisions

Signatures

Jeff Rowell

979.9070