360 Training Sessions

Private Corporations

"Not for profit" corporations are churches, fraternal organizations, foundations, charitable organizations, and other groups that perform services for the public other than in a governmental capacity. These corporations may be exempt from the real property tax assessments and income tax assessments imposed upon "for profit" corporations. "For profit" corporations are all other private corporations.

The basic stages of a real estate transaction are:

1. The listing 2. The contract for sale 3. Financing 4. Settlement

Listing : Listing Farms

A "listing farm" is a geographical area (300 - 400 homes) chosen by the salesperson or the broker within which the salesperson works to acquire listings. The salesperson becomes an expert on the area by learning property values, knowing what properties have recently sold or are on the market, and by becoming personally acquainted with the residents. "Farming" is a perfectly acceptable listing technique when properly handled, but often leads to charges of "blockbusting" when practiced with new minority members.

Misrepresentation

A client is not liable for a misrepresentation made by a broker in connection with the broker providing brokerage services unless the client knows or should have known of the misrepresentation or the broker is repeating a misrepresentation made by the client to the broker. A licensee shall not be liable for providing false information to a party in a real estate transaction if the false information was provided to the licensee by a client of the licensee or by a customer or by another licensee unless the licensee knows or should have known that the information was false.

Discharge

A contract for deed is binding on the heirs and estates of the parties. It is discharged by payment in full by the vendee with conveyance of the title by deed from the vendor. It also may be discharged by suit for breach of contract by the parties or mutually agreed release of the contract. This type of contract originally was used to purchase relatively inexpensive pieces of land, but it can be used for any type of property. It has major advantages to the buyer, particularly in times of tight credit (high interest rates) markets or when the buyer does not qualify for conventional loans. In these cases, the seller may be willing to provide the financing, especially because this form of contract puts the seller in a strong position.

Executed and Executory: Executed Contract

A contract that has been fully performed is an executed contract. An example in the real estate business is an offer to purchase in which all contingencies and conditions have been met and closing takes place. After the closing, nothing more is to be performed under the offer to purchase.

Dual Agency: Both the Buyer and Seller

A dual agency exists when a real estate firm attempts to represent both the buyer and seller in the same transaction. Dual agency may be intended or unintended. Dual agency must be disclosed to both buyer and seller, and both must agree to that dual relationship in writing. Undisclosed dual agency is a breach of a broker's fiduciary duty, and usually a violation of state licensing law.

General Agent

A general agent is someone authorized to handle all affairs of the principal concerning a certain matter or property, usually with some limited power to enter into contracts. EX: Is a person who has been appointed property manager of an apartment complex by the owner of the complex. The property manager may collect rent, evict, enter into leases, repair the premises, advertise for tenants and perform a range of activities on behalf of the principal concerning the specified property.

Graduated Lease

A graduated lease is one in which the rental amount changes from period to period over the lease term. The lease contract specifies the change in rental amount, which usually is an increase in stair-step fashion. This type of lease could be utilized for a new business tenant whose income is expected to increase with time.

Taxes and Assessments

A life tenant has an obligation to pay the real property taxes on the property in which he or she has a life estate. The life tenant also has the duty to pay any assessments levied against the property by a county or a municipality for improvements to the property. Assessments are levied against land for improvements made to the land, such as street widening, city sewer installation, or provision of municipal water access.

Termination of Qualifying Broker's Status

A person who wishes to terminate his or her status as qualifying broker for a licensee may do so by notifying the licensee and the Commission in writing and sending the licensee's license certificate to the Commission or verifying in writing to the Commission that the certificate has been lost or destroyed. A person who wishes to terminate his/her status as a qualifying broker for a company may do so by submitting written notice to the company or qualifying broker of the parent company and the Commission. A salesperson or associate broker shall not perform any act for which a license is required after his or her association with his or her qualifying broker has been terminated, or if he or she changes qualifying brokers, until a new active license has been issued by the Commission.

Consensus of Property Owners

A plan created and based on a strong consensus of property owners in the community is the result of community-based planning. Along with the plan, the community agrees on certain proposed zoning requirements. The proposal is presented by referendum to all of the residents in the community, and often to all registered voters, whether they own property or not. If a substantial majority of the community endorses the plan and zoning, the county government adopts the plan and enacts the necessary zoning ordinances to enforce the plan as conceived by the area's residents.

Real estate brokerage relationship

A relationship entered into between a real estate broker or salesperson and a buyer, seller, landlord, or tenant under which the real estate broker or salesperson engages in any of the acts set forth in Alabama real estate license law, but the relationship does not exist prior to actual introduction of the relationship as provided in subdivision (1)

Duties of a Property Manager: Resident Manager

A resident manager is a person living on the premises who is a salaried employee of the owner. Duties include collecting rents, maintaining the property, and keeping all accounting up to date. In some states, this person is not required to have a real estate license if he/she is employed directly by the owner, rather than a managing broker, and works only for that one owner.

Gross Rent

A simplified variation from the capitalization appraisal is found in the gross rent multiplier (GRM) also called gross income multiplier (GIM). This approach is not truly a part of the income approach but may be used to estimate income-producing properties by sales comparison. The GRM is an economic comparison factor that relates the gross rent a property can produce to its purchase price. For apartment buildings and commercial and industrial properties, the GRM is computed by dividing the sales price of the property by its gross annual rent. EX: For example, if an apartment building grosses $100,000 per year in rents and has just sold for $700,000, it is said to have a GRM of 7. The use of a GRM to value single-family houses is questionable since they are usually sold as owner-occupied residences rather than as income properties. Note that if you do work a GRM for a house, it is customary to use the monthly (not yearly) rent.

Permanent Licenses

A temporary license holder may affect a license transfer via the regular transfer procedures anytime during the first six months after the issuance of the temporary license. The application for the original (permanent) license must be received in the Commission office on or before the date the temporary license would lapse. Therefore, the original license application, appropriate fees and proof of completion of the post license course, must be received in the Commission office on or before midnight on the last day of the month which is one year from the first day of the month following the issuance of the temporary license.

Universal Agent

A universal agent is someone authorized to handle all affairs of the principal. An example is someone who has been given unlimited power of attorney over another's affairs. This person is called an attorney-in-fact.

Wraparound Mortgage: Junior Mortgage

A wraparound mortgage is a junior mortgage taken back by the seller for the amount of the property's purchase price less the buyer's down payment. The existing loan is retained and combined with a new, larger loan and the interest rate is set somewhere between the old rate and the current market rate. A typical wraparound is an interest-only loan with a 5-year or less balloon payment. This mortgage "wraps around" the existing first mortgage, which stays in place. The seller of the property makes a wraparound loan to the buyer, who takes title to the property subject to the existing first mortgage. The seller continues to make the payments on the first mortgage, and the buyer makes the payments to the seller on the wraparound.

LESSON 60

Alabama Real Estate Commission

Federal Housing Administration

Also, it is important to note that discrimination in housing was certainly not limited to African-Americans. Other minorities and religious groups were commonly discriminated against, as were women.

LESSON 56

Americans with Disabilities Act

Implied Contracts (pt 1)

An implied contract (or ostensible contract) is one inferred from the conduct and actions of another without express agreement. Implied contracts arise when the conduct of the parties clearly illustrates the intention to contract. The law does not favor implied contracts because of the uncertainty of terms of the agreement. Parties are placed in a contract relationship without actual express consent to contract. Implied contracts should be avoided in real estate

Intended Dual Agency

An intended dual agency can arise when a listing broker acts as a buyer's broker and shows an in-house listing with the seller's full knowledge and agreement. The real estate firm then represents both the buyer and the seller in dual agency capacity and cannot give either of them exclusive loyalty and confidentiality. In this situation it is important to convey to both buyer and seller that neither can receive full representation. The dual agent takes on the role of facilitator, giving assistance to both sides in an effort to close the transaction.

Ambiguity

Any ambiguity in a contract is construed against the party preparing the contract and the party the licensee represents. This has been established as good public policy so one providing the confusing contract cannot benefit from the ambiguity. As a consequence, real estate licensees must use extra care in preparing offers to purchase.

LESSON 50

Appraisal Steps

LESSON 54

Closing Basics

LESSON 52

Cost Approach

LESSON 65

Disciplinary Actions and Trust Accounts

LESSON 22

Dual Agency

Security for a Loan

Each tenant in common also may individually pledge only his or her share of the property as security for a loan that creates a lien or encumbrance against that share only, not the entire property. If the loan is not repaid and the lien of one co-owner is foreclosed, the property foreclosed upon is only that share belonging to the defaulting co-owner.

Damages

Enforcement of state laws typically is through injunctive relief or damages, or both, after a hearing or negotiated settlement. The amount of damages is determined by a civil court. The state also may require a person found guilty of violating the state laws to take affirmative action. The affirmative action could be in the form of relevant community service, advertisements concerning fair housing, sponsorship of a seminar on fair housing, or the like.

LESSON 34

Environmental Issues

Groups of Estates in Land

Estates in land are divided into two groups: - Freehold estates, an ownership for an undetermined length of time; and - Nonfreehold estates or leasehold estates, possession with a determinable end.

Brown vs. Board of Education

Finally, in 1954, the U.S. Supreme Court rendered its landmark decision in Brown v. Board of Education, reversing the "separate but equal" decision in Plessy. The Brown case outlawed segregation in schools and marked the beginning of the end of the era of legalized segregation.

SESSION 17

Fractions and Formula

LESSON 42

Lending Regulations

Exceptions

None of these exemptions is available if either of the following has occurred: - Discriminatory advertising has been used - The services of a real estate broker, associate, salesperson, or any person in the business of selling, or renting dwellings are used.

Maintenance : Supervising Maintenance

One of the most important functions of a property manager is to supervise physical property maintenance. Efficient maintenance requires accurate analysis of the building's needs, coupled with consideration of the costs of any work done. Maintenance can include: - Preventative maintenance - Corrective maintenance - Construction.

LESSON 29

Sale Contracts

Transfer of Funds

The Commission may transfer funds one time only from the Real Estate Recovery Fund to the University of Alabama Real Estate Research and Education Center. The amount of the transfer may not reduce the Real Estate Recovery Fund below six hundred thousand dollars ($600,000).

Essential Elements

The underlying agreement between parties governs the payment of escrow funds to the proper party. The essential elements of an escrow are: - The irrevocable deposit of money or documents with a third person; and - A valid and enforceable contract that calls for the delivery of that money or those documents on the occurrence of some condition (for example, the exchange of deed for money).

The term "real estate"

refers to the land and all improvements made both on and to the land.

Capitalization Rate (CAP RATE)

the percentage selected for use in the income approach to valuation of improved property.

LESSON 31

Deeds pt 1

LESSON 32

Deeds pt 2

Economic Factors

Economic factors are typically separate from the real property being appraised. They include: - Employment levels; - Median family income; - Interest rates - Inflation - Recession - Availability of credit.

An Increasing Impact

Environmental hazards are making an increasing impact on the real estate profession and the manner in which real estate is purchased. The presence of environmental hazards can substantially affect the uses, value, and salability of real property. In some cases, when removal of these substances is required, the cost of removal may exceed the value of the property. The laws in many states require that a seller disclose known material facts regarding a property's condition to a potential purchaser. The presence of an environmental hazard is considered to be material fact. Further, a real estate agent may also be responsible for disclosing material facts that the agent knew of or should have known about.

Evaluation

Evaluation is a study of the usefulness or utility of a property without reference to the specific estimate of value. Evaluation studies take the form of: - Land utilization studies; - Highest-and best-use studies; - Marketability studies; and/or - Supply and demand studies. Evaluation of a property does not result in an estimate of value of the property, although it can be used as part of the information gathering for a formal appraisal.

Insurable Interest

Examples of people having an insurable interest are: - Buyer and seller in a contract of sale or land contract; - Owner; - Owner of a partial interest; - Trustee; - Receiver; - Life tenant; - Mortgagor; and - Mortgagee.

Situations Lacking Mutual Consent: Fraud

Fraud is intentional deceit or lying. It is a misstatement of material facts to induce someone to rely on the facts and enter into a contract. A false statement is deemed to be fraudulent when: The party making the statement knows it to be false; or The party making the statement does not know in fact whether the statement is true or false but proceeds without determining its truth or falsehood.

Common Plan

If a developer offers only part of the total tract owned and thereby limits the subdivision to fewer than 25 lots to acquire an exemption, the developer may not then sell additional lots within the tract. HUD considers these additional lots to be a part of a "common plan" for development and marketing, thereby eliminating the opportunity for several exemptions for the developer as a result of piece-meal development of a large tract in sections of fewer than 25 lots at a time.

Default

If property is sold and title conveyed subject to the lien of an existing mortgage (but that lien is not actually "assumed"), the lender can still foreclose against the property in the event of a default in mortgage payments. In taking title subject to a mortgage, the purchaser does not become personally liable for payment of the note. Therefore, the lender cannot sue the purchaser for a deficiency judgment, but may only obtain a deficiency judgment against the seller who remains personally liable for paying the debt as evidenced by the note.

The Four Corners

If the essential elements of a contract cannot be proved, the court will hold that no contract exists. If a contract exists, the court will enforce the contract in accordance with what is typical and customary --- giving it a practical interpretation, if possible, and considering the circumstances leading to the contract. The court will look to the entire contract as a whole but will stay within the "four corners" of the document. When blanks are filled in by the parties, the handwritten words supersede the printed words if a contradiction exists in a printed contract form, such as a listing or offer to purchase. The same is true of typewritten words in a preprinted contract.

Complete Boundary Description

If the first boundary segment is described as N45°E 2,640 feet, the angle from POB is as shown below and the distance to the next point is 2,640 feet. The complete boundary description of this property would be: POB N45°E 2,640', N90°E 1,867', S180° 5,507', N90°W 4,640' POB. An actual description would have the degrees with minutes and seconds, and the distances to the nearest hundredth of a foot.

Depreciation (pt 2)

If the property is 8 years old, the straight line depreciation claimed is 3.636% X 8, or 29.09% 70.91% (100% - 29.09%) has not depreciated. If the original cost of the property is $100,000, the present book value is $70,910. Original cost....................................$100,000 8 years' depreciation....................- $ 29,090 Present book value.........................$ 70,910

Shelley vs. Kraemer

In 1948, in Shelley v. Kraemer, the U.S. Supreme court held that state court enforcement of a private, racially-restrictive covenant constituted a sufficient "government involvement" so as to violate the equal protection clause of the Fourteenth Amendment. Therefore, persons could not use the court system to enforce racial deed restrictions.

Superfund

In 1986, CERCLA was amended by the Superfund Amendments and Reauthorization Act (SARA). The amendments imposed stringent clean-up standards and expanded the definition of persons liable for the costs of clean-up. Under CERCLA and SARA, every landowner is potentially affected. In addition to federal legislation, some states now require full disclosure prior to title transfer by deed, if real estate is listed by a federal or state agency as contaminated by hazardous substances. More recent environmental issues include protection of habitats for wildlife, wetlands, shorelines, and endangered species, as well as issues such as lead-based paint, radon, formaldehyde, mold, and asbestos.

Created by Law

In addition to being created by an intentional conveyance (conventional), life estates can also be created by law. Unlike life estates created by the act of the parties either by deed or in a will (conventional life estates), life estates created by operation of law are called legal life estates or statutory life estates.

Written Examinations: License Exam

In addition to other requirements, every applicant for a broker's or salesperson's license shall submit to a reasonable written examination. The Commission shall conduct examinations at places and times it prescribes. The Commission may contract with an independent testing agency to prepare, grade, or conduct the examination. A fee shall be charged for each examination taken by the applicant. No refund shall be made if an applicant fails the examination.

Amendments

In addition, Congress found that although racial complaints were becoming less frequent, a major problem was discrimination against families with young children, as well as the special needs of people with handicaps. To address these concerns, Congress passed sweeping amendments to the Act, which became effective March 12, 1989. Following is a synopsis of those amendments.

Agency Laws

In an attempt to further reduce confusion regarding agency relationships, individual states continue to enact legislation aimed at protecting both the consumers of real estate services and practitioners themselves. Some states are moving away from the concept of subagency and toward such concepts as "designated agency," under which a broker names a licensee to act as legal agent of the client.

Escrow Agent

In an escrow closing, a disinterested party is authorized to act as the closing or escrow agent, in charge of all closing documents, monies, and activities. The escrow agent may be any of the following (depending on state laws): - An attorney - A title company - An escrow company - An escrow department of a lending institution - A trust company.

Limited Agent

In some instances the licensee acts as a limited agent to both buyer and seller. This form of contract for services requires explicit and specific disclosures to both buyer and seller.Under this form of service contract, the licensee is a dual agent and must be careful to treat both parties fairly.

Informed Consent

Informed consent: A consumer's agreement to allow something to happen which is based upon full disclosure of facts needed to choose appropriate brokerage services. Licensee: Any broker, salesperson, or company.

Days per Month

January............31 February..........28 (leap year 29) March................31 April...................30 May....................31 June..................30 July....................31 August..............31 September.......30 October.............31 November........30 December........31

Three Appraisal Approaches: Approaches

Keep in mind that appraisal is an estimate of property value applying collected data in three appraisal approaches: 1. Market data approach; 2. Cost approach; and 3. Income approach. Each of these three approaches may yield a different value. The appraiser then reconciles the different values, applying accepted appraisal principles and methods. The result is an appraisal report.

Inspect the Property

Keeping the escrow officer informed of exact dates is very important, as he/she will be prorating and calculating certain expenses and credits, such as interest, taxes, rents, and insurance, and these will be calculated right up until the day of closing. Besides the paperwork which you must review and verify, you should inspect the property once again just prior to closing. Is everything the way you expect it to be? Have all the necessary repairs or other corrective work been done that were promised? This is important so that the buyer will not arrive at the new home and find unexpected and unwelcome surprises.

LESSON 7

Land, Tenements, Hereditaments & Estates

LESSON 45

Lease Contracts

Disciplinary Hearings: Disciplinary Action

Licensees may face disciplinary action for: - Failing, within a reasonable time, to properly account for or remit money coming into his or her possession which belongs to others, or commingling money belonging to others with his or her own funds; - Failing to deposit and account for at all times all funds belonging to, or being held for others, in a separate federally-insured account or accounts in a financial institution located in Alabama; - Failing to keep for at least three years a complete record of funds belonging to others showing to whom the money belongs, date deposited, date of withdrawal, and other pertinent information;

LESSON 61

Licensure

LESSON 8

Life Estates - Freehold Estate: Life Estate - Dower and Curtesy

LESSON 9

Life Tenants and Nonfreehold Estates

Federal Home Loan Mortgage Corporation (FHLMC) : Freddie Mac

Like the other organizations, FHLMC has a nickname, Freddie Mac, and likewise exists to increase the availability of mortgage credit and provide greater liquidity for savings associations. It achieves these objectives by purchasing mortgages. Freddie Mac was created by Congress in 1970 primarily to establish a reliable market for the sale of conventional mortgages. At this time, Fannie Mae purchased only a small number of conventional mortgages, although this number has now increased. Prior to Freddie Mac, lending institutions holding conventional mortgages were fairly well limited to the purchase and sale of these mortgages among themselves.

Determining Acreage

MATH SHORTCUT --- To calculate acres in a rectangular survey system description, multiply all the denominators and divide that number into 640 acres. For instance, the size of the SE1/4 of SE1/4 of SE1/4 of Section 1 = 4 x 4 x 4 = 64; 640 ÷ 64 = 10 acres.

Aspects of Use

Many economic principles may affect the value of real property. In establishing an estimate of value, an appraiser must consider four aspects of "use": 1. Possible use -- considers the physical characteristics of the property; 2. Permissible use -- the use legally available for the land under existing zoning, planning, deed restrictions, etc; 3. Feasible use -- the physical characteristics of the property and legal controls that make land appropriate for the market, neighborhood, and economic conditions; and 4. Highest and best use -- use that will produce the highest current value.

LESSON 19

Measurements and Survey Systems

Misrepresentation

Misrepresentation is the intentional or unintentional misstatement of facts. Misrepresentation can be the result of a misunderstanding of the facts by the person making the misrepresentation. A party to a contract who has relied on the misrepresented facts is legally entitled to rescind the contract, which is voidable.

Monthly Housing Expense

Monthly housing expense include: - Fixed mortgage payment plus deposits for hazard insurance premium - Real estate taxes and mortgage insurance premium - Owners' or condominium association charges, less the utility charge portion - Any ground rents or special assessments, and, payment under any secondary financing on the subject property.

Classification of Agents: Types of Agents

Most states recognize three classifications of agents: 1. Universal 2. General 3. Special The differences among the types of agency revolve around the authority given to the agent by the principal and the services to be provided.

LESSON 51

Net Income

Non-Property Characteristics

Non-property characteristics include the: - Date of sale; - Verified sales price; - Method of financing length of time on the market - Seller's motivation in the sale. The fewer adjustments that need to be made, the better the comparable indicates the subject property's value.

Out-of-State Co-Brokerage : Nonresident Cooperation

Nonresident may not act except in cooperation with licensed broker of Alabama. A licensed broker of another state may act as co-broker with a licensed broker of this state by executing a written agreement specifying each parcel of property covered by the agreement if the state in which the nonresident broker is licensed offers the same privileges to licensees of this state.

Nonrecourse Note

One situation in which deficiency judgments are not available to the lender is in the case of a nonrecourse note. This type of note typically is used in mortgage loans secured by commercial property. Nonrecourse means the borrower assumes no personal liability for paying the note. Therefore, the lender may look only to the property pledged in the mortgage to obtain the money owed in the case of default by the borrower. There are a few states that treat all mortgage notes as nonrecourse.

The Agency Relationship

Payment of money by one party to another party does not create an agency relationship. The creation and existence of an agency relationship between parties is normally determined by the contract terms agreed to between the parties. However, as will be discussed later, an agency relationship can also be created unintentionally by certain words and actions. The topic of agency has grown in significance in the past decade, not so much because of changing laws, although law changes have occurred, but because of changes in the expectations of home buyers.

Physical Deterioration

Physical deterioration results from wear and tear through use, such as wall-to-wall carpet that has been worn thin or a dishwasher, garbage disposal or water heater that must be replaced. Physical deterioration also results from the action of nature in the form of sun, rain, heat, cold and wind and from damage due to plants and animal life such as tree roots breaking sidewalks and termites eating wood. Other causes of physical deterioration include neglect and vandalism.

LESSON 43

Principles of Lending

An Estimate, Not a Determination

Professional fee appraisers concentrate their time, knowledge, and skill in appraising real estate. Even though real estate brokers and salespersons are not required to be professional appraisers, they need to have a working knowledge of the approaches to determining the value of property to be listed and sold. An appraisal is an estimate of value, based on factual data, on a particular property, at a particular time, for a particular purpose. An appraisal is usually required when real property is sold, financed, condemned, taxed, insured or partitioned. Note that an appraisal is an estimate, not a determination of value. An appraisal may be in the form of a lengthy written report, a completed preprinted form, a simple letter or even an oral report.

LESSON 18

Prorations

Punishment

Punishment for violating this law includes injunctions against operation of a business, a fine up to $50,000 for the first offense, and a fine of $100,000 for subsequent offenses. Be aware that individuals with AIDS, alcoholism, or mental illness are included in the category of people with a mental or physical disability that impairs any of their life functions.

Punitive Damages

Punitive damages or exemplary damages are not typically allowed in breach of contract cases. Punitive or exemplary damages are awarded for extremely bad behavior which will not be tolerated. An award of punitive damages is made most often in cases in which one party has taken fraudulent advantage of another.

Financing Statement

Rather than recording the agreement, the creditor would file a financing statement in the recorder's office. If the financing statement has been properly filed, the creditor, upon default, can repossess the chattel and remove it from the property. An example of this type of financing and security agreement is a farmer financing the building of grain storage bins. The lender does not take a mortgage on the land on which the bins are built but instead takes a security interest in the bins themselves.

LESSON 63

Real Estate Consumers Agency

Physical Characteristics: Pertaining to the Land Itself

Real property has specific characteristics that set it apart from other marketable and valuable commodities. These characteristics are both physical and economic. The physical characteristics of real property are: - Immobility - Indestructibility (permanence) - Nonhomogeneity (uniqueness) The physical characteristics define and pertain to the land itself.

Right of Survivorship and Inheritance

Right of survivorship means that if one (or more) of the co-owners dies, the surviving co-owner(s) automatically receive(s) the interest of the deceased co-owner. The last survivor of all of the co-owners owns the entire property in severalty. Right of survivorship defeats passing of title by will. Right of inheritance, by contrast, means that a co-owner's share of the real estate will pass at his/her death to his/her heirs or in accordance with his/her last will and testament.

SAM

SAMs have been around in various forms for many years. Along with adjustable rate mortgages, they drew thousands of customers during the early and mid-1980s because double-digit mortgage rates left people scrambling to lower their mortgage bills any way they could. Yet, most SAMs were handled through private investors or small lenders, and since then, experts say, they've fallen in popularity along with interest rates.

Loan Servicing

Sale of the mortgage by the lender does not in any way affect the borrower's rights or obligations. The original lending institution often continues to service the loan for the purchaser of the mortgage, and the mortgagor continues to make the necessary mortgage payments to the same lending institution that made the mortgage loan. The original mortgagor may not even be aware that the mortgage has been sold. If the purchaser of the mortgage prefers to service the mortgage, the original lender simply notifies the mortgagor to make payments to a different lender at a different address.

Types of Zones

Several types of zones may be established by local ordinances. - Residential, which can be subdivided into: - Single-family homes - Various levels or multi-family dwellings - Commercial - Light manufacturing - Heavy industrial - Multiple use or cluster zoning - Agricultural - Open space The last category provides for planned unit development (PUD), which creates a neighborhood of cluster housing and supportive business establishments with a percentage of open space protected.

End of Slavery

Shortly before the Civil War, the abolitionist movement gained strength. Abraham Lincoln's Emancipation Proclamation—at least on paper—marked the end of slavery, although it did little to advance modern day civil rights.

Artificial factors affecting land use:

Streets Highways Adjacent land use patterns Availability of public utilities Rail and air access Air and water quality

Holdover Clause

Such a clause is called a holdover clause. This usually results in the extended tenancy being treated as a periodic estate. In commercial leases, a holdover clause may have with it a severe penalty in the absence of renegotiation such as a doubling or tripling of the rent.

Taxes: Ad Valorem Tax

Taxes levied on real estate are known as ad valorem taxes, which means according to value. To figure the amount of tax on a parcel of real estate, you must know two things: The percentage of assessment relative to market value, and The tax rate. The tax is either based on a percentage of the value of the property or the total value. The tax is an annual amount

Mortgage Types: 15-Year Mortgage

The 15-year mortgage has gained popularity in recent years. In reality, this is a regular fully amortized mortgage with a 15-year term. By cutting the loan term from 30 years to 15 years, the borrower greatly reduces the interest paid, and therefore the cost of funds, for a moderate increase in monthly payment. The shorter term also provides for faster equity accumulation in the property.

Testing

The Fair Housing Initiatives Program authorizes the Secretary of HUD to provide funds for the purpose of testing fair housing violations. Under the program, HUD can hire private and public groups to test individual brokers, sales associates and real estate firms for discriminatory practices. As the result of the complaint (bona fide allegation) of a fair housing violation, federally-subsidized testers posing as purchasers or renters may visit the alleged offender. The purpose of the visit is to help determine whether the licensee or firm engages in discriminatory practices.

Minimum Standards

The Federal Communications Commission (FCC) has set minimum standards for TRS. The Act requires that television public service announcements, produced or funded in whole or in part with federal funds, must also be closed captioned for the hearing impaired. Title lV provisions are enforced by: Federal Communications Commission Office of Public Affairs 1919 M Street N. W. Washington, D.C. 20554

LESSON 58

The Law of the Land

LESSON 41

The Loan Process

LESSON 30

The Selling Process

Deadlines

The accepted offer to purchase is binding on the heirs and estates of the buyer and the seller. Upon the seller's acceptance of the offer to purchase, the buyer has equitable title in the real estate, which is an interest such that a court will take notice and protect the rights of the owner of the equitable title. Because most purchase contracts contain specific deadlines to be met, parties to the contract or agents of the parties must keep close track of the calendar. If it appears a deadline is not going to be met ... to keep the contract in force, all parties to the contract must agree to any extension and initial the extension as written on the purchase contract.

Adjustable Rate Mortgage: Index Fluctuations

The adjustable rate mortgage (ARM or variable rate mortgage) evolved as one solution to the uncertainty of future financial rates. With the ARM, the parties agree to float mortgage rates based on the fluctuations of a standard index. Common indices include the cost of funds for savings and loan institutions, the national average mortgage rate, and the one-year rate for the government's sale of Treasury Bills.

Officers of the Association

The bylaws set forth the officers of the association, who are usually owners of the individual units in the facility. They are elected by the individual unit owners and serve for the benefit of the whole. The bylaws also set out the method and procedure for amending the bylaws, declaration, and articles of association

Operating Statement

The capitalization rate can be described as a desired rate of return by the marketplace for a type of investment. The operating statement is: income, vacancy rate, and expenses are used in the analysis to produce the net income, which applies to the capitalization formula: Income ÷ Rate = Value.

Carry-Over Clause

The carry-over clause of the agreement is designed to protect the broker's right to a commission if the property is bought within a specified time by one of the broker's clients who had been shown the property. When a listing agreement has a clause of this type, the company should make sure the sellers receive a list of the names of each of the people who have seen the property through the effort of the broker.

Certificate of Registration

The certificate of registration of title contains the type of title the applicant has and sets forth any encumbrances against the title. One certificate is issued to the registrar of titles and the other to the titleholder who applied for registration of the title. The certificate of registration provides conclusive evidence of the validity of the title and it cannot be contested except for fraud. Title to properties recorded under the Torrens system cannot be obtained by adverse possession.

Complaints

The complainant(s) or respondent(s) who desire to have witnesses testify in their behalf may request that the Commission issue subpoenas for such witnesses by depositing with the Commission required funds in the form of a cashier's check or certified check, made payable to the Alabama Real Estate Commission. A per diem and mileage cost of witnesses for interested parties in a complaint hearing will be allowed.

Arms Length

The contract relationship between the parties is described as "arms length." The parties are not in an agency relationship. The parties are assumed to have equal bargaining power and equal ability from opposing viewpoints.

Real Estate Broker

The definitions of real estate broker and of real estate salesperson are fairly uniform in the various state licensing laws. A real estate broker is any person, partnership, association, or corporation who, for a payment or other valuable consideration: - Lists or offers to list - Sells or offers to sell - Buys or offers to buy - Auctions or offers to auction - Negotiates the purchase, sale or exchange - Leases or rents or offers to rent any real estate for others.

Check

The distance between the guide meridians and the correction lines is approximately 24 miles square and is referred to as a check. Because each township does not contain 36 square miles, surveyors follow established rules to adjust for the variation. Any overage or shortage in a township is adjusted in designated sections of that township. The sections adjusted are called fractional sections. All non-adjusted sections are called standard sections.

Replacement and Reproduction : Site Value

The first step in the cost approach is to estimate the value of the site as if it were vacant. The site value is estimated by the market data approach, which uses comparable parcels of land to arrive at the value estimate. As a basis for the land value, the site is compared to comparable parcels of land that have sold recently.

Physical Factors

The forces in the physical category are both natural and man-made. Natural physical factors that affect value are things such as: - Land topography; - Soil conditions; - Mineral resources; - Climate; and - Location. Man-made physical factors that affect value include: - Public utilities; - Streets; - Highways; and - Public transportation.

Net Income Formula

The formula is: Income ÷ Rate = Value. To arrive at the net income, the number used in the capitalization formula, various expenses must be subtracted from the gross effective income. These expenses are categorized into fixed expenses, operating expenses, and replacement reserves.

Alteration of Contract

The intentional cancellation or alteration of a written agreement has the effect of discharging the agreement. The alteration must be material and intentional. This frequently involves negotiable instruments such as checks, stocks, and bonds in which the date of payment, amount of payment, or changes in interest rates are altered.

Execution of Judgment

The lien takes effect at the time the judgment is entered in the court records. It also attaches as a lien to any real property the judgment debtor acquires after the judgment and prior to satisfaction of the judgment. The judgment lien is enforced by an execution of judgment, an order signed by the judge or clerk of the court instructing the sheriff to attach and seize the property of the judgment debtor. The sheriff then is to sell the property of the judgment debtor. Proceeds from the sale are applied to satisfy the judgment.

Life Estate: Ownership Lies with the Living

The life estate is a freehold estate that defines itself. It is ownership, possession, and control of a parcel of real estate for the life of someone. Ownership, possession, and control are contingent upon living, therefore the ownership, possession and control are lost at death. Because ownership terminates as soon as a person stops breathing, the heirs of the deceased owner will inherit nothing. Under a life estate, ownership lies only with the living.

Back to the Beginning

The metes and bounds description will continue to describe a series of courses and distances, each one corresponding to a boundary of the parcel being described, until the boundary has been described all the way around back to the point of beginning. A metes and bounds description must end at the point of beginning, otherwise it does not describe a totally enclosed tract.

Itemize Expenses

The next step is to itemize anticipated operating expenses for the subject property. These are expenses necessary to maintain the production of income. Again, we must consider both the property's past operating expenses and what we expect those expenses to be in the future. Not included as operating expenses are outlays for capital improvements, such as the construction of a new swimming pool, the expansion of parking facilities, and assessments for street improvements. Improvements are not classified as expenses because they increase the usefulness of the property, which increases the rent the property will generate and therefore the property's value.

Definite and Specific

The offer must be definite and specific in its terms. If the offer is vague and indefinite and subject to various interpretations, its acceptance will not result in a valid contract. The offer must not be illusory in nature. An offer that is indefinite and totally in the control of the offeror is illusory. Acceptance of an illusory offer will not result in the creation of a valid contract

Fee Simple Absolute Rights

The owner in a fee simple absolute may: - Grant, convey, or pass to another a life estate in reversion or in remainder (a reversion is an estate that returns to the grantor after the life estate terminates, where a remainder estate passes to a third party) - Pledge the property as a security for a mortgage debt - Convey a leasehold estate to another - Grant an easement in the land to another - Give item to another as a license to conduct some lawful activity on the property. Any one of these rights may be removed from the bundle while leaving the other rights intact. For example, if the owner pledges the title as security for a mortgage debt, the balance remaining is a fee simple title subject to the mortgage debt. Also, if the owner conveys an estate for years or conveys an easement in the property to another, the remaining rights are fee simple subject to a lease or subject to the existence of an easement.

Owner-Manager Relationship: Fiduciary Duty

The owner-manager relationship is established and defined by a management agreement. This contract creates an agency relationship wherein the owner is the principal and the property manager is the agent for the purposes specified in the agreement. This relationship imposes the same serious fiduciary duty as demanded of agents toward their principals in the sale of a home.

Negative Amortization

The potential long-term buyer may choose an ARM with a conversion feature allowing him or her to convert to a fixed-rate mortgage when interest rates are more favorable. A significant concern in an ARM is the possibility of negative amortization. When the index rises, and if the payment is fixed, it may cause the payments to fall below the amount necessary to pay the interest required by the index. This shortfall is added back into the principal, causing the principal to grow larger after the payment.

Title Opinion

The preparer of the abstract certifies that all recorded matters relating to the real estate in question are included in the abstract. When the abstract is completed, an attorney must examine it to assure that the chain of title is unbroken and clear. The attorney then gives a written certificate of title opinion as to what person or entity owns the real estate and the quality of title. The abstractor certifies that the public records have been searched. The attorney certifies that the abstract has been examined and states the quality of title and exceptions, if any, to clear title. Title insurance policies are issued by the same companies that prepare abstracts of title. The company issuing the insurance policy checks the same public records as abstractors do to determine if it will risk insuring the title.

Third Parties

The principal of an agency agreement has no express contract with anyone except the agent. The principal, however, does have a common law duty of disclosure and fairness to any third parties. This duty complements the duty the principal has to the agent for revealing all information that affects the agency agreement. This duty requires that the principal disclose completely any and all information that has a bearing on the subject of the agency agreement. The seller's duty to disclose to the broker any and all hidden defects known by the seller also extends to any buyer brokers, prospective buyers, and subagents of the listing broker.

Property Appraisal

The property appraisal is an estimate of value that the underwriter must evaluate. Some of the major considerations the underwriter must include in this evaluation process are: - Neighborhood - Site analysis - Improvements - Economic life - Valuation Based on the gathered data, the appraiser makes a final reconciliation of value. This is the appraised value, and the underwriter, after totally reviewing and evaluating the appraisal, makes his/her own conclusion as to value.

Regulations

The regulations pertaining to residential appraisers and appraisals are the first mandatory federal regulations in the field. The federal regulations apply to mortgage loans packaged for sale to the regulated secondary mortgage market. As of July 1, 1991, lenders who wished to sell mortgages to the secondary mortgage market were required to use only appraisers certified by the state in which the appraised property is located, and all appraisals so used must meet the new federal criteria. Similar regulations have been implemented for commercial appraisals pertaining to federally related transactions. While mathematics is a helpful tool in making an appraisal, the final opinion of value is based primarily on the experience and training of the particular appraiser.

Estates

The relationship of landlord and tenant exists between the parties. These estates may be called estates, tenancies, or leaseholds. A less-than-freehold estate that a tenant possesses in real property is a leasehold, and the landlord possesses the reversion estate. That is when the lease terminates, the property reverts to the landlord. Leasehold estates are generally classified as estates in personal property.

Expiration

The renewal form shall be mailed by the Commission to the licensee's place of business, if an active licensee, or to his or her residence if an inactive licensee, prior to August 1st of the final year of each license period. Each licensee shall notify the Commission in writing of any change in his or her business or residence address within 30 days of the change. Every license shall expire at midnight on September 30th of the final year of each license period. An expired license may be renewed during the 12-month period following the license period for which the license was current. An inactive license must be renewed in the same manner as an active license.

Temporary Licenses: Post License

The salesperson's temporary license certificate shall be returned to the Commission in order for an original (permanent) license to be issued. A temporary license holder cannot begin to earn post license credit until after the Alabama temporary license has been issued. The license holder must provide the temporary license number to the instructor before he/she will be allowed to begin the post license course.

Retain Statements

The seller must acknowledge receipt of the estimated and the actual closing statements by signature on the form. For purposes of records retention, it is sufficient that each licensee retain in his or her qualifying broker's file the statements required of him or her under this rule. It is not necessary that cooperating brokers maintain both buyer's and seller's statements.

Types of Policies: Insurable Title

The title insurance policy is issued only upon an acceptable abstract or title opinion. A title that is acceptable to the title insurance company is called an insurable title. The premium for a title insurance policy is a one-time premium paid at the time the policy is placed in effect. In some parts of the United States, it is customary for the seller to pay the cost of both the title search and the insurance. In other parts, the seller pays for the search and the buyer for the insurance. In a relatively few instances, the buyer pays for both.

Types of TRS

There are several types of TRS available. Any of these may be initiated by an individual with a hearing or speech disability, or by a conventional telephone user. - Text-to-Voice TRS - Voice Carry Over (VCO) -Hearing Carry Over - Speech-to-Speech Relay - Video Relay Services - Spanish Relay Services - 7-1-1 Access to TRS

An Increasing Threat

There are two underlying reasons why indoor contaminants have become more of a threat over the years: 1. Our houses are generally better sealed and insulated to make them more energy efficient. Buildings that are sealed to promote energy efficiency also can seal in pollution. Without proper ventilation, homes can accumulate all sorts of pollutants 2. Since research also shows that people currently spend approximately 90% of their time indoors, exposure to indoor pollutants is extensive. Of that time, says the American Lung Association, 65% is spent inside our houses.

Renewal: Documentation of Credits

There is a declaration on the renewal form that states the licensee will have complied with continuing education requirements by September 30th. If they do not, then they must return their new license to be placed on inactive status until the requirements are met.

Logo Not Necessary

There two situations where the use of the Equal Housing Opportunity logo is not necessary: 1. "Classified advertising," that is primarily text and in the classified section of a regularly published newspaper or magazine does not require the inclusion of the slogan or logo if the ad is less than 4 column inches; or 2. If the HUD Publisher's Notice appears at the beginning of the classified advertising section of the newspaper or magazine.

Mortgage Agencies

Three organizations that actively participate in purchasing mortgages from financial institutions are the: - Federal National Mortgage Association (FNMA) - Government National Mortgage Association (GNMA) - Federal Home Loan Mortgage Corporation (FHLMC).

Title I : Employment

Title I requires employers with 15 or more employees to provide qualified individuals with disabilities with an equal opportunity to benefit from the full range of employment-related opportunities available to others.

Fraction or a Decimal into a Percent

To change a fraction to a percent, first divide the numerator by the denominator. Make the result a decimal. Then, move the decimal point two places to the right and add the percent sign. EXAMPLE: 1/4 = 0.25 = 25% 2 and 3/4 = 2 + 0.75 = 2.75 = 275%

Title VI to the Civil Rights Act of 1964

Two years later, Congress enacted Title VI to the Civil Rights Act of 1964, which prohibited discrimination in programs receiving federal financial assistance. Once again, this Act had little effect since it did not prohibit discrimination in the private housing market.

Typical Violations

Typical violations that subject a licensee to revocation or suspension of the license are: - Obtaining a license under false or fraudulent representation - Having been convicted or entering a plea of no contest upon which a finding of guilty and final judgment has been entered in a court of competent jurisdiction, for criminal offense of embezzlement, obtaining money under false pretenses, conspiracy to defraud, forgery, or any similar offense involving moral turpitude - Making any substantial and willful misrepresentation. For a broker or salesperson to make an intentional false statement regarding an important matter in a real estate transaction to induce someone to contract is a violation - Indicating knowledge of an important matter in a real estate transaction when the broker or salesperson actually has no such knowledge. For example, the agent is in violation by telling a buyer that a house is well-insulated when the agent does not know whether the house is or is not insulated or knows for a fact that the house is not properly insulated. It is also a violation if the agent should have known the facts because of his or her training and knowledge as a real estate agent; - Making any false promises of a nature likely to influence, persuade or induce someone to contract. A false promise is simply an untrue statement of intent to a party that something will or will not happen in a real estate transaction when the licensee knows that just the opposite is true. A licensee who promises something when he or she does not know whether the promise will be kept is in violation of license law - Pursuing a course of misrepresentation or making false promises through others - Acting for more than one party in a transaction without the knowledge and consent of all parties for whom the licensee acts. For a real estate broker to represent both a buyer and seller in a real estate transaction without informing both parties of such dual representation and obtaining their agreement is a violation - Failing to account for and remit funds belonging to others that have come into the licensee's possession. All brokers must maintain trust accounts or escrow accounts in insured banks or thrift institutions for depositing other people's monies - Brokers are prohibited from commingling the funds of others with their business or personal funds. Brokers are required to maintain adequate records regarding the deposit and disbursement of funds from the escrow or trust account. Salesperson licensees are required to promptly remit to their supervising broker all funds belonging to others that come into their possession - Accepting compensation from someone other than one's supervising broker - Paying an unlicensed person a commission or valuable consideration for services in a real estate transaction. Paying an unlicensed person compensation for services in a real estate transaction is just as much a violation of the license law statute as is the unlicensed person's receiving the compensation. Both payor and payee are in violation of the law; - Performing or attempting to perform any legal service prohibited by the state statutes concerned with the unauthorized practice of law. A licensee may not prepare legal documents such as deeds or mortgages, may not give an opinion as to the legal validity of any document or the legal rights of others, and may not perform a title examination and render an opinion as to the quality of the title. In essence, a licensee may not perform any service that must be performed by an attorney-at-law unless the licensee is an attorney-at-law in all legal matters affecting buyers and sellers. The licensee should recommend that the parties retain the services of a competent attorney - Failing to deliver all necessary documents to buyers and sellers in a real estate transaction. Licensees are required to present every written offer to the seller. It is the seller's prerogative to accept or reject any offer. Licensees also are required to provide to the buyer and the seller copies of all documents executed by buyer, seller or both. The buyer must receive a copy of the offer, and both buyer and seller must receive copies of the executed contract. The seller always must be given a copy of the listing contract. In addition, copies of any other documents - such as options, contract for deed, or contracts for lease - must be provided to all parties to the agreement - Failing to deliver to buyer and seller completed copies of closing statements reflecting the receipt and disbursement of funds in a real estate transaction. License law statutes may not require brokers to prepare closing statements, but they often hold brokers responsible for delivering these statements even though they are prepared by someone else - Violating any rule or regulation promulgated by the licensing board or commission. The rules and regulations usually are incorporated into the statutes by statutory reference, which makes a violation of the rules and regulations a violation of law. The rules and regulations have the effect of administrative law - Violating the fair housing laws. The federal fair housing laws make discrimination based on race, color, sex, familial status, handicap, religion or national origin illegal in connection with the sale or rental of most dwelling and any vacant land offered for residential construction or use.

Logo and Poster

USE OF EQUAL OPPORTUNITY LOGOTYPE, STATEMENT OR SLOGAN. According to HUD's regulations, all advertising of residential real estate for sale, rent, or financing should contain an Equal Housing Opportunity logotype, statement, or slogan. This acts as a means of informing the public that the property is available to all persons regardless of race, color, religion sex, handicap, familial status, or national origin. FAIR HOUSING POSTER. HUD's regulations require certain businesses (including brokerage companies and any business providing federally-subsidized housing) to display a fair housing poster in their office. A court can view the failure to display the poster as an element in finding a person in violation of the Fair Housing Act.

Seller Obligations: Compensation and Cooperation

Under an agency agreement the principal is obligated to the agent for: -Cooperation -Compensation -Indemnification. The agency agreement should clearly set out the amount of compensation to be paid and conditions that must be met to earn the compensation. Because an agency agreement is for providing services to the principal by the agent, the principal must not hinder the agent's efforts in providing services. For example, the seller of listed property must not refuse to allow the broker to show the property to prospective buyers in accordance with terms of the listing.

Rent: Rent Strike

Under the common law of landlord--tenant relationships, withholding rent was not allowed for any reason. Today, in jurisdictions that have adopted specific landlord--tenant legislation, withholding rent or a rent strike is sometimes allowed.

Brokerage Contract

Under the listing agreement, the seller engages a broker to assist in selling or renting real estate that the principal owns. A brokerage contract also can be created between a prospective buyer and the broker. Under that agency agreement, the buyer is the principal. Under buyer brokerage the services typically involve finding a suitable property for the buyer to purchase, as well as assisting the buyer through all phases of the transaction and closing. Whether it is between broker and seller or broker and buyer, the typical brokerage contract is a special agency with narrow authority. Every agency relationship is a contractual relationship. Thus, the authority given to the agent must be expressed in the brokerage contract. The principal controls the extent of authority delegated to the agent through the language in the brokerage contract.

LESSON 40

VA Loans

Water Rights

Water rights in real property include: - Percolating water rights - Surface water rights - Riparian water rights. Percolating water is the water underground, which can be drawn by wells. Landowners have the inherent right in that land to draw out the percolating water for their own reasonable use. Local health codes may restrict that use.

Important Things to Know

What you need to know when prorating: What calendar to use. Is the expense paid in arrears or in advance? Who will pay the expense or who has paid it? Who has earned or received income? When will the expense be paid?

Simplified Process

When a lien or encumbrance is removed, its notation on the certificate is canceled. In this manner, the entire concept of constructive notice for a given parcel of land is reduced to a single-page document open to public view at the registrar's office. The Torrens system is designed to make the whole process of title transfer much simpler and cheaper.

Agency Disclosure: Initial Contact

When engaged in any real estate transaction, the licensee may act as: - A single agent, - Sub-agent, - A limited consensual dual agent, or - A transaction broker. At the initial contact between a licensee and the consumer and until such time a broker enters into a specific written agreement to establish an agency relationship with one or more of the parties to a transaction, the licensee shall not be considered an agent of that consumer. An agency relationship shall not be assumed, implied, or created without a written bilateral agreement establishing the terms of the agency relationship.

Co-Brokerage Agreement

Whenever an Alabama broker enters into a co-brokerage agreement with a nonresident broker to perform in Alabama any of the acts, the Alabama broker shall file within 10 days with the Commission a copy of each such written agreement. By signing the agreement, the nonresident broker agrees to abide by Alabama law, and the rules and regulations of the Commission; and further agrees that civil actions may be commenced against him/her in any court of competent jurisdiction in any county of this state in which a claim may arise. An Alabama licensed broker may enter into a co-brokerage agreement with a broker of another state, subject to the provisions of Code of Ala. 1975, Section 34-27-3. The Alabama broker shall require a listing or joint listing of the property involved. The written co-brokerage agreements required by Code of Ala. 1975, Section 34-27-3, shall specify all material terms of each agreement, including but not limited to its financial terms.

Reappraisal Lease

With a reappraisal lease, changes in rental amounts are based on changes in property value, as demonstrated by periodic reappraisals of the property. These appraisals may occur at three or five year intervals in the case of a long-term lease. The rent changes a specified percentage of the previous year's rent as spelled out in the lease.

Liability for All Parties

With regard to both indoor and outdoor environmental hazards, all parties to a real estate transaction could incur liability. Innocent landowners might be held responsible for clean-up costs, even though they did not create or know about an environmental hazard. Lenders may end up with worthless assets if owners default on loans rather than undertake expensive clean-up efforts. Sellers can face liability for not disclosing known hazards. Because real estate agents can also be held liable for improper or incomplete disclosure, they must be aware of potential environmental risks both on and off a property, and bring those risks to the attention of the purchaser.

Alienation Clause

Wraparounds work only when the existing first mortgage is assumable. If the existing first mortgage contains a due-on-sale or alienation clause, a wraparound mortgage cannot be used. The alienation clause provides that the existing first mortgage must be paid in full if the title to the property is transferred by the first mortgage borrower without the lender's authorization. Lenders will often give their approval provided the interest rate on the existing mortgage is increased to the current rate charged by the lender.

Example 1:

Your customer wants to buy a home selling for $88,000. The financing requires a 15% down payment. How much is he/she required to put as a down payment? Use the memory formula: Total x Rate = Part Answer: $88,000 x 0.15 = $13,200 down payment.

LESSON 15

Zoning

Zoning: Ordinances

Zoning begins with city or county planning, and zoning laws implement and enforce the plan. Violations of zoning laws can be enforced by fines, corrected by a court injunction requiring the violation to be discontinued, or corrected by extreme measures such as demolishing an unlawful structure. Zoning ordinances consist of two parts: 1. The zoning map, which divides the community into various designated districts; and 2. Text of the zoning ordinance, which sets forth the type of use permitted under each zoning classification and specific requirements for compliance.

Formal Complaint

A Formal Complaint drawn by the Commission shall include at least the following: The name(s) of the party (or parties) against whom the complaint is being made; The legal authority and jurisdiction under which the charge is made; The type of license(s) held by the accused party (or parties) and the date each license was issued, and/or in the case of a charge of a violation by a time-share developer or owner, the date the respective time-sharing plan was registered; The particular section(s) of the law and/or the specific rule or order alleged to have been violated; and A brief description of the act(s) or omission(s) upon which each allegation of violation is made.

Servicing Transfer Statement

A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer. Generally, the loan servicer must notify the borrower 15 days before the effective date of the loan transfer. As long as the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.

Suggested Price

A competitive market analysis is a side-by-side comparison of homes with similar features that were recently sold in the area. Part of the listing presentation is to suggest a price for the listing. This price is determined by comparing the listed property to similar properties: - Recently sold - Currently available on the market - Properties that were on the market but did not sell (expired listings).

Interpretation

A contract that is clear, concise, and unambiguous will rarely become the center of a dispute requiring interpretation by a court. However, when a contract is unclear, ambiguous or confusing, a dispute between the parties may arise requiring court interpretation. The court has established rules for contract interpretation. These rules do not allow the court to amend or change a contract between parties. The court cannot add terms to the contract.

Executory Contract

A contract that is not fully performed or completed is called an executory contract. In real estate, most contracts begin as executory. A mortgage is an executory contract whereby the borrower pays money over a term of years to the lender. The action yet to be done—the monthly payments—will go on for years. The best example of an executory contract may be the contract of sale itself, prior to closing.

Statute of Frauds

A contract will be unenforceable if it does not satisfy the Statute of Frauds, which requires that all real estate contracts of sale or exchange be written and contain all of the essential elements for a valid contract. All real estate contracts fall under the Statute of Frauds, including: - Contracts to buy and sell real estate - Options - Contracts for deeds - Contracts for the exchange of real estate.

Return of License

A corporation, partnership or individually-owned company may withdraw consent for a broker or salesperson to continue doing business in its name by notifying the Commission and the broker or salesperson in writing, and returning to the Commission the license of the broker or salesperson for whom consent is withdrawn.

Fee Simple Defeasible

A defeasible estate is ownership with a condition or limitation attached. Defeasible means destructible or defeatable. A frequent use of defeasible freeholds occurs when someone wishes to donate land to a church, school or community for a specific purpose. The two types of fee simple defeasible estates are: - Fee simple subject to a condition subsequent; - Fee simple determinable.

Local Approval

A developer of a subdivision must first comply with the subdivision regulations of the county or municipality in which the property is located. Upon local approval and posting of any required improvement completion bonds, the subdivider usually must then register his or her subdivision with the proper state agency before beginning to sell.

Legal Capacity

A grantee, the person receiving title, does not have to have legal capacity. A minor or a mentally incompetent person can receive and hold title to real property. These people, however, cannot convey title on their own, because they are not qualified to be grantors. To affect a conveyance of title held in the name of an incompetent, a guardian's deed must be executed by the incompetent's guardian as a grantor. The conveyance by the guardian may only be accomplished with court authority.

Ranges

A grid is established with range lines running parallel to the principal meridian at 6-mile intervals on each side of it, and township or tier lines running parallel to the base line at 6-mile intervals north and south of it. Ranges are bounded by the vertical range lines, the principal meridian being the first. Range 1W is the first six-mile-wide strip of land to the west of the principal meridian. R2W would be a strip of land between six and twelve miles west of the principal meridian.

Death

A lease agreement typically does not terminate upon the death of the landlord or the tenant. The type of leasehold existing between the landlord and tenant determines whether the lease survives a death of a party. The lease agreement does not terminate upon a landlord selling the premises. The new owner is bound by the terms of the lease.

Legal Description

A legal description is defined as information that a qualified surveyor can use to find the property and mark each corner. There are four accepted methods of describing real estate: 1. metes and bounds 2. rectangular survey system 3. recorded plat of subdivision 4. monuments and markings.

Right to Estovers

A life tenant has certain responsibilities. Basically, the individual must preserve and protect the estate for the benefit of the remainderman or reversionary interest. The life tenant, however, has a legal right called the "right to estovers." This right provides that the life tenant may cut and use reasonable amounts of timber from the land to repair buildings or to use for fuel on the property, but not for profit. A violation of the right of estovers is called an "act of waste."

Creation of a Valid Deed

A mistake in the spelling of the grantor's name or signature will not invalidate the deed if the grantor's identity is otherwise clear. If there are multiple grantors, each must be named as a grantor in the deed to convey his or her interest, or each may convey separately in separate deeds.

Mortgage

A mortgage is a document pledging a specific property as collateral for payment of a debt. In most cases, the debt was incurred to purchase the property specified in the mortgage. The property is placed as security. If the borrower does not pay the debt as promised, the lender can foreclose the mortgage by having the property sold at public auction. Proceeds from the sale are utilized to satisfy the liens in order to priority.

Multiple Listing Service: Pools of Listings

A multiple listing service (MLS) is a system that pools the listings of all member companies. Members of the MLS are authorized to show any of the properties in the pool, an arrangement that greatly expands the offerings they may show to prospective buyers, as well as extending the marketing of their own listings. The pooling of listings is an offer of cooperation and compensation to all MLS members whether acting as subagents of the listing broker or buyer agents. The pooling is not a blanket offer of subagency.

Consumer

A person who obtains information, advice, or services concerning real estate from a real estate licensee.

Plus and Minus Adjustments

A plus adjustment to a comparable is made when the comparable is deficient in some respect when compared to the subject property. A minus adjustment is made to a comparable when it contains an additional feature that the subject property does not, rendering the comparable superior to the subject property. When comparing the properties, it will usually become apparent that some comparables are more like the subject property than others. The correlation process gives the appraiser the opportunity to assign more weight to the more similar comparables and less to the others.

Industrial Properties

A professional manager can also handle industrial developments and industrial parks. Property managers must be aware of the transportation systems and utility services available in the area. In addition, they must be knowledgeable about: - Tax rates; - Tax incentives; - Available labor force; - Commercial financing; and - Community services.

Sole Proprietorship

A sole proprietorship is simply a business owned by one individual. All profits and losses are reported directly on his or her personal income tax return. A sole proprietorship is easy to organize and flexible to operate. It is frequently used in real estate brokerage. An individual proprietor may run a brokerage company if he or she has a valid broker's license. There is a growing tendency for sole proprietors to incorporate and thus take advantage of certain tax and fringe benefits, such as those provided by pension and profit-sharing plans. An individual may use his or her own name as the name of the business or may assume a name for business purposes. Under the assumed name, the owner is sometimes referred to as DBA (doing business as) or AKA (also known as) or a fictitious name.

Special Agent

A special agent has narrow authorization to act on behalf of the principal. An example is a real estate broker who has a listing on real estate. The broker can market the property for sale but cannot make decisions as to things such as price, repairs or financing. A special agent cannot bind a principal to a contract. The range of authority is specialized and limited and the services provided are similarly specialized and limited.

Right of Survivorship

A special characteristic of joint tenancy is the right of survivorship. When one joint tenant dies, his or her share goes automatically to other surviving joint tenants equally, instead of passing to the heirs of the deceased. A joint tenant therefore cannot convey ownership by will. By acquiring as a joint tenancy, each joint tenant gives up the right of inheritance (control over passage of the property).

Uniform Commercial Code

A special situation occurs when a property owner has financed the purchase of a piece of personal property. The Uniform Commercial Code, adopted in most states, provides for the lender to retain a security interest in the personal property or chattel until the lender is paid in full. The security interest is available to the lender even though the chattel is installed in real property. The security interest is created by an instrument called a security agreement. Section 9 of the UCC provides that where a chattel is purchased on credit or is pledged as security, a security interest is created in the chattel by the execution of a security agreement.

Brokerage agreement

A specific written agreement between a brokerage firm and a consumer which establishes a brokerage relationship. The brokerage agreement shall contain a statement of the terms and conditions of the brokerage services to be provided.

Void and Voidable: Void Contract

A void contract has absolutely no legal force or effect even though all of the essential elements for a contract exist. If void, no contract obligation exists for either party. Two circumstances cause a contract to be void: the purpose of the contract is illegal or impossible. For example, a contract between two people to murder a third person for money is void. The purpose of the contract is illegal. Neither party is obligated by the terms to which they have agreed. No contract exists.

Voidable Contract

A voidable contract may or may not be enforceable between the parties. It results from the failure of the contracting parties to meet some legal requirement in negotiating the agreement. Usually in the voidable contract situation, one party to the contract is the victim of wrongdoing by the other party. For example: Mr. Smith contracts to buy property owned by Mrs. Brown. Mrs. Brown states that the property has no defects when she knows the septic system does not function properly. Mr. Smith relies on Mrs. Brown's statement and buys the property. Mrs. Brown has committed fraud (intentional lying), thus Mr. Smith can choose to complete the contract or choose to nullify the contract.

Agency agreement

A written agreement between a broker and a client which creates a fiduciary relationship between the broker and a principal, who is commonly referred to as a client.

Taxes

Accrued real estate taxes that are assessed but not yet due are typically prorated to the day of closing, with the seller having a debit and the buyer a credit for the amount owed as of the day of closing. In prorating rent, the seller typically receives the rent for the day of closing.

LESSON 20

Agency and Brokerage Relationships

Expiration

All appointments shall expire on September 30th of the final year of a term, or on the date a successor to the member is appointed and confirmed. If a member does not serve his or her full term, the Governor shall appoint, in the same manner as original appointments are made, subject to confirmation by the Senate, a member to serve the unexpired portion of the term. The Governor shall appoint one new member to the Commission, subject to the confirmation of the Senate, who shall be an African-American member who: - Meets all of the other requirements; - Shall serve no more than two consecutive terms of office; - Shall be a full voting member; and - May be appointed from any congressional district in the state. Each successor African-American member shall be appointed from a different congressional district, to be rotated equally among the remaining congressional districts.

Housing Discrimination

Although some states and municipalities enacted fair housing laws, the federal government neglected to pass any laws to prevent housing discrimination. In fact, to a certain extent, the federal government was counterproductive in efforts to defeat segregation.

Amortization

Amortization provides for paying a debt by installment payments. A portion of each payment is applied first to the payment of interest and the remainder to reduction of principal. The interest is computed only on the outstanding principal balance unpaid at the time of an installment payment, not on the original balance. This is called simple interest. The rate of interest is an annual percentage rate (APR) as specified by the note and mortgage. The interest rate is calculated by: Multiplying the annual percentage rate by the unpaid principal balance and dividing the result by 12 (months) to determine the amount of interest due and payable for any monthly installment.

Place of Business

An application for a company license for a corporation, partnership, or branch office shall be made by a qualifying broker on a form prescribed by the Commission. The qualifying broker shall be an officer, partner, or employee of the company. An applicant for a company or broker license shall maintain a place of business. If the applicant for a company or broker license maintains more than one place of business in the state, he or she shall have a company license for each separate location or branch office. Every application shall state the location of the branch office and the name of its qualifying broker.

Actual Sales

An appraisal is only concerned with actual sales, not listings. A CMA is similar to the market data approach of a true appraisal. The National Association of REALTORS® has published a comparative market analysis form and there are many similar forms used by relocation companies. A CMA is a comparison of properties and is prepared in a similar fashion as the market data approach. The procedure in preparing a CMA is to select homes that are comparable to the subject property. The greater the similarity, the more accurate the analysis will be and the more likely it is that the client will accept the agent's estimate of value and counsel.

Escalated Lease

An escalated lease, usually a gross lease, provides for rental changes at agreed--upon intervals. This will be in proportion to changes in the lessor's cost of ownership and operation of the property. As the lessor's obligations for the real property taxes and operating expenses change, the lease rent changes in specified proportions.

Example of Fraud

An example of a fraudulent statement: A prospective buyer asks the listing agent of a property if the house has termites. Actually knowing that the house has termites, either by his own personal inspection or by a report from an independent inspector, the agent tells the prospective buyer that there are no termites. The agent has committed fraud. Based upon this misstatement of facts, the prospective buyer may rescind any contract entered into. The listing agent also could be held personally liable to the buyer for any damages arising from the falsehood or face disciplinary action.

Proper Maintenance

An example of landlord negligence is if the landlord assures the tenant that all plumbing is properly maintained at the premises and the plumbing then ceases to function because of improper maintenance. As a result of the faulty plumbing, the tenant's possessions are damaged. Negligence law does not apply where, through no lack of maintenance, the plumbing ceases to function or if the plumbing ceases to function as a result of the tenant's action and damage occurs to the tenant's possessions.

Scarcity

An important economic characteristic of real property is its scarcity, its availability or lack of availability. It follows the principle of supply and demand, which states that the greater the supply of any commodity in comparison to demand, the lower the value will be. In appraisal terminology, a lack of supply of some type of real property, the supply of which cannot readily be increased, creates scarcity. Scarcity results in increased value when demand exceeds supply. Land is a commodity that is in fixed supply; no additional supply of land is being produced to keep pace with the ever-increasing population and not all land is suitable for human use.

Lawsuits

An individual can be fined $25,000 or $50,000 without limitation of time periods if he or she engages in multiple discriminatory practices. The aggrieved party, with or without filing a complaint to HUD, may bring a civil suit in Federal District Court within one year of the alleged violation of the Act unless a complaint has been filed with HUD, in which case the period is two years. If the aggrieved party wins the case, the court may issue an injunction against the violator, and award actual damages and punitive damages with no limitation by the statute.

A Security

An investment is a security, as defined by the Federal Securities Act of 1933 if: - It is an investment of money - The investment is a common or joint enterprise - The investment is undertaken for the purpose of making a profit - The investment is one in which profit will be derived solely or substantially from the management efforts of others. All of these must apply for it to be defined as a security.

Termination of Offer

An offer may be terminated by: - expiration of a time limit specified by the offeror prior to acceptance; - death or insanity of either the offeror or the offeree prior to acceptance; - or revocation of the offer by the offeror prior to acceptance and notification of that acceptance. Just as contracts are created by agreement of the parties, any executory contract can be terminated by agreement of the parties. This is typically called a release of contract. The release is itself a contract and thus must have consideration to be valid. The consideration is found in the relief from the obligations under the original contract. The release also must be voluntarily given and with full knowledge of all material facts.

Open-End Mortgage

An open-end mortgage allows additional borrowing without rewriting the mortgage or incurring additional closing costs. The original mortgage provides the security for additional funds to be advanced to the borrower up to a specified amount and sometimes functions as a line of credit. This is not the typical residential first mortgage, but home equity loans that became instantly popular in 1987 with the new tax law, may be considered in this category. These loans are currently a popular form of junior financing.

Owner Exemption

An owner of real property is exempted from the licensing requirements when managing his/her own property or consummating a real estate transaction involving his/her own property. As used in Code of Ala. 1975, Section 34-27-2(b)(1), the term "owner" is defined as the individual owner himself/herself, or in the case of a corporation or partnership, a partner or corporate officer, who has authority to and does make management decisions affecting the overall policy of the corporation or partnership.

Unintentional Misrepresentation

An unintentional misrepresentation occurs when the seller's broker makes a statement to the buyer about the property, and the broker does not know whether the statement is true or untrue. In either case, the broker is liable to a customer who suffers a loss as a result of acting or failing to act in reliance upon the misrepresentation. The broker is not excused from liability for making a misrepresentation based upon statements the principal makes to the broker. This liability varies in different states so check your state's law in the separate state section of this course. In some states the broker is required to make a personal diligent investigation before passing on information of any type.

Modification by Improvement

Another factor that has increased the economic supply of land is the improvement and expansion of our public air, water, sewer, and land transportation systems through construction of highways, bridges, water reservoirs, purification plants, and public utilities. Accomplishments in construction and transportation have converted land that was previously useless into land that now can be utilized.

Recovery Fund Fee Exemption

Any licensee whose original license is issued on inactive status shall not be required to pay a Real Estate Recovery Fund fee for that license until such time as the license is activated. For such a license to be activated, the initial Recovery Fund fee and any supplemental Recovery Fund fee shall be submitted to the Commission along with all other appropriate documentation and fees.

Eligible Institutions

Any member of the system and any other financial institution whose deposits or accounts are insured by an agency of the federal government is eligible to sell mortgages to Freddie Mac. Although Freddie Mac purchases residential conventional mortgages primarily from savings and loan associations, it also purchases residential conventional mortgages from mutual savings banks and commercial banks.

Finding the Area

Area of a rectangle = length x width Area of a triangle = 1/2 (base x height) EX: Area of a triangle 5' high x 5' wide = (5 x 5) ÷ 2 = 12.5 square feet. The area of an irregular figure can be found by dividing it into regular figures (i.e. rectangles, squares, or triangles), then computing the area of each regular figure and adding all the areas together to obtain the total area.

Available Funds

As a result: - The lender with otherwise idle funds has them invested in mortgages earning interest; - The lender in short supply of money frees up capital invested in mortgages to meet the high demand for new mortgage loans in that area; and/or - The direct sale of loans from investor to investor is legal and occurs relatively frequently, especially among small investors who sell to larger investors.

Subagency: Subagents

As indicated earlier, the principal may authorize the agent to use other people to assist in accomplishing the purpose of the agency. These people are subagents and owe the same fiduciary loyalties to the principal as are owed by the agent. In the case of seller agency, those practitioners accepting subagency status agree to represent the best interests of the seller. In working with buyers, these subagents of the seller must offer customer-level service only. The concept of subagency was once tied closely to use of the MLS. Until recently, the MLS required that cooperating brokers accept subagency status, but this policy is no longer in effect. The MLS permits subagency but does not require it.

Neutrality

As might be expected, maintaining this balance of neutrality is difficult because the responsibilities to both buyer and seller are difficult to define. Brokers who choose to engage in dual agency may find that when the transaction has ended, either client may think the other received more effective representation and may challenge the broker's actions in court. Because of the difficulties of achieving successful dual agency, this agency relationship is discouraged and usually prohibited without full disclosure and consent of both buyer and seller.

LESSON 35

Asbestos & Formaldehyde

A Carcinogen

Asbestos has been identified as a carcinogen. Once ingested, asbestos fibers lodge in the lungs. Because the material is durable, it persists in tissue and concentrates as repeated exposures occur over time. It can cause cancer of the lungs and stomach among workers and others who have experienced prolonged work-related exposure to it. The health effects of lower exposures in the home are less certain; however experts are unable to provide assurance that any level of exposure to asbestos fibers is safe.

Oral Contracts: Enforceable

Because of the potential for misunderstandings in oral contracts, all states have adopted the Statute of Frauds. This law states that contracts involving the creation of an interest in real property or the conveyance of an interest in real property must be in writing to be enforceable. "Enforceable" means that a party to the contract may ask the court to order that the terms of the contract be carried out.

Budgets

Before rental of a project can be organized and structured, the following budgets should be put into place: - operating budget; - capital reserve budget; and - stabilized budget. The budgets are always subject to adjustments, particularly in the first months of a project. The operating budget is an annual budget and includes only the items of income and expense expected for week-to-week operation. The capital reserve budget is a projected budget over the economic life of the improvements of the property for variable expenses such as repairs, decorating, remodeling, and capital improvements. The stabilized budget is a forecast of income and expenses as may be reasonably projected over an intermediate term, typically five years.

What They Should Know

Brokers are liable for: - What they know from disclosure by the principal; - What they should know because of their skill and - training; and - What they should know by an inspection of the property. This varies with each state. Even though the maxim of caveat emptor or "buyer beware" still applies, the buyer does not have to beware of a seller's broker lying or hiding defects. The seller's broker must disclose, and if he or she does not, legal recourse by the buyer may be available.

Buyer Debits

Buyer debits include: - Purchase price; - Hazard or homeowner's insurance; - Document preparation fee (mortgage and note); - Survey mortgagee's title insurance; - Credit report; - Loan origination fee; - Mortgage assumption fee; - Prepaid mortgage interest; - Mortgage insurance; - Discount points; - Real estate property taxes paid in advance by seller; - Recording of deed; and - Recording of mortgage documents

Discriminatory Words and Symbols

CATCH WORDS --- words and phrases used in a discriminatory context should be avoided, such as restricted, exclusive, private, integrated, traditional, board approval, or membership approval. SYMBOLS OR LOGOTYPES --- symbols or logotypes which imply or suggest race, color, religion, sex, handicap, familial status, or national origin. COLLOQUIALISMS --- words or phrases used regionally or locally which imply or suggest race, color, religion, sex, handicap, familial status, or national origin.

Other Requirements

Commercial facilities are only subject to the requirement that new construction and alterations conform to the ADA Accessibility Guidelines. The other requirements applicable to public accommodations listed above do not apply to commercial facilities. Private entities offering certain examinations or courses (i.e., those related to applications, licensing, certification, or credentialing for secondary or postsecondary education, professional, or trade purposes) must offer them in an accessible place and manner, or offer alternative accessible arrangements.

Need for Condominiums

Common areas, such as the yard, roof, hallways, elevators, pool, tennis courts, and parking lots, are owned as tenants in common. Of the forces responsible for creating the need for condominiums, cooperatives, and PUDs, the most important are: - Land scarcity in desirable areas; - Continuing escalation in construction costs; - Disenchantment with the work of maintaining the grounds around a house; and - The desire to own rather than to rent.

Comparables

Comparables are found in real estate office files, county assessor files, MLS data and from appraisers. The more recently the comparable sold, the better the comparable is for analysis. The sale should have been within the previous six months. You will see more on this topic in the lesson "Real Estate Valuation."

Comparables

Comparables may be found in: - Real estate office files of closed sales; - Closed sales data of a multiple listing service; - County clerk or recorder's office; - Assessor's office; and - From other appraisers. The more recent the date of sale of the comparable, the more relevant the comparable is to the appraisal process. Also of great importance is the degree of similarity of physical characteristics, and the location of the comparables. In selecting the comparables, certain property characteristics and non-property characteristics of each comparable must be specifically identified. Property characteristics include things such as size, type of construction, age, design, special features, condition, quality, landscaping and location.

Intent and Effect

Compliance with the fair housing laws, as they relate to the sale of real property, requires a thorough understanding of those laws. Both state and federal laws that relate to fair housing are part of this course. In enforcing these laws and regulations, both state and federal officials must look not only to the intent of a salesperson's conduct, but also to the effect of the salesperson's conduct. For this reason, you need to consider your actions carefully! It is not enough that you mean to comply with the law if your actions do not, in fact, comply with it. If the effect of your actions or statements violate the law, good intention can, at best, only mitigate the sanction that may be imposed.

Condemnation Value

Condemnation value, in the case of condemnation of the entire property, is not difficult to estimate. In the case of a partial condemnation, however, it becomes more complex. In this case, the property owner is entitled to be compensated for the difference in the market value of the property before and after condemnation. This amount is typically an amount greater than the value of the portion of property condemned as a percentage of the entire property value

LESSON 11

Condominiums and Cooperatives

LESSON 28

Contract Termination

Age

Contracts entered into by parties lacking legal capacity are voidable by the party lacking capacity. In the case of minors, the contract is voidable at the option of the minor. The contract is not legally enforceable against the minor. The minor may hold an adult to a contract, but the adult cannot legally hold the minor to the contract. If a minor fulfills the terms of the contract and does not take steps to terminate the contract prior to reaching the age of majority or soon after, the individual is said to have ratified the contract as an adult and thus, is bound.

No Right of Survivorship

Contrary to widely held opinion, there is no right of survivorship in community property, and therefore, the one-half interest of a deceased spouse will descend to heirs and will not automatically go to the surviving spouse. To pledge and convey title to community property during life, both husband and wife must sign the pledge or deed. In community property states, separate property is any property acquired by one spouse, during marriage, by gift or inheritance. Also, any property purchased with the separate funds of the husband or wife becomes separate property of the purchasing spouse. Property acquired prior to marriage by either husband or wife is also separate property.

Indoor Pollution Levels

the last several years, a growing body of scientific evidence has shown that air inside homes and other buildings can be more seriously polluted than outside air in even the largest and more industrialized cities. Pollution levels from an individual indoor source may not pose a significant risk to health by itself, but most homes have more than one pollution source. The cumulative effect of these sources can create a serious risk. The EPA estimates that 30% of all buildings and homes contain enough pollutants to affect people's health.

"Built-In" Pollutants

"Built-in" pollutants that can't be eliminated can at least be dispersed with better ventilation. Some materials such as carpeting emit the most fumes when new so better circulation is particularly important just after installation. Improving a home's ventilation can mean anything from simply opening the windows to adding a sophisticated ventilation system. However if ventilation systems are not properly cleaned and maintained, dust and fungi can build up, and circulate throughout the house.

Legal Action

A tenant in common may bring legal action to have the property partitioned so each tenant may have a specific and divided portion of the property exclusively. If this can be done in an equitable manner with a piece of land, each would receive title to a separate tract according to his/her share of interest. If this cannot physically be done to the land, the court may order the sale of the property with appropriate shares of the proceeds distributed to the tenants in common

Deed of Bargain and Sale

A deed of bargain and sale may be with or without covenants of warranty. In either case, there is an implied covenant on the part of the grantor that he or she has a substantial title and possession of the property. Grantees in these deeds, for their protection, should require that the deed contain specific warranties such as the warranty against encumbrances.

Deed of Gift of Real Property

A deed of gift of real property may be conveyed by either general warranty deed or by quitclaim deed. If using the warranty deed, the grantee cannot enforce the warranties against the grantor; the grantor received no consideration for conveying the title to the grantee, and the conveyance was a gift. Either a warranty deed or a quitclaim deed conveys the property provided the grantor has title to convey.

Accommodation Discrimination

A public accommodation is not required to provide personal devices such as wheelchairs, individually prescribed devices (e.g., prescription eyeglasses or hearing aids), or services of a personal nature including assistance in eating, toileting, or dressing. A public accommodation may not discriminate against an individual or entity because of the known disability of a person with whom the individual or entity is known to associate

Qualifying Brokers

A qualifying broker for a real estate company may serve as an associate broker for another real estate company at the same location. A broker may serve as a qualifying broker for a real estate company and a vacation time-sharing plan provided that both are located at the same address. A broker shall hold a separate license for each firm which he/she represents as a broker.

Change of Broker

Any salesperson or associate broker who desires to change his or her qualifying broker shall give notice in writing to the Commission, and shall send a copy of the notice to his or her qualifying broker. The new qualifying broker shall file with the Commission a request for the transfer and a statement assuming liability for the licensee. On payment of a fee, a new license certificate shall be issued to the salesperson or associate broker for the unexpired term of the original license.

Assessment

Assessment of property for tax purposes involves establishing the value of each parcel of real estate to be taxed within the taxing unit, such as a city, town, or county. An official with the title of tax assessor is responsible for the valuation of property for tax purposes. Reassessment of property for tax purposes occurs on a regular basis established by statutes and when improvements are made to the real estate.

New Toxins

Biological contaminants like molds, dust mites, and bacteria have always been with us but technology has introduced a host of new toxins into our lives. These include: - Substances for killing insects and other pests - Solutions for cleaning, stripping, and polishing - Chemicals like formaldehyde (found in 3,000 building products) - Pollutants in carpeting, drapery materials, glues and paints - Chemicals used by copying and fax machines.

Book Value

Book value is an artificial value used for accounting or tax purposes, in connection with establishing a depreciation schedule for a property based on the property's useful life. It is the amount at which an asset is carried on the financial books of a person, partnership, association or corporation. Book value is the capitalized cost of an asset less depreciation taken for accounting purposes, based on the method used for the computation of depreciation over the recovery period of the asset. It is the adjusted basis of an asset and usually differs from appraised or market value. Book value serves as the basis of computing profits or losses derived from a sale. The book value of a property can be readily determined by adding the depreciated value of the improvement to the allocated value of the land. Often, this value has nothing to do with the actual useful life of the property but is used for tax or other financial accounting purposes.

LESSON 21

Brokerage

Referral Fees

Brokerage firms often pay a referral fee to licensees from other localities when the licensee refers prospective buyers or sellers. States differ in their requirements for payment and collection of referral fees. Before paying a referral fee, those involved should have complete knowledge of state laws and rules.

Broker Responsibilities

Brokers may also have a responsibility regarding the ADA for any property bought, sold or leased using the services of their businesses. Brokers and agents should disclose any known ADA infringements to buyers, sellers or lessees. If suit is brought under the ADA alleging discrimination against a disabled individual, brokers or their agents could be held partially liable for damages if they failed to disclose known ADA infringements.

Building and Construction Standards: Building Codes

Building codes are rules set up by local, state, or municipal governments to regulate building and construction standards. In many areas these codes are based on national standards. The codes provide minimum standards to safeguard the health, safety, and welfare of the public by regulating and controlling the design, construction, quality, use and occupancy, location, and maintenance of all buildings and structures.

Question

Can a place of public accommodation be covered by both the ADA and the Fair Housing Act (FHA)? Answer: Yes. The analysis for determining whether a facility is covered by Title III is entirely separate and independent from the analysis used to determine coverage under the FHA. A facility can be a residential dwelling under the FHA and still fall in whole or in part under at least one of the 12 categories of places of public accommodation. Title lll is enforced by: Department of Justice P.O. Box 66118 Washington, D.C. 20530-6118

Commercial Banks

Commercial banks have steadily increased their mortgage holdings in recent years and they can be either federally chartered or state chartered. In both cases, commercial banks are sources of mortgage money for construction, purchase of existing housing, and home improvements. Their loan policies usually are more conservative than those of other types of lending institutions.

Title Application: Who is and is Not Covered

Commercial facilities, which are covered, are nonresidential facilities (including office buildings, factories, and warehouses) whose operations affect commerce. Entities controlled by religious organizations, including places of worship, are not covered. Private clubs are not covered, except to the extent that the facilities of the private club are made available to customers or patrons of a place of public accommodation. State and local governments are not covered by the Title III regulation, but rather by the Department of Justice's Title II regulation.

Consideration

Consideration is the giving of something of value, including money, property, and even a promise of performance. For a contract to be valid, consideration must be present. A common error among real estate licensees is stating that for an offer to purchase to be valid, the buyer must pay "earnest money." The offer to buy the property is sufficient consideration for a valid contract.

Consumer/ Client/ Customer

Consumer: A person who obtains information, advice, or services concerning real estate from a real estate licensee. Client: A person who has an agency agreement with a broker for brokerage service, whether he or she be buyer or seller. Customer: A person who is provided brokerage services by a broker or licensee but who is not a client of the broker.

CE Exemptions

Continuing education requirements do not have to be met in order for a license to be renewed on inactive status. However, in order to activate the license, the licensee must complete the 15 clock-hour continuing education requirement. Licensees are exempt from meeting continuing education requirements only if they were both 65 years old prior to October 1, 2000 and held a real estate license continuously from October 1, 1990 through September 30, 2000. For purposes of meeting this exemption licensure can be active, inactive, or a combination thereof. In order to receive continuing education credit for legislative service, licensee members of the Alabama Legislature should obtain an official record of their legislative service during each license period from the clerk of the House of Representatives or Senate. This documentation must be filed in the Commission office no later than August 31st of the final year of the license period.

Assignment: Transfer of Rights

Contract rights are considered a personal property right. The transfer or sale of contract rights is called assignment. The party assigning or transferring his or her rights is the assignor. The party receiving the rights is the assignee. Any assignment of contract rights pertains to rights only and does not eliminate the contract obligations. For the contract obligations to be eliminated, a release or novation must occur.

Classification

Contracts are classified as: - An express contract or an implied contract - Unilateral or bilateral - Executory or executed - Valid, void or voidable - Unenforceable under the statute of frauds or barred under the statute of limitations. Because the rights and responsibilities can differ from contract to contract, various classifications or types of contracts have evolved.

Covenants

Covenants may be enforced by a suit for damages or by injunction. A covenant may be included in a deed to benefit property that is sold or to benefit a property that is retained when an adjoining property is sold.

Farm Property

Farm property can consist of grain crops, animal production, dairy production, or a combination of these. Managing farm property requires both an understanding of accounting methods, and being familiar with: - Crop production; - Commodity prices; - Soil types; - Environmental controls; and - Soil conservation. As more and more farms are owned by corporations, the property manager becomes indispensable.

Types of Properties: Properties

Different types of properties can benefit from real estate management services: - Residential property management, including apartments, condominiums, single-family homes, and vacation property; - Retail or commercial property management, which includes offices, small retail stores, office condominiums, and large shopping malls; - Industrial property management, including industrial parks and industrial warehouses; - Farm property management - Homeowners' association management, which provides physical property management.

Compass Bearings

Direction or courses in metes and bounds descriptions are given in a peculiar fashion. A direction is described by reference to its deviation from either north or south, whichever isthe closer. Thus, NW or 315 degrees is written as north 45 degrees west since it is a deviation of 45 degrees to the west of north. Similarly, SSE or 157½ degrees is written south 22½ degrees east, since it is a deviation of 22½ degrees to the east of south. East and west are both written relative to north: - North 90 degrees east - North 90 degrees west, respectively.

Discharge and Termination of Contract: Performance

Discharge of contract and termination of contract occur as a result of: - Agreement of the parties - Full performance - Impossibility of performance - Operation of law.

Disintermediation

Disintermediation is the loss of funds available to lending institutions for making mortgage loans, caused by the withdrawal of funds by depositors for investment in higher-yield securities in times of higher interest rates. Without the secondary mortgage market, disintermediation can result in funds available to lenders "drying up" to the extent that these loans would be practically unavailable.

Carbon Monoxide

Don't smoke cigarettes, pipes, or cigars inside. Carbon monoxide, formaldehyde, and cancer-causing particles are all released by the smoldering tobacco. Carbon monoxide (CO) is a colorless, odorless gas. Furnaces, water heaters, space heaters, fireplaces, and wood stoves all produce CO as a natural result of fuel combustion. Carbon monoxide emissions are not a problem when these appliances function properly and are ventilated. However, when improper ventilation or equipment malfunctions permit large quantities of CO to be released, it can cause dizziness, nausea, and death. The presence of CO is difficult to detect. Carbon monoxide detectors are available, and their use is mandatory in some areas. Annual maintenance of heating systems helps avoid CO exposure.

Easements by Condemnation

Easements by condemnation are created by the exercise of the government's right of eminent domain. Through eminent domain the government can take title to land and take the right to use land for some purpose in the future. Most road widening, sidewalk, alley, and utility easements are created through eminent domain.

Easements by Implication

Easements by implication arise by implication from the conduct of the parties. For example, when landowner Henry sells mineral rights to Company Golddigger, Company Golddigger has an easement by implication to go on the property to mine the minerals. Use of the easement by Company Golddigger must be reasonable and only for the purpose of obtaining minerals.

Easements by Prescription

Easements by prescription are obtained by use of the land of another for the legally prescribed length of time. The use must be open and well-known to others, without permission from the owners of the land, and uninterrupted for the period of time required by the laws of the state. The user must prove in court action that he or she has satisfied all the requirements for the intended use. The easement by prescription gives only the right of continued use, not ownership of the land. A common example of an easement by prescription is the driveway established by owner Jones at or near his/her boundary line without the benefit of a survey. After many years of using the driveway, a survey shows the driveway to be partially or completely on the land of owner Johnson. Owner Jones will have an easement by prescription to use the driveway. Jones is the dominant tenement and Johnson is the servient tenement.

Asbestos Risks

Exposure to airborne asbestos causes increased risks of asbestosis as well as several types of cancer, including lung and stomach cancer. Asbestosis is a disease that decreases the ability of the lungs to transfer oxygen and carbon dioxide and slowly suffocates its victims. Asbestosis ordinarily occurs in workers who manufacture or use asbestos products. Asbestos is often a combination of other materials, known as asbestos-containing materials (ACMs); ACMs are either nonfriable (sheathed and/or non-crumbling) or friable, easily crumbled by hand pressure. Friable ACM is generally considered more dangerous because the asbestos particles can be loosened and become airborne. Because of its resistance to heat, chemicals, and moisture, asbestos has been used for a variety of commercial and industrial purposes, and in more than 3,000 products. Asbestos is used primarily for fireproofing, heat and acoustic insulation, flooring, and decorating.

Present Improvements

Highest and best use always takes into consideration present improvements on the property. The present use of unimproved property is presumed to be the highest and best use unless change is imminent in market demand or in legal controls. To determine the highest and best use, knowledge of the subject property, community, market forces, and principles of land utilization is required. Because the present value of a property is related to its future uses, the more potential changes that can be identified, the more accurate the estimate of its present worth will be.

Title Issues

If an updated abstract of title is provided, the buyer must hire an attorney to prepare an opinion as to the quality of the title shown in the abstract. If title defects are found, the seller is responsible for the cost of curing or removing the defect. Until marketable title is available, closing will not likely be completed. In addition, the seller may be required to sign a vendor's affidavit, a document stating that the seller has done nothing since the original title evidence to adversely affect title. If the buyer is borrowing money from an institutional lender, a mortgagee's title insurance policy also is needed. The buyer bears the cost of this title insurance policy.

Extension

If any party needs to extend the closing date of the escrow, all parties must sign and agree to an Addendum or Extension to the original purchase agreement contract. Be careful that the extension does not interfere with the lender's obligation for a closing date. Generally, closing costs will come out to between 4 and 5 percent of the purchase price. The closing costs will include such items as title searches, government taxes, notary fees, loan fees, escrow fees, recording fees, reconveyance fees, prorations and sales commissions.

Hereditaments

Hereditaments are property or property rights that are capable of being inherited. They may be corporeal or incorporeal, personal or real. This real property can include: - The land - The inherent rights (tenements) that arise from owning the land including: *Transfer of the land *Use of the land *Use and control of the buildings on the land *Use of water that borders the land - The right to pass the land and inherent rights at death by inheritance (hereditaments).

Health Risks

Higher than normal levels of formaldehyde in the home can trigger attacks in individuals who suffer from asthma. Other health hazards attributed to formaldehyde include skin rashes, watery eyes, burning sensations in the eyes, throat, and nasal passages, and breathing difficulties. Some individuals experience a reduced tolerance to formaldehyde following their initial exposure to the gas. In these instances, subsequent exposures to very small amounts of formaldehyde will cause reactions.

Voluntary Acquisition

If the owner and the government cannot negotiate a satisfactory voluntary acquisition of the property, the government can initiate a condemnation action to take the property. In such case, an owner's main grounds for complaint would usually be that the intended use is not a sufficient public use or that the valuation given the property in the condemnation proceeding is unjust. Generally, the courts will not permit a taking in fee if an easement will do; an entire piece cannot be taken if only a part is needed.

Oil and Gas Leases

In oil and gas leases, the landowner usually receives a one-time lease payment in exchange for giving the oil and gas company the right to drill for oil or gas for a long period of time. Sometimes the owner is compensated with a percentage of the revenues. If no drilling occurs but the oil and gas company wishes to continue the lease, it typically pays a small flat monthly or annual fee. If no drilling occurs and the company does not make any further payments, the lease expires and terminates

Competence

Legal capacity of a party also is determined by the competence of the party, the mental and/or emotional capacity to contract. The legal capacity of a person to contract also can be affected by alcohol and drugs. An individual who is intoxicated or under the influence of drugs to the extent that he or she does not understand what is happening is temporarily incompetent to contract. Any contract signed under these conditions is not enforceable against the person who was temporarily incompetent.

Oral Testimony

Oral testimony (parol evidence) is not sufficient to create a contract involving the transfer of title to real property. A primary purpose of the Statute of Frauds is to prevent presentation of fraudulent proof of an oral contract. Parol evidence rule essentially states that oral explanations can support the written words of a contract but cannot contradict them; however, an oral contract entered into after a written contract can be considered a "new" contract or modification to the prior written contract.

Regulation

Legislatures have begun to regulate the time-sharing industry by requiring: - Special disclosure reports - Escrow accounts - Licensing of agents - Review of promotional material - Complete disclosure of the details of any exchange program. Tough questions involve: - Billing real property taxes - Tax delinquencies - The assessment valuation problem (i.e., whether the building is valued at the same figure as a similar building that is not time-share or at an amount determined by the cost and number of time-share interests).

Co-Ownership of Real Property: Multiple Owners

Ownership of real property may be by one person alone or by many persons, or even by non-natural entities such as partnerships and corporations. Co-ownership of property may be used to control transfer of the property at death or to allow pooling monies to purchase an investment, which then will be owned by several people. Co-ownership can happen accidentally or may require intentional action and words.

Uniform Loan Documents

Primary lenders wishing to sell mortgages to Fannie Mae or Freddie Mac must use uniform loan documents that meet criteria established by FNMA and FHLMC. Loans processed on uniform loan forms and according to the FNMA/FHLMC guidelines are called conforming loans. For example, these organizations will not purchase any mortgage containing a prepayment penalty, an extra charge for paying off a mortgage sooner than specified in its term. This requirement is particularly advantageous to individual borrowers when they are required to pay off their mortgage as a condition of a contract of sale. In some cases, prepayment penalties on nonconforming loans are extremely high and, therefore, pose a real hardship to sellers.

Surviving Spouses

Prior to adoption of the Uniform Probate Code, the most common life estates created by law or statute were dower and curtesy. Both dower and curtesy refer to an automatic life estate owned by a surviving spouse in inheritable property held or acquired by the deceased spouse alone during the marriage. If the owner of the land was the husband, the wife has a life estate called a dower. If the owner of the land was the wife, the husband has a life estate called a curtesy.

Insurance

Prior to closing, the buyer usually provides homeowner's fire and hazard insurance on the real estate being purchased. If the buyer is borrowing money for the purchase, the lender (mortgagee) is listed on the policy as an additional insured. The cost of this insurance is the buyer's, and the insurance must be purchased to cover the lender.

Standards of Conduct

Major portions of license law legislation set forth certain standards of conduct, and these are substantially uniform among the states. The standards of conduct reinforce the licensee's obligations to the general public, which is the major purpose of license law legislation. Licensees' violations of the statutory requirements subject them to license revocation or suspension.

Approval Factors

Many factors govern loan underwriting. The following are only representative of the basic factors that must be considered in the loan approval process. Loan underwriting can be divided into three categories: 1. Buyer ability to pay 2. Buyer willingness to pay 3. Property evaluation The buyer's ability to pay consists of the following considerations: - Employment: Borrower employment for the past two years is verified as evidence of ability to pay. Also, the underwriter must determine the probable stability and continuance of that employment. - Income: Even if employment is stable, income may not be. Borrowers who are self-employed, work on commission, or are employed by a close relative must submit signed federal income tax returns for the most recent two years.

Ending Discrimination: Continuing Discrimination

Many people have the idea that the issue of fair housing has long been resolved through actions such as the Civil Rights Acts to provide equal housing opportunity for all citizens. This goal has not been achieved in practice. Although the Fair Housing Act has been in effect for many years, recent HUD studies find that minorities are still confronted with discrimination in purchasing homes and in leasing rental units.

Expenses

Many people vacation two to four weeks a year. Purchasing a time-share allows them to enjoy a vacation home without year-round expense. Maintenance and repair costs, taxes, insurance, and general care of the time-shared property are prorated among the interval owners. The percentage of the expense equals the percentage of the year purchased. Owners of a time-share interest also hope that the property time-shared will increase in value, building up equity, and at the same time providing them housing while they vacation.

Testing

Many proposals have been developed to correct this situation. One means of enforcing the law is through an organized program of testing by civil rights groups. In 1968 the administration supported a Housing Initiative Program (HIP) to provide funding for testers. The National Association of REALTORS® (NAR) negotiated an agreement with HUD to ensure the funded testing will be objective, reliable, and controlled, and then it endorsed the program.

Percentage Lease

Many retail commercial leases are percentage leases. A percentage lease provides for a base rent plus an additional monthly rent that is a percentage of the lessee's gross sales. Most commercial leases in cases where the lessee is using the property to conduct a retail business are percentage leases. This is especially true of shopping malls. The percentage lease provides the lessor with a guaranteed monthly rental plus the opportunity to participate in the lessee's sales volume on a percentage basis.

Salesperson

Many states add to the licensee's activities the functions of property management, rental collection, and sale of business opportunities. A real estate salesperson is any person who performs any of the acts set forth in the definition of real estate broker for compensation or valuable consideration or promise of compensation or valuable consideration, and does so only while associated with and supervised by a licensed broker.

Arm's-Length Transaction

Market value implies a non-related buyer and seller in an "arm's-length transaction" in which the buyer and seller are motivated by their own interests. "Arm's-length transaction" is one in which the parties are dealing from equal bargaining positions. In this instance, whether a transaction was at arm's length is also relevant to the 'willing-buyer', 'willing-seller' concept in the estimation of market value. Related-party sales or sales in which one party is in a "distress" situation obviously are not indicative of "fair" market value. Distressed property is property that brings an insufficient return to the owner or is in difficulty for other reasons. Sometimes it is property that must be sold due to pending foreclosure or probate of an insolvent estate.

Market Value: Most Probable Price

Market value is the most probable price a property will bring if: - Buyer and seller are equally motivated; - Both parties are well-informed and well-advised and each is acting in what the individual considers his or her own best interest; - A reasonable time is allowed for exposure in the open market; - Payment is made in terms of cash in U.S. dollars or in terms of comparable financial arrangements - The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Prorating Real Estate Taxes

Real estate taxes are assessed for the period January 1 through December 31. Taxes are paid in arrears, this means that the seller will owe the buyer for accrued taxes from January 1 through the day of closing. The past year's tax bill is usually used to compute the proration. If the taxes are paid in arrears, the tax proration will be a debit to the seller and a credit to the buyer. If the taxes are paid in advance, the tax proration will be a debit to the buyer and a credit to the seller.

Subsurface Rights

Rights to the area below the earth's surface are called subsurface rights, often referred to as mineral rights. These rights also are subject to restriction by local, state, and federal laws. The owner of mineral rights may conduct mining operations or drilling operations personally or may sell or lease these rights to others on a royalty basis. A mineral lease permits use of the land for mineral exploration and mining operations. The lease may be for a definite period of time or for as long as the land is productive.

Veteran Exemption

Pursuant to Code of Ala. 1975, Sections 40-12-340 through 352, a business or occupation license exemption of $25.00 for each (the state, county and municipality) with no deadline, is provided for any permanent resident of Alabama who is a veteran and who has physical disabilities of 25% or more, whether service connected or not, who conducts his/her business as a means of livelihood through his/her personal efforts, and has not more than one employee and whose property is valued at less than $5,000 and net income is less than $2,500.

Qualifying Broker

Qualifying Broker: A broker under whom a corporation, partnership, or branch office is licensed, or a broker licensed to do business as a sole proprietorship who is responsible for supervising the acts of the company or proprietorship and all real estate licensees licensed therewith. Recovery Fund: The Alabama Real Estate Recovery Fund. Salesperson: Any person licensed as a real estate salesperson under the license law.

Qualifying Broker

Qualifying broker: A broker under whom a corporation, partnership, or branch office is licensed, or a broker licensed to do business as a sole proprietorship who is responsible for supervising the acts of the company, or proprietorship and all real estate licensees licensed therewith.

Application

RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most: - Purchase loans, - Assumptions, - Refinances, - Property improvement loans, and - Equity lines of credit. HUD's Office of Consumer and Regulatory Affairs, Interstate Land Sales/RESPA Division is responsible for enforcing RESPA.

Settlement Costs

RESPA is a federal law that ensures that the buyer and seller in a real estate transaction have knowledge of all settlement costs when the purchase of a one-to-four-family residential dwelling is financed by a federally related mortgage loan. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices, and describe business relationships between settlement service providers. RESPA also prohibits certain practices, including kickbacks or paying unearned fees such as when an insurance agency pays a kickback to a lender for referring one of the lender's recent customers to the agency. The purpose is to prevent increasing costs of settlement services.

Required Disclosures

RESPA required certain disclosures at the time of loan application. When borrowers apply for a mortgage loan, mortgage brokers and/or lenders must give the borrowers: - The Special Information Booklet, which contains consumer information regarding various real estate settlement services (required for purchase transactions only); - The Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use a particular settlement provider, then the lender must disclose this requirement on the GFE; and - The Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.

Minimizing Liabilities

To minimize legal liabilities and appropriately fulfill their duties and responsibilities to sellers and buyers, real estate licensees should: - Be aware that environmental problems and issues may affect real estate activities and result in liability for licensees and owners - Know specific information about some of the most common environmental hazards affecting real estate - Be aware of state and federal laws and regulations governing environmental hazards and the real estate licensees obligations involving such hazards.

Volume and Area: Area

You should know how to compute the area of any shape, since land and buildings are usually not regularly shaped. Also you may have to compute the cubic feet of space in a building, or the volume of a building such as a warehouse to determine its value. Land can be sold or leased by the front foot or by the square foot or by the acre or any other measurement acceptable to the system.

Example 6:

You want to know the price of a property that has increased in value by 34%. The two things you know are the original price ($84,800) and the percent increase. To get the new price, you can either calculate the "part" as the INCREASE in price, using the rate of 34% of the original price and add it later, or, as in the example above, you can calculate the "part" as the new price at a rate of 134% and solve for the new price directly.

Prelicense and Post License School Approval and Requirements

(1) All schools and instructors teaching real estate courses shall agree to be governed by rules and regulations adopted by the Commission for the orderly operation of the schools. (2) All prelicense and post license courses shall have a definite beginning and ending date. (3) The administrator shall, at least one week prior to the beginning of a prelicense or post license course, send information concerning the exact location, times and dates of the courses to the Commission via the electronic submission program provided by the Commission. Should changes occur in this information, instructors and administrators must submit the changes immediately via the electronic submission program provided by the Commission. (4) The administrator shall, within three (3) business days of course completion, report the credit for students who successfully complete the prelicense or post license course to the Commission via the electronic submission program provided by the Commission. Business days are Monday through Friday and do not include federal holidays, state holidays and weekends.

Course Requirements

(5) No prelicense or post license course shall be approved by the Commission unless the following requirements are fulfilled. Courses shall be taught by an approved instructor. All courses shall comply with the curriculum as prescribed by the Commission. The salesperson prelicense course shall be completed within one year from the start date of the course or the student will receive no credit for classes completed and shall begin the course again. Students enrolled in the salesperson prelicense course can receive no more than six (6)hours credit per day. The 60-clock hour broker prelicense course shall be completed in order to qualify for the broker's exam. The course shall be completed within one year from the start date of the course or the student will receive no credit for classes completed and shall begin the course again. Students enrolled in the broker prelicense course can receive no more than nine (9) hours credit per day. The 30-hour post license course is required for all temporary salesperson licensees, whether on active or inactive status, within the first year of licensure. In order to maintain an active license, the course shall be completed and the original (permanent) license issued within the first six months of licensure. Students enrolled in the post license course can receive no more than nine (9) hours credit per day. At least 80% of the course hours in the prelicense and post license courses shall be presented by live instruction unless the course is an ARELLO certified distance education course. Instructors shall offer incremental assessments including a final course exam. Students shall pass all required incremental assessments and the required final course exam that adequately measures mastery of course content and make a minimum course grade of 70% to successfully complete the salesperson prelicense course. Instructors shall teach a total of 60 hours for the prelicense course and 30 hours for the post license course.Ninety (90%) percent course attendance in the prelicense and post license courses is required of students to successfully complete the course. Any sessions taken by students to make up missed hours must cover topics that have not already been taken in the course. Instructors may take a 10-minute break after each 50 minutes of instruction. Meals and other unrelated activities cannot be counted as part of the course hours. Upon completing the course hours, passing all required incremental assessments and the required final exam, and obtaining a minimum course grade of 70% in the salesperson prelicense course, the administrator shall submit the course credit as directed by the Commission. Salesperson applicants shall not be allowed to schedule the salesperson examination until exam eligibility has been submitted. Instructors and administrators shall provide each student who completes the salesperson prelicense course with instructions on where to access the Commission-approved prelicense course evaluation. Instructors and administrators shall also provide each student in prelicense and post license courses with information explaining the licensing process and deadlines. Instructors and administrators shall provide the Application for Real Estate Salesperson's Original License to all post license students. Upon completing the course hours, passing the course final exam and obtaining a minimum course grade of 70% in the broker prelicense course, the administrator shall submit the course credit as directed by the Commission. Broker applicants shall not be allowed to schedule the broker examination until exam eligibility has been submitted. Broker applicants shall meet all qualifications for a broker's license prior to making application. Successfully passing the exam is only one of several qualifications that are identified in Section 34-27-32. Failure to meet all broker qualifications prior to applying for a broker's license shall result in the exam score being rendered null and void and may subject the broker applicant to disciplinary action by the Commission. A person shall be required to have a temporary license issued prior to taking a post license course and earning post license credit. Instructors and administrators shall obtain the temporary license number before allowing a student to enroll in the post license course. Salespersons who make a minimum course grade of 70% and complete the 30 hour post license course may check the Commission website to ensure their course credit has been accurately reported. The temporary salesperson shall submit the application and fees for an original (permanent) license within the time frame set forth in Section 34-27-33. Schools shall maintain permanent records showing attendance, exam answer sheets, licensing process and deadline forms, course credit submission via the electronic submission program provided by the Commission, and any other documentation required by the Commission for a minimum of four (4) years. If a school closes because it merges with another school or is bought by another school, the records for the previous four years shall be turned over to and become the responsibility of the new school. If a branch school closes, the records for the previous four years shall be turned over to and become the responsibility of the main school. In the event a school closes and there is no school to whom the records would revert, the records for the previous four years must be turned over to the Commission. (6) Salesperson applicants shall pass the state licensing salesperson examination within six (6) months immediately following the date of successful completion of the salesperson prelicense course approved by the Commission. Salesperson applicants who fail to meet this requirement shall be required to again successfully complete the salesperson prelicense course and pass the state licensing salesperson examination. (7) Broker applicants shall pass the state licensing broker examination within six (6) months immediately following the date of successful completion of the broker prelicense course approved by the Commission. Broker applicants who fail to meet this requirement shall be required to again successfully complete the broker prelicense course and pass the state licensing broker examination.

The Real Estate Commission:

1. Organization and Structure 2. Who are they? The Alabama Real Estate Commission was established in 1927 by Legislative Act 1927, No. 344 to license the real estate brokers throughout the state. With the passage of the Real Estate License Law (Acts 1950-51, No. 422) of 1951, the previously authorized originating act was expanded. In 1953, 1963, and 1982, the law was subsequently amended in order to further regulate the licensing of persons engaged in the real estate business in the state. The mandated function for the Alabama Real Estate Commission is to license and regulate the professional practices of real estate companies, salespersons, brokers, instructors, and schools in Alabama.

Brokerage: The Brokerage Firm

A brokerage firm, or company, may be owned by a single licensed broker (a sole proprietor), or by more than one person, as in a partnership or a corporation. A brokerage firm is thought of as an independent broker if it is not associated with a national or local real estate franchise organization. Association with a real estate franchise organization licenses the brokerage firm to use the franchise's trade names, operating procedures, reputation and referral services. The franchisee owns and operates the brokerage firm. Brokerage firms usually employ or have other licensed salespersons or brokers working with the firm. The sales associates affiliated with the brokerage firm are agents of the broker and subagents of the brokerage firm's principals (clients).

Example 3:

A client wants to receive 14% interest on an investment. If the interest amounts to $24,000, what is the investment amount? Go to the next page for the answer. The answer is: $24,000 ÷ 0.14 = $171,428.57

Company License

A company license shall become invalid on the death or disability of a qualifying broker. Within 30 days after the death or disability, the corporation, or the remaining partners or the successor partnership, if any, may designate another of its officers, members, or salespersons to apply for a license as temporary qualifying broker. The person designated as temporary qualifying broker shall either be a broker or have been a salesperson for at least one year prior to filing the application. If the application is granted, the company may operate under that broker for no more than six months after the death or disability of its former qualifying broker. Unless the company designates a fully licensed broker as the qualifying broker within the six months, the company license shall be classified inactive by the Commission.

Loan Insurance: Conventional Loan Insurance

A conventional mortgage loan, one that has no participation by an agency of the federal government, can be either uninsured or insured. In an uninsured conventional loan, the borrower's equity in the property provides sufficient security for the lender to make the loan, therefore, any further insurance to protect the lender in case of the borrower's default is not required. In most cases, the borrower obtains a loan that does not exceed 75 to 80% of the property value and has a remaining equity of 20 or 25%. An insured conventional loan typically is one in which the borrower has a down payment of only 5 or 10% and therefore borrows 90 to 95% of the property value. In these cases, insuring repayment of the top portion of the loan to the lender is necessary in the event the borrower defaults.

Government Lot

A government lot is a parcel of land of irregular shape or size which is referred to by a number. These are areas smaller than full quarter-sections. Because of the curvature of the earth, the convergence of the range lines, and errors, it is impossible to keep all sections exactly one mile square. The sections along the north and west boundaries of each township are irregular size. The quarter-sections along the north and west boundaries of these sections are used to take up the excess or shortage. The quarter quarter-sections along the north and west boundaries of a township are given lot numbers. Government lots may also result when a body of water or other obstacle prevents surveying an accurate square mile section.

License

A license is defined as permission to do a particular act or series of acts on land of another without possessing any estate or interest in the land. It is a personal privilege that the licensor may revoke at any time unless the licensee has paid for the license. An example of a license that has been paid for is a right to be at the lake or forest for the purpose of fishing or hunting. The licensor may not revoke the license unless the licensee has gone outside the authority of the license. A license is not assignable and is not inheritable. A license is a temporary privilege.

Limited Liability Company: Hybrid Business Entity

A limited liability company (LLC) is a recent addition as a form of business organization. It is an alternative, hybrid business entity with the combined characteristics and benefits of both limited partnerships and S corporations. Unlike a corporation, however, an LLC does not have perpetual existence. The principal governing document of an LLC is its operating agreement, which is similar to a corporation's bylaws. It is an artificial being existing only pursuant to law. In addition to filing statutory documents, a limited liability company must have an agreement signed by its members for operation of the business.

Point of Beginning (POB)

A metes and bounds description will start at some convenient and well-defined point along the boundary of a tract of land and then give directions which would enable a surveyor to trace the starting point. The starting point is referred to as the point of beginning or POB, and will always be described by reference to a monument, for example, "the SW corner of the intersection of 3rd St. and 4th Ave.," or "100 ft. north of the old pine tree." The point of beginning need not itself be a monument, but must be described relative to a determinable reference point, such as the old pine tree in the example above.

Nonfreehold Estates: Leasehold Estates

A nonfreehold estate, also called a leasehold estate, is a less than freehold estate (less than a lifetime) and therefore is of limited duration. Leasehold or rental estates are created by a contract called a lease or rental agreement, which provides contractual rights and duties to both parties. Leasehold estates grant possession to the tenant, but no title. The title stays with the owner. Leasehold estates create the relationship of lessor (landlord) and lessee (tenant) between the parties. The estates may be called estates, tenancies or leaseholds

Type of Unilateral Contract

A right of first refusal is another type of unilateral contract whereby the property owner agrees to give an individual the first right to refuse the property if and when it is offered. This contract is very different from the option to purchase, in that the owner promises to sell the property to the individual at whatever price and terms anyone else offers for the property.

Sale and Leaseback

A sale and leaseback is a transaction wherein a property owner sells a property to an investor and the investor agrees to lease back the property to the seller immediately. This type of transaction usually is used by an owner of business property who wishes to free up capital invested in the real estate and still retain possession and control of the property under a lease. The motivation of a sale and leaseback transaction for the owner/tenant may also be based on income tax benefits. Depreciation, capital gains, deduction of rent, and operating expenses are all affected by the sale and leaseback decision.

Interest in the Property

A tenancy in common also is created if two or more purchasers do not request a vesting choice when they acquire property via a deed. If nothing is stated, a tenancy in common is created. A tenant in common may sell his/her share to anybody without destroying the tenancy relationship. Tenants in common do not have to have equal interest in the property.

Endorsements

A title insurance policy does insure against financial loss by forgery of any document affecting the real estate. A title insurance policy also may include special endorsements that increase the areas of coverage. Typical endorsements, in commercial real estate particularly, are to insure ingress and egress and proper zoning.

Trusts: Creation of a Trust

A trust is an arrangement in which the trustor (owner of property) places property in the hands of a trustee for the benefit of a beneficiary. A fiduciary relationship exists between the trustee and the beneficiary of the trust. In a fiduciary relationship, the trustee must be loyal to and protect the interest of the trust beneficiary. The beneficiary holds equitable title. Trusts may be created by express agreement or by operation of law, and may be actual or constructive. For purposes of estate planning, there are inter vivos (living) trusts and testamentary trusts.

Sale or Assumption

A typical assignment in real estate happens when a landlord sells rental property to a new owner. Sale of the property does not terminate the lease and the new owner not only owns the real estate but also has been assigned the old owner's rights under the lease to rent. Another assignment in real estate transactions is more commonly called "mortgage assumption." For example, Mr. Adams owns a house with a mortgage owed to a local bank. Mr. Adams sells to Mr. and Mrs. Brown, who assume the mortgage of Mr. Adams. The contract rights belonging to Mr. Adams concerning monthly payments and interest rate are transferred to Mr. and Mrs. Brown. Mr. Adams is still obligated under the mortgage contract in the event Mr. and Mrs. Brown do not make monthly payments

Essential Elements of a Valid Contract

A valid contract is binding and enforceable on all parties to it. It contains all the essential elements of a contract: - Offer and acceptance - Consideration - Reality of consent - Legal purpose - Legally competent parties. The parties to a valid contract are legally obligated to abide by the terms and conditions of the contract. In drawing up contracts, every effort should be made to create a valid contract. If a party to a valid contract defaults in performing an obligation under the contract, that individual is subject to legal action by the non-defaulting party in a court of law. An unenforceable contract is one that appears to meet the requirements for validity but would not be enforceable in court.

Variance: Permitted Deviations

A variance is a permitted deviation from specific requirements of the zoning ordinance. For example, if an owner's lot is slightly smaller than the minimum lot size restrictions set by zoning ordinances, the owner may be granted a variance by petitioning the appropriate authorities. Variances are permitted where: - The deviation is not substantial; - Variance will not severely impact neighboring owners - Strict enforcement would impose an undue hardship on the property owner.

Preparing for Closing: Relevant Documents

Accurate preparation of all relevant documents must be completed before closing. Depending on the state and the transaction, any of the following documents also may be involved in closing the real estate transaction: - Bill of sale of personal property; - Certificate of occupancy; - Closing or settlement statement (HUD Form No.1); - Contract for deed; - Deed; - Deed of trust or mortgage; - Note; and - Disclosure statement. Depending on the state and the transaction, any of the following documents also may be involved in closing the real estate transaction: - Estoppel certificate; - Homeowner's policy or hazard insurance policy; - Lease; - Lien waivers; - Mortgage guarantee insurance policy; - Option and exercise of option; - Sales contract; and - Flood insurance policy. Not all of the documents below are applicable at each closing, but each could be included at typical real estate closings.

Navigable Watercourse

Actual ownership of the water in a flowing watercourse, however, is complex and depends on numerous factors. Many states make a distinction between a navigable watercourse and a non-navigable watercourse. With a navigable watercourse, adjacent owners are limited to the banks of the watercourse, and the state or the public own the actual body of water. With a non-navigable watercourse, ownership lines extend to the center of the watercourse. With littoral bodies of water, the boundary is at the average high-water mark.

Certificate of Occupancy

After a satisfactory final inspection, a certificate of occupancy is issued. This permits occupation of the structure by tenants or the owner. Many cities today require a certificate of occupancy prior to occupancy by a new owner or tenant of any structure, even though it is not a new construction or has not been renovated. Inspection is required to reveal any deficiencies in the structure requiring correction before the city will issue a certificate of occupancy to protect the new purchaser or tenant.

Comps

After becoming familiar with the physical features and amenities of the subject property, the next step in the market approach is to locate houses with similar physical features and amenities that have sold recently under market value conditions. These are known as comparables or "comps." The more similar they are to the subject property, the fewer and smaller the adjustments that must be made in the comparison process, and the less room there is for error. As a general rule, it is best to use comparable sales no more than six months old.

Indoor Pollutants

Air and water quality are important to real property because they have been severely compromised in our modern day environment. Because of this, most real estate contracts contain contingencies that call for the investigation and remediation of various problems before a transfer of property can take place. Air pollution used to be synonymous with belching smokestacks and smog-laden urban air. Experts are now saying that the air we breathe indoors is an equally serious health problem

Real Estate Commission Revenue Fund: Revenue Fund

All fees, fines, charges, or other money, except as provided in Section 34-27-31, and except as provided in this section for multi-year licenses, collected by the Commission shall be deposited in the State Treasury to the credit of the Real Estate Commission Revenue Fund and shall be disbursed by the State Comptroller on order of the executive director at the direction of the Commission.

Loan Underwriting: Loan Processor

Although the loan processor is not the loan underwriter, the processor sometimes may decline the loan before submitting or underwriting if the borrower clearly will not qualify because of excessive debts or insufficient income, or if the property fails to meet the lender's standards as to condition or value.

Margin

An ARM designates an index and then adds a margin (measure of profit) above this index. For example, if the Treasury Bill (T-Bill) index was 7 and the lender's margin was 2.50, the ARM would call for an interest rate of 9.5. The ARM has definite advantages for some buyers, especially for the short-term owner who expects to sell the home in the near future, perhaps because of an employment transfer. Long-term owners may fear the possibility of an ever-increasing mortgage rate, but apprehension should be moderated by the understanding that economic cycles rise and fall and, in the case of inflation, the value of the property will likely rise as well.

Title Abstract

An abstract of title is a condensed history of the title, setting forth a summary of all links in the chain of title plus any other matters of public record affecting the title. The abstract contains a legal description of the property and summarizes every related instrument in chronological order. An abstract continuation is an update of an abstract of title that sets forth memoranda of new transfers of title.

Hearings

An action against an accused shall begin by serving the accused either personally or by certified mail with a copy of the formal complaint against him or her. The accused shall be given at least 15 days' notice of the time, date, and place of hearing. If the commission refuses to license an applicant, notice of the refusal shall be given to the applicant, and he or she may, within 15 days after delivery of the notice, file a request for a hearing. The applicant or accused shall have an opportunity to be heard in person or by counsel, to offer testimony in his or her behalf, and to examine witnesses. Hearings shall be held in Montgomery County unless the commission decides to hold the hearing in the county in which the applicant or accused resides, maintains his or her principal place of business, or any other county in which the commission has scheduled a meeting. At hearings, all witnesses shall be sworn by a member of the commission, the executive director, the assistant executive director, or a hearing officer. The commission shall render a written order within 30 days from the final date of hearing. If the matter alleged in the complaint is the subject of an action pending in any court, the commission may withhold rendering or implementing its order pending disposition of the court action.

Land Descriptions

An adequate legal description of real property is one which will enable a precise determination of what property is being referred to. The description itself need not be very detailed, but it must not be ambiguous. EX: A grant of "all my lands in Jefferson County" may be sufficient because evidence can be introduced to prove exactly what lands are being described. However, a grant of "one of my lots in Jefferson County" is not sufficient because it is impossible to determine which of several lots is being referred to. An ambiguous or uncertain description is not legally sufficient.

Implied Agency

An agency also may be created by the actions of the principal and agent indicating that they have an agreement. This is called an implied agency or ostensible agency. When a person claims to be an agent but has no express agreement, the principal can establish the agency by ratifying the actions the agent takes. EX: If a broker places an ad to sell a house without first having the seller's written consent, the seller, by approving and accepting the actions of the broker, creates an agency relationship. NOTE: All license laws require a written agreement prior to placing an advertisement.

Creation and Termination of Agency: Express Agency

An agency relationship created by an oral or written agreement between the principal and agent is called an express agency. Typical examples are: - The written listing agreement between seller and broker; and - The buyer brokerage contract between buyer and broker.

Accounting

An agent must account for and promptly remit as required all money or property entrusted to the agent for the benefit of others. The agent is required to keep adequate and accurate records of all receipts and expenditures of other people's money to be able to provide a complete accounting. For example, a real estate broker must maintain a special account for depositing other people's money. This account should be labeled either "trust account" or "escrow account" and be maintained in an insured bank or insured savings and loan association. It is a violation of the law of agency for real estate brokers to commingle funds or property they are holding in trust for others with personal money or property or with the operating account of the business.

Loyalty

An agent must be loyal to the principal and must work diligently to serve the best interests of the principal under the terms of the employment contract creating the agency. The agent may not work for personal interest or interest of others adverse to the principal's interest. The agent cannot legally represent any other person who directly affects the principal without disclosing the fact of that representation to the principal and obtaining the principal's consent. An agent cannot enter into a dual agency and attempt to represent both buyer and seller in the same transaction, whether or not receiving a commission from both, without the knowledge and consent of both buyer and seller.

Reserves

An apartment complex can have other income generated by vending machines and laundry facilities that the tenants use. This income is projected per year. Any income added to the rental income yields the gross effective income. This is the amount of money the complex may realistically be expected to generate in a 12-month period. Other considerations include reserves for replacement of items that do not require an expenditure of cash each year and estimates of net operating income (the operating expense total subtracted from the effective gross income). The return ON investment is the interest received for investing money in the property. The return OF the investment is compensation for the fact that the building is wearing out

Opinion

An appraisal is an opinion as to the worth of a given property. The opinion must be supported in writing with collected data and logical reasoning. The reasoning must follow one or more of the three appraisal approaches discussed later in the lesson. The three approaches used to estimate market value of a property are: 1. The direct sales comparison approach; 2. The cost approach; and 3. The income approach. Keep in mind that appraisal is not an exact science, and it is not unusual for three appraisers to produce three different values for the same property. Also affecting the opinion is the reason or purpose for the appraisal, also called the "problem."

Possession

An estate in real property is an interest in the property sufficient to give the holder of the estate the right to possession of the property. (This does not necessarily imply ownership of the property, only possession.) Here we further distinguish between the right of possession and right of use. Referring to the analogy of rights in real estate as being like a bundle of sticks, the owner of an estate in land has the right of possession, a bigger stick than a mere right to use or have access to the land, as in the case of an easement or a license.

Fannie Mae Program

An important aspect of this Fannie Mae program is Fannie Mae's guarantee to purchase the mortgage if the sellers/mortgagees desire to sell and get their money out without waiting to complete a series of payments over the mortgage terms. Prior to this, sellers holding purchase money first mortgages had no reliable market for these mortgages if they wished to sell. This Fannie Mae program should provide additional incentive to home sellers to take purchase money first mortgages.

Option: Option to Purchase

An option is: A contract wherein an optionor (owner) sells a right to purchase the property to a prospective buyer (optionee), at a particular price and terms for a specified time period; and An express unilateral contract. Only one party to the option contract makes a promise. The optionor promises to allow the optionee the sole right to purchase the real estate during the specified time. The optionee pays for this right but makes no promise to purchase the real estate. The optionee is merely "buying time" to decide or arrange financing. The money the optionee pays to the optionor for the option right may or may not apply to the purchase price of the property. The parties to the option will negotiate this matter. In accordance with the Statute of Frauds, options to purchase must be in writing to be enforceable.

Definitions

Annual: occurring each year. Biannual: occurring twice a year or semiannually. Biennial: occurring every two years.

Referral fee

Any fee or commission paid by a real estate licensee to any person or entity, other than a cooperative commission offered by a listing real estate broker to a selling real estate broker or by a selling real estate broker to a listing real estate broker.

Advertising Broker Property

Any person who elects to become licensed as a broker or salesperson may advertise property of which he/she is the owner in the same way as any private party. However, such a licensee must abide by all of the other provisions of the law and the rules promulgated by the Commission in any and all real estate transactions in which he/she may be involved, whether the subject property is his/her own, the property of his/her spouse, child, parent, or is the property of a member of the public. If a person licensed as a broker or salesperson chooses to advertise his/her own property as if he/she is a licensed broker or salesperson, then all such advertising as well as all other activities involving such property must be conducted strictly in accordance with Chapter 27 of Title 34, Code of Ala. 1975, and the rules promulgated by the Alabama Real Estate Commission.

Disclosure

As a hazardous substance, the material is quite costly to remove and dispose of. Such costs may impact the purchase decision. Therefore, consumer concern is quite valid. The question of who will test for asbestos is more complex. In residential real estate transactions, home sellers are bound by law to disclose the presence of such materials, if known. Unfortunately, many home sellers are unaware of the presence of asbestos. Real estate salespeople, especially those in commercial sales, must reveal to the prospective buyer the known presence of asbestos on the property. Removal or containment of asbestos usually requires the use of specially licensed asbestos abatement contractors.

LESSON 25

Basic Law of Contracts

Asbestos Materials

Be on the look-out for the following type of materials that can contain asbestos: A fluffy, string-like material sprayed on ceilings or walls as a fire retardant; A granular, cement-like plaster that is either sprayed or troweled on walls and ceilings for fire-proofing and sound-proofing purposes; Broken wall board used for insulation that has sprayed or troweled-on material behind it; and Pipe or boiler insulation that may be felt-like or cement-like in appearance or may look like fibrous wrapping paper. If you believe asbestos may be present suggest further investigation. Use care to ensure that the material is not disturbed (scraped, sanded, drilled through, etc.). Inform parties to the transaction that you suspect or know asbestos is present.

Returning Security Deposits

Because of landlord abuses in using and not returning security deposits, some states have passed legislation addressing: - Limiting the amount of the deposit; - Setting a deadline for returning the deposit; and - Mailing the itemized repair statement to the tenant. The tenant must provide the landlord with a forwarding mailing address in writing to enable the landlord to comply with the law. If the landlord does not comply with the law, the tenant typically can recover, in court, up to the amount of the total deposit, court costs, and attorney fees.

Basic Contract Law: Applying Contract Law

Before learning the specifics of the various contracts normally encountered in the real estate business, it is necessary to understand the basics of contract law, which apply to real estate contracts as well as to all other contracts. Nearly every controversy or question arising in the real estate business involves the contracts between parties and can be answered by applying basic contract law. The first step in understanding contract law is to recognize when a contract exists and, conversely, when it does not exist.

Marketable Title: Title Examination

Before the title can be transferred, the seller must provide evidence of marketable or merchantable title (title that is readily salable in a locality). Marketable title is not perfect title. It is not necessarily title free of all liens. In the case of a sale with mortgage assumption, the buyer has bargained for and will accept seller's title with the present mortgage as a lien on the title. Evidence of marketable title through title examination can be provided by commercially hired search or by personal search of the records that may affect real estate titles.

Biological Contaminants

Biological contaminants include bacteria, mold, mildew, viruses, mites, pollen, cockroaches, and animal dander. Many of these pollutants are found in all types of structures. There are many sources for these pollutants. For example: - Pollens originate from plants - Viruses are transmitted by people and animals - Bacteria are carried by people, animals, soil and plant debris - Household pets are sources of saliva and animal dander.

Ownership by Businesses

Business organizations can take several different forms: - Sole proprietorship - Partnership - Corporation - Syndication - Joint venture - Real estate investment trust (REIT). All of these business organizations can receive, hold, and convey title in the same ways individuals do.

Buyer Credits

Buyer credits could include the following: - Earnest money deposit; - New mortgage money proceeds; - Purchase money mortgage; - Assumed mortgage and seller's accrued interest on mortgage; - Contract for deed balance; - Unpaid real property taxes prorated; and - Balance due from buyer at closing (this is a balancing entry only, as buyer owes this money).

Payoff

By paying half of a monthly payment every two weeks, the borrower will make 26 "half payments" or the equivalent of 13 full payments in one year. The extra payment is applied entirely to the principal balance, which speeds up the payoff. In many cases, this shortens the payoff by several years and saves thousands of dollars in interest charges. A borrower can achieve the same basic result by paying an extra portion each month to the principal. Most lenders allow this partial prepayment without penalty and even invite it in a section on the payment coupon for "additional prepayment."

Changes

Changes in the expected demand for property can stem from various improvements such as schools, shopping centers, freeways and other developments deemed beneficial to the area. Changes in surrounding land use patterns, such as re-routing of traffic via a by-pass have an adverse effect on future demand. Changes producing an increase in demand increase property values. Changes leading to a reduction in demand cause a loss in values.

Closing: The Transfer of Ownership

Closing (also referred to as "settlement " or "escrow " in many parts of the country) is the process whereby an impartial third party, such as an attorney, an escrow company or a title company, is entrusted with the job of seeing that the transfer of ownership from the seller to the buyer takes place according to the terms of the written contract agreed upon by all parties involved. The closing agent keeps or holds any funds or documents safely until all the details have been settled and disburses them to the proper parties at the proper time

LESSON 48

Comparative Market Analysis

Complaints in Writing

Complaints must be in writing and state the facts upon which an alleged violation is based. If HUD or the state organization is unable to obtain voluntary conciliation, a charge will be filed and the case referred to an administrative law judge, unless either party elects to have the case tried in a civil court. The ALJ (administrative law judge) may impose a civil penalty of up to $10,000 for a first offense, $25,000 if another violation occurs within five years, and $50,000 if two or more violations occur in seven years.

LESSON 10

Concurrent Ownership

Accessible

Considerations in determining if the commercial facility or public accommodation can be made accessible are: - Nature and cost of the needed alteration; - Overall financial resources of the facility involved; - Number of persons employed; and - Type of operation of the entity.

Construction

Construction is done after money has been budgeted for renovations such as: - Remodeling - Interior redecorating - New capital improvements Renovation often increases a property's desirability and can lead to increased income.

Constructive and Actual Notice

Constructive notice is binding on everyone, even though those who have not actually read the deed, because recording it gives notice to the world. Constructive notice, provided by recording, protects the title for the grantee. Actual notice requires that the person in fact knows about and sees the document. This protection is against everyone with a later claim, including other purchasers of the same property from the same grantor.

Electronically Printed Contracts

Contract templates make it easy to make changes to a contract and print out a clean, seemingly unaltered form, but this can lead to problems. Without the strikeouts and handwritten insertions, it's not clear where the standard form ends and the work of the real estate associate begins. And in many states, changing a contract constitutes the unauthorized practice of law.

Bilateral and Unilateral: Bilateral and Unilateral Contract

Contracts are involved in every aspect of real estate. Some of the most common real estate contracts are: - Listings - Purchase agreements - Leases - Options - Mortgages - Contracts for deed.

Accessibility

Courses and examinations related to professional, educational, or trade-related applications, licensing, certifications, or credentialing must be provided in a place and manner accessible to people with disabilities, or alternative accessible arrangements must be offered. Commercial facilities, such as factories and warehouses, must comply with ADA's architectural standards for new construction and alterations. Complaints of Title III violations may be filed with the DOJ. In certain situations, cases may be referred to a mediation program sponsored by the DOJ. Title III may also be enforced through private lawsuits. It is not necessary to file a complaint with the DOJ or any federal agency, or to receive a right-to-sue letter, before going to court.

Four Forms of Policies

Customarily, when a property is sold, it is insured for an amount equal to the purchase price. This insurance remains effective as long as the buyer (owner) or heirs have an interest in the property. On the average-priced home, the combined charge for a title report and title insurance amounts to about 1% of the purchase. The four forms of title insurance policies are: - Owner's policy - Mortgagee's policy - Leasehold policy - Contract buyer's policy.

General Warranty Deed

Deeds may be classified both by the form of warranty of title contained in the deed and by the special purpose for which the deed is drawn. The various types of deeds are discussed next, both by type of warranty and by special purpose. The general warranty deed contains the strongest and broadest form of guarantee of title of any type of deed and therefore provides the greatest protection to the grantee. The general warranty deed usually contains six covenants (binding agreements). Exact wording of the covenants may vary.

Depreciable Property

Depreciation is an expense deduction taken for an investment in depreciable property to allow for the recovery of the cost of the investment. Depreciation can occur even when the market value of a property increases. (Non-income producing property, such as a personal residence cannot be depreciated). Depreciation begins upon construction of the improvements. They immediately begin to age physically and to suffer from functional obsolescence in their design. Negative environmental forces can also cause immediate external obsolescence. Tax depreciation is a statutory concept that occurs even though the property itself may have actually appreciated in value. Land is not depreciable (although the cost of landscaping may be depreciated in certain cases). Therefore, there must be an allocation of basis between the land and the building. Most taxpayers use the allocation as set by the state assessor.

Loss in Value

Depreciation is defined as a loss in value from any cause. The loss in value is estimated by the difference in the present market value and the cost to build new. Depreciation results from the following: - Physical deterioration; - Functional obsolescence - Economic obsolescence. Each of these three types of depreciation is caused by forces having an adverse effect on the land and structure.

Offer Discharge or Termination

Discharge or termination of offer to purchase occurs when: - All terms and conditions are met and the seller conveys title to the buyer - All of the terms and conditions are not met - The deadlines set out in the offer to purchase expire with no extension acknowledged by the parties - The property is condemned under right of eminent domain - The property is destroyed by fire, flood, or other natural disaster - The insanity or incapacity of either party occurs.

Conflicting Directions

Discrepancies sometimes occur between the various elements of a metes and bounds description. In resolving such discrepancies the order of priority is: 1. Natural monuments 2. Man-made monuments 3. The courses 4. Distances 5. Names (e.g., "Davis Farm") 6. Then areas (e.g., "50 acres"). In conflict between any two of the above elements, the one with higher priority will prevail.

Discriminatory Advertising

Discriminatory advertising that shows preference based on race, color, religion, sex, national origin, handicap, familial status is illegal. The Act specifies that it is illegal to make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, concerning the sale or rental of a dwelling, that indicates any preference, limitation, or discrimination based on race, color, religion, sex, national origin, handicap, or familial status.

Importance of Title Insurance

Documents do not have to be acknowledged or notarized to be valid, but they must be acknowledged or notarized to be recorded. Recording an invalid document does not make it valid. Title insurance may be required by custom, even where title is registered in the Torrens system, to protect against items not shown on the transfer certificate of title (unrecorded liens, such as federal tax liens). Fannie Mae and Freddie Mac also recognize the importance of title insurance, and they require it on every loan they buy.

Dual Agency

Dual agency: An agency relationship in which the same brokerage firm represents both the seller and the buyer in the same real estate transaction. Circumstances which establish a dual agency include, but are not limited to, one of the following: - When two or more licensees licensed under the same broker each represent a different party to the transaction; and/or - When one licensee represents both the buyer and seller in a real estate transaction.

Housing Crisis

Due to massive losses in the housing crises, on September 6, 2008, the Federal Housing Finance Agency (FHFA) was appointed as conservator of Fannie Mae and Freddie Mac. In addition, the U.S. Department of the Treasury agreed to provide up to $100 billion of capital as needed to ensure the company continues to provide liquidity to the housing and mortgage markets.

Engage

Engage: Contractual relationships between a qualifying broker and an associate broker or salesperson licensed under him or her whether the relationship is employer-employee, independent contractor, or otherwise. Inactive License: A license which is being held by the Commission office by law, order of the Commission, at the request of the licensee, or which is renewable but is not currently valid because of failure to renew. Licensee: Any broker, salesperson, or company. License Period: Period of time beginning on October 1st of a year designated by the Commission to be the first year of a license period and ending on midnight September 30th of the year designated by the Commission as the final year of that license period. Person: A natural person.

LESSON 53

Escrow & Settlement Process

Misrepresentation

Even though one of the agent's obligations to the principal consists of the requirement not to disclose certain confidential information to third parties that would be injurious to the principal, the agent may not engage in misrepresentation of fact in any way to a third party. A misrepresentation by a seller's broker occurs when he or she conceals a defect in the property from the buyer or makes a misrepresentation to the buyer regarding the existence of a defect.

Variations

Even though the results obtained by the different approaches will not be exactly the same, they should be reasonably close. Therefore, each approach provides a check on the other two. If the result by one method varies considerably from the others, it may indicate: - A calculation error; - An error in the data used as a basis; or - The inappropriateness of that method.

Typical Covenants

Examples of typical restrictive covenants are: - Only single-family dwellings may be constructed in the subdivision; - Dwellings must contain a specified minimum number of square feet of living area; and - Only one single-family dwelling may be constructed on a lot (no lot may be subdivided). Dwellings must be of a harmonious architectural style. To ensure this, a site plan and specifications for the structure must be submitted to and approved by a committee prior to the start of construction.

LESSON 39

FHA and VA Loans

No Prepayment Penalty

FHA and VA mortgages never require a prepayment penalty (a charge for paying off the loan before the end of the mortgage term). As of October 1, 1992, all FHA loans require that the borrower sign a lead-based paint notice if the property was built before 1978. This notice must be signed on or before date of contract sale.

Regulation

FIRREA legislation substituted: - The Office of Thrift Supervision for the Federal Home Loan Bank Board - The Savings Association Insurance Fund for the Federal Savings and Loan Insurance Corporation. The Federal Deposit Insurance Corporation (FDIC) now regulates both banks and savings and loan associations; however, the insuring funds are maintained separately.

LESSON 55

Fair Housing Laws and Protected Classes

LESSON 59

Fair Housing Rules

Definition of Familial Status

Familial status means one or more individuals (who have not attained the age of 18 years) being domiciled with: - A parent having legal custody of such an individual or individuals; - Another person having legal custody of such an individual or individuals; or - A designee with written permission by a parent or legal custodian of such an individual or individuals. The protection afforded against discrimination on the basis of familial status shall apply to any person who is pregnant or is in the process of securing legal custody of any individual who has not attained the age of 18 years.

Inheritance Taxes

Federal estate and state inheritance taxes are calculated and incurred at the time of death of an individual owning property. A general lien on the property in the estate passes through the estate to assure payment of the taxes due at death. Most states impose some type of tax upon the inheritance of real and personal property. Called state inheritance tax, this tax is a lien on all property the heirs are to inherit. To satisfy the tax bill, the estate is allowed.

Appeals : Final Findings

Findings of the Commission are final unless: - Within 30 days after the date of the Commission's final order, the applicant or accused files a notice of appeal in the Circuit Court of Montgomery County, or of the county of his/her residence, if an Alabama resident; or - If a corporation registered in Alabama, in the circuit court of the county of registration or the county in which the corporation has its principal place of business in Alabama.

Fixed Expenses

Fixed expenses are costs that do not fluctuate with the operating level of the complex. They will remain the same whether the occupancy rate is 95 percent or 50 percent. These include such items as real property taxes, insurance, licenses and/or permits. As a starting point, look at the actual record of income and expenses for the subject property over the past three to five years. The past record of a property is usually the best guide to future performance. Blend historical data with the current operating experience of similar buildings in order to estimate what the future will bring.

Offer and Acceptance : Meeting of the Minds

For a contract to exist, an offer and an unconditional acceptance of the offer must be present. Another name for offer and acceptance is meeting of the minds. Agreement of the parties is also called mutual assent. Meeting of the minds is evident when the parties to the contract reach agreement on the terms of the contract.

Disclosure of Credit Terms

For example, an advertisement mentioning a down payment triggers the requirement to make a complete disclosure of all of the following credit terms: - Purchase price of the property; - Annual percentage rate; - Amount of down payment; - Amount of each payment; - Date when each payment is due; - Total number of payments over the mortgage term - Fixed, variable or adjustable rate. Violators of Regulation Z are subject to criminal liability and punishment by fine of up to $5,000, imprisonment for up to a year, or both. If the borrower suffers a financial loss as the result of the violation, he or she may sue the violator under civil law in federal court for damages.

Key Cases: The Courts and Racial Discrimination

For over a century, the courts prohibited racial discrimination only with regard to "state" (governmental) discrimination, such as racial zoning or the court enforcement of racially-restrictive covenants governing real property; therefore, the 1866 Act was essentially ineffective in combating private discrimination. The first major setback to the legal rights of African-Americans came in the U.S. Supreme Court's decision in the Civil Rights Case (1883). In that case, the Court held that the equal protection clause of the U.S. Constitution (i.e., the 14th Amendment) did not prohibit private acts of discrimination, rather it merely prohibited discrimination that was the product of government action.

Numerator and Denominator

Fraction: 1/2 = (1) numerator / (2) denominator = 1÷2 The line separating the numerator from the denominator means division. The top number is divided by the bottom number or, in other words, the first number is divided by the second number.

Freehold Estates

Freehold estates are: - Various fee simple estates, which are inheritable OR - Life estates, which are not inheritable. The two principal elements of a freehold estate are actual ownership of real property and unpredictable duration.

Grid Line

Grid lines run along side the principal meridian or the base line at intervals of six miles. The east/west lines are called township lines, and divide the land into rows or tiers which are called township tiers. The north/south lines, called guide meridians or range lines, divide the land into columns which are called ranges. Imaginary lines, called range lines, are located every six miles east and west of a principal meridian.

LESSON 49

Highest and Best Use

LESSON 57

History of Fair Housing in America

Purchase Contract

However, the purchase contract is the "final" contract between buyer and seller; the buyer is not bound by the listing because he or she is not a party to it. The purchase contract dictates ownership of the fixture. It should list any items that could cause confusion among the parties as included or excluded from the contract.

Loan Originators

Hundreds of S&Ls have merged or closed, and the government has taken over hundreds more. Costs to taxpayers will be measured in the billions of dollars, and the effects on the economy will be felt for years to come. These institutions continue to invest a larger portion of their assets in residential real estate than any other type of institution. Commercial banks, however, recently have surpassed S&Ls in actual number of mortgage loans originated and the amount of money invested in mortgage loans. Savings institutions, including S&Ls and savings banks, continue to provide more funds for one-to-four family housing than commercial banks provide.

Running-with-the-Land

If Smith sells his property to Brown, the easement appurtenant follows the transfer of title to the land now owned by Brown. When an easement appurtenant follows the transfer of title to land from one owner to another and attaches to the land, it is called running-with-the-land. For an easement to run with the land, the owner of the easement must own the land to which the easement attaches (dominant tenement). Just as the dominant nature of the easement appurtenant runs with the land, so does the servient nature run with the land.

Missing Variable and Multiply the Variables

If there is a missing variable, use the two numbers you have and either multiply them or divide them depending on their position in the formula. If you know any two of the variables, you can easily solve for the third by performing the operation indicated by their positions in the formula diagram. In the example here, you would multiply the two variables to get the result.

Void Contract

Impossibility to complete a contract is more common in real estate. The contract is impossible to complete because of an act of God or because it is impossible to complete under operation of the law; thus, the contract is void and does not exist. Example 1: Jonny enters into a contract with Mark to defraud Jenifer out of her home. The contract contains illegal intent and is invalid from the start. The same impossibility to complete can occur if the object of the contract is destroyed by fire, flood, tornado, or other natural causes

U.S. vs. Hunter

In 1972, the 4th Circuit Court of Appeals rendered a decision in U.S. v. Hunter, which is still today the most important court case regarding discriminatory advertising under the Fair Housing Act. The Hunter case was important for three reasons. 1. The case made it clear that 804 (c) applies to newspapers and other media, even if the ad was actually drafted by someone else. 2. The court held that 804 (c) does not violate the freedom of speech clause in the First Amendment. 3. The court held that whether a particular ad violates 804 (c) must be determined by how an ordinary reader would interpret that ad, including implicit indications of a discriminatory preference or limitation.

Marketable Title

In Connecticut, Michigan, Utah, Vermont, and Wisconsin, this is 40 years. Thus, in these states a person who has an unbroken chain of title with no defects for at least 40 years is regarded by the law as having marketable title. The result is to concentrate the title search on the immediate past 40 years. Thus, abstracts can be produced with less effort and expense, and the chance for error is greatly reduced. Marketable Title Acts do not eliminate the need for legal notice, nor do they eliminate the role of adverse possession.

Equal Opportunity Housing

In November 1962, President Kennedy signed an executive order, entitled "Equal Opportunity in Housing," prohibiting discrimination in housing that is owned, operated or assisted by the federal government. The order required federal agencies to take action to prevent discrimination based upon race, color, creed or national origin. Although the executive order was the first federal anti-discrimination initiative of the 20th century, it had limited impact on the housing market.

Proprietary Lease

In a cooperative, the buildings, land, and all real property rights and interests are owned by a corporation in severalty. This form of residential ownership is found in significant numbers in New York City, Miami, Chicago, San Francisco, and Honolulu. The individual shareholders are called cooperators, and the lease that the corporation gives to a shareholder is called a proprietary lease. The title to the property, as shown on the deed, is in the name of the corporation. The shareholders of the corporation are tenants in the building. The tenants have the right of occupancy as evidenced by a proprietary lease, which is usually an estate for years and for a long period of time.

Using Each Method

In addition, the qualified appraiser also estimates the property value by each of the other two methods. In case of the single-family dwelling, the appraiser treats the property as if it were rental property and estimates the value using the income approach. Last, the appraiser arrives at a value estimate by the cost approach. Using all three appraisal methods discussed (market, cost and income) should provide the best indication of a property's value, as well as a cross check. If one approach is out of line with the others, it may indicate an error in the appraiser's work or a problem in the market itself. It is not unusual to find individual sales that seem out of line with prevailing market prices. Similarly, there are times when buyers will temporarily bid the market price of a property above its replacement cost.

Exclusive Agency Listing

In an exclusive agency listing, the property is listed with one brokerage as the only agent. If the owner sells the property, the brokerage earns nothing. This is not the case if the listing agreement specifies that the owner agrees to refer to the broker all inquiries regarding the property during the listing period, as in the exclusive right to sell listing. The broker earns the commission if he/she, his or her agents, or a cooperating broker sells the property. While this type of listing is somewhat better than the open listing, the broker is still competing with the owner.

Handling Security Deposits

In handling security deposits, the property manager must comply with local law with regard to collecting and retaining security deposits. If the property manager is careful in selecting tenants, legal actions for eviction and collection of rents will be minimal. Effective property managers attempt to resolve any disputes before they institute a lawsuit. If a lawsuit is necessary, the property manager's file must show his or her compliance with all the terms of any lease agreement with the tenant. In filing a suit, the property manager must be familiar with local court rules and procedures. Some courts require that the property manager be represented by an attorney. If so, the property manager should consult with legal counsel prior to any court date to assure that any witnesses will attend and that all exhibits for the hearing are available.

Property Disclosure Form

In many states, the seller must complete and provide to any prospective buyer a detailed Property Disclosure Form listing the condition of the property being sold. This form, to be completed by the seller, is a comprehensive checklist pertaining to the condition of the property including the structure and any environmental hazards in and around the property. In states requiring such a form, failure to provide it may invalidate any offer to purchase made by a prospective buyer. Incomplete disclosure or intentional falsification of information on the disclosure form may subject the seller to liability from misrepresentation, fraud, and damages incurred by the buyer as a result of the misrepresentation. If sellers fail to correctly disclose, they will be liable for the statutory penalties.

Two Contract Caveats

In most cases, brokerage companies use pre-approved contract forms for real estate transactions. 1. Standardized Contract Forms 2. Electronically Printed Contracts

Obeying Fair Housing Laws: Compliance

In order to fully obey fair housing laws, real estate licensees should: - Include safeguards in day-to-day practice; - Understand Fair Housing Laws; and - Evaluate the intent and effects of their actions and statements. A salesperson who denies equal service to anyone because of their race, color, religion, sex, handicap, familial status or national origin is in violation of the law. Association with persons in these protected classes is also covered by the law. Such conduct may result in loss of license, civil damages and penalties, and in some cases, criminal prosecution, fine and imprisonment.

Private Land Use Controls : Covenants

Individual owners have the right to place private controls on their own real estate. These restrictions take the form of individual deed restrictions or subdivision restrictive covenants affecting the entire subdivision. Individual deed restrictions are in the form of covenants or conditions. Restrictions that provide for a reversion of title, if they are violated, are called conditions. If a condition is violated, ownership reverts to the grantor. These conditions create a defeasible fee estate.

Property Reports

Information required on these property reports includes: - Type of title a buyer will receive - Number of homes currently occupied; - Availability of recreation facilities - Distance to nearby communities - Utility services and charges - Soil or other foundation problems in construction. If the purchaser or lessee does not receive a copy of the property report prior to signing a purchase contract or lease, the purchaser likely will have grounds to void the contract.

Contract for Deed

Instead of obtaining a loan from a mortgage company, the seller is "loaning" the "purchase" to the buyer. Under the land contract, the seller will usually receive an agreed-upon down payment and monthly payments from the buyer. The seller is deferring receipt of full payment of the purchase price from the buyer over the term of the contract. Consultation with legal counsel prior to creating the contract for deed is advised for the protection of all parties.

Investment Objectives: Profit

Investment is the outlay of money expecting income or profit. Therefore, the objective of a person who purchases a parcel of land for investment is to make an income or a profit. Different land owners may achieve this objective in various ways. Some owners desire to generate income from the land while others are satisfied if the ownership of land indirectly provides income through tax savings. Some owners may be willing to wait many years for income or profit, buying vacant land, for example, in anticipation of extensive growth in ten years, with the profit to be realized only upon final sale of the land. A land trust can be used for this purpose.

Urea Formaldehyde Foam Insulation : Formaldehyde

It's hard to avoid exposure to formaldehyde, a respiratory irritant and carcinogen. It protects latex paints from mildew and inhibits wrinkles in permanent press fabrics. It's also a key ingredient in many insulating foams, durable automotive resins, and glued-wood construction materials. Formaldehyde is a colorless, gaseous chemical compound that is generally present at low, variable concentrations in both indoor and outdoor air. Formaldehyde has a strong pronounced odor that can be readily identified and measured. The EPA classifies formaldehyde as a "probable human carcinogen."

Factors Affecting Land Use: Economic Factors

Land use control describes any legal restriction that controls how a parcel of land may be used. There are both public controls and private controls. Public controls include zoning, building codes, subdivision regulations, and master plans. Private controls come in the form of deed restrictions. The following are examples of economic factors that affect land use: - Local property tax assessments - Tax rates - Wage and employment levels - Interest rates - Availability of financing - Zoning - Growth in the community - Building codes - Fire regulations - Local and regional land use planning.

LESSON 44

Leasing Basics

Contract Validity: Legality of Object

Legality of object means that the contract must be for a legal purpose. A contract for an illegal purpose is void. Examples of illegal contracts include contracts in restraint of trade, contracts to stifle or promote litigation, and contracts in restraint of marriage. The parties must be able to complete the contract without interference from operation of law or acts of God. A contract that is impossible to complete is void. Examples of contracts that are impossible to complete arise in times of national emergency.

Two Groups of Liens

Liens fall into two groups: 1. Specific liens, claims against a specific and readily identifiable property (i.e., a mortgage) 2. General liens, claims against a person and all of his or her property (i.e., the disposition of a lawsuit).

LESSON 23

Listing Agreement

Termination of Listing Contract

Listing contracts terminate: - After expiration of the time period outlined in the listing - At the sale (closing) of the property - Upon the death or incapacity of the seller - If the property is condemned - If the seller files for bankruptcy - If the broker's license is revoked - If the listing terms are breached by either seller or broker - At the mutual agreement of both seller and broker.

Fair and Equal Treatment

Most problems which arise in this area of compliance with fair housing laws involve refusing to show certain property, steering (directing home seekers to or away from particular neighborhoods), improper advertising, and less favorable treatment of minority prospects. You should begin now to learn how to work with prospective purchasers in such a manner as to give fair and equal treatment to all prospects. Work with your broker to establish techniques of qualifying prospects, showing properties and submitting offers which eliminate the possibility of discrimination against minorities.

The Assumed Estate

Most real estate transfers convey a fee simple absolute. No special words are required on a deed to create this freehold estate. It is the assumed estate. This fee simple estate is the least limited interest and the most complete and absolute ownership in land; it is of indefinite duration, freely transferable, and inheritable. All other estates may be created from it, which means that all other estates must be something less than fee simple (such as life estates or leaseholds).

Civil Rights

Neither the Declaration of Independence nor the American Revolution produced any rights or freedom for the black man. Even Article 1 of the U.S. Constitution treated slaves as "three-fifths" of a person for purposes of determining a state's population for representation in Congress. Prior to the Civil War, the courts refused to recognize any rights for persons of African descent, whether they were slaves or free. The federal government did nothing to prohibit discrimination, and even those states that had abolished slavery treated blacks as inferior.

Adjustments

No two properties are exactly alike. However, many are comparable or similar in quality, location, and utility -- particularly in the eyes of the buyer. In comparing the listed property and the comparables, adjustments are made for differences in things such as lot size, age, condition, number of rooms, square footage, etc. A minimum of three comparables, as similar as possible, is desirable.

License Certificates and Reciprocal Licenses: Temporary License

On passing the examination and complying with all other conditions for licensure, a temporary license certificate shall be issued to the applicant. The applicant is not licensed until the licensees qualifying broker actually receives the temporary license certificate. The original fee for both a temporary salesperson's license and a broker's license will be charged. A temporary license shall be valid only for a period of one year following the first day of the month after its issuance.

Buchanan vs. Warley

On the other hand, some of the more blatant forms of racial discrimination by the government were outlawed by the Court. In 1917, in Buchanan v. Warley, the U.S. Supreme Court struck down a local zoning law that limited African-Americans and other minorities to specific areas of town. The Court held that governmental zoning laws that discriminate, based upon race, violate the equal protection clause of the Fourteenth Amendment. This court case did not, however, ban any form of private discrimination. Again, private persons were free to discriminate based upon race.

Loan Application

Once a borrower has contracted to purchase a home, the process of arranging for mortgage financing commences. The main document in the loan origination process is the loan application. Customarily, the borrower and the lender's representative meet, and the borrower completes the loan application at this initial meeting.

Factors Affecting Property Value: Neighborhood Analysis

Once a property is shown to be of value because it has utility, scarcity, transferability and effective demand, many factors affect the value of the property in a negative or a positive way. Collectively these factors are referred to as a neighborhood analysis. Specifically these factors are divided into four categories: 1. Physical 2. Economic 3. Social 4. Governmental.

Management Proposal

One of the first duties of a prospective property manager is to submit a management proposal to the property owner, setting forth the commitments of the manager if employed by the owner. A typical proposal includes: - A complete description of the land and all improvements; - A listing of all maintenance required and existing curable obsolescence; - Information regarding maintenance records and accounting procedures the manager will use; - Schedules of property inspections and owner conferences; - A thorough capital improvement budget; and - A document citing the management fee.

Escrow: Opening Escrow

Opening escrow or starting the closing process, simply involves visiting the office of any firm that handles closings, then handing over the deposit money and giving instructions for the transaction. Anyone who is involved in the transaction may "open escrow." Generally, the real estate agent takes the initiative and opens the escrow. In for-sale-by-owner transactions, in which no agent is involved, either the buyer or the seller or both together may open escrow.

Right of Accession

Owners of real property have the right to all that their land produces or all that is added to the land, either intentionally or by mistake. This is the ownership right of accession. This right becomes an issue when a watercourse changes gradually or rapidly. The gradual building up of land in a watercourse over time by deposits of silt, sand, and gravel is called accretion. The land mass added to property over time by accretion, called alluvion, is owned by the owner of the land to which it has been added. Avulsion is the loss of land when a sudden or violent change in a watercourse results in its washing away.

Deeds

Ownership of real property is transferred and evidenced by a document called a deed. A deed conveys real property only and cannot convey personal property. There are many types of deeds, including warranty deeds, grant deeds, bargain and sale deeds, quitclaim deeds, gift deeds, guardian's deeds, executor's deeds, personal representative's deeds (probate), sheriff's deeds, commissioner's deeds (foreclosure) and deeds in trust. The major difference in each case is the type of covenant made by the grantor.

Clubs and Occupancy Standards

PRIVATE CLUBS. The Act does not prohibit a private club, (not, in fact, open to the public), which, incident to its primary purposes, provides lodgings that it owns or operates for other than a commercial purpose, from limiting the rental or occupancy of such lodgings to its members or from giving preference to its members. OCCUPANCY STANDARDS. The Act does not limit the applicability of any "reasonable" local, state or federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling. The Act also does not prohibit owners and property managers, in certain circumstances, from developing reasonable occupancy requirements.

Chemical Fumes

People with allergies and asthma are often more readily affected by dust mites and mold, but poor air quality and chemical fumes are potentially dangerous to anyone. For example, urea formaldehyde was first used in building materials, particularly insulation, in the 1970s. Gases leak out of urea formaldehyde foam insulation (UFFI) as it hardens and becomes trapped in the building walls. These gases can cause some people to suffer respiratory problems, and eye and skin irritations. Further urea formaldehyde is known to cause cancer in animals. The Consumer Product Safety Commission has issued a warning regarding the use of UFFI but has currently not banned its use. Some states, however, do prohibit the use of UFFI. Tests can be conducted to determine the level of formaldehyde gas in a house.

General Warranty Deed

Perhaps the most commonly used deed is the general warranty deed. The deed is unique in that it signals the end of one ownership and the beginning of another. In order to be valid, a deed must contain the following: - Grantor - Granter - Consideration - Words of conveyance - Legal description - Signature - A deed must be delivered. Though not essential for validity, a deed is normally recorded to protect the grantee against claims of any third party.

Four Common Changes to Contracts

Poll your associates to see which situations most often generate changes to contract forms. The following are some likely candidates: - Handling back-up offers - Seller financing - Inspection or attorney-review contingencies - Excluded parties in a listing --- that is, those parties (such as family members) to whom the property may be sold without the seller being obligated to pay a commission.

Health Hazards : Pollutants in the Home

Pollutants inside the home include: Bacteria; Formaldehyde; Oil, gas, kerosene, coal and wood combustion stoves; Building materials and furnishings that may contain formaldehyde, deteriorating asbestos, and other chemicals; Products for household cleaning and maintenance; Pressed wood furniture; Central heating and cooling systems; Carpeting; and Outside sources such as radon, pesticides, and outdoor air pollution that seeps into homes.

Preventative and Corrective

Preventative maintenance requires a periodic check of mechanical equipment on the premises, to minimize excessive wear and tear from improper operation. An example of preventative maintenance is changing the air filters for air conditioners and furnaces. Corrective maintenance is the work performed to fix a nonfunctioning item that a tenant has reported. An example of this type of maintenance is the repair of a leaking faucet.

Progression

Progression signifies an increase in the worth of a lesser property because of its location near higher quality properties. Another example is an older, small home in an area of newly constructed larger homes. Both regression and progression affect market value--the cash price that a willing buyer and a willing seller would agree upon, given reasonable exposure of the property to the marketplace, full information as to the potential uses of the property and no undue compulsion to act.

Property Values

Property values can be affected by: - Failure to adhere to the principle of highest and best use, thereby creating an over-improvement or under-improvement of the property; - Changes in zoning and building regulations that adversely affect property use; and/or - Reduction in demand for property in the area caused by local economic factors, changes in growth patterns, population shifts, and other economic factors adversely affecting property value.

Fair Housing Amendments: Handicap

Protected classes now include individuals with a handicap (a mental or physical disability that impairs any of their life functions). Landlords must allow people with handicaps to make reasonable modifications to an apartment, at the tenant's expense, to accommodate their special needs. Tenants must be allowed to install a ramp or widen doors to accommodate a wheelchair, or install grab bars in a bathroom. At the end of their tenancy, they must return the premises to their original condition, also at their own expense. Since 1990, new multi-family construction provides certain accommodations for people with handicaps - for example: switches and thermostats at a level that can be operated from a wheelchair, reinforced walls to install grab bars, and kitchen space that will permit maneuverability in a wheelchair.

Agreement Provisions

Provisions of the typical property management agreement include: - Inception date and names of the parties - Property location and description of the premises - Duration of the agency - Method of termination by either party - Agent's fee (a base fee plus a percentage of the rent actually collected is common) - Agent's authority - Agent's duties - Owner's duties - Handling of security, rents, and expenses by agent.

Records Searched:

Public Records of Deeds Mortgages Long-Term Leases Options Contracts for Deeds Easements Platted Subdivisions Judgments Entered Deaths and Marriages Bankruptcy Filings Mechanics' Liens Zoning Ordinances Mortgage Releases Lis Pendens Notices Real and Personal Property Taxes Miscellaneous Assessments for Improvements

LESSON 62

Qualifications and Responsibilities

Quitclaim Deed

Quitclaim deeds may be used to clear a "cloud on a title." This terminology describes the situation when someone has a possible claim against a title. As long as this possibility exists, the title is clouded and therefore not a good and marketable title. To remove this cloud and create a good marketable title, the possible claimant executes a quitclaim deed as grantor to the true titleholder as grantee. Quitclaim deeds also are used in community property states to enable a married individual to own property in severalty, purchased during the marriage. The grant deed is a special form of statutory deed used in western states where warranty deeds are rarely used. Rather than being expressly set forth in the deed, the warranties are implied from state statute. Most notably, this deed is used in California, Idaho, and North Dakota.

LESSON 36

Real Estate Financing Practice

Real Estate Investments Trusts

Real Estate Investments Trusts (REITs) make loans secured by real property. REITs are owned by stockholders and enjoy certain federal income tax advantages. They provide financing for large commercial projects, such as second-home developments, apartment complexes, shopping malls, and office buildings. They may also lend money on projects owned by others, known as mortgage REITs. Individuals in every area invest in mortgages. These investors usually are an excellent source for second mortgage loans.

LESSON 47

Real Estate Valuation

Fair Housing Poster

Real estate brokers should be aware of an amendment to the 1968 law that requires all offices to prominently display the fair housing poster. Upon investigation of a discrimination complaint, failure to display the poster could be conclusive proof of failure to comply with the federal law. As the law presently exists, discrimination on the basis of race, color, religion, sex, national origin, handicap, or familial status is illegal in the sale or rental of housing.

Recording Documents: Recordation

Recordation gives order to the system of land ownership and transfer. Recorded documents affecting real estate can be found in public records in the county in which the property is located. Mortgages and deeds of trust should always be recorded. This protects those with any present or future interest in the property by providing constructive notice to the general public of claims against the property. Real estate documents do not have to be recorded to be valid between the parties involved. If they are not recorded however, someone obtaining and recording a future interest in the property may have an interest superior to that of the person who gained an interest earlier, but did not record the document before the future interest holder.

LESSON 64

Recovery Fund and License Law Violation

Loan Limit

Relying solely on the borrower's income, credit worthiness, and the property as collateral, the lender will set a limit as to how much an applicant can borrow. Sometimes this limit is set by law or the type of loan or is simply left up to the lender's discretion. Without additional guarantees or assurances, most lenders will not lend more than 80% of the value on owner-occupied residential property.

Agent's Role

Remember: Real estate agents are not expected to have the technical expertise necessary to discover the presence of environmental hazards. However, because they are presumed by the public to have special knowledge about real estate, agents should be aware both of possible hazards and where to seek professional help. A real estate agent should recommend that a property purchaser hire a home inspector, environmental auditor, and/or lead inspector who is a technical expert to provide a comprehensive study of the condition of the property if there is any potential problem. Not only can such experts detect environmental problems, but they can usually offer guidance about how best to resolve any adverse conditions and at what cost.

LESSON 14

Restrictions and Covenants

Riparian Water Rights

Riparian water rights belong to the owner of property bordering a flowing body of water, such as a stream or a lake. Riparian literally means riverbank. Examples of such rights are the right of irrigation, swimming, boating, fishing and the right to the alluvium deposited by the water. These rights are held in common with other riparian owners to make reasonable use of the waters that flow past, provided such use does not alter the flow of water or contaminate the water. If the body of water is in movement, as a stream or river, the abutting owner is called a riparian owner. If the water is not flowing, as in the case of a pond, or ocean, the abutting owner is called a littoral owner.

Program Changes

Significant changes have taken place in the FHA home loan program since its inception and the program will most certainly change many times in the future. Salespeople must understand these changes because they will likely be selling properties purchased with FHA loans that originated under rules different than those currently in effect.

Social and Governmental Factors

Social factors include: - Rates of marriage, - Births, - Divorces and deaths, - The rate of population growth or decline, and - Public attitudes toward education, cultural activities, and recreation. Governmental factors affecting value include: - Zoning laws, - Building codes, - Subdivision control ordinances, - Fire regulations, - Taxation, and - City or county planning.

Savings Banks

Some S&Ls have changed their names to "savings banks" to avoid the negative connotations now associated with S&Ls. Although some of these S&Ls changed their structure and function, others changed only their names. These savings banks differ from mutual savings banks, some of which also have changed their names to savings banks. The primary purposes for which savings and loan associations exist are to encourage thrift (hence the term "thrifts"), and provide financing for residential properties. Although there are fewer thrifts in existence today than in the early 1980s, in general they are enjoying profit and continue to play a major role in residential real estate financing.

Toxins

Some of these toxins are generated by the synthetic, mechanical, and otherwise technological stuff with which we fill our homes: - Water heaters that give off exhaust fumes - Furniture that releases formaldehyde into the air - Paints that contain lead - Asbestos that insulates pipes. And sometimes the pollutants may be more organic in nature: - Tiny dust mites that hide in bedding - Mildew that grows in the bathroom - Radon that seeps into the basement.

Miscellaneous TRS Info

Some people hang up on relay calls because they think the CA is a telemarketer. If you answer the phone and hear, "Hello, this is the relay service. Have you received a relay call before?" Please don't hang up. Congratulations! You are about to talk on your phone to a person who is deaf, hard of hearing or has a speech disability. To learn more about TRS, visit the FCC's Web site. If you have questions, need assistance on other disability issues, or if you would like to receive free information about disability issues on a regular basis via email, contact the FCC's Consumer and Governmental Affairs Bureau.

Manner of Acceptance

Sometimes an offer specifies the manner in which acceptance of the offer must be communicated to the offeror by the offeree. In the absence of any specific provision in that regard, the offeree should communicate acceptance in the same manner as the offer was received: - If the offer is made in writing, the acceptance should be made in writing. - If acceptance is in the mail, the communication is effective and a contract is created at the time the offeree deposits the acceptance by mail.

Documentation

Sometimes substitute documentation may be used in place of verifications. For example, pay stubs or employee year-end W-2 statements may be used in place of employment verification; bank account statements for two months prior to loan application may substitute for bank account verification. In addition to the documents listed, most lenders require a copy of the borrower's driver's license and social security card for identification purposes. The loan origination documentation, along with the purchase contract, the borrower's check to cover the cost of the credit report and the property appraisal, and the application fee, are delivered to the lender's loan processing department for action.

Non-License Categories

State laws allow certain categories of persons to perform brokerage for consideration without a license. Some examples are: - Owners or lessors acting in regard to property they own or lease; - Individuals acting as attorney-in-fact under a duly executed power of attorney authorizing the final consummation of any contract of sale, lease or exchange of real estate. An attorney-in-fact is a person or organization appointed to perform certain legal acts on behalf of another under a duly executed power of attorney. The attorney-in-fact need not be an attorney at law, although people often give a power of attorney to their lawyers; - An attorney-at-law, if the services are performed on behalf of clients as part of any attorney's provision of legal services to those clients; - Receivers, trustees in bankruptcy, guardians, administrators or executors acting under a court order; - Trustees acting under trust agreements, deeds of trust or will, or trustee's salaried employee; and - Property managers and building-developers.

Subagent / Transaction Broker

Subagent: A licensee who is empowered to act for another broker in performing real estate brokerage tasks for a principal, and who owes the same duties to the principal as the agent of the principal. Transaction broker: A licensee who assists one or more parties in a contemplated real estate transaction without being an agent or fiduciary or advocate for the interest of that party to a transaction.

Subdivision Regulations: Common Promotional Plan

Subdivision refers to any land, whether contiguous or not, if two or more lots, parcels, units or interests are offered as part of a common promotional plan of advertising and sale. The law would thus apply to the sale of a 1/25 undivided interest in a large parcel of land. States may empower local government, cities, and counties through subdivision regulations to protect purchasers of property within the subdivisions, and to protect taxpayers in the city or county from an undue tax burden resulting from the demands for services that a new subdivision generates and which might otherwise not be provided.

Ragin vs. The New York Times Co.

Subsequent court cases have held that a plaintiff need not establish that a defendant intended to express a racial preference, although a few courts have required some showing of intent to indicate a racial preference. The first federal appellate decision dealing with the issue of human models was the 1991 2nd Circuit Court of Appeals case entitled Ragin vs. The New York Times Co. The Times was accused of running real estate ads that showed predominately white males. In the New York Times case, the court adopted the "ordinary reader" standard whereby, if the ads would discourage readers of a particular race from answering the ad, the Times could be held liable even if the advertiser did not intend to discriminate.

Discharge pt 2

Such a right of first refusal is an express unilateral contract. To be enforceable under the Statute of Frauds, it must be in writing. It will be binding on the heirs and estate of the owner of the real estate. The right of first refusal is discharged: Upon sale of the property to the named individual, or Upon the named individual's refusal to purchase the property when offered for sale. This type of contract is often found in real estate transactions when a family member has gifted property or sold property to another family member. In an effort to control ownership of the property, the right of first purchase is given to the original owner.

Something to Think About:

Suppose the salesperson had not known that the neighborhood in question had recently become integrated and she was actually referring to changes because of an airport expansion. Would the salesperson still be guilty of "steering"? Is it possible? The law looks at the effect of the person's conduct, not just the intent. Be specific when stating changes about the neighborhood.

Syndication: Operating an Investment

Syndication is a descriptive term for a group of two or more people united for the purpose of making and operating an investment in real estate. A syndication may operate in the form of a Real Estate Investment Trust (REIT), corporation, general partnership, limited partnership or even as tenancy in common. The syndication may involve joining of assets and talents of individuals, general partnerships, limited partnerships, or corporations in some combination. Syndication frequently offers the small investor a chance to participate in a real estate investment that will be managed by experienced persons. Although people and entities invest in real estate, some investors are hoping to make money based solely on the efforts of others, without liability, so the organization may be considered to be dealing in securities

How Does TRS Work?

TRS uses operators, called "communications assistants (CAs)," to facilitate telephone calls for people who have difficulty hearing or speaking, and other individuals. Federal Communications Commission (FCC) rules require telephone companies to provide TRS nationwide on a 24-hour-a-day-, 7-days-a-week basis, at no extra cost to callers. Conversations are relayed in real time and CAs are not permitted to disclose the content of any conversation. Relay callers are not limited in the type, length, or nature of their calls.

What is a TTY?

TTYs are also called text telephones. TTYs have a typewriter keyboard and allow persons to type their telephone conversations via two-way text. The conversation is read on a lighted display screen and/or a paper printout on the TTY.

Real Property Tax Lien

Taxes levied by a local government constitute a specific lien against the real estate. Many state laws provide that real property tax liens have priority over all other liens. If the assessed real estate property taxes are not paid when due, the local official responsible for collecting the tax can bring legal action to collect the taxes. The typical action for collection is the forced sale of the property at a tax sale.

31 Ways to Lose your License: Disciplinary Actions -- Generally

The Commission or its staff may, on its own or on the verified complaint in writing of any person, investigate the actions and records of a licensee. The Commission may issue subpoenas and compel the testimony of witnesses and the production of records and documents during an investigation. If probable cause is found, a formal complaint shall be filed and the Commission shall hold a hearing on the formal complaint. The Commission shall: - Revoke or suspend the license, or - Impose a fine of not less than $100 nor more than $2,500 or both, or reprimand the licensee in each instance in which the licensee is found guilty of any of the following acts: 1. Procure or attempt to procure a license, for himself or herself or another, by fraud, misrepresentation, or deceit, or by making a material misstatement of fact in an application for a license; 2. Engage in misrepresentation or dishonest or fraudulent acts when selling, buying, trading, or renting real property of his or her own or of a spouse or child or parent; 3. Make a material misrepresentation, or fail to disclose to a potential purchaser or lessee any latent structural defect or any other defect known to the licensee. Latent structural defects and other defects do not refer to trivial or insignificant defects but refer to those defects that would be a significant factor to a reasonable and prudent person in making a decision to purchase or lease 4. Make any false promises of a character likely to influence, persuade, or induce any person to enter into any contract or agreement; 5. Pursue a continued and flagrant course of misrepresentation or the making of false promises through agents or salespersons or any medium of advertising or otherwise; 6. Publish or cause to be published any advertisement which deceives or which is likely to deceive the public, or which in any manner tends to create a misleading impression or which fails to identify the person causing the advertisement to be placed as a licensed broker or salesperson; 7. Act for more than one party in a transaction without the knowledge and consent in writing of all parties for whom he or she acts 8. a. Fail to, within a reasonable time, properly account for or remit money coming into his or her possession which belongs to others, or commingling money belonging to others with his or her own funds; b. Fail to deposit and account for at all times all funds belonging to, or being held for others, in a separate federally-insured account or accounts in a financial institution located in Alabama; c. Fail to keep for at least three years a complete record of funds belonging to others showing to whom the money belongs, date deposited, date of withdrawal, and other pertinent information 9. Place a sign on any property offering it for sale, lease, or rent without the consent of the owner; 10. Fail to voluntarily furnish a copy of each listing, contract, lease, and other document to each party executing the document with reasonable promptness; 11. Pay any profit, compensation, commission, or fee to, or dividing any profit, compensation, commission, or fee with, anyone other than a licensee or multiple listing service. This subdivision shall not prevent an associate broker or salesperson from owning any lawfully constituted business organization, including, but not limited to, a corporation or limited liability company or limited liability corporation, for the purpose of receiving payments contemplated in this subsection. The business organization shall not be required to be licensed under this chapter, and shall not engage in any other activity requiring a real estate license; 12. Pay or receive any rebate from any person in a real estate transaction; 13. Induce any party to a contract to break the contract for the purpose of substituting a new contract, where the substitution is motivated by the personal gain of the licensee; 14. A salesperson or associate broker accepts a commission or other valuable consideration for performing any act for which a license is required from any person except his or her qualifying broker (this only applies if the licensee is a salesperson or associate broker) 15. If a qualifying broker or company, allowing a salesperson or associate broker licensed under him or her to advertise himself or herself as a real estate agent without the name or trade name of the qualifying broker or company appearing prominently on the advertising; or If the licensee is a salesperson or associate broker, advertising himself or herself as a real estate agent without the name or trade name of the qualifying broker or company under whom thesalesperson or associate broker is licensed appearing prominently on the advertising. 16. Present to the Commission, as payment for a fee or fine, a check that is returned unpaid; 17. Establish an association, by employment or otherwise, with an unlicensed person who is expected or required to act as a licensee, or aid, abet or conspire with a person to circumvent the requirements of this chapter; 18. Fail to disclose to an owner the licensee's intention to acquire, directly or indirectly, an interest in property which he/she or his/her associates have been employed to sell; 19. Violate or disregard any provision of this chapter or any rule, regulation, or order of the Commission; 16. Present to the Commission, as payment for a fee or fine, a check that is returned unpaid; 17. Establish an association, by employment or otherwise, with an unlicensed person who is expected or required to act as a licensee, or aid, abet or conspire with a person to circumvent the requirements of this chapter; 18. Fail to disclose to an owner the licensee's intention to acquire, directly or indirectly, an interest in property which he/she or his/her associates have been employed to sell; 19. Violate or disregard any provision of this chapter or any rule, regulation, or order of the Commission; 20. As a broker, accept a "net listing" agreement for sale of real property or any interest therein. A "net listing" is one that stipulates a net price to be received by the owner with the excess due to be received by the broker as his or her commission; 21. Misrepresent or fail to disclose to any lender, guaranteeing agency, or any other interested party, the true terms of a sale of real estate; 22. Fail to inform the buyer or seller at the time an offer is presented that he or she will be expected to pay certain closing costs and the approximate amount of those costs; 23. a. Enter a plea of guilty or nolo contendere to, or have been found guilty of or convicted of a felony or a crime involving moral turpitude; b. Have a final money judgment rendered against him or her which results from an act or omission occurring in the pursuit of his or her real estate business or involves the goodwill of an existing real estate business; 24. Offer free lots or conduct lotteries for the purpose of influencing a party to purchase or lease real estate; 25. Fail to include a fixed date of expiration in a written listing agreement or fail to leave a copy of the agreement with the principal 26. Engage in conduct which constitutes or demonstrates dishonest dealings, bad faith, or untrustworthiness; 27. Act negligently or incompetently in performing an act for which a person is required to hold a real estate license; 28. Fail or refuse on demand to produce a document, book, or record in his or her possession concerning a real estate transaction conducted by him or her for inspection by the Commission or its authorized personnel or representative 29. Fail, within a reasonable time, to provide information requested by the Commission during an investigation or after a formal complaint has been filed; 30. Fail without cause to surrender to the rightful owner, on demand, a document or instrument coming into his or her possession; and 31. Fail to keep in their files copies of all contracts, leases, listings, and other records pertinent to real estate transactions for a period of three years (this applies to a qualifying broker or company).

Federal National Mortgage Association (FNMA) : Fannie Mae

The FNMA usually is referred to by its nickname, Fannie Mae. It is the oldest secondary mortgage institution and the single largest holder of home mortgages. Fannie Mae was created in 1938 as a corporation completely owned by the federal government to provide a secondary market for residential mortgages. As a government-owned corporation, Fannie Mae was limited to purchasing FHA-insured mortgages and VA-guaranteed mortgages. By 1968 it had evolved into a privately owned corporation. It is currently a profit-making organization with its stock listed on the New York Stock Exchange.

Exemptions and Limitations : Important Exemptions

The Fair Housing Act covers most types of housing. The Act contains several important exemptions, including single-family homes sold or rented without the use of a real estate broker, and housing operated by religious organizations and private clubs that limit the sale or occupancy to its members.

Discrimination in Brokerage Services

The Fair Housing Act provides that it is unlawful to discriminate in the provision of real estate brokerage services. Specifically, the Act prohibits the denial of any person, based on their membership in a protected class, access to, or membership or participation in, any multiple listing service, real estate brokers' organization or other service, organization, or facility relating to the business of selling or renting dwellings. The Act also prohibits discrimination against any person in the terms or conditions of such access, membership or participation, if such discrimination is based upon race, color, religion, sex, handicap, familial status, or national origin

Housing for Older Persons

The Fair Housing Amendments Act of 1988 prohibits discrimination against families with children. The 1988 Amendment exempts certain housing projects designed for senior citizens. The prohibitions against discrimination based upon "familial status" do not apply to housing intended for and solely occupied by, persons 62 years of age or older. Housing will qualify for the 62 years of age and over exemption even though: - There are persons residing in such housing on September 13, 1988, who are under 62 years of age, provided that all new occupants are persons 62 years of age or older; - There are unoccupied units, provided that such units are reserved for occupancy by persons 62 years of age or over; and - There are units occupied by employees of the housing (and family members residing in the same unit) who are under 62 years of age provided they perform substantial duties directly related to the management or maintenance of the housing. Housing projects that do not meet the age 62 exemption may qualify for the age 55 exemption. The prohibitions against discrimination based upon "familial status" do not apply to housing intended and operated for occupancy by at least one person 55 years of age or older per unit, provided that the 55-years-of-age-or-over housing satisfies each of the following two requirements: - At least 80% of the units in the housing facility are occupied by at least one person 55 years of age or older per unit, except that a newly constructed housing facility for first occupancy after March 12, 1989 need not comply with this section until 25% of the units in the facility are occupied; and - The owner or manager of a housing facility publishes and adheres to policies and procedures which demonstrate intent by the owner or manager to provide housing for persons 55 years of age or older.

Exemptions : Three Single-Family Dwellings

The Fair Housing Law provides exemptions to property owners under certain conditions. Exemptions from the 1968 Fair Housing Act as amended include an owner of no more than three single-family dwellings at any one time is exempt upon the sale of one of the dwellings. However, the owner is limited to only one exemption in any 24-month period, unless he or she is living in or was the last occupant of the dwelling sold. EX: An example of this exemption is a builder of single-family homes who builds only one or two a year. He/she may build a home, move in until it sells, then build another home. In the sale of such a home, the builder/owner can legally discriminate against the protected classes, perhaps by excluding handicapped individuals because he/she doesn't wish ramps added to any of his/her construction.

FHA

The Federal Housing Administration (FHA) was created by the National Housing Act of 1934 for the purpose of insuring mortgage loans to protect lending institutions in case of borrower default. FHA will insure only amortizing mortgages (mortgages that retire the debt). As a result of this and of the potential hardship for borrowers under the term mortgage, the typical home mortgage loan today is the amortizing mortgage whether the loan is FHA, VA, or conventional.

Consumer Member

The Governor shall appoint one new member to the Commission, subject to the confirmation of the Senate, who shall be a consumer member. The consumer member of the Commission shall: - Serve no more than two consecutive terms of office; - Be a full voting member; and - Be initially appointed from any congressional district in the state. Each successor consumer member shall be appointed from a different congressional district, on a rotating basis, among the remaining congressional districts. The consumer member shall meet all of the following requirements, that he or she: - Is 21 years of age or older; - Has been a resident and citizen of this state for at least 10 years prior to appointment; - Is a registered voter in Alabama; - Has no felony convictions; - Is the owner of real property; - Has not been a licensed real estate broker or salesperson for the ten (10) years preceding appointment; and - Is not related to, by blood or marriage, or employed by, a real estate licensee.

Definition of Estate

The Latin root for the word "estate" is status, indicating the relationship in which the estate owner stands with reference to rights in the property. Estate establishes the degree, quantity, nature, and extent of interest a person has in real property. The word "estate" is generally interchangeable with the word "tenancy." Both of these words imply a right to possession

Real Estate Settlement Procedures Act: Purposes of RESPA

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are: - To help consumers become better shoppers for settlement services; and - To eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Truth-in-Lending Law: Disclosures

The Truth-in-Lending Law is part of the federal Consumer Credit Protection Act, which became effective July 1, 1969. It subsequently was amended and became known as the Truth-in-Lending Simplification and Reform Act (TILSRA) of 1980. The Truth-in-Lending Simplification and Reform Act empowered the Federal Reserve Board to implement regulations in the Act. TILSRA now requires four chief disclosures: 1. Annual percentage rate; 2. Finance charge; 3. Amount financed; and 4. Total of payments. The Federal Reserve Board implemented these regulations by establishing Regulation Z. This law is enforced by the Federal Trade Commission.

Alienation

The alienation clause may provide for the release of the original borrower from liability if an assumption is permitted. This release is sometimes referred to as a novation or release of liability. Permission to assume the mortgage at an interest rate prevailing at the time of assumption can be given at the discretion of the lender. This is called an escalation. The mortgage or deed of trust always provides for execution by the borrower. In some states witnesses also may be required. The mortgage or deed of trust provides for acknowledgment by the borrower to make the document eligible for recording on the public record for the lender's protection.

Elderly

The amendments, however, provided housing for the elderly if: - All units are occupied by individuals age 62 or older - 80% of the units have persons age 55 or older and there is a written policy statement of intent to house persons age 55 or older.

Responsibilities

The authority of the manager comes from and must be explicitly set out in the management agreement. The management agreement creates a general agency and should be in writing. This agreement creates the responsibility in the property manager to realize the highest return on the property while obeying the owner's instructions and the laws of agency and landlord/tenant relations.

Balloon Mortgage

The balloon mortgage provides for installment payments that are not enough to pay off the principal and interest over the term of the mortgage, so the final payment (called a balloon payment) is substantially larger than any previous payment, to satisfy the remaining principal and interest. If this balloon payment is to be a substantial amount, the note may provide for refinancing by the lender to provide the funds to the borrower, if he or she cannot otherwise make the final payment.

Rights of the Borrower and Lender: The Borrower

The borrower has the right to possession of the property during the mortgage term as long as the borrower is not in default. The defeasance clause gives the borrower the right to redeem the title and have the mortgage lien released (or receive a deed of conveyance after payoff of the note in a deed of trust) at any time prior to default by paying the debt in full. The borrower has the right of equity of redemption. After default, the borrower can redeem the title pledged or conveyed to secure a mortgage debt up to the time of a foreclosure sale by paying the debt, interest, and costs.

Commission or Fee

The brokerage's actual entitlement to commission is determined by one of two tests: 1. Acceptance 2. Ready, Willing, and Able Some listing contracts stipulate that no commission is due unless the sale closes. Either one or the other of these tests is required, but not both.

Access to Primary Function Areas

The building should provide alternatives to steps, narrow doorways, undersized bathroom stalls, etc. Existing public accommodations and commercial facilities must be altered to provide access to "primary function" areas. Restrooms, telephones and drinking fountains must also be accessible to the disabled, to the extent that the costs of altering existing facilities are not disproportionate to the overall alteration costs. If the facility is a shopping center, mall or healthcare provider, elevators will be required in newly constructed or altered buildings. Elevators are not required in other buildings of two or less stories, or with 3,000 or less square feet. Particularly affected are those real estate brokerages that conduct property management activities as part of their business.

Final Walk Through

The buyer usually arranges for a final "walk through" the day of closing or immediately prior to closing. This final inspection of the property just before closing assures the buyer that the property has been vacated, that no damage has occurred and that the seller has not taken or substituted any property contrary to the terms of the sales agreement. If damage has occurred, the buyer might ask that funds be withheld at the closing to pay for the repairs.

Cubic-Foot Method

The cubic-foot method is mathematically similar to the square-foot method, except the measurement is of the volume of the structure. This method is most applicable to warehouse or storage space. Length x Width x Height = Cubic Feet

Separate Elements

The declaration also sets forth the specific purpose of the condominium facility. The distinguishing features of a condominium are its separate and common elements, and its system of self-government. The separate elements are called separate property, and are those areas in the condominium that are exclusively owned and used by the individual condominium owners. These are the individual dwelling units in the building, more precisely the airspace occupied by a unit. Everything else is a common element in which each unit owner holds an undivided interest. Thus the land and the shell of each unit are common elements. The declaration may also include a clause giving the owner's association the right to first refusal on the purchase of an individual owner's unit if the owner wishes to sell, though this is fairly rare.

Deed

The deed conveying title to property in the subdivision contains: - A reference to a recorded plat of the subdivision - A reference to recording of the restrictive covenants - The restrictions may be recited in each deed of conveyance. Restrictions must be reasonable and they must benefit all property owners alike. Restrictive covenants provide a general plan setting forth development of a subdivision. Prior to beginning development, the developer establishes a list of rules regarding the use of the property which each lot purchaser will be required to adhere to. This declaration of restrictions is recorded simultaneously with the plat and includes a reference to the plat.

Deed of Confirmation

The deed of confirmation, also called a deed of correction, is used when a deed contains an error that requires correction. Examples of the types of errors corrected by this type of deed are errors in names of the parties, errors in the property description, and mistakes made in execution of the deed.

Easement Appurtenant: Dominant or Servient Tenement

The easement appurtenant category includes all easements that are not easements in gross. For an easement appurtenant to exist, two separately owned parcels must be involved; one must receive a benefit and the other must accept a burden. The land that benefits from an easement appurtenant is called the dominant tenement or estate. The land that must suffer and allow the use is called the servient tenement or estate.

Fee Simple Absolute

The estate of "fee simple absolute" provides the most complete form of ownership and bundle of rights available in real property. This estate is also called "fee simple" or "ownership in fee." Ownership in fee simple absolute provides certain legal rights usually described as a bundle of legal rights. The fee simple absolute bundle of rights includes the right: - To possession of the property - Of quiet enjoyment of the property - To dispose of the property by gift, sale by deed, or by will - Of exclusion to prohibit trespass - To control use of the property within limits of the law.

Examination Fee

The examination fee shall be paid by certified check, cashier's check, or money order. Applicants failing to arrive at the exam center on the date and time scheduled for examination will not be refunded any portion of their examination fees and must re-register to take the exam. Examination fees may NOT be transferred to another appointment. Candidates arriving more than 15 minutes late for an appointment: - Will not be admitted; - Will forfeit their examination fee; and - Must re-register for the examination.

Temporary License Period

The expiration date on a temporary license shall be six months from the first day of the month following its issuance, i.e., the expiration date shall be midnight on the last day of the last month of the six-month period. After that, the license shall be valid, although inactive, for another six months as prescribed by statute. After this one-year period, the temporary license shall lapse if the holder fails to complete the 30-hour post license course and have the original (permanent) license issued. The temporary license shall lapse at midnight on the last day of the last month of the one-year period. A temporary license may be on active status only during the six months following its issuance. During the remaining six months in which the temporary license holder has to complete the post license course, the temporary license may only be on inactive status. The license may be activated with the issuance of the original (permanent) license.

Zoning Authority

The extent of authority for zoning ordinances is prescribed by the enabling acts passed by state legislatures. These acts specify the types of uses subject to regulation. They also limit the area subject to the ordinances to the geographic boundaries of the government unit enacting the zoning laws. For example, city zoning ordinances may not extend beyond city limits into the county. A county government, however, sometimes authorizes the extension of city zoning for some specified distance into the county. In some cases the state empowers cities to specifically extend zoning beyond the city limits.

Federal Estate Tax

The federal government imposes a tax on the estates of deceased persons. Called the federal estate tax, this tax creates a lien that attaches to all of the property to pass to beneficiaries. All property in which the deceased had an interest, including jointly held property, life insurance proceeds and property in which the decedent had retained a life estate, may be subject to federal estate tax. The basis of inherited property is its value at the time of decedent's death or six months later, whichever is lower. The estate tax varies with the amount of the estate, as set up under a common rate schedule. The amount exempt from taxation is $650,000 gradually increasing to $1,000,000 in 2006.

Actual Compensatory Damages

The following items, if recovered by him or her, have been applied to the actual compensatory damages awarded by the court: - Any amount recovered from the judgment debtor - Any amount recovered from bonding companies - Any amount recovered in out-of-court settlements.

Immobility

The immobility of land is the primary difference between land and tangible personal property, which is highly mobile. Land cannot be relocated. Immobility of land is a major factor affecting land value. Licensees who have specific knowledge of a local real estate market are better able to serve the buyers and sellers in that community.

Principles: Economic Rent

The income allocated to the land as residual income under the principle of highest and best use is defined as economic rent. Currently referred to as market rent, this is the rental income that real estate can command in an open, competitive market at any given time. This is the rent that land is capable of producing if it is put to its most efficient use. For example, if a new plant is being built, but as yet no new housing is being built, this fact should be considered because rents will increase under normal supply and demand principles. Rent agreed upon in a contract between landlord and tenant is called contract rent. This is the income actually received under a lease agreement.

State Laws

The individual states have the authority to pass their own civil rights acts. State laws may adopt the same protected classes as the federal laws, and they may add more protected classes, such as marital status. If the state has a law that is substantially the same as the federal law, complaints based upon the federal law must be referred to the state enforcement agency. A state law cannot increase the exemptions found under the federal law. It may be more restrictive, however, and provide for no exemptions.

Private Mortgage Insurance

The insurance is called private mortgage insurance (PMI), and private insurance companies, not government agencies, issue the policies. Today, private mortgage insurance companies insure more mortgage loans than the FHA. The premiums and features of private mortgage insurance have grown more varied and complex in recent years. Premiums and program features vary greatly. Some premiums are one-time fees; others are paid up front and include a yearly premium (factored into the monthly payment). Some plans are refundable, which means that if the loan is paid off early, part of the PMI is returned. Sometimes the PMI may be financed; other times part or all may be required in cash.

Common Investment Objectives

The investment objective can be varied. Some common objectives are to own land: - As a hedge against an inflationary economic trend - For the tax savings generated by passive losses or depreciation deductions on improvements to the land - As a means of providing regular income - To build a strong portfolio of properties for resale at retirement or for other future needs. In analyzing a property for investment purposes, in addition to their personal investment objectives, investors must consider the characteristics of land, the highest and best use of the, and any public or private restrictions that may affect the investment goal.

Attorney Fees

The items usually included are lost rent, unpaid taxes, repair cost to the premises, title search fees, lost interest, commissions and lost profits. Traditionally, attorney fees incurred to litigate the contract breach are not included in calculating compensatory damages. Some states, however, have passed laws that allow attorney fees to be recoverable as part of compensatory damages for contract breach. Each state's statutes must be consulted on this issue.

Quiet Enjoyment

The landlord is required to put the tenant in possession of the premises. For the most part, leases are drawn up primarily for the benefits of the landlord. Recent consumer awareness, however, has fostered the belief that a valid lease depends on both parties fulfilling certain obligations. The tenant is entitled to quiet enjoyment of the premises, meaning that no one will interrupt the tenancy or invade the premise without the tenant's consent. This includes the landlord. The landlord does not have an automatic right to inspect the leased premises although the tenant may agree, in the lease, to the landlord's right to inspect. The landlord has the right to enter the premises in an emergency, such as fire or burst water pipes, in order to protect the premises.

National Association of Realtors (NAR)

The largest professional association in the real estate industry Was first organized in 1908 To be a full member of this association, a person must be licensed in an individual state to sell real estate and must join the local board of the NAR. In most areas, this board is called the Association of REALTORS

Trade Fixtures

The law of real estate recognizes an exception to the fixture rule for trade or tenant fixtures. A business tenant can normally remove trade fixtures at the termination of the lease because the courts reason that the parties did not intend that the tenant's fixtures would become a permanent part of the building. The trade fixture rule applies only to those articles installed by the tenant, not to those installed by the landlord. If the tenant fails to remove trade fixtures, the landlord takes title to the abandoned property. An example of a trade fixture would be built-in shelves for displaying merchandise. Although they are attached to the property, these fixtures remain the personal property of the rental tenant and may be removed at the end of the lease period. Any repair required after the removal is the tenant's responsibility.

Eviction: Breach of Agreement

The lease also can be terminated by the landlord evicting the tenant. This can occur during the term of the lease if the tenant breaches the agreement, such as failing to pay rent. Eviction also can occur after the lease agreement expires if the tenant fails or refuses to vacate the premises. At this point, the tenant is called a holdover tenant, and the landlord requests ouster of the tenant and his or her belongings and return of possession of the premises.

Types of Policies: Leasehold and Contract Buyer's Policies

The leasehold policy protects the lessee (tenant) and/or a mortgagee against defect in the lessor's title. This policy is issued to a mortgagee when the mortgagor has pledged a leasehold interest instead of a fee simple title as security for the mortgage debt. A contract buyer's policy protects the contract buyer against defects in the contract seller's title prior to the contract. This policy is issued when a contract for deed (land contract) is executed between vendor and vendee.

Legal Capacity of Entities

The legal capacity of entities other than individuals also must be considered. Entities that may enter into contracts include corporations, partnerships, churches, schools, towns, cities, and other governmental agencies. The legal capacity of entities created by the statutes of a state is determined by the documents and instruments that create the entities; for example, in a corporation, the bylaws of the corporation determine what actions must be taken and what officers or directors must sign contracts for the agreements to be valid.

Declaration: Description of the Facility

The legal description of the condominium facility is found in the declaration or master deed. This description contains the height, width, and length of each unit. The declaration also contains a plat of the property showing the location of buildings, plans and specifications for the buildings and the various units, a description of the common areas, and the degree of ownership in the common areas available to each individual unit owner.

Areas of Concern: Infestation

The legal names and marital status of the parties must be identified prior to closing. This is to assure accurate completion of the closing documents to transfer title and secure debt. In some real estate transfers, the buyer's lender may require proof that no wood-destroying pest infestation or damage is present. The cost of this inspection is typically the seller's. If infestation is found, the seller has to pay for treating and repairing any damage.

Continuing Education

The license renewal form along with the fee will be submitted on August 31st and the licensee's signature will serve as verification that all continuing education requirements for renewal will have been met by September 30th.

Estate for Life

The life estate is a freehold estate that is not inheritable. It may be created for the life of the named life tenant or for the life of some other named person. A life estate created for the duration of the life tenant's own life is called an "estate for life" or "ordinary life estate." For example: Carl conveys 40 acres to Bob for Bob's life. When the life estate is for the life of a person other than the life tenant, it is called an estate "pur autre vie," meaning for the life of another. For example: Carl conveys 40 acres to Don until the death of Edward.

Township Lines

The lines running parallel with the base line, 6 miles apart, are called township lines. In between the township lines is a strip of land called a township tier. Township tiers are designated by consecutive numbers north or south of the base line. EX: The strip of land between 6 and 12 miles north of a base line is Township 2 North (T2N).

Essentials of Listing Agreements

The listing agreement has the following essential elements: - A description of the property to be sold - The price at which the seller will agree to sell the property - The date when the agent's authority to represent the seller terminates - The carry-over clause - Terms of the commission or fee entitlement - The type of listing agreement.

References

The metes (measurements) and bounds (boundaries) system describes property by describing its outline or boundaries. The boundaries are described by reference to three things: 1. Monuments, which may be natural objects such as rivers or trees 2. Man-made objects, such as roads or survey markers 3. Directions or courses in the form of compass readings, and distances measured in any convenient units of length.

Administrative Forms

The most commonly used contracts in real estate are: - Listing agreements - Sales agreements - Leases The "Listing" form must include the legal description, expiration date of listing, sales price and non-discrimination clause. A "Buy-Sell" agreement is a pre-printed form which is also the offer to purchase. Real estate brokers and salespersons cannot "write" a contract. Drafting and writing contracts falls under the practice of law. Only fill-in-the-blank forms can be used by non-attorneys.

Narrative Appraisal Reports

The narrative appraisal report is the longest and most formal of the reports. It is a step-by-step presentation of the facts used by the appraiser to arrive at a value. This report also contains a detailed discussion of the methods used to interpret the data presented. Narrative appraisal reports are used when the client needs to review each logical step taken by the appraiser. They are the preferred format for self-contained appraisal reports.

Vendor and Vendee

The parties to a contract for deed are the vendor and the vendee. Under this contract: Vendor = Seller Vendee = Buyer The vendor promises: - To give possession to the vendee during the contract - To accept payments toward the purchase price - To convey marketable title to the vendee upon payment of the full purchase price.

Unilateral Contract (pt 2)

The party making the promise is bound and obligated under the contract. The other party, however, has made no promise and thus is not bound or obligated in any way to perform or act. A unilateral offer may be accepted only by performance of the action specified in the offer. An example of a unilateral contract outside of real estate is an offer of a reward for the return of a pet. No one is obligated to look for and return the pet. If someone does return the pet, however, the one who promised the reward is obligated to pay

Government National Mortgage Association (GNMA) : Ginnie Mae

The popular name for GNMA is Ginnie Mae. It was established in 1968, when Fannie Mae was fully converted to a private corporation. Ginnie Mae, an agency of the Department of Housing and Urban Development (HUD), purchases mortgages to make capital available to lending institutions. As a government agency, Ginnie Mae is limited to the purchase of VA and FHA mortgages.

Mortgage Markets: Primary Mortgage Market

The primary mortgage market consists of lending institutions that make loans directly to borrowers. In contrast, the secondary mortgage market buys and sells mortgages created in the primary mortgage market. One of the requirements for mortgage liquidity is that it be assignable. This assignability feature allows the lender holding the mortgage to assign or sell the rights in the mortgage to another. The money invested in the mortgage is freed without waiting for the borrower to repay the debt over the long mortgage term.

Principle of Conformity

The principle of highest and best use also can be applied to the construction of a single--family residence. For example, if a house costs $125,000 to construct in a neighborhood of $75,000 houses, the result is an over improvement. Conversely, a $50,000 house constructed in an area of homes valued at $125,000 and higher is an under improvement. The principle of conformity also applies to this example. This principle is based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the contributory value. The concept of maximum value is realized when the four agents of production (labor, capital, management and land) are in economic balance.

Supply of Land

The problems created by an ever-increasing demand for the limited supply of desirable land have been eased substantially by the increase in economic supply of land. While the absolute land supply is fixed, the economic supply of land is increased when previously less suitable land is made more suitable by applying technologies or strategies for more intensive use, and/or by increased access. An increase in economic supply comes from the increased utilization of land. On agricultural land, fewer and fewer acres are needed to produce the world's supply of food. As a result of advances in technology, people are able to create high-rise office buildings, apartments and multilevel shopping centers. Consequently, one acre of land now may serve many more people than could have utilized that land in the past.

Functions of the Property Manager

The property manager's fee is negotiated between the property owner and the manager. It commonly consists of a base fee and/or a percentage of the rents actually collected. Although renting space, collecting rents, and paying expenses are basic duties of property managers, their functions and responsibilities are: - To produce the highest possible net operating income from the property; and - To maintain and increase the value of the principal's investment.

Contamination

The protein in urine from rats and mice is a potent allergen and when it dries it can become airborne. Contaminated heating and air conditioning systems can become breeding grounds for mold, mildew, and other biological contaminants, and can distribute these contaminants through the residence. Buildings that are used in a manner inconsistent with original design, old and dirty ductwork, new materials emitting formaldehyde fumes, damp and dirty areas, all contribute to indoor air quality problems. Some experts label the problem "the sick building syndrome," signaled by symptoms such as headaches, fatigue, and upper respiratory problems.

Bilateral Express Contract

The purchase contract is a bilateral express contract. The buyer promises to buy the property if certain terms and conditions are met. The seller promises to convey marketable title to the property as prescribed by the offer to purchase. The consideration given consists of the promises made by the parties

Accounting for Funds

The qualifying broker who is currently providing services to the owner shall be responsible to the public and to the Commission for all funds. Upon request by the Commission or its authorized representative, each qualifying broker shall promptly account for any trust funds being held by that qualifying broker.

Fixture Questions

The question of whether an item is a fixture, and thus part of the real estate, arises in determining: - Real estate value for tax purposes - Whether a real estate sale included the item or items in question - Whether the item is part of the security given by a mortgagor to a mortgagee - The ownership of the item when the lease is terminated - Coverage under a hazard insurance policy that excludes personal property items.

Rate of Return

The rate of return, or percentage of income per money invested that the investor gets back on an investment, includes a consideration for a risk factor. The greater the risk of loss, the greater potential rate of return the investor is entitled to expect. Risk capital is that capital invested in a speculative venture, thus being the least secure and offering the greatest chance of loss. However, risk capital often yields the greatest rate of return. The concept of risk capital is often discussed in defining whether an offering is a security. Another major factor is the liquidity of the investment or the ability to quickly convert the investment to cash without significant loss or costs. This includes the ability to sell an asset and convert it into cash at a price close to its true value. Real estate is traditionally considered to be a longer-term investment and is not highly liquid.

Land Use Controls: Zoning

The regulation of structures and uses of property within designated districts or zones is called zoning and affects such things as use of the land, lot sizes, types of structure permitted, building heights, setbacks, and density. Zoning laws are enacted in the exercise of police power and are upheld as long as they may reasonably protect the public health, safety, morals and general welfare of an area. Counties and/or municipalities generally enact their own zoning ordinances pursuant to an enabling act of the state.

Disclosure: Disclosure and Dual Agency

The requirement to disclose all information material to the transaction is modified under a dual agency. Disclosure must be with consent of both seller and buyer. However, material facts about the subject property must always be disclosed to all parties of the transaction.

Under Improvement

The same result occurs from under improvement: insufficient investment in improving property. For example: If an insufficient number of apartment units are constructed, the improvement will not produce the greatest potential income to create maximum value. Either an under improvement or an over improvement will result in loss of property value (failure to realize the property's full potential). In adhering to the principle of highest and best use, the owner not only must establish a feasible use but also a use capable of supporting the improvements constructed plus a return of investment to the owner.

Cooperative Ownership

The same types of structures that house condominiums can also house cooperative ownership. Cooperatives can be new construction or conversion of a present structure. They can be residential or commercial. Cooperatives can be single story or multistory. The type and the form of ownership in a cooperative, however, are substantially different from ownership in a condominium facility. The cooperative is a not-for-profit corporation. Shares in the corporation are sold to the buildings tenants, and the money used as a down payment to buy the building. Title to the building is placed in the name of the corporation, and shareholders receive from the corporation a lease to their apartments. The shareholders own the corporation. The corporation owns the building. The corporation gives its shareholders leases to their apartments.

Estimating the Cost

The second step in the cost approach is to estimate the cost of reproducing or replacing the structure. Replacement cost and reproduction cost are different. Reproduction cost is the price to construct an exact duplicate of the property when it was new. These costs include the current prices of building materials, construction wages, architect's fees, contractor's services, building permits, utility hookups and so on, plus the cost of financing during the construction stage and the cost of construction equipment used at the project site. Replacement cost is based on constructing a building of comparable utility using modern building techniques and materials.

Evidence

The seller must provide evidence of marketable title for transfer and often bears the cost, but this varies from region to region. This proof can be provided by the update of an abstract of title or by issuance of a title insurance binder. Because abstract updates and title insurance binders typically are issued several days or weeks before closing, an update of the abstract or title binder should be obtained prior to closing with an effective coverage date continuing up to the date of closing.

Liability for Business Debts

The sole proprietor can receive, hold, and convey title to real estate either in his or her name or in the assumed name of the business. The owner of a sole proprietorship is fully liable for all business debts. If business debts exceed business assets, the owner's personal assets may be attached by creditors to satisfy defaulted debts. Filing bankruptcy by the business alone will not alleviate possible attachment of the owner's personal assets to satisfy business debts. In a sole proprietorship, the business and the owner are one and the same.

Office Inspections

The staff of the Alabama Real Estate Commission is authorized to make an inspection of any licensed real estate company to ensure that such company is in compliance with the Real Estate License Law and the Rules and Regulations of the Commission. In the event of an office inspection of a real estate company, its qualifying broker shall ensure that the business records required to be kept under state law or by the Rules and Regulations of the Commission are made available to such Commission representatives. The Commission representative(s), at the Commission's expense, may make photocopies of records which the licensee is required to maintain by Alabama Real Estate License Law or by the Rules and Regulations of the Commission.

Real Estate Commission

The state assigns responsibility to a licensing board or commission to enforce real estate license law statutes. These bodies are authorized to issue licenses to qualified applicants and to revoke or suspend licenses in the event of statutory or regulatory violations by licensees. The state licensing organizations also are empowered by statute to prosecute unlicensed individuals committing acts in violation of the license law statute. These violations typically are misdemeanors or infractions, not felonies, and the license law statutes empower courts to punish the violator either by fine or by imprisonment, or both, at the court's discretion.

Subrogation of Rights

The substitution of the title insurance company in the place of the insured for filing a legal action is called subrogation of rights. Like any other insurance policy, a title insurance policy has a list of risk items that are included and excluded. As noted, a typical title insurance policy does not cover financial loss from: - Adverse possession - Adverse parties in possession - Easements by prescriptions - Any unrecorded documents.

Mills

The tax rate can be expressed in mills. A mill is 1/10 of one cent. To see mills as a decimal, divide mills by 1,000 in order to get the tax rate multiplier. EXAMPLE: A property valued at $200,000 with an assessment of 80% will be charged a tax on $160,000. 0.80 x $200,000 = $160,000 = assessed amount

Qualifications

The three periods in Group 2 fall between the wars and from the conclusion of U.S. involvement in Vietnam to September 8,1980. The groups are listed below. To qualify in any of these groups, the veteran must have served at least 181 days of active duty and must have been discharged or released under conditions other than dishonorable or still be on active duty. The period between September 8, 1980 and August 2, 1990, is covered under Group 3 even though it is technically between the Vietnam War and the Persian Gulf Conflict. - Post-World War II: July 26, 1947 to June 26, 1950 - Post-Korean War: February 1, 1955 to August 4, 1964 - Post-Vietnam: May 8, 1975 to September 8, 1980

Unrepresented Buyers

The traditional MLS real estate scenario left most buyers of real estate unrepresented. In the old arrangement, the listing broker was the agent of the seller. In addition, licensees who showed the home based on the listing offered in the multiple listing service (MLS) were subagents of the listing broker. This occurred because, until fairly recently, the MLS was considered a "blanket offer of subagency," and in deciding to show a listing, the practitioner was in effect agreeing to act as subagent to the seller

Transferring Title: Transfer of Good Title

The transfer of real property between buyer and seller is the goal of the typical real estate transaction. Assuring the transfer of good title involves: - The recording system - Legal descriptions - Abstracts of title - Title insurance - Surveys - Deeds - The requirements to be a bona fide purchaser.

Public Transportation

The transportation provisions of Title II cover public transportation services, such as city buses, and public rail transit, such as subways, commuter rails, and Amtrak. Public transportation authorities may not discriminate against people with disabilities in the provision of their services. Public transportation providers must comply with requirements for accessibility in newly purchased vehicles, make good-faith efforts to purchase or lease accessible used buses, remanufacture buses in an accessible manner, and, unless it would result in an undue burden, provide Para transit where they operate fixed-route bus or rail systems. Para transit is a service through which persons who are unable to use the regular transit system independently (because of a physical or mental impairment) are picked up and dropped off at their destinations.

Investment Purposes

The two major investment purposes for REITs are: 1. to lend (if the REIT primarily lends money for the interest return it is called a mortgage REIT); or 2. to buy, rent or sell property (if the REIT primarily owns, manages, rents and sells property, it is called an equity REIT).

Abstract of Title: Forms of Title Evidence

The two most often used forms of commercial title evidence are abstract of title with attorney opinion and policy of title insurance. An abstract of title is a condensed history of the title, setting forth a summary of all links in the chain of title plus any other matters of public record affecting the title. The abstract contains a legal description of the property and summarizes every related instrument in chronological order. An abstract continuation is an update of an abstract of title that sets forth memoranda of new transfers of title.

Gross Lease

The two primary classifications of leases, based on arrangement of payment of expenses of the rental property, are gross lease and net lease. The arrangement for paying property taxes and expenses is the determining factor of gross or net leases. A gross lease provides for the owner (lessor) to pay all expenses, such as real property taxes, owner's insurance, liability insurance, and maintenance. This type of lease is most often used for residential apartment rentals.

Debt Ratio: Two Ratios

The underwriter must calculate the borrower's two debt ratios: 1. Monthly housing expense to income 2. Total payment obligations to income. These ratios determine the borrower's ability to meet home ownership responsibilities.

Types of Value: Values

The usual purpose of an appraisal is to estimate the market value of a particular property. In addition to market value, the following values are often the subject or purpose of an appraisal: - Assessed value; - Insurance value; - Mortgage loan value; - Condemnation value - Book value (historic value for accounting purposes).

Capitalization Rate

The value of the property is estimated by converting net annual income into an indication of present value by application of a capitalization rate. The formula is: Annual Net Income ÷ Capitalization Rate = Value. EX: If property is valued at $100,000 on January 5th of this year, the more time that has elapsed since that date, the less accurate that value is as an indication of the property's current worth.

Covenant of Warranty

The warranty of title in the general warranty deed provides that the grantor "will warrant and defend the title to the grantee against the lawful claims of all persons whomsoever." The covenant of warranty is the most important of all covenants.

Probate Court

The will is presented to the probate court, and creditors and interested parties are notified to present their claims or to show cause why the provisions of the will should not be enforced by the court. Existence of a will does not avoid probate; it does specify the disposition of the testator's property rather than have it pass by intestate succession under the laws of the state where the decedent was domiciled. A gift of real property by will is a devise, and the recipient of the gift of real property by will is the devisee. A gift of personal property by will is a bequest or legacy, and the recipient of the gift of personal property is the beneficiary. Title to any interest in land vests immediately in the heirs or the named devisees, subject to some limitations.

Profit

The word "profit," also know as "profit a prendre," is the legal term describing the right to take products of the soil from the land of another. This includes the right to take soil, fruit, minerals, or timber from another person's land. Because profit is an interest in land, it can be created only by written grant or by prescription, not by custom or oral agreement. A profit confers the right to remove the soil or products of the land. Profits are created in the same manner that easements are, by: - Grant or deed - Necessity - Prescription.

Community Property: Community Property States

There are nine community property states. They are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. By law, in these states, husband and wife automatically acquire title to real estate as community property. A husband and wife may hold title to both real and personal property as community property. They may also hold title separately in severalty.

Market Approach

There are times when the market approach is an inappropriate valuation tool. For example, the market approach is of limited usefulness in valuing a fire station, school building, courthouse or highway bridge. These properties are rarely placed on the market, and comparables are rarely found, plus they are not income producing.

Conventional and Non-Conventional

There are various loans the buyer may use to finance the purchase of real property. The mortgage loans obtained from lending institutions can be divided into two groups: Conventional loans - those that are not backed by an agency of the federal government; and FHA or VA mortgage loans - those in which the federal government participates either by insuring the loan to protect the lender (FHA-insured loans) or by guaranteeing that the loan will be repaid (VA-guaranteed mortgage loans).

No Right of Survivorship

There is no right of survivorship with tenancy in common. Upon the death of a tenant in common, the deceased person's share will go to his/her heir or as designated in the last will and testament. A tenancy in common may occur when property is inherited by more than one person. If the will does not designate the type of co-ownership, or in the event of no will, the inheriting parties receive title as tenants in common.

Inspections

These codes regulate things such as materials used in construction, electrical wiring, fire and safety standards and sanitary equipment facilities. Building codes require a permit from the appropriate local government authority before constructing or renovating a commercial building or residential property. While construction is in progress, local government inspectors perform frequent inspections to make certain that code requirements are being met. Codes are enforced by the issuing of building permits and certificates of occupancy, and by inspections with fines being imposed on violators.

Intestate Succession

These statutes, usually called "statutes of intestate succession," specify how property will be distributed based on the relationship of the heirs of the deceased who come forth (or who can be located). If no one is qualified to receive title to property left by the deceased, the state or other government entity uses its power of escheat and the property goes to the state or other government entity. If someone dies with no valid will and no located heirs, all of the property of the deceased goes to the state or other government entity.

Title II Complaints

They are required to make reasonable modifications to policies, practices, and procedures where necessary to avoid discrimination, unless they can demonstrate that doing so would fundamentally alter the nature of the service, program, or activity being provided. Complaints of Title II violations may be filed with the Department of Justice (DOJ) within 180 days of the date of discrimination. In certain situations, cases may be referred to a mediation program sponsored by DOJ. The DOJ may bring a lawsuit where it has investigated a matter and has been unable to resolve violations. Title II may also be enforced through private lawsuits in federal court. It is not necessary to file a complaint with the DOJ or any other federal agency, or to receive a right-to-sue letter, before going to court.

Loan to Value (LTV)

This LTV is the ratio of a mortgage loan principal to the property's appraised value or its sale price, whichever is lower. Loan-to-value ratios depend on the individual lender's policy and governmental banking regulations. Most lenders recognize that the greater the equity a borrower has in a property, the less inclined he or she will be to default and lose the property. When private mortgage insurance is used, the lender can sometimes offer 90 to 95% LTV ratios. Investors might qualify for 80% financing. FHA ratios are fixed by statute and there are no ratios for VA loans.

Covenant for Further Assurances

This covenant typically reads: "that he or she (grantor) will execute such further assurances as may be reasonable or necessary to perfect the title in the grantee." Under this covenant, the grantor must perform any acts necessary to correct any defect in the title being conveyed and any errors or deficiencies in the deed itself.

Covenant Against Encumbrances

This covenant typically states: "said premises are free from encumbrances (with exceptions above stated, if any)." The grantor assures the grantee that there are no encumbrances against the title except those set forth in the deed itself. Typical encumbrances that are acceptable to the grantees are a lien of a mortgage (when grantee is assuming grantor's existing mortgage), recorded easements, and restrictive covenants.

Coverage

This endorsement, in the form of a rider attached to the fire policy, requires an additional premium. The extended coverage endorsement usually includes coverage for losses resulting from hail, explosion, wind storms, aircraft, civil commotion, vehicles, and smoke from friendly fires. A fire confined to the place where it is intended to be, such as a fireplace or furnace, is a friendly fire; otherwise it is a hostile fire. Public liability insurance covers the risks an owner assumes when the public enters the premises. Payments under this coverage are to pay claims for medical expenses incurred by the person injured on the property as a result of the landlord's negligence.

Common Environmental Hazards : Hazardous Substances

This is certainly not an exhaustive list of hazards, nor does this lesson give all of the solutions to these problems. The lesson is intended as an introduction to this topic in order to make licensees aware of environmental concerns and able to find expert help when additional expertise is needed. For example, a hazardous substance is defined as any material that poses a threat to the environment or to public health. Under Superfund, the Environmental Protection Agency (EPA) lists hundreds of hazardous substances that are either toxic (leads to death), corrosive (acidic), ignitable (danger from heat or smoke), or reactive (can lead to explosions). The EPA also regulates the disposal of hazardous wastes—materials that are inherently dangerous to handle or dispose of.

Rectangular Survey System: Government Survey Method

This means of describing land, also known as the government survey method, is a system of numbered squares, based on two sets of intersecting lines (principal meridians and baselines). Principal meridians run north and south. Base lines run east and west. Both are located by reference to degrees of longitude and latitude

Title V

This title generally describes the ADA's relationship to other laws, explains insurance issues, prohibits state immunity, provides congressional inclusion, explains implementation of each title. It also provides that state and local laws can afford persons with disabilities greater protection. Penalties for non-compliance could be substantial. A fine not to exceed $50,000 for the first violation and $100,000 for each subsequent violation may be imposed. Potential fines do not include punitive damages. When a court does reach the point where it is considering imposing fines, it may take into account any good-faith effort or attempt to comply. Attorney's fees may be awarded to the prevailing party, at the discretion of the court. Real estate brokers are accountable for not providing ready accessibility to their place of business for persons with disabilities.

Loan Amount Calculations

This total mortgage payment, plus any recurring monthly debts which will either extend for six months or more or have payments of more than $100 per month, cannot exceed 41% of effective gross income. Several changes in legislation and regulations from 1990 until late 1992 have affected FHA maximum loan amount calculations. The net effect of the changes is that the determination of maximum loan amount is now a two-step process. In the first step, the loan amount calculation is based on acquisition cost (or mortgage basis), which consists of the FHA appraised value or sales price, whichever is lower, plus 100% of the buyers allowable closing cost.

Township 2 North

This township is designated Township 2 North, Range 3 East of the principal meridian. This township is the second tier north of the base line. The township is also located in the third range strip east of the principal meridian. Finally, reference is made to the principal meridian because the land being described is within the boundary of land surveyed from that meridian. The description is abbreviated as T2N, R3E of the principal meridian.

Township 3 North

This township is designated Township 3 North, Range 1 West of the principal meridian. This township is the third tier north of the base line. The township is also located in the first range strip west of the principal meridian. Finally, reference is made to the principal meridian because the land being described is within the boundary of land surveyed from that meridian. The description is abbreviated as T3N, R1W of the 5th principal meridian

Permissive Status

This type of leasehold is typical in a casual arrangement, such as a family setting in which a parent rents to an adult child. At the death of either the landlord or the tenant, this leasehold terminates. This differs from the estate for years and the periodic lease. The main features of this tenancy are its uncertainty of duration, and its continuing permissive status. The tenancy is not assignable, though it is usually permissible for the tenant to sublet the premises. The lease is also terminated by the sale of the property as the sale results in conveyance of the reversion.

Writ of Attachment

Though similar to a lis pendens, a writ of attachment is stronger. It is an actual court order preventing any transfer of the attached property during the litigation. Violation of the order can result in a contempt-of-court citation. The Internal Revenue Service (IRS) of the United States and a State Department of Revenue may create a general lien against all of the taxpayer's property for taxes due and unpaid. The lien may be for a variety of types of taxes owed. The taxes due might be personal income tax, employee withholding tax, federal unemployment tax, FICA for employees, self-employment taxes, sales tax, use tax, or any other tax relating to income. The period of time for validity of these liens varies with the type of tax due and unpaid.

Methods of Describing Real Estate: Three Basic Methods

Three basic methods can be used to describe real estate: - Metes and bounds - Rectangular (government survey) - Lot and block (recorded plat). Each method can be used independently and all methods may be combined in some situations. Some states use only one method; others use all three.

Stock in a Corporation

Thus, ownership in a cooperative is really ownership of shares of stock in a corporation plus a long-term lease for each apartment. There is no tenancy in common ownership in the common areas, even though all tenants can use the common areas. The common areas, as all of the buildings, are owned in fee by the corporation. When a cooperator wishes to sell, the cooperator does not sell the apartment, but rather the shares of stock that carry with it a proprietary lease on that apartment. Although the transaction looks like a sale of real estate, from a legal standpoint it is a sale of corporate stock. The listing and selling forms that are used for houses and condominiums are not suitable, and special cooperative forms must be used.

LESSON 12

Time-Sharing and Business Organization

Exchange programs

Time-share ownership has become so popular that exchange programs for exchanging the use of time-share units are now available. The exchange programs allow the owner of specified time at a property to trade that time with the owner of a specified time at a totally different property. For example, the owner of a time-share in a Hawaii property could trade for a time-share of equal time in a Washington property.

LESSON 33

Title Insurance

Percent into a Fraction or a Decimal

To change a percent to a fraction, the percent becomes a fraction when placed over its denominator of 100 (the whole to which it is related). If the percent is a whole number, drop the percent sign, place the number as the numerator over 100, and reduce the resulting fraction, whenever possible. EXAMPLE: 12% = 12/100 = 3/25 150% = 150/100 = 3/2 = 1 and 1/2

Multiplying Decimals

To multiply decimals, multiply as you would whole numbers. Add the total number of decimal places in all numbers being multiplied, and mark off the product from right to left accordingly. Zeros may have to be added to the left if there are not enough digits for the number of decimal places.

Multiplying Fractions

To multiply fractions, multiply the numerators, then multiply the denominators, place the product of the numerators over the product of the denominators, and reduce the fraction to its simplest form (if necessary).

Furtherance of Beauty

Traditional concepts of police power have been broadened in recent years to include the furtherance of the aesthetic beauty of the community. For example, courts have upheld an ordinance restricting advertising in state parks, and have upheld the regulation of the appearance of a community through design review boards. Exercise of the power, however, always must be in the best interest of the public.

Alienation

Transfer of title to real property is described in law as alienation. In a transfer, the property owner is alienated or separated from the title. Alienation may be during an owner's life or upon the owner's death. Property is usually sold or conveyed by voluntary alienation, as with a deed or an assignment of lease. Involuntary alienation takes place when property is sold against an owner's will, as in a foreclosure sale or a tax sale.

Transferability

Transferability is a legal concept that must be present for a property to have value. The owner must be able to shift the ownership interest to a prospective buyer. This ownership interest includes all of those factors previously discussed in the bundle of rights theory, including all the legal rights that attach to the ownership of real property such as the right to sell, lease, encumber, use, enjoy, exclude and devise by will. These rights also include the rights of occupancy, cultivation and exploration and the rights to license, dedicate, give away, share, mortgage and trade or exchange. When purchasing real estate, the buyer actually buys the rights previously held by the seller, except those that are reserved or limited in the sale.

LESSON 26

Types of Contracts

LESSON 37

Types of Mortgages

Accrued Items

Typical accrued items to be prorated are: - Prepaid taxes and insurance premiums; - Rent paid by the seller under lease assigned to the buyer; - Utilities billed and paid in advance; and - Association fees paid in advance. A method for prorating expenses and the calculations involved follows. Either the buyer or the seller may pay the costs of the day of closing. For our purposes in this course, the seller will pay the costs on the day of closing. Mortgage interest, taxes, insurance, and like expenses usually are prorated using 360 days per year and 30 days for each month.

Lack of Mutual Consent

Typical factors causing the lack of mutual consent are: - Fraud - Misrepresentation - Mutual mistake - Undue influence - Duress. Any of these factors can defeat the voluntary assent of the parties and, therefore, invalidate the contract and make it voidable. Both fraud and misrepresentation involve the material representation of facts that may turn out to be false or misleading.

Residential Subdivisions

Typically, restrictive covenants are found in residential subdivisions. These may include minimum square feet in the homes to be constructed, prohibition against detached garages, prohibitions on exterior antennas, or other concerns of the owner/developer. Because these are private restrictions, they are enforced not by local zoning officials and building departments. They are enforced by some agent of the subdivision or owner/developer. If a landowner subject to a restrictive covenant violates the covenant, any other landowner in the subdivision can bring an action to end the violation. An injunction, a cease-and-desist order, or restraining order can be sought from a local court to enforce the restrictive covenant.

Exclusive Right to Sell Listing

Under an exclusive right to sell listing contract, the property is listed with only one brokerage. No matter who sells the property during the term of the listing contract, the broker is entitled to the commission, regardless of whether the broker, the seller, or some third party finds a buyer during the term of the listing contract. This contract actually benefits the owner because the broker is assured of the exclusive opportunity to earn a commission for the listing. The brokerage is then motivated to spend time and money to effect a sale of the property. With the seller's agreement, the broker may list it in a multiple listing service for maximum market exposure.

Undue Influence

Undue influence is any improper or wrongful control or influence by one person over another. As a result, the will of one person is overpowered so that he or she is induced to act, or prevented from acting, of his or her own free will. Undue influence occurs when one person takes advantage of another person's lack of knowledge, or between a legal advisor and a client, or between the parties. Such a relationship may exist between a legal advisor and a client, or between employer and employee. If a person is induced to enter into a contract as a result of undue influence, the contract is voidable by the disadvantaged party.

Accommodation Requirements

Unless doing so would create an undue burden or would alter the nature of goods and services provided, public accommodations also must: - Comply with specific requirements related to architectural standards for new and altered buildings; - Make reasonable modifications to policies, practices, and procedures that deny equal access; Furnish auxiliary aids to ensure effective communication with people with hearing, vision, or speech disabilities; and - Comply with other access requirements. Additionally, public accommodations must remove barriers in existing buildings where this can be done without much difficulty or expense, given the public accommodation's resources.

Subleases

Unless the lease agreement specifically states to the contrary, the lease allows the tenant to assign his or her lease rights. Similarly, the landlord must allow the tenant to create a lesser lease estate, called a sublease, unless specifically prohibited in the lease. The lease of the original tenant becomes the sandwich lease. The tenant is obligated to pay the agreed-upon rent in a timely fashion. Under common law, rent is due at the end of the lease period unless the lease agreement states otherwise. Because this is typically unacceptable to the landlord, lease agreements usually require rent to be paid in advance on a month-to-month basis.

Penalties

Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case, a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit, a person who violates Section 8 may be liable to the person charged for the settlement service for an amount equal to three times the amount of the charge paid for the service.

Major Indoor Air Pollutants

We'd all like to think that the safest place to be is in our own homes, but as it turns out, that is not always the case. Our houses are chock full of things that can make us sick or even outright kill us. It's important to know what these hazards are and how to prevent being harmed by them. The major indoor air pollutants are: - Tobacco smoke - Biological contaminants - Formaldehyde - Carbon monoxide - Organic gases (paint and solvents) - Radon - Asbestos. As part of due diligence in the purchase of any residential, industrial, or commercial building, buyers should consider hiring outside experts to conduct indoor air quality surveys. The survey could include tenant and employee questionnaires, ventilation studies, and specific contaminant sampling.

Vicarious Liability

What does it mean? Vicarious liability is liability created not because of a person's actions but because of the relationship between the liable person and other parties. For example, a real estate broker is vicariously liable for the acts of his or her salespeople while acting on behalf of the broker even if the broker did nothing to cause liability.

Eminent Domain

When real property is taken under the power of eminent domain, the property owner is entitled to receive the fair market value of the property to compensate for the loss. This is what the owners would have received had they chosen to sell rather than being forced to sell. Eminent domain is the right of government (both state and federal), public corporations (school districts, sanitation districts), public utilities and public service corporations (railroads, power companies) to take private property for a necessary public use, with just compensation paid to the owner. Generally, however, the law will not allow compensation for lost profits, inconvenience, loss of goodwill and the like, although severance damages may be awarded for a loss in value to the remaining property that is not actually condemned. Through eminent domain the state may acquire land (either fee, leasehold or easement) for streets, parks, public buildings, public rights-of-way and similar uses. No private property is exempt from this exercise of government power.

Transaction Broker

When serving as a transaction broker, the duties of the licensee to all the parties to a real estate transaction are limited to those which are enumerated in Section 34-27-84. A signed brokerage agreement between the parties or, in the absence of a signed brokerage agreement, the continuation of the transaction brokerage relationship, shall constitute informed consent by the consumer as to the services the consumer shall receive from the broker. Disclosure forms shall be provided to buyers and sellers. All real estate brokerage firms operating within the State of Alabama shall use the same agency disclosure forms. Disclosure forms describing the alternative types of brokerage services identified above shall be written by the Alabama Real Estate Commission.

Assumption Rules

When such a property is listed, the salesperson should obtain copies of the documents relating to the original sale to determine what rules apply to the sale regarding either a loan assumption or a loan payoff. Rules for loan assumption qualification, release of liability, notification and time of payoffs, and possible partial refunds of mortgage insurance premiums are important, and these differ according to when the loan was underwritten.

Equitable Title

When the offer is accepted, a contract is created and the buyer acquires an interest in the land known as equitable title. Equitable title is an interest in real estate of sufficient worth for court protection of that interest, although this interest may be less than full ownership. The seller retains legal title until transfer by deed to the buyer.

Ownership in Severalty

When title to real property is held in the name of only one person or entity, it is called ownership in severalty, because the interest is "severed" from all others. The person or entity holding title is the sole or only owner. If the titleholder is married, the property is called separate property. The owning spouse holds title separately from the other spouse

Example 4:

You can find assessed value if given a property tax and the millage rate, or the amount of earned sales commission if given the commission rate and sale price. 61,500 is 93% of what number? Answer: 61,500 divided by 0.93 = 66,129.03.

Anticipate Problems

You must anticipate possible problems and concerns that may arise during transactions and also know where to refer clients and how to use other resources when a question or problem arises that is beyond the scope of a real estate practitioner's expertise. You will not be an expert in environmental law and you do not need to be. You do need to know how to handle transactions involving environmental concerns. This lesson reviews the environmental concerns that are most relevant to a typical real estate transaction.

Four Estates

he recognized nonfreehold estates or leaseholds are: Estate for Years -- exists only for a fixed period of time Periodic Estate -- also known as estate from year-to-year, however, automatically renews itself for another period unless one party gives notice of termination to the other Estate at Will -- has no determinable period length and may be terminated by either party at will by simply giving notice Estate at Sufferance -- describes a tenant who originally was in lawful possession of property but refuses to leave after his/her possession is terminated.

Actual introduction:

when the buyer, seller, landlord, or tenant has been referred to the real estate licensee by the person or entity seeking the referral fee prior to the time the customer has executed a real estate brokerage services disclosure form or waived execution in writing or the customer has executed a buyer's agency agreement, property listing agreement, or a transaction brokerage agreement; or for real estate transactions in which the law of this state does not require the presentation of a real estate brokerage services disclosure form, when the buyer, seller, landlord, or tenant has been referred to the real estate licensee by the person or entity seeking the referral fee prior to any contact between the buyer, seller, landlord, or tenant and the real estate licensee during which their real estate business has been discussed

Evidence of Transfer

(1) Any license(s) subject to any type of transfer may be mailed by certified or registered mail, return receipt requested, to the Commission office, together with the required form(s), license certificate(s), and fee(s). (2) The certified or registered mail paid receipt shall be retained by the sender and will serve as evidence of new license(s) issued by the Commission. The effective date of the transfer shall be the date of mailing as shown by the mail receipt, provided all necessary forms and fees were submitted, completed, and paid. (3) In cases where all necessary forms and fees are not submitted, completed, and paid within ten (10) days of the commission's receiving of the mailing, the attempted transfer shall be null and void and the Commission shall return all submitted forms and fees to the sender as soon as practicable, together with notice to the licensees involved that the attempted transfer was not completed. (4) In cases where an attempted transfer is not completed, the qualifying broker under whose authority any licensee acts shall be responsible for those actions. (5) Routinely mailed transfers are not governed by this rule.

Additional Reciprocal License Requirements

(1) Applicants for a reciprocal license shall have a current license in a qualifying state either on active or inactive status which is not a reciprocal or non resident license. A qualifying state is one in which the applicant completed prelicense course work and passed a comprehensive examination which contained general real estate in addition to state law. This shall be evidenced by a certification of licensure (license history) that is obtained from the qualifying state within the 120 days immediately prior to the issuance of an Alabama license. For initial licensure as a reciprocal salesperson or broker, at minimum the certification of licensure shall show: (a) Name and address of the licensee; and (b) Status of the license (current, renewed, not renewed, expired, lapsed, etc.) and (c) Type of license (salesperson, broker, etc.); and (d) Period of time the license has been active and inactive over at least the previous 36 months; and (e) If the applicant passed an examination; and (f) Whether the examination consisted of the national and state portion or only the state portion; and (g) Record of any disciplinary action against the licensee; and (h) Any other documentation the Commission may require. (2) Persons who hold an entry level license in the qualifying state; i.e., a salesperson license in most states, shall apply for a reciprocal salesperson license in Alabama provided all other eligibility requirements are met. For single licensing states, the first level of broker licensing equates to salesperson licensing in Alabama. (3) Persons who hold a license that is beyond entry level in a qualifying state, i.e., a broker license in most states, shall apply for a reciprocal broker license in Alabama provided all other eligibility requirements are met. For single licensing states, the second level of licensing or higher equates to broker licensing in Alabama.

Applications for Examination and Licensure

(1) Should any applicant for a real estate broker's or salesperson's license falsely answer any questions on either his/her examination or license application or misrepresent any facts relating to either application, said application may be rejected by the Commission and returned to the applicant. Any applicant whose application is not deemed acceptable may request a hearing before the Commission relative to such rejection. (2) Any real estate broker who knowingly signs a license application stating the applicant under his/her sponsorship is of good reputation and is trustworthy may be held liable for such statements, and should a routine investigation of the applicant's background prove otherwise, the sponsoring broker may be subject to a fine or revocation or suspension of his/her license. (3) All temporary salesperson and original broker license applications shall contain a photograph. (4) The examination appointment shall be made and the examination fee paid to the testing agency as published in the Candidate Handbook. When the registration has been processed, the applicant shall be notified of the time to report to the exam center. Unscheduled candidates shall not be admitted. (5) An examination fee shall be paid for each scheduled examination whether or not the applicant takes the exam unless the applicant is rescheduled in accordance with policies as specified in the Candidate Handbook. (6) Applicants who fail the examination may retake the examination by following application procedures as outlined in the Alabama Candidate Handbook. (7) The passing grade for both the salesperson and broker examination shall be seventy (70). A time limit of three and a half hours is allotted for completion of the required examination (8) All salesperson and broker applicants shall complete all required course work, including passing the course final examination, prior to taking the state examination. (9) Salesperson applicants shall show successful proof of completion of the 60 hour salesperson prelicense course in the exam provider's electronic eligibility database prior to scheduling the salesperson examination. (10) Broker applicants shall show proof of successful completion of the 60 hour broker prelicense course in the exam provider's electronic eligibility database prior to scheduling the broker examination. (11) Reciprocal salesperson and broker applicants shall show successful completion of the six hours of reciprocal prelicense coursework in the exam provider's electronic eligibility database prior to scheduling the reciprocal salesperson examination or the reciprocal broker examination.

Coursework and Examinations

(4) If potential reciprocal applicants have questions regarding their eligibility for licensure, they shall submit a "Request for Determination of Reciprocal Licensing Eligibility" along with a certification of licensure to the Commission for review and determination of eligibility. The form may be obtained from the Commission's website. (5) In addition to license requirements in Section 34-27-32(a) and (b) of License Law, applicants for a reciprocal salesperson or a reciprocal broker license shall meet the following requirements before applying for a reciprocal license. Complete six (6) hours of reciprocal salesperson prelicense or reciprocal broker prelicense coursework prescribed by the Commission in order to qualify for the reciprocal license examination. These six hours of coursework shall not qualify for continuing education credit. Pass the reciprocal salesperson or reciprocal broker license examination offered by the testing agency under contract with the Commission. The examination appointment shall be made and the examination fee paid to the testing agency as published in the Candidate Handbook. When the registration has been processed, the applicant shall be notified of the time to report to the exam center. Unscheduled candidates shall not be admitted. (6) An examination fee shall be paid for each scheduled examination whether or not the applicant takes the exam unless the applicant is rescheduled in accordance with policies as specified in the Candidate Handbook. Applicants who fail the examination may retake the examination by following application procedures as outlined in the Alabama Candidate Handbook. (7) Reciprocal salesperson and reciprocal broker license applicants shall pass the examination within 6 months immediately following the date of completion of the reciprocal prelicense course approved by the Commission. Reciprocal applicants who fail to meet this requirement shall be required to again successfully complete the appropriate reciprocal prelicense course and pass the appropriate reciprocal license examination. (8) The passing grade for both the reciprocal salesperson and reciprocal broker examinations shall be seventy (70). A time limit of one hour is allotted for completion of the required examination. (9) Upon completing the course hours the administrator shall electronically submit the course credit to the Commission. Reciprocal applicants shall not be allowed to schedule the reciprocal salesperson examination or reciprocal broker examination until course credit has been submitted. (10) Instructors and administrators shall provide each student who completes the reciprocal salesperson or reciprocal broker prelicense course with instructions on where to access the Commission-approved prelicense course evaluation. Instructors and administrators shall also provide each student with information explaining the licensing process and deadlines. (11) Reciprocal licensees shall meet continuing education requirements by complying with either paragraph (a) or paragraphs (b) and (c) below: (a) Complete the appropriate 15 hours of continuing education courses approved by the Alabama Real Estate Commission. (b) Submit to the Commission a certification of licensure or letter that is issued by the regulatory agency in the state where prelicense course work was completed and the licensing examination was passed. The certification of licensure or letter shall at minimum show: the type of license the license is active and current at least through October 1 of the calendar year during which the Alabama license is being renewed. a full licensing examination, not just state portion, was passed in that state. (c) The certification of licensure or letter in paragraph (b) above shall be dated no earlier than June 1 of the final year of the Alabama license period and shall be received by the Commission no later than September 30 of the final year of the Alabama license period. (12) If continuing education requirements are not satisfied by the prescribed deadline the reciprocal licensee shall be automatically placed on inactive status and subject to all reactivation requirements as provided in § 34-27-35, Code of Ala. 1975.

LESSON 27

Avoiding Fraud and Void

Hearings

1. If a formal complaint is filed against a licensee, the Commission may proceed to hold a hearing on the matter of the complaint at its discretion if the party or parties initiating the complaint and the party or parties against whom the complaint was made reach a settlement and wish the complaint withdrawn. 2. Any licensee or unlicensed person or unlicensed entity charged with a violation of the Alabama Real Estate License Law has a right to a hearing. The right to a hearing may be waived by the accused. Settlement procedures including a plea of guilty and/or consent to disciplinary action may be utilized by agreement between the accused and the commission. 3. The complainant(s) or respondent(s) who desire to have witnesses testify in their behalf may request that the Commission issue subpoenas for such witnesses by depositing with the Commission required funds in the form of a cashier's check or certified check, made payable to the Alabama Real Estate Commission. 4. The per diem and mileage cost of witnesses for interested parties in a complaint hearing shall be twenty dollars ($20.00) per diem. Mileage for subpoenaed witnesses will be the same as that as set from time to time under the requirements of §36-7-22, Code of Ala. 1975, for persons traveling on official business for the State and as published by the State of Alabama Department of Finance, Office of the State Comptroller.

Units of Measurement

12 inches = 1 foot 3 feet = 1 yard 1 mile = 5,280 linear feet 1 rod = 16 1/2 linear feet 1 chain = 4 rods 4 rods = 100 links 1 link = 7.92 inches 1 mile = 320 rods 1 mill = 0.10 of 1 cent 1 hectare = 2.471 acres 1 square foot = 144 square inches 1 square yard = 9 square feet 1 township = 36 sections 1 section = 1 square mile 1 square mile = 640 acres 1 acre = 43,560 square feet 1 acre = 10 square chains 360 degrees = full circle 90 degrees = 1/4 circle 1 degree = 60 minutes 1 minute = 60 seconds

Value Characteristics: Utility

A CMA is an opinion of value. For property to have value, it must have certain legal and economic characteristics. The value characteristics that are basic to all real property are: - Utility; - Scarcity; - Transferability; and - Effective demand. For the property to have value it must have utility—the ability to satisfy a need or desire. This is the value in use to an owner-user, which includes a value of amenities attaching to the property; also know as subjective value. Subjective value is contrasted with objective value in that subjective value applies to the amount a specific person might pay to possess a property--also called personal value. The objective value is what a reasonable person might be expected to pay for the same property.

Buyer Agency

A buyer's broker relationship is common in commercial real estate, in which a buyer employs a broker to locate a certain type of property for purchase. Today this approach is becoming more common in residential real estate as well. With the establishment of buyer agency, the direction of agency responsibility is reversed from the traditional sales situation. When a buyer engages a broker, the broker owes all duties of loyalty and disclosure to the buyer and not to the seller. The seller is the third party. A written buyer broker agreement signed by both buyer and broker is essential to prevent any disputes. Typically, a disclosure of this relationship is required to be made in writing to the seller or his/her agent prior to any showing of the property.

New Resident

A person who holds a current Alabama license who moves to and becomes a resident of the state shall within ten (10) days submit to the Commission notice of change of address and all other license status changes.

Contract for Sale

A binding contract to buy and sell real property results from the written acceptance of a written offer to purchase or/of a written counteroffer. In presenting the offer, the real estate licensee must always remember for whom he or she works. The listing agent works for the seller and must always give the seller the benefit of all information regarding the buyer's qualifications and the quality of the offer. In many instances, however, a real estate licensee establishes a contract for services with the buyer. This person is called a buyer's broker. Under buyer brokerage, the real estate agent must represent the best interests of the buyer rather than the seller

Situation 1

A black salesperson was canvassing a neighborhood to find a three bedroom home for a prospective purchaser. After speaking to several homeowners who were working in their yards, the salesperson went to the door of a home which did not have a "For Sale" sign on it and asked the white homeowner whether she would be willing to sell. The homeowner responded that she intended to remain in the neighborhood and asked why so many real estate agents had been calling on the neighborhood. The salesperson responded that it was because the "blacks are moving in." The homeowner responded that she saw no reason to leave the neighborhood. The salesperson ended the conversation by saying, "If you want to stay here, that's fine and we're glad to have you. It's nice to know you are not afraid." Is there a violation of the law here? As stated, it is a violation. His parting statement contains an implicit inference that COULD reasonably be interpreted as suggesting that there may be something to be afraid of. A licensee may not make implicit representations that a change in the ethnic composition of any neighborhood may result in criminal or antisocial behavior in that area.

Broker Licenses: Corporation or Partnership

A broker doing business in the name of a corporation or partnership and who also desires to do business as a sole proprietorship or for another corporation or partnership located at the same address must obtain and submit to the Commission a letter of consent from all officers of the corporation, or partners of the partnership. A corporation, partnership, or sole proprietorship may grant permission for its qualifying broker to be qualifying broker for another corporation, partnership or sole proprietorship doing business in the same location. Any licensee licensed under a broker who serves as qualifying broker for more than one corporation, partnership or sole proprietorship operating from the same address may operate under either corporation, partnership or sole proprietorship sharing the same qualifying broker.

Qualifying Brokers: Qualifying Broker Requirements

A broker may serve as qualifying broker for a salesperson or associate broker only if: - He/she is licensed in Alabama, - His/her principal business is that of a real estate broker, and - He/she shall be in a position to actually supervise the real estate activities of the associate broker or salesperson on a full-time basis.

Example 9:

A building sells for $160,000. The broker gets 7.5% of the first $100,000 of the sales price and a lesser percentage of anything over $100,000. If the total sales commission is $11,100, what is the lesser rate of commission the broker received? Answer: $100,000 x 7.5% = $7,500. $11,100 total commission - $7,500 = $3,600 remaining. $160,000 sale price - $100,000 = $60,000. $3,600 ÷ $60,000 = 0.06 or 6% commission rate.

Book of Public Records

A buyer of property who relies on the records and is unaware of an unrecorded prior document is called a bona fide purchaser (BFP). A bona fide purchaser's real estate title is protected because of recording. Recording is the act of entering into the book of public records the written instruments affecting the title to real property, such as deeds, mortgages, contracts for sale, options, and assignments. There is also a body of public records apart from the real estate recording system that has a bearing on the quality of title. A title searcher would also check, for example, public records regarding probate, marriage, taxes, and judgments.

Proration: Division of Expenses

A closing sometimes involves the division of expense between buyer and seller for items such as rent, taxes, insurance, interest, and homeowner's association dues. This division, called proration, is necessary to ensure that each (buyer and seller) is responsible for the operating expenses of the property during his or her ownership. Prorated items are either accrued or prepaid. Accrued expenses are costs the seller owes at the day of closing but that the buyer will eventually pay. The seller gives the buyer a credit for these items at closing.

Temporary Broker License

A company license shall become invalid on the death or disability of a qualifying broker. Within 30 days after the death or disability, the corporation, or the remaining partners or the successor partnership, if any, may designate another of its officers, members, orsalespersons to apply for a license as temporary qualifying broker. The person designated as temporary qualifying broker shall either be a broker or have been a salesperson for at least one year prior to filing the application. If the application is granted, the company may operate under that broker for no more than six months after the death or disability of its former qualifying broker. Unless the company designates a fully licensed broker as the qualifying broker within the six months, the company license shall be classified inactive by the commission.

The CMA : Substitution

A comparative market analysis (CMA) is a method of appraising or valuing real property based on the principle of substitution (comparison). Using this method, the value of property is estimated by comparing the prices paid for similar properties and concluding the value accordingly. CMA is a variation of the market comparison approach, and is popular with agents who list and sell residential property. This method is based on the principle that value can be estimated not only by looking at similar homes that have sold recently, but also by taking into account homes presently on the market plus homes that were listed for sale but did not sell.

What is a Contract? A Binding Promise

A contract: Is an agreement between legally competent parties to do some legal act or to refrain from doing some legal act in exchange for lawful consideration. Establishes both the rights and the duties or responsibilities of the parties to the contract. To be a binding promise, the contract must be supported by consideration, the parties must have legal capacity and mutual consent, and the object of the contract must be lawful.

Corporate Bylaws

A corporation has the power to receive, hold, mortgage, and convey title to real property for all purposes for which the corporation was created. The proper method for conveying property is set out in the corporation's bylaws. The bylaws expressly state the names of officers, directors, or other persons who must sign conveying documents and whether a special corporate resolution or meeting is required to authorize the conveyance.

A Taxable Legal Entity

A corporation is a legal entity created under state law, consisting of an association of one or more individuals but regarded under the law as having an existence and personality separate from such individuals. A corporation is an artificial being, invisible, intangible, and existing only pursuant to law. A corporation is a taxable legal entity recognized by law with tax rates separate from individual income tax rates. A corporation is created by a charter granted by the state of incorporation. Evidence of incorporation is called a Certificate of Incorporation.

Corporations and Partnerships: Corporations

A corporation may receive, hold, and convey title to real property in the corporate name. A corporation may be a grantor. If the conveyance of the title by the corporation is in the corporation's ordinary course of business, the deed may be executed on behalf of the corporation by the corporate president or vice president, and counter-signed by the secretary or assistant secretary. If the transfer of title is not in the ordinary course of the corporation's business, the board of directors of the corporation authorizing the transfer of title must make a resolution authorizing the conveyance. When the resolution has been made, the signatures of the individuals named above are sufficient.

Implied Contracts (pt 2)

A court implies the existence of a contract if one party has received the benefit at the expense of the other party. The court requires the recipient of the benefit to pay a reasonable compensation to the party rendering the benefit. An implied contract is created, for example, if Charles hires Danni to cut his hair without stipulating the price to be paid for the haircut. An implied contract to pay the reasonable value of the service delivered is created by Charles's allowing the haircut. An exception is if the benefit received is truly a gift.

Restrictive Covenants: Preserve and Protect

A covenant is a written agreement or promise. Restrictions placed on a private owner's use of land by a non-governmental entity or individuals are restrictive covenants. These are not to be confused with the restrictions on use of land by the government or the government's agencies. The purpose of covenants by private owners is to preserve and protect the quality of land in subdivisions and to maximize land values by requiring the homogeneous use of land by purchasers of land in the subdivision. Covenants are promises between owners to limit their use of the property by complying with requirements of the restrictive covenants.

Credit Reports

A credit report must be used to determine creditworthiness. In ordering a credit report, the reporting agency will contact at least two national repositories of accumulated credit records covering each residence of the borrower over the prior two-year period. Several national credit organizations meet the repository definition, including: - Trans Union - TRW - Credit Bureau - Chilton Corporation - Associated Credit Services - Associated Credit Bureau Service.

Description by Reference

A description by reference, plat, or lot and block, is another valid legal description. A description by reference refers to a plat (map) and lot number that has been recorded so interested parties may look it up and determine the exact location and dimensions of the property. Sometimes an attorney incorporates a description by reference in addition to a metes and bounds description into the deed. At other times the description by reference is the only description in the deed. Metes and bounds descriptions tend to be quite lengthy and often confusing. Also, monuments and reference points do not always maintain their exact locations over the years, and it becomes clear that an actual survey of the property is essential when dealing with descriptions of this type.

License Changes

A fee shall also be charged for any of the following license changes: - Change of qualifying broker by a company or sole proprietorship; (The fee is paid for the license or licenses on which the current and new qualifying brokers' names appear. In cases where a company has a branch office or offices and the main office qualifying broker is changed, the fee is paid for each branch office license and for the license of each branch qualifying broker.) - Change of personal name of a qualifying broker; (The fee is paid for the license or licenses on which the current qualifying broker's name appears.) - Change of business location; (The fee is paid for the license or licenses on which the address appears.) - Change of business name; (The fee is paid for the license or licenses on which the name appears.) and/or - Change of status from inactive to active. (The fee is paid for each license being changed from inactive to active status. No fee is charged for the change from active to inactive status.)

Specialized Training

A few states provide for limited exceptions to this requirement and others have created a specific property managers license. The property manager also must have comprehensive, specialized training to be able to satisfactorily perform the functions expected under the typical contract with the property owner. Some of this knowledge may be acquired through courses provided by the Institute of Real Estate Management, an affiliate of the National Association of REALTORS®.

Plessy vs. Ferguson

A few years later, the U.S. Supreme Court made its infamous ruling in Plessy v. Ferguson (1896), which held that the enforcement of racial segregation of private or public facilities did not violate the U.S. Constitution as long as the separate facilities were "equal." This ruling permitted institutionalized segregation in the United States. The Plessy case was not overruled until 1954, almost six decades later.

Ground Lease

A ground lease is on unimproved land, usually for construction purposes. The ground lease normally contains a provision that the lessee will construct a building on the land. Ownership of the land is separated from improvements. The ground lease is typically a net lease in that the lessee is required to maintain the improvements, pay the property taxes, and pay the expenses of the property.

Joint Venture

A joint venture is an organization formed by two or more parties for the purpose of investing in real estate or any other type of investment. The joint venture: - may be in the form of a corporation or a partnership; or the parties may hold title as joint tenants or as tenants in common; - usually is devised for only one project and there must be an agreement, expressed or implied, to share in the losses or profits of the venture - is a business form of partnership, and for tax purposes is treated as a partnership. The main difference is that a joint venture is a special joining of the parties for a specific project with no intention on the part of the parties to enter into any continuing partnership relationship.

Judgment: Court Decree

A judgment is a court decree resulting from a lawsuit. The court decree establishes that one person is indebted to another, and the amount owed. This person who owes the judgment is called the judgment debtor. The person who is owed the judgment is called the creditor. A judgment lien can be enforced against all of the real and personal property the judgment debtor owns in the county in which the judgment is recorded.

Lien Application

A judgment lien does not apply to real property owned by husband and wife who hold as tenants by the entireties if the judgment is against only the husband or only the wife. For the judgment lien to attach to property of a husband and wife, the judgment obtained must be against both the husband and the wife on a debt they both incurred. A judgment creditor may record the judgment in any other county in the state (and possibly in other states), and it will become a general lien against all the property of the judgment debtor in that county. This is called notice of lien.

Priority

A judgment lien remains in effect for a time specified by state statute unless the judgment is paid or discharged by filing a petition in bankruptcy. A judgment may be renewed and kept in force for additional periods if the judgment creditor brings another action on the original judgment. State law also may provide for interest on the judgment. Judgment liens have a priority relationship based upon the time of recording in the court records. The judgment creditor who obtains a judgment in the court records before another creditor will have the priority claim. The judgment debtor's obligations to the creditors are paid in order of highest to lowest priority.

Land Contract: Contract for Deed

A land contract is also sometimes called a contract for deed, an installment land contract, an agreement of sale, or a conditional sales contract. The essence of this contract is that: - The buyer is contracting to obtain legal title to the property by paying the purchase price in installments - The seller is agreeing to transfer the legal title to the buyer by the delivering of a deed upon buyer's full payment of the purchase price.

Investment Objectives: Land Trust

A land trust can be used for this purpose. The trust is originated by the owner of the real property. The legal and equitable title to the property is in the trustee's name under a deed in trust. The beneficial interest in the trust property is in the beneficiary, who is usually the trustor (the person who established the trust). Generally only living persons can create a trust, but corporations as well as living persons can be beneficiaries. The beneficiary has the rights to the possession, income and proceeds of sale of such property. Under a land trust agreement, the trustee deals with the property only upon the written direction of the beneficiary. A land trust generally continues for a definite term, such as 20 years. At the expiration of the term, if the beneficiary does not extend the trust term, the trustee is usually obligated to sell the real estate and to return the net proceeds of the sale to the beneficiary.

Abandonment

A landlord seeking eviction is well advised to hire an attorney to handle an eviction proceeding or to obtain a copy of the court rules and forms to assure compliance. A lease also can terminate if the tenant abandons the premises and the landlord re-enters to accept return of possession of the premises. This is similar to cancellation of the lease. Upon the tenant's abandonment, the landlord does not have to accept return of the premises. If the landlord does accept return of the premises, he/she may still pursue the tenant for lost rent under the old lease. The landlord must use his/her best efforts to re-rent the premises and minimize the lost rent. This is called mitigating damages.

Air Pollution

A large number of outdoor air pollutants have found their way inside houses, apartments, and commercial structures. Moreover, the air inside houses and other residential structures and commercial buildings also is compromised by its own set of environmental pollutants. Air pollution is defined as the presence of contaminating substances in the air, some that shouldn't be there and some that do not disperse properly, thus endangering human health.

Leases: Creating a Leasehold Interest

A lease is an agreement that grants one person the right to use the property of another for a certain period in return for valuable consideration. The lease agreement is a combination of a conveyance creating a leasehold interest in the property and a contract outlining the rights and obligations of the landlord (lessor) and tenant (lessee). A leasehold estate is generally classified as the personal property of the lessee. The requirements for a valid lease include competent parties, mutual assent, legality of object, signatures, valuable considerations, and a description of the leased property.

Lease Termination

A lease may terminate in a variety of ways. The simplest way is for the lease term to expire. At expiration of the lease, if proper notice to terminate the lease was given and no renewal agreement is reached, the duties and rights of the landlord and tenant terminate. The tenant vacates the premises and possession reverts to the landlord. The landlord and tenant also can mutually agree to cancel a lease prior to expiration of the term. Mutual cancellation also terminates the parties' duties and rights. Cancellation of the lease, sometimes by mutual agreement, occurs after a breach of the lease by either party. Possession reverts to the landlord.

Requirements for License

A license for a broker or a salesperson shall be registered to a specific real estate office and shall be issued only to, and held only by, a person who meets all of the following requirements: - Is trustworthy and competent to transact the business of a broker or salesperson in a manner that safeguards the interest of the public; - Is a person whose application or license has not been rejected or revoked in any state within two years prior to date of application on any grounds other than failure to pass a written examination; - Is at least 19 years old; - Is a citizen of the United States or is an alien with permanent resident status; and - Is a person who, if a nonresident, agrees to sign an affidavit stating the following and in the following form: "I, as a nonresident applicant for a real estate license and as a licensee, agree that the Alabama Real Estate Commission shall have jurisdiction over me in any and all of my real estate related activities the same as if I were an Alabama resident licensee. I agree to be subject to investigations and disciplinary actions the same as Alabama resident licensees. Further, I agree that civil actions may be commenced against me in any court of competent jurisdiction in any county of the State of Alabama. I hereby appoint the Executive Director or the Assistant Executive Director of the Alabama Real Estate Commission as my agent upon whom all disciplinary, judicial, or other process or legal notices may be served. I agree that any service upon my agent shall be the same as service upon me and that certified copies of this appointment shall be deemed sufficient evidence and shall be admitted into evidence with the same force and effect as the original might be admitted. I agree that any lawful process against me which is served upon my agent shall be of the same legal force and validity as if personally served upon me and that this appointment shall continue in effect for as long as I have any liability remaining in the State of Alabama. I understand that my agent shall, within a reasonable time after service upon him or her, mail a copy of the service by certified mail, return receipt requested, to me at my last known business address. I agree that I am bound by all the provisions of the Alabama Real Estate License Law the same as if I were a resident of the State of Alabama."

Brokerage Office: Home Office

A licensed broker living in a rural area of this state may operate from his/her home, provided that he/she sets up and maintains an office for the conduct of real estate business. This office shall not be used for living purposes or occupancy other than the conduct of real estate business. Furthermore, such office shall be used by the broker only and not as a place of business from which (an) additional licensee(s) may operate under his/her license. Such office must have a separate telephone, separate entrance, and be properly identified as a real estate office. All licensees located within the city limits and/or police jurisdiction of a municipality must operate from a separate office. Hardship cases may be subject to waiver of this regulation upon application and approval by the Commission.

Situation 3

A licensee placed an advertisement which read: "Asian families notice bargain-priced agent's home." The licensee argued that he/she had no exclusionary intent at the time of running the ad and was merely attempting to draw attention to the Asian design, gardens and furnishings of the home. Is this a violation? COMMENT: While the agent may not have intended to discriminate in advertising, the clear effect of the wording of the ad was to draw the attention of persons of a particular national origin. If the agent's intent was not discriminatory, the advertisement should have been worded differently, something such as "Asian-style home bargain priced."

Lapsed License

A licensee who fails to renew before the end of the 12-month period following the license period for which the license was issued has a lapsed license, and shall be subject to all requirements applicable to persons who have never been licensed, however, the Commission may upon determination of hardship, allow later renewal upon payment of all fees and penalties.

Lien

A lien is a claim or charge against property of another. This is usually security for a debt. Common examples are property tax liens, mechanic's liens, judgment liens, and mortgage liens. A lien does not transfer title to property. The debtor retains title unless the lien is foreclosed. When there is more than one lien against a property, the lien that was recorded first usually has the highest priority in the event of foreclosure. Property tax liens are, however, usually superior to other liens. In most cases, if the claim or lien is not satisfied in the prescribed time, the lien holder may execute on the lien (force payment of the claim or charge by forcing a sale of the property).

Deed of Surrender

A life tenant may use the deed of surrender to convey his or her estate to the reversioner or to the remainderman, depending on the form of the life estate. This same result may be accomplished through a quitclaim deed.

Management

A limited liability company may be managed jointly by all members of the company (called member managed) or it may be managed by one or more members in accordance with a management agreement (called manager managed). A limited liability company is similar to a partnership in many ways. It is taxed in the same manner as a partnership and it may distribute assets to individual members with minimal tax consequences. In addition, a limited liability company is similar to a corporation in that it provides protection from liability to the members.

Listing Contract

A listing contract is a contract wherein a property owner employs a real estate firm to market a property for a prescribed period of time at a prescribed price and terms. Under this contract, the real estate firm becomes the agent of the seller. Listings represent the inventory of a real estate brokerage and are the lifeblood of the business. Without listings a real estate firm is severely handicapped and is limited to marketing the listings of other real estate offices.

Lot and Block System: Lot and Block Steps

A lot and block survey is performed in two steps. First, a large parcel of land is described either by metes and bounds or by rectangular survey. Once this large parcel is surveyed, it is broken into smaller parcels. As a result, a lot and block legal description always refers to a prior metes and bounds or rectangular survey description. EX: Lot 2, San Juan Estates, located in a portion of the southeast quarter of Section 20, Township 4 North, Range 2 East of the San Juan Principal Meridian in the county of San Juan, state of New York.

Quorum Rules and Regulations

A majority of the Commission members shall constitute a quorum for the conduct of Commission business. The Commission may adopt and enforce all rules and regulations pursuant to the state administrative procedure statutes necessary for the administration of this chapter, and to otherwise do all things necessary and convenient for affecting this chapter. In addition to the powers granted in this section, the Commission may adopt and enforce rules and regulations governing the requirements of agency disclosure by licensed brokers and salespersons.

Mortgagee

A mortgagee is an individual, a group of individuals, or an insurable organization with interest in the property based upon lending money. The mortgagee usually requires, in the mortgage, that the borrower maintain adequate hazard insurance coverage on the property to satisfy the debt in case of destruction. The policy is issued in the names of both the mortgagee and the mortgagor. The policy section that names the lender is called mortgagee clause or additional insured. The policy protects the mortgagee up to the amount of the principal balance owed on the loan if within the coverage limits the policy provides.

Mortgagee's Policy

A mortgagee's policy is also called a lender's policy as it protects the lender. Under the terms of the policy, the mortgagee is insured against defects in the title to property pledged as security in the mortgage. The mortgagee's insurable interest is only to the extent of the outstanding loan balance at any given time. Therefore, the mortgagee's policy decreases in face amount as the loan principal decreases but always provides coverage equivalent to the amount of the loan balance. The mortgagee's policy does not make exceptions for claims to ownership that could have been determined by physically inspecting the property, and it is assignable to subsequent holders of the same loan

Multiple Listing Service: Extended Marketing

A multiple listing service (MLS) is a system that pools the listings of all member companies. Members of the MLS are authorized to show any of the properties in the pool, an arrangement that greatly expands the offerings they may show to prospective buyers, as well as extending the marketing of their own listings. The pooling of listings is an offer of cooperation and compensation to all MLS members whether acting as subagents of the listing broker or buyer agents. The pooling is not a blanket offer of subagency.

Mutual Mistake

A mutual mistake, a mistake of material fact by both parties, may nullify a contract. An example is in using an incorrect street address. In this case, the contract is voidable. Mutual mistake does not cover a misunderstanding of the law by one party or the other, only a mistake of fact. Mistake of law will not invalidate an otherwise valid contract. An example of a mistake of law in an offer to purchase: the prospective buyer has in mind to open a business at a given address. The buyer does not state in the offer that the purchase is conditional upon proper zoning. After the offer is accepted, the buyer finds that local zoning will not allow a business at this address. The buyer does not have the right to invalidate the contract.

Homeowner's Policy

A package policy is available to homeowners. This form of policy, called a homeowner's policy, provides coverage for the structure and its contents (casualty insurance). A homeowner's policy provides coverage against: - Fire, wind storm, hail, dust, surface waters, waves, frozen plumbing, vandalism, and industrial smoke damage; and - Personal financial liability for personal injury and property damage caused by the policyholder.

Limited Partnership

A partnership can maintain a real estate broker's license, provided all partners who actively participate in the real estate brokerage business hold their individual real estate broker's licenses. There are two types of partner, general and limited. General partners are personally liable for partnership debts exceeding partnership assets. They are jointly (together) and severally (separately) liable for these debts. Joint and severally liability means that the creditors can attach the assets of all of the partners or any one of the partners to satisfy the debt. If one of the partners files bankruptcy, this does not relieve the other partners of the debt.

Partnerships: Partnership Agreement

A partnership is a form of business organization in which the business is owned by two or more persons, called partners. A partnership is created by a contract between the partners. This contract or agreement should establish the partners' ownership and management rights, and obligations. The contract or agreement also should contain the method and procedure for dividing ownership interest upon the withdrawal, death, or removal of a partner. The purpose of this portion of the agreement, usually called the buy-sell agreement, is to control the change in partners without significantly disrupting business operations. The partners do not have to have the same degree of interest in the partnership or the same extent of management authority or be the same type of partners.

Partnership

A partnership may receive, hold, and convey title to real property in the: - Partnership name - Name of an individual general partner - Name of a trustee acting for the partnership for this purpose. Title to real property may be held in an assumed name and it can be transferred under that name. Examples are titles in the name of a corporation or partnership. Whereas a deed to a fictitious person is void, a deed to a person using a fictitious name is valid. Although title may be held or transferred under an assumed name, the person or organization must actually exist.

Notice of Appeal

A party appealing a decision shall post a $200.00 appeal bond with the clerk of the circuit court. The circuit clerk shall notify the Commission of the appeal after the clerk has approved the appellant's bond. An appeal does not act as supersede as, but the decision of the Commission may be stayed by the court pending such appeal. The Commission shall within 30 days of service of the notice of appeal, or within such additional time as the court may allow, file the record in the case with the circuit clerk. A complaint setting forth with particularity the issues raised on appeal shall be filed with the court and served on the Commission by the appealing party within 30 days after the notice of appeal is filed. Thereafter the action shall be conducted in accordance with the Alabama Rules of Civil Procedure.

Home Financing: A New Loan

A person buying a home rarely pays all cash. The portion of the price that is paid in cash is called the down payment. The balance of the price involves some form of loan. The seller may accept part of the price with future payments or allow an existing loan to be assumed. Most often, however, the buyer will have to get a new loan from some type of financial institution - a bank, a savings and loan, or mortgage broker.

In the Business

A person is deemed to be in the business of selling or renting dwellings if the individual has, within the preceding 12 months: - Participated as principal in three or more transactions involving the sale or rental of any dwelling or any interest therein; - Participated as agent (excluding the sale of personal residence) in providing sales or rental facilities or services in two or more transactions involving the sale or rental of any dwelling or any interest therein; or - The individual is the owner of any dwelling designed or intended for occupancy by five or more families.

Other Licenses

A person may hold a vacation time-sharing seller's license and a real estate license under separate qualifying brokers at separate locations provided that, in addition to meeting all other requirements for licensure, the licensee obtains written consent to hold both licenses on a form prescribed by the Commission and signed by both of the licensee's qualifying brokers.

Adverse Possession

A person other than the owner can claim title to real property under adverse possession if the other person makes use of the land under the following conditions. The possession or occupation must be open and well-known to others (notorious). The possession must be hostile -- that is, without the permission of the true owner and must be exclusive (not shared with the true owner). Co-owners cannot adversely possess against each other.

Out-of-State Applicants

A person who does not hold a current real estate broker license in another state desiring to be a real estate broker in this state shall apply for a broker's license on a form prescribed by the Commission which shall specify the real estate office to which he or she is registered. Along with the application, he or she shall submit all of the following: - Proof that he or she has had an active real estate salesperson's license in any state for at least 24 months of the 36-month period immediately preceding the date of application; - Proof that he or she is a high school graduate or the equivalent; - Proof that he or she has completed a course in real estate approved by the Commission, which shall be a minimum of 60 clock-hours; and - Any other information requested by the Commission.

Client

A person who has an agency agreement with a broker for brokerage service, whether he or she be buyer or seller.

Reciprocal Licenses

A person who holds a current real estate salesperson license in another state, including persons who move to and become residents of Alabama, shall apply for a reciprocal salesperson license on a form prescribed by the Commission. A person who holds a current broker license in another state, including persons who move to and become residents of Alabama, shall apply for a reciprocal broker license on a form prescribed by the Commission. The applicant shall submit proof that he/she has a current real estate license in another state as evidenced by a certificate of licensure, together with any other information required by the Commission. Applicants for a reciprocal license shall not be subject to the complete examination or temporary license requirements of Section 34-27-33, but shall pass a reasonable written examination prepared by the Commission on the subject of Alabama real estate. A person who holds a reciprocal license shall show proof of completion of continuing education either by meeting Alabama requirements or by showing proof that his/her other state license remains active in that state. The fees for issuance and renewal of a reciprocal license shall be the same as those for original licenses. The recovery fund fee for issuance of a reciprocal license shall be the same as for an original license. The applicant should send Reciprocal Applicants Licensing Process and Deadlines to [email protected] or fax it to 512-692-1814.

Private Clubs

A private club, not open to the public, which provides housing to members as a benefit to them and that is not a commercial venture, is exempt in the rental of such housing. EX: An example of this exemption is an exclusive men's club that has overnight lodging for members. The club can refuse overnight lodging to a woman, even though doing so discriminates on the basis of sex.

Proper Fraction

A proper fraction is a part of a whole whose denominator is always greater than its numerator. Example: ¾ An improper fraction is one whose numerator is equal to or greater than the denominator. Example: 4/3 To change an improper fraction to a whole number or a mixed number, divide the numerator by the denominator. Example: 4/3 = 4 divided by 3 = 1 and 1/3

Demand

A property must be useful. It must be possible to use or adapt the property for some legal purpose. If a property cannot be put to some beneficial use to fill a need, it will not have value; no one will want it, it will not be in demand. Demand is defined as the desire for economic goods that can be bought at a certain price, in a given market, at a particular time; what the marketplace will demand. Effective demand is the desire to buy coupled with the ability to pay. Demand is an essential element of the highest and best use and value of real property.

Collected License Fees

A proportionate share of all money collected by the Commission as license fees during each fiscal year of a multi-year license period or during the renewal period immediately preceding that first year, and all fees collected for research and education shall be reserved in the State Treasury in the Real Estate Commission Proportionate Fund by the State Comptroller to be disbursed quarterly to the Real Estate Research and Education Center with the remainder to be disbursed for Commission expenses incurred in that fiscal year or the subsequent fiscal years of that license period.

Supervised by a Broker

A real estate broker can own and operate a business, whereas a salesperson licensee can engage in the real estate business only when associated with and supervised by a broker. Therefore, a salesperson cannot operate independently. A salesperson licensee is any person with a valid real estate or appraisal license. A real estate licensee can generally be active or inactive, or an individual, corporation or partnership. Only individuals can be licensed as appraisers.

Elements of Listing Agreements: The Listing

A real estate listing is an employment contract between a property owner and a real estate broker. Through the listing agreement the property owner appoints the broker as the owner's agent for the specific purpose of finding a buyer or tenant who is willing to meet the conditions set forth in the listing. It does not authorize the broker to sell or convey title to the property or to sign contracts. Although persons licensed as real estate salespersons perform listing and sales functions, they are actually acting as extensions of the broker. A seller may conduct all aspects of a listing and sale through a salesperson licensee, but it is the broker behind the salesperson with whom the seller has the listing contract who is legally liable for its proper execution.

Choosing Mortgages

A recent federal rule affecting portions of RESPA now allows brokers to assist home buyers in selecting and prequalifying for a mortgage and to charge a reasonable fee for these services. Any fees must be disclosed and agreed to in writing by the buyer. Brokers can even begin the loan application origination (CLO) systems that list the various loan programs for lending institutions.

Replacement Reserve

A replacement reserve represents an amount of money set aside to replace equipment and make improvements. This reserve is established for items that do not require an expenditure of cash each year. Replaced equipment may be hot water heaters, ranges, ovens, dishwashers, and disposals, for example. To avoid having to meet the entire replacement cost out of one year's income, money should be set aside for this purpose each year. Other typical improvements are pavement and roofs.

Qualifying Broker Responsible

A salesperson or associate broker shall not perform acts for which a license is required unless licensed under a qualifying broker. A qualifying broker shall be held responsible to the Commission and to the public for all acts governed by this chapter of each salesperson and associate broker licensed under him or her and of each company for which he or she is the qualifying broker. It shall be the duty of the qualifying broker to see that all transactions of every licensee engaged by him or her or any company for which he or she is the qualifying broker comply with this chapter. Additionally, the qualifying broker shall be responsible to an injured party for the damage caused by any violation of this chapter by any licensee engaged by the qualifying broker. This subsection does not relieve a licensee from liability that he or she would otherwise have. The real estate licenses of all corporations, partnerships, branch offices, brokers and salespersons shall be publicly displayed at the place of business.

Situation 5

A salesperson with a real estate company that worked predominantly in white areas had a house listed that was located in a black community. She felt her best strategy to sell the house would be to advertise it in a community newspaper which circulated mostly to black readers. Is there a violation of the law? If so, why? If not, why not? COMMENT: It depends. If the community newspaper is the only media in which the house is advertised, this would clearly be a violation of selectively using advertisement to target a particular group of potential purchasers. However, this would not be a violation if the salesperson's company also advertised homes from other than minority neighborhoods in the same newspaper or other minority media.

Value Characteristics

A valuation is done to determine the market value of the property. Market value is defined by the Appraisal Institute as: "The highest price in terms of money, which a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus." To have value in the real estate market, property must have these four characteristics: 1. Demand -- the need or desire for possession or ownership backed by the financial means to satisfy that need; 2. Utility -- the capacity to satisfy human needs and desires; 3. Scarcity -- a finite supply; and 4. Transferability -- the relative ease with which ownership rights are transferred from one person to another.

Vendor or Vendee

A vendor is a seller. A vendee is a buyer. Vendor's liens come into existence upon the sale of real property and conveyance of title to the buyer without full payment of the purchase price. The vendor is given a specific lien against the property for the amount of the balance of the purchase price. If the buyer does not satisfy the lien, the vendor can foreclose to obtain the money to satisfy the lien. Vendee's liens are created in the case of a sale of real estate when the vendor fails to deliver a deed. In this case, the vendee has a lien against the property in the amount of any money the vendee has paid toward the purchase price, or put toward repairs or improvements. A vendee's lien also can be enforced by foreclosure.

Interference with Brokerage Relationships: Actionable Violations

A violation or disregard of any provision of this article shall constitute a violation actionable by the commission pursuant to Section 34-27-36, as amended.

Situation 2

A white listing agent was talking on the phone to a selling agent who had asked to show a property to some prospects. The listing agent asked the selling agent, "Are your customers white?" The selling agent replied, "No, they're Asian." The listing agent said, "Oh, no. Don't do this to me. Are you aware that this is an all white neighborhood? I feel, knowing this neighborhood as I do, it will be wrong for you to place your customers in there. It will be a disservice to you, to me and most of all to your customers, as I feel they might as well be buying $100,000 worth of unhappiness. Please don't do this." Later that day, the listing agent discovered that the selling agent was Asian. She, the listing agent, commented to an associate that she would not allow the selling agent to show the property because if the property were sold to Asians, she would be "run out of town." The listing broker learned of the situation through the selling agent's broker. As soon as he was aware of the situation, he intervened and had the property shown and a subsequent offer was presented properly. COMMENT: A licensee may not deny fair housing opportunities to anyone, even if the licensee believes it to be in the best interest of the prospective purchaser.

Advertising Guidelines: Words, Symbols, and Visual Aids

According to HUD's regulations, the following words, phrases, symbols, and forms typify those most often used in residential real estate advertising to convey either overt or tactful discriminatory preferences or limitations: WORDS DESCRIPTIVE OF A DWELLING, LANDLORD, AND TENANTS --- for example: white private home, Jewish home, Hispanic residence, adult building. WORDS INDICATIVE OF: RACE --- (black, Caucasian, Asian, Native American) COLOR --- (white, black) RELIGION --- (Muslim, Protestant, Christian, Catholic, Jewish) NATIONAL ORIGIN --- (Mexican-American, Puerto Rican, Filipino, Polish, Hungarian, Irish, Italian, Chicano, African, Hispanic, Chinese, Indian, Latino)

Selective Advertising

According to HUD, the selective use of advertising media or content, when particular combinations are used exclusively with respect to various housing developments or sites, can lead to discriminatory results and may indicate a violation of the Fair Housing Act. The following are examples specified in HUD's regulations concerning the selective use of advertisements which may be discriminatory: GEOGRAPHIC ADVERTISEMENTS. Selective use may involve: - Strategic placement of billboards; - Brochure advertisements distributed within a limited geographic area by hand-delivery or in the mail; - Advertising (in particular geographic coverage editions of major metropolitan newspapers or in newspapers of limited circulation) which are mainly advertising vehicles for reaching a particular segment of the community; or - Displays or announcements available only in selected sales offices. The following are examples specified in HUD's regulations concerning the selective use of advertisements which may be discriminatory: EQUAL OPPORTUNITY HOUSING SLOGAN OR LOGO. When placing advertisements, the real estate broker should not selectively use the Equal Opportunity Housing slogan or logo. For example, it is improper to use the slogan or logo in advertising reaching some geographic areas, but not others, or with respect to some properties but not others. HUMAN MODELS WHEN CONDUCTING AN ADVERTISING CAMPAIGN. Selective advertising may involve an advertising campaign using human models primarily in media that cater to one racial segment of the population (or other classes of persons such as families without children), without a complementary advertising campaign that is directed at other groups.

Common Health Complaints

According to the EPA, half of all illnesses can be traced to indoor pollution. The most common health complaints related to poor indoor air quality, according to the EPA and the National Institute for Occupational Safety and Health, are: eye irritation dry throat headache fatigue sinus congestion skin irritation shortness of breath cough dizziness nausea sneezing nose irritation Many of the chemicals used in households have not been tested for their effects on human health. The EPA has declared that indoor air pollution ranks among the four worst environmental problems we face.

Interest and Principal

After deducting the interest, the remainder of the payment goes to reduce the principal balance. Therefore, the amount of interest paid with each installment declines because the interest rate is applied against a smaller and smaller amount of principal. In this way, the loan is amortized so the final payment in a fully amortizing mortgage will pay any remaining interest and principal. The payment may be a fixed amount and remain the same over the life of the loan, or it may be a graduated payment. The payment may possibly change as a result of a varying interest rate specified in the note and mortgage.

Redemption

After default, and up to the time a foreclosure sale is held, the borrower has an equitable right to redeem his or her property by paying the remaining principal amount of the debt, accrued interest, and lender's cost incurred in initiating the foreclosure. The borrower's equity of redemption cannot be defeated by a mortgage clause. This right is terminated by the foreclosure sale.

Affirmative Election of Arrangement

After disclosure, the consumer may make an affirmative election of a specific type of brokerage arrangement that is available from the real estate brokerage company. The brokerage agreement shall contain a statement of the terms and conditions of the brokerage services that the broker will provide. In the absence of a signed brokerage agreement between the parties, the transaction brokerage relationship shall remain in effect.

Adjusted Price

After making all adjustments, the result is the net adjustment amount for each comparable sold, in order to arrive at an adjusted price. The adjusted price is an estimate of the price for which the comparable would have sold if all features and factors had been the same as the subject property. This reconciliation is reached by calculating a weighted average, in which comparables with a high degree of similarity are given more weight than comparables with less similarity.

Customers or Clients?

Agency relationships do not exist in all business dealings. Services provided to people in the ordinary course of business create a customer relationship. A customer is someone who is not a client but who must be treated ethically and honestly. A customer is not a principal. In real estate brokerage, another name for customer is third party. Since no agency relationship exists with a customer, no special loyalty need be shown and no position of trust is created beyond honest dealing.

Disclosure of Information

Agents are required to keep the principal fully aware of all important matters through disclosure of information. They must promptly and totally communicate to the principal any information that is material to the transaction for which the agency is created. For example, the requirement for disclosure of information requires that a broker present every offer to the seller. The seller has the prerogative to decide whether to reject or to accept any offer for purchase of the property. In presenting the offer, the broker should provide the seller with any knowledge of all circumstances surrounding the offer. If acting as a buyer broker, the broker should indicate to the buyer the market value of the property and use all negotiating techniques possible to obtain the most favorable terms for the buyer.

Material Facts

Agents must disclose any material facts of which they have knowledge (or should have had knowledge). This disclosure is in addition to the seller's disclosure form. EX: A seller's broker must disclose to prospective buyers any condition of the property that may be defective, such as (but not limited to) the septic system, a wet basement, or boundary disputes. Liability may be imposed upon the agent for concealing defects in the property, or for failing to disclose the existence of defects, or even failing to make reasonable attempts to discover the defects.

Hearing Officer

All hearings on contested cases before the Alabama Real Estate Commission shall be conducted by a hearing officer appointed by the Commission. The hearing officer shall have the authority to do all things necessary to ensure that such hearings are conducted in accordance with Alabama law and the Rules and Regulations of the Alabama Real Estate Commission.

Verifying Information

All information on the credit report must be verified from sources other than the borrower. Otherwise, the credit agency must report that they are unable to verify or that the credit source refused to verify. The borrower may be required to provide other explanations or documentation concerning these accounts. The purpose of loan processing is to verify all data the borrower presents in the loan application. This is done by comparing the verified information with the application data. The borrower must explain items that do not match and must obtain additional verification or data. EX: Employment income, bank deposit, and outstanding debts must be the same on the credit report and the loan application.

Considering Factors

All of the physical and economic factors mentioned earlier are taken into consideration to determine the highest and best use of land. A given parcel of land has only one highest and best use at any particular time. For appraisal purposes, land is always valued as if vacant and available for development to its highest and best use. The estate taxes and the real property taxes paid by an owner of unimproved real estate are usually based on the highest and best use of the land rather than the use to which it is actually devoted. Loss of income to the land resulting from failure to use the land to its highest and best use will cause the value of the property to be less than fully realized.

Disbursements

All other money including penalty fees collected by the Commission shall be disbursed during the fiscal year in which they are collected. The State Comptroller and State Treasurer are directed to pay all expenses incurred by the Commission in performing its responsibilities and exercising its authority from the Real Estate Commission Revenue Fund in the State Treasury on warrants of the State Comptroller drawn on the State Treasury on order of the executive director.

Complete Required Course

All salesperson and broker applicants must complete all required course work, including passing the course final examination, prior to taking the state examination. Salesperson applicants shall show successful proof of completion of the 60 hour salesperson prelicense course in the exam provider's electronic eligibility database prior to scheduling the salesperson examination. Broker applicants shall show proof of successful completion of the 60 hour broker prelicense course in the exam provider's electronic eligibility database prior to scheduling the broker examination. An examination fee must be paid for each scheduled examination.

Environmental Policy Acts

All states were, after NEPA, encouraged to pass their own state environmental policy acts, both to implement NEPA and to make it more specific to their own needs. State laws are usually more specific and stringent. Environmental impact statements or environmental assessments are used to ensure that development or other significant land use change is in compliance with both state and federal environmental laws. The requirements vary from state to state. Since 1969, several amendments and companion legislation have been passed to more clearly define the EPA's role in land use. The Resource Conservation and Recovery Act (RCRA) of 1976 defined hazardous substances.

Terms & Conditions: Terms of the Sales Contract

All terms and conditions of sale of the property are contained in the sales contract. These terms and conditions may include: - Sales price - Type of financing - Interest rate, if a mortgage is to be obtained or if seller financing is to be used Inspections required - Proration of taxes and insurance - Listing of personal property to be included in the purchase - Designated party with risk of loss from fire, flood, and other causes - Time periods for possession and transfer of title - Type of deed to be used - Type of title acceptable to buyer - Amount of earnest money - Liquidated damages upon - Breach - Period of time for acceptance or rejection

Office or Commercial Properties

Although ADA does not deal with housing, its provisions will impact licensees who wish to open an office or manage commercial property. Because of the requirements set out in ADA, some office buildings, and commercial and retail properties will not be usable. If the property is not usable, it is not as valuable. Properties that do not meet ADA requirements may have lower appraised values.

Encumbrance on Real Property

Although accidental and unintentional, an encroachment is still an encumbrance on the real property. In most states a trespass or encroachment that continues for a prescribed time may become an easement by prescription or even ownership in fee. Until that time, the landowner being encroached upon has the right to bring legal action for removal of the encroachment or a suit for damages (judgment by the court requiring the encroacher to compensate the land owner for the encroachment). An order to remove the encroachment of a branch over the boundary line does not mean that the tree will be cut down. The only part of the tree that must be removed is the portion encroaching.

Cash Sales: Simplicity

Although cash sales are the exception in real estate, they are perhaps the simplest real estate transaction to process. It can be as simple as the seller providing a deed and the buyer providing the cash. Unfortunately, the simplicity of these cash transactions may cause an inexperienced real estate salesperson to make costly mistakes.

Earnest Money

Although most offers to purchase are accompanied by earnest money, earnest money is not legally required for a valid offer to purchase. Earnest money serves to: - Show the sincerity of the buyer - Demonstrate the buyer's financial capability to raise the money called for in the agreement - Serves as possible liquidated damages to the seller in the event of default by the buyer.

Development Manager

Although not always involved with leasing or renting, a manager for a condominium, townhome, or Planned Unit Development (PUD) association is tremendously involved in the physical management of property for owners and occupants. The responsibility includes: - Budgeting expenses; - Collecting assessments; - Coordinating common facility maintenance; - Landscaping; - Security; and - Enforcement of the association's regulations.

Easement

An easement is a non-possessory interest in land owned by another. Someone who owns an "easement right" does not own or possess the land where the easement lies. The easement owner merely owns the right to use or have access to some part of the land. The right of ingress and egress (entrance and exit) to and from real estate is one primary use for easements, for example: telephone and electric companies often have easements to erect poles and run lines. Other typical needs for easements are: - For a common wall in a duplex or condominium - The right to take water from the land of another - The rights to receive light and air.

Contract Requirements: Five Essential Elements

Although specific requirements may vary from state to state, valid contracts must all contain five essential elements: 1. Mutual agreement 2. Consideration 3. Legally competent parties 4. Legal purpose 5. Legal form.

Impacted Properties

Although the ADA doesn't directly address residential property, many other types of property owned or managed by the real estate industry are impacted, and the property management firm is responsible for compliance. Impacted properties can include, but are not limited to: Office buildings Shopping malls Restaurants Hospitals Convention centers Banks Depots Galleries

Federal Housing Act of 1968

Although the Fair Housing Act of 1968 was clear in its intent to provide fair housing for the nation, it essentially lacked means for enforcement. Until 1988, the role of the U.S. Department of Housing and Urban Development (HUD) was limited to that of negotiator, trying to effect a voluntary conciliation between the affected parties through the force of persuasion. Although aggrieved parties could always take their complaints to a federal court and seek civil damages, this often was not a reality because the victim of discrimination was often unable to afford the legal expense.

Renegotiable Rate Mortgage

An ARM is similar to a renegotiable rate mortgage. The major difference is the duration of each interval before a rate change is allowed. On ARMs this can be as short as one month to as long as two years. With renegotiable rate mortgages the interval is typically every three to five years. Renegotiable rate mortgages are often capped but are rarely indexed. New variations in recent years are the very popular 5/25 and 7/23 loans. Interest rates are locked in for the first five or seven years respectively with only one rate adjustment possible at the end of that term. Then the rate will remain the same for the remaining 25 or 23 years of the loan. Many of these loans have provisions that if interest rates get too high at the interval point, the loan must be paid off or refinanced.

Procedure in Action: Notice

An action against an accused shall begin by serving the accused either personally or by certified mail with a copy of the formal complaint against him/her. The accused shall be given at least a 15-day notice of the time, date and place of hearing. If the Commission refuses to license an applicant, notice of the refusal shall be given to the applicant, and he/she may, within 15 days after delivery of the notice, file a request for a hearing.

Estoppel

An agency relationship also can be created by estoppel. This occurs if an individual claims incorrectly that a person is his or her agent, and a third party relies on the incorrect representation. In these cases, the person making the incorrect statement is estopped and prohibited from later claiming that the agency relationship does not exist. EX: Broker Smith states to Mr. and Mrs. Brown that Anne is a sales agent in the office of Broker Smith when he knows this is not true. If Mr. and Mrs. Brown rely on this incorrect statement, Broker Smith cannot later claim that Anne is not an agent, and Broker Smith is liable for Anne's actions.

Termination

An agency relationship ends in accordance with the terms of the agency contract. When the contract terminates, so does any authority of the agent to act on behalf of the principal. Another means of terminating an agency relationship is by completing the terms of the agency, usually by completing the sale of listed real estate and the payment of commission. In some cases, an agency relationship may be terminated by operation of law. For instance, a listing terminates automatically at the death of either the principal or the agent. Another example is the termination of a listing contract held by a broker whose license is revoked.

Rehearing

An application for rehearing does not modify the effective date of the decision and is appropriate only if the final decision is: - In violation of constitutional or statutory provisions; - In excess of the statutory authority of the Commission; - In violation of a Commission rule; - Made upon unlawful procedure; - Affected by other error of law; - Clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or - Unreasonable, arbitrary or capricious or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion. Within 30 days from the filing of the application for rehearing, the Commission shall set a hearing date on the application, or shall enter an order without a hearing, or shall grant or deny the application. If the applicant is granted a rehearing, the Commission will schedule a rehearing as soon as practicable. If the Commission does not enter an order within 30 days from the filing of the application for rehearing, the application shall be deemed to be denied.

Gross Rent Multiplier: The CAP Rate

An appraisal is a necessary part of most real estate transactions. Often, the decision to buy, sell, or grant a loan on real estate hinges on a real estate appraiser's estimate of property. An appraisal is usually required when real property is sold, financed, condemned, taxed, insured or partitioned. Note that an appraisal is an estimate, not a determination, of value. An appraisal may be in the form of a lengthy written report, a completed preprinted form, a simple letter or even an oral report. The percentage selected for use in the income approach to valuation of improved property is the capitalization rate (CAP). The importance of selecting a proper capitalization rate cannot be overemphasized. Even a slight variation in this rate will result in a substantial change in the estimate of value. The CAP rate measures the risk involved in an investment.

Estimate of Value

An appraiser is defined as one who estimates value. Not only must an appraiser possess the necessary qualifications, ability, education and experience to conduct the appraisal of real or personal property, he or she must be state-certified or state-licensed to appraise property that involves federally insured or regulated agency. Appraisers may be independent contractors or employed by the government, lending institutions, or trust companies. An appraiser's fees are typically based on time and expenses; fees are never based on a percentage of the appraised value.

LESSON 6 Attached to Real Property

An article that once was personal property but has been annexed to and become part of the real estate is a fixture. Whether an article is a fixture depends on the intention of the parties and may be determined by: - The manner in which the item is attached - Its type and adaptability to the real property - The purpose it serves - The relationship of the parties. Lumber to build a structure is personal property, or chattel, when it is delivered to the building site. By attachment and intent of the builder, however, the lumber becomes a building on the land and thus real estate. The same is said for light fixtures, showers, bathtubs, toilets, windows, bricks, clotheslines, wood stoves, window shades, and so on.

Asbestos Abatement

An asbestos abatement plan outlines the method to handle the control of asbestos found in a property. One method is removal by specially licensed asbestos abatement contractors; another method is to encapsulate by sealing the asbestos-containing materials (ACMs) so that the fibers may not easily be released or to enclose it by covering the ACMs with a protective wrap or jacket or sealing off an area that contains the asbestos, such as a crawl space. It is also an unfortunate common misconception that a professional home inspector will test for the presence of asbestos. This is simply not the case. Many home inspectors will inform consumers of the approximate age of the property, which may help determine if the home was constructed before 1978. This could be a red flag indicating the need to check for asbestos.

Encroachment: Intrusion

An encroachment, a trespass on the land of another, is created by the intrusion of some structure or object across a boundary line. Typical encroachments in real estate include tree limbs, bushes, fences, antennas, roof lines, driveways, overhangs. The encroaching owner is a trespasser. In most encroachment situations the encroachment is accidental and unintentional. The only method to accurately determine the existence of an encroachment is by a survey of the boundary line. Almost every subdivision in the United States has classic examples of encroachments

Encumbrance

An encumbrance is anything that lessens the bundle of rights in real property. The encumbrance creates an impediment to the free and clear ownership and use of property. An encumbrance is defined as any claim, right, lien, estate, or liability that limits the fee simple title to property. Most encumbrances are interests in the property that create debt or give use or control, or both, to another. What is one person's encumbrance is another person's claim or right or interest. For example, a mortgage is an encumbrance from the fee owner's viewpoint, but aright to foreclose from the lender's viewpoint.

Estate at Sufferance

An estate at sufferance is not an estate that the parties voluntarily establish. This term is used simply to describe the rights of a tenant who was originally in lawful possession of another's property but refuses to leave after his/her right to possession terminates. This might be upon termination of any of the three previously discussed leases. The term "estate at sufferance" differentiates between the tenant at sufferance, who originally was in lawful possession of the property, as opposed to someone who has been on the property illegally from the beginning (trespasser). The estate at sufferance continues until the property owner brings a legal action to evict the person wrongfully holding over or until the one holding over vacates voluntarily.

Example of Misrepresentation

An example of misrepresentation: A prospective buyer asks the listing agent of a property, how much of the land the seller owns. Upon checking the local records, the agent finds that the owner owns 25 acres. The owner is selling only 15 acres. The buyer makes an offer assuming the sale will be of 25 acres. The confusion is innocent. The buyer will be able to invalidate or void the contract. The real estate agent has unintentionally misled the buyer.

Real Estate Licensees

An individual licensed and engaged in the real estate business is not limited to selling residential real estate. A person licensed to sell real estate may specialize in one or more of many fields, such as: - Farmland - Multi-family dwellings - Commercial - Retail - Industrial Sales There are other real estate professions beyond sales, such as appraising, building, development, property management, financing, and real estate consulting

Types of Contracts: Oral Contracts

An oral contract to sell real estate between Al and Barney may be valid, but if Al refuses to complete the contract, Barney is unable to obtain the court's assistance in enforcing the terms of the oral contract. Even though the contract would not be enforceable in court, unenforceable contracts may still be completed by the parties.

Over Improvement

An over improvement example is creating too many apartment units with a high cost of maintenance that may not yield sufficient income after paying capital and labor costs. Investment in the improvement exceeds the ability of the improvement to provide sufficient net income to cover the priority demands and still leave a residual income that will result in the highest land value.

Obtaining New Financing

Analysis of a buyer's ability to obtain new financing depends upon many things. For example: - The value of collateral - The size of down payment - The buyer's credit - The buyer's income and debts - The financial market conditions (interest rates). A problem in any one of these areas can affect the interaction of all of them, possibly causing a loan to be rejected by the lender.

Familial Status

Another added protected class is familial status. Familial status is granted to: - An adult with children under 18; - A person who is pregnant; and - One who has legal custody of a child or who is in the process of obtaining such custody. Thus, landlords are prohibited (in most circumstances) from advertising "Adults Only."

Example 7:

Another agent sold a house for $89,800. The seller said that he paid a sales commission of $4,041. What sales commission rate did the agent charge? Doing the math reveals: $4,041 divided by $89,800 = 0.045 or 4.5%

Bankruptcy

Another example of discharge of contracts by operation of law is bankruptcy. The filing of a petition of bankruptcy under federal law has the effect of terminating contracts in existence as of the date of filing the bankruptcy petition. The purpose of bankruptcy law is to relieve the bankrupt from liability of outstanding contracts and to provide a fresh start.

Apartment Building Owner

Another exemption is an owner of an apartment building containing no more than four units, one of which is occupied by the owner, is exempt in renting the units. EX: An example of this exemption is an owner of a duplex in a college town where the owner rents one side to college students and resides in the other side. If the owner is female, she may wish to exclude all male tenants. Under this exemption she can legally discriminate against most protected classes in the rental of the duplex.

Novation

Another form of agreement that discharges or terminates contracts is novation --- the substitution of a new contract for a prior contract or the substitution of a new party for an old party. Novation typically involves the substitution of parties in the contract. A new party to the contract agrees to satisfy the former contracting party's obligation. Upon reaching the agreement to substitute parties, the novation or new contract is created, terminating the original contract and the original party's liability.

Net Listing

Another type of commission arrangement is the net listing, in which the seller specifies a net amount of money that he or she must receive upon sale of the property. All money above the new amount is designated as the broker's commission. This type of commission arrangement is not recommended and is even illegal in some states. A net listing can lead to a great deal of dissatisfaction by the seller if the property sells for substantially more than the listed price. One of the broker's responsibilities is to assist in establishing a fair market price for the property. Thus, recommending a fair market price, including a reasonable rate of commission established as a percentage of the final sales price, is much more professional.

License Revoked

Any applicant whose license has been revoked shall meet all the requirements imposed on an original applicant for a license and shall not be relicensed without the approval of the Commissioners.

Agency Disclosure Policy

Any broker acting in a real estate transaction shall adopt a written agency disclosure office policy which specifically enumerates the types of brokerage service arrangements a licensee may offer or accept. The qualifying broker for each brokerage company shall provide every licensee a copy of the agency disclosure policy regarding the types of brokerage services offered by their company. This policy shall be explained to all licensees at least once a year. A form acknowledging receipt of the office policy statement and a satisfactory explanation of its contents shall be signed by each licensee and a copy retained by the brokerage company for three (3) years.

Penalties

Any person or corporation which violates any provision of this chapter commits a Class A misdemeanor and, on conviction, shall be punished accordingly. Any person who files with the Commission any notice, statement or other document or information required under the provisions of this chapter which is false or untrue or contains any material misstatement of fact commits a Class A misdemeanor and, on conviction, shall be punished accordingly.

Brokerage service

Any service, except for rental or property management services, provided by a broker or licensee to another person and includes all activities for which a real estate license is required under Articles 1 and 2 of Chapter 27 of this title.

VA Loan Assumptions

Anyone can assume a VA loan. The person assuming the loan does not have to be a veteran. He or she can either be an owner-occupant or an investor and can provide release of liability in both situations. Only an assuming owner-occupant veteran can substitute entitlement to restore the selling veteran's entitlement. All VA loans closed after March 1, 1988, require qualification and release of liability for assumption.

Land Trust

Anyone can create a trust, naming anyone (including oneself) as beneficiary or trustee, or both. A land trust is created by transferring the title of the land to a trustee, who holds the title for the benefit of the beneficiaries. The trustee's power and duties are expressly set out in the document establishing the trust. The trustee has the duty to protect, preserve, and enhance the value and the highest and best use of the trust property.

Appraising: Appraisal Organizations

Appraising is not an exact science. Uniformity in appraising, however, has developed by applying proven appraisal techniques developed by appraisal organizations such as the Society of Real Estate Appraisers and the Institute of Real Estate Appraisers, now merged to form the Appraisal Institute. These organizations offer continuing education programs for members to assure high quality standards of appraisers and the appraisals they produce. In 1989 federal laws and regulations mandated licensing or certification of persons acting as appraisers. The Appraisal Institute awards the MAI (Member of Appraisal Institute) and SRA designation for general and residential appraisers.

Correlation of the Results

As a practical matter, the results obtained by these three methods will not be identical. To provide the most reliable estimate of value, there must be a correlation or reconciliation of the three different results. For certain types of property, some approaches are more suitable than others. This is especially true for single-family residences. Here you must rely almost entirely on the market and cost approaches, as very few houses are sold on their ability to generate cash rent. Applying all three approaches to special-purpose buildings may also prove to be impractical. For example, in valuing a college or university campus or a state capital building, the income and market approaches have only limited applicability. When appraising a property that is bought for investment purposes, such as an apartment building, shopping center, office building or warehouse, the income approach is the primary method of valuation.

Purchasing Conventional Mortgages

As a privately owned corporation, it now may also purchase conventional mortgages, which currently are a major portion of its business. Fannie Mae buys mortgages regularly. Mortgage bankers are major sellers of mortgages to Fannie Mae. Savings and loan associations, mutual savings banks, commercial banks, and life insurance companies also sell mortgages to Fannie Mae. Fannie Mae sells interest-bearing securities (bonds, notes, and debentures) to investors. These securities are backed by specific pools of mortgages purchased and held by Fannie Mae. These are sometimes called pass-through certificates.

Environmental Concerns: Important Knowledge

As a real estate professional, you must have a familiarity with a variety of subjects. Today the need to possess a working knowledge of environmental issues is more important than ever. Although it's not possible to know and remember detailed information about environmental laws, regulations, and issues, it is vital that you familiarize yourself with these subjects and know where to find the answers you need to help your clients.

The Licensee's Purpose

As an agent for the seller, the real estate broker and his or her associates are empowered to market the listed property. The listing contract does not authorize the licensee to bind the seller in a contract to sell the property. The licensee's purpose is to find a ready, willing and able buyer; "able" means a financially qualified buyer. The seller has the right to accept, reject, or counteroffer all offers to purchase.

Concept of Property: Ownership Topics

As much as 20% of the questions on the state licensing exam will be based on ownership topics such as: Definitions; Descriptions; Ways to hold title; Land use controls and restrictions; and Transfer/alienation of title to property.

Environmental Laws

As our knowledge of the natural environment evolves, the body of law governing potentially harmful environmental hazards and their effects on real estate transactions also is evolving. The risk associated with the ownership of real property involving environmental hazards such as contaminated building materials and pollutants, as well as nonhazardous conditions such as wetlands and endangered species, is an environmental risk. Appraisers often attach an environmental addendum to their appraisal reports to note any observable environmental risks that may reduce property value. The rights and responsibilities of buyers and sellers are determined by state and local laws or terms negotiated into the sales contract between the buyer and seller. Many states have passed a variety of localized environmental protection laws regarding various types of pollution --- air, water, noise, and solid waste. In addition cities and counties also pass environmental legislation of their own.

Written Disclosure

As soon as reasonably possible and before any confidential information is disclosed to any other person by a licensee, the licensee shall provide a written disclosure form to a consumer for signature describing the alternative types of brokerage services that are available to clients and customers of real estate brokerage companies. The licensee shall also inform a consumer as to the specific types of brokerage services that are provided by his or her company. A broker shall not be required to offer or engage in any one or in all of the alternative brokerage arrangements specified in this subsection. The licensee will provide a written form to the consumer for their signature describing the alternative types of brokerage arrangements available. All rental or property management services are excluded from the requirements of this subsection.

Asbestos: Insulation Material

Asbestos is a known environmental hazard, which has been discontinued in residential construction since 1978. However, there are still thousands of older homes that contain this potentially lethal material. Asbestos was used for generations in residential construction, primarily as an insulation material. The most common areas for this material to be present are in heating ducts and equipment, and in some instances, in acoustic ceilings (also known as "cottage cheese" ceilings). Asbestos has also been used in appliances, wall and pipe coverings, floor tiles, and roofing and siding materials. In the 1960s and 1970s, numerous studies linked asbestos to various forms of cancer, and as a result, federal and state governments banned its use for any residential building constructed after 1978. Asbestos is a mineral fiber found in rocks. There are several kinds of asbestos fibers, all of which are fire resistant and not easily destroyed or degraded by natural processes.

Asbestos Review

Asbestos is a mineral fiber widely used in the past as an insulating material because of its fire retardant qualities. The presence of asbestos is not in and of itself a health hazard. A health hazard may occur when asbestos fibers are released by physical destruction or decay. Removal of asbestos is very expensive and could cause release of asbestos fibers into the air. It should be considered as a last option. Asbestos fibers escape into the air where they may be inhaled and cause various types of cancer as well as the degenerative lung disease asbestosis.

Red Flags

Asbestos may be found in: - Cement - Roofing materials - Acoustical tiles - Floor tiles - Some textured ceiling sprays - Insulating materials that are sprayed or wrapped - Pipes and boilers As a real estate licensee you are not expected to possess the technical knowledge needed to confirm the presence of asbestos or to determine health hazards if asbestos is present, but the possible existence of asbestos may be evident from a visual inspection. If you suspect the existence of asbestos, you should alert the parties to the transaction to the possibility.

Asbestos Removal

Asbestos removal is a hazardous process that should be performed only by a qualified and reliable asbestos abatement contractor. The contractor is responsible for removal that assures that asbestos dust is not disbursed in the process. Air should be monitored to assure that asbestos fibers were not released during removal. Removed materials are a hazardous waste and the contractor is also responsible for disposal in a secure landfill approved by the Environmental Protection Agency (EPA).

Personal Property: Chattel

Aside from real property, the only other category of property defined in law is personal property, also called "chattel." Everything that is not real property is personal property. Tangible personal property is everything that is readily movable, such as household furniture, cars, tractors, mobile homes, and jewelry. Personal property also includes crops that are planted and cultivated annually. Ownership of personal property is transferred and evidenced by a document called a bill of sale.

Definitions: Associate Broker

Associate Broker: Any broker other than a qualifying broker. Broker: Any person licensed as a real estate broker under the provisions of the license law. Commission: The Alabama Real Estate Commission, except where the context requires that it means the fee paid to a broker or salesperson. Commissioner: A member of the Commission. Company: Any sole proprietorship, corporation, partnership, or branch office licensed as a company under the license law.

Investing in Mortgages

At any given time the demand for mortgage loans may be low in a specific locality. Institutions with funds available for making loans in that area are unable to invest these funds in the local market by making primary mortgage loans. The funds should be invested in mortgages where they could earn interest instead of being nonproductive. At the same time, another part of the country may have a high demand for mortgage loans. A lender in that area may have a short supply of available funds to lend to qualified loan applicants. The problems of both of these lending institutions can be solved if the institution whose funds are in short supply sells its existing mortgages to a lender in another area having a surplus of available funds and a low demand for mortgage loans.

Written Order

At hearings, all witnesses shall be sworn by a member of the Commission, the executive director, the assistant executive director, or a hearing officer. The Commission shall render a written order within 30 days from the final date of the hearing. If the matter alleged in the complaint is the subject of an action pending in any court, the Commission may withhold rendering or implementing its order pending disposition of the court action

Appointments

At least one (1) of the persons nominated for each Commission seat shall not be a member of the Real Estate Society or trade association. The Governor shall appoint one of the three nominated persons within 30 days following receipt of the list. If the Governor does not make an appointment within 30 days, the said Real Estate Society or trade association shall provide the Governor a list of three additional nominees. The Governor, upon receipt of the second list of nominees, shall appoint one of the six nominees within 30 days following receipt of the list of nominees. Any appointment made by the Governor while the Senate is in session shall be submitted not later than the third legislative day following the date of appointment. Any appointment made while the Senate is not in session shall be submitted not later than the third legislative day following the reconvening of the Legislature. Any vacancy not acted upon shall remain a vacancy until it is filled at a subsequent session of the Legislature in the manner prescribed in this section.

Mortgage Money Sources

At one time a number of life insurance companies were active in making loans directly to individual mortgage borrowers. Today, they provide funds to lending institutions to: - Lend to individual borrowers - Provide funds for the purchase or construction of large real estate projects such as apartment complexes, office buildings, and shopping malls. Credit unions may be an excellent source of mortgage money for their members. Usually, credit unions offer mortgage loans to their membership at an interest rate below the commercial rate at any given time. To be financially able to make long-term mortgage loans, the credit union must be of substantial size. The Federal Employees Credit Union, a state employees credit union, and the credit union of a major industry are examples of large credit unions.

Signing Documents

At the actual time of the closing, when all the parties come together to sign their appropriate documents, the seller will be asked to provide clear title to the property, and the buyer will be asked to provide the funds needed to close the sale. If there is a mortgage or loan involved, the closing of the mortgage also takes place at this time.

Deed and Payment

At the closing, the buyer receives a deed and the seller receives payment for the property. Some states use escrow companies or abstract and title companies for all the preparatory work necessary to close the transaction and to actually perform the final closing. This section covers: - The various methods of closing; - Items required at closing; and - Proration calculations. The two common types of closing methods are: face-to-face closing; and escrow closing.

At Closing: Closing Proceeds

At the closing, the monies the buyer owes are to be received by the closing agent. This agent may be a licensed escrow company, lender, bank, attorney, broker or the parties themselves. The monies owed to the seller are to be disbursed by the closing agent. All other expenses of the sale are to be paid from the closing proceeds and disbursed by the closing agent as directed in the closing or settlement statements. Typically, the details of closing are carried out according to local trade and custom. The procedures are not always controlled by statute, although certain aspects of the closing may be regulated by laws such as the federal Real Estate Settlement Procedures Act (RESPA).

Civil Rights Act of 1866

At the end of the Civil War, the Thirteenth Amendment was enacted to abolish slavery and to give Congress authority to enact appropriate legislation to enforce the abolishment of slavery. In 1866, the reconstruction Congress passed the Civil Rights Act of 1866, which guaranteed property rights to all citizens regardless of race. The Act specifically provided that all citizens shall have the same rights as white citizens to inherit, purchase, and sell real and personal property. Governmental discrimination was also prohibited by the Fourteenth Amendment (enacted in 1868) and the Fifth Amendment's due process clause that applies to the federal government. But soon thereafter, the nation's commitment to civil rights deteriorated. In retrospect, the 1866 Civil Rights Act guarantee of equal rights to all races was, unfortunately, an empty promise.

Negligence : Liable for Damages

At the end of the lease, the tenant is obligated to vacate the premises without the need for legal eviction by the landlord. If the tenant has guests (invitees) or customers (licensees), the tenant must warn them of any hidden dangers that might cause harm. Negligence is defined as a "failure to use the care a reasonable person would use in like-circumstances." The term is relative and depends on the circumstances of each case. Under the law of negligence, a person is liable for damages that result to another person if a duty to that person is owed and the duty is not performed in a reasonable fashion. Under landlord-tenant law, the landlord is responsible for damage that occurs to the tenant, tenant's guest or clients, or tenant's possessions only if the landlord has a duty to the person and the landlord fails to perform his or her duty.

NAR Activities

At the state and national levels, the NAR lobbies in the state legislatures and Congress on matters specific to the real estate business. The NAR has developed special institutes that have designations and certifications in specialized areas of real estate. Examples include the Realtors National Marketing Institute and The Institute of Real Estate Management. This function of the NAR has added to the professional image of the real estate business.

Boundary Lines

At the time a new home is built, small trees and shrubs are planted on or near boundary lines to commemorate the boundaries. As the bushes and trees grow, the branches extend beyond the boundaries. The small apple tree planted many years ago is now dropping rotten apples in the neighbor's yard. The garage that was built within six inches of the boundary line has a roof line and eaves extending over the boundary line and draining on the neighbor's yard. These are examples of accidental and unintentional encroachments.

Authorization Forms

At the time of loan application, the borrower is required to sign the following authorization forms so the lender can verify the data the borrower gives on the loan application, including: - Rent or mortgage - Bank account balance - Outstanding loans - Sales contract deposit - Pension (if applicable) - Credit history - Employment (if the borrower is self-employed, the most recent two years' tax returns (personal and business) are required in place of this verification).

Closing Costs

At the time of settlement or closing of a real estate transaction, both the buyer and the seller must satisfy the various expenses and obligations incurred in the transaction. If this is a new first mortgage from the lending institution, the buyer's cost typically is at least 3% of the loan amount plus discount points. The seller's closing cost varies widely depending on the obligation that must be satisfied at the closing. One substantial obligation that the seller may have is the requirement to satisfy (pay off) an existing first mortgage against the property.

Special Assessments

At times, taxing units levy special assessments in addition to real property taxes, to collect payment for a share of the cost of improvements made to areas near or adjoining the property. These assessments can be levied against property only if the property is benefited by the improvement. Examples are assessment for streets, sidewalks, sewers, rural drainage ditches, and other public improvements. The special assessment becomes a specific lien against the property until paid. If the lien is not paid, the taxing unit may execute on the lien, forcing a sale of the property for payment of the assessments. These assessments may be calculated on an ad valorem basis or some alternative method, such as length of road frontage or percentage of cost.

Section 34-27-36(a)(11)

Before this act was passed, a qualifying broker could only make a commission payment to a salesperson or associate broker as an individual. This prevented the salesperson and associate broker from enjoying certain tax advantages available if payment was made to a business organization they owned. This amendment allows a salesperson or associate broker to own a "lawfully constituted business organization," which does not require a license, as long as it only receives commission payments and does not engage in any other activity requiring a license.

Specific Performance

Basically, no two parcels of land occupy the same space on the earth's surface. Land is defined as the surface of the earth extending down to the center and upward to the sky, including all natural things thereon such as trees, crops or water, plus the minerals below the surface and the air rights above. The term real property includes the land and all artificial things attached to the land such as houses, fences, fixtures and the like, together will all rights appurtenant to the property such as easements, rents and profits. This uniqueness of each parcel of land, even if there are no other differences, gives rise to the legal concept of specific performance, a legal remedy provided by the U.S. court system for breach of contract. If a seller contracts to sell his or her real property, the law does not consider money to be a substitute for his or her duty to convey that title. Therefore, if the seller intends to breach his/her contract and pay financial damages instead, the buyer may refuse to accept the money and insist on taking title to the agreed-upon land as the only acceptable contract performance.

Settlement Statement

Basically, the computation involves determining a yearly, monthly, or daily charge for the item being prorated. This charge is multiplied by the number of months or days of the year for which reimbursement or payment is to be made. The closing statement is prepared before the closing, but it records what must happen at closing. This statement shows all cash received, all charges and credits made and all cash paid out in the real estate transaction. A closing statement may also be called a settlement statement or adjustment sheet--in many loan transactions, the HUD-1 settlement sheet is used.

Dissolution

Because a corporation exists only upon compliance with the laws of the state of incorporation, if the corporation ever fails to comply with the law, the corporation vanishes. The term for vanishing a corporation is dissolution. Dissolution of a corporation is by operation of law (automatic) if compliance with the law ceases. Dissolution of a corporation also may occur upon the vote of shareholders in the corporation.

Separate Property

Because community property states do not recognize dower (a wife's expectation of an interest in her husband's property that becomes legal only on his death), or curtesy (a husband's expectation of an interest in his wife's property that becomes legal only on her death), a spouse may mortgage or convey title to separate property without participation of the other spouse. In these states, separate property is completely under the ownership and control of the spouse holding title in severalty. In most community property states, however, both husband and wife must execute deeds and mortgages involving the separate property of either spouse if the property is being used as their home

Agent's Responsibility (Fixtures)

Because different people may view the determination of fixture status differently, the real estate salesperson is responsible for ensuring that all parties to the contracts clearly understand who owns the fixtures. This can be achieved through a carefully written, explicit listing contract between real estate agent and seller, and the purchase contract between buyer and seller. The contract of sale should specify who is to own certain doubtful items, such as TV antennas, solar devices, security systems, blinds, and so on.

Substantial Amounts of Money

Because most syndications intend to make a profit for many from the efforts of a few, they must comply with the rules and regulations of the Securities and Exchange Commission. Syndications typically are used in cases of multiple, continuing projects that require the investment of substantial amounts of money from many different sources

Pre-Fabricated and Mobile Homes

Because of the relatively small interior space and the large volume of pressed-wood products used in the construction of pre-fabricated and mobile homes, they have historically been plagued by elevated levels of formaldehyde. To remedy the problem, HUD passed regulations as early as 1985 requiring that all plywood and particle board used in the construction of such homes meet special formaldehyde emission limits.

Title Theory

Because of the right of assignment, notes and mortgages are negotiable (transferable) instruments. Title theory states the lender has the right to collect rents on a mortgaged property between default and foreclosure. If the borrower (mortgagor) does not make the payments as required, he or she is in default on the loan. The lender's ultimate power is to foreclose. Foreclosure is the liquidation of title to the real property pledged to recover funds to pay off the mortgage debt. The two types of foreclosure are judicial and nonjudicial.

Certificate of Reasonable Value

Because the loan amount determines whether the remaining entitlement is based on $36,000 or $50,750, the loan amount must be determined before it is known whether all or any of the extra $14,750 can be used. If the VA Certificate of Reasonable Value is less than the price the veteran is willing to pay for a home, the veteran still may obtain the VA loan and make a down payment for the difference between the loan amount and the purchase price. In this case the borrower may not finance the down payment unless it is secured by other collateral. The borrower must have these funds on hand and certify in writing that he/she has not borrowed this money, and is under no obligation to repay the money if the money is a gift.

RESPA Requirements (pt 2)

Buyer's guide to settlement costs - At the time of loan application, the lender must provide the borrower with a booklet entitled "Homebuyer's Guide to Settlement Costs," which contains specific information. The "Homebuyer's Guide to Settlement Costs" information includes: - Clear and concise language describing and explaining the nature and purpose of each settlement cost; - An explanation and sample of the standard real estate settlement forms required by the Act; - A description and explanation of the nature and purpose of escrow/impound accounts; - An explanation of choices available to borrowers in selecting persons or organizations to provide necessary settlement charges; and - Examples and explanations of unfair practices and unreasonable or unnecessary settlement charges to be avoided.

Legal Description

By contrast, the typical habendum clause in a deed conveying a life estate reads: "to have and to hold the premises herein granted unto the grantee for and during the term of the remainder of the natural life of the herein named grantee." There must be a legal description of the land conveyed -- either by metes and bounds; by lot, block, and subdivision; or by a government survey description. If the property is being sold subject to specific encumbrances of record, such as an easement or a mortgage lien, the habendum clause recites these encumbrances. Two points in regard to encumbrances are: - Transfer of fee simple absolute title does not mean an absence of encumbrances; and - The warranty against encumbrances in a deed is only a warranty against encumbrances that have not been disclosed (those not on record).

Correct Vesting

Carefully review the preliminary report or the guarantee of title insurance, to verify the exact legal description of the property and any liens, encumbrances or other items which may have been discovered on the property. Be sure that all items are removed that were not agreed to. Verify that the title or escrow agent has the correct vesting, or the way the buyer wants to take title to the property. This is important because to correct a vesting on a deed later on is time consuming and can be avoided if care is taken when escrow is closed.

Transition

Change may come from a physical or an economic condition relating to the property or surrounding property. Economic and social forces are constantly at work. Both a factory closing and a new school opening will affect property values. Although an appraisal is an estimate of property value based on factual data, the appraiser must also view real property and its environment as if in transition, taking note of trends that may affect the property in the future. This involves using an organized and systematic program to predict change. Quite a trick.

Blockbusting: Two Circumstances

Charges of blockbusting usually occur in two circumstances which are not necessarily proof of blockbusting: 1. A salesperson has used the fact that minorities live in a particular neighborhood, or that minorities may buy in a particular neighborhood, to influence others' decisions on buying or selling in that neighborhood. 2. A salesperson is involved in an intensive telephone, mail or door-to-door solicitation campaign in a changing neighborhood to influence others' decisions on buying or selling in that neighborhood.

Less Favorable Treatment: Salesperson's Actions

Charges of less favorable treatment usually occur because a salesperson: - Insults or ignores a minority customer; - Refers the minority customer to a broker or salesperson of the same minority; - Does not use his/her best efforts to close a sale; - Fails to submit a minority customer's offer to the seller, in favor of a non-minority customer's offer - Treats people differently with respect to financial circumstances.

Closing

Closing is the consummation of the sales effort that began when the broker or salesperson obtained a listing or found a prospective buyer. This event has different names in different parts of the country. These include: - Settlement; - Passing the papers; and - Coming out of escrow.

Auctions

Code of Ala. 1975, Section 34-27-30(5), requires that one who auctions, or offers or attempts or agrees to auction real estate, must be licensed under Articles 1 and 2. Persons commonly referred to as "ground men" are not required to be licensed, provided their activities shall be limited to relaying crowd participation bids to the auctioneer.

A REALTOR® is a professional in real estate who subscribes to a strict code of ethics known as the

Code of Ethics and Standards of Practice https://www.nar.realtor/about-nar/governing-documents/the-code-of-ethics

Concurrent Ownership

Condominium ownership is a way of life as well as a type of concurrent ownership. Condominiums come in all shapes and sizes. They may be one story or many stories. They may be residential, industrial, or commercial. They may be new construction or conversion of a present structure. Condominium ownership is a combination of ownerships --- individual unit plus co-ownership of the common areas available to all owners in the condominium project. The individual unit may be held as a fee in severalty, fee in joint tenancy, fee in common, or fee as tenants by the entireties.

RESPA: RESPA Purposes

Congress enacted the Real Estate Settlement Procedures Act (RESPA) in 1974. It regulates lending activities of lending institutions in making mortgage loans for housing. RESPA has the following purposes: 1. To effect specific changes in the settlement process resulting in a more effective advance disclosure of settlement costs to home buyers and sellers; 2. To protect borrowers from unnecessarily expensive settlement charges resulting from abusive practices; 3. To ensure that borrowers are provided with more information, on a more timely basis, on the nature and cost of the settlement process; and 4. To eliminate referral fees or kickbacks that increase the cost of settlement services; lenders are permitted to charge only for services actually provided to home buyers and sellers, and in the amount that the service actually costs the lender.

Mortgages: First Mortgage

Conventional mortgages can take many shapes with varied terms. In the early 1980s, more innovations appeared in the types of mortgages than in the preceding 50 years because of inflation and the accompanying increases in interest rates. Often these increases were radical and on very short notice. As a result and for their own protection, lending institutions tried to shift the burden resulting from rapid increases in interest rates from themselves to the borrowing public by making substantial modifications to mortgage loan programs. We discuss here various types of mortgages, including those of long-standing duration and those that have come into existence more recently. If more than one mortgage exists on the same property or properties, one of them is the first mortgage and all the others are junior mortgages.

Two Basic Classes of Corporations

Corporations are divided into two basic classes according to their objectives and purposes: 1. Public corporations are the various governmental corporations such as cities, towns, counties, school districts, and special bodies for public improvements. 2. Private corporations are organized to perform non-governmental functions. Private corporations can be further divided into "for profit" and "not for profit" corporations.

Cost

Cost is defined as the dollars needed to construct the element; this is an application of the principle of contribution. Market value is defined as what the market will pay for the element. Cost is not the same as market value. To arrive at the value of an element, the agent must constantly determine from the marketplace what the average buyer will pay for the element being compared. This value is based upon facts determined to exist in the area of the subject property and the comparables.

Creation of Tenancy by the Entirety

Creation of a tenancy by the entirety requires marriage and the unities of time, title, interest, and possession. A husband and wife owning land as tenants by the entirety may not legally convey or pledge property as security to a third party without the other spouse joining in the deed or pledge instrument. A spouse who is a tenant by the entirety may convey their interest to the other spouse with only the signature of the conveying spouse on the deed. There can be no action for partition of real estate held as tenants by the entirety.

Definitions

Cubic Measurement: when a shape encloses a space, the shape has volume. Cubic measurement is normally used to calculate the volume of a building, such as a warehouse. The volume is measured in feet, inches or yards as a cube. It is a three-dimensional measurement. Height x Width x Length = Volume. Front Foot Measurement: used when you are dealing with the frontage of a lot. The frontage is normally the street frontage, but it could be a water frontage if the lot is on a lake or stream or ocean edge. When a lot measurement is given, such as 75' x 150', the first figure (75') refers to the front feet. A front foot measurement can be by the foot or yard or other measurement, as long as it is the linear measurement of the distance involved. Linear Measurement: a running foot, the same as a progressive distance such as putting one foot in front of another. It is a one-dimensional measurement. Example: The distance around the perimeter of the property can be measured in linear feet. Square Measurement: an area such as length multiplied by width. This measurement is normally used to calculate floor space of a building or the area of a lot. It is a two-dimensional measurement.

Directions or Descriptions

DIRECTIONS TO REAL ESTATE FOR SALE OR RENT --- Use maps or written instructions (verbal directions can imply a discriminatory preference, limitation, or exclusion). Specific directions which make reference to an area which is significant to a certain race or national origin may indicate a preference. References to a synagogue, congregation or parish may also indicate a religious preference. AREA (LOCATION) DESCRIPTION --- Names of facilities which cater to a particular racial, national origin or religious group, such as a country club or private school designations, or names of facilities which are used exclusively by one sex may indicate a preference.

Discriminatory Words:

DISCRIMINATORY WORDS INDICATIVE OF: SEX --- The exclusive use of words in advertisements, including those involving the rental of separate units in a single- or multi-family dwelling, stating or tending to imply that the housing being advertised is available to persons of only one sex and not the other, except where the sharing of living areas is involved. This regulation does not restrict advertisements of dwellings used exclusively for dormitory facilities by educational institutions. HANDICAP --- Use of words such as crippled, blind, deaf, mentally ill, retarded, impaired, handicapped or physically fit. This regulation does not restrict the inclusion of information in advertising about the availability of accessible housing. FAMILIAL STATUS --- Reference to adults, children, singles or mature persons. This regulation does not restrict advertisements of dwellings which are intended and operated by occupancy by senior citizens and which constitute "housing for older persons."

Health and Safety

DRUG CONVICTION. The Act does not prohibit discrimination against a person because that person has been convicted, by any court of competent jurisdiction, of the illegal manufacture or distribution of a controlled substance. HEALTH AND SAFETY. The Act allows a landlord to refuse to rent to a "handicapped" person if that person's occupancy constitutes a threat to the health and safety of other persons. HOUSING FOR ELDERLY. The Act provides that the provisions regarding "familial status" do not apply to duly qualified "housing for older persons."

Value Estimate

Data used in making adjustments between the comparable properties and the subject property is summarized, by appraisers. The comparison sets forth all the property and non-property characteristics utilized in this specific value estimate. Plus and minus adjustments are made to the comparable properties to reconcile the differences and arrive at a value estimate for the subject property on the basis of the prices for which the comparables sold.

Adjustments: Data Values

Data values assigned as adjustments are the result of careful analysis of appraiser records. The numbers are not pulled arbitrarily from the air; rather, they are derived from comparable sales analysis data from the appraiser's files. The appraiser should verify all comparable data provided by a party involved in the sales transaction. The amount used in the adjustments is not the cost to build the element being compared. Adjustments for each comparable are totaled and either added or subtracted from the comparable's sales price. The result is the adjusted market price. This is the dollar value of each comparable sale after it has gone through an adjustment process to make it the same as the subject property. Keep in mind that buyers are not precise, particularly in purchasing a home where amenity value influences price and varies considerably from one person to the next.

Monuments and Markings

Datum: A datum, or reference datum, is a point, line or surface from which distances or elevations are measured. Bench mark: Bench marks are permanent reference datum points that have been established throughout the United States. They are usually embossed brass markers set into solid concrete or asphalt bases. The location and elevation of such a marker is accurately known and recorded by the U.S. Geological Survey. While used to some degree for surface measurements, their principal reference use is for marking datums.

Definitions

Debit: take money from a person. Credit: give money to a person. Double Entry: involves both buyer and seller. Single Entry: involves only one of the parties. Prorate: to divide proportionately. Statutory (Banker's) Year Calendar: 360 days/year, 30 days/month. Calendar-Year Calendar: 365 days (leap year 366 days), actual days in each month. Prorating to the Day of Closing: Buyer is responsible for the day of closing. Prorating Through the Day of Closing: Seller is responsible for the day of closing.

Interference with a brokerage relationship

Demanding a referral fee from a real estate licensee when reasonable cause for payment does not exist. The term ''interference with a real estate brokerage relationship'' may also include a threat by a third party to reduce, withhold, or eliminate any relocation or other benefits, or the actual reduction, withholding, or elimination of any relocation or other benefit, in order to generate a referral fee from a real estate broker when reasonable cause for payment does not exist. Notwithstanding the foregoing, either of the following SHALL NOT constitute interference with a real estate brokerage relationship: Communications between an employer or its representative and an employee concerning relocation policies and benefits; or Advising a party of the right to allow a brokerage relationship to expire pursuant to its own terms or not to renew the brokerage relationship upon expiration.

Platting of Land

Developers must obtain approval from the appropriate officials before subdividing and selling lots. Compliance with most subdivision ordinances requires the platting of land into lots. A completed subdivision plat and/or plan must be approved by the appropriate local planning and zoning authority, and often by a city council or county board depending on its impact, before any development is allowed. Only when the fully approved subdivision plat and/or plan is recorded on the public record, can development begin.

A Correction Line

Due to the curvature of the earth, all townships are not six miles square. Because range lines extending northward grow closer together and would finally meet at the North Pole, the north line of a township is automatically shorter than the south line. To correct for this shortage, every fourth township line north and south of the baseline is specified as a correction line. On each correction line, the distance between range lines is measured to a full six miles. Guide meridians are designated every 24 miles east and west of a principal meridian.

Duress

Duress is the threat of violence or placing a person in fear for his or her safety. The essential element of duress is physical fear or threat. The presence of duress in contract negotiations renders the contract voidable by the victim. It defeats the requirement of a voluntary meeting of the minds.

Excessive Escrow Amounts

During the course of the loan, RESPA prohibits a lender from charging excessive amounts for the escrow account. Each month the lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account. In addition, the lender may require a cushion, not to exceed an amount equal to 1/6 of the total disbursements for the year. The lender must perform an escrow account analysis once during the year and notify borrowers of any shortage. Any excess of $50 or more must be returned to the borrower.

Tenant at Sufferance

During this period, the occupier is called a tenant at sufferance. A tenant at sufferance is not a trespasser. The legal action to remove a tenant at sufferance is eviction (suit of possession), not an action in trespass. Many leases have a clause predicting and addressing the possibility of a tenant's failure to vacate upon the expiration of an estate for years.

Moisture and Mold

Dust mites, mold, mildew, and other biological contaminants thrive in moisture. Poorly maintained humidifiers, air conditioners, heating and ventilation systems, and standing water all provide opportunities for these contaminants to grow. The current environmental problem generating the most controversy is mold. Fungi, including mold and mildew (bacillus), are natural phenomena but their effect on human health has not been extensively examined until recently. Although there are thousands of types of mold, not all are toxic. Molds reproduce spores that attach themselves to moist materials. In order to grow, they need oxygen, cellulose material, and moisture. Controlling moisture is the best way to prevent biological contaminants. How hard it is to control moisture depends on the climate in which you live as well as the season. Thorough cleaning, leakage control, and adequate ventilation should do the trick.

Qualifying Broker

Each branch office shall be under the direction and supervision of a qualifying broker licensed at that address. No person may serve as qualifying broker at more than one location. The qualifying broker for the branch office and the qualifying broker for the corporation, partnership, or sole proprietorship shall share equal responsibility for the real estate activities of all licensees assigned to the branch office. No person shall be a qualifying broker for more than one company or for a company and on his or her own behalf unless: - All companies for which he or she is, and proposes to be, the qualifying broker consent in writing; - He or she files a copy of the written consent with the Commission; and - He or she will be doing business from the same location. A person licensed under a qualifying broker may be engaged by one or more companies with the same qualifying broke

Notification of Legal Action

Each licensee shall notify the Commission in writing by certified mail within 10 days after he or she receives notice that any criminal verdict has been rendered against him or her, or that a criminal action pending against him or her has been dismissed, or that a civil action in which he or she was a defendant and which involved a real estate transaction or the goodwill of a real estate business has resulted in a judgment or been dismissed. The notification shall be in writing and shall include a copy of the court order or other document giving the licensee notice.

Appointee Requirements

Each of the seven appointees shall have been, for at least ten (10) years prior to his or her appointment, a resident and citizen of Alabama; and a real estate broker or real estate salesperson. No person convicted of a violation of any federal or state real estate license law shall be eligible to serve. Not more than one member from any United States Congressional District shall be appointed to serve at the same time.

Beneficial Interests

Each of these rights, powers, and privileges affects the value and marketability of a parcel of real estate. A parcel with less than the full bundle of rights may therefore have a reduced value. When purchasing real estate, the buyer actually buys the rights previously held by the seller, except those that are reserved or limited in the sale. These rights are called beneficial interests associated with real property interests.

Disbursement

Each qualifying broker shall promptly disburse to the appropriate party or parties any trust funds within seven (7) days of the consummation of the transaction for which the funds were deposited. If for any reason the transaction is not consummated, or if for any reason there is a disagreement involving to whom trust funds should be disbursed, the qualifying broker shall not disburse any trust funds except pursuant to a written agreement signed by all parties or pursuant to a court order. This rule shall not prohibit a broker from depositing with the appropriate court any trust funds which are the subject of disagreement among or between parties under the rules of interpleader or other lawful procedure.

Trust Funds: Deposit of Trust Funds

Each real estate salesperson or associate broker shall pay over to his or her qualifying broker all funds coming into his or her possession in trust for other parties immediately upon receipt of same. Each qualifying broker is responsible for deposit of all funds belonging to others coming into his or her possession or of a salesperson or associate broker licensed under him or her where such funds are to be held in trust, unless the qualifying broker is expressly relieved of such responsibility in writing.

LESSON 13

Easements and Liens

Creation of Easements Appurtenant

Easements appurtenant are created by: - Deed (grant or reservation) - Necessity and intent - Prescription - Implication - Condemnation.

Grant or Reservation

Easements created by grant or reservation are those created by the express written agreement of the landowners, usually in a deed. The written agreement sets out the location and extent of the easement. An owner may convey land and retain for himself/herself an easement. This is the retention of an easement on land conveyed to another. A common example of an easement by grant or deed is found when a developer, in the plat, sets aside a portion of the land for common area, parks, sidewalks, and so on. This practice is also called dedication of the land

Necessity

Easements created by necessity exist when a landowner has no access to roads and is landlocked. Access, also known as ingress and egress (entry and exit), is required by law. The servient tenement may be entitled to some compensation for the interest taken.

Easement in Gross

Easements in gross may be either personal or commercial. Personal easements in gross benefit individuals (e.g., space to store your tractor on a neighbor's property). Personal easements terminate on the death of the benefited individual and are usually not assignable. The most common form of easement in gross, however, is the commercial easement in gross (utility easements, roadways, alleyways, underground water, sewer and electric lines). A commercial easement in gross is usually owned by the government, an agency of the government, or a public utility. Examples are the water lines and electric lines that run underground in most lots in subdivisions.

Termination of Easements

Easements may be terminated: - The easement owner's release of the easement - Combining the dominant and servient lands into one tract, called merger - The easement owner's abandonment of the easement when the purpose for the easement ceases to exist (e.g., when land is no longer landlocked because a new road has been built) - Expiration of a specified time period for which the easement was created - Condemnation or adverse possession - Overburdening (used for an unapproved purpose)

Economic/External Obsolescence

Economic obsolescence is the loss of value due to external forces or events outside the property boundaries. It is unique to real estate, caused by its fixed location. The value of a house is directly affected by the neighborhood, community and region in which it is located. The house can be diminished in utility by changes in zoning, loss of job opportunities and other external detrimental conditions.

Effective Demand

Effective demand is a desire or need for property coupled with the financial ability to satisfy the need. In times of excessively high interest rates, many people with a strong desire and substantial need for housing are priced out of the mortgage market; therefore, the demand for the property is not effective. The people who wish to buy do not have the ability to satisfy the demand. The maximum rate of interest that may be charged on mortgage loans is often controlled by state law, although there are federal exemptions for home mortgage loans. Charging interest in excess of the statutory loan rate is called usury, and nonexempt lenders are penalized for making usurious loans. Certainly the housing market fluctuates as the interest rates for mortgages fluctuate. High interest rates lower ability to pay (demand) and low interest rates raise the ability to pay (demand).

Serving the Parties

Effective real estate salespeople and brokers must have a clear picture of their roles in the real estate transaction. Successful real estate licensees do not use "hard sell" techniques. Rather, they are advisors working diligently to assist buyers, sellers, and renters of real estate. The real estate licensee's ability to serve the parties in a real estate transaction will determine his or her success. A career in real estate can provide the satisfaction from serving the needs of others, as well as with financial rewards. Success in the real estate business is built upon knowledge, ethical conduct in all dealings, and service to others

Closing Date: Setting the Date

Either buyer or seller may set the closing date, both parties must agree to the date, and generally the buyer puts his/her request for a 30-, 60-, or 90-day escrow in the original purchase agreement. The seller may request a shorter or longer escrow, depending on his/her circumstances, and as long as the buyer agrees, that date will be set. Generally, a "financing contingency" is put into the offer to purchase in which the buyer is given a specified amount of time to obtain a mortgage. Once the buyer has a firm commitment from a lender, the actual closing date can usually be set.

Emblements (Fruits of industry)

Emblements are the personal property of the tenant who cultivated them, and such a tenant has the common law right to reenter the property to harvest the crops cultivated that year even though the land has been sold or the lease terminated. Fruits of industry or emblements do not pass to a buyer of real estate by deed; instead, they pass via a bill of sale because they are personal property.

Escheat

Escheat occurs when no one is eligible to receive the property of the descendant as provided by statute. In this case, the property reverts to the state or county. If a diligent search fails to reveal qualified heirs as specified by the statute, the property escheats to the state or other government entity. This means that in the absence of heirs, the state or other government entity takes title to the property. This results in an involuntary alienation after death. This is the only form of involuntary alienation after death. The person appointed by a court to distribute the property of a person dying intestate, in accordance with provisions of the statute, is called an administrator (man) or administratrix (woman). This person is also sometimes referred to as the personal representative.

Insurance Value

Estimating the value of property as a basis for determining the amount of insurance coverage is necessary to adequately protect the structure against loss by fire or other casualty. The insurance company is concerned with the cost of replacing or reproducing structures in the event of a total loss caused by an insured hazard. Insurance value is the cost of replacing or reproducing the structure in the event of a total loss. This cost is calculated by multiplying a square--foot replacement cost by the number of square feet in the structure, or it may involve more detailed analysis of component costs. Land value is not included in calculating insurance value.

Fiduciary Duties

Every agency creates a fiduciary relationship between principal and agent. It is a position of trust. The agent has certain obligations to the principal, as required of every agent by law. The agent's duties and responsibilities include: -Loyalty -Obedience -Skill -Care -Diligence -Disclosure of information -Accounting.

Specific Performance

Every piece of real estate is unique. All are in different locations; no piece can be substituted for another and have an exact match. As a result, a party contracting to buy a parcel of real estate does not have to accept a similar or even almost identical parcel. Because of the unique nature of real estate, the remedy of specific performance is available to non-defaulting parties. An order from the court requiring specific performance means that the contract must be completed as originally agreed For example: Buyer Henderson has contracted to buy 123 Rainbow Lane from Seller Andrews. Andrews attempts to convey 456 Memory Lane, which is an exact mirror image of 123 Rainbow Lane. Henderson does not have to accept the substitute and files suit for specific performance. The court orders Andrews to deed 123 Rainbow Lane to Henderson.

Age

Every structure may have two different ages. Chronological age of a structure is measured by the number of years the structure has existed. This is similar to the age of a person. The effective age refers to the age that the structure appears to be, based on its condition. If a property is well-maintained, it may seem to be younger than its actual chronological age. The effective age of improvements to real property at the time of inspection differs from the actual age by such variable factors as depreciation, quality of maintenance and the like. Thus, remodeling can extend the economic life of a structure by reducing or mitigating the impact of actual age, and increase the structure's life expectancy.

Eviction Proceedings

Eviction is different from self-help, whereby the landlord physically removes the tenant's access to the premises or takes action to prevent tenant access to the premises. This is a violation of either statutory or common law by the landlord. Self-help is not allowed. The timetable for eviction proceedings and the evidentiary requirements to prove right to eviction are governed by local court rules. When a tenant improperly retains possession of leased premises, the landlord may regain possession through a suit for possession. This process is known as actual eviction. The law requires the landlord to serve notice on the tenant before commencing the suit. Usually at least a 10 day notice is required in case of a default in most lease terms, but in many states, only a 5 day notice must be given

Adding and Subtracting Decimals

Example: 1.2 + .05 = 1.25 To add or subtract decimals, vertically line up the decimal points under each other, insert zeros for missing digits and add or subtract as you would with whole numbers

Resident Manager

Expert management is often needed for income property to be a profitable investment. A manager is considered an agent of the property owner and owes the owner fiduciary duties of care, obedience, loyalty and accounting. Competent property management should provide a comprehensive and orderly program with which to analyze the investment aspects of a property. If done on a continuing basis, this analysis ensures a financially successful project.

Adding Fractions

Example: 3/4 + 1/2 + 5/8 = ? Step 1: When adding fractions together, first determine which of the denominators will divide evenly into the other denominator(s). Use the largest one. As stated on the previous page, the largest common denominator in this example is 8. The other denominators, 4 and 2, will divide evenly into 8 Step 2: Convert the fractions so that they all have the same common denominator. Do this by dividing the lower denominators into the largest common denominator to figure out what to multiply both the denominator and numerator by. So to change the original fractions of 3/4 and 1/2 to new fractions in terms of the common denominator of 8: 3/4 = (3 x 2) / (4 x 2) = 6/8 If the common denominator is twice as large as the original (i.e., you have to multiply the original denominator by 2 to get it from fourths to eighths), the new numerator must likewise become twice as large - so you multiply the original numerator by 2 as well. 1/2 = (1 x 4) / (2 x 4) = 4/8 In this case, 2 goes into 8 four times so multiply both the numerator and denominator by 4 to get the answer. Now the fractions are restated in terms of the lowest common denominator and the numerators are ready to be added. 3/4 + 1/2 + 5/8 ..... is the same as ..... 6/8 + 4/8 + 5/8 Step 3: Add up all the new numerators to get the "sum." Then, if the answer is an improper fraction, divide the numerator by the denominator to get the final sum. 6/8 + 4/8 + 5/8 = 15/8 = 1 and 7/8

Prohibited Acts

Examples of prohibited acts are: - Advising a prospective buyer that a house has been sold, because of the prospect's national origin, when it has not; - Refusing to accept an offer to purchase because the offeror is a member of a certain religion; and - Telling a rental applicant that an apartment is not available for inspection because the applicant is a female (or male) when the apartment is actually vacant and available for inspection. The Act makes it illegal "to discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, national origin, handicap, or familial status." Examples of prohibited acts in this category are: - The manager of an apartment complex routinely requires tenants to have a security deposit in an amount equal to one month's rent except when the rental applicant is Hispanic, in which case the required deposit is increased to two months rent. - The manager of an apartment complex restricts use of the complex swimming pool to white tenants only. Examples of prohibited acts: - The owner of a condominium includes in the purchase of a condo apartment a share of stock and membership in a nearby country club provided the purchaser is not Jewish. - A landlord charges a larger deposit to a couple with young children. - A landlord charges a higher rent to a person in a wheelchair.

Exercise of Police Power

Examples of the exercise of police power affecting property use are zoning ordinances, subdivision ordinances, building codes, and environmental protection laws. Property owners affected by the exercise of police power are not compensated for the restrictions and loss of use of their property resulting from the exercise of this power. Also derived from police power is the right to damage or destroy private property, without compensation, when such an act is necessary to protect the public interest. For example, when a condominium unit is on fire and the fire department must destroy an adjoining unit to extinguish the fire and save the rest of the building. Although the government would not be required to compensate an owner for such destruction, a valid claim may be filed against the insurance policy covering the burning unit or against the owner's policy.

Advertising Violations

Examples of violations are: - An advertisement for the sale of condominium units or rental apartments containing pictures that show owners or tenants of only one race on the property; - An advertisement stating that the owner prefers tenants who are male college students; - A "For Sale" sign specifying "No Puerto Ricans;" - A statement to prospective white tenants by a real estate salesperson that black tenants are not permitted; and - An apartment advertisement stating "adults only."

Judicial Deeds

Execution of judicial deeds result from a court order to the official executing the deed. The various types of judicial deeds receive their names from the title of the official executing the deed. They include: - Sheriff's deed (in some states - "referee's deed" in foreclosures) - Tax deed - Guardian's deed - Commissioner's (in some states - "referee's deed" in partition) - Executor's deed - Administrator's deed Judicial deeds contain no warranties.

Taxation and Escheat

Exercise of the power of taxation is one of the inherent burdens on private ownership of land. Land owned by government, governmental agencies, or nonprofit organizations is exempt from real property taxation. Escheat is the reversion of property to the state or county, as provided by state law, in cases where a decedent dies intestate and there are no heirs capable of inheriting or when the property is abandoned. In some states, bank accounts that are unused for more than seven years will escheat to the government. If a property owner dies testate (leaves a valid will) the individual's property is distributed to persons as specified in the will. If an owner dies intestate (dies without having a valid will) the decedent's property is distributed to heirs in accordance with state statutory provisions

Federal Housing Administration (FHA): FHA Programs

FHA has a variety of loan programs available to borrowers. In periods of higher interest rates (over 12%) the FHA 245 loan is popular. This is a graduated payment loan with monthly payments lower in the early years, usually not enough to pay the interest; consequently, the balance rises. The payments increase yearly over the first five or ten years of the loan to reverse this negative amortization. The FHA 203(b)(2) loan, sometimes called FHA-Vet or FHA-Va, is not related to the regular VA loan program, and does not affect a veteran's entitlement. The benefit is that there is no down payment on the first $25,000 of value. This reduces the down payment by $750. The FHA 234(c) is the condominium version of a "standard" FHA loan. The condominium project must meet certain FHA conditions regarding construction, owner occupancy, and homeowner association structure

Qualification Procedures: Gross Income Approach

FHA loan qualification procedures changed dramatically on December 1, 1989, when FHA changed from a net income to a gross income approach. This change simplified qualifying a buyer for an FHA loan. Under these guidelines the monthly housing expenses composed of: - Principal - Interest - Taxes - Homeowner's insurance - MIP paid monthly - Homeowners' association dues or assessments. These cannot exceed 29% of gross income.

Loan Assumptions: Housing and Urban Development Reform Act

FHA mortgages originated before December 1, 1986, are freely assumable without qualification by owner-occupants and investors alike. The Housing and Urban Development Reform Act of 1989 effectively stopped new investor loans and non-qualifying loan assumptions. A credit worthiness review is required for the assumption of all FHA loans originated after December 15, 1989. This requirement remains in effect throughout the life of the loan.

Homogeneity

Factors influencing the demand and supply of real estate affect property values either positively or negatively. Conformity means "like" or compatible uses of land within a given area. Adhering to the principle of conformity results in maximum property values. This is the basis for zoning laws across the country; certain tracts in a community are zoned for single-family houses, others for apartment buildings, stores, and industry. Within a tract there should also be a reasonable amount of homogeneity.

Noncompatible Use

Failure to adhere to the principle results in inharmonious and incompatible uses of land within the area, with the consequence of depreciating property values. In residential subdivisions, conformity is achieved through restrictive covenants. In other areas, conformity is accomplished through zoning laws and subdivision ordinances. An example of a noncompatible use might be a dome or log home in a subdivision of ranch-style homes. Another example would be a $200,000 home in a neighborhood of $100,000 homes.

Enforcement

Failure to enforce restrictions on a timely basis will likewise terminate restrictive covenants. Owners cannot sit by idly and watch someone complete a structure in a subdivision in violation of the restrictive covenants and then attempt to enforce the restriction by court action. If property owners do not act to enforce restrictive covenants on a timely basis, the court will not apply the restriction against the violator and it will be terminated. Termination of a covenant in this manner is an application of the Doctrine of Laches, which states that if a landowner delays in protecting his or her rights, he or she may lose them.

Failure to Meet Conditions

Failure to meet all of the conditions in the purchase contract excuses the buyer and the seller from the obligations of the contract. If failure to meet all of the conditions in the purchase contract was outside the seller's control and not caused by the seller, the seller will be excused from payment of a commission per the listing contract.

Reactivation

Failure to meet the September 30th deadline for active renewal will result in the license being placed on inactive status on the following October 1, and the license shall be subject to all reactivation requirements. Proof of attendance at the course work, whether or not the applicant attained a passing grade in the course, shall be sufficient to satisfy requirements for renewal. The 15 clock-hours' course work requirement shall apply to each two-year license renewal, and hours in excess of 15 shall not be cumulated or credited for the purpose of subsequent license renewals. Reactivations shall be processed in the order received as evidenced by postmark or delivery date. Certified or registered mail may be used for reactivation in this case

Shared Appreciation Mortgage : Appreciation of Property Value

Federal regulation of lending institutions has been liberalized in an effort to protect financial institutions making long-term loan commitments from extreme fluctuations in short-term interest rates. These institutions borrow funds at the short-term rate but lend money on a long-term basis. The shared appreciation mortgage (SAM) allows the lender to benefit from the appreciation of property value in exchange for a lower rate of interest to the borrower. For consumers, the loans make buying homes and managing debt easier. But they come with drawbacks, too. People need to understand what they're getting into and what they're giving up with a SAM before signing anything.

Fee Simple Determinable

Fee simple determinable is another inheritable freehold estate in the form of a fee simple estate. It is also a defeasible fee, however, and therefore can come to an end. This type of estate is easily recognized by use of words such as "during the period," "while," or "as long as" in the deed of transfer. For example, a grantor transfers ten acres to her daughter, as long as the property is used for educational purposes. Title received by her daughter can be for an infinite time. If the property is not used for the purpose specified in the conveyance, however, the title will terminate automatically and revert to the original grantor or his/her heirs.

Specifying the Conditions

Fee simple subject to a condition subsequent is created by the grantor (the one conveying title) specifying in the conveyance of title a use of the property that is prohibited or required. The deed must specifically state the condition. As long as the property is used in accordance with the conditions specified in the deed, for this purpose the title will continue indefinitely with the initial grantee or any subsequent grantee. If the property is used in a way that breaches the conditions specified in the deed at any time in the future, the original grantor or his/her heirs may reenter the property and take possession, or go to court and sue to regain possession. By doing this, the titleholder's estate is terminated. Breach of the condition causes the termination.

Violations: Prohibited Acts

Few special exemptions are available to owners in renting or selling their own property. In the absence of an exemption, the following specific acts are prohibited. It is unlawful to refuse to sell or rent housing, or to negotiate the sale or rental of residential lots on the basis of discrimination because of race, color, religion, sex, national origin, handicap, or familial status. This includes representing to any person on discriminatory grounds "that any dwelling is not available for inspection, sale, or rental when in fact such dwelling is available." It is illegal "to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny a dwelling to a person" because of race, color, religion, sex, national origin, handicap, or familial status.

Indemnification

Finally, the agent is entitled to be free from liability if the principal has withheld information that causes the agent to make incorrect representations to third parties. If the agent is found liable to the third parties for the principal's misrepresentation, the agent is entitled to repayment from the principal for all monies paid. The repayment from the principal is indemnification to the agent and makes the agent financially whole. For instance, if the seller of listed property knows of a latent defect (such as hidden termite or water damage) and fails to disclose the defect to the broker, any legal action brought by an innocent buyer against the broker shall be indemnified to the broker by the seller.

Compass Directions

First we need to know that the directions stated in a metes and bounds description are the magnetic compass directions for all boundary lines. Recite the north or south direction first, followed by the direction of declination from north or south (i.e., N45°E means looking north, decline 45° to the east; S90°W means looking south, incline 90° to the west). In preparing a metes and bounds description, we must add the distances to be measured from point to point (i.e., N45°E for 2,500 feet).

Fixtures

Fixtures are personal property, such as the door knocker or chandelier, which are so attached to the real estate as to be a part of it. Sometimes the sellers want to detach fixtures from the real estate to take with them. Fixtures the seller takes along that the buyers expected to find when they moved in can be a source of litigation. Where such issues are decided by a court, a judge looks at the objective evidence to decide what the apparent intent of the parties was concerning the fixture, including the method of attachment, the relationship of the parties to the property, the adaptability of the fixture to the real estate, and the relationship of the annexing party to the real estate.

Legal Capacity of the Parties: Age

For a contract to be valid, the parties to the contract must have the capacity to enter into a contract. Age is one consideration in the legal capacity of a party. Minors -- those who have not reached the age of majority as established by the statute in each state --- do not have the legal capacity to contract. An exception for minors is made in some jurisdictions for minors who are married or who are contracting for essential services such as housing or medical care.

Reality of Consent: Accurate Knowledge

For a valid contract to be created, the parties must enter into it voluntarily. - They must mutually agree to the terms and conditions in the contract. If a person enters into a written contract, as evidenced by his or her signature on the contract, the individual is presumed to have assented to the terms and conditions of the contract. The consent of the parties to enter into a contractual agreement must be a real consent. - Reality of consent is based on the parties having an accurate knowledge of the facts concerning the terms and conditions of the contract. If one or both parties does not have full knowledge or accurate knowledge, the contract will fail to be valid because of the lack of mutual assent.

Adjustable Rate Mortgages

For adjustable rate mortgages with less than a 20% down payment, the debt ratio usually is calculated based on the fully indexed adjustable rate (loan margin plus index), not the initial rate, which in many instances can be up to 2% lower. Thus, when mortgage rates are at 10%, the borrower may have to qualify on the basis of 10%. For adjustable rate mortgages with greater than 20% down payment, the borrower under an ARM may qualify on the basis of the lower first-year rate. Thus, under the same interest rate conditions, a buyer might qualify on the basis of 8% if he/she has the larger down payment.

Debt Service

For appraisal purposes, debt service (mortgage principle and interest payments) is not included in the list of expenses. Debt service is considered to be a personal obligation of the property owner. The building would have the same income whether it is free and clear or financed with a 14 percent loan.

Use of Formaldehyde Compounds

Formaldehyde is found in just about every product in modern building materials, especially newly constructed or renovated properties. The EPA has yet to set aside allowable standards. The use of formaldehyde compounds is fairly widespread in the manufacture of furniture, cabinets, and other building materials that subsequently release formaldehyde gas into the air. Formaldehyde is one of the substances contributing to "sick building syndrome."

Percentage of Sales Price

For compensation, the seller typically agrees to pay the broker a set percentage of the accepted sales price of the property when a ready, willing, and able buyer is produced. If the broker brings a buyer with an offer completely in accordance with the listing agreement and no conditions (full cash offer), the broker is entitled to a commission whether the seller does or does not accept the offer or is later unable to close the transaction.

Formal Description

For effective and accurate title transfers, title insurers, abstractors and attorneys also rely on an accurate legal description of the land. The type of legal description for title transfer must be a formal description. Informal descriptions, such as street addresses or assessor tax numbers, are acceptable on listings but not on documents for transferring or encumbering title. The formal description must have a legal description of the land conveyed, either by: Metes and bounds; Lot, block and subdivision (by reference); or A government survey description.

Creditworthiness: Loan Processing

For general information, the following steps, among others, are involved in loan processing. An appraisal, an evaluation of the subject property by a qualified professional, normally is ordered from an appraiser who has obtained recognized training and experience through membership in a professional appraisal organization. For most lending that requires appraisals; the appraiser now must be licensed or certified according to state regulations. A Uniform Residential Appraisal Report form has been created to standardize appraisals nationally.

Higher Ratios (pt 2)

For mortgage loans with less than 20% down payment, the lender has risks in addition to the above ratios, therefore, the underwriter must determine that the borrower: - Will have adequate cash reserves after closing, usually the equivalent of two months' mortgage payments - Has the ability to make mortgage payments in excess of his or her previous housing expense - Has demonstrated an ability to accumulate savings and to properly manage debt - Has maintained an excellent credit history - Has a capability for future increased earnings and savings.

Straight Line Depreciation

For tax purposes, the IRS uses a Cost Recovery Table to calculate depreciation on income property; it is currently 27.5 years on residential property (lived in) and 39 years on non-residential property (not lived in). This depreciation is on improvements only, not on land. The IRS may change its rules at any time. If you need accurate information consult current regulations for any changes. EXAMPLE: If a building has an economic life of 30 years, the cost of the building can be divided by 30and depreciated equally each year until the economic life is used up. At the end of the depreciation period, the cost of the building would have been recovered.

VA Loan Qualifications

For the borrower to be eligible for a VA-guaranteed loan, he or she must qualify as a veteran under requirements of the Department of Veteran Affairs. Three groups of qualifying periods are as follows: Qualification in Group 1 consists of at least 90 days of active duty during any one of four wartime periods. - World War II: September 16, 1940 to July 25, 1947 - Korean War: June 27, 1950 to January 31, 1955 - Vietnam: August 5, 1964 and May 7, 1975 - Persian Gulf War: August 2, 1990 to present The veteran must have been discharged or released from duty under conditions other than dishonorable or may still be on active duty.

Attestation

For the deed to be valid, a few states require witnessing. One person or more must be present when the grantor signs the deed. Witnessing is called "attestation." For a deed to be eligible for recording, it must have an acknowledgment. The grantor must appear before a public officer such as a notary public who is eligible to take an acknowledgment and state that signing of the deed was done as a voluntary act. A deed is perfectly valid between grantor and grantee without an acknowledgment. Without acknowledgment however, the grantee cannot record the deed and thereby have protection of title against subsequent creditors or purchasers of the same property from the same grantor who records their deed. The grantee should insist upon receiving a deed that has been acknowledged.

Insulating New Homes

Formaldehyde is an ingredient in the foam that was used for insulating new homes until the early 1980s. While contractors have voluntarily stopped using Urea Formaldehyde Foam Insulation (UFFI), the material is still present in many homes. Gases leak out of UFFI as it hardens and becomes trapped in the building walls. These gases can cause some people to suffer respiratory problems, and eye and skin irritations. Since 1985, the federal government, through the U.S. Department of Housing and Urban Development (HUD), has enforced regulations that sharply curtail the use of materials containing formaldehyde. In some homes, sub-flooring or walls may be the source of formaldehyde, or foam insulation between inner and outer walls may emit the gas.

Mortgage-Participation Certificates

Freddie Mac sells mortgage-participation certificates (PCs) and guaranteed mortgage certificates (GMCs). These are securities that represent an undivided interest in specific pools of mortgages. Freddie Mac guarantees payment of principal and interest to purchasers of PCs and GMCs. Freddie Mac was part of, and was wholly owned by, the Federal Home Loan Bank (FHLB) System. When Freddie Mac began, approximately 3,000 savings and loan associations held its stock. In 1988, these associations released the stock for sale, which provided another source of funds for Freddie Mac's operations.

Friable vs. Non-Friable

Friable asbestos is the type that can be crumbled into fine particles by hand pressure. It can then become airborne and easily inhaled into the lungs. These particles cannot be seen by the naked eye. This aspect of asbestos has created a serious health hazard. On the other hand, non-friable asbestos, such as that found in floor tiles, emits few fibers and is much less hazardous. Non-friable asbestos can become a hazard if it is disturbed by drilling, cutting, or sanding.

Qualifications

From September 8, 1980 (enlisted) and October 17, 1981 (officers) to August 2, 1990, 24 months on active duty are required if the veteran is no longer on active duty. During this time, the veteran could get a VA loan after 181 days on active duty as long as he or she was still on active duty at the time of the loan or was discharged for a service-connected disability, the convenience of the government, or hardship. The spouse of a deceased veteran who qualified under one of the three groups and died as a result of a service-connected disability or in the line of duty is qualified, as the veteran would have been. Eligibility is not allowed for children, spouses who remarry, or spouses in cases in which the deceased veteran did not die as a result of service. In October 1992, the first President Bush signed HR 939 into law. This legislation provides for VA entitlement to certain members of the National Guard and the military reserves with over six years of service. These individuals will have to pay a higher VA funding fee and their entitlement will end after seven years.

Determining Boundaries

From the previous example you should be able to determine the boundaries from the following metes and bounds description: Beginning at the brass marker in the center of the intersection of New Days Road and Old Folks Avenue, proceed N45°W 40' to the point of beginning. From POB proceed N89°W 1,000', then N1°E 1,000', then S89°E 1,000', then S1°W 1,000' to POB. In actual use, you almost never find straight N, S, E or W. It is more often something like N 89° 59' 37" E.

Curable and Incurable Depreciation

Functional and physical obsolescence can be separated into curable and incurable components. Curable depreciation can be fixed at reasonable cost such as worn carpets, leaky roof, and outdated faucets. Incurable depreciation cannot be reasonably fixed and must be lived with such as illogical room layout. Physical depreciation or deterioration of an improvement is indicated by decay or disintegration, cracks, wear and tear, settling of foundations, structural defects, actions of the elements, any loss of physical soundness and termite damage.

Functional Obsolescence

Functional obsolescence results from: - Outmoded equipment (old fashioned plumbing fixtures in the bathrooms and kitchen); - Faulty or outdated design (a single bathroom in a three- or four- bedroom house or an illogical room layout); - Inadequate structural facilities (inadequate wiring to handle today's household appliance loads); and - Over-adequate structural facilities (high ceilings in a home).

Funds Held in Trust

Funds to be held in trust under a contract for sale involving more than one qualifying broker shall be held and deposited by any of the qualifying brokers involved in the sale. All funds to be held in trust, whether by contract for sale, or by lease or property management agreement, shall be held and deposited by the qualifying broker who is providing these services to the owner. In cases where a successor qualifying broker is to provide these services, the first broker shall provide a complete accounting of the funds and shall transfer the funds to the successor broker.

Determining What is a Fixture

Generally, the test of whether an item is a fixture as a result of its method of attachment depends more on the firmness of its installation than on the damage that might be caused by its removal. The fact that removal leaves a dirty or unpainted spot is irrelevant. Determining what is a fixture can be a problem during real estate transactions because the buyer and seller may have different perceptions. For example, an owner may have installed track lighting in the dining room and wants to remove it upon sale of the home, contending that it is his personal property. If the buyer wishes to establish that the lighting is a fixture and should remain with the home, the courts may apply several tests to resolve this issue. The typical tests ask three questions: - How permanent is the attachment? - What was the intent of the person installing the item? - If it is removed, can the item be used elsewhere? A seller must deliver all fixtures unless noted as exceptions in the contract of sale. This applies to unowned fixtures as well. A broker taking a listing should inspect the premises carefully and determine whether any of the apparent fixtures, such as air conditioners or carpeting, are rented or being purchased under a Uniform Commercial Code financing statement.

Pass-Throughs

Ginnie Mae guarantees the "Ginnie Mae Pass-Through," a mortgage-backed security providing participation in a pool of FHA-insured or VA-guaranteed mortgages. The pass-throughs are originated by lending institutions, primarily mortgage bankers. Ginnie Mae guarantees these securities and thereby makes them highly secure investments for purchasers. The yield on each pass-through issued is guaranteed by the full faith and credit of the U.S. government. The pass-throughs are secured by the FHA-insured and VA-guaranteed loans and the lending institution originating the pass-through provides a guarantee as well.

Fruits of Nature

Growing things that do not require regular planting or cultivation but continue to grow naturally (perennials) are called fructus naturales, fruits of nature, and are designated by law as real estate. These include forest trees, native shrubs, and wild berries. Fruits of nature pass to a buyer of real estate by execution and delivery of the deed from the seller unless specifically reserved by the grantor. Growing things that require planting each season and cultivation are called fructus industriales, fruits of industry, and are designated by law as personal property. Examples include crops such as corn, wheat, melons, and soybeans. These fruits of industry are called emblements.

Lead-Based Paint Disclosures

HUD and EPA regulations now require sellers and landlords of homes and apartments built prior to 1978 to make lead-based paint hazard disclosures, even though a given state may not require detailed property disclosure. The disclosures required include knowledge of any known hazards, results of any testing for the presence of lead-based paints, and providing buyers and tenants with a government pamphlet on lead-based paint. Buyers are also allowed 10 days to conduct a lead-based paint inspection at the buyer's expense.

Affirmative Advertising Efforts : Affirmative Marketing Program

HUD's regulations do not restrict advertising efforts designed to attract persons to dwellings who would not ordinarily be expected to apply, when such efforts are pursuant to an "affirmative marketing program" or undertaken to remedy the effects of prior discrimination in connection with the advertising or marketing of dwellings.

Highest and Best Use: Most Probable Use

Highest and best use is feasible use that will produce the highest current value. The highest and best use in the context of market value is the most probable use. It may or may not be the present use of the property. Highest and best use can change over time as market forces change. This means that agents must be alert to the possibility that the present use of a parcel of land may not be the one that makes the land the most valuable. For example, an old house located at a busy intersection in a shopping area could be sold as a residence, or the property could be worth more with the house removed and shopping or commercial facilities built on the land instead.

Automatic Life Estate

If John owns a home in his name only, upon his death his wife has an automatic life estate as a result of dower law. Until John dies, this is an inchoate (future) right of the surviving spouse. Dower rights have been eliminated in many states that have adopted the Uniform Probate Code. Under dower and curtesy law, if the surviving spouse had not joined in a conveyance of the property, he or she has a right to a life estate (usually limited to one-third share) in the property owned while they were married. Apportionment of shares is determined in the administration of the estate. Two-thirds of the property would probably go to any children. This cannot be enforced until the death of the conveying spouse. Dower and curtesy should not be confused with community property laws.

VA Standards : Required Statement

If a contract of sale, subject to the buyer's obtaining a VA-guaranteed loan, is created prior to an appraisal and commitment by the VA, the contract must contain the following statement, as required by the Department of Veteran Affairs: "It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veteran Affairs. The purchaser shall, however, have the privilege and option of proceeding with consummation of this contract without regard to the amount of the reasonable value established by the Department of Veteran Affairs."

Example 8:

If a house sold for $79,000 and the salesperson received $2,765 as a commission, what percent of the sale price was his/her commission? Answer: $2,765 divided by $79,000 = 0.035 or 3.5%.

Selling a Share of Ownership

If a joint tenant, prior to his/her death, sells his/her share of ownership, the person purchasing this share will not become a joint tenant with the others. The necessary four unities will not exist. The document that gives title to the new purchaser is not created at the same time as the document giving title to the original joint tenants. The unity of time has been destroyed. The new co-owner thus will enter the relationship as a tenant in common. The remaining original joint tenants continue as joint tenants with the right of survivorship among themselves. The new purchaser, as a tenant in common with the original joint tenants, will be able to pass his/her share at his/her death to his/her heirs or by will.

Leaving a Will

If a person dies and leaves a valid will, he or she is said to have died testate. The deceased is called a testator if a man and a testatrix if a woman. A person appointed in a will to carry out the provisions of the will is called an executor (man) or an executrix (woman). Probate is the formal judicial proceeding to prove or confirm the validity of a will, to collect the assets of the decedent's estate, to pay the debts and taxes, and to determine the persons to whom the remainder of the estate is to pass. It is the judicial determination of the validity of a will by a court of competent jurisdiction and subsequent supervision over distribution of the estate.

Principles Regression or Progression

If a property fails to conform to an area, either regression or progression may be the result. The principle of regression states that between dissimilar properties, the worth of the better property is adversely affected by the presence of the lesser-quality property. For example, regression occurs when a large, elegant home is located in a neighborhood of modest ranch-style homes. The principle of progression states that the worth of a lesser object is increased by being located among better objects. This is the opposite of regression. For example, move the modest ranch-style home to a neighborhood of large, elegant homes. Regression: big house in small house area Progression: small house in big house area

Restoring Eligibility

If a veteran has used either full or partial eligibility in obtaining a VA loan, he or she may have that eligibility fully restored in one of the two ways. 1. The loan is paid in full and the veteran has disposed of the property. A veteran purchaser with as much remaining eligibility as the original veteran used to obtain the loan and who also satisfies the VA requirements for income, credit and occupancy assumes the VA loan from the original veteran borrower. 2. If a veteran has used part of his or her eligibility and sold the property to a non-qualifying veteran or nonveteran who assumed the loan, the veteran may still have some eligibility remaining. EX: If the veteran obtained the loan between May of 1968 and December of 1974, the maximum guarantee in effect was the lesser or $12,500 or 60% of the loan amount. If the veteran used all eligibility at that time by obtaining a loan for $50,000 (all of the entitlement would have been used at that time for any loan of $20,833.33 or above). The remaining eligibility is at least $23,500 (up to a $144,000 loan) to $38,250 (up to a $203,000 loan), depending on the loan amount. These numbers are derived by subtracting the maximum eligibility of $12,500 existing at the time the loan was made from the current two-tiered maximums of $36,000 or $50,750.

Assessments and CC&Rs: CC and Rs

If an individual unit owner fails or refuses to pay this assessment, the association may bring legal action against the unit owner to collect the unpaid assessment. If the individual unit owner files bankruptcy and thus cannot be forced to pay the assessment, the other unit owners will be required to pay an additional prorated assessment for the defaulting unit owner. The developer must file a list of regulations by which anyone purchasing a unit in the condominium must abide. These are known as covenants, conditions, and restrictions (CC&Rs). They tell a unit owner such things as: - Not to store personal items on balconies or driveways; - What color the exterior of the living room drapes should be; - To what extent an owner can alter the exterior of the unit; and - Whether an owner can install a satellite dish on the roof

Insurance and Rent: Prorating Insurances

If an insurance policy is assumed, there will be an insurance proration on the closing statement. Insurance policies are usually written for one year, and the premiums are payable in advance. If this is the case, the sellers would have paid the year's premium and would be owed a proration through the day of closing, for the time not used if the policy is assumed. An insurance proration would be a debit to the buyer and a credit to the seller.

Flood Insurance

If improved property is located within a flood-prone zone, a federally insured or guaranteed loan program will not approve loans on such property without flood insurance. This insurance is available through selected insurance carriers in local areas or the National Flood Insurance Program. Most lenders have access to flood zone maps to determine whether a property falls within this definition.

Violation of Article 1 or 2

If it appears that a person, firm, corporation, or any business entity has engaged, or is about to engage, in an act or practice constituting a violation of Article 1 or 2 of this chapter or any rule or order of the Commission, the Commission, through the Attorney General, may institute legal actions to enjoin the act or practice and to enforce compliance with Articles 1 and 2 of this chapter or any rule or order of the Commission. To prevail in an action, it shall not be necessary to allege or prove either that an adequate remedy at law does not exist or that substantial or irreparable damage would result from the continued violation. The Commission shall notify the licensee and qualifying broker in writing regarding the complaint. The Commission shall notify the complainant, licensee, and qualifying broker in writing regarding the disposition of the complaint.

Examinations

If the applicant fails to appear after having been scheduled for the exam, the examination fee will be forfeited. The examination appointment must be made and the examination fee paid to the testing agency as published in the Candidate Handbook. When the registration has been processed, the applicant will be notified of the time to report to the exam center. Unscheduled candidates will not be admitted. An examination fee must be paid for each scheduled examination whether or not the applicant takes the exam unless the applicant is rescheduled in accordance with policies as specified in the Candidate Handbook. Applicants who fail the examination may retake the examination by following application procedures as outlined in the Alabama Candidate Handbook. The passing grade for both the salesperson's and broker's examinations shall be 70%. A time limit of 3½ hours is allotted for completion of the required examination.

Paying Points

In late 1992, Congress abolished the ceiling on VA interest rates and made both interest rates and discount points negotiable between buyer and seller and between buyer and lender. A three-year trial period during which buyers are allowed to pay discount points will likely be extended to on-going practice.

Insufficient Funds

If the balance in the Recovery Fund is insufficient to satisfy a duly authorized claim or portion of a claim, the Commission shall, when sufficient money has been deposited in the Recovery Fund, satisfy the unpaid claims or portions, plus interest at the rate of 12% a year, in the order that the claims were originally filed. The sums received by the Commission pursuant to this section shall be deposited into the State Treasury and held in a special fund to be known as the Real Estate Recovery Fund, and shall be held by the Commission in trust for carrying out the purposes of the Recovery Fund. These sums may be invested by the State Treasurer in any investments which are legal for domestic life insurance companies under the laws of this state. Any interest or other income from investments of the Recovery Fund shall be deposited in the Real Estate Commission Revenue Fund with one-half being transmitted to the University of Alabama Real Estate Research and Education Center.

Right of Rescission

If the borrower is refinancing an existing mortgage loan or obtaining a new mortgage loan and is pledging a principal residence already owned as security for the loan, the disclosure statement must provide for a cooling-off period, or three-day right of rescission for the loan transaction. The borrower must exercise the right to rescind, or cancel, the loan prior to midnight of the third business day after the date the transaction was closed. The three-day right of rescission does not apply if the loan is to finance the purchase of a new home, or to finance the construction of a dwelling to be used as a principal residence, or to refinance an investment property. It therefore usually applies only on junior liens and refinancing.

Three Business Days

If the borrowers don't get these documents at the time of application, the lender must mail them within three business days of receiving the loan application. If the lender turns down the loan within three days, however, then RESPA does not require the lender to provide these documents. The RESPA statute does not provide an explicit penalty for the failure to provide the Special Information Booklet, Good Faith Estimate or Mortgage Servicing Statement. However, bank regulators may choose to impose penalties on lenders who fail to comply with federal law.

Ready, Willing, and Able

If the broker brings a buyer who is ready to buy, willing to buy, and able (financially and legally) to buy under the terms and conditions of the listing contract, the broker is legally entitled to the commission. The broker has done the job he/she was hired to do by finding a buyer who will pay the listed price in cash or other specified, acceptable terms. The commission was earned under the ready, willing, and able test. Even if the owner refuses to sell the property to the buyer, the brokerage has done its job. The seller may reject any offer, but if the offer conforms to the terms of the listing contract, the seller is obligated to pay the commission.

Acceptance

If the broker brings an offer the seller accepts, the brokerage is legally entitled to the commission since he/she has procured a buyer for the property. Acceptance may be based on some price or terms other than the listed price in cash, but still acceptable to the seller.

Estate in reversion

If the conveyance does not specify a person or persons to receive the title upon the death of the life tenant or other specified person, a life estate in reversion is created. Upon the death of the life tenant, the title will revert to the grantor or the grantor's heirs. The grantor has a reversionary interest in the estate.

Broken Covenants

If the covenant of seisin or the covenant of warranty is broken, a grantee may recover from the seller any financial loss up to the price paid for the property. If the covenant against encumbrances is broken, the grantee may recover from the grantor any expenses incurred to pay off the encumbrance. The amount the grantee may recover in this case also is limited to the price paid for the property. The covenant of quiet enjoyment is not considered to be broken unless the grantee is actually dispossessed of the property. The mere threat or assertion of a claim by another party to some right in the property does not constitute a breach of the covenant of quiet enjoyment. In the case of dispossession, the grantee may recover from the grantor an amount up to the price paid for the property. The covenant for further assurances is not broken until the grantee has to execute some instrument to perfect the grantee's title. Neither the covenant of quiet enjoyment nor the covenant of warranty is broken until the grantee actually is evicted from the property by someone holding a superior title.

Value of the Location

If the land is inaccessible from a practical standpoint or is located in an area with little or no demand, the economic value is depressed. In addition, the value of the location can change as people's preferences change. Fifty years ago, people took flight from urban centers to the suburbs, which resulted in substantial property value reductions in many urban areas. Recently, this trend has begun to reverse itself. People are rediscovering inner cities and rehabilitating older properties, restoring lost value.

Counteroffers

If the offer is clear and definite, the offeree has the right to accept unconditionally, reject, or counteroffer. The contract comes into existence only at the time unconditional acceptance of the offer is communicated to the offeror, or his or her agent. An acceptance that varies in any way from the offer as presented will not qualify as an acceptance. An acceptance that varies from the offer is a counteroffer. If the seller makes a counteroffer, no contract exists regarding the first offer.

In Writing

If the offer to purchase is written clearly and concisely, the parties should be able to close the deal without controversy. Conversely, if the offer to purchase is unclear or ambiguous, the road to closing will be difficult. In accordance with the Statute of Frauds, the offer to purchase is required to be in writing. The offer to purchase is not a contract until the seller unconditionally accepts it.

The Option Right

If the optionee desires to complete the purchase, he or she exercises the option right. At this point, the option becomes a purchase agreement as in any other real estate transaction. Because an option can become a purchase agreement between the parties, the original option should be specific as to type of title to be conveyed, terms of financing if other than cash, and any other provisions typically contained in an offer to purchase. These issues should not be left to be addressed at the time of exercise.

Bankruptcy

If the owner of real estate files a bankruptcy petition under Chapter 7 of the United States Code, title to the real estate is transferred by operation of bankruptcy law to the bankruptcy trustee. Any further conveyance requires the approval and execution of documents by a bankruptcy trustee. The trustee is the person who liquidates assets to pay claims held against the debtor by the debtor's general creditors. Bankruptcy discharges the debtor from further liability on all debts then owed, except for such exempted debts as tax claims, alimony and support payments, liability for malicious injury and fraud, and debts not scheduled.

Perc Test

If the property is not connected to a public sewer, the buyer may require what is commonly called a perc test. This is a hydraulic engineer's test of soil to determine the ability of the ground to absorb and drain water. This information helps to determine the suitability of a site for certain kinds of development and for the installation of septic tanks or injection wells for sewage treatment plants. The test also shows compliance with local and state health codes if installing a septic system. In addition, if the property is for commercial use, the seller is responsible for a soil test to assure the absence of hazardous waste or EPA problems.

Priority

If the subdivision is in a zoned area, restrictive covenants have priority over the zoning ordinance to the extent that the covenants can be enforced. If restrictive covenants are contrary to public law and public policy, they cannot be enforced.

Older Structures

If the subject property was constructed many years ago, estimating the cost of reproducing that property today may be impossible. The materials and craftsmanship may not be available. Reproduction cost new may be used for properties that have been constructed recently or have special historical interest. Therefore, the basis of the cost approach for older structures is usually replacement cost new. Replacement cost is the more practical choice of the two as it eliminates nonessential or obsolete features and takes full advantage of current construction materials and techniques.

Implied Contracts (pt 3)

Implied contracts arise most often when a licensee is showing property to a customer (buyer). Under the listing, the seller and the real estate agent have an express contract setting out the agreement and terms of the parties. Because the seller's agent also may spend as much time with the prospective buyer, the buyer may infer that a contract for services exists between the buyer and seller's agent. This may occur when the seller's agent is involved in negotiating the terms of the offer to purchase between the seller and the buyer. Each party believes the real estate broker is working in his or her own best interest. This is a classic example of an implied contract in real estate that may result in an unintended dual agency

CERCLA

In 1980, Congress passed the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) to provide solutions to the environmental problems created over the years by uncontrolled disposal of waste. Under CERCLA, a program was created to: - Identify sites containing hazardous substances - Ensure that those sites were cleaned up by the responsible parties or by the government - Establish a procedure to seek reimbursement for clean-up from the party responsible for placing the hazardous substance in or on the landscape.

Trafficante v. Metropolitan Life Insurance Co.

In 1980, President Carter expanded Kennedy's executive order to include gender-based discrimination, and to grant HUD additional authority to issue regulations to further fair housing in federal programs. After the enactment of the Fair Housing Act, the U.S. Supreme Court rendered several important decisions favorable to attacking housing discrimination. In 1972, the Court held in Trafficante v. Metropolitan Life Insurance Co. that the Fair Housing Act should be broadly construed, and that HUD's interpretation of the Act should be given great weight. Of tremendous practical importance, the Court also upheld the right of housing organizations and other residents to sue persons or municipalities that violated the Fair Housing Act.

Depreciation

In 1980, the tax schedule assumed a property had a useful life of 40 years; in 1981 this became 15 years, later 18 years, then 19 years, and now the useful life is 27.5 or 39 years depending on its use as residential or commercial. Assuming a property currently may be assigned a tax life of 27.5 years, this provides a straight line depreciation of 3.636% per year. Depreciation is used in the cost approach as a loss in value due to any cause; any condition that adversely affects the value of an improvement. For appraisal purposes, depreciation is divided into three classes according to its cause: physical depreciation, functional obsolescence and external obsolescence. Today, many appraisers use the breakdown method, where they break down the depreciation into all three classes, with each class measured separately, whether such depreciation is curable or incurable. Because of depreciation factors, it is unlikely that any two properties will be valued exactly alike.

Fair Housing Amendments Act of 1988

In 1982, the Court rendered an important decision entitled Havens Realty Corp. v. Coleman, which permitted housing organizations and "testers" to sue in racial steering cases. These court cases enable private and public organizations to investigate fair housing violations and to file actions for civil penalties and damages. On September 13, 1988, former President Ronald Reagan signed the Fair Housing Amendments Act of 1988. The Amendment became effective March 12, 1989. The 1988 Amendment was enacted to expand the coverage of the Fair Housing Act and to enhance enforcement of the Act. The 1988 Amendment made major changes to Title VIII, including adding two protected classes to the Fair Housing Act: families with children, and handicapped persons.

MIP Calculations

In 1990, the U.S. Congress revised FHA mortgage insurance premium (MIP) calculations again. In July 1991, the 3.8% MIP, which was calculated on the base loan amount and paid at closing or added to the loan amount, was renamed an up front mortgage insurance premium (UFMIP). The amount of this UFMIP decreased to 3.0%in October 1992 (the beginning of fiscal year 1993) and again in April 1994 to 2.25%. An additional annual MIP is charged at the rate of 0.5%, applied to the average unpaid principal balance. This amount is divided by 12 to arrive at the premium to be paid monthly. The length of time this annual MIP must be paid depends upon the loan-to-value ratio and the fiscal year in which the loan is made

New RESPA Rule

In November 2008, HUD approved a final rule designed to simplify and improve the process of obtaining mortgages and to reduce consumer settlement costs. HUD will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD revised the Good Faith Estimate and the HUD-1 Settlement Statement, allowing consumers to compare their estimated closing costs with the actual costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table. HUD will require the new standardized GFE and HUD-1 beginning January 1, 2010.

Blanket Mortgage

In a blanket mortgage, two or more parcels of real estate are pledged as security for payment of the mortgage debt. The blanket mortgage usually contains a release clause that allows certain parcels of property to be removed from the mortgage lien of the loan balance at any given time. Real estate developers typically use blanket mortgages with release clauses. In this way, the mortgagor can obtain the release of certain parcels from the lien of the mortgage and convey clear title to purchasers to generate a profit and provide the funds to make future mortgage payments

Agent Obligations

In a cash sale transaction, no mortgage company is demanding an appraisal, a survey, a wood-destroying insect inspection, a structural inspection, deed recordation, payment of taxes or transfer fee, title search, etc. Real estate licensees have an obligation to make a reasonable effort to know and disclose to the buyer anything materially affecting the value of the property. Whether the deal is closed by a broker, an attorney, or an escrow, abstract, or title company, brokers are responsible for safeguarding the interests of their clients and for fairness to the other party.

2 Outcomes of a Life Estate

In a life estate, two outcomes are possible upon death: 1. An estate in remainder 2. An estate in reversion. If the conveyance is from grantor to "Frank" for life and then to a named person or persons upon the death of "Frank," the person or persons named to succeed Frank as life tenants are called remainder men and the conveyance is a conveyance in remainder.

Liability

In a mortgage assumption, the seller whose mortgage was assumed, remains liable for the mortgage and payment of the note unless specifically released from liability by the lender. If the purchaser defaults and the proceeds of a foreclosure sale are insufficient to pay off the seller whose mortgage was assumed, the purchaser may be subject to a possible deficiency judgment by the lender. If the proceeds of the foreclosure sale do not satisfy the mortgage debt, the lender can foreclose against the current titleholder for a deficiency judgment. (And possibly sue the original borrower or anyone who assumed the mortgage.)

Types of Leases: Gross Lease

In a net lease, the tenant (lessee) pays some or all of the expenses, except principal and interest on the owner's debt. There are single, double and triple net leases. What property charges will be paid by the tenant will determine which type of net lease it is. The monthly rental paid to the landlord is in addition to these charges, so it is net income for the landlord after operating costs have been paid.

Package Mortgage: Personal Property and Real Property

In a package mortgage, personal property in addition to real property is pledged to secure payment of the mortgage loan. Typical examples of these items are a washer, dryer, range, oven, dishwasher or refrigerator. The package mortgage is used frequently in sales of furnished condominium apartments and includes all furnishings in the units. This is also common in commercial real estate lending where the business assets are also offered as collateral.

Term Mortgage

In a term mortgage, the borrower pays only interest for the term of the loan, and at the end of the term the borrower is required to pay the entire principal. This was the type of mortgage generally in use before and during the depression of the 1930s. Many borrowers were unable to pay the principal when it came due, and lenders were unable to refinance the principal for the borrower as they had done in more prosperous times. As a result, many homeowners lost their property through foreclosure.

Depreciation: Multiple Meanings

In accounting, depreciation is a bookkeeping function. It is used in determining profit and loss of a business. When depreciation is used in accounting or tax calculating, it is used to recover the initial cost of the item being depreciated. Depreciation has several meanings; it is used in appraising, taxes and accounting. When it is used in appraisal, it is a measurement of the reduction in value of a property improvement due to physical deterioration. Depreciation for tax purposes applies to structures and improvements or business items. It is determined by the tax laws.

Logotypes

In any other advertisement, federal regulations suggest that the Equal Housing Opportunity logo be of a size at least equal to the largest of the other logotypes appearing in the advertisement. If no other logotypes are used, then the type should be bold display face, clearly visible, and at least 1/2 inch by 1/2 inch. Alternatively, when no other logotypes are used, 3% to 5% of an advertisement may be devoted to a statement of the Equal Housing Opportunity policy: "We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the nation. We encourage and support the affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status, or national origin."

Services Provided to Clients

In addition to the duties enumerated in the previous section, a licensee shall provide all of the following services to clients: - Loyally represent the best interests of the client by placing the interests of the client ahead of the interests of any other party, unless loyalty to a client violates the duties of the licensee to other parties under the previous section or is otherwise prohibited by law; - Disclose to the client all information known by the licensee that is material to the transaction and not discoverable by the client through reasonable investigation and observation, except for confidential information as provided in the previous section. A licensee shall have no affirmative duty to discover the information; and - Fulfill any obligation required by the agency agreement, and any lawful instructions of the client that are within the scope of the agency agreement, that are not inconsistent with other duties as enumerated in this article. A broker who represents more than one client in a real estate transaction owes the duties as specified in subsection (a) to each client, except where the duties to one client will violate the fiduciary duties of the licensee to other clients. A broker may provide brokerage services as a limited consensual dual agent only with the prior written, informed consent of all clients of the broker in the transaction.

What is for Sale: Determining Exactly What is for Sale

In addition to the previous information, when listing the property the real estate licensee is particularly concerned with determining exactly what is for sale so the agent can describe to prospective purchasers precisely what they are considering buying. The licensee's questions to the sellers during the listing process will focus on the following: The Legal Description of the Land (the boundaries): The logical place for the listing process to begin is with the deed. When you have a copy of the deed with the legal descriptions, you can identify for prospective buyers exactly what real estate is to be sold. The description will be a metes and bounds description, or a reference to a lot on a plat, or will use language of the rectangular survey system of land.

Torrens System : Special Form of Recording

In addition to the regular method of recording titles, a special form of recording called the Torrens system of title recordation is available in some states. Under the Torrens system, the titleholder applies to the court to have property registered. The Torrens system of land title registration starts with a landowner's application for registration and the preparation of an abstract. This is followed by a quiet title suit at which all parties named in the abstract and anyone else claiming a right or interest to the land in question may attend and be heard. Based on the outcome of the suit, a government-appointed registrar of titles prepares a certificate of title. This certificate names the legally recognized fee owner and lists any legally recognized exceptions to that ownership such as mortgages, easements, long-term leases, or life estates. The registrar keeps the original certificate of title and issues a duplicate to the fee owner.

Disclosure Laws

In addition, it placed the broker in a legally and ethically perilous position since: - If he/she kept the buyer information confidential, he or she was in fact neglecting his or her fiduciary duties to his or her true client, the seller; and - By allowing the buyer to believe that he or she was acting in his or her behalf, the broker became party to an "implied" agency, thus making him or her an undisclosed dual agent. Over the last decade, laws and practices have evolved to address this confusion regarding agency loyalties and relationships. Laws in almost every state now require "disclosure of agency relationships" by brokers early in a transaction. In addition, buyers today are more informed than ever and often request "buyer representation" from their brokers. Today, many transactions involve both a seller's broker and a buyer's broker, and both parties are represented.

Situation 6

In an actual federal case, a salesperson managing several apartment complexes gave racially discriminatory instructions to the resident managers. A "credit check" was to be employed as a means of being able to deny apartments to individuals solely because of race. Is there a violation of the law? COMMENT: In this case there was a violation of federal fair housing law. The credit check was clearly intended to be used to discriminate against minorities. This salesperson was sued in federal district court, was found guilty of violating Fair Housing Law and ordered to pay $6,200 in damages. In addition, the salesperson lost their real estate license. NOTE: A credit check is a legitimate means of determining credit worthiness of prospective tenants. Proper use of a credit check as a means of financially qualifying tenants is not the same as denying an apartment to an individual because of race.

Index Lease

In an index lease, the rental amount changes at agreed-upon intervals, in proportion to changes in the government cost of living index or some other index agreed to by the parties. A fixed lease is one in which the rental amount remains constant during the term of the lease. This is sometimes called a flat lease

Essential Elements

In analyzing any controversy concerning real estate, the first step is run down the checklist of contract elements to assure that, in fact, a contract does exist. The essential elements required for the existence of a contract are: - Offer and acceptance (meeting of the minds) - Consideration - Legal capacity of the parties - Reality of consent - Legality of object - Possibility of completion.

Fannie Mae Program

In late 1980, Fannie Mae announced a new program that is highly beneficial to home sellers who are willing to finance the sale for a buyer by taking a purchase money first mortgage. Under the Fannie Mae program, the seller can have the mortgage prepared by a lending institution qualified to sell mortgages to Fannie Mae using the uniform FNMA and FHLMC documents. The lending institution will close the transaction between seller and buyer and continue to service the loan for the seller for a fee. The institution collects the payments of principal and interest from the buyer and forwards them to the seller. In this way, sellers have an on-site expert to protect their interests and rights in the mortgage.

Land Use Controls: Land Use Intensity

In applying land use intensity, the floor area ratio creates a maximum amount of floor area in a building in relation to the land area of the lot upon which the building is to be constructed. Open space requirements are minimum requirements based on and computed from a percentage of the actual floor area to be developed in a particular zoned lot. The land use intensity (LUI) has become an important tool in the development of planned unit developments (PUDs). Government or public land use controls exist in the form of city and county planning and zoning, state and regional planning, building codes, suitability-for-occupancy requirements and environmental controls. In addition, direct public ownership exerts substantial public control over land uses. Direct public ownership exists in the ownership of public buildings, parks, watersheds, streets, and highways.

Planning : Communities

In both urban and regional planning, the first step is typically to conduct a survey of the area's physical and economic assets. This information serves as a basis for developing a master plan for orderly growth. Public involvement is often mandated in the planning process. The resulting plan designates the various uses to which property may be put in specific areas. Regional planning has its origins in the grassroots of a community. This planning may occur in communities located in unzoned county areas where property owners see the need to plan for orderly community growth. Thus they adopt and enforce a plan through zoning ordinances. In the absence of this planning, haphazard development often occurs.

License Transfers

In cases where all necessary forms and fees are not submitted, completed, and paid within ten (10) days of the Commission's receiving of the mailing, the attempted transfer shall be null and void, and the Commission shall return all submitted forms and fees to the sender as soon as practicable, together with notice to the licensees involved that the attempted transfer was not completed. In cases where an attempted transfer is not completed, the qualifying broker under whose authority any licensee acts shall be responsible for those actions. Routinely mailed transfers are not governed by this rule.

Cash and Checks

In cases where the funds are U.S. currency, i.e., cash as opposed to a check or note, these funds shall be deposited immediately. In cases where a check is received as earnest money and the contract form states that the check is to be held for a specific length of time or until the occurrence of a specific event, then the check shall be deposited when the contract form states, or if no time for deposit is specified in the contract form, then the check shall be deposited when the offer becomes a contract.

Full Disclosure

In certain cases the subdivider must also register the subdivision with HUD under the federal Interstate Land Sales Full Disclosure Act. The main purpose of this act is to require disclosure of full and accurate information regarding the property to prospective buyers before they decide to buy. Many large subdivisions are registered with HUD because HUD regulations apply if the developer uses the mail or any other means of interstate commerce in the sale of lots.

Fictional Depreciation

In contrast to actual depreciation, there is fictional depreciation that the U.S. Treasury allows income property owners to deduct as an expense when calculating income taxes. The IRS allows a purchaser of an apartment building to completely depreciate the structure over a period of 27 and a half years regardless of the age or condition of the structure. This may be an understatement of the remaining life of the structure, but it was chosen by Congress to create an incentive to invest in real estate. Thus it is quite common to see depreciation claimed on buildings that are, in reality, appreciating because of rising income from rents and/or falling capitalization rates. The final step in estimating the value of the property by the income approach is to apply the capitalization formula given earlier. This involves dividing the annual net income by the capitalization rate.

Requirements

In creating a lease, the following requirements apply, just as they do in any contract: - Offer; - Acceptance; - Legal capacity; - Legal purpose; - Consideration; and - Reality of assent. EX: A guest of the lessee has no right to bring legal action against the lessor for lessor's breach of the lease. The guest does not have privity (privacy) of contract to bring suit against the lessor. Assignment of contract rights transfers the privity of contract necessary for suit.

Satisfy Needs

In creating housing or other types of properties, such as office buildings, shopping malls, and hotels, a developer must take into consideration not only the need for these types of properties but also the financial ability of prospective tenants or purchasers to satisfy their needs. The developer must make the property appealing to a buyer who can afford the property. This includes consideration of factors such as good location, extra features, small down payments, low interest, meticulous maintenance, and pricing. All of these considerations also help the agent to sell the property and are part of the CMA.

Face-to-Face Closing: Meeting

In face-to-face closing, the title to the real estate is transferred upon execution and delivery of the deed. The face-to-face closing typically is held at the office of the lender, attorney for one of the parties, or the title company. At the face-to-face closing, the parties and other interested persons: - Meet to review the closing documents - Execute the closing documents - Pay money - Receive money - Receive title to real estate. Those present at this type of closing are the buyers and sellers, real estate brokers, and lender representatives.

Foreclosures: Judicial Foreclosure

In judicial foreclosure, the lender brings a lawsuit against the borrower and obtains a judgment in the amount of the borrower's debt. When the judgment is obtained, the lender requests the court to issue an execution instructing the sheriff to take possession of the mortgaged property and sell it for cash at public auction to the highest bidder. Many states require the public auction to be advertised for several weeks prior to the auction. Title is conveyed to the purchaser by a sheriff's deed or a trustee's deed.

Points: Discount Points

In making a mortgage loan, lending institutions may charge discount points. The purpose is to increase the yield to the lender by raising the effective interest rate in an amount exceeding a maximum rate that may be charged under certain conditions. Each point that the lender charges costs someone (either the buyer or the seller, depending upon the situation) 1% of the loan amount, paid at the time of loan closing. Lenders may charge discount points in making conventional loans. These situations have no prohibition against the borrower paying the points, and the borrower usually is the one who pays.

Mortgage Value

In making a mortgage loan, the lender is interested in the value of the property pledged as security for the debt. In the event of a foreclosure, the lender must recover the debt from the sale of the property. Consequently, the mortgage loan value is whatever the lender believes the property will bring at a foreclosure sale or subsequent resale. Some lenders make a conservative value estimate; others are more liberal. Therefore, the mortgage value may be more or less than the market value. Mortgages take on a variety of forms. Some are the adjustable mortgage loan, the graduated payment mortgage, the wraparound mortgage, the shared appreciation mortgage, the flexible loan insurance payment, and the buy down mortgage. The form of the mortgage has a definite effect on the loan value.

Reconciliation : Most Relevant Method

In making an appraisal, a professional appraiser uses as the primary appraisal method the most relevant approach to the value estimate. The most relevant method depends on the type of property that is the subject of the appraisal and the purpose for the appraisal. EX: For example, in estimating the value of an existing single-family, owner-occupied dwelling, the most relevant method is the market data approach.

Standardized Contract Forms

In most parts of the country, state REALTOR® associations have developed standardized contracts for use in various parts of the transaction. Brokers still need to exercise caution in filling in the blanks on preprinted forms. Adding clauses to the contract at the request of buyers or sellers could be considered practicing law. Even if it is permissable to draft a clause for a contract, it is critical to ensure that the parties' intentions are made clear. Case in point: Adding a phrase such as "This contract is contingent upon the buyer selling his current property," is woefully inadequate. The wording doesn't specify a time frame for the sale or a specific property to be sold, and even the word "sale." Have your attorney draft model language for "riders" or provisions that are frequently added or changed in listing agreements or sales contracts.

Commissions: Strictly Negotiable

In most real estate sales, the commission is paid at closing from the seller's proceeds. The most usual type of commission arrangement in a listing contract may call for the broker to be paid a percentage of the sale price of the property. The amount or rate of commission to be charged by or paid to a real estate broker is strictly negotiable between the broker and the seller or buyer. Federal law is violated if any person or organization even recommends a commission schedule to a broker or group of brokers.

Bilateral Contract

In normal usage "bi" means two. Here, "two" does not refer to two parties to a contract, because every contract has at least two parties; instead, "bi" refers to the number of parties to the contract who are making promises or performing acts. A bilateral contract is one in which two parties have made promises of some kind to each other, i.e., it entails mutual promises to perform an act in exchange for the other party's promise to perform. Because both parties make promises, both are bound or obligated under the contract from the onset of the contract. A valid contract does not exist unless the other party has made a promise in return. The promise could be for the payment of money or the performance of some act such as painting a house. The offer to purchase a home is bilateral because it is based on the exchange of promises whereby the seller will sell and the buyer will buy. A bilateral offer is accepted by an agreement to do the things requested in the offer, and the acceptance must be communicated to the offeror for a contract to be created. The acceptance must be absolutely unconditional in the case of either the unilateral or bilateral offer.

Skill, Care, and Diligence

In offering services to the principal, agents assert that they possess the necessary skill and training to perform the services. In performing their duties, agents must exercise the skill, care, and diligence the public is entitled to expect of them in that field. If an agent's principal incurs a financial loss as a result of the agent's negligence and failure to meet the standards of skill, diligence, and reasonable care, the agent is liable for any loss the principal incurs. Further, the principal is not required to pay any compensation to the agent as agreed in the employment contract.

Conditional Use Permit

In order for the owner to be granted a conditional use permit, the hardship must be applicable to one property only, and must be a peculiar or special hardship for that property under the zoning law. The special hardship does not exist where all of the property owners in the zoned area have the same difficulty. A variance with additional restrictions upon the owner's use is called a conditional use permit.

How to Calculate Interest

In order to calculate the interest proration on a loan for the month of closing, remember that interest is paid in arrears, meaning that the interest charged on the first of the month is for the previous month. The monthly payment includes interest up to but not including the day of the payment. Because the sale may not close until the middle of the month or some other time during the month, the seller will owe interest from the time of the last due payment through the day of closing unless otherwise stated.

Meridian and Base Line

In order to locate a position on a map, the latitude and longitude of the position must be known and intersected to pinpoint the position. On maps with north at the top, lines of latitude are horizontal lines, and lines of longitude (including meridians) are vertical lines. The intersection of a specific meridian (vertical) and base line (horizontal) provides a unique point of reference for determining the location of nearby properties. Any point on the earth's surface can serve as such an intersection and the meridian (and sometimes the base line) are often named for that point. The intersection of the Fox and the Maronga rivers might, for example, yield a coordinate point named the "Fox and Maronga River Intersection Principal Meridian (and Base Line)."

Mechanics: Materialman's Lien

In real estate terminology, the term "mechanic" refers to a person, such as a carpenter or plumber, who provides labor to a specific property. Therefore, a mechanic's lien is a specific lien filed by a person who provides labor to a property. A materialman is a supplier, such as a lumber company providing the wood materials that go into the construction of a home. A materialman's lien is a specific lien filed by a supplier of products required in construction or improvement of a building. In some states these two terms are used interchangeably, or one or the other is used.

Foreclosure

In real estate terminology, this is known as the process of foreclosure. Proceeds of the foreclosure sale are applied to the claims, charges, or liens in the order of priority. At the execution and foreclosure of the lien, priority for payment is based upon the time (day and hour) the liens were recorded in the proper public office. In most states, the highest priority of all liens is given to liens for real property taxes and special assessments.

Contract Breach : Main Forms of Breach

In real estate, breach of contract can occur: - In the property listing agreement between the broker and the seller - In the sales contract between the buyer and the seller. A broker might breach a listing agreement by: - Failing to advertise a property as agreed - Keeping a listing in-house, even for a short while, instead of placing it with the MLS - Refusing to work with a cooperating agent. By the afore-listed actions, a broker is not fulfilling the fiduciary responsibility to the seller, and these are the most common breaches of a listing agreement.

Single Agency: Seller Agency

In single agency, the broker represents either the buyer or the seller in a given transaction, but not both. In such transactions, the agent is required to impart fair dealing to both parties. In seller agency, an agency relationship is established between the owner of real estate and the broker by means of a listing contract. This is called a seller agency. In seller agency, the seller is the principal, and the principal is owed the fiduciary duties implicit to the agency relationship. Listing contracts are between the sellers and the brokerage firm. The brokerage firm (NOT the listing agent) owns the listing contracts.

Example 10:

In solving a problem concerning the listing price versus sales price, first determine the important factors and put those factors in the appropriate places in the formula. A house listed for $88,000 but sold for 15% less, how much less did the house sell for? Answer: $88,000 x 0.15 = $13,200.

Mineral Lease

In some areas of the nation, the term "mineral lease" is used to designate a profit. A profit is salable, inheritable, and transferable. A profit in land easily could be more valuable than owning the land. EXAMPLE: If land in Texas has oil fields, the right to take and sell the oil could be more valuable than use of the land for any other purpose. A profit a prendre is different from a natural resource lease in which the owner leases the property to a developer and retains the right to receive a royalty payment, as in an oil or gas lease arrangement with a royalty of one-sixth of the net sales price of the amounts extracted.

Contract Breach

In some cases, a party to a contract fails to complete the contract or fails to perform for no legal cause. This is breach of contract. Breach of contract is also called default. The effect of breach of contract by a party is to terminate that party's contract rights. The breach, however, does not terminate the contract obligations of the breaching party. The non-defaulting party has the following legal remedies against the defaulting party: - Specific performance; - Rescission; - Compensatory damages; and - Liquidated damages. These remedies are obtained by filing suit in a court of law.

Four Forces

In some cases, one or more of the approaches may not be utilized in the reconciliation. An example is ignoring cost approach on older properties or the income approach in appraising single-family residential property with little likelihood of rental. Appraisal is further complicated by the fact that real estate value is constantly created, changed and destroyed, in part by the interaction of four forces: 1. Physical: climate, topography, rivers and streams and the availability of water; 2. Political: government controls on money and credit and zoning ordinances; 3. Economic: employment, and wages and salary levels; and 4. Social: population growth and decline, and lifestyle changes. Because these forces exist outside the property and are thus beyond the property owner's control, they are referred to as externalities.

Legal Action

In some cases, the landlord can request a landlord's lien on the tenant's belongings as security for payment of rent owed. This type of lien on personal property falls under the Uniform Commercial Code (UCC) and reference to the local statute is necessary. Eviction is a legal action in the court system for removal of the tenant and his or her belongings and a return of possession of the premises to the landlord.

Accord and Satisfaction

In some instances a contract is terminated not by agreed release but by accord and satisfaction (a new agreement between the parties), often the result of a negotiated compromise. An example of accord and satisfaction is when one party to the contract wishes to be released, but the other party desires money for the attempted default. The parties enter into a new contract for the payment of money as a substitution for performance of the contract. In real estate, the typical example of accord and satisfaction occurs when the buyer of property wishes to be relieved from the contract to buy and the seller agrees to take the earnest money in place of selling the property.

Subordination

In some instances, the priority can be modified by a subordination agreement, whereby an earlier lender may be willing to subordinate (take a position of lower priority) to a later lender. Typically a lender will only subordinate his or her mortgage to another mortgage if he or she is certain the property value is sufficient to pay off both mortgages should foreclosure become necessary. An example of subordination occurs when the lien holder on a building lot subordinates his or her mortgage lien to the later construction mortgage lien.

Tax Equalization

In some taxing districts, assessed values are adjusted to make them comparable to those of surrounding areas. The assessed value of a property is multiplied by an equalization factor determined by the assessor. Equalization Factor x Assessed Value = Equalized Estimate Equalized Estimate x Tax Rate = Tax

Intestate Succession

In states where dower and curtesy have been abolished, a substitute usually is provided by intestate succession as set out in the Uniform Probate Code. Intestate means dying without a will or having left a will that is defective in form. Intestate succession statutes set forth the manner in which the property of an intestate (one who had died without leaving a valid will) is distributed to heirs. In states that recognize community property, a surviving spouse legally owns one-half of all community property, so it is only the half interest owned by the decedent that passes to his or her heirs according to state laws of descent.

Summary

In summary, a Comparative Market Analysis involves the following steps: 1. Locate comparable properties (properties with the same highest and best use) that have sold recently, usually within the past six months. 2. Compare these properties with the subject property and make all necessary adjustments in the sales prices for any significant differences in the property such as age, location and physical characteristics. 3. Reconcile all the comparable information and draw a conclusion of value. Keep in mind that this approach requires an active real estate market for the type of property being analyzed.

Federal Legislation

In the 1970s, various federal legislations were enacted to prohibit discrimination in federal programs, and to include additional protected classes. Congress enacted Section 504 of the Rehabilitation Act of 1973, prohibiting discrimination against handicapped persons in all federally-assisted programs, including housing. Later, Congress enacted the Age Discrimination Act of 1975, which prohibited discrimination on the basis of age in programs receiving federal financial assistance.

Jones vs. Alfed H. Mayer

In the case of Jones v. Alfred H. Mayer Company, the U.S. Supreme Court applied the Civil Rights Act of 1866 to prohibit any racially-based discrimination in housing. The ruling provides an interesting interplay between the 1866 act and the 1968 amendments to the federal Fair Housing Act, because the exemptions provided for in the 1968 law cannot be used to enforce any racial discrimination. Based on the 1866 law, if discrimination on the basis of race occurs, the aggrieved party can file an action in federal district court for an injunction and damages. Originally enacted by Congress as Title VIII of the Civil Rights Act of 1968, the Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, or national origin. An amendment in the Housing and Community Development Act of 1974 added the prohibition against discrimination on the basis of sex. The Fair Housing Amendments Act of 1988 added provisions to prevent discrimination based on mental or physical handicap or familial status.

Possibility of Reverter

In the case of a fee simple determinable, the property given to a grantee under deed automatically reverts back to the grantor in the event the designated use of the property is not continued. This is called the possibility of reverter which is an estate or interest in the property retained by the original grantor. It does not require reentering the property or going to court to obtain possession.

Habitability

In the case of residential property, the landlord usually is obligated to have the premises in habitable, or livable, condition at the beginning of the lease and to maintain the premises in habitable shape during the term of the lease. The requirement for maintenance may be shifted to the tenant by agreement of the parties. The landlord also is required to warn the tenant of any dangers that are not obvious (latent dangers) such as electrical circuit problems, loose floor boards or steps, or holes in the floor hidden by carpet.

Termination

In the case of very old conditions, the grantor or heirs may no longer remember the condition. Therefore, a condition may be broken with no consequences. If no one seeks termination of a defeasible fee, the title will not terminate. Also, some old conditions are no longer enforceable because they violate present laws. For instance, conditions that the property not transfer to anyone other than white males are now discriminatory and unenforceable.

Estate at Will

In the estate at will, duration of the term is completely unknown at the time the estate is created, because either party may terminate the lease simply by giving notice to the other party. The duration is open-ended. Statutes often require that notice of termination be given at least 30 days before the day upon which termination is to be effective. You will need to check the state specific rules for your state. They will be included in the state law lesson or you can access the rules by checking your state real estate law online.

Loss

In the event of partial loss, the insurance company pays mortgagors so they may make the appropriate repairs. In the event of total loss, the mortgagee is paid first up to the mortgage debt still outstanding and the mortgagor receives any surplus. Most homeowner's insurance policies contain a co-insurance clause requiring the property owner to insure for a face amount that is at least 80% of the property value. Property and liability insurance policies are personal contracts made between an insurer and a particular insured. Such policies do not run with the land and cannot be assigned without the consent of the insurer. If a loss occurs, the right to the insurance proceeds may be assigned.

Graduated Payment Mortgage: GPM

In the graduated payment mortgage (GPM), monthly payments are lower in the early years of the mortgage term and increase at specified intervals until the payment amount is sufficient to amortize the loan over the remaining term. The monthly payments are kept down in the early years by not requiring the borrower to pay all the interest, which is added to the principal balance. This increase in the balance is called negative amortization. The purpose of this type of mortgage is to enable individuals to buy homes by offering lower initial monthly payments. An outstanding example of this type of mortgage loan is the FHA 245 graduated payment mortgage.

Redlining

In the past, areas populated by minorities were redlined. Prior to enactment of the Fair Housing Act, some lending institutions circled certain local areas with a red line on the map, refusing to make loans within the circled areas based upon some characteristic of property owners in the area. The Act prohibits lending institutions from redlining, or refusing to make loans to purchase, construct, or repair a dwelling by discriminating on the basis of race, color, religion, sex, national origin, handicap, or familial status. The prohibition also extends to individuals who discriminate in fixing terms of the loan, including interest rate, duration of loan, or any other terms or conditions of the loan.

Factors to Consider

In the reconciliation process, three factors are taken into consideration: 1. The relevancy of each of the three methods to the subject property and the client's use for the appraisal; 2. The reliability of the data on which each estimate is based; and 3. The strong points and weak points of each method. After considering these factors, the greatest weight should be given to the estimate resulting from using the most appropriate or relevant method for the type of property that is the subject of the appraisal.

Types of Deeds: Special Warranty Deed

In the special warranty deed, the warranty is limited to claims against the title arising out of the period of ownership of the grantor. This warranty goes back in time only to the date when the grantor acquired the title, as contrasted with general warranty deed, which covers claims against defects in the title going back for an unlimited time. The quitclaim deed contains no warranties whatsoever. It is simply a deed of release. It will release or convey to the grantee any interest, including title, that the grantor may have. The grantor, however, does not state in the deed that he or she has any title. Execution of the quitclaim deed by the grantor prevents the grantor from asserting any claim against the title at any time in the future.

Square-Foot Method

In the square-foot method, cost is calculated by multiplying the number of square feet in the structure by the current cost per square foot to construct the building. EX: building is 1,000 sq. ft. cost to construct per sq. ft. is $50 1,000 x $50 = $50,000

Unit-in-Place Method

In the unit-in-place method, the cost of each major component or section of the structure is calculated, including material, labor, and overhead costs plus a profit to the builder. This appraisal method of computing replacement cost is also called the segregated cost method. It uses prices for various building components, as installed, based on specific units of use such as square footage or cubic footage. These cost figures include the cost of labor, overhead and profit. The total in-place cost of each unit (unit value) is multiplied by the number of such units in the building to determine the total replacement cost for the entire building. Sample building components are roof, floor, concrete, electrical, plumbing and parking area.

Tax Stamps

In those states, an examination of tax stamps provides only an indication of the new money, which is below the sales price if a mortgage is assumed. The real estate licensee needs to learn the rate and application of this tax, as well as the collection procedures, in his or her own state. Some states require a sworn statement of consideration paid, called a declaration of value.

Increasing the Yield

In times of high interest rates and short supply of money for making loans, lenders often charge one or two points in making 90% and 95% conventional loans. Also, in states having usury laws that fix a maximum allowable interest rate lower than the average national rate prevailing at any given time, lenders require payment of sufficient points to increase their yield above the statutory maximum to the equivalent of the national average rate. Borrowers sometimes volunteer to pay discount points to "buy down" a mortgage interest rate at the time the loan is made. Sellers traditionally have had to pay discount points in order for a veteran buyer to purchase their home using a VA loan, when the maximum VA rate was below the current market rate.

Complaints

Individuals can file a complaint if they believe they have been retaliated against for opposing an unfair practice, or if they participated in a practice. Ex: 1. They filed a complaint and were subsequently denied services. 2. An individual participated in an investigation and suffered harm.

Liquidated Damages

Instead of compensatory damages, or in addition to compensatory damages, the parties to the contract can stipulate in the contract an amount of money to be paid upon certain breaches of the contract. Damages agreed to be paid in the contract are called liquidated damages. Liquidated damages usually consist of forfeiture of some money or late fees held by one party in the event of breach. Courts do not favor forfeiture; thus, for liquidated damages to be collectible and enforced by the court, the amount must be reasonable as compared to the damage caused by the breach. To be enforceable, the amount must not appear to be a penalty. Many clauses in real estate contracts call for liquidated damages. The most typical one is the forfeiture of earnest money by the buyer to the seller in the event the offer to purchase is not completed for legal cause. For example: if a defaulting buyer deposited earnest money of over 20% of the purchase price and the buyer failed to complete the contract, the courts would probably permit the buyer to recover some of the deposit money on the theory that the seller would be unjustly enriched by keeping it all.

Suspicion of UFFI

Insulation containing formaldehyde was a popular type of insulation in older homes, although it can also be used in new construction. It is estimated that formaldehyde-type insulation was installed in a half-million homes in the United States. Some homes had formaldehyde insulation added into the walls after construction. What to do if you suspect the presence of UFFI: You can recommend testing of the indoor air, (removal of gas-emitting insulation material may also be necessary); and Inform the parties to the transactions of the need to consult the appropriate health authorities or other experts.

Price Fixing

It is also illegal for two or more brokers to agree to charge certain rates of commission to listing sellers. This is regarded as price fixing and is an act of restraint of trade violating the Sherman Antitrust Act. The local real estate commission or Board of REALTORS® cannot establish by rule or regulation the amount of commission practitioners receive. Nor can these agencies, or any other, reprimand or punish a member who charges a lower rate of commission than other licensees in the community.

Right of Reentry

It is contrasted with the fee simple subject to a condition subsequent, where the grantor or heirs must either reenter the property or go to court to obtain possession of the property and to terminate the estate with the grantee. This is called the right of reentry, an estate held by the original grantor of title subject to a condition subsequent that allows them to physically retake possession of the property in the event of a breach of conditions. A major difference between the possibility of reverter and the right of reentry is where the burden of proof lies. With reverter, the burden of proof rests with the party trying to keep ownership. In reentry, the burden rests with the party trying to reclaim ownership.

Status of the Parties

It is good practice to include the status of the parties --- such as married, minor, trustee, or personal representative. A grantor cannot be the sole grantee, but the grantor could convey the deed jointly to the grantor and another person or to the grantor's corporation.

Termination Date

It is important for both the real estate company and the seller to decide how much time the company has to find a buyer for the property. If this listing agreement expires and the property is unsold, the seller and company can decide if they want to enter a new listing contract, or whether the seller may want to hire another company.

Contracting Power

It is important to ascertain whether the corporation is empowered to enter into contracts and whether the person signing on behalf of the corporation is so authorized. This information is verified by requesting a copy of the board of directors certificate of resolution authorizing the contract and the person signing it. Normally, board approval is sufficient to authorize a sale of corporate property, but when the sale constitutes most of the corporate assets, shareholder approval may be required.

Best Estimate

It is important to realize that the appraised value is the appraiser's best estimate of the subject property's worth. No matter how painstakingly the appraisal is done, property valuation requires the appraiser to make many subjective judgments. Because of this, it is not unusual for three highly qualified appraisers to look at the same property and produce three different appraised values. It is also important to recognize that an appraisal is made as of a specific date. It is not a certificate of value, good forever until used.

Employment Discrimination

It restricts questions that can be asked about an applicant's disability before a job offer is made, and it requires that employers make reasonable accommodation to the known physical or mental limitations of otherwise qualified individuals with disabilities, unless the accommodation results in undue hardship for the employer. Religious entities with 15 or more employees are covered under Title I.

Change of Address

It shall be a violation for any licensee to change the address of his place of business as set out on his numbered license certificate and fail to notify the Commission in writing within thirty (30) days after such change has been made. Such notification shall include both the old and new addresses of the company. To effect a change of business address, the qualifying broker must return to the Commission the company license plus all broker and salesperson licenses. A $25.00 transfer fee must be included for each license issued to that company.

Section 34-27-30

It shall be unlawful for any person, sole proprietorship, partnership, corporation, branch office, or lawfully constituted business organization, as the Legislature may from time to time provide, for a fee, commission, or other valuable consideration, or with the intention or expectation of receiving or collecting a fee, commission or other valuable consideration from another, to do any of the following unless licensed under Articles 1and 2 of this chapter: - Sell, exchange, purchase, rent, or lease real estate; - Offer to sell, exchange, purchase, rent, or lease real estate; - Negotiate or attempt to negotiate the listing, sale, exchange, purchase, rental, or leasing of real estate; - List or offer or attempt or agree to list real estate for sale, rental, lease, exchange, or trade; Auction, offer or attempt or agree to auction, real estate; It shall be unlawful for any person or business organization, for a fee, commission or other valuable consideration, to do any of the following unless he/she is licensed under the Alabama License Law: - Buy or sell or offer to buy or sell, or otherwise deal in options on real estate; - Aid, attempt, or offer to aid in locating or obtaining for purchase, rent, or lease any real estate; procure or assist in procuring of prospects for the purpose of effecting the sale, exchange, lease, or rental of real estate; - Procure or assist in the procuring of properties for the purpose of effecting the sale, exchange, lease or rental of real estate; or - Present himself or herself, or be presented as being able to perform an act for which a license is required.

Joint Tenant Requirements

Joint tenants must: - Receive their titles at the same time from the same source; - Have the same type of ownership; - Have the same percentage of ownership; and - Have the right to undivided possession in the property. For example, if there are three joint tenants each must: - Receive his or her title from the same conveying document (will or deed); - Have the same type of ownership (fee simple, life estate or conditional fee); - Own one-third interest in the property - Have the right to possession and use of any and all portions of the property.

Junior Mortgage

Junior mortgage describes any mortgage that is subordinate (lower in priority ) to another mortgage. Second mortgages, the most common form of junior mortgage, frequently are used to finance part of the difference between the purchase price of a property and the loan balance being assumed in a purchase involving assumption of the seller's existing mortgage. The seller often offers a short-term (5, 7 or 10-year) purchase money second mortgage to the buyer for part of the difference when the buyer does not have the funds to pay the full assumption amount. Second mortgages also are available from other sources, such as finance companies and credit unions, when the borrower has sufficient equity in the property.

Junior Mortgages

Junior mortgage describes any mortgage that is subordinate (lower in priority) to another mortgage. A junior mortgage may be a second mortgage, a third mortgage, or a fourth mortgage. Each of these is subordinate to any prior mortgage secured by the same property. The second mortgage is subordinate to a first mortgage, the third mortgage is subordinate to the second, and so on. Junior mortgages are usually for a shorter term and at a higher interest rate because they pose a greater risk to the lender than a first mortgage.

No Guarantees

Keep in mind, an appraisal does not take into consideration the financial condition of the owner, the owner's health, sentimental attachment, or any other personal matter. An appraisal does not guarantee that the property will sell for the appraised market value. Nor does buying the appraised market value guarantee a future profit for the purchaser. An appraisal does not guarantee that the roof will not leak, that there are no termites, or that everything in the building works. An appraisal is not an offer to buy, although a buyer can order one made so as to know how much to offer. An appraisal is not a loan commitment, although a lender can order one made so as to apply a loan-to-value ration when making a loan.

Assumptions: Payment Plans

Knowledge of down payments, closing cost regulations, amounts of allowable seller or third-party contributions to closing costs, and methods of structuring the best possible payment plan are essential to a successful real estate transaction involving new financing. Although most conventional fixed-rate real estate loans are not assumable, some are, along with some older FHA-insured and VA-guaranteed loans. When a purchaser assumes the seller's existing mortgage, the purchaser assumes liability for the mortgage as well as personal liability for payment of the note. Therefore, such purchasers who default in mortgage payments are subject to a possible deficiency judgment obtained by the lender. Just like the original borrower, the wording of the contract is often "assumes and agrees to pay."

Leases

Lease contracts also fall under the Statute of Frauds, but an exception exists for leases of short duration. A lease whose term exceeds a statutory time period in that particular state (usually one year) falls under the Statute of Frauds. Leases with shorter terms are enforceable even if not written.

Indestructibility

Land is a permanent commodity that cannot be destroyed. It may be altered substantially in its topography or other aspects of its appearance, but it remains. The indestructibility, or permanence, of land makes it attractive as a long-term investment. This is substantially different from most personal property, which often devalues, resulting in little or no salvage value. Land values can change as a result of changing conditions in the area surrounding the land. Land values may suffer economic obsolescence, which results from changes in surrounding areas that adversely affect its value. For example, the construction of an interstate highway can radically affect land values of property located several miles away on a minor highway that loses traffic volume.

Landlord-Tenant Law

Landlord-tenant law revolves around the lease contract. The basic law of contracts applies to the leases discussed in this lesson. The history of landlord-tenant law is vast. Most of the law prior to recent times was established by court decisions called common law. A lease is a contract between the owner of the property and the tenant to transfer possession temporarily to the tenant. Under the lease agreement, the owner transfers to the tenant a property interest, possession, for a prescribed period of time. - Owner of the property = landlord or lessor - Tenant placed in possession = lessee

LESSON 24

Legal Descriptions

Disciplinary Action

Licensees may face disciplinary action for: - Failing to voluntarily furnish a copy of each listing, contract, lease, and other document to each party executing the document with reasonable promptness; - Failing to inform the buyer or seller at the time an offer is presented that he or she will be expected to pay certain closing costs and the approximate amount of those costs; - Conduct which constitutes or demonstrates dishonest dealings, bad faith, or untrustworthiness; - Failing or refusing on demand to produce a document, book, or record in his or her possession concerning a real estate transaction conducted by him or her for inspection by the Commission or its authorized personnel or representative; and - If a qualifying broker or company, failing to keep in their files copies of all contracts, leases, listings, and other records pertinent to real estate transactions for a period of three years.

Obligations of Licensees: Obligations to All Parties

Licensees shall have all of the following obligations to all parties in a real estate transaction: - To provide brokerage services to all parties to the transaction honestly and in good faith; - To exercise reasonable skill and care in providing brokerage services to all parties; - To keep confidential any information given to the licensee in confidence, or any information obtained by the licensee that the licensee knows a reasonable individual would want to keep confidential, unless disclosure of this information is required by law, violates a fiduciary duty to a client, becomes public knowledge, or is authorized by the party in writing; - To account for all property coming into the possession of the licensee that belongs to any party to the real estate transaction; - When assisting a party in the negotiation of a real estate transaction, to present all written offers in a timely and truthful manner; - To act on behalf of the licensee or his or her immediate family, or on behalf of any other individual, organization, or business entity in which the licensee has a personal interest only with prior timely written disclosure of this interest to all parties to the transaction; and - A licensee may provide requested information which affects a transaction to any party who requests the information, unless disclosure of the information is prohibited by law or in this article.

Disclosure Form

Licensees, except those engaged in rental or property management services, and those in transactions set out in Section 34-27-82(d), are required to provide the Real Estate Brokerage Services Disclosure Form to the consumer as soon as reasonably possible for his or her signature. Nothing in this section shall prohibit the consumer from entering into a written contract with a broker which contains provisions for services not specifically identified in the written disclosure form. Consumers are not required by law to sign the form, although the licensee should encourage that it be signed. If the consumer declines to sign, the licensee shall make a note to this effect on the form.

Limited Consensual Dual Agent

Limited consensual dual agent: A licensee who, with the written informed consent of all parties to a contemplated real estate transaction, is engaged as an agent for both the buyer and seller. Circumstances which establish dual agency include, but are not limited to, one of the following: - When two or more licensees licensed under the same broker each represent a different party to the transaction; and - When one licensee represents both the buyer and seller in a real estate transaction. Material fact: A fact that is of significance to a reasonable party which affects the party's decision to enter into a real estate contract.

Private Owner Exemptions

Listed below and on the following pages are the basic exemptions and limitations to the Fair Housing Act. PRIVATE OWNER EXEMPTIONS. Other than the prohibitions against discriminatory advertising, the Act does NOT apply to: SINGLE-FAMILY HOME. The sale or rental of any single-family home by an owner, provided that the following conditions are met: - The owner does not own or have any interest in more than three single-family houses at any one time; - The house is sold or rented without the use of a real estate broker, agent or salesperson or the facilities of any person in the business of selling or renting dwellings; and - If the owner selling the house does not reside in it at the time of the sale or was not the most recent resident of the house prior to such sale, the exemption applies to only one sale in any 24-month period. PRIVATE OWNER EXEMPTIONS. Other than the prohibitions against discriminatory advertising, the Act does NOT apply to: - "Mrs. Murphy's Boarding House," rooms or units in dwellings containing living quarters occupied or intended to be occupied by no more than four families living independently of each other, if the owner actually maintains and occupies one of such living quarters as his or her residence. RELIGIOUS ORGANIZATIONS. The Act does not prohibit a religious organization, association, or society, or any nonprofit institution or organization operated, supervised or controlled by or in conjunction with a religious organization, association, or society, from limiting the sale or rental or occupancy of dwellings which it owns or operates for other than commercial purpose to persons of the same religion, or from giving preference to such persons. If membership in such religion is restricted because of race, color, or national origin, then this exemption does not protect such religious organization.

Liabilities: Litigation

Litigation regarding environmental hazards may involve real estate licensees and their sellers and buyers. Although the Real Property Transfer Seller Disclosure Statement, required by many states is designed to give sellers the opportunity to list known environmental hazards, information completed by the seller on this form does not necessarily release licensees from liability associated with the property buyer's purchase or lease decisions. Lenders are also becoming increasingly concerned and cautious about the environmental condition of properties purchased with mortgage loans. Federal and state legislators have passed a number of environmental protection laws in an attempt to respond to the growing public concern over the improvement and preservation of America's natural resources. For example, The Clean Water Act, The Clean Air Amendment, and The Superfund Amendment and Reauthorization Act.

Annual Escrow Statement

Loan servicers must deliver to borrowers an annual escrow statement once a year. The annual escrow account statement summarizes all escrow account deposits and payments during the servicer's twelve-month computation year. The statement also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken by the loan servicer to address these shortages or surpluses.

Natural factors affecting land use:

Location Topography Soil conditions Size and shape Likelihood of flooding Weather variables The presence or absence of minerals

Reading Directions

Looking down on the compass, you will find that the needle always points to magnetic north. In order to know which direction is magnetic north, turn the compass so that the needle is pointing at "0" or north. Imagine that you are standing at the POB. The first direction begins with either north or south, whichever is closest (except that due easterly and westerly directions are N90°E or N90°W), and gives an angle of declination or deflection to the east or west, as in N35°W or N60°E. This is followed by a distance. "POB N1°E 250 feet" fully defines the first segment of a property boundary (from POB proceed one degree east of north for 250 feet).

Lien Laws

Mechanic's and materialman's lien laws typically attach only to the interest of the person ordering the work and materials. In most cases this person is the owner. In some cases, however, a tenant, under a lease, orders work done to a leased house. If the landlord did not give the authority for the tenant's action, the lien attaches only to the leasehold interest of the tenant. If the tenant is evicted or the lease terminates naturally, the lien is null and void.

Methods of Estimation

Methods of estimating reproduction or replacement costs include: - Quantity survey method; - Unit-in-place method; - Square-foot method - Cubic-foot method. Of these, the quantity survey method is the most accurate but is also the most complex and time-consuming. The most widely used approach is the square-foot method. The cost per square foot is current construction cost divided by the number of square feet in the building.

CAPS

Modern ARMs are structured with caps (ceilings) that limit both the annual adjustment and the total adjustment during the lifetime of the loan. For example, annual increases could be limited to 1 or 2% interest, and the lifetime loan ceiling might be no higher than 5 or 6% above the original rate. There may similarly be a floor. Many ARMs also prohibit negative amortization. Conventional lenders and FHA have authorized adjustable rate mortgages for several years.

GRM Method

Monthly GRM is usually used for one-to-four-unit residential properties while annual GRM is used for larger residential, commercial and industrial properties. The GRM method is popular because it is simple to apply. Having once established what multiplier the market is paying, one need only know the gross rents of a building to set the value. However, this simplicity is also the weakness of the GRM method because the GRM takes into account only the gross rent a property produces. Gross rent does not allow for variations in vacancies, uncollectible rents, property taxes, maintenance, management, insurance, utilities or reserves for replacements.

LESSON 38

Mortgage Bankers

Mortgage Banking: Mortgage Bankers vs. Mortgage Brokers

Mortgage bankers, also called mortgage companies, make mortgage loans for the construction of housing and purchase of existing housing. They often specialize in FHA-insured loans and VA-guaranteed loans, although most also make conventional loans. Mortgage banking and mortgage brokering are quite different. Mortgage banking involves making and servicing mortgage loans. Mortgage brokering brings together a lender and a borrower for a fee paid by the lending institution, just as a real estate broker brings together a buyer and seller of real property for a fee. Often a mortgage company will perform both functions.

Mortgage Interest

Mortgage interest generally is paid in arrears. So the parties must understand that the mortgage payment for August will include interest not for August but instead for the month of July. In many areas, taxes are paid in advance. This means the seller will receive reimbursement at closing for the remaining days of the tax year following closing.

Quantity Survey Method

Most builders use the quantity survey method in calculating a cost estimate for a construction project. It involves the detailed determination of the exact quantity of each type of material to be used in the construction and the necessary material and labor costs applicable to each unit. A cost-plus contract construction agreement is one in which the owner will pay the cost of all labor and materials plus a certain additional amount based on a set percentage of the cost, representing profit and contractor's overhead. This type of contract contrasts with a fixed-price contract.

Security Deposit

Most landlords require the tenant to deposit a certain sum of money that will be refunded at the end of the lease. This refund is a security deposit and is based upon the condition of the premises. The security deposit often is negotiated as one month's rent. The money is intended for repair of only that damage the tenant causes beyond the ordinary wear and tear, and the landlord is not to use it for basic cleaning and repainting. The security deposit usually must be held separate from the landlord's personal funds in a trust account. In some states the landlord is to pay interest to the tenant on the monies held as deposits. At the end of a lease, the landlord is to refund the security deposit or provide to the tenant an itemized list of the damages repaired and their cost. The damages must be beyond ordinary wear and tear.

Due on Sale

Most mortgage documents contain a "due on sale" clause specifying that the entire principal balance due on the mortgage must be paid in full if a sale of the property is to take place. The lending institution holding the mortgage may declare the execution of a contract for deed to be a sale of the property and thereby require the seller to pay off the mortgage. A contract for deed must never be used to circumvent these loan assumption clauses.

Retail Properties

Most retail properties managed by a property manager are in strip centers, neighborhood shopping centers, and regional malls. A manager of these properties must select tenants suitable for the type of center. A strip center consists of more than four stores located conveniently and with easy access to a main roadway. Neighborhood shopping centers usually are made up of several buildings grouped together with common parking and common access. Regional malls typically are under one roof and include several nationally recognized stores called anchor stores

State Law

Most states do not recognize these liens at common law. Therefore, the "mechanic" or "materialman" must be careful to comply with state law to obtain a valid lien. State law typically requires that these liens must be filed in the public records within a specified number of days after furnishing the labor or materials. This requirement allows title companies and buyers of property time to assure that no unrecorded liens are lurking in the shadows upon purchasing a newly constructed or remodeled home.

Taxes: Conveyance Taxes

Most states impose a tax on the conveyance of title to real property. The amount of tax is based on the consideration the seller receives in selling the property. State's statutes usually require the seller to pay this tax. The name of the transfer tax varies from state to state. Examples are: - Revenue stamps - Documentary stamps - Deed tax stamps - Real estate transfer tax - Real estate excise tax The amount of tax charged on the purchase price varies by state. Some subtract the amount of any mortgage being assumed, which is called "old money," and therefore charge the tax only on the "new money" brought into the transaction above the amount of the assumed loan.

Railroad Easements

Much controversy has arisen concerning abandoned railroad easements throughout the United States. The question is: Who owns the land where the railroad tracks used to lie? The answer depends on what kind of "deal" the railroad received when the tracks were laid. If the railroad received a deed for the land, the railroad holds ownership in fee. If, however, the railroad received only an easement in gross, the adjoining landowners own the land, subject to the easement rights of the railroad or the successors in interest of the railroad. The question of railroad rights-of-way has generated so much controversy and litigation that some states have passed laws designating ownership of the railroad easements by statute.

Contract Elements

Mutual agreement: The parties recognize an offer has been made and accepted. All must agree to the others' requirements. Consideration: The benefit received by each of the parties. It can be money, transfer of ownership, transfer of rights, exchange of services, or anything of value. Legally competent parties: The parties whom the law allows to enter into contractual arrangements. Those parties may be people or business organizations, such as corporations. Legal purpose: A contract requiring any of its parties to violate the law is usually void. Legal form: Example, deeds and, in some jurisdictions, contracts of sale are not valid unless they include a legal description of the property

Mutual Savings Banks

Mutual savings banks are similar to savings and loan associations in that their main objectives are to encourage thrift and to provide financing for housing. These organizations exist primarily in the northeast portion of the United States and are chartered and regulated by the state in which they are located. Mutual savings banks play a prominent role in financing housing in those states. During the 1970s and the 1980s, regulatory changes allowed these institutions to move into other types of loans and to become more like commercial banks. They now are more commonly called "savings banks." These depositor-owned institutions currently differ from other depository institutions primarily in form of ownership. They are still depositor-owned.

Violations and Damages

No licensed real estate broker shall be required to pay a referral fee or commission when reasonable cause for payment does not exist. No third party shall knowingly interfere with the real estate brokerage relationship of a real estate licensee. Any person aggrieved by a violation of any provision of this article may bring a civil action in any court of competent jurisdiction. The damages recoverable in such an action shall be actual damages and, in addition, the court may award an amount up to three times the amount of actual damages sustained as a result of any violation of this article, plus reasonable attorney fees and expenses.

Adjustments

No two properties are exactly alike; however, many are similar in desirability and utility. Adjustments are made for the differences by following the principle of contribution or what a typical buyer may be willing to pay for extras. Adjustments are made for price changes since each comparable was sold, as well as for differences in physical features, amenities, and financial terms. The result indicates the market value of the subject property. Comparables should be as similar as possible to the subject property in all respects. All adjustments are made to the comparable properties, not to the subject property. This is because we cannot adjust the value of something for which we do not yet know the value

Leasehold Estates: Nonfreehold Estates

Nonfreehold estates or leaseholds were discussed in conjunction with the bundle of rights in ownership of real estate. These estates are less than a lifetime. Leasehold (rental) estates are created by a contract providing contractual rights and duties to both parties. Leasehold estates provide possession, but not title (ownership), to the tenant. The owner retains title and the right of reversion of possession upon termination of the lease.

Nonhomogeneity (uniqueness)

Nonhomogeneity means that no two parcels of land are identical. In agricultural land, fertility varies from location to location. In urban real estate, accessibility and zoning differ. Each parcel of real estate has its own topography, soil type, zoning, size, shape and so on. These differences, whether minor or major, bestow on each parcel of realty its own unique functionality, appeal, and value.

Nonjudicial Foreclosure

Nonjudicial foreclosure, or foreclosure under the power of sale, requires the mortgagee or trustee to advertise sale of the property by posting notice at the courthouse in the county where the property is located for a period required by state law. The mortgagee or trustee also must advertise the sale in a newspaper published in the county in which the property is located, at least once a week for a minimum of three to five consecutive weeks (depending upon state requirements). In both the courthouse and newspaper notices the advertisement must describe the property and appoint a day and hour for the sale to be held. The sale is conducted by the trustee or sheriff, who conveys the title to the purchaser by a trustee's deed or a sheriff's deed.

Datum

Not all real property can be described simply by reference to a position on the face of the earth. Some forms of real property, such as condominiums, require additional description in terms of elevation above the ground. These descriptions are made by reference to an established plane of elevations called a datum. A datum is a point, line, or surface from which elevations are measured or indicated. Most large cities have their own official datum and there are frequently established subsidiary reference points called bench marks. A bench mark is a point whose position relative to a datum has been accurately measured. Thereafter, surveyors can use the bench mark as a reference when it is more convenient than the datum.

Introduction : Beginning of Housing Discrimination

Not surprisingly, the beginning of housing discrimination in America can be traced to the first colonial settlements. Even in the early 1600s, in the Jamestown Colony, there were differences in the treatment of black and white indentured servants. As the colonies grew, slavery of people of African descent became increasingly common. For the most part, slavery was not considered immoral by society.

Oral Contracts

Nowhere in the list of essential elements for a valid contract is a requirement for the contract to be in writing. In most cases an oral contract is just as valid as a written contract. Both oral and written contracts are express contracts. The difficulty with oral contracts lies in the chance for misunderstanding as to the parties' rights and obligations. Terms of an oral contract may be extremely difficult to prove in a court proceeding should that become necessary.

PMI Premiums

Occasionally the PMI can be dropped if the loan-to-value ratio drops to 80% or less due to amortization of the loan or appreciation in the value of the property. And, in all cases, the lower the down payment, the more expensive PMI premiums become due to the higher risk. The cost is usually blocked out into loan-to-value ratio segments of 80-85%, 85.01-90%, or 90.01-95% to determine the premiums.

Location: Unique and Permanent

Of all the characteristics of land, location (situs) has the greatest effect on property value. Land's immobility, a basic physical characteristic, dictates that the situs, or location of a parcel of land, is both unique and permanent. Therefore, if the land is located in an area where available land has a high demand, the land has a substantially higher value. The loss of value can also be a result of location when a negative influence occurs outside the property—for example, a commercial use abutting a residential property.

Removal of Trade Fixtures

Of course, the lease contract should be clear on the point of trade fixtures. The rental may allow the landlord to retain these items. If the rental agreement does not have this provision, trade fixtures remain the property of the installing tenant. Upon removal of a trade fixture, the tenant does have the responsibility to restore the property to its original condition. This may involve capping plumbing, repairing walls, filling holes and any other tasks necessary to restore the property to original condition. The question of whether an item is a fixture, and thus part of the real estate has become especially important in modern transactions because of the different rules of lien priority for fixtures and nonfixtures set forth by the Uniform Commercial Code (UCC).

Closing Agents

Oftentimes, buyers and sellers are rushed through this critical process, as the closing agent may have a busy schedule that day, and these documents are all standard and commonplace to him/her. Closing agents may forget that each provision and each commitment listed in a document may be new to the party and will need to be explained carefully. When an attorney is involved in the transaction, whether representing the buyer or the seller, normally the attorney will explain each provision in detail. Keep in mind that the escrow officer or closing agent is a neutral third party only. The title company cannot give legal advice or interpret documents. The closing officer can explain each item and review how the numbers were calculated, but for any legal opinions, the buyer or seller will want to consult with his or her attorney.

Compensation

On the appointment of a new Commissioner, the Commission shall meet and select from its members a chair. Each member of the Commission shall receive monthly compensation. The members of the Commission, its staff, and attorneys shall receive the same per diem and travel allowance paid to state employees for each day they meet to conduct the official business of the Commission.

Chronology of Key Cases

On the following pages is a chronology of important U.S. Supreme Court cases. 1857 - Dred Scott v. Sanford: Persons of African descent, whether they are slaves or free, are NOT "citizens" of the United States entitled the privileges and immunities of white citizens. 1883 - Civil Rights Case: 14th Amendment prohibits discrimination only if it is the product of state (government) action. The 14th Amendment does not prohibit private acts of discrimination. 1896 - Plessy v. Ferguson: Court sets forth "separate but equal" rule, thus permitting institutionalized segregation. 1917 - Buchanan v. Warley: Court strikes down racial zoning law (on "equal protection" grounds) which had specifically limited African-Americans and other minorities to specific areas of town. 1948 - Shelley v. Kramer: Court held that state court enforcement of private restrictive covenants (based upon race) amounted to sufficient "government" involvement to violate the equal protection clause of the 14th Amendment. 1948 - Hurd v. Hodge: The "Shelley" rule applies equally to federal courts (in this case, the District of Columbia), as well as state courts. 1954 - Brown v. Board of Education: Court finally reverses Plessy decision ending the "separate but equal" era. 1967 - Reitman v. Mulkey: Court held that the California State Constitutional Amendment, which effectively nullified California's fair housing laws, violated the equal protection clause, since the Amendment encouraged private racial housing discrimination. 1968 - Jones v. Alfred H. Mayer Company: Court gives new life to the 1866 Civil Rights Act by holding that Section 1982 bars racial discrimination (private as well as public) in the sale of rental of property. 1972 - Trafficante v. Metropolitan Life Insurance Company: In the Court's first Title VIII decision the Court held that Fair Housing Act should be broadly construed, and that Title VII (federal employment discrimination) court cases can be used to interpret Title VIII and that HUD's interpretations of the Act should be entitled to "great weight." 1977 - Village of Arlington Heights v. Metropolitan Housing Development Corporation: Court holds that a housing corporation and neighborhood residents had standing to challenge municipality's denial of rezoning, which was alleged to have racially disproportional impact. (But Court also held that some "discriminatory intent or purpose was required to prove unconstitutional behavior.") 1979 - Gladstone Realtors v. Bellwood: Court upholds municipality and residents' standing to sue local real estate brokers for racial steering. 1982 - Havens Realty Corp. v. Coleman: Extends standing to sue in racial steering cases to fair housing organizations and "testers" who investigate discrimination complaints

Fair Housing Chronology : Chronology of Fair Housing Laws

On the following pages is a chronology of important constitutional acts and federal legislation. 1787 - U.S. Constitution (Article 1, Section 2): For purposes of number of representatives, slaves count as three-fifths of a person. 1791 - Bill of Rights (First 10 Amendments): Fifth Amendment guarantees right to "due process." 1865 - 13th Amendment: Slavery abolished and Congress given power to enact appropriate legislation to enforce this article. 1866 - Civil Rights Act of 1866 (42 U.S.C. 1982): Enacted under authority of 13th Amendment, this Act guarantees all property rights enjoyed by U.S. citizens regardless of race. 1868 - 14th Amendment: 14th Amendment (and 5th Amendment) prohibit government discrimination. 1962 - Executive Order # 11063: President Kennedy directs all federal agencies to take all action necessary to prevent discrimination because of race, color, creed or national origin. 1964 - Civil Rights Act of 1964: Prohibits discrimination based upon race, color, and national origin in federally assisted programs, including public housing. Authorizes withholding of federal funding from state or local grantees engaging in discriminatory activity. 1968 - Civil Rights Act of 1968 (Title VIII -The Fair Housing Act): Outlaws private discrimination in housing, including refusal to rent or sell. Also outlaws private discrimination in advertising, terms of sale or rental, blockbusting and use of real estate services. An exemption is provided for individual owners of single-family home (where no real estate broker is used) if owner does not own more than three such homes. An exemption is provided for housing operations by qualifying religious groups or private clubs. 1973 - Rehabilitation Act of 1973 (Section 504): Prohibits discrimination against handicapped persons in all federally-assisted programs, including housing. 1974 - Equal Credit Opportunity Act (ECOA): Prohibits credit discrimination in housing, based upon race, color, religion, national origin, sex, marital status or age. 1974 - Housing and Community Development Act of 1974: Expands Fair Housing Act to include prohibition of sex discrimination in housing. Creates "Section 8" programs. Established Block Grant Program and Urban Development Action Program. 1975 - The Age Discrimination Act of 1975: Prohibits discrimination on the basis of age in programs receiving federal financial assistance. 1980 - Executive Order # 12259: President Carter expands Kennedy's 1962 Executive Order to include sex-based discrimination, and grants HUD Secretary additional authority to issue regulations. 1988 - Fair Housing Amendments Act of 1988: Broadens Title VIII to include protected classes handicapped persons and familial status (with exception of older person housing). Mandates handicapped accessibility requirements for new multi-family properties, and permits handicapped tenants to modify existing housing (at tenant's expense). Increases civil and administrative enforcement relating to potential monetary awards, punitive damages, and attorney's fees.

Debt-Paying Ability

One test of liquidity of a person or a company is a ration that measures the immediate debt-paying ability of that person. It considers cash in hand and anything that can be instantly turned into cash, called quick assets. This quick ration is Quick Assets: Current Liabilities. A 1:1 ratio is generally acceptable for a business firm. When the country was suffering from harsh economic times, standards of appraisals came under close scrutiny. One outcome is an organization called The Appraisal Foundation, a private organization whose purpose is to help lenders distinguish between good and bad appraisals by establishing and approving: - Uniform appraisal standards - Appropriate criteria for the certification and recertification of qualified appraisers - Appropriate systems for the certification and recertification of qualified appraisers.

The Underwriter

Once all information has been verified and the loan documentation assembled, the loan processor submits the loan to underwriting. The underwriter is responsible for reviewing the loan documentation and evaluating the borrower's ability and willingness to repay the loan and the sufficiency of the collateral value of the property. The underwriter may be someone on the lender's staff or, in the case of a loan designated for sale, someone on the investor's staff. In case of FHA and VA loans, these agencies have delegated underwriting responsibility to the lender. For conventional loans with an over 80% loan-to-value ratio and requiring mortgage insurance, an underwriting submission also must be made to the private mortgage insurance company.

Course and Distance

Once the point of beginning has been established, a metes and bounds description proceeds by giving a direction to follow and a distance for which to follow the direction. For example, "south 50 feet." Both course and direction may be described in terms of a monument, for example, "northerly along the eastern edge of 3rd St. for 50 ft.," or "south, 50 ft. more or less to the center line of Hawthorne Creek." A reference to a monument always takes precedence over a course or distance when there is a discrepancy between the two.

Operating Expenses

Operating expenses, in general, fluctuate with operating level or occupancy of the property. Operating expenses are those expenses necessary to maintain the production of income. They are recurring expenses that are essential to the continuous operation and maintenance of a property. Operating expenses are generally divided into the following categories: - Fixed expenses such as real property taxes and building insurance - Variable costs such as utilities, payroll, administration and property management fees - Reserves for replacement. EX: As an example, maintenance is the major operating expense, totaling $106,000. This expense varies with level of operation and is related to the age and condition of the property. Older properties naturally have more expenditures for maintenance than newer properties do.

Discharge of Option

Options to purchase are binding on the heirs and estates of the parties. All owners of the real estate must sign the option. Options to purchase are discharged by: - Expiration of the time period agreed upon in the option - Exercise of the option by the optionee. An option is an agreement to keep open, for a set period, an offer to sell or lease real property --- often used to give the buyer time to resolve questions of financing, title, zoning and feasibility before committing the buyer to purchase. An option merely creates a contractual right. It does not give the optionee (buyer) any estate in the property. Under an option, the optionor must sell the property if the optionee gives notice of exercise of the option, but the optionor cannot force the optionee to buy.

Tenancy by the Entirety: Husband and Wife

Ownership as tenants by the entirety is limited to husband and wife. To receive title as tenants by the entirety, husband and wife must have a legal marriage at the time they receive title to the property. In many states, the deed does not have to read "to husband and wife as tenants by the entirety" to create a tenancy by the entirety. The deed only has to convey the property to John A. Jones and his wife, Mary A. Jones, and a tenancy by the entirety is created automatically. Like a joint tenancy, by the entirety contains the right of survivorship. Upon the death of one spouse, the surviving spouse automatically receives title to the property by operation of law.

Ownership Rights : Air Rights

Ownership of real property inherently includes ownership of the rights to the area above and below the earth's surface. Rights to the area above the earth are called air rights. The air itself is not real property; airspace, however, is real property when described in three dimensions with reference to a specific parcel of land, as in a condominium unit. The right of ownership of air space enables the landowner to use that space to construct improvements and to lease or sell the air space to others. Sale or lease of air space is becoming more common in high-density urban areas. Because of the scarcity of land, many developers are examining the possibilities for developing properties in the airspace above prime properties owned by schools, churches, railways, and cemeteries. In purchasing air rights, the purchaser must obtain an easement appurtenant over the ground if someone else controls the ground. EXAMPLE: If Ben has a two-story building and sells the air rights above the two stories to Harriett, Ben must include in the purchase and transfer an appurtenant easement allowing access over the first and second stories to the property above. The right of ownership and control of air space, however, is limited by zoning ordinances and federal laws providing for use of the air space by aircraft. Zoning ordinances also can restrict the height of improvements constructed on the land so as to not overburden municipal support systems such as police, water, sewer, traffic, and so on.

Participation Mortgage

Participation mortgage describes two different types of mortgages. 1. A mortgage in which two or more lenders participate in making the loan. 2. A mortgage in which the lender participates in the profits generated by a commercial property used to secure payment of the debt in the mortgage loan. The borrower agrees to the lender's participation in the net income as an inducement for the lender to make the loan. This allows the lender to receive interest as well as a share of the profits. This is similar to the shared appreciation mortgage except that the lender receives part of the annual income instead of a one-third capital gain.

Situation 4

Partners A and B owned a certain property which included both residential apartments and commercial space. One particular commercial space in the building had been occupied at various times by at least five different owners of the same type of business. Mr. Tenant wanted to put in another business of the same type. Partner A, a real estate licensee, decided to rent the space to Mr. Tenant. Within two months Mr. Tenant could not pay the rent. Ms. Worker, a black woman and sole employee of the business, wanted to take it over. She and Mr. Tenant both wanted the lease assigned to her, but they could not get approval from the partners. Instead, the partners evicted Mr. Tenant and would not lease to Ms. Worker. The space was then leased to another type of business. COMMENT: If there had been evidence pointing to racial bias or that Ms. Worker was discriminated against because of color or sex, then there would have been a violation. In your career in the real estate brokerage industry, you should be careful that you always give thoughtful consideration to your actions and statements to assure that they are not in violation of fair housing laws, in either intent or effect.

LESSON 5: Factors Affecting Land Use: Physical Factors

Physical factors affecting land use can be either natural or artificial. Natural and artificial physical factors always must be considered in analyzing the utility of land

Risk Management: ADA

Property managers of commercial facilities and public accommodations are required to comply with the Americans with Disabilities Act (ADA). Effective January 1993, the ADA stated that all such facilities must have a barrier-free design. The law does not apply to residential use property or to properties built prior to 1993. However, all work on new commercial construction and modified properties must be in compliance.

The Physical Property

Physical property is real estate to be sold versus personal property the sellers wish to keep. Real estate is the physical land within the property boundaries, including the surface rights, subsurface rights, and air rights reasonably necessary for the enjoyment of the property, as well as any buildings or appurtenances on the land. In addition, there will probably be some items of personal property so attached to the realestate as to be part of it, or at least to raise the question as to whether they are intended by the sellers to be part of the real estate. Consider a satellite dish, an above ground pool, or large potted plants on the patio. - Do the sellers intend to take any of these with them when they leave? - Will the buyers expect to find these items on the property when they move in? The licensee is expected to identify these fixtures, and if they are not to be sold with the real estate, they should be specifically excluded in the listing agreement.

Leasehold Improvements

Physically similar to trade fixtures, but legally different, are leasehold improvements. These are the improvements to leased property made by the lessee. Such improvements, generally tax depreciable by the lessee, are depreciable over the cost recovery period. Even though a leasehold improvement may be physically identical to a trade fixture, the difference lies in who installed the item. - If it is installed by the landlord, it remains with the building and is a leasehold improvement. - If it is installed by the tenant, it is a trade fixture and removable.

Products Containing Asbestos

Pipe Insulation Artificial Fireplaces Electrical Wires Duct Insulation Brake Linings Textured Paints Building Insulation Pot Holders Cements Ceiling Panels Ironing Board Pads Patching Compounds Carpet Underlays Hair Dryers Spackling Compounds Roofing Materials Floor Tiles

Place of Business

Place of Business: Where a licensed broker living in a rural area of this state who operates from his or her home, provided that he or she sets up and maintains an office for the conduct of the real estate business, which shall not be used for living purposes or occupancy other than the conduct of the real estate business. The office shall be used by the broker only and not as a place of business from which any additional licensee operates under his or her license. The office shall have a separate business telephone, separate entrance, and be properly identified as a real estate office. All licensees located within the city limits or police jurisdiction of a municipality shall operate from a separate office located in the city limits or police jurisdiction. The office shall have a business telephone, meet all other regulations of the Real Estate Commission, and be properly identified as a real estate office. Hardship cases may be subject to waiver of this regulation upon application and approval by the Commission. All business records and files shall be kept at the place of business as required by law or Real Estate Commission rules.

Police Power

Police power is the constitutional authority and inherent power of a state to adopt and enforce laws and regulations to promote and support the public health, safety, morals, and general welfare. Such laws must be uniform in operation, nondiscriminatory, and cannot be advantageous to any one particular person or group. Some examples of police power are: - The right to tax - The right to regulate land use through a general plan and zoning - The right to require persons selling real estate to be licensed - The right to regulate pollution - Environmental control - Rent control.

Selecting the Escrow Agent

Prior to selecting the escrow agent, the buyer and seller often execute escrow instructions in a detailed offer to purchase, outlining the escrow agent's authority and what must occur prior to and at closing. After the escrow agent is chosen, the earnest money, escrow instructions, and all pertinent documents are delivered to the escrow agent for completion of the transaction. Sometimes the buyer and seller execute separate instructions and sometimes the contract of the sale itself serves as the escrow instructions. A broker who does not join in the escrow agreement could find the seller successfully ordering the escrow company not to pay the broker the listing commission.

Before Closing: Review the Closing Statement

Prior to the actual closing day, there are several necessary things to do to be certain that your real estate transaction will close on time, and that everything will go smoothly. A day or two before closing, you should review the final closing statement or HUD-1 Statement, whichever is used in your area of the country. You should go over all the calculations and be certain that your client is given credit for all deposits and any other credits due to or from the seller or for other items agreed upon between buyer and seller. Go over all the lender and title and escrow fees, to be sure they are what you had been told and that you agree to them. Check the math calculations on the closing statement, errors do occur.

Priority

Priority usually is established by the time (date and hour) the lien is recorded. The priority of certain liens, such as property tax liens, special assessment liens, and mechanic's liens, is not based on the time of recording but on other factors. In the event of a foreclosure sale, the holder of the first lien has the first claim against the sale proceeds, and that debt must be fully satisfied, including accrued interest, before the holder of the second lien is fully satisfied, and so on down the line of priorities.

History

Private control of land use was the forerunner of public controls. In 1848, U.S. courts first recognized and enforced restrictive covenants regulating land use in residential subdivisions. In 1926, the U.S. Supreme Court upheld the validity of zoning ordinances. Before these two important legal events, a developer or governmental unit had no way to regulate land use, even though the need for controls was a reality. The need for land use controls has increased along with the increasing population density. Abuse by even one property owner in the use of land can have a substantial adverse effect on the rights of other property owners and cause severe depreciation of their properties.

Enforcement of Controls

Private land use controls are enforced through the courts. This is accomplished by a court action known as an injunction. An injunction prevents a use contrary to the restrictions of record, or orders the removal of any such uses that have been implemented. In a practical sense, the individuals who bear primary responsibility for making sure the restrictions are enforced are the other owners of property in the affected area. Their failing to enforce the restrictions on a timely basis might lead to the eventual loss of the right to enforce the restrictions at all. However, enforcement of covenants is not limited to the original purchasers of property in the subdivision. Subsequent purchasers must abide by and may enforce the restrictive covenants until such time as the covenants may be terminated, as previously discussed. In this sense, the restrictions run with the land.

Private Controls

Private land use controls are limited in scope. Only a specific area can be subject to private use controls. For example, property owners in a subdivision with private controls have absolutely no control over land uses outside that subdivision. Therefore, a subdivision may be affected adversely by uncontrolled use of an adjoining property outside the subdivision. As people became aware of the need for planning and land use controls for larger areas of land, zoning ordinances came into being, the first of which was enacted in 1916

Land Use Controls: Legal Restrictions

Private restrictions in individual deeds requiring the continuation of a specified land use or prohibiting a specified land use, and use restrictions imposed on tenants in lease contracts, can be legal or illegal. In both public and private land use regulation, the restriction must be reasonable, necessary, and legal. Certain types of zoning can be discriminatory and thus illegal. Certain private restrictions, especially those pertaining to race or gender, are illegal.

Proceeds

Proceeds of the mortgage foreclosure sale are distributed in the following order of priority: 1. Court cost; 2. Trustee's fee; 3. Advertising fees; and 4. Legal fees. If there are no other lien holders with liens having priority over the lien of the mortgage or deed of trust, the lender is paid including accrued interest. Any other creditors holding liens against the property are paid. However, unsecured creditors are not paid with sale proceeds of the foreclosed property. Any remaining monies (equity), after court costs, trustee's fee, advertising fees and legal fees have been satisfied, are paid to the borrower.

Proper Execution

Proper execution of the deed means that it must be signed by each grantor conveying an interest in the property. Only the grantors execute the deed. In most cases the grantee does not sign (exceptions to this rule are deeds involving a corporation, a minor, or a court-ordered transfer). Also, if the grantee is assuming an existing mortgage or is agreeing to abide by a restrictive provision in the deed, then the grantee must be required to sign. In a minority of states, proper execution includes execution under seal. In these states the word "seal" in parentheses must appear at the end of the signature line provided for each grantor. Sometimes the letters LS (locus sigilli), rather that the word "seal," follow the grantor's signature. Locus sigilli means "the place of the seal." The deed will not convey the title unless it is properly executed by the grantors.

LESSON 46

Property Management

Ad Valorem

Property is taxed on an ad valorem basis, meaning according to value. Some states use fair market value as the assessed value. Other jurisdictions use a value substantially lower than market value. The assessed value is multiplied by the tax rate for the jurisdiction. The tax rate stated in dollars or mills is applied to the assessed value to determine the amount of tax. mill = 1/1000th of a dollar The rate must be sufficient to provide the amount of revenue required to accomplish the budgetary requirements of the local governmental unit. Real property taxes are by far the biggest source of revenue for local governments.

Introduction: The Property Manager

Property management is one of a number of specializations within the real estate industry. A property manager is a person who manages properties for owners as their agent. In acting as an agent, the property manager is a fiduciary and therefore owes all the obligations imposed by the law of agency to each owner-principal. The discussion in this lesson centers on the functions and purpose of property managers. By applying real estate knowledge and expertise, a property manager strives to produce the greatest net return possible for the owner. The property manager is responsible for protecting the owner's investments. Because the property manager acts as the owner's agent in managing, renting, leasing, and perhaps selling the property, the property manager must have a real estate license.

Public Accommodations

Public accommodations are defined as private businesses that affect commerce and trade such as: Inns, hotels, restaurants, theaters, convention centers, bakeries, laundromats, banks, barber shops, attorney's offices, museums, zoos, places of education, daycare centers, and health clubs. Commercial facilities are those intended for non-residential use and affect commerce, such as factories.

Title III : Public Accommodations

Public accommodations must comply with basic nondiscrimination requirements that prohibit exclusion, segregation, and unequal treatment. Public accommodations include: Hotels, motels, inns; Eating and/or drinking establishments; Auditoriums, convention halls, theaters, concert halls, stadiums or other places for exhibition or entertainment; and Bakeries, grocery, clothing and hardware stores, laundromats, banks, barber or beauty shops, funeral parlors, gas stations, accounting or law offices, healthcare providers and hospitals.

Barrier Removal

Public accommodations must remove structural, architectural, and communication barriers in existing facilities if the removal is readily achievable. Examples of barriers to be removed or alterations to be made include: Placing ramps, lowering telephones, making curb cuts in sidewalks and entrances, widening doors, installing grab bars in toilet stalls, and adding raised letters on elevator controls. Commercial facilities are not required to remove the barriers in existing facilities. In construction of new public accommodations and commercial facilities, all areas must be readily accessible and usable by individuals with disabilities. The Americans with Disabilities Act (ADA) is enforced by the U.S. Attorney General

Overview of Public Accommodation Requirements

Public accommodations must: - Provide goods and services in an integrated setting, unless separate or different measures are necessary to ensure equal opportunity; - Eliminate unnecessary eligibility standards or rules that deny individuals with disabilities an equal opportunity to enjoy the goods and services of a place of public accommodation; - Make reasonable modifications in policies, practices, and procedures that deny equal access to individuals with disabilities, unless a fundamental alteration would result in a change in the nature of the goods and services provided; - Furnish auxiliary aids when necessary to ensure effective communication, unless an undue burden or fundamental alteration would result - Remove architectural and structural communication barriers in existing facilities where readily achievable; - Provide readily achievable alternative measures when removal of barriers is not readily achievable; - Provide equivalent transportation services and purchase accessible vehicles in certain circumstances; - Maintain accessible features of facilities and equipment; and - Design and construct new facilities and, when undertaking alterations, must alter existing facilities, in accordance with the Americans with Disabilities Act Accessibility Guidelines issued by the Architectural and Transportation Barriers Compliance Board and incorporated in the final Department of Justice Title III regulation.

RESPA Requirements

RESPA, enforced by HUD, requires: Good faith estimate: Within three working days of receiving a completed loan application, the lender is required to provide the borrower with a good faith estimate of the costs likely to be incurred at settlement. HUD form No. 1: In making residential mortgage loans, lenders are required to use a standard settlement form designed to clearly itemize all charges to be paid by borrower and by seller as part of the final settlement. The form which has become known as HUD Form No.1, or the HUD 1, must be available for the borrower's inspection at or before final settlement. This form is not required for assumptions and nonresidential loans.

Real Estate Investment Trusts

Real estate investment trusts (REITs) were created in 1967, stemming from changes in the Internal Revenue Code that became effective in September of 1967. As a result of these changes, the beneficiaries were not double taxed on trust income. The trust can now earn income from real estate investments without paying trust income tax. To avoid the trust income tax, however, the trust must distribute 95% of the ordinarily taxable income to the trust beneficiaries. The beneficiaries then report the income for tax purposes.

Division of Rights

Real estate licensees sell more than land and buildings. They also can sell any rights to, interests in, and title to real property that affect the value of the real property. Every bundle of sticks (piece of real property) can be divided in many ways. The division is not that of acres or lots. Instead, it refers to the various rights that can be held in real property. Remember that such rights as water rights and mineral rights are part of the property and are separable.

Metes and Bounds: Point of Beginning

Real estate professionals are required to be able to read and interpret the metes and bounds of a legal description. Metes = measurement Bounds = direction In plotting metes and bounds, there must be a point of beginning (POB). The direction from the POB is determined from a compass bearing to the next point in the plotting of the property.

License Law: Statutes and Rules

Real estate students must be thoroughly knowledgeable of the license law statutes and of rules and regulations currently in effect for their state or jurisdiction. Students may obtain copies of the license law statutes and rules and regulations from the licensing authority in the state to which the student is applying for a real estate license. This knowledge is essential for the student to pass the state licensing examination. As you progress through this course you will be given the appropriate links to your state website containing laws and commentary National Association of Realtors® (NAR) http://www.rebac.net/ Because real estate laws vary from state to state, real estate students must become thoroughly familiar with the license law and rules and regulations in their own state or any other jurisdiction where they practice. The most important provisions of real estate law are similar, but not identical, in all states. These are based on the model recommended by the National Association of REALTORS® (NAR).

Real Property: Above and Below

Real property consists of land and everything permanently attached to the land, as well as legal rights to the land. Ownership of land includes not only the face of the earth but also the area below the surface to the center of the earth and the area above the surface, theoretically to infinity. These three components of land ownership are separable. The owner of the land may retain ownership of the surface but may sell the air space above and the mineral rights below. Therefore, the landowner owns all structures on the land as well as other improvements to the land, which include things such as buildings, swimming pools, flagpoles, fences, and other structures. Improvements to the land refer to clearing the land, building roads, placing utilities and the like.

Tenements

Real property consists of land, tenements, and hereditaments. Tenements include land as well as the inherent rights of ownership that arise from owning land. Tenements may be corporeal or incorporeal. Corporeal rights are rights to things that are tangible, such as the title and its transfer, the right of possession and control and also things that can be touched and seen such as buildings, trees and fences. Incorporeal rights are rights to things that are intangible, that cannot be touched or seen, including (but not limited to) easement rights, licenses and riparian rights.

Foreclosure Sale

Real property may be sold at public auction to satisfy a specific or general lien against the property. The lien foreclosure sale is without consent of the property owner who incurred the debt resulting in a lien. Foreclosure sales are ordered by a court or authorized by state law, and title is conveyed to a purchaser at the sale by judicial deed (discussed under types of deed). A judicial deed is executed by the official whom the court or state authorizes to conduct the sale and transfer the title. In these cases, titles typically are conveyed by a sheriff's deed, a trustee's deed, a commissioner's deed or similar document, usually without the participation of the property owner who is losing the title as the result of foreclosure.

Importance of Recording

Recording a release of a mortgage, note, claim, or deed of trust is just as important as recording the original document. Failure to do so may continue to cloud the title to the property by showing a lien that no longer exists. Under the individual state recording acts, all instruments in writing affecting any estate, right, title, or interest in land must be recorded in the county where the land is located. The purpose of this is to give to everyone interested in the title to a parcel of real estate notice of the various interests of all parties. From a practical point of view, the recording acts give legal priority to those interests that are recorded first.

Advertising Credit Terms

Regulation Z also applies to advertising the credit terms available in purchasing a home. The only specific thing that may be stated in the advertisement without making a full disclosure is the annual percentage rate, spelled out in full, not abbreviated as APR. If any other credit terms are included in the advertisement, it must provide a full disclosure. Statements of a general nature regarding the financing may be made without a full disclosure. Statements such as "good financing available," "FHA financing available," and "loan assumption available" are satisfactory. Real estate agents must take special care not to violate advertising requirements of Regulation Z.

Regulation Z

Regulation Z does not regulate interest rates but instead provides specific consumer protections in mortgage loans for residential real estate. It covers all real estate loans for personal, family, household, or agricultural purposes. The main purpose of this law is to ensure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit. In this way consumers can more readily compare the various credit terms available to them and make informed choices.

Religious Organizations

Religious organizations are exempt as to properties owned and operated on a non-commercial basis for the benefit of their members only. This exemption is only available to them if membership in the organization is not restricted on account of race, color, sex, national origin or handicap. EX: An example of this exemption is a Baptist home for unwed mothers. Excluding non-Baptists will be allowable as long as the home is run as a non-profit venture and not as a commercial venture; and as long as it does not discriminate on the basis of race, color, national origin, gender, familial status, or handicap.

Market Data

Remember that the comparison approach, or market data method, is the primary appraisal approach for estimating the value of single-family, owner-occupied dwellings and vacant land. It involves comparing the property that is the subject of the appraisal (subject property) with other properties offering similar utility that have sold recently. These are called comparables or comps. Three to five comparables usually provide enough basis for reliable comparison. To use more than five, the additional accuracy must be weighed against the extra effort involved. When the supply of comparable sales is more than adequate, choose the sales that require the fewest adjustments.

Minerals

Remember, land is defined as the earth's surface extending downward to the center of the earth and upward to infinity, including things permanently attached by nature. Land includes the dirt and soil, as well as boulders and growing things such as trees and bushes. Land also includes minerals located below the surface, such as oil and coal. The right to mine minerals in land is evidenced by ownership of subsurface rights.

Conditions and Contingencies

Remember: Before executing the closing documents and disbursing the closing funds, the parties should assure themselves that the conditions and contingencies of the purchase agreement have all been met. In addition to binding the parties to the purchase and sale of the property during the period of time required to close the transaction, the purchase agreement or contract of sale frequently serves as the initial directions to the closing agent or escrow company to process the mechanics of the transaction. It is most important that the parties agree in the contract on all of the pertinent closing details, such as who pays the various expenses of the sale, who bears the risk of loss, the date of occupancy and the proration date.

Provisions

Rent is the consideration the tenant pays to the landlord for possession of the premises. In addition to possession, the rent paid assures the tenant rights stipulated in the lease agreement. Leases may contain additional provisions setting out specific agreements between the landlord and tenant. One common provision is an option to renew the lease. The renewal sets forth the method for renewal and the terms by which the renewed lease will exist. The parties also may include in the lease an option to buy. This provision allows the tenant to purchase the leased premises for a certain price for a certain period of time. In commercial leases, a right of first refusal often is given to a tenant to allow an opportunity to expand into additional space before it is leased to another tenant. This option may be at a different rental rate than originally agreed upon. In most written leases, provisions stating who has the responsibility for maintenance and repair are included. Also, the landlord usually includes a provision prohibiting assignment of lease rights or subleasing the premises by the tenant without the landlord's approval.

Slumlords

Rent strikes are seen in "slumlord" situations where the landlord refuses to maintain the property. If basic needs such as heat, water and electricity are deficient, or if life-threatening conditions such as rat infestations occur, then slumlord situations exist. Tenants are allowed to withhold rent from the landlord but are required to pay rent into the court for disbursement as the court may equitably decide. In some cases, the tenant can claim constructive eviction and thus be relieved of the obligation to pay rent. In such cases, through the landlord's lack of care, the tenant has been evicted, for all practical purposes, because enjoyment of the premises is not available. This may happen when heat and water are not available to the tenant because of the landlord's lack of care, or when the landlord fails to perform certain repairs.

Residential Properties

Residential property includes: - Apartments, - Single-family housing, - Multi-family housing, - Condominiums, - Vacation houses, and - Mobile home parks. When selecting tenants for residential properties, the concerns of a property manager include credit history of tenants, past landlord references, and employment status. The manager also must be involved with maintenance and repair of the premises and eviction of tenants. It's important that the manager be in tune with the local housing market.

Termination of Covenants

Restrictive covenants may be terminated in the following ways: - Expiration of the time period for which the covenants were created - Unanimous vote of the property owners to end the restrictions, unless the restrictions provide for termination by vote of a smaller number of landowners - Changes in the character of the subdivision that render it unsatisfactory to continue the type of use specified by the restrictions - Abandonment, which occurs when the property owners have violated their restrictions and in many instances have participated in the violations.

Selling Mortgages

Sale of the mortgage by the lender is especially beneficial in low-yield mortgages, those mortgages for which the lender receives a lesser return on his or her investment in terms of both discount and interest rate, expressed as an annual percentage rate. By selling, the lender may get some money out of these mortgages to reinvest in new mortgage loans.

Financial Institutions : Savings and Loans

Savings and loan associations (S&Ls) lend money to construct housing, to purchase existing housing or to effect improvements in existing housing. Traditionally, these organizations supplied more money for financing the purchase and construction of single-family dwellings than any other type of lending institution. During the late 1980s, however, S&Ls encountered a great deal of difficulty, losing billions of dollars.

FIRREA

Savings and loan associations may be state chartered or federally chartered. The practical difference has been blurred by passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1989. This act, passed to curb the abuses and problems that led to the S&Ls' problems, affects all federally insured depository institutions.

Section 10: Limits on Escrow Accounts

Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance and other charges related to the property. RESPA does not require lenders to impose an escrow account on borrowers; however, certain government loan programs or lenders may require escrow accounts as a condition of the loan.

Referrals

Section 8 of RESPA prohibits a person from giving or accepting anything of value for referrals of settlement service business related to a federally-related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.

RESPA Sections: Section 8: Kickbacks and Fees

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally-related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed

Preference

Section 804 (c) of the Fair Housing Act makes it unlawful to make, print, or publish (or cause to be made, printed, or published) any notice, statement, or advertisement, with respect to the sale or rental of a dwelling, that shows an intention to indicate any preference, limitation, or discrimination because of race, color, religion, sex, handicap, familial status, or national origin. The prohibition against discriminatory advertising applies even to those homeowners who are otherwise exempted from the Fair Housing Act. The prohibitions of the Act regarding familial status generally do not apply with respect to qualified "housing for older persons."

Advertising: Discriminatory Advertising

Section 804 of the Fair Housing Act outlaws almost every discriminatory notice, statement, and advertising that relates to the sale or rental of housing. This advertising rule applies even to those persons otherwise exempted from the Act. For the first two decades after 1968, there were few reported court cases involving discriminatory advertising. Beginning in the early 1970s, HUD issued Advertising Guidelines, which are now published in HUD's regulations. The Fair Housing Act makes it unlawful to discriminate in the sale, rental, and financing of housing, and in the provision of brokerage and appraisal services, because of race, color, religion, sex, handicap, familial status, or national origin.

Section 9: Title Insurance

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

Seller Credits

Seller credits include: - Purchase price; - Overpaid real property taxes; - Overpaid insurance premium; - Sale of personal property; - Escrow balance on assumed loan; - Termite inspection and treatment; - Soil test (perc test); - Unpaid utility bills; - Mortgage interest on assumed loan; - Transfer tax on transfer of real estate; - Broker's fee; and - Balance due to seller at closing (this is a balancing entry only, as seller gets this money).

Seller Debits

Seller debits include: - Unpaid real property taxes prorated; - Existing mortgage and seller's accrued interest; - Deed preparation fee; - Contract for deed balance; and - Purchase money mortgage taken back from buyer.

Net Operating Income

Setting aside an amount of money for this purpose each year enables the project to avoid the impact of substantial expenditures in any given year when a number of the items must be replaced. Consider both the property's past operating expenses and what the expenses are expected to be in the future. The operating expense total is then subtracted from the effective gross income (the estimated rents that the property can be expected to produce on an annual basis minus vacancy and collection losses). The balance that remains is the net operating income. From the net operating income, the property owner receives both a return on and a return of investment. The return on investment is the interest received for investing money in the property. The return of investment is compensation for the fact that the building is wearing out.

Applications: License Application

Should any applicant for a real estate broker's or real estate salesperson's license falsely answer any questions on either his/her examination or license application or misrepresent any facts relating to either application, said application may be rejected by the Commission and returned to the applicant. Any applicant whose application is not deemed acceptable may request a hearing before the Commission relative to such rejection. Any real estate broker who knowingly signs a license application stating the applicant under his/her sponsorship is of good reputation and is trustworthy may be held liable for such statements; and should a routine investigation of the applicant's background prove otherwise, the sponsoring broker may be subject to a fine or revocation or suspension of his/her license. All salesperson and broker license applications must contain, along with the license application, a photograph which was taken within the past 12 months.

Co-Brokerage Transactions

Showing property located in Alabama and negotiations pertaining thereto shall be supervised by the Alabama broker. In all advertising of real estate located in Alabama, the name of the Alabama broker shall appear. The Alabama broker shall be liable for all acts of the out-of-state broker, as well as for his own acts, arising from the execution of any co-brokerage agreement. The Alabama broker shall determine that the out-of-state broker is licensed as a broker in another state. All earnest money pertaining to a co-brokerage agreement must be held in escrow by the Alabama broker unless both the buyer and seller agree in writing to relieve the Alabama broker of this responsibility.

Concurrent Ownership

Simultaneous ownership of real property between two or more people is called concurrent ownership. That term is used rather than joint ownership because the word "joint" describes a specific type of concurrent ownership. There are various types of concurrent ownership. The rights of the owners depend upon the type of ownership they have. The types of concurrent ownership are: - Tenancy in common - Joint tenancy - Tenancy by the entirety - Community property

Qualifications

Since 1986, VA standards require the borrower to qualify under both a net family support standard and a gross monthly income ratio. VA Loan Analysis Form 26-6393 is used to organize information on estimated home payments, long-term debts (six months or longer) and family dependents, and to evaluate the reliability of monthly income. Net take-home pay is determined by taking the gross monthly income minus federal taxes, state taxes, social security tax, and other pension plans or deductions. This net income is then reduced by the amount of the estimated home payments and long-term debts to determine a residual balance available for family support.

Plat Maps

Since a detailed description of the lot is on file in the recorder's office, that description may be incorporated into any legal document simply by reference. Plat maps frequently contain a wealth of useful information above and beyond a detailed description of property boundaries. They may include measurements of area, locations of various easements, right-of-way dimensions, location of survey markers, records of conditions, and restrictions applying to the land.

Government Power: Land Ownership

Since the Ordinance of 1785, land ownership by private individuals has been allowed in the United States. Even the allodial system of property ownership (free and full ownership of rights in land) is subject to four important powers of federal and local governments: - Eminent domain - Police power - Taxation - Escheat

Single Agent

Single agent: A licensee who is engaged by and represents only one party in a real estate transaction. A single agent includes, but is not limited to, one of the following: - Buyer's agent, which means a broker or licensee who is engaged by and represents only the buyer in a real estate transaction; or - Seller's agent, which means a broker or licensee who is engaged by and represents only the seller in a real estate transaction.

Constructive Annexation Theory

Some articles are so closely associated with a structure that they are deemed to be fixtures under the constructive annexation theory, as in the case of house keys, which pass to the buyer upon sale of the property. If an article is determined to be a fixture, it passes with the property even though it is not mentioned in the deed. When a fixture is wrongfully removed from property, damages are generally measured in terms of the value of the fixture as part of the realty, not the price the fixture would command on the open market after removal.

Impact on Real Estate Transactions

Some environmental concerns that impact real estate transactions are: - Sellers should be aware of any environmental issues affecting the property to avoid possible liability and lawsuits, even after their property has been transferred - Toxic chemicals, pesticides and other elements on or near a property or inside a dwelling may have a serious effect on the quality of life and the health of individuals who occupy the structure - The presence and remediation of hazardous substances directly affects the home-buying process - Licensees can be held responsible for what they know or should have known regarding a material defect in a property - Environmental problems and their disclosure, such as the mandatory lead-based paint disclosure are increasingly a part of a real estate professional's responsibility. Prior to making a loan, most lenders on commercial property require at least a Phase I environmental audit by a professional environmental inspector to ascertain the level of environmental problems, if any.

Seller Breaches

Some examples of when a seller breaches the listing agreement include: - Misrepresenting the facts about the property to the broker, which is the most common breach on the seller's side - Interfering with the broker's ability to show the property or refusing to pay the broker's earned commission.

Secondary Market: Purchase and Sale of Mortgages

Some lending institutions limit their mortgage loans to their own assets rather than participate in the secondary mortgage market. For lenders that do participate in the secondary market, two types of markets are available: The purchase and sale of mortgages among lending institutions; and The sale of mortgages by lending institutions to three organizations that provide a market for this purpose (FNMA, GNMA and FHLMC). A major activity of the secondary mortgage market is the purchase and sale of mortgages by and among lending institutions. In this way, the market facilitates movement of capital from institutions that have available funds to invest to lenders that do not have enough money for this purpose.

Ordinary Chemicals

Some of the most dangerous chemicals in our homes are also very ordinary; cleaning agents such as oven cleaners, pesticides, and hobby products. For example the American Lung Association points out that homes typically have 45 aerosol products. Aerosol particles can carry toxins to the lungs.

Real Estate Licensing Exams

Some real estate licensing examinations are divided into two parts. Applicants for license must pass both parts of the examination. One part consists of questions about the license law statutes and rules and regulations in effect in the state to which license application is being made (state law). The other part consists of questions covering all other real estate subjects of which the applicant must be knowledgeable (national law). Variations in license law legislation from state to state usually involve administrative matters such as requirements for license eligibility. Examples include such requirements as minimum age for licensing, amount of prelicensing education required, residence, and apprenticeship. There are often separate licensing examinations for brokers' licenses and for salespersons' licenses. The definitions of real estate broker and of real estate salesperson are fairly uniform in the various state licensing laws

Four Leasehold Estates

Some states provide for certain leasehold estates to be considered as real property while also retaining their characteristics as personal property. The four principal types of leasehold estates are the: 1. Estate for years -- runs for a specific period of time 2. Periodic tenancy (estate from year to year) -- runs for an indefinite number of time periods 3. Tenancy at will -- runs for an indefinite time 4. Tenancy at sufferance -- runs until the landlord takes some action.

Homestead Life Estate

Some states recognize a homestead life estate for a surviving spouse. A homestead life estate is available only on the family home, not on all the inheritable property, as with dower and curtesy.

Statutory Redemption

Some states, however, have passed statutes that allow redemption after foreclosure. Some states provide a benefit to the borrower, by statute, by allowing the borrower the right to pay the debt plus accrued interest and costs in full after the foreclosure sale, and thereby recover the property. This is called statutory redemption. The period of time during which the borrower may recover the property in this way varies from state to state, but it is usually 90 days to two years after the date of the foreclosure sale. Some statutes provide for possession of the property by the borrower during this period and the appointment of a receiver to collect rent from the borrower and see that the property is adequately maintained.

Net Lease

Sometimes the net lease is referred to as net, net-net, or triple net, depending upon how many property expenses the tenant pays. Leases for entire commercial or industrial buildings and the land on which they stand, long-term leases, and ground leases are usually net leases. Certain other expenses of the property such as: - Income taxes - Depreciation - Mortgage payments are not considered operating expenses. These are the owner's personal expenses, not expenses of the building.

Common Areas: Articles of Association

Sometimes you will hear the term limited common element. This is a common element with restricted use. Examples are individual storage units or parking stalls. The common areas are the responsibility of all unit owners. The articles of association establish an association to provide for maintenance and management of the common areas for the overall welfare and benefit of all members. The articles of association also establish the method and procedure for assessing the individual unit owners for each unit's share of the common maintenance items such as mowing, painting, and landscaping.

Steering: A Range of Listings

Steering means slanting the choices of listed property made available to minority prospects, so that the properties most suitable to the prospect, in terms of quality, price and needs, appear to be available only in minority or changing neighborhoods. To avoid charges of steering you should be able to show that minority customers are offered a range of listings and that such listings encompass all areas that you serve. Generally, steering may occur in either of two ways, both a violation of fair housing laws: 1. A salesperson might steer a minority prospect to only minority or mixed neighborhoods; or 2. A salesperson might steer a non-minority to only non-minority neighborhoods. Either type of steering is in violation of Fair Housing Laws.

Ordinance Requirements

Subdivision ordinances typically address the following requirements: - Streets may have to be of a specified width, be curbed, have storm drains, and not exceed certain maximum grade specifications; - Lots may not be smaller than a specified area and must be for single-family occupancy only (specific areas may be set aside for multi-family dwellings); - Utilities, including water, sewer, electric, and telephone, must be available to each lot or plans must include easements to later provide utilities; - All houses must be placed on lots to meet specified minimum standards for setbacks from the front property line, as well as from interior property lines; and - Drainage must be adequate for runoff of rainfall to avoid damage to any properties.

ARELLO

Substantial uniformity among states also has resulted from efforts of the Association of Real Estate License Law Officials (ARELLO). Organized in 1930, ARELLO is made up of license law officials representing every state. The organization functions as a clearinghouse of real estate information and statistical data for members. ARELLO and NAR have made substantial contributions to license legislation that have elevated the standards of the real estate industry, including sponsorship of several model license laws which have been adopted by the various states.

Telecommunications Relay Services : Background of TRS

Telecommunications Relay Services (TRS) enable standard voice telephone users to talk to people who have difficulty hearing or speaking on the telephone. Under Title IV of the Americans with Disabilities Act, all telephone companies must provide free relay services either directly or through state programs throughout the 50 states, the District of Columbia, Puerto Rico, and all of the U.S. territories. Businesses, government agencies, family, friends, and employers of persons with hearing and speech disabilities make and receive relay calls every day.

Decree of Divorce

Tenancy by the entirety exists only as long as the tenants hold title to the property and are legally married. Tenancy by the entirety is abolished automatically by decree of divorce. A mere legal separation is not sufficient. When a final decree of absolute divorce is obtained, the ownership is automatically changed to tenancy in common by operation of law, eliminating the right of survivorship.

Tenancy in Common: Possession

Tenancy in common is characterized by two or more persons holding title to a property at the same time. The only required unity is that of possession. The unity of possession exists if all co-owners have the right to possess or access any and all portions of the property owned without physical division. This type of possession is called possession of an undivided interest. Any two or more parties can hold title as tenants in common. Each tenant in common holds an undivided interest in the entire property, rather than any specific portion of it.

Tenants in Common

Tenants in Common If they elect to do so, married people may own property as tenants in common. They do not have to take title as tenants by the entirety. A husband and wife also may own separate property in severalty. In most states, however, the other spouse has to join in the deed if the title is to be conveyed, to be certain that no spousal claim remains after the conveyance. A man has separated from his wife and filed for divorce. They own property as tenants by the entirety. He signs an exclusive right to sell listing agreement. The wife does not. The broker then brings a full price offer which the husband accepts. The wife does not sign. Which is true?

Unilateral Contract

The "uni" in unilateral means "one." In contrast to the bilateral contract, "unilateral" does not refer to the number of parties to a contract but, instead, to the number of parties making promises in the contract. In a unilateral contract, one party makes a promise in order to induce a second party to do something. In the case of a unilateral contract, a promise is made in exchange for the performance of a specified act. There must be consideration from both sides. This is called mutuality of contract. Each party to a contract must do something or promise to do something.

Enforcement

The 1988 Amendments added major enforcement provisions. Previously, HUD could use only persuasion, but now HUD can file a formal charge and refer the complaint to an administrative law judge (ALJ) unless the aggrieved party or the charged party elects for a jury trial in a civil court. The ALJ, who hears complaints regarding violations of the 1988 Amendments, can impose substantial fines from $10,000 to $50,000 for subsequent offenses. Enforcement is further strengthened by an expanding role of the U.S. Attorney General to initiate action in the public interest that could result in fines of as much as $50,000 on the first offense. This will occur only upon the finding of a "pattern of discrimination." The Attorney General will take the role of the aggrieved party, freeing the actual aggrieved party from the legal expense of pursuing the case.

Ranges

The 6-mile "strips" of land between lines called ranges are numbered east and west of a principal meridian as: - Range 1 East (R1E) - Range 2 East (R2E) - Range 5 West (R5W), etc. A particular area of land which is located at the intersection of a range and a township tier is called a township, and it is identified by its position relative to the principal meridian and base line. EX: The township which is located in the 4th tier north of the base line and the 3rd range east of the principal meridian is called "Township 4 North, Range 3 East." Since the grid systems are identical across the country, it is necessary to include in the description a reference to the particular principal meridian which is being used as a reference.

Americans with Disablities Act (ADA): Discrimination on the Basis of Disability

The ADA is a civil rights statute which was signed into law on July 26, 1990. It prohibits discrimination against people with disabilities by offering such individuals protection similar to the protection given to women, minorities and others by the enactment of the Civil Rights Act of 1964. Each of the Act's five sections or titles addresses a different aspect of compliance. The Americans with Disabilities Act prohibits discrimination on the basis of disability in employment, state and local government, public accommodations, commercial facilities, transportation, and telecommunications. The Act also applies to the U.S. Congress.

Modifications

The ADA requires that existing facilities be modified if such modification is "readily achievable." There are several factors to consider in determining whether the modification is readily achievable. These include, but are not limited to: - The nature and cost of the alteration; - The financial resources of the site; - The effect on expenses and resources; and - Legitimate safety requirements.

Brokerage Services

The Act prohibits discrimination in providing brokerage services by stating: "It is unlawful to deny any person access to or membership or participation in any multiple listing service, real estate broker's organization, or other service relating to the business of selling or renting dwellings, or to discriminate against him/her in the terms or conditions of such access, membership or participation on account of race, color, religion, sex, national origin, handicap, or familial status."

Exemptions

The Act provides for several exemptions, the most important of which are: - Subdivisions in which the lots consist of five acres or more - Subdivisions consisting of fewer than 25 lots - Lots offered for sale exclusively to building contractors - Lots on which a building exists or where a contract obligates the lot seller to construct a building within two years.

Penalties for Violation

The Act provides severe penalties for violation by a developer or a real estate licensee who participates in marketing the property. The developer or the real estate licensee, or both, may be sued by a purchaser or a lessee for damages and they are potentially subject to a criminal penalty by fine of up to $5,000 or imprisonment for up to five years or both. Therefore, prior to acting as an agent for the developer in marketing the property, real estate salespersons must be certain to ascertain that a developer has complied with or is exempt from the law.

Commission Members

The Alabama Real Estate Commission is made up of nine (9) members appointed by the Governor with the advice and consent of the Senate. The Governor's appointments to the Commission, except for the appointment of the consumer member shall be made from a list of three (3) persons nominated by the governing body of the Alabama Professional Real Estate Society or trade association which has the largest licensee membership. This membership is evidenced by the filing of a verified list of paid members with the Secretary of State within ten (10) days of April 6th, and annually by December 31st of each year thereafter. At least one (1) of the persons nominated for each Commission seat shall not be a member of the Real Estate Society or trade association. The Governor shall appoint one of the three nominated persons within 30 days following receipt of the list. If the Governor does not make an appointment within 30 days, the said Real Estate Society or trade association shall provide the Governor a list of three additional nominees. The Governor, upon receipt of the second list of nominees, shall appoint one of the six nominees within 30 days following receipt of the list of nominees.

Organization and Structure

The Alabama Real Estate Commission was established in 1927 by Legislative Act 1927, No. 344 to license the real estate brokers throughout the state. With the passage of the Real Estate License Law (Acts 1950-51, No. 422) of 1951, the previously authorized originating act was expanded. In 1953, 1963, and 1982, the law was subsequently amended in order to further regulate the licensing of persons engaged in the real estate business in the state. The mandated function for the Alabama Real Estate Commission is to license and regulate the professional practices of real estate companies, salespersons, brokers, instructors, and schools in Alabama.

Amendment

The Amendment also modified the administrative process for HUD complaints, and essentially provides that HUD had a higher degree of authority to enforce the Fair Housing Act. The Amendment removed the cap on punitive damages and increased the available damages and civil penalties. The Amendment also extended Title VIII to other discriminatory practices, relating to real estate loans for repairs and improvements, certain secondary market activities, and real estate appraisals.

Bundle of Rights: Legal Rights

The bundle of rights concept is the idea that various rights of ownership are transferred along with real estate when it is transferred from one owner to another. The bundle of rights includes all legal rights that attach to the ownership of real property, including the right to: - Sell or lease - Encumber - Use and enjoy - Exclude - Devise by will - Cultivation and exploration - License - Dedicate - Give away or share - Mortgage - Trade or exchange.

American Disabilities Act (ADA): Americans with Disabilities

The Americans with Disabilities Act, which took effect on January 26, 1992, specifically protects the rights of individuals with disabilities by requiring that they have access to public transportation, commercial buildings, and public buildings. Disability is defined in USC 42 Sec. 12101 as a physical or mental impairment that substantially limits one or more of the major life activities of a person. Under this law, individuals with disabilities cannot be denied access to public transportation, any commercial facility, or public accommodation. This Act applies to all owners and operators of public accommodations and commercial facilities, regardless of the size or number of employees. It also applies to all local and state governments.

Executive Director and Assistant

The Commission may employ an executive director and an assistant executive director, both of whom shall be exempted from the classified service under the general laws of the state, and other staff members necessary to discharge its duties and administer this chapter. The executive director and assistant executive director shall be employed on the basis of their education, experience, and skills in administration and management.

Subpoenaed Witness

The Commission may issue subpoenas for the attendance of witnesses and the production of records and documents, either at the instance of the Commission or the accused. The process issued by the Commission shall extend to all parts of the state, and such process shall be served by a person designated by the Commission or by mailing the process by certified mail. A subpoenaed witness who appears in a proceeding before the Commission shall receive fees, mileage and expense allowances as authorized by the Commission. All fees, mileage and expense payments shall be taxed against the party or parties subpoenaing the witness. If in a proceeding before the Commission, a subpoenaed witness fails or refuses to attend, or refuses to testify, or fails or refuses to produce subpoenaed documents or records, his/her attendance and testimony or the production of the documents and records shall be enforced by any circuit court of this state, in the same manner as the attendance and testimony of witnesses is enforced in civil cases. An accused, applicant or other party to a case heard by the Commission who is aggrieved by a final decision, may file an application for rehearing specifying grounds for relief within 30 days of receiving notice of the decision.

Expenses

The Commission may not incur expenses that exceed the total fees and charges collected and paid into the State Treasury or that exceed the amount appropriated by the Legislature. No funds shall be withdrawn or expended except as budgeted and allotted in accordance with Sections 41-4-80 through 41-4-96. All money remaining unexpended in the Real Estate Commission Revenue Fund at the end of each fiscal year shall be retained by the Commission for the following fiscal year.

Commission May Charge a Fee

The Commission may reject the application of any person who has been convicted of or pleaded guilty or nolo contendere to a felony or a crime involving moral turpitude. The Commission may charge any applicant a fee for a criminal record search of the applicant in the same amount as is charged the Commission by the Department of Public Safety or other agency for the search. The Commission may charge a fee for furnishing any person a copy of a license, certificate or other official record of the Commissioner.

Documents and Records

The Commission shall adopt a seal by which it shall authenticate records and documents. Copies of all records and documents in the office of the Commission duly certified and authenticated by the seal of the Commission shall be received in evidence in all courts equally and with the same effect as the original. All public records kept in the office of the Commission shall be open to public inspection during reasonable hours and under reasonable circumstances. No Commissioner shall be liable for damages resulting from any act performed in carrying out his or her duties as a Commissioner.

Executive Director

The Commission shall advertise to seek quality applicants possessing the qualifications and shall conduct interviews of the top applicants. The assistant executive director shall act as and have authority of the executive director in his or her absence. The Commission shall determine the duties and fix the compensation of the executive director, assistant executive director, and other staff members, subject to the general laws of the state.

Recovery Fund: Establishment of Fund

The Commission shall establish and maintain a Recovery Fund from which an aggrieved party may recover actual or compensatory damages, not including interest and court costs, sustained only within the State of Alabama as a result of conduct of a broker or salesperson in violation of Article 1or 2 of this chapter or the rules and regulations of the Commission. Notwithstanding any other provision to the contrary, payments from the Recovery Fund are subject to the listed conditions and limitations.

County List of Licensees

The Commission shall on the request of the probate judge of any county of this state provide the judge with a list of persons who are licensed by the Commission and who reside in that county.

License Certificates : Form and Contents

The Commission shall prescribe the form and content of license certificates issued. Each qualifying broker's license certificate shall show the name and business address of the broker. The license certificate of each active salesperson or associate broker shall show his or her name and address. The license certificate of each active salesperson or associate broker shall be delivered or mailed to his or her qualifying broker. Each license certificate shall be kept by the qualifying broker and shall be publicly displayed at the address which appears on the license certificate. The Commission may establish a one-year or multi-year license period.

Formal Complaint Requirements: Violation of Alabama Code

The Commission staff may, in response to a complaint from an outside party or upon its own initiative, develop a Formal Complaint charging a licensee or time-share seller with any violation of Code of Ala. 1975, Chapter 27 of Title 34, or a Commission Rule or Regulation where there is probable cause to believe that such a violation occurred.

Ban Overturned

The Consumer Product Safety Commission banned urea formaldehyde foam insulation (UFFI) in 1982, but the ban was later overturned by an appeals court. Although formaldehyde gas is generally recognized as a health threat or irritant, there is a dispute over whether such problems arise as a result of the amount of gas emitted by properly installed UFFI. The Consumer Product Safety Commission has issued a warning regarding the use of UFFI but has currently been unable to ban its use. Some states, however, do prohibit the installation of UFFI. Tests can be conducted to determine the level of formaldehyde gas in a house.

Compliance

The ECOA makes it unlawful for any creditor to discriminate against any loan applicant in any aspect of a credit transaction: - on the basis of race, color, religion, gender, national origin, marital status, or age (unless the applicant is a minor and, therefore, does not have the capacity to contract); - because part of the applicant's income is derived from a public assistance program, alimony, or child support; or - because the applicant has, in good faith, exercised any right under the Federal Consumer Credit Protection Act of which the Truth-in-Lending Law (Regulation Z) is a part. Compliance with the Equal Credit Opportunity Act is enforced by different agencies depending on which agency has regulatory authority over the type of financial institution.

Equal Credit Opportunity Act : Preventing Discrimination

The Equal Credit Opportunity Act (ECOA) was enacted by Congress in 1975 to prevent lending institutions from discriminating in the loan process. The Act requires financial institutions that make loans to do so on an equal basis to all creditworthy customers without regard to discriminatory factors. The Equal Credit Opportunity Act is implemented by Regulation B of the Federal Reserve Board.

EHO Logo and Slogan

The Equal Housing Opportunity slogan, or the HUD Publisher's Notice, should be used in all advertising for the sale or rental of housing. The logo and slogan indicate that the property is available to all individuals regardless of race, color, religion, sex, handicap, familial status, or national origin. The Equal Housing Opportunity logo is designed so readers can quickly identify it. Its size and placement should support that quick identification.

Enforcement

The Fair Housing Act may be enforced in three ways: 1. By administrative procedure through the Office of Equal Opportunity, Department of Housing and Urban Development (HUD); 2. HUD may act on its own information and initiative; or 3. HUD must act in response to complaints. If a state or local law where the property is located is substantially equivalent, HUD must refer the complaint to the state or local authorities.

Fair Housing Act

The Fair Housing Act outlaws a variety of private discriminatory acts, including refusal to rent or sell, discrimination in the terms of sale or rental, blockbusting, and discrimination in advertising and in the use of real estate services. In 1974, the Fair Housing Act was expanded to include prohibition of gender discrimination, and Section 8 programs were created. In the same year, Congress passed the Equal Credit Opportunity Act, which prohibited credit discrimination in housing on the basis of race, color, religion, national origin, gender, marital status or age.

Human Models

The Fair Housing Act prohibits the use of human models in photographs, drawings, or other graphic techniques used in advertising to indicate exclusiveness based on race, color, religion, sex, handicap, familial status, or national origin. Where human models are used in display advertising, the models should be clearly definable as reasonably representing majority and minority groups in the community. Similarly, advertisements utilizing human models should include a reasonable representation of persons of both sexes and, where appropriate, families with children. Models used should portray persons in an equal social setting and indicate to the general public that the housing is open to all without regard to race, color, religion, sex, handicap, familial status, or national origin, and is not for the exclusive use of one such group.

Blockbusting

The Fair Housing Act provides that it is unlawful for a person to engage in "blockbusting." Blockbusting occurs when a person, such as a real estate broker, for profit, induces or attempts to induce a person to sell or rent a dwelling by making representations regarding the entry (or prospective entry) into the neighborhood of persons of a particular race, color, religion, sex, handicap, familial status, or national origin. Most blockbusting cases involve a real estate broker's uninvited solicitation of homeowners to sell or rent their homes. According to HUD's regulations, blockbusting occurs in the following two examples (but, of course, is not limited to these two examples): - Engaging, for profit, in conduct (including uninvited solicitations for listings) which conveys to a person that a neighborhood is undergoing a change, or is about to undergo a change, in the race, color, religion, sex, handicap, familial status, or national origin of persons residing in it, in order to encourage the person to offer a dwelling for sale or rental; and - Encouraging, for profit, any person to sell or rent a dwelling through assertions that the entry (or prospective entry) of persons of a particular race, color, religion, sex, familial status, or national origin, or with handicaps, can or will result in undesirable consequences for the project, neighborhood or community, such as a lowering of property values, an increase in criminal or antisocial behavior, or a decline in the quality of schools or other services or facilities.

Definition of Handicap

The Fair Housing Act was amended March 12, 1988 to include handicap and familial status. With respect to a person, HANDICAP means: - A physical or mental impairment which substantially limits one or more of such person's life activities; - A record of having such an impairment; and - Being regarded as having such an impairment. Such a term does not include current illegal use of or addiction to a controlled substance.

Prohibited Practices: Unlawful Acts

The Fair Housing Act, including the 1988 Amendment, provides that it is unlawful to do the following acts: - Refuse to sell or rent a dwelling after a bona fide offer has been made, or to refuse to negotiate for the sale or rental of a dwelling, because of race, color, religion, sex, familial status, or national origin, or to discriminate in the sale or rental of a dwelling because of handicap; - Discriminate in the "terms, conditions or privileges" of sale or rental of a dwelling, or in the provision of services or facilities in connection with sales or rentals, because of race, color, religion, sex, handicap, familial status, or national origin; - Engage in any conduct relating to the provision of housing which otherwise makes unavailable or denies dwellings to persons because of race, color, religion, sex, handicap, familial status, or national origin; - Make, print or publish, or cause to be made, printed or publishes, any notice, statement or advertisement with respect to the sale or rental of a dwelling that indicates any preference, limitation or discrimination because of race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation or discrimination (this advertising prohibition applies to private owners who may otherwise be exempt from the Act); - Represent to any person because of race, color, religion, sex, handicap, familial status, or national origin that a dwelling offered for sale or rent is unavailable when that dwelling is in fact available; - Engage in "blockbusting" practices in connection with the sale or rental of dwellings because of race, color, religion, sex, handicap, familial status, or national origin; - Deny access to, or membership or participation in, or to discriminate against any person in his or her access to, or membership or participation in, any multiple listing service, real estate brokers' association, or other service organization or facility relating to the business of selling or renting a dwelling. This section also prohibits discrimination in the terms or conditions of membership or participation in the MLS or other organizations, because of race, color, religion, sex, handicap, familial status or national origin; -For persons whose business includes engaging in the business of residential real estate-related transactions, to discriminate in making available, or in the terms or conditions of, any residential real estate-related transaction because of race, color, religion, sex, handicap, familial status or national origin; and - "Coerce, intimidate, threaten, or interfere with" any person exercising a fair housing right or on account of a person having assisted others in exercising such rights.

Land Sales Disclosure : Interstate Regulation

The Federal Interstate Land Sales Full Disclosure Act regulates interstate sale of unimproved lots in order to prevent fraudulent marketing schemes that may transpire when land is sold sight unseen. The Act is administered by the HUD Secretary through the office of Interstate Land Sales Registration. It requires that a developer file a statement of record with HUD before offering unimproved lots in interstate commerce by telephone or through the mail. The statement of record requires disclosure of information about the property as specified by HUD. Developers of these properties also are required to provide each purchaser or lessee of property with a printed property report which discloses specific information about the land before the purchaser or lessee signs a purchase contract or lease.

HUD-1 Settlement Statement

The HUD-1 Settlement Statement is a standard form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows the borrower to request to see the HUD-1 Settlement Statement one day before the actual settlement. The settlement agent must then provide the borrowers with a completed HUD-1 Settlement Statement based on information known to the agent at that time. The HUD-1 Settlement Statement shows the actual settlement costs of the loan transaction. Separate forms may be prepared for the borrower and the seller. Where it is not the practice that the borrower and the seller both attend the settlement, the HUD-1 should be mailed or delivered as soon as practicable after settlement.

Local Associations

The NAR at the local level promotes local real estate business. The local board or association may sponsor seminars on home ownership, civil rights, recycling or other issues of public concern. The local board is also instrumental in policing the local real estate business. The goal of local NAR associations is to promote the highest ethical standards in the brokerage business. Cooperative agreements between brokers to share information, such as the Multiple Listing Service (MLS), usually are established at the NAR local level.

Conditions and Limitations of Recovery Fund

The Recovery Fund shall not be obligated for: - The acts or omissions of a broker or salesperson, while acting on his or her own behalf or on behalf of his or her child, spouse, or parent, regarding property in which he or she or his or her spouse, child, or parent has, or is attempting to acquire, an interest; - The acts or omissions of an inactive licensee; - The acts or omissions of a corporation, branch office, or partnership except through its licensed salespersons and brokers as individuals; -The Fund shall not be obligated for any judgment or settlement resulting from an act or omission of a broker or salesperson committed in conjunction with the marketing or development of a time-sharing project - Payments for claims based on judgments or settlements against any one person shall not exceed fifty thousand dollars ($50,000) in the aggregate; - Payments for claims arising out of the same transaction shall not exceed twenty-five thousand dollars ($25,000) in the aggregate, regardless of the number of claimants; and - Payments to a licensee or bonding company unless the licensee or bonding company was a principal party to a real estate transaction on which the judgment was based.

Statute of Frauds

The Statute of Frauds in most states, requires that, to be enforceable by the court, a lease of real estate must be in writing if the term is for more than one year. Oral leases under one year in length are generally enforceable by the courts. To be safe, regardless of the time period, any lease should be written. If a written lease is used, both landlord and tenant should sign. Most short-term leases are not recorded, but in the case of: - Ground leases; - Leases of more than one year in duration; and - Leases with an option to buy; it is in the best interest of the tenant to record the lease in the jurisdiction where the property lies. Recordation provides constructive notice of the tenant's rights in the event of sale of the property or death of the landlord.

Periodic Lease

The Statute of Frauds of many states requires that if this estate lasts more than one full year, the lease must be in writing to be valid. If a property is sold with a tenant in possession at the time of sale, the purchaser will have to honor the lease. At the death of either the landlord or the tenant, heirs of the deceased party are bound by the terms of lease. The lease is considered to be inheritable because the obligations and rights of the lease pass to the estate or heirs of the decedent.

Consequences

The activities of a sales associate are attributable to the broker or owner. There is a huge downside risk to the broker or owner in breaching one's fiduciary duty, even if it was unintentional, and even if no damage was done to the seller. The minimum penalty is loss of full commission; some companies have had to pay multi-million dollar penalties. Make sure you understand your fiduciary duties under the listing agreement. These specific fiduciary duties include: - Loyalty - Obedience - Disclosure - Confidentiality - Reasonable care and diligence - Accounting LINK: http://lajuett.com/buyers/fiduciaryresp.htm

Obedience

The agent must obey reasonable and legal instructions from the principal, for example: - The seller, as principal, may specify that the property be shown only during certain times of the day or not on certain days of religious observance or - The buyer being represented might instruct the broker not to disclose the buyer's identity to the parties without the buyer's consent. Of course, the principal cannot require the agent to do any illegal acts, such as violating the Fair Housing Laws. If the principal does insist on an illegal act, the broker must withdraw from the relationship

Commission Decision

The appeal shall be conducted by the court without a jury and shall be confined to the record. The Commission's decision shall be taken as prima facie just and reasonable and the court shall not substitute its judgment for that of the Commission as to the weight of the evidence on questions of fact. The court shall affirm or reverse, in part or in whole, or modify the Commission decision or remand the case to the Commission for further proceedings. If the Commission decision is affirmed in whole or in part, the cost of the appeal shall be taxed against the party taking the appeal. If the decision of the Commission is not affirmed, the court shall tax the costs of appeal against the Commission.

Paired Sales Analysis

The appraiser or the agent performing a CMA extracts the contributed value from comparisons of properties in the market with and without the element. The values extracted will vary from area to area. This can occasionally be determined by a paired sales analysis. This occurs when an appraiser has two extremely comparable sales with only one significant difference in features. If the only difference in the two sales is a two-car garage versus a three-car garage, the entire difference in price can be attributed to the extra garage space. The sales price is adjusted to reflect the particular difference in this one characteristic. The price could also be adjusted to reflect the difference in the date of sale (market conditions) or any other item that contributes to the value of one of the two properties.

Assessed Value

The assessed value of real property is determined by a local or state official. It is the value to which a local tax rate is applied to establish the amount of tax imposed on the property. Sales prices of comparable land are used to estimate land values, whereas building values are based on an amount representing the improvement's replacement cost less depreciation. The assessed value, as set by statute or local ordinance, is normally a percentage of the market value. This percentage is called an assessment rate or ratio and may be up to 100%. Therefore, a combination of the rate of assessment and the tax rate applied to the property is what determines the annual tax bill. Assessed value is calculated by using the formula: Market value x assessment rate = assessed value

Liability for Misrepresentation

The basis for imposing liability in the case of misrepresentation occurs when: - A false representation of a material fact is made; - The person making the false representation knew or should have known it to be false; - The misrepresentation was made with an intent to induce the party to act or refrain from acting in reliance upon the misrepresentation; - The party relied upon the misrepresentation in acting or failing to act; and - There was damage to the party who relied upon the misrepresentation in acting or not acting.

Deficiency Judgment

The borrower in a mortgage loan is personally liable for payment of the note. Therefore, if the proceeds of a foreclosure sale are not sufficient to satisfy the balance due, the lender can sue for a deficiency judgment on the note. A deficiency judgment is a court order stating that the borrower still owes the lender money. Even though the collateral has been seized, there is still a valid debt evidenced by the note. Deficiency judgments are often sought by junior lien holders.

Closing Funds

The borrower must show sufficient funds on hand to close the mortgage transaction. The verified borrower's deposit on the sales contract plus verified bank balances must equal the down payment plus closing costs and prepaid items. The underwriter must look for the possibility of last-minute unsecured borrowed funds being used for all or part of the required closing costs (evidenced by large, unexplained, recent bank deposits). Gift funds from a family member are acceptable to meet cash requirements for closing FHA or VA loans, if they are actually transferred to the borrower and verified. Stocks and bonds also are acceptable as closing funds if the market value can be verified and a 5% borrower cash down payment is made.

Procuring Cause

The broker has less incentive to use advertising programs, including a "for sale" sign on the property that may generate prospects for the owner. Here, as with open listings, disputes may arise as to who really was the procuring cause of the sale: the broker or the owner. Again, this is often part of the listing agreement in an exclusive right to sell listing which may specify that the "for sale" sign will be placed on the property. The listing agreement can be a means of making the broker the only one entitled to sell the property during the specified marketing period.

Condemnation Action

The bundle of rights concept as it relates to eminent domain prompts the question of who receives the money from the condemnation action. The answer is that the money is divided among all parties having an interest in the property, based upon the value of the interest owned by those individuals. EXAMPLE: Alice rents a building to Bob for office space. The highway running in front of the building is widened, requiring the rented building to be demolished. Both Alice and Bob will receive compensation for the taking of the land and building under eminent domain because both have an estate or right in the real property. A lessee is usually given the right to cancel his or her lease when a large portion of the leased premises is taken. Long-term leases usually provide for a condemnation award to be apportioned between lessor and lessee, according to the value of the parties respective estate.

Credit History

The buyer's willingness to pay is reflected by credit history. This can be demonstrated by the borrower's mortgage payment record, number and amount of outstanding credit obligations, and payment history on other credit obligations. In determining the acceptability of borrower credit, the underwriter examines the total credit history, the borrower's written explanations of any problems and offsetting factors. Bankruptcy and prior poor credit history are not disqualifying factors: - If they are caused by extraordinary circumstances, such as health problems - If in the two-year period prior to loan application, the borrower has reestablished credit and demonstrated an ability to now manage his/her financial affairs.

Bylaws

The bylaws are the operative rules for the condominium facility and individual unit owners. They are prepared by the developer's attorney and recorded with the master deed. The bylaws provide the rules by which the association's board of directors is elected and set the standards by which the board must rule. The bylaws set forth: - How association dues (maintenance fees) will be established and collected - How contracts will be let for maintenance, management and repair work; and - How personnel will be hired.

Scarcity

The characteristic of scarcity is based on the supply of the property in relation to the effective demand for the property. The more abundant the supply of property in comparison to the effective demand for the property, the lower the value. Conversely, the fewer properties available on the market in comparison to the effective demand or bidding for these properties, the greater the value of the properties. Supply and demand is a classic economic principle that states market value is determined by the interaction of the forces of supply and demand in the appropriate market as of the date of the analysis. The principle is that price varies directly with demand and inversely with supply; i.e., supply is low, price is high. However, when supply is high and there is little demand, price is low.

Reconciliation

The closing agent basically begins with an empty account, receives money, disburses money, and ends with an empty account. The money available for disbursement must equal the amount to be disbursed. The closing agent should perform a reconciliation (a check of the money available and money owed prior to closing). A good check to perform on statements for both buyer and seller is to verify that the money available for disbursement equals the expenses and money to be disbursed. The closing agent is to begin with a zero balance. The money available and the money to be disbursed to pay expenses and the seller should be equal. Once the closing statement figures have been reconciled, the closing agent can be assured that at the closing the exact funds needed will be available.

Scheduling

The closing agent may have a role in controlling the closing day. Check with the escrow officer to get an idea of how long it will take to issue the title reports and how long it will take to prepare the closing documents. Schedule your closing as soon as possible in the transaction, as escrow officers often are busier on some days than others and you would want to be sure to reserve your time and day. When scheduling your closing with the title or escrow company, let them know that you want ample time to go over and review all the paperwork.

Credits

The closing statement is to be prepared by the person in charge of disbursing monies at closing. This could be an escrow agent, an attorney, a broker, a lender, or a title company. Monies received are credits. - Items representing money to be received by the buyer are called buyer credits. - Items representing money to be received by the seller are called seller credits.

Clerical Employees

The duties of clerical or office employees of a real estate company shall be limited to the duties normally attributed to such positions. No such employee of a licensee or any other person shall physically show listed property, solicit or accept listings, negotiate sales or leases, hold himself/herself out as engaged in the real estate business or perform any other act for which a license is required unless properly licensed.

Closing Statement: Distribution of Monies

The closing statement sets forth the distribution of monies involved in the transaction; who is to pay a specific amount for each expense and who is to receive that amount. The statement shows all cash received, all charges and credits made and all cash paid out in the transaction. In many areas, separate closing statements are prepared for: - The buyer, showing credits, charges and the balance due from him or her at closing - The seller, showing credits, charges and the proceeds he or she will receive at closing; and - The broker showing a detailed accounting of all monies received and disbursed in the transaction.

Obligations of Landlords and Tenants : Common Law of Leases

The common law of leases, which is the law set by past court decisions, has established the obligations of landlord and tenant in many states. Due to an increase in the number of residential tenants in recent years, some states have passed specific legislation setting out the obligations of landlord and tenant. The most widely used statute is called the Uniform Residential Landlord and Tenant Act.

Right-of-Way

The common terminology for easement is right-of-way. An easement is a right or privilege one party has to the use of land of another for a special purpose consistent with the general use of the land. The landowner is not dispossessed from the land but rather coexists side by side with the holder of the easement. Easements can be given by written document or arise from need for access, as an easement by necessity created when the owner of a back lot must cross a front lot to get to the back lot. Constant use can create an easement by prescription. The two types of easements are: 1. Easements in gross; and 2. Easements appurtenant. Easements can be created by human, by law, or by use.

Highest and Best Use: Quantity and Quality of Income

The concept of highest and best use is extremely important in real estate. It is the use of land that will, over a given period of time: - Preserve the land's utility - Provide the greatest net income - Result in the greatest present value of the land. The highest and best use is determined by evaluating the quantity and quality of income from various alternative land uses. Net return is normally interpreted in terms of money, although consideration may be given to such things as amenities. To achieve highest and best use, land is improved by the use of capital and labor to make the land more productive.

Rules and Common Law Principles

The duties of licensees as specified in this article or in rules promulgated by the Alabama Real Estate Commission shall supersede any duties of a licensee to a party to a real estate transaction which are based upon common law principles of agency to the extent that those common law duties are inconsistent with the duties of licensees as specified in this article.

Geographically Bound

The corporation's activities are essentially limited to the state within which it is incorporated, and it may not "do business" in another state without permission. Thus, a corporation is initially geographically bound. Permission to conduct business in another state is granted by the Secretary of State in the state where business is desired to be conducted. A corporation is called a domestic corporation within the state in which it is incorporated. A corporation doing business in another state is called a foreign corporation in that state. Corporations are subject to regulation in the state where they were incorporated and in the states where they do business.

Cost Approach Steps

The cost approach involves 4 steps: Step 1 is to estimate the value of the land upon which the building is located. Step 2 is estimating the cost of constructing a similar building at today's costs. Step 3 is the calculation of the amount of money that represents the subject building's wear and tear, lack of usefulness, and obsolescence when compared to the new building of Step 2. Step 4 is subtracting depreciation from today's construction cost to give the current value of the subject building on a used basis.

Title Examiners

The court orders the title to be examined by official title examiners, who report the examination results to the court. If results of the examinations are satisfactory, the court issues instructions to the registrar of titles to record the title, and issues certificates of registration to title after giving adequate public notice so anyone contesting the title has ample opportunity to appear. Once a title is registered, any subsequent liens or encumbrances against it must be entered on the registrar's copy of the certificate of title in order to give constructive notice.

Fund Payments

The court shall order that the Recovery Fund pay whatever sum it finds due under this section. Should the Commission pay from the Recovery Fund any amount in settlement of a claim or toward satisfaction of a judgment against a licensee, all licenses of the licensee may be terminated by the Commission. The Commission may refuse to issue a new license to the former licensee until he or she has repaid in full, plus interest at the rate of 12 percent a year, the amount paid from the Recovery Fund. A discharge in bankruptcy shall not relieve a person from the penalties and disabilities provided in this section.

Application

The court shall proceed on the application immediately and, on hearing, the aggrieved person shall be required to show each of the following: - He or she is not the spouse, child, or parent of the debtor, or the personal representative of the spouse, child, or parent; and - He or she has obtained a judgment, as described, stating the amount of the judgment and the amount owing on the judgment at the date of the application, and, that in the action, he or she had joined any and all bonding companies which issued corporate surety bonds to the judgment debtor as principal and all other necessary parties.

CE Curriculum

The curriculum for continuing education courses offered for elective credit shall consist of subjects which are "core" real estate and which will assist the licensee in fulfilling the Commission's objective of protecting the public. Some examples of acceptable subject matter are License Law, RECAD (Real Estate Consumer's Agency and Disclosure Act), real estate ethics, real estate financing, appraisal and valuation, fair housing, truth-in-lending, agency relationships, agency disclosure, liability of real estate agents, writing contracts, handling escrow funds, environmental issues, negotiating techniques, listing and buyer presentations, writing and presenting offers, showing property, sales skills, communication skills, marketing, certain financial calculator courses, computer courses which are real estate specific and how to utilize technology in the practice of real estate. Examples of unacceptable subject matter are motivational courses, personal development courses, sales meetings, in-house training and orientation courses. All course topics and content are subject to approval by the Commission.

Duty of Care

The duty of care imposed upon the landlord is the care that a reasonable and prudent person would exercise under like conditions. A landlord's liability also may be created by failure to comply with basic safety codes and laws. Examples of this might be failure to install a smoke alarm or porch railing. Any injury because of the absence of these features results in liability on the part of the landlord. The law of negligence also applies to tenants. If tenants do not exercise reasonable care in their use of the premises and damage occurs to the landlord's property, the tenant is liable for the resulting damages.

Words of Conveyance

The deed must contain words of conveyance demonstrating that it is the grantor's intention to transfer the title to the named grantee. These words of conveyance are contained in the granting clause in the case of warranty deeds. Typical wording is "as given, granted, bargained, sold, and conveyed." These words distinguish the deed from the mortgage instrument. In addition to the granting clause, the deed sometimes contains a habendum clause, which describes the estate granted and should be in agreement with the granting clause. The clause begins with the words "to have and to hold." A typical conveyance and habendum clause in a deed conveying a fee simple title reads: "I hereby grant and convey, to have and to hold, the above described premises with all the appurtenances there unto belonging or in anyway appertaining, unto the grantee, his heirs and/or successors and assigns forever."

Evidence of Consideration

The deed must provide evidence that consideration (something of value such as money) is given. In some states the deed does not have to recite the actual amount of consideration (money) involved. A phrase such as "one dollar, and other consideration" is sufficient to accomplish this purpose. This is called nominal consideration. Good consideration is often present in gift or charitable conveyances. State laws vary in whether "for love and affection" or "for the continued use of the [charity]" are acceptable in a deed or if a statement indicating valuable consideration is required. Deeds granted by fiduciaries, however, must state the actual consideration, and in all cases the contract of sale states the actual consideration.

Deed of Release

The deed of release is used primarily to release a title from the lien of a mortgage when the debt secured by the mortgage has been paid in full or, in the case of a blanket mortgage, to release individual parcels of land from the lien of the blanket mortgage. A deed of release is also used to release a dower right in property.

Proper Rate

The difficulty lies in arriving at the proper capitalization rate. A number of complex methods are used to establish this rate. They are beyond the scope of this discussion and typically are not covered in prelicensing courses. In essence, the capitalization rate or CAP rate, is the rate that other investors are achieving on like investments in the same area. Keep in mind that an appraised value is the best estimate of the subject property's worth. No matter how painstakingly it is done, property valuation requires the appraiser to make many subjective judgments.

Executing Documents

The documents provided to the escrow agent by buyer and seller are all executed by the providing party prior to or upon delivery. This means that the seller executes the deed and delivers it to the escrow, where it is held by the escrow agent until all contingencies and conditions of the offer to purchase have been met. Title to the real estate technically transfers when the deed is deposited with the escrow agent. Thus, death of either the buyer or the seller prior to completing the conditions of the offer to purchase will not invalidate the transaction. The escrow agent has the authority and obligation to examine the title evidence to assure marketable title.

Economic Characteristics : Value of the Land

The economic characteristics define and pertain to value and change in value of the land. The economic characteristics of real property are: - Scarcity or limited availability - Permanence of investment - Improvement by modification. The economic characteristics define and pertain to value and change in value of the land. The interplay of all these characteristics produces an exciting and challenging commodity to market, requiring a marketing strategy that takes into account both physical and economic characteristics of the marketplace as well as the land. These include, but are not limited to, interest rates, demographics, employment levels, vacancy rates and absorption levels.

Principle of Supply and Demand

The economic principle of supply and demand is applicable to the real estate industry just as it is to other economic activities in the free enterprise system. This principle states that the greater the supply of any commodity in comparison to the demand for that commodity, the lower the value will be. This principle refers to the ability of people to pay for land coupled with the relative scarcity of land. Attention must be given to such matters on the demand side as population growth, personal income, and preferences of people. On the supply side, you must look at the available supply of land and its relative scarcity. When the supply is limited and demand is great, the result is rising land prices. Conversely, where land is abundant and there are relatively few buyers, the result is lower prices.

Eminent Domain

The federal government, states and their agencies, counties, cities, towns and boroughs have the power of eminent domain. This power confers the right to condemn or take private property for public use. The condemned property must be for the use and benefit of the general public. The property owner must be compensated for the fair market value of the property lost through condemnation. The condemning authority must adhere to due process of law, to adequately notify the property owner of the condemnation, and the property owner must have the right to appeal the value of the property as established by the condemning authority through the court system. The property owner, however, cannot prevent the condemnation and therefore the loss of title is involuntary.

Subject to a Condition Subsequent

The fee simple subject to a condition subsequent is an estate conveyed "provided that," "on the condition that," or "if" it is used for a specific purpose can continue for a potentially infinite time, as is the case with the fee simple absolute. The fee simple subject to a condition subsequent, however, can be defeated if the specified use is discontinued and is, therefore, a defeasible title.

Systems of Land Ownership: Allodial System

The feudal system of ownership was transplanted to America when people from England settled and founded the colonies. The King of England or his ambassadors owned and controlled all the land. One of the basic reasons for the American Revolution was the Colonists' insistence on outright and absolute ownership of land, called allodial ownership. Allodial, or private ownership of land, did not begin in the United States until 1785. The free and full ownership of rights in land by individuals is the basis of real property law in the United States. The conveyance of lands from the government to individuals allowed after passage of the Ordinance of 1785 was by patent or land grant. As a result, the present system of land ownership in the United States is the allodial system, not the feudal system. Individuals can hold title to real property outright. Patents are the instrument used to convey real property from the state or federal government to an individual. Land grants convey public lands from the government, usually for roads, railroads, or agricultural colleges.

Sales Associates

The fiduciary duty of sales associates extends both to their employing brokerage firm and also to the firm's principals. The broker is also the principal of the sales associates under a subagency agreement in the brokerage firm. Therefore, the broker is responsible for the actions of the sales associates. As subagents of the broker in reference to the listing agreements, the sales associates are required to comply with the terms of the listing and all policies of the brokerage firm.

The Appraisal Report: The Departure Provision

The final step in the appraisal process is to prepare the appraisal report. The report contains the appraiser's opinion of value based on observation of the results obtained by the three methods and the appraiser's reasons for adopting the final estimate of value. The report may be a complete appraisal, defined as the act or process of estimating value without invoking the Departure Provision. A complete appraisal report may not depart from specific Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. If the report is a limited appraisal, the estimated value is performed under and resulting from invoking the Departure Provision that permits limited departures from the standards that are classified as specific guidelines rather than binding requirements. The client must agree to a limited appraisal.

Federal Fair Housing Laws: Civil Rights Act of 1866

The first significant statute affecting equal housing opportunity is the federal Civil Rights Act of 1866. Far from being obsolete, this statute has had a major impact on fair housing concepts through a landmark case in 1968, the year the federal Fair Housing Act became law. Although the 1968 statute provides for a number of exemptions, the 1866 law has no exemptions and contains the blanket statement that all citizens have the same rights to inherit, buy, sell, or lease all real and personal property.

Breaches in Fiduciary Duty

The following are additional examples of some typical breaches in fiduciary duty: - When a listing agent discloses confidential information about the seller's divorce, financial problems and the like. This may be unintentional, arising from a simple conversation between two sales associates, but it is still a breach of fiduciary duty, because it benefits the buyer and creates an undisclosed dual agency; and/or - Even delaying the presentation of an offer could breach a broker's fiduciary duty under the listing agreement.

Mortgage Clauses: Clauses and Covenants

The following are examples of the various clauses and covenants that may be included in a mortgage or deed of trust: - The mortgage is dated and contains the names of mortgagor (borrower) and mortgagee (lender); - If the deed of trust form is used, the borrower's name appears, identified as trustor, grantor, or mortgagor; - The name of the trustee or grantee and the name of the lender, who is both the trust beneficiary and the note holder, also appear; - It may provide for a penalty to be imposed on the borrower (prepayment penalty) if the debt is satisfied prior to expiration of the full term; - FHA, VA, and conforming loans cannot have a prepayment penalty - The following are examples of the various clauses and covenants that may be included in a mortgage or deed of trust: - The note executed by the borrower is reproduced in the mortgage or deed of trust; - The note includes an acceleration clause enabling the lender to declare the entire remaining balance immediately due and payable if the borrower is in default for any reason; and - The note may provide that the borrower is permitted to pay off the loan any time prior to expiration of the full mortgage term without incurring a financial penalty for the early payoff.

General Solutions for Air Pollution

The following are methods to help control or eliminate sources of air pollution: - Increase ventilation - Install air-cleaning devices - Remove a source of pollution - Alter an activity - Unblock an air supply vent - Open a window to temporarily increase ventilation. Environmental hazards can create a significant problem for real estate transfer and ownership. It is important for real estate professionals and all others involved in the real estate transaction to be aware of both actual and potential liability.

Permitted Uses

The following are some examples: If the property owner, over time, abandons the nonconforming use, the owner cannot resume that type of use at a later date, but may use the property only in a manner that conforms to the zoning ordinance. The property owner may not make structural changes to the property to expand the nonconforming use. The owner is permitted to make only normally necessary repairs to the structure. The nonconforming use cannot be changed from one type of nonconforming use to another type of nonconforming use. Examples of permitted uses: If a nonconforming structure is destroyed in a fire or other casualty, it cannot be replaced by another nonconforming structure without specific approval. Some ordinances provide for a long-term amortization period, during which the nonconforming owner is permitted to continue the nonconforming use. At the end of this period, the owner must change the property use to conform with the zoning ordinance, rebuilding the structure if necessary. This long-range "notice" to the owner should allow sufficient time to relocate or modify the use without causing an economic shock to the owner. Nonconforming uses may or may not be transferable to another owner. This may depend on who the acquiring owner is (for example, a relative), or local ordinances.

Steps in the Appraisal Process: Process Progression

The following steps provide an orderly progression of the appraisal process. 1. Define the appraisal problem or purpose. This includes determining the purpose of the appraisal and the type of value to be estimated. The purpose of the appraisal may prescribe the approaches to be implemented. If the appraisal is for repairs from fire damage, the cost approach may be more relevant. For a lender's appraisal, the market data approach makes more sense. 2. Obtain a complete and accurate description of the property that is to be appraised. The appraisal report must contain a legal description to precisely locate and identify the property. The identification must specifically define the limits of the area included in the appraisal. 3. Inspect the surrounding area and the property to be appraised. 4. Determine which properties in the area will be used as comparables. 5. Analyze the data and consider the three approaches: market; cost; and income. 6. Arrive at a value estimate by each of these three appraisal methods if each can be applied. 7. Correlate and reconcile the results obtained by each of the three methods. The reconciliation will determine the estimate of value. 8. Prepare the appraisal report.

Mortgage-Backed Securities

The government does not guarantee that investors in Ginnie Mae securities will make or not lose money on their investments. It only guarantees the loans backing the securities. If the interest rates change dramatically, the investor can either make or lose money as a result of these fluctuations.

Graduated Payment Adjustable Mortgage

The graduated payment adjustable mortgage is a combination of the graduated payment mortgage and the variable rate mortgage. This loan has a fixed interest rate, but the payments vary over the first several years of the loan term. A graduated payment adjustable mortgage has a fixed schedule of payment increases for the first three to five years and then becomes a fixed payment, fully amortizing loan for the remainder of the term. A loan buy down may be structured to reduce the payment for the first several years of the loan. These loans may be helpful for those whose income is expected to increase in the near future. The purpose is to make more borrowers eligible for mortgage loans by keeping the payments down in early years as a result of the graduated payment and the variable rate features.

Principle of Anticipation

The greatest value will be shown in giving the market what the market expects to see. Buyers will not overpay because a property has been over improved. Under the principle of anticipation, property value is based on the expectation of future benefits of ownership. This principle reflects the fact that what a person will pay for a property depends on the expected benefits from the property in the future. Thus the buyer of a home anticipates receiving shelter plus the investment and psychic benefits of home ownership. The investor buys property in anticipation of future income. The future, not the past, is what is important in estimating property value.

Growing Equity Mortgage: Payment Increase

The growing equity mortgage (GEM) is a loan in which the monthly payments increase annually, with the increased amount applied directly to the loan's principal, thus allowing the loan to be paid off. A long-term mortgage will have total interest paid over the life of the loan that is substantial, or, to many borrowers, staggering. In an effort to pay off loans more quickly, many borrowers have opted for biweekly mortgage payment plans. These may be arranged directly with some lenders or through a third party collection acc

Post License Course

The holder of a temporary license shall not be issued an original license until he or she has satisfactorily completed a 30-hour post license course prescribed by the Commission. The holder of a temporary license must complete the course within six (6) months of issuance of his or her temporary license and have his or her original license issued, otherwise his or her temporary license certificate shall automatically be placed on inactive status by the Commission. During the remaining six (6) months his or her temporary license is valid, the holder of a temporary license may complete the course and have his or her original license issued. If the holder of a temporary license does not complete the course and have his or her original license issued within one year following the first day of the month after its issuance, the temporary license shall automatically expire and lapse. A temporary license is not subject to renewal procedures in this chapter and may not be renewed. In order to have his/her temporary license issued to active status, the applicant shall pay the Recovery Fund fee. The holder of a temporary license shall, upon satisfactory completion of the course, pay the original license fee specified in this chapter to have his or her original license issued. An applicant for an original license who has paid the Recovery Fund fee specified in this chapter shall not be required to pay another Recovery Fund fee in order to have his or her original license issued. The holder of an original license who has satisfactorily completed the post license course, and whose original license has been issued, shall not be subject to the continuing education requirements for the first renewal of his/her original license.

Dred Scott

The ideology of the time is well illustrated in the 1857 U.S. Supreme Court case entitled Dred Scott v. Sanford, in which the Court held that persons of African descent were not "citizens" of the United States entitled to any rights. According to the Court, the black man had no rights the white man was bound to respect. The Court stated that this principle applied to all African-American persons, slave or free. In the opinion of the court, the legislation and histories of the times, and the language used in the Declaration of Independence, show that neither the class of persons who had been imported as slaves, nor their descendants, whether they had become free or not, were then acknowledged as a part of the people, or intended to be included in the general words used in that memorable instrument.

Publisher's Notice

The importance of the Publisher's Notice is clear. If your Board successfully negotiates its inclusion in the publication as outlined, you are not required to repeat public notice of equal housing opportunity through the use of the slogan and logo in classified advertisements of six column inches or more. Furthermore, use of the Publisher's Notice will spread the cost of public notice of equal housing opportunity over all classified real estate advertisers. The Equal Housing Opportunity slogan or logo should also be used on your For Sale, Sold, and other signs. You do not need to include the logo on signs if its inclusion would significantly increase the cost of the advertising. When those signs are replaced or new signs ordered, make provisions for the inclusion of the slogan or logo.

Expenses: Capitalizing the Income Stream

The income approach considers the monetary returns a property can be expected to produce and converts that into a value the property should sell for if placed on the market today. This is called capitalizing the income stream. To capitalize means to convert future income to current value. For example, suppose an available apartment building is expected to return, after expenses, $18,000 a year. How much would you, as an investor, pay for this building? The answer depends on the return you require on each dollar you invest. If you accept a return of 9 percent per year, you will pay $200,000 for this building.

Income Approach

The income approach is an estimated value based on the capitalization of new operating income from a property at an acceptable market rate. Often referred to as the income capitalization approach, it is most useful in appraising investment properties such as apartment buildings, office buildings and shopping centers. It depends on the use of the GRM which has already been discussed. In most appraisals, the appraiser reconciles (correlates) the indication of value by each of the three approaches. The appraiser considers: - The definition of value, - The purpose of the appraisal, - The type of property, and - The adequacy of the compiled data to determine the relative weight (if any) to be given to each approach in reaching a final estimate of value. Moreover, in that each method is based on data obtained from the market, the three approaches serve as checks on each other.

Income Approach: Properties

The income approach, also called appraisal by capitalization, is the primary method used to estimate the present value of properties that produce income. Properties included in this category are: - Single-family rental homes; - Apartment complexes; - Mobile home parks; - Parking lots; - Shopping malls; - Office buildings; - Leased industrial plants; and - Individual properties occupied by commercial tenants.

Permanence of Investment

The income return on real estate investments is usually long-term, relatively stable, and usually extends over what is referred to as the economic life of the improvement. The economic life is the estimated period over which an improved property may be profitably utilized so that it will yield a return over and above the economic rent attributable to the land itself; the period during which an improvement has value in excess of its salvage value. In the case of an older structure or improvement, economic life refers to the remaining period during which the improvements to the real property (not land) are depreciated for tax purposes. The economic lives of such improvements are normally shorter than their actual physical lives. When the term economic life is applied to a structure, it refers to the years or age indicated by the condition and utility of the structure, as opposed to its actual or chronological age.

Initial Escrow Statement

The initial escrow statement itemizes the estimated taxes, insurance premiums and other charges anticipated to be paid from the escrow account during the first twelve months of the loan. It lists the escrow payment amount and any required cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

Principle of Change

The principle of change states that constantly differing conditions affect land use and therefore continually impact value. Although it may be imperceptible on a day-to-day basis, change can easily be seen over longer periods of time. Because present value of a property is related to its future uses, the more potential changes that can be identified, the more accurate the estimate of a property's present worth will be. Every property and every area are constantly undergoing change. Nothing remains the same. The only constant is that change will occur. Change may cause a value to go up (appreciate) or go down (depreciate)

Probable Cause Determination

The investigator to whom a particular matter is assigned, in consultation with the Attorney General or his/her representative, shall determine whether probable cause exists regarding that matter for filing a formal complaint and/or holding a hearing for the refusal, suspension or revocation of a license or the fining or reprimanding of a licensee

Joint Tenancy: Unities

The joint tenancy form of concurrent ownership requires all four unities of: Time -- exists when co-owners receive their title at the same time in the same document or conveyance Title -- exists if the co-owners have the same type of ownership, such as a life estate, fee simple, or conditional fee Interest -- exists if the co-owners all have the same percentage of ownership Possession -- exists if the co-owners all have the same possession and use of any and all parts of the property.

Automatic Renewal

The key feature of a periodic lease is that it automatically renews at the end of each lease period unless one party gives notice to the other at a prescribed time prior to the end of the lease. This leasehold continues from period to period, such as month to month or year to year. All conditions and terms of the tenancy are carried over from period to period and continue until proper notice of termination is given. If a yearly rent is paid, the tenancy is from year to year regardless of whether the rent is paid monthly or quarterly. This distinguishes a periodic tenancy from a tenancy at will. Notice is usually one period. For longer periodic leases (year-to-year), the notice would likely be 30 to 90 days.

Estate for Years

The key feature of the estate, tenancy, or leasehold for years is that it exists for only a fixed period of time. The term "years" is misleading in that the estate does not have to be in effect for a year or more but simply for a fixed period - which can be as short as a week or even one day. At the end of that stated time, the estate (rental agreement) terminates automatically without any need for either party to give notice to the other. If any uncertainty exists about the duration on the lease, it is not an estate for years.

The Lender

The lender has the right to foreclose on the property if the borrower defaults in the payments. The property may be sold at a foreclosure sale, and the proceeds of the sale, after certain other items are paid, are applied to satisfy the mortgage debt. The lender has the right to take possession of the property (after foreclosure) if the borrower defaults in mortgage payments. The lender has the right to assign the mortgage or deed of trust. This enables the lender to sell the mortgage, if he or she so desires, and thereby free up the money invested. The right of assignment provides liquidity to mortgages because the lender can sell the mortgage at any time and obtain the money invested rather than wait for payment of the loan over an extended time.

The Lender

The lender may have an important role in setting the closing date. The loan may take longer than traditionally expected, perhaps there are additional items the lender needs to verify, or perhaps the buyer is self-employed and the lender will require Profit and Loss Statements and other documentation to document the buyer's financial profile. Perhaps the lender will require that certain repairs on the property take place before they will agree to fund the loan. If property repairs are required, you could ask that money be held in escrow for these repairs, rather than hold up the agreed upon closing date.

License Termination

The license of a salesperson who is subsequently issued a broker's license automatically terminates upon the issuance of his or her broker's license certificate. The salesperson's license certificate shall be returned to the Commission in order for a broker's license to be issued.

Estimated Closing Statement

The licensee who procures a written offer from a buyer in a single family residential transaction shall prepare and furnish to the buyer a complete estimated closing statement at the time the offer is signed by the purchaser. This statement must contain the licensee's best estimates of all costs the buyer is expected to have at closing and the approximate amounts of those costs. The licensee shall also furnish to the buyer an actual, detailed closing statement showing all receipts and disbursements at the time the sale is closed. The buyer must acknowledge receipt of the estimated and the actual closing statements by signature on the form.

Ordinary Wear and Tear

The tenant's basic obligation under any lease (apart from the payment of rent) is to maintain the premises in the same condition they are in at the beginning of the lease, with ordinary wear and tear excepted. Normal wear and tear is the usual deterioration caused by normal living circumstances. The tenant will be held responsible for damage or waste. During occupancy, the tenant is expected to use the premises only for legal purposes and to conform to all local laws.

Licensing Requirements: Exemptions

The licensing requirements shall NOT apply to any of the following persons and transactions: - Any owner in the managing of, or in consummating a real estate transaction involving, his or her own real estate or the real estate of his or her spouse or child or parent; - An attorney-at-law performing his or her duties as an attorney-at-law; - Persons acting without compensation and in good faith under a duly executed power of attorney authorizing the consummation of a real estate transaction; - Persons, or a state- or federally-chartered financial institution acting as a receiver, trustee, administrator, executor, or guardian; or acting under a court order or under authority of a trust instrument or will; - Public officers performing their official duties - Persons performing general clerical or administrative duties for a broker so long as the person does not physically show listed property; - Persons acting as the manager for an apartment building or complex; however, this exception shall not apply to a person acting as an on-site manager of a condominium building or complex; - Or persons licensed as time-share sellers under Article 3 of this chapter performing an act consistent with that article; and - Transactions involving the sale, lease, or transfer of cemetery lots.

Mortgage the Life Estate

The life tenant also may legally mortgage the life estate. A lending institution would not likely accept a life estate as security for a mortgage however, because the estate terminates upon the death of the life tenant or some other named person. This is possible, though, if a life insurance policy is obtained to protect the lender against the life tenant's premature death.

Duty of Preservation

The life tenant has a duty to make repairs to improvements on the land. The life tenant cannot permit the property to deteriorate because of lack of repairs and thus cause depreciation to existing improvements. This is called the "duty of preservation." If a life tenant violates these responsibilities, those persons having the remainder or reversionary interest may bring suit to protect the real estate subject to the life estate.

Estate in remainder

The life tenant has only an estate or ownership for his or her life. Immediately upon his or her death or upon the death of some other person named in the conveyance, the title automatically vests in the remaindermen. The remaindermen receive a fee simple title.

Right of Alienation

The life tenant under any type of life estate has the right of alienation, whereby the life tenant may transfer title to another person or pledge the title as security for debt, but no more than the title. Of course, the individual cannot give title for a duration longer than the life of the person named in the creation of a life estate to establish its duration, usually himself or herself. The life tenant also has the right to the net income produced by the property, if any.

Description of the Property

The listing agreement includes a brief description of the property to be sold. Often the property's street address is used. Legally the description will be deemed sufficient if a reasonable person could identify the property from the description given. Some brokers prefer to use the legal description of the property that is available in the seller's deed. Some listing contracts include a place for the book and page references of the seller's deed in the county registry of deeds.

Listing Agreement

The listing agreement is a contract between the seller and the listing broker. It sets out the conditions of the listing. While the details of the agreement should be negotiated, a listing agreement generally includes the following: 1. the length of the listing period 2. the desired sales price, as well as a price that might be accepted 3. the amount of the commission 4. any exceptions to the commission LINK: https://real-estate-law.freeadvice.com/real-estate-law/buy_sell_a_home/listing_agreement.htm

Price

The listing agreement states the price at which the sellers will agree to sell the property. In the buying and selling of real estate, many, if not all, of the terms of the transaction are subject to negotiation between the buyers and sellers. It is common practice for the price stated in the listing agreement to be a bit higher than the sellers might accept if a good offer were made.

Guaranteed Loans: Guarantee Changes

The loan guarantee the Department of Veteran Affairs gives to lenders making VA loans has steadily increased over the years from the lesser of $2,000 or 50% of the loan amount, when the program was first initiated in 1944, to the present multi-layered system. In all, there have been eight increases since the initial program. On December 18, 1989, the VA changed its guarantee to the lender to the present structure. These guarantees are the same as the guarantees put into effect February 1, 1988, except for the addition of a $50,750 guarantee for loans of more than $144,000. This change complicates the calculation of remaining entitlement when a veteran has used part of his/her entitlement.

Loan-to-Value Ratio

The loan-to-value ratio is the loan amount divided by the value of the property expressed as a percentage. If the lender allows a $60,000 loan against a property valued at $80,000, this would be $60,000 divided by $80,000 = 0.75 or a 75% loan-to-value ratio. The balance of the price must be paid as a cash down payment. The amount loaned gets lower as lenders feel that a loan carries more risk. On an investor's rental property, the limit may be only 70%; on land it may be 50% or even less. Different types of loan programs have different loan-to-value ratios, and while lenders have similar standards, there are many individual differences.

Counteroffers (pt 2)

The making of a counteroffer terminates and destroys the original offer --- it is a rejection of the offer. The seller has now become the offeror, and the buyer is the offeree. In the typical real estate transaction where many offers and counteroffers can be made before consummating the deal, the parties often switch "hats" of offeror and offeree.

Desires of Retail Tenants

The manager also must be aware of the desires of retail tenants as to: - Non-competition from other tenants; - Group or common advertising; - Common area maintenance; and - Security.

Insurance

The manager should find a competent insurance agent who is familiar with the type of property to be insured. Written specifications by the manager to competing agents will ensure comparable quotes for consideration. The insured property will be the property being managed. The person or entity insured will be the person or entity who owns the property. Most insurance policies in the United States are based on the New York Standard Fire Policy Form as revised in 1943. This fire insurance policy indemnifies the insured against loss caused by fire. If the insured wishes to have protection against losses from other hazards, he or she must obtain an extended coverage endorsement to the fire policy.

Marketing

The manager's strategy of marketing available rental space is shaped by: - Present demand for space - Newness of the project - Tenant selection process. In designing and implementing any marketing activity, managers must comply with all federal, state, and local fair housing laws. The property manager collects, or attempts to collect, all monies owed to the owner. Any monies collected are to be held in a trust account for the benefit of the owner. The only monies taken from the account are to be used for expenses in the property management budget.

Alienation Clause

The maximum term of either an FHA or a VA loan is 30 years. Both of these types of loans are assumable, although with qualification after certain origination dates, and at the same interest rate at which the loan was originally created. The presence or absence of qualification requirements and the dates they became effective are given under each loan type. Mortgages securing these loans may not contain a due-on-sale (alienation) clause as long as the purchaser meets the qualification requirements in effect at the time the loan was made and the loan is transferred in accordance with applicable regulations. In either an FHA or VA assumption, the difference between the loan amount assumed and the purchase price can be financed, although the loan payment on the amount financed must be considered in the qualification process on loan assumptions requiring release of liability.

Terms

The members of the Commission shall serve five-year terms and no member shall serve for more than two consecutive terms of office. Except, however, each member shall hold office until his or her successor is appointed by the Governor and confirmed by the Senate. The period of time any member serves after the expiration of his or her term of office while awaiting the appointment and Senate confirmation of his or her successor shall not be considered as a consecutive term of office in determining the two consecutive terms of office limitation.

Limiting Risk

The modern term, risk management, embodies the concern for controlling and limiting risk in property ownership. Ownership and use of real estate necessarily entails risk, but the questions are: - How is the risk to be controlled? - Can some risk be transferred by means of an insurance policy?

Payments

The mortgage provides the right of foreclosure to the lender if the borrower fails to make payments as scheduled or fails to fulfill other obligations as set forth in the mortgage. In the deed of trust form, a clause gives the lender irrevocable power to appoint a substitute trustee or trustees, without notice and without specifying any reason. In both the mortgage form and deed of trust form, a convenient mortgagor (borrower), has a good and marketable title to the property pledged to secure payment of the note. The mortgage or deed of trust may contain an alienation or due-on-sale clause entitling the lender to declare the principal balance immediately due and payable if the borrower sells the property during the mortgage term, this makes the mortgage unassumable without the lender's permission.

Taxes and Assessments

The mortgage requires the borrower to pay all real property taxes and assessments on a timely basis, and keep the buildings in a proper state of repair and preservation. It also requires the borrower to protect the buildings against loss by fire or other casualty by an insurance policy written in an amount equal to at least 80% of the value of the structures. Many lenders require insurance for 100% of the loan. The mortgage contains a defeasance clause giving the borrower the right to defeat and remove the lien by paying the indebtedness in full. In a deed of trust, a reconveyance clause similarly obligates the lender and/or trustee to issue a deed of reconveyance upon full payoff of the debt.

Conditions

The most important thing to remember is that before closing you want to be certain that all the conditions of the purchase contract have been met. You want to be sure that all directions given to the closing agent have been performed. Before signing your name to any closing documents, check and double check that everything is correct - for example, interest rate, fees charged, and condition of the property.

Prepaid Items

The number of months of property tax placed in escrow usually is determined by the lender, depending upon the length of time since the last payment of taxes. These insurance and tax monies deposited at the time of closing are called prepaid items and are not a part of the borrower's actual closing costs; they are in addition to the closing costs. The FHA requires the borrower to pay these prepaid items but allows the seller to pay buyer closing costs within the limits specified and stated above under FHA loans, provided that these closing costs are taken into consideration in determining maximum loan amount. Under the VA program, sellers are permitted, if they agree, to pay the closing costs and prepaid items for the buyer.

Commercial Easements

The owner of the easement (the utility company) does not own any land adjacent to the easement, merely the right to use the land of another. This right allows placement of the utility lines and extends to the easement owner the right to go onto the land to maintain and repair the utilities. Commercial easements in gross are assignable by the owner of the easement. The governmental agency or utility that owns the easement right can allow other utilities to use the same easement. The owner of the commercial easement in gross also can sell or assign the right to use the easement to others. An example is the sale by a telephone company, to a cable television company, the right to place cable TV lines in the telephone easement. Easements in gross also may be held by the private sector. An example is the right of access allowed to a Planned Unit Development Association onto the land of private owners to repair walls or fences or gain access to other common areas.

Owner's Policy

The owner's policy, for the protection of the new owner, is written for the amount the new owner paid for the property. The policy insurance premium consists of a single payment. The amount of coverage remains the same for the life of the policy. The policy remains in effect for the duration of the insured's ownership of the property and continues in effect after the death of the owner to benefit heirs receiving an interest in the property. Each time the property is sold, a new policy must be purchased. The old policy cannot be assigned to the new owner. Some title insurance companies offer reduced reissue rates if the previous owner's policy is available for updating.

Voidable Contract (pt 2)

The parties to a voidable contract are not required to set aside or void the contract. The parties may fulfill their obligations under the contract and receive their benefits. A voidable contract can be voluntarily performed by the parties. At any time prior to complete performance of the contract, however, the party that is wronged can elect to discontinue. For example: An offer is made to Mike Parsons to purchase a lot that he owns in the Executive Heights Subdivision without setting forth a specific legal description. Mr. Parsons owns three lots in that subdivision. The offer is vague and an acceptance will not result in the creation of a valid contract.

Offer to Purchase: Offeror and Offeree

The parties to an accepted offer to purchase are the buyer and the seller, also called offeror and offeree, respectively. Other names for the accepted offer to purchase are: - purchase agreement - sales contract - contingent proposition. This offer to purchase contract is the road map for the real estate transaction.

Offeror and Offeree

The party making the offer is the offeror and the party to whom the offer is made is the offeree. In the typical real estate purchase agreement, the buyer begins as the offeror. An offer that has not been accepted can be withdrawn at any time prior to acceptance and the notification of that acceptance. Once the offeror (or his or her agent) has knowledge of the acceptance, the offer may not be withdrawn.

Conditions

The possession must be continuous and uninterrupted for a period specified by statute in the state where the property is located. The states provide by statute a shorter period of time if possession is under color of title than when possession is under a claim of title. In a claim of title, possession is based on some type of claim against the land rather than on some written document, as in the case of color of title. Statutory requirements vary from state to state, but the period may be as short as five to seven years under color of title and as long as 21 years without color of title. The possession must be actual. In most states, possession of the property must be under color of title or claim of title—that is, the occupant of the property must have some reasonable basis to believe that he or she is entitled to possession of the property. This basis typically is in the form of a defective deed or a quitclaim deed. The adverse possessor does not automatically acquire title to the property by merely meeting the five requirements just listed. To perfect the claim and obtain a title to the property, the claimant must satisfy the court that he or she has fulfilled the requirements of the adverse possession statute of that state in an action to quiet title. If the court is satisfied that the statutory requirements have been met, the court will award the title to the claimant under adverse possession.

Limitation on the Power of Eminent Domain:

The power of eminent domain has two limitations. The right of eminent domain can be used only if: 1. The property condemned is for the use and benefit of the general public 2. The property owner must be paid the fair market value of the property lost through condemnation. Property owners have the right to appeal to the courts if they are not satisfied with compensation the condemning authority offers. Generally, the courts will not permit a taking in fee if an easement will do; an entire piece cannot be taken if only a part is needed.

Title Insurance

The preparer of the abstract certifies that all recorded matters relating to the real estate in question are included in the abstract. When the abstract is completed, an attorney must examine it to assure that the chain of title is unbroken and clear. The attorney then gives a written certificate of title opinion as to what person or entity owns the real estate and the quality of title. The abstractor certifies that the public records have been searched. The attorney certifies that the abstract has been examined and states the quality of title and exceptions, if any, to clear title. The title insurance is a comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon. Title insurance protects a policyholder against loss from some occurrence that has already happened, such as a forged deed or undisclosed heir somewhere in the chain of title.

Principle of Competition

The principle of competition states that when the net profit a property generates is great (excessive), others will be drawn to produce similar properties. Excessive profits are generated when demand exceeds supply. If a growth area contains only one or two properties of a certain type such as apartment complexes, these properties will produce excess profits because of higher demand. If apartment rents increase to the point where owners of existing apartment buildings are making substantial profits, builders and investors will be encouraged to build more apartment buildings. Competitors who build apartment complexes will come to the area eager to share in the market and profits. Competition will work to reduce excess profits, and the supply of competing services will increase until excess profits are finally eliminated.

Contribution: Principle of Contribution

The principle of contribution states that various elements of a property add value to the entire property. This is also called the principle of diminishing marginal returns. The principle refers to the relationship between added cost and the value it returns. It tells us that we should invest dollars whenever they will return to us more than $1 of value, and we should stop when each dollar invested returns less than $1 in value. For example, if a typical buyer is willing to pay $5,500 more for a property with a garage than for the same property without the garage, we can infer that adding the element (garage) can add a value of $5,500. There would be no incentive to spend $10,000 to add a garage. The market data approach to valuing property utilizes this principle.

Marketable Title Act: Better Abstracts

The property description used in the states comprising the original thirteen colonies is the metes and bounds description. It also is used in the states in which the primary description is the government or survey system; in those states, the metes and bounds type of description is used to describe small, irregular land areas. At least 10 states have a Marketable Title Act. This is not a system of title registration. Rather, it is legislation aimed at making abstracts easier to prepare and less prone to error. This is done by cutting off claims to rights or interests in land that have been inactive for longer than the Act's statutory period.

Setting the Rental Rates

The property manager fulfills these responsibilities by performing specific activities. In setting the rental rates, the property manager must be aware of the owner's goal for return on investment, as well as the current market for rental rates. Consideration must be given to current rates in like properties. Supply and demand for rental properties and present vacancy rates also must be considered. Adjustments in rental rates should be made only after a careful survey and analysis of the factors affecting rental.

Property Management Report

The property manager should provide a periodic (usually monthly) accounting of all funds received and disbursed. This accounting is called a property management report. This report contains detailed information of all receipts and expenditures for the period covered (plus the year-to-date) and relates each item to the operating budget for the period. In addition to the reports to the owner, the manager should maintain whatever records are necessary for compliance with federal, state and local laws including compliance in areas such as: - Fair housing - Security deposits - Trust accounts - Operations expenses.

Property Manager's Fee

The property manager's fee is also an operating expense. Property managers typically are paid on a percentage of gross income. This fee increases with high occupancy and decreases with lower occupancy. Even though a property is currently being managed by its owner and no management fee is being paid, a typical management fee, say 5 percent of the gross rents, is included in the operating expense. Of the three types of expenses, operating expenses typically represent the largest dollar amount.

Proportionate Fund

The proportion for each fiscal year shall be determined by dividing the amount of money collected by the Commission as license fees by the number of years within the multi-year license period. These sums may be invested by the State Treasurer in any investments which are legal for domestic life insurance companies under the laws of this state. Any interest or other income from investments in the proportionate fund shall be deposited into the Real Estate Commission Revenue Fund for expenditure by the Commission.

Fair Housing Act (Title VIII)

The real change in fair housing came in 1968, a year that is considered the birth of modern fair housing. In addition to the assassination of Rev. Martin Luther King Jr., two historic events occurred that year that forever changed the housing market. First, in April, Congress enacted the Fair Housing Act (Title VIII of the Civil Rights Act of 1968). This Act bans discrimination on the basis of race, color, religion and national origin in most types of housing transactions. The Act also contains a variety of remedies to attack housing discrimination including private discrimination. Second, in June, the U.S. Supreme Court rendered its decision in Jones v. Alfred H. Mayer Co., and held that the Civil Rights Act of 1866 banned private, as well as government, racial discrimination in housing. Thus the 1866 Act was given new life, and could be used to fight racial discrimination.

Display of License

The real estate licenses of all companies, branch offices, brokers, and salespersons shall be publicly displayed at the place of business. The qualifying broker shall be responsible for displaying only those licenses which show the current status of the licensee.

Government Survey: Rectangular Survey System

The rectangular survey system is used for the transfer of regularly shaped tracts of real estate, such as rectangles and squares. Also called the government survey, the rectangular survey describes land by reference to a series of grids. The grids are composed of two sets of lines, one set running north/south, the other east/west. Each grid is identified by a principal meridian, which is the original north/south line established in that grid, and by a baseline which is the original east/west line.

Residential Real Estate

The regulation does not apply to commercial loans. Regulation Z also standardizes the procedures involved in residential loan transactions and requires that the borrower be fully informed of all aspects of the loan transaction. In addition, the regulation addresses any advertisement of credit terms available for residential real estate. At time of application or within three days thereafter, the lender must provide the borrower with a disclosure statement. The disclosure must set forth the true, or effective, annual interest rate on a loan, called the annual percentage rate (APR).

Emissions

The relative importance of any single source depends on how much of a given pollutant it emits and how hazardous those emissions are. In some cases, factors such as the age of the source and whether or not it is properly maintained are significant. For example: an improperly adjusted gas stove can emit significantly more carbon monoxide than one that is properly adjusted. Also note that apartments can have the same indoor air problems as single-family homes.

Fees

The renewal research and education fee shall be $7.50 per year for each year of the license period, and shall be paid at the time of license renewal by all brokers and salespersons in addition to the license renewal fees set out in this section. Collection of this fee applies to all broker and salesperson renewals except that brokers who hold more than one broker's license shall pay the fee for only one license at each renewal. The original research and education fee is $30 and shall be paid at the time the application is received for issuance of an original broker's license, the issuance of a temporary salesperson's license, or the issuance of a reciprocal licensee's initial license. This is in addition to the original license fees and is in addition to the temporary license fee.

Prorating Rent

The rent for the month of closing is the only rent prorated. Rent is normally paid in advance. If you are prorating through the day of closing, the seller owes the buyer for the unearned rent starting with the day after closing. If you are prorating to the day of closing, the seller owes the buyer for the unearned rent starting with the day of closing. Always use the actual number of days in the month when prorating rent. The rent proration and any security deposits will be a debit to the seller and a credit to the buyer.

Requirements: Creation of a Valid Deed

The requirements necessary for creation of a valid deed and conveyance of title vary from state to state in some of the terms, so the following is a generalized discussion to be adapted to your own specific state. Here are some general requirements: - The deed must be in writing (as required by the statute of frauds, every deed must be written) - The written form of the deed must meet any legal requirements of the state in which the property is located - An oral conveyance is ineffective - The grantor, the person conveying the title, must be legally competent; this individual must have the capacity to contract - The grantor must have reached the age of majority and must be mentally competent at the time of deed execution - The grantor must be named with certainty; it must be possible to positively identify the grantor.

Income and Debt

The residual balance must meet regional standards established by the VA. A family of four must have a monthly residual balance of $986 in the Northeast, $964 in the Midwest, $964 in the South, and $1,074 in the West. The next step in the qualification is to compare the gross monthly income and the total of: Home payments; Special assessments; Homeowners' association dues; Debts that either will extend for six months or more; or Will have payments of more than $100 per month. This ratio is limited to 41%. A VA loan analysis form is used to organize information on income and long-term debts to determine if the 41% ratio will be met.

Projected Operating Statement

The result is a projected operating statement, which begins with the estimated rents that the property can be expected to produce on an annual basis. This is the projected gross or scheduled gross, and represents expected rentals from the subject property on a fully occupied basis. From this, vacancy and collection losses are subtracted. These are based partly on the building's past experience and partly on the operating experience of similar buildings. Therefore, the potential gross income must be reduced by the vacancy rate and credit loss. The credit loss may include uncollected rent from defaulting tenants. The vacancy and credit losses are expected to reduce the gross potential income.

Drainage

The right of natural drainage is at the heart of surface water rights. No landowner can substantially change the natural drainage of surface water (runoff) in such a manner as to damage neighboring land. The issue of surface water and drainage is an important consideration in building commercial developments with extensive paving, which reduces the absorption of water by the soil and intensifies runoff, possibly causing flooding.

Joint Ownership

The right of survivorship is not favored in all states today except in joint ownership by husband and wife as tenants by the entirety. In some states, the right of survivorship is granted automatically without any more words than "as joint tenants." A joint tenancy, just as a tenancy in common, is also subject to partition through legal action.

Eminent Domain

The right or power of eminent domain is the right of the state and/or federal government or government agencies to take private property for a necessary public use, with just compensation paid to the owner. This right extends to public corporations such as school districts and sanitation districts, public utilities, and public service corporations such as railroads and power companies. Actual taking of property under the power of eminent domain is called condemnation when the owner and the government cannot negotiate a satisfactory voluntary acquisition of the property. Generally, the law will not allow compensation for lost profits, inconvenience, loss of goodwill and the like, although severance damages may be awarded for a loss in value to the remaining property that is not actually condemned. Through eminent domain, the state may acquire land (either fee leasehold or easement) for streets, parks, public buildings, public right of way and similar uses. No private property is exempt from this exercise of government power.

Management Agreement

The scope of the manager's work depends on the terms of the individual employment contract, known as a management agreement. The management agreement defines the manager's authority and responsibilities and establishes the manager's rate of compensation. This compensation is generally a fixed percentage of all rents collected. Many states require a property manager to be a licensed real estate broker or salesperson. The recent trend toward absentee ownership by investors has increased the need for professional property management. There are also larger and more complicated properties in need of management. As a result, many brokerage firms have separate staffs of property managers.

Chain of Title

The search of the records on a given piece of real estate will establish a chain of title, which must be unbroken for the title to be good and, therefore, marketable. The search involves tracing the successive conveyances of title starting with the current deed and going back an appropriate time (typically 40 to 60 years), quite often researching back to original title (the last instance of government ownership).

Providing Liquidity

The secondary mortgage market benefits lending institutions and, in turn, the borrowing public, by providing liquidity to mortgages. The mortgage is a liquid asset because it can be readily converted to cash by the lending institution selling the mortgage in the secondary market. Therefore, the secondary mortgage market benefits the borrowing public by enabling lending institutions to make money available for loans to qualified applicants. Mortgage liquidity available in the secondary market reduces the impact of disintermediation on lending institutions.

Numbered Sections

The sections are numbered beginning in the northeast section and are counted working backwards 6 miles, forward 6 miles, backward again, and so on through the township until the last section (36) is reached in the southeast corner. Each one-mile square section may be divided into quarter-sections and may then be subdivided into areas less than a quarter-section. Each section contains 640 acres and, therefore, a quarter-section is 160 acre

The Appropriate Rate

The selection of an appropriate CAP rate is influenced by the conditions under which the particular investment is being operated, as well as the availability of funds, prevailing interest rates, risk and so on. The CAP rate is designed to reflect the recapture of the original investment over the economic life of the improvement to give the investor an acceptable rate of return (yield) on his/her original investment and to provide for the return of the invested equity. interest rate + recapture rate = capitalization rate net operating income ÷ cap rate = estimated value higher capitalization rate = lower estimated value lower capitalization rate = higher estimated value

Seller Financing

The sellers may finance the sale of their properties by taking a: - Regular second mortgage - Second mortgage in the form of a wraparound - Purchase money first mortgage - Financing by means of a contract for deed. In times of extremely high interest rates, a sale often cannot be made unless the seller provides a substantial part of the financing for the buyer.

Possession

The tenant is to have quiet enjoyment of the premises, and the landlord is to receive money plus a reversionary interest in the property. Possession of the property will go back to the owner at the end of the lease. Under a lease, the lessor and lessee agree to the terms of possession and the rent to be paid. The benefit of the lease runs both to the lessor and lessee, so either the lessor or the lessee can demand to receive the contracted benefit. The right to demand and receive the specific benefit is based upon privity of contract that exists only between lessor and lessee. Individuals who are not a party to the lease contract cannot demand to receive any benefit from the lease contract.

Meaning of Real Property

The term "real property" is broader in meaning. It is real estate plus all legal rights, powers, and privileges inherent in ownership of real estate. These legal rights, powers, and privileges are many in number and varied in nature. They have value, are usually salable, and affect the value of the underlying real estate. Real property encompasses things such as easements, options, water rights, and so on. Instruments affecting real property must be in writing and should be recorded. The law of the state where the real property is located governs the acquisition and transfer of title to land, including important matters such as rules of descent and probate

Condominiums: Creating Condo Ownership

The term condominium comes from the Latin words meaning "together" and "to exercise dominion over." Thus, condominium developments are jointly controlled. Since condominium ownership was not recognized under common law, special statutes have been required to create this form of ownership. The first condominium statute enacted in the United States was the California Horizontal Property Act in 1961, and condominium ownership is now recognized in all states. Though laws creating condominium ownership vary from state to state, the fundamental principles are reasonably uniform. Condominium statutes set forth the manner in which a condominium is to be created and managed. These include a declaration (master deed), articles of association, and association bylaws. The declaration, articles of association, and bylaws must be recorded in the public record in the county where the property is located.

Lis Pendens

The term lis pendens comes from the Latin words for pending litigation. This lien is a notice to the world that a lawsuit has been filed against the owner of a specific property. The notice is filed in the office of the county or local official responsible for keeping records of pending litigation. It is a warning to any prospective purchaser of the property of the defendant in the suit. A court order resulting from the lawsuit will attach to the property even though the title was transferred to someone else prior to the final judgment in the suit if the transfer occurred after the notice was placed on the public record in the county in which the property is located.

Operation of Law

The term operation of law describes the manner in which the rights and liabilities of parties may be changed by the application of law without cooperation or agreement of the parties affected. Contracts can be terminated or discharged by operation of law. An example of discharge of contracts by operation of law involves the statute of limitations. If a party to a contract fails to bring a lawsuit against a defaulting party within a time period set by statute, the injured party loses the right of remedy because of operation of the statute of limitations. The mere passage of time and expiration of the statutory time period affects the injured party's right to recover. Every state limits by statute the time to bring legal action against a party.

Mechanic's Lien

The theory behind giving special priority to mechanic's liens or materialmen's liens lies in the supposition that the services and materials provided increase the value of the real estate. Other lien holders thereby are presumed to benefit from the work and materials of the contractors and suppliers. Thus, the contractors and suppliers should be paid first.

Equal Share in Ownership

The theory of community property is that husband and wife share equally in the ownership of property acquired by their joint efforts during the community marriage. The title to this property will vest in husband and wife as community property whether the deed is made only to the husband, only to the wife, or to both husband and wife. This general rule is in effect in community property states, with the exception of California and New Mexico, where there is a rebuttal presumption that property deeded to a married woman in her name only is separate property. The presumption may be rebutted by proof that the property was purchased with community funds.

Lot and Block : Platting

The third major system of land description is called platting. In this system, land is described by reference to lots and blocks (groups of lots surrounded by streets), which are mapped out by a surveyor on a subdivision plat (map) and subsequently recorded in the county where the land is located. Thereafter, a reference to a numbered lot on a specific plat will be sufficient legal description of the lot.

Depreciation: Deduction of Depreciation

The third step in the value estimate by the cost approach is to deduct any observed depreciation. Deduction of the dollar amount of depreciation provides the depreciated value of the structure as it presently exists. Fourth, the depreciated value of any other site improvements is added to the value of the structure to provide an estimate of the total depreciated value of all improvements. land value + depreciated value of the improvements = total property value by the cost approach

Cost Approach: Three Approaches

The three approaches that are used to estimate market value of a property are: - The direct sales comparison approach, - The cost approach - The income approach. The direct sales comparison approach is a comparative analysis of recent sales prices of similar properties, after adjusting for seller concessions, time, financing and any differences in the properties. This approach is used most frequently by real estate brokers in the valuation of residences and is the approach usually preferred in court. The cost approach is an estimated value based on the reproduction or replacement cost of the improvements, less depreciation, plus the value of the land (land value being usually determined by the direct sales comparison approach). The cost approach is most useful in appraising new or proposed construction, as well as service properties such as churches and post offices.

Title Defects

The typical title insurance policy requires the title insurance company to compensate the insured for financial loss up to the face amount of the policy resulting from a title defect (plus cost of litigation or challenge). The policy protects the insured only against title defects existing at the time of transfer of title. In addition, and most important, the title company will agree to defend the policyholder's title in court against any lawsuits that may arise from defects covered in the policy. A title insurance policy generally consists of three sections: - The agreement to insure the title and indemnify against loss - A description of the estate and property being insured - A list of conditions of and exclusions to coverage.

Option Contract

The typical unilateral contract in the real estate business is an option contract. Under an option, the owner of the property (optionor) promises to sell his or her land to another (optionee) at a certain price for a certain time period. The optionee is not obligated to purchase the land; however, the optionor is obligated to sell on the terms promised. The optionor cannot legally sell the land to any other person during the term of the option.

Complete Performance

The usual and most desirable manner of terminating contracts is by complete performance of all terms of the contract. The contract is said to be executed when all parties fully perform all terms. The general rule is that even if a party to a contract is unable to perform obligations under the contract, the party is still liable. The reasoning is that the one who cannot perform should have provided against this possibility by including a provision in the contract for relief in the event of impossibility.

Execution

The vendor's security for payment of the purchase price is retention of legal title until all payments are made. Upon execution of the contract for deed, the vendee has equitable title in the real estate. In accordance with the statute of frauds, a contract for deed must be in writing to be enforceable. The contract for deed must also include the legal description of the property sold. A contract for deed is recorded in the locality where the real estate is situated. This provides constructive notice to the world of the vendee's equitable title and vendor's legal title and right to payment from the vendee.

Appurtenance: Attached To

The word appurtenance comes from a Latin word meaning "on to" or "attached to." Appurtenances in real property are the inherent or automatic ownership rights that are a natural consequence of owning property. The most common appurtenant rights are: - Profit - License - Air rights - Water rights. The right of accession also may bear on these ownership rights. Appurtenances to real property pass with the real property to which they are appurtenant unless a contrary intention is manifested. A deed normally describes the property granted and then states, "together with all appurtenances."

Benefits

The wraparound mortgage can be beneficial to both seller and buyer. The seller makes payments on the existing first mortgage at an old and often lower interest rate and on a smaller loan amount. The seller receives the buyer's payments on a substantially larger loan amount at a higher rate of interest than the seller is paying on the existing first mortgage. In this way, the seller receives principal payments on the second mortgage and earns interest income on the amount by which the interest received on the wraparound exceeds the interest being paid on the existing first mortgage. In addition, the wraparound may enable the seller to effect a sale that otherwise may not have been accomplished in times of high interest rates and tight money. The benefits to the buyer in this situation include purchasing the property with a small down payment and obtaining seller financing at a rate usually several percentage points below the prevailing market rate for new financing at that time. Additionally, the closing costs on a wraparound are substantially lower than with institutional financing.

Impossibility

There are exceptions to the general rule. For example: in the case of personal service contracts. If a person contracts to render services, as a result of death or incapacity, the obligated person is relieved of liability. This is one of the few instances in which death or incapacity affects contractual obligations. In most other contract cases, death does not affect the contract obligation or rights; or when the performance of an obligation under a contract becomes illegal as a result of a change in law after the contract was created. This change renders the contract between parties impossible to complete through no fault of either party, and the obligated parties are relieved of responsibility.

Company Applications

There are now two (2) applications to accomplish licensing of the four (4) different company structures: 1. Company application --- to be used by all new corporations, partnerships and sole proprietorships; and 2. Branch office application. Both applications are found on the Commission website under "Forms and Applications."

Other Methods

There are other methods of describing land besides the three major systems previously discussed. Any time an adequate description of property is a matter of record, (e.g., contained in a recorded deed), then a simple reference to the instrument containing the description is adequate to describe the land. Also, generalized descriptions such as "all my land" or "Davis Farm" or "1777 South St." can be sufficient if they enable an unambiguous determination of what property is being described. The key word is unambiguous.

Report Formats

There are three traditional formats for appraisal reports. The choice depends on the amount of detail required by the client, the intended use of the report, and the appraisal standards to be met. The letter report is the least formal and is usually one to five pages long. It contains conditions of the assignment, a summary of the nature and scope of the investigation, and an opinion of value. The form report is an appraisal made on a preprinted form. A checklist is often used for describing and rating property characteristics. This makes the appraisal form a logical choice for the summary report option.

Types of Listing Agreements: Three Types

There are three types of listing contracts: 1. Open listing 2. Exclusive agency listing 3. Exclusive right to sell listing. Each of these contracts gives different rights to the broker and the seller, and outlines when the commission has been earned. The goal of the listing (and marketing) of the property is to find a ready, willing, and able buyer willing to pay the listing price. The brokerage that finds such a buyer is the procuring cause of sale. Procuring cause of sale is the initiation of an unbroken series of events leading to a sale.

Intent

These are some words that can easily imply something that the parties didn't really intend. When you see one of these words in a contract, stop and read very carefully to be sure that the word correctly expresses the intent. - As is - Best - Ensure - Never - Timely - Approve - Certify - Inspect - Required

Individual Grant Deed

These implied warranties include a warranty against encumbrances created by the grantor or anyone claiming title under his or her deed, and a warranty that the grantor has not previously conveyed the same title to anyone else. This form of an individual grant deed is the simplest of all the various types of deed. The covenants are fewer in number and narrower in coverage than those found in a warranty deed, particularly the covenant regarding encumbrances of prior owners as well as their own. The grant deed limits grantors' responsibility to the period of time they owned the property.

Loan Amounts

These loan amounts are 97% of the first $25,000 of acquisition cost, 95% of the acquisition cost between $25,001 and $125,000, and 90% of acquisition cost above $125,000. A special case exists if the adjusted sales price or appraised value is $50,000 or under. The 97% loan-to-value ratio is applied to the whole acquisition cost, even that amount between $25,000 and $50,000. The loan amounts just discussed cannot exceed the area's FHA loan limit, which equals 95% of the area's median home price or 75% of the loan amount allowed by Fannie Mae and Freddie Mac, whichever is lower. The second step in the maximum loan amount calculations applies a 97.75% maximum loan-to-value ratio to the appraised value, excluding closing costs, if the value is over $50,000 and 98.75% if the value is $50,000 or less. The lesser amount derived from step one and step two is the maximum loan amount. This calculation of maximum loan amounts is current as of early 1995; however, real estate practitioners are advised to keep abreast of changes in this area. Maximum loan amounts are available for dwellings that are more than one year old or, if less than one year old, were built to FHA specifications and under FHA supervision or with an acceptable 10-year homeowner warranty. If the dwelling is less than one year old and not built to specifications and under FHA supervision or with an acceptable 10-year homeowner warranty, the loan amount is 90% of the total acquisition cost. These guidelines require that the borrower occupy the property.

Escrow Account : Impound Account

These loans require that the borrower maintain an escrow account (also called an impound account) with the lending institution. The borrower must pay into this account an impound each month to accumulate money to pay the annual real property tax bill and the annual homeowner's insurance policy premium. In addition, if the loan is used to purchase a condominium apartment, escrow deposits may include an amount to pay the property owner's assessment. At closing, the borrower must put money into the account to get it started and provide a head start for accumulating the necessary funds. This includes two months' payments toward the next hazard insurance premium, several months toward payment of the real property tax bill, and, if the loan is insured by the FHA, the equivalent of one months' FHA mortgage insurance premium.

Higher Ratios

These ratios do not constitute absolute requirements. For example, compensating factors allow for approval of a borrower with higher housing expense and total obligation ratios than set forth here. Some factors or conditions allowing for higher ratios are: For mortgage loans with 20% or larger down payment, the borrower's: - Demonstrated ability to delegate a higher percentage of income to mortgage payments - Demonstrated ability to accumulate savings - Demonstrated that the property qualifies as an energy-efficient dwelling.

Unconditional Promises

These restrictions are covenants that run with the land (move with the title in any subsequent conveyance). Restrictive covenants are limitations placed on the use of land by the developer of a residential subdivision. The purpose of these covenants is to preserve and protect the quality of land in subdivisions and to maximize land values by requiring the homogeneous use of the land by purchasers. The covenants are unconditional promises by those who purchase property in the subdivision to limit the use of their property to comply with requirements of the covenants; therefore, they are restrictive in the nature of the owner's use.

Fix-Up Cost

This principle becomes important when a property owner is considering placing property for sale. Any fix-up expenses the owner incurs prior to sale should have an increasing return effect. If the fix-up cost is greater than the potential increase in sales price, the owner may not want to do the fix-up. Typical fix-up expenses include painting, carpet cleaning and any other expenses incurred in repairing and refurbishing a primary residence in order to facilitate its sale. These expenses are no longer deductible under current rules for sales of personal residence.

A Listing Tool

This procedure is not an appraisal although many of the same principles apply. The CMA is a listing tool that a sales agent prepares in order to show a seller what the home is likely to sell for, and the CMA helps the agent decide whether or not to accept the listing.

Cost-Benefit

This concept is basically a cost-benefit type of analysis. If a feature such as a covered patio would cost $4,000 and the typical buyer is only willing to pay $2,500 extra for a home with a covered patio, this would not be a cost-effective addition. By contrast, if paying an additional $400 for thicker carpet pads extends the life of the carpeting for several years, this extended life is most certainly worth the extra cost.

Rescission: Contract Never Existed

This court remedy is the opposite of a suit for specific performance. Rescission means to take back, remove, annul, or abrogate. A marriage of short duration is rescinded or annulled. Upon suit for rescission, the court orders the parties placed back in their original positions as if the contract had never existed. This contract remedy is applied when a contract has not been performed by either party and when it has been breached by a party. EX: Vendor Alice Jones enters into a contract for deed or land contract with vendee Clarence Baxter, possession to be immediate. Within two months, vendee Baxter loses his job, tells vendor Jones that he will not move out nor pay the agreed payments, and refuses to sign a release of contract. Vendor Jones files suit for rescission of the contract. The court order places Alice Jones in possession and control and shows that Clarence Baxter has no interest in the real estate, just as before the contract. If Clarence Baxter had paid a down payment, the down payment would be ordered returned to Baxter, minus a fair amount for rental during the period Baxter had possession of the premises.

Covenant of Quiet Enjoyment

This covenant typically reads: "the grantee, his or her heirs and assigns, shall quietly and peaceably have, hold, use, possess, and enjoy the premises." This covenant is an assurance by the grantor to the grantee that the grantee shall have quiet possession and enjoyment of the property being conveyed and will not be disturbed in the use and enjoyment of the property because of a defect in the title being conveyed by the grantor. In warranty deeds not containing a specific covenant of quiet enjoyment, the covenant of warranty itself assures the grantee of quiet enjoyment of the property.

Covenant of Right to Convey

This covenant, which usually follows the covenant of seisin in the general warranty deed, typically reads: "and has the right to convey the same in fee simple." By this covenant, the grantor provides an assurance to the grantee that the grantor has legal capacity to convey the title and also has the title to convey.

Intangible Rights to the Property

This covers what parts of the property can be developed, or are subject to easements or to the interests of other people. The ownership of real estate includes the ownership of rights to use the real estate.

Not-for-Profit Corporation

This is the condominium owners' association, of which each unit purchaser automatically becomes a member. Although the association can be organized as a trust or unincorporated association, most often it will be organized as a corporation in order to provide the legal protection normally afforded by a corporation to its owners. Additionally, it will be organized as not-for-profit so as to avoid income taxes on money collected from members.

Tax: Priority of the Tax Lien

This lien is created by filing a certificate of lien against the real estate owner in the county in which the taxpayer's real estate is located. Liens held by the Internal Revenue Service or the individual states do not automatically receive priority status or preferential treatment for payment purposes. Priority of the tax lien is determined by the date the lien was placed on the real estate or against the individual, just as with a judgment lien.

Gross Income

This method has a degree of unreliability because calculations are based on the gross income rather than the net income. If the property is managed efficiently, the gross income provides a reliable basis for calculation of an estimate of value. If expenses are extraordinary, however, gross income does not accurately reflect the property value. Gross rent multipliers are calculated by dividing the cost for which a property sold by the monthly rental income. EX: For example, suppose two apartment buildings both gross $100,000 per year. The first has expenses of $50,000 per year, and the second has expenses of $60,000 per year. Using the same GRM, the buildings would be valued the same, yet the first produces $10,000 more in net income for the owner.

Uniform Residential Landlord and Tenant Act

This model law addresses such issues as the landlord's right of entry, maintenance of premises, response to tenant complaints, and disclosure of the property owners' names and addresses to the tenants. The act further sets down specific remedies available to both the landlord and the tenant if a breach of the lease agreement occurs. Whether under the common law or under specific statute, terms of the lease control the obligations and duties of landlord and tenant. Without a lease agreement to indicate which party is responsible for certain items, common law or the specific state law dictates the responsible party.

Notice Period

This notice period may be one to three months, depending upon the state in which the property is located. For example, if the required notice period is one month and the parties enter the last 30 days of the lease without notifying the other of any change, a new lease is created automatically for another period at the same terms. At the death of either the landlord or the tenant, heirs of the deceased party are bound by terms of the lease, including giving notice if the heirs wish to terminate.

Rate of Interest

This rate may be higher than the interest as expressed in the mortgage. For example, when certain fees and discount points charged by the lender are subtracted from the amount, the result is an increase in the true rate of interest. As a result of the subtraction, the borrower receives a smaller loan amount and pays interest on a larger amount. Therefore, the effect is to increase the interest rate being received by the lender. In addition to stating the true or effective annual rate on the loan, the disclosure statement must specify the finance charges, which include loan fees, interest, and discount points. The finance charges do not have to include things such as title examination, title insurance, escrow payments, document preparation fees, notary fees, or appraisal fees.

Depreciation: Deterioration

Thus, the appraisal process puts all comparable properties on the same basis by eliminating items that vary substantially from one property to another and one owner to another. Also not included is any tax or accounting depreciation on the building. These items do not reflect expenditures that will adjust the cash flow. Nonetheless, as the building ages, the style of the building will become dated, the neighborhood will change, and the structure will experience physical deterioration. Allowance for this is usually accounted for in the selection of the capitalization rate. The less functional, economic, and physical obsolescence that is expected to take place, the lower the acceptable "cap" rate and vice versa. Of course the lower the "cap" rate the higher the value and the higher the "cap" rate the lower the value.

Communal Ownership

Time-sharing is a modern approach to communal ownership and use of real estate that permits multiple purchasers to buy undivided interests in real property (usually in a resort condominium or hotel) with a right to use the facility for a fixed or variable time period. Several different people purchase the condominium unit in fee and then decide the use of the unit by weeks or months. Each owner of the unit purchases the exclusive right to use of the unit for a specified proportion of time. Time-sharing is especially attractive to people wishing to purchase a condominium for vacationing purposes.

Time-Sharing: Interval Ownership

Time-sharing, another relatively new form of ownership, stretches the common law meaning of real estate ownership. The Uniform Real Estate Time-Share Act covers all aspects of time-sharing and has already been adopted in several states. Residential time-share units are subject to the anti-discrimination provisions of the Federal Fair Housing Act. Time-sharing combines the ownership of a condominium (or other separate unit) in fee with the sharing of use of the unit by many owners. This co-ownership, based upon intervals of time, is called interval ownership. The sale of timeshares is regulated by state legislation

Title I Complaints

Title I complaints must be filed with the U.S. Equal Employment Opportunity Commission (EEOC) within 180 days of the date of discrimination, or within 300 days if the charge is filed with a designated state or local fair employment practice agency. Individuals may file a lawsuit in federal court only after they receive a right-to-sue letter from EEOC. Charges of employment discrimination on the basis of disability may be filed at any EEOC field office. Field offices are located in 50 cities throughout the United States and are listed in most telephone directories under "U.S. Government." For the appropriate EEOC field office in your geographic area, call: (800) 669-4000. Title I regulations on employment are enforced by: U.S. Equal Employment Opportunity Commission 1801 L Street N.W. Room 9024 Washington, D.C. 20507

Title II : Government Activities

Title II covers all activities of state and local governments, regardless of the government entity's size or whether it receives federal funding. Title II requires that state and local governments give people with disabilities an equal opportunity to benefit from all of their programs, services, and activities, such as public education, employment, transportation, recreation, health care, social services, courts, voting, and town meetings. State and local governments are required to follow specific architectural standards in the new construction and alteration of their buildings. They also must relocate programs or otherwise provide access in inaccessible older buildings, and they must communicate effectively with people who have hearing, vision, or speech disabilities. Public entities are not required to take actions that would result in undue financial and administrative burdens.

Public Accommodations

Title III covers businesses and nonprofit service providers that are public accommodations, privately-operated entities offering certain types of courses and examinations, privately-operated transportation, and commercial facilities. Public accommodations are private entities that own, lease, or operate facilities such as restaurants, retail stores, hotels, movie theaters, private schools, convention centers, doctors' offices, homeless shelters, transportation depots, zoos, funeral homes, daycare centers, and recreation facilities, including sports stadiums and fitness clubs. Transportation services provided by private entities, such as taxicabs, are also covered by Title III.

Title IV : Telecommunications Relay Services

Title IV addresses telephone and television access for people with hearing and speech disabilities. It requires common carriers (telephone companies) to establish interstate and intrastate telecommunications relay services (TRS) 24 hours a day, 7 days a week. Telecommunications relay services enables callers with hearing and speech disabilities who use text telephones (TTYs) and callers who use voice telephones to communicate with each other through a third-party communications assistant.

Escrow Duties

Title and escrow companies selected as the escrow or closing agents: - Schedule the closing - Assure that the escrow instructions are completed accurately - Prepare all documents needed to close the transaction - Deposit and disburse monies - Record all documents to transfer title and secure any debt.

Coverage

Title indemnity is made as of a specific date. Except with certain policies, a one-time premium is paid, and coverage continues until the property is conveyed to a new owner (including a conveyance to an insured's wholly owned corporation). It does not run with the land. Coverage is thus limited to the tenure of the named insured, and certain of the insured's successors by operation of law.

Abstract of Title: Comprehensive Indemnity Contract

Title insurance is a comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon. Title insurance in effect protects a policyholder against loss from some occurrence that has already happened, such as a forged deed somewhere in the chain of title or undisclosed heirs. A title insurance policy is a contract of insurance that insures the policy owner against financial loss if a title to real estate is not good.

Recordation

Title insurers, abstractors, and attorneys all rely on recorded documents concerning real estate. Some documents are not required to be recorded. Recordation of a deed provides protection for the owner's title against subsequent claimants. This protection is provided by the theory of constructive notice: "All of the world is bound by knowledge of the existence of the conveyance of title if evidence of the conveyance is recorded."

Handling the Closing

Title or escrow companies usually are paid for their work and expertise based upon a percentage of the monies handled at closing. The escrow agent is liable for any damages resulting from an improperly handled closing, either in disbursement of funds or inaccurate documents. The closing agent is also responsible for preparing the 1099-S form to report the sale of real estate to the Internal Revenue Service. Before closing, the closing agent must assure that all conditions and contingencies of the offer to purchase are met. Some typical items or documents of concern for the closing agent are described next.

Title to the Unit

Title to the individual unit: - May be transferred by deed or by will leaving it to an heir - May be encumbered by a mortgage or a mechanic's lien; - Is assessed real property taxes - Is evidenced by an abstract of title or title insurance policy. In the real estate world, the individual unit basically is treated like any other single-family dwelling. Condominium units may be purchased with cash or financed. Since 1961, condominiums can be financed via an FHA mortgage. The Veterans Administration also will guarantee mortgage loans for the purchase of condominiums.

Improvements

To accomplish the highest income and the highest present value of land, care must be taken not to create an over improvement or an under improvement. Improvements are intended to enhance the value of the property or extend the useful remaining life. Improvements of land include grading, sidewalks, sewers, streets, utilities and the like. Improvements also include buildings, fences, room additions, new roofs and similar constructions. The value is generally determined by what the improvement adds to the land in terms of production of income or amenities. A reasonable relationship should exist between a site and the character of the improvements placed on it. An over improvement, under improvement or misplaced improvement detracts from the combined value of a lot and the building on it. An over improvement represents an added investment in property that does not yield a return to the owner.

Affirmative Marketing Program

To address attitudes against discrimination, NAR developed a Voluntary Affirmative Marketing Program. The Association encourages its affiliates and members to adopt the program by signing an affirmative marketing agreement. Provisions of the agreement pledge signatories to adopt affirmative advertising, recruitment, and educational programs. As each April is celebrated with observances of passage of the Fair Housing Act of 1968, it is hoped that the spirit and intention of the law will be fulfilled.

Unities of Ownership

To adequately understand the distinctions among the concurrent ownerships, the difference between right of survivorship and right of inheritance must be understood. Concurrent ownerships require certain unities of ownership. The four possible unities are: - Time - Title - Interest - Possession For the co-ownership to be recognized, the different concurrent ownerships require one or more of the unities between the co-owners.

Delivery and Acceptance

To affect a transfer to title by deed, there must be delivery and acceptance. The grantor must deliver a valid deed to the grantee and the grantee must accept the deed. Delivery may be directly to the grantee or to an agent of the grantee. The agent for this purpose is typically the grantee's attorney, his or her real estate broker, or the lending institution providing the mortgage loan to finance purchase of the property. In almost every case there is a presumption of acceptance by the grantee. This presumption is especially strong if the deed has been recorded and the conveyance is beneficial to the grantee.

Insurable Interest

To be eligible for insurance coverage of any type, the insured must have a legitimate financial interest, known as an insurable interest, in the property. In the absence of an insurable interest, the policy is void

Disability

To be protected by ADA, one must have a disability or have a relationship or association with an individual with a disability. An individual with a disability is defined by ADA as a person who has a physical or mental impairment that substantially limits one or more major life activities, a person who has a history or record of such an impairment, or a person who is perceived by others as having such an impairment. ADA does not specifically name all the impairments that are covered.

Decimal into a Fraction

To change a decimal to a fraction, write the decimal as a whole number and place it in a fraction over "1" followed by as many zeros as there were decimal places to the right of the decimal point in the original number. That's it. If the resulting fraction can be reduced, do so. EXAMPLE: 0.25 = 25/100 = 1/4 0.123 = 123/1000 0.0004 = 4/10000 = 1/2500 2.625 = 2 + 625/1000 = 2 and 5/8 When changing a decimal to a fraction, with the decimal point removed, the number in question becomes the numerator and the place value of the last digit to the right becomes the denominator. The resulting fraction may or may not be in its simplest form. If it is not, it should be reduced

Constructive Eviction

To claim constructive eviction in most states, however, the tenant must actually vacate the premises while the conditions that make the premises uninhabitable still exist. The lease is terminated under the claim of constructive eviction. This is not an automatic right that the tenant can assume, it may have to be litigated.

Annual Taxes on a Property

To determine annual taxes on a property assessed at $160,000 with a rate of 25 mills, the assessed amount is multiplied by the tax rate: Assessed Amount x Tax Rate Multiplier = Annual Tax Amount for the Property 25 mills ÷ 1,000 = 0.025 = Tax Rate Multiplier (also called the tax rate) $160,000 x 0.025 = $4,000 = Annual Taxes

Location and Size

To determine the location and size of a property described in the rectangular survey method, start at the end of the description, read from right to left, and work backwards towards the beginning. EX: Locate the south 1/2 of the NW 1/4 of the SE 1/4 of section 11. Starting with the section, read backwards to first locate the southeast quadrant (in yellow).Then find the northwest corner of that area (noted in green), and then divide that area in half to find the property in question in black.

Dividing Fractions

To divide fractions, simply invert the fraction you are dividing by (turn the divisor upside down) and proceed as you would in multiplication of fractions. To divide a whole number by a fraction, invert the fraction that you are dividing by, and complete the problem as you would for the multiplication of whole numbers by fractions. To divide a fraction by a whole number, place the whole number (which in this problem is the divisor) over 1 and invert it, and complete the problem as in multiplication of fractions.

Comparables

To establish value, adjustments are made for differences between the comparable properties and the property that is being appraised. For example, the appraisal property has a fireplace (the element of contribution), and a comparable does not. The appraiser must estimate the value the fireplace contributes to the property as a whole and compare it to the value the property has without the fireplace.

Memory Formula: Percentage Problem

To find the correct operation to solve a problem involving percent or percentage, refer to the memory formula. Note that the horizontal line serves the same purpose as the horizontal line in a fraction, to indicate division. The vertical line serves as a multiplication symbol.

Example 2:

To find the rate of interest paid on the loan for one year when you know the loan amount, divide the interest paid by the loan amount to get the interest rate. $7,854 (interest paid) divided by $78,400 (loan amount) = interest rate

CE Requirements

To meet continuing education requirements, licensees must complete fifteen (15) clock-hours each license period: - Three (3) clock hours in Risk Management - Level 1. In this level, brokers and salespersons shall take the Risk Management: Avoiding Violations course. - Three (3) clock hours in Risk Management - Level 2. In this level, brokers and salespersons shall take the Risk Management for Brokers course or the Risk Management for Salespersons course or any industry-specific Risk Management course such as commercial real estate or property management approved for Level 2 credit by the Commission. - Nine (9) clock hours in Commission-approved courses.

Reducting Fractions

To reduce a fraction, divide both the numerator and the denominator by the same largest possible common even divisor (i.e., the largest common denominator). Example: 3/12 = (3÷3) / (12÷3) = ¼ When the numerator and the denominator cannot again be divided evenly by a common number, the fraction is in its "simplest form." Whatever you multiply or divide a numerator with, you must do exactly the same to the denominator, so it doesn't change the value of the fraction. This principle DOES NOT apply to adding or subtracting identical values from numerators and denominators, which, unfortunately, DOES change the value of the fraction. Prove it to yourself.

Interest Rates

To say that the 1980s and 1990s were turbulent decades for real estate finance would be an understatement. In the late 1970s, no sage would have predicted that interest rates would soar from 9% to 18% or higher. Who would have predicted in 1982 the 7.5% rates seen in mid-1986 and again in the early and middle 1990s? Given these circumstances, the motivation of lending institutions to shift the burden of unpredictability from themselves to the mortgagor is easier to understand. We therefore can appreciate the adjustable rate mortgage from the lender's standpoint. Suppose you had $50,000 to commit to a 30-year, fixed rated loan. What interest rate would you accept?

License Law: Licensing

Today all states require that people in the real estate business be licensed by the state. The state's authority to require licenses falls under the state's police power to protect the health, safety, welfare and property of its citizens. The purpose of license law legislation is to protect the general public. License laws require the licensee to possess the knowledge, skill and reputation for honesty, fair dealing and ethical conduct necessary to participate in the real estate business. License laws also govern the licensee's conduct in real estate business activities

Township Lines

Township lines are located every six miles north and south of baselines. These "rows" of land, called tiers, are numbered every mile north and south of a baseline as: - Township 1 South (T1S) - Township 2 South (T2S), etc. Each township is a square, 6 miles by 6 miles in area, divided into 36 sections, each one mile in length and width.

Sections

Townships are squares, 6 miles on each side. There are 36 square miles in one township. Each township is divided into 36 sections. The sections are numbered from right to left, beginning with mile 1 starting at the (NE) top right hand corner and going through 6. Section 7 lies directly below section 6 and goes back, this time from left to right, to section 12. Directly below section 12 lies 13, and goes, right to left again, to section 18. This continues until all 36 square miles form one township. Every section is a square, 1 mile on each side. Therefore, a section equals one square mile. It is also 640 acres. It can be divided into halves, and further subdivided again and again into quarters and smaller tracts until the acreage required is defined. 1/2 section = 320 acres 1/4 section = 160 acres 1/8 section = 80 acres 1/16 section = 40 acres

Townships

Townships are the basic unit of reference in the rectangular survey system. Any two adjacent range lines and any two adjacent tier or township lines bound a square called a township. Each township is 6 miles square and contains 36 square miles or sections. Each township has a legal description based on its principal meridian (and sometimes base line). EX: "T3N R4W Fox and Maronga River Intersection Principal Meridian (and Base Line)" refers to a 6-mile by 6-mile (36 square mile) township lying between 12 and 18 miles north and 18 and 24 miles west of the river intersection.

Covenant of Seisin

Typical wording of this covenant is: "Grantor covenants that he/she is seised of said premises in fee." This covenant, like the others in the general warranty deed, is a specific covenant and provides an assurance to the grantee that the grantor holds the title that he or she specified in the deed that he or she is conveying to the grantee. In the example above, the grantor promises the grantee that he or she has fee simple title to the property.

Shares

Typically, for a one-third share in appreciation, the lender makes the loan at a rate one-third less than the going rate for a fixed-term conventional loan at the time the loan is created. The increase in value that the lender shares is evidenced by the price for which the borrower sells the property, as compared to the price paid for the property. Federal regulations require that if the property is not sold within 10 years, the property must be appraised and the lending institution must receive its one-third share of the value increase as shown by the appraisal. This could result in a substantial hardship for the borrower who does not sell within the 10-year term. The borrower may have to refinance to obtain the money to pay the lender the one-third share of value increase.

Readily Achievable

Under ADA requirements, public, retail commercial establishments must have parking, bathroom, seating, and work areas that are usable by persons with disabilities. ADA also prohibits discrimination in hiring practices of public, retail and commercial establishments. To comply with this law, public accommodations and commercial facilities are to be designed, constructed, and altered to meet accessibility standards of the new law if readily achievable. "Readily achievable" means easily accomplishable and able to be carried out without much difficulty or expense.

Open Listing

Under an open listing, the seller lists a property with one brokerage, but is free to list it with several other brokers also. Only the broker who causes the sale is entitled to the commission. If the owner sells the property to someone not procured by a broker, the owner owes no commission. This type of listing is not beneficial to the owner or to the broker. Usually a broker is unwilling to spend advertising dollars and sales staff time on such an uncertain type of listing. The broker is not cooperating with the owner but competing with him or her, and with every other broker who has an open listing on the property. This type of listing often leads to disputes over commissions between brokers and possible legal problems for the owner. The lack of protection for the broker provides little incentive for aggressive marketing. The solution is to convince the seller of the advantages of an exclusive listing with a broker who will then list the property in the multiple listing service (MLS). Then the owner has one broker looking out for the owner's best interests and the cooperation of MLS participants in looking for a buyer.

Consideration

Under contract law, the validity of a contract can be challenged if both parties are not bound or if both parties have not received consideration. The tenant's consideration is possession of the premises and the right of quiet enjoyment. The landlord's obligation to give possession of the premises to the tenant is directly tied to the tenant's payment of rent. If one party fails in his or her responsibility (consideration), the other party may be relieved of his or her duty. Because of the interplay of many of the rights and duties, such as payment, maintenance, and liquidated damages, neither party should ever assume the relief of duties without court support of this position.

Strict Foreclosure

Under strict foreclosure, the lender may file a foreclosure petition with a court after the mortgagor is in default. The court then issues a decree requiring the mortgagor to satisfy the mortgage debt within a stated period of time or lose his or her equitable right to redeem the title. Once this right is lost, the mortgagor cannot assert any rights in the title or any remaining equity, which passes to the mortgagee. This type of foreclosure is not in favor in the United States. In a measure sometimes called a friendly foreclosure but more formally a deed in lieu of foreclosure, a borrower in default simply conveys the title to the property to the lender, to avoid a record of foreclosure. The disadvantage is that this does not eliminate other liens against the property. Furthermore, the lender may lose the right to any claim against mortgage insurance or guarantee programs such as FHA or VA.

Systems of Land Ownership: Feudal System

Under the feudal system of land ownership common in English law almost a thousand years ago, only the king could hold title to real property. The king granted feuds to loyal subjects. These feuds did not provide ownership in land but simply a right to use and process the land as long as the holder of the feud provided certain services to the king. The feuds approximated the modern concept of leasing. Under the feudal system, outright ownership would never be obtained.

Flat-Fee Listing

Under the flat-fee listing arrangement, the broker and seller agree on a specified payment at the time of the listing. This may even be paid as an "up-front" fee. The broker is entitled to retain this fee for efforts in attempting to market the property. Compensation under this listing does not depend on the sale of the property, and thus the flat fee typically is substantially less than a percentage of the sales price. Under this arrangement, the broker typically advertises the property but is not involved in showing the property or negotiating terms of the sale between seller and buyer.

Principle of Substitution

Under the principle of substitution, the highest value of a property has a tendency to be established by the cost of purchasing or constructing another property of equal utility and desirability if the substitution can be made without unusual delay. If two properties are on the market, each having the same degree of desirability and utility, one priced at $95,000 and the other at $100,000, a buyer will select the property that gives him/her the same amenities at the lesser price. Both the cost approach and the market data approach are heavily based upon the principle of substitution.

Commission Split

Under the usual commission split agreement, the entire company commission is paid directly to the broker, who then pays a portion to the sales associate who listed the property, and a portion to the selling agent (who may be the same person). Upon sale of real estate through the cooperating efforts of two real estate firms, the commission to be paid pursuant to the listing agreement is paid to the listing broker by the property owner. This commission is then shared by the listing broker and the selling broker on a prearranged basis. In most cases, this sharing occurs even if the selling broker is employed as the buyer broker.

Released Fibers

Under what circumstances do asbestos-containing products in the home become a health risk? Home health risks arise when age, accidental damage, normal cleaning, or construction or remodeling activities cause the asbestos-containing materials to crumble, flake, or deteriorate. When this happens, minute asbestos fibers are released into the air and can be inhaled through the nose and mouth. The fibers can cling to clothing, tools, and exposed flesh; cleanup operations can then dislodge the fibers and free them to circulate in the air.

Land Use Controls: Understanding Land Use Controls

Understanding land use controls is important to real estate licensees because almost every property is subject to some form of control, whether it is the result of city zoning ordinances, general subdivision restrictions, deed restrictions unique to one parcel of land, or federal legislation. Any of these forms of land control may have a major impact on the owner's rights. Real estate practitioners are obligated to be knowledgeable regarding existing public and private land use controls within their market area and must keep abreast of changing requirements as they happen. Lack of knowledge in these areas may subject them to civil liability and even possible criminal liability under certain federal laws.

Confusion of Roles

Unfortunately, buyers often mistakenly believed that the broker working with them was in fact working for them. In other words, they assumed that the broker showing them homes was their agent and did not understand that, like the listing broker, he or she worked for the seller. This confusion of agency roles resulted in many problems.

Exclusions: Uninsured Exclusions

Uninsured exclusions generally include such title defects as: - Rights of parties in possession, not shown in the public records, including unrecorded easements - Any facts that an accurate survey would reveal (e.g., encroachments) - Taxes and assessments not yet due or payable - Zoning and governmental restrictions - Unpatented mining claims - Certain water rights. If a claim is filed and the title insurance company pays the claim, it may have the right to bring legal action against the grantor for breach of warranties in the deed. The title insurance company has obtained from the insured grantee this right to file suit by payment of the claim.

Common Areas: Common Elements

Units also can be sold on contract for deed. If the individual unit's taxes and/or mortgage are not paid, only the individual unit will be placed in a tax sale or a foreclosure action. The other units in the condominium facility will not be affected. Title to the common areas is held as tenancy in common with all other unit owners. Common elements include, for example: - Lobby, hallways, stairways - Recreation areas - Landscaping; and - The parking lot.

One-to-Four Family Dwellings

VA-guaranteed loans are available for the purchase or construction of one-to-four family dwellings. The VA does not have a program for loans in which the veteran borrower will not occupy the property being purchased or constructed. When obtaining the loan, the veteran must certify in writing that he or she will occupy the property purchased with the loan proceeds. If the veteran is on active duty, his or her spouse must occupy. If the property is a multi-family dwelling (maximum of four units), the veteran must occupy one of the apartments.

Professional Designation

Upon completion of the IREM program, individuals receive the professional designation: Certified Property Manager (CPM) Other associations for property managers include the: - National Apartment Association; - National Association of Residential Property - Managers Community Association Institute; and - Building Owners and Managers Institute.

Inspections: Inspection Reports

Usually the buyer wants to inspect the premises prior to closing. The inspection most often is performed by a professional inspection company. Both buyers and sellers should review the scope of services covered--for example, some inspectors check foundations and others do not. This is called a "whole house inspection." The inspection reports indicate any mechanical, electrical, plumbing, design, or construction defects. This is normally paid for by the buyer and made a contingency to the buyer's obligation to buy. Some sellers authorize a home inspector to complete a report in the hopes this will make the property more marketable.

Valuation

Valuation of property establishes an opinion of value using an objective approach. The person assigned to perform the valuation must base his or her opinion upon facts relating to the property such as square footage, location, and cost to replace. Value is an abstract word with many acceptable definitions. In a broad sense, value may be defined as the relationship between a desired object and a potential purchaser. It is the power of a good or service to command other goods or services in exchange. In terms of appraisal, value may be described as the present worth of future benefits derived from the ownership of real property. Obviously, while based on an objective approach, appraisal involves many subjective decisions by the appraiser.

Previous Deeds

When a property is described by referring to a previous deed that conveyed the same property, the reference incorporates the description from the previous deed into the new deed being prepared. If the description in the previous deed is faulty, the subsequent deed is still bound by that description. Often a description also contains a statement as to the number of acres or quantity of land being conveyed. If this quantity is inconsistent with the description by metes and bounds, the quantity of land is established by the metes and bounds descriptions.

Damages: Compensatory Damages

When a contract is breached, one party usually suffers monetary loss as a result of the contract breach. The amount of money actually lost limits the amount of compensatory damages the court will award. The amount of compensatory damages should be an amount sufficient to put the non-defaulting party in the same economic position that he or she would be in if the contract had not been breached. The amount ordered paid should total what the injured party lost from the contract breach. The amount must be able to be calculated with some certainty. The following is an example of compensatory damages which might be awarded: Landlord must evict tenant for failure to pay rent in the amount of $800. Upon inspection of the premises, damage to windows, walls, and appliances has been done in the amount of $500. In addition, landlord must move and store tenant's belongings at a cost of $285. The compensatory damage award should be the total of $800, $500, $285, plus any court costs to file suit = $1585

Subagents

When a cooperating broker accepts the offer of subagency associated with a listing, he or she works through the listing broker and is therefore the principal's subagent, just as are the sales associates in the listing agency's office. The cooperating broker has the same responsibility to work for the best interest of the owner who is paying the commission for both brokers. The advantages of an MLS are obvious, cooperating brokers and sales associates have more offerings and the seller has more licensees working on his or her behalf. Placing a property in the MLS permits subagency but does not automatically create it or require it. A broker might decide to work as a buyer's broker instead of working with the listing broker. In this situation, licensees acting as buyer brokers must make their agency status clear to the listing broker before showing the property.

Loan Assumption or Payoff

When a loan is assumed, the interest proration is a debit to the seller and a credit to the buyer. When a loan is paid off, unpaid interest is calculated and added to the outstanding loan balance and is a debit to the seller only.

Wills: Leaving No Will

When a person dies and leaves no valid will, the law of descent determines the order of distribution of property to heirs. The typical order of descent is to: - Spouses - Children - Parents - Brothers and sisters - To more remote lineal and lateral descendants. State statutes are enacted for this purpose and are called intestate succession statutes because a person dying without leaving a valid will has died intestate.

Release of Liability

When a property is sold under a loan assumption, the seller's agent has a responsibility to inform the seller of any liability and recommend that the seller obtain a release of liability from the lender at the time of sale, if possible. This release of liability, based upon substituting the buyer for the seller on the mortgage and note, is sometimes called a novation. A novation is simply the substitution of a new obligation for an old one (i.e., substitution of new parties to an existing obligation, such as when the parties to an agreement accept a new debtor in place of an old one).

In Writing

When a property owner signs a listing, all the essential elements of a valid contract must be present. The owner and broker must be legally capable of contracting, there must be mutual assent, and the agreement must be for a lawful purpose. Nearly all states require that a listing be in writing and signed to be valid, and thereby enforceable in a court of law. Note that the formalities of employment are not necessarily required to establish an agency relationship, so the licensee may be responsible as an agent without the benefit of employment.

Certificate of Eligibility: Maximum Guarantee of Loans

When a veteran is discharged from the service, he/she receives a "certificate of eligibility." This certificate states the maximum guarantee of loans in effect at the time the veteran is discharged. Currently, the certificate provides an eligibility of $36,000 for loans $144,000 or less and up to $50,750 for loans of more than $144,000.

Fractions: Denominator and Numerator

When a whole unit or number is divided into equal parts, each of the parts is a fraction (and a percent) of the whole unit. When dealing with fractions, the number below the line is called the denominator. The denominator always indicates the total number of equal parts in a whole unit. The number in a fraction that appears above the line dividing the numbers is called the numerator. The numerator indicates how many of the equal parts of the whole unit are being counted.

Minimum Services Law

When accepting an agreement to list an owner's property for sale, the broker or his or her licensee shall, at a minimum, accept delivery of and present to the consumer all offers, counteroffers, and addenda to assist the consumer in negotiating offers, counteroffers, and addenda, and to answer the consumer's questions relating to the transaction. This applies only to listing brokers and their licensed office personnel; it applies regardless of any agency relationship established between the listing broker and the consumer

Vesting Options

When acquiring property, buyers have many options as to how to acquire the property. The various choices are referred to as vesting options. The vesting is shown in a deed (or will) immediately following the name(s) of the grantee(s) or devisee(s). Vesting options may range from a basic tenancy in common to a complicated tenancy in partnership or trust agreement. The various options create stronger or weaker responsibilities and rights between co-owners with respect to one another. A co-owner's conduct may be very different under different vesting options with different rights.

Reasonable cause for payment

When an actual introduction of business has been made, a subagency relationship between brokers exists, a contractual referral fee relationship or other agreement exists, or a contractual cooperative brokerage relationship exists.

Collection from the Fund

When an aggrieved person commences an action for a judgment which may result in collection from the Recovery Fund, the aggrieved person shall notify the Commission in writing, by certified mail, return receipt requested, to this effect at the time of the commencement of the action. When the Commission receives the notice described, it may enter an appearance, file pleadings and motions, appear at court hearings, defend the action, or take whatever other action it deems appropriate either on the behalf and in the name of the defendant, or in its own name. The Commission may also take any appropriate method of review either on behalf and in the name of the defendant, or in its own name. The Commission may settle or compromise the claim. Any expenses incurred by the Commission in defending, satisfying, or settling any claim shall be paid from the Recovery Fund.

Judgment in Court

When an aggrieved person recovers a valid judgment in a court of competent jurisdiction against a broker or salesperson on the grounds described previously, the aggrieved person may file a verified claim in the court in which the judgment was entered and on a 10-day written notice to the Commission, may apply to the court for an order directing payment out of the Recovery Fund of the amount unpaid on the judgment

Fees

When any person makes application for an original license as a broker or salesperson, he or she shall pay, in addition to all other fees, a fee of thirty dollars ($30) for deposit in the Recovery Fund. In the event the Commission does not issue the license, this fee shall be returned to the applicant. Any salesperson licensee who has paid the additional fee and who has attained a broker license and has paid the additional broker fee shall be refunded, upon request, one of the additional fees and no other salesperson licensee shall be required to pay an additional fee upon attaining broker status. Payments made to the Recovery Fund in lieu of bond by a licensee shall be paid only one time when he or she is originally licensed by the Commission. When the balance remaining in the Recovery Fund is less than five hundred thousand dollars ($500,000), each broker and salesperson shall on order of the Commission pay a fee of thirty dollars ($30) per license for deposit in the Recovery Fund. A licensee on inactive status shall not be required to contribute to the Fund at that time. A fee of thirty dollars ($30) shall be paid at the time a license is activated.

Liens

Whether or not real property tax liens and special assessments must be paid at the foreclosure sale is a matter of state law. Some states require these liens also to be included at the foreclosure sale; other states do not include them and the purchaser of the property will be responsible for those liens at a later time.

Voluntary vs. Involuntary Alienation: Operation of Law

When death is accompanied by a valid will or, in the absence of a valid will, with qualified heirs located to receive title to the property, the applicable term is voluntary alienation. Voluntary alienation is the type of transfer that is of primary importance to the real estate business. Voluntary alienation during life is accomplished by the delivery of a valid deed by the grantor to the grantee during the life of both of them. The contract for sale of real property is consummated when the grantor delivers to the grantee a valid deed as required in the contract. During the life of an owner, title to real property may be transferred by involuntary alienation through the operation of law. Such actions include: - A foreclosure sale - Adverse possession - Filing a petition in bankruptcy - Condemnation under the power of eminent domain.

CE Records

When licensees renew their licenses, they shall verify the number of hours of approved continuing education hours completed. If audit shows that the representation was false or inaccurate, the licensee will be subject to revocation of his/her real estate license.

Disbursements

When marketable title is shown and all other contingencies of the escrow instructions are met, the escrow agent disburses the purchase price to the seller minus all charges and expenses attributable to the seller. The escrow agent also records the deed, mortgage, deed of trust, and any other documents set out in the escrow instructions.

Agency : Fiduciary

When one person enters into an agreement to act on behalf of another person, an agency relationship is created. The person who selects the agent to act on his or her behalf is the principal. Another name for principal is client. Upon creation of the relationship, the agent is placed in a position of trust and loyalty to the principal. As a result of the agency agreement, a fiduciary relationship exists between the agent and the principal. The term fiduciary means a position of trust. Because of the fiduciary relationship, the principal has placed faith, trust and confidence in the agent hired. The principal may authorize the agent to use other people to assist in accomplishing the purpose of the agency. These people are subagents. In some states, the concept of subagency is no longer in force, as will be discussed later in this lesson.

Written Report

When this is prepared as a written report in accordance with the Uniform Standards of Appraisal Practice, the report contains: - The definition of value to be applied; - The estimate and effective date of the valuation; - The appraiser's signature and certifications, along with any limiting conditions; - Description of the property and rights being appraised; - General and specific data; - Sufficient justification to support the value estimate; - Consideration of each of the three approaches - The reconciliation. It is common for the report to include such supporting documentation as maps, floor plans and photos.

Looking for the Total

When you know the part and the rate and you are looking for the total, use the following formula: Part ÷ Rate = Total

Looking for the Rate

When you know the part and the total and you are looking for the rate, use the following formula: Part ÷ Total = Rate

Looking for the Part

When you know the total (which always equals 100%) and you know the rate (percent) and you are looking for the part, use the following formula: Total x Rate = Part

HUD Guidelines

When you place an advertisement in a regularly printed media, such as a newspaper or magazine, use the logo at this stated size. Larger logotypes may be appropriate. HUD has issued advertising guidelines to assist in the determination of an appropriate-sized logotype. Size of Ad Size of Logotype (inches) 1/2 page or larger 2 x 2 1/8 page up to 1/2 page 1 x 1 4 column inches up to 1/8 page 1/2 x 1/2 If the ad is less than 4 column inches (one column 4 inches long or two columns 2 inches long), use the Equal Housing Opportunity slogan instead. It should be noted that these page proportions are for newspaper-sized pages. In publications with smaller pages, such as a "Homes" magazine, it may be appropriate to use a smaller logo, but in no case should the logo be smaller than 1/2 inch by 1/2 inch.

Nonconforming Use: Grandfathered In

When zoning is first imposed on an area or when property is rezoned, the zoning authority generally cannot require the property owners to discontinue a current use that does not now conform to the new zoning ordinance. A nonconforming use occurs when a pre-existing use of property in a zoned area is different than the use specified by the zoning code for that area. The nonconforming use must be permitted because requiring the property owners to terminate the nonconforming use would be unconstitutional. In these cases, the property owner is permitted to lawfully continue a nonconforming use. This is called a pre-existing nonconforming use or a use "grandfathered" in. Although nonconforming use is permitted under these circumstances, the user is subject to certain requirements designed to gradually eliminate the nonconforming use.

Common Denominations

Whenever denominators are not the same, fractions cannot be added or subtracted until a common denominator is found. The lowest number that can be divided evenly by all of the denominators is called the lowest common denominator. What is the lowest common denominator of these fractions: 3/4, 1/2, and 5/8? The largest denominator is 8 and the other two denominators (4 and 2) will divide evenly into 8. Thus, 8 becomes the lowest common denominator.

VA Loans: Guaranteed Loan Program

Whereas the FHA programs insure loans, the Department of Veteran Affairs offers a guaranteed loan program. Under a VA-guaranteed loan the VA guarantees repayment of the top portion of the loan to the lender in the event the borrower defaults. Unlike the FHA, the VA does not set maximum loan amounts. The VA-guaranteed loan is a 100% loan requiring no down payment . The loan amount may be 100 percent of the VA appraisal of the property set forth in the Veterans Administration Certificate of Reasonable Value (CRV) or 100% of the sales price, whichever is less. The VA provides this certificate, sometimes informally called the VA Appraisal, to the lending institution as a basis for making the loan.

Radon

While asbestos and lead-based paint are commonly tested for in real estate transactions, radon is also a problem in certain areas. Radon is a radioactive gas produced by the decay of natural radioactive minerals in the ground. It can occur anywhere but is especially known to be a problem in the eastern United States. Radon is only known to cause health problems when it is trapped in high concentrations in buildings, usually in basements with inadequate ventilation. Growing evidence suggests that radon may be the most underestimated cause of lung cancer, particularly for children, people who smoke, and those who spend considerable time indoors. Home radon detection kits are available, although more accurate testing can be conducted by a home inspector or radon-detection professional. Radon levels can be reduced by installing ventilation systems or exhaust fans.

Spot Zoning

With spot zoning, a specific property within a zoned area is rezoned to permit a use different than the zoning requirements for that zoned area. If the rezoning of a property is solely for the benefit of the property owner and has the effect of increasing the land value, the spot zoning is illegal and invalid. Spot zoning is not favored by the law. When spot zoning is used for the benefit of the community and not for the benefit of a certain property owner (or owners), the spot zoning is not illegal and is valid even though the owner may benefit. An example of permissible spot zoning could be a small grocery store or convenience shop in a residential area to give easy access to the surrounding residential areas. Spot zoning is also called contract zoning.

Land Use Controls: Regulations

With the advent of private ownership of land, the general public had a vested interest in the use of all land, because of its effect on surrounding land. The use of land requires some regulations for the benefit of all. An owner's use of land is affected by government and private land use controls, or limitations on land use. This is especially true in areas of high population density, where land uses are more intense and affect a greater number of people. Land Use Intensity (LUI) is a system of land use under local zoning codes or comprehensive development ordinances designed to relate land, building coverage of the land and open space to one another. The LUI scale provides a series of density ratings (percentages) that include floor area, open space, living space, and recreation space.

Active License

Within 90 days after passing the examination, the applicant shall secure a qualifying broker and meet all requirements of this chapter and the Board shall issue an active license or classify the license as inactive. In order to obtain an active license, the applicant's qualifying broker shall sign and submit to the Commission a sworn statement that the applicant is, in his or her opinion, honest, trustworthy, and of good reputation and that the broker accepts responsibility for the actions of the salesperson. The applicant's qualifying broker shall be licensed in Alabama.

Procedures and Safeguards

You must begin thinking anew of the potentially broad effects of your actions and statements, not just their intent. When you decide to adopt a particular practice, that decision should be based not on simply ease of implementation or economic benefit of implementation, but also on whether it allows you to comply with fair housing laws. In your day-to-day real estate practice, you should incorporate procedures and safeguards which will assure full compliance with fair housing laws. You should be able to demonstrate that prospects of any protected class are offered the same number and range of listings as any other prospect of comparable financial means or that a prospect of any protected class receives the same degree of "follow-up" and the same level of quality of sales effort as any other prospect.

Example 5:

You paid a 15% down payment on a tract of undeveloped land. The down payment amounted to $8,250. What was the purchase price? The down payment divided by the rate of interest provides the total price of $55,000.

Improper Listings

You should guard against improper listings which can fall into two categories. You should refuse any attempt to place: 1. Restrictions on parties to whom the property may be offered for sale because of race, color, religion, sex, handicap, familial status or national origin; and 2. Restrictions on the sale. Not accepting a listing from a protected individual may result in a complaint against you. Certainly you have the right to refuse a listing for legitimate reasons, but refusing a listing because of the owner's minority status is discrimination.

Requirements

Zoning laws also define certain standards and requirements that must be met for each permitted type of use. These requirements include things such as: - Minimum setbacks, or distances from the front property line to the building line, as well as from the interior property lines - Minimum lot size on which a structure may be placed - Height restrictions to prevent interference with the passage of sunlight and air to other properties - Regulations against building in flood plains - Requirements for off-street parking

Exclusive or Cumulative Use

Zoning ordinances may provide for either exclusive-use zoning or cumulative-use zoning. In exclusive-use zoning, property may be used only in the ways specified for that specific zone. For example, if the zone is commercial, residential uses will not be permitted. In contrast, cumulative zoning may permit uses that are not designated in the zone. For instance, if an area is zoned commercial, a residential use could still be made of the property. In cumulative zoning, uses are placed in an order of priority; these are, in order from highest to lowest priority: residential, commercial, and industrial. A use of higher priority may be made in an area where the zoned use has a lower priority.