Section 17: Encumbrances in Arizona Unit 1: Non-Monetary Encumbrances

Mechanic's lien

- For Mechanic's Lien, Contractors must submit a preliminary 20-day notice to owners, contractors, and/or project leaders. They must submit this within 20 days of starting work to protect their right to file a lien meaning...All contractors and suppliers have to provide a preliminary 20-day notice before they file a lien. They submit these within 20 days of first providing labor or materials.

Assessment ratio

-The percentage of the appraised value of property at which the property will be taxed. In Arizona, residential properties have an assessment ratio of 10%, which is used to calculate the assessed value (limited property value × assessment ratio = assessed value). -For COMMERCIAL it is 25%

Quitclaim Deed

A deed to relinquish (give up) any interest in property which the grantor may have, without any warranty of title or interest so a quitclaim deed provides no warranties or covenants; it only guarantees that the grantor is transferring any interest or title he or she may have in the property.

attachment lien

An attachment lien is when the courts place on encumbrance on the property of a defendant in a lawsuit for monetary damages

Easement by prescription

An easement acquired by continuous, open, and hostile use of the property for the period of time prescribed by state law.

Easement by necessity

An easement allowed by law as necessary for the full enjoyment of a parcel of real estate; One way to remember this type of easement is by thinking of the importance of getting access to a road.

Tax years between 2018 and 2025?

For tax years 2018 to 2025, interest on the first $750,000 of mortgage debt is deductible for married couples filing jointly or $375,000 for married couples filing separately.

Arizona solar energy exemption

HOAs can't prevent homeowners of real property from installing/using solar energy devices. However HOAs can't prevent owners of property acquired after April 17, 1980 from installing/using solar energy devices, but they can regulate placement as long as it doesn't prevent their use or functionality, or adversely affect their cost/efficiency. Arizona's solar energy exemption protects consumer's rights to Install/use solar energy devices

Assessor valuation

Homeowners have 60 days from the date their assessment notice is mailed to file an appeal if they don't agree with the assessor's valuation of their property. The assessor will render a final decision regarding the petition by August 15.

Pass Through Entities

Pass-through entities, such as sole proprietorships, partnerships, LLCs, and S corporations, pass their income to the individual owner's income tax return, and they're taxed at individual income tax rates, rather than corporate rates so, their earnings are taxed at the owners' individual tax rates.

portfolio investment

Portfolio is an income that comes from investments, which includes capital gains, interest, and dividends.

How does Arizona determine the property tax rate for a given property?

Tax rates are equal to the sum of the primary and secondary tax rates and are determined annually based on budgetary needs.

200% rule

The combined fair market value of the property (or properties) being exchanged into cannot be more than 200% of the relinquished property.

Which is an example of easement termination by merger?

The owner of a servient estate buys the property of the dominant estate. An example of a merger that terminates the need for an easement is when the owner of a servient estate buys the property of the dominant estate, thereby making the easement unnecessary.

Income tax rates

The tax rate on long-term capital gains is less than the tax rate for ordinary income.

What must happen for an easement to be terminated due to abandonment?

To terminate an easement through abandonment, the dominant estate's owner must take action that shows a clear intent to stop using the easement.

conservation easement

When a landowner creates a legal agreement with a land trust or government entity and that agreement includes permanent use and development restrictions, this arrangement is known as a conservation easement so, landowners may mortgage, lease, sell, or bequeath the land; however, the conservation easement restrictions stay attached.

Investment Cycle

*OWNERSHIP: phase of the investment cycle includes deductions for mortgage interest and property taxes. *REVERSION stage of the investment cycle is when there is depreciated basis and tax-deferral through 1031 exchanges?

homestead exemption

-A state law that gives homeowners a tax break for property that is their primary residence also exempt up to $150,00 part of the value of their primary residence from seizure for payment of debts but it doesn't offer protection from foreclosure.

1031 Tax Deferred Exchange

-Investors who want to use the 1031 tax-deferred exchange must identify the property within 45 days and close within 180 days. -The new property's debt load must be equal to or greater than the debt load for the previous property, or the seller may owe taxes on the difference. -The 1031 tax-deferred exchange allows investors to defer capital gains taxes when selling a property, provided the money is rolled into another "like" purchase.

Judgment liens

-Involuntary liens and are valid for 10 years. -Judgment liens can be renewed by action (filing a lawsuit), or by filing an affidavit of renewal of judgment with the clerk of court 90 days before the expiration of the judgment or prior renewal. -No lien exists until the clerk of court has certified and recorded a copy of the renewal affidavit.

Market Value

-Market value is the probable sales price of a property if the property were sold under normal market conditions. - The probable sales price if the property were listed today and a willing seller and buyer were involved in the transfer of ownership

property taxes

-Property taxes are locally imposed and benefit local improvements and infrastructure. -Taxes that are raised and spent locally to finance public services -Property taxes paid contribute about one third of local government revenue. -Property have a high compliance rate (that is, people tend to pay their property taxes). They are also hard to conceal, hold their value, and have low collection costs. -Property taxes can be deducted for a primary residence, vacation home, or rental property.

Property Classifications

-There are 4 classifications used for the purpose of property taxes in Arizona. -CLASS ONE: includes mines, standing timber, utilities, commercial, and industrial properties (assessment ratio of 25%) CLASS TWO: includes agricultural and nonprofit properties as well as vacant land (assessment ratio of 16%) CLASS THREE: Includes owner-occupied residential property, including homesites as large as 10 acres, and single residential parcels between 10 and 40 acres (assessment ratio of 10%) CLASS FOUR: includes residential rental properties, licensed childcare facilities, nonprofit residential facilities for the disabled, and licensed residential institutions and nursing homes (assessment ratio of 10%)

boot

Cash funds an investor receives from the sale proceeds of a 1031 property are referred to as boot, and boot is taxable.

Dominant Estate

The tract of land in an easement appurtenant which benefits from the easement.

Assessed value

The value of an asset determined by tax authorities for the purpose of calculating taxes -Assessed value is a percentage of market value and is the amount of property value to which the tax rate is applied.

Covenants

When referring to private land use restrictions, fence height, additional structures, and architectural design are generally categorized under Convenants.

subordination agreement

When two lien holders agree to modify lien priority, it's called a subordination agreement meaning.. when lien holders allow another lien holder's claim to have priority over their own. A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances.

Servient Estate

the land over which an easement is granted. EX: If the Bakers allow their neighbors, the Crandalls, an easement or right of way through their owned field, the Bakers are the servient tenement in this example.