TX Law of contracts

Conforming loans

Meet all qualifying guidelines set by Fannie Mae and Freddie Mac, which include: Loan amount Down payment requirements Loan-to-value ratio Housing debt-to-income and/or total debt-to-income ratios

Within how many days after the title company receives a copy of the signed sales contract is the seller required to deliver commitment for title insurance to the buyer?

20

Three rules

200% Rule: Multiple properties are okay but may not exceed 200% of value of relinquished property. 95% Rule: Multiple properties are okay, as long as they total at least 95% of the value of the relinquished property. Three-Property Rule: Up to three properties are okay with no fair market value restriction.

VA loans

A VA loan is another type of government loan that is strictly available to members and former members of the armed services. VA loans are guaranteed by the U.S. Department of Veterans Affairs. Veterans can pay as little as nothing down, and the VA doesn't allow lenders to require mortgage insurance.

Mortgage bond

A bond (also known as a mortgage bond) may be used to secure the mortgage instead of a promissory note. When a bond is used to secure property and the borrower defaults, the borrower may face foreclosure. A lender may sell a group of mortgages to an investor wrapped in one mortgage bond. The investor may collect interest on the mortgage bond for the term of the mortgage along with the principal. Each state has rules whether a bond may be used instead of a promissory note.

Community property rights of survivorship

A community property right of survivorship means that a couple not only shares their assets under community property estate, but that they've also attached to that estate the "right of survivorship," which, through a written agreement, gives the surviving spouse the assets of the deceased spouse. This agreement removes the requirement for probate. Once this agreement is formed, if one of the spouses dies, then the surviving spouse automatically receives all interest in the property and assets.

Statute of Limitations

A federal or state statute setting the maximum time period during which a certain action can be brought or certain rights enforced.

Loan Origination Fee

A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Jumbo mortgages

A jumbo mortgage is one where the loan amount is higher than the conforming limits for a given area. Conforming loan limits are limits set by the Federal Housing Finance Agency (FHFA). In order for a lender to make a loan through one of these government programs, the loan has to meet the criteria for that loan, including loan limits. Because jumbo loans don't meet the standards of a conforming loan, they're harder to sell on the secondary market, and not every lender will offer them. Lenders that do make jumbo loans offset their financial risk (the risk of not being able to resell the loan) by charging the borrower a higher interest rate. Due to tighter lending standards in the wake of the 2007 financial crisis, qualifying for a jumbo loan is more difficult than for conforming loans. Depending on the loan amount, transaction type, property type and location, jumbo loans may require a minimum down payment of 20% for primary residences, and more than 30% for vacation and investment properties. In addition, borrowers will be expected to maintain excellent credit scores and have sizable assets.

legally competent parties

A legally competent party has the capacity (legal and mental) to enter into a contract. If the party does not have legal capacity and enters into a contract anyway, the contract is voidable by the party lacking the capacity. In the case of a minor entering into a contract to purchase real estate, the minor doesn't have contractual ability due to his age. The minor may hold the adult to the contract, but the adult cannot legally hold the minor to a contract.

Purchase Money Mortgage

A mortgage given by the seller to the buyer to cover all or part of the sale price. Seller financing. May be a first mortgage, a junior mortgage, or a junior wrap-around mortgage.

Novation

A novation creates a new contract between the buyer and the lender that replaces the old one between the lender and the seller and ends the seller's prior obligations. Novatians can sometimes be difficult to obtain, such as when interest rates have risen, and the lender is loathe to accept a 5% interest rate when rates are now 9%.

Prepayment Penalties

A prepayment penalty is a monetary penalty imposed on a borrower for paying off a loan before its intended time. Why would a lender mind getting its money early? Because the lender will receive less money (in interest) than was intended when the borrower and lender agreed to the terms of the loan.

Fee on condition

A type of defeasible estate recognized by the words "but if." The estate continues unless a specific event occurs, in which case it terminates.

homestead

A type of estate that gives the owner special rights in property used as a family home (not valid in all states)

Act of Waste

Abuse of a property by a person who holds possession through a life estate

breach of contract

Accept partial performance. If Andy deposits the earnest money check on day seven, perhaps Claire will be satisfied and go through with the contract. Rescind the contract unilaterally. Claire has the option to rescind; Andy does not. Sue Andy for damages. Claire could take Andy to court claiming breach of contract if they are unable to work out another solution. Claire could claim that by having her property off the market for six days, she suffered a monetary loss and could seek monetary damages. Sue Andy for specific performance. A suit for specific performance requires the parties to make good on the promises they made. It's too late for Andy to meet the two-day deadline, but Claire could still sue him to deposit the check. Chances are she wouldn't do this because by the time the suit was filed he could deposit the check. Accept liquidated damages. In this case, Claire has no liquidated damages. Generally, the earnest money deposit serves as the seller's liquidated damages, and Andy hasn't deposited it yet. But this is an option for sellers when a buyer breaches the contract later in the game. In fact, the primary purpose of the earnest money deposit is to get some of the buyer's skin in the game and provide protection (legal remedy) for the seller. Mutually rescind the contract. Let's say that Andy has changed his mind about buying Claire's property, and Claire has another buyer in the wings who is willing to pay. In this case, the parties would likely agree to mutual rescission of the contract.

Snowball

After paying off another debt, for instance a student loan debt or a car payment, put that amount toward principal each month.You won't feel the hit in your budget because you are already used to paying this amount. Example Your mortgage is $1200. Your car payment is $200. You sell or pay off your car. Make mortgage payments of $1400, with the extra $200 going toward principal.

States that Recognize Tenancy by the Entirety Ownership

Alaska, Missouri, Arkansas, New Jersey, Delaware, New York, District of Columbia, North Carolina, Florida Ohio, Hawaii, Oklahoma, Illinois, Oregon, Indiana, Pennsylvania, Kentucky, Rhode Island, Maryland, Tennessee Massachusetts, Vermont, Michigan, Virginia, Mississippi, Wyoming

Negotiating Mineral Rights for a Real Estate Transaction in Texas

All minerals are considered part of the real estate in Texas. As a result, a contract of sale for real estate would typically include the rights to the surface of the land as well as the minerals underneath. However, minerals have a unique characteristic in that they may be detached from the surface; that is, ownership of the minerals may be separated from the ownership of the surface of the land. To avoid any misinterpretation or confusion, it's best to specify—where minerals are concerned—what is not included in the sale within the sales contract. Two ways to do this are by using: An exception, which informs the buyer that there's a deficiency in the seller's title (for example, if a prior owner holds a mineral interest). A reservation, which identifies an interest (for example, a mineral right or access easement) that the seller will retain. When a seller wants to reserve mineral rights, a promulgated form titled "Addendum for Reservation of Oil, Gas and Other Minerals" may be used. However, never complete a form on behalf of anyone else unless you fully understand it. If the complexity goes beyond the limits of the promulgated form, advise your client to retain an attorney to prepare the appropriate documentation.

Loan Contingency

Also known as a mortgage contingency or financing contingency, when included in a sales contract, the loan contingency protects the buyer in case financing falls through. Unless the buyer's offer is made contingent on financing being available, the buyer could enter into a binding contract with the seller, and if the loan fell through and the buyer were unable to complete the transaction, the buyer would lose any earnest money deposited.

Easement by necessity

An easement allowed by law as necessary for the full enjoyment of a parcel of real estate; for example, a right of ingress and egress over a grantor's land.

leasehold estates

An estate for a limited time (e.g., renting, leasing)

Estate for years

An estate for a specified time: (e.g., days, months, years)

qualified fee

An inheritable freehold estate that is defeasible (the grantor can terminate the title). For example, a parent could transfer property to a child as long as the child remained unmarried.

Estate at will

An occupation of space, for an indefinite period, which can be terminated by either the lessor or lessee at any time. Also referred to as tenancy at will.

Which of the following refers to the inherent or automatic rights that are the natural consequences of property ownership such as water rights?

Appurtenance

Appurtenance

Appurtenance in real property means the inherent or automatic ownership rights that are the natural consequences of property ownership. Property owners may keep, sell, or lease these rights. Some of these rights include: Profit License Air rights Subsurface rights Water rights

Essential Contract Elements

As we've discussed, a valid contract is one that is enforceable by law. Because the statute of frauds states that real property transfers of ownership must be in writing to be enforceable, one of the essential elements of a valid real estate contract is that it be in writing. There are five additional essential elements to a valid real estate contract. These are: Legally competent parties Offer and acceptance Consent Legal purpose Consideration

negotiable instrument requirements

Be in writing Have a time limit on the payment (e.g., "on or before January 1, 2016"), or must be payable upon demand; Some negotiable instruments are not payable on demand (for example, drafts, promissory notes, and CDs) while others, such as checks are. Contain a promise or order to pay; The negotiable instrument may not contain any conditions for payment; it must be unconditional. Specify the amount of money to be paid; If interest is charged for the money owed, the rate of interest, which may be fixed or variable, must appear either on the instrument itself or be referenced in an associated document. Be signed by the person/entity who is making the promise or agreement to pay; An authorized agent of the maker/drawer may sign the negotiable instrument for the maker/drawer.

Mortgages and Mortgage Insurance

Borrowers can choose from many different mortgage products, but most of those products fall into one of two categories (unless the borrower is getting financing from the seller or some other private source). Mortgage loans are usually either conventional or government loans, such as FHA-insured (Federal Housing Administration) or VA-guaranteed (U.S. Department of Veterans Affairs). With a conventional loan, if the loan-to-value ratio (LTV) exceeds the lender's threshold of 75% to 80%, the lender may require the borrower to purchase private mortgage insurance (PMI), though there are some conventional loan products with much lower down payments that don't require PMI.

Loan term

Borrowers should consider how long they plan to be making mortgage payments when deciding on the loan term. A 30-year mortgage may have a lower monthly payment, but what will happen if the loan term extends beyond the period during which the borrower will have a steady income? Conversely, a couple purchasing a retirement home may prefer a 15-year mortgage in order to have no mortgage payment when they plan on living on a fixed income.

water rights

Categories of Water Rights Riparian rights are granted to landowners whose land abuts a river or stream. (To remember this, keep in mind that riparian and river both start with R.) Littoral rights are granted to landowners whose land borders closed bodies of water, such as lakes and oceans. (An easy way to remember this is that both littoral and lake begin with L.) Natural Processes Associated with Water Rights Accretion: The process in which water carries rock, sand, and soil and causes land build-up Alluvion: New deposits of land that are the result of accretion (common at the mouth of large rivers) Accession: The increase of land or property due to natural or man-made causes Erosion: Gradual loss of land due to natural force Avulsion: Rapid loss of land Reliction: Gradual receding of water, which uncovers new land

Laws impacting real estate professionals

Contract law General property law Agency law Real estate license law (TRELA) State and federal laws and regulations Environmental regulations at the state and federal level

Covanant

Covenant of seisin: The grantor owns the title specified in the deed. Covenant of right to convey: The grantor has the capacity and right to convey title. Covenant against encumbrances: The grantor assures the grantee that there are no encumbrances against the title other than those set forth in public record or the deed itself. Covenant of quiet enjoyment: The grantor assures that the grantee won't be disturbed in the use and enjoyment of the property because of a title defect passed on by the grantor. Covenant for further assurances: The grantor promises to provide any additional assurances that the grantee reasonably requires and will perform any acts necessary to correct any defects in the title being conveyed. Covenant of warranty: The grantor will warrant and defend the title to the grantee against the lawful claims of others. This is the best warranty—and most important—for protecting the grantee, as it contains no limits as to the possible claimants protected against.

CC&Rs

Covenants- requirements of ownership Conditions- promises to do or not to do something Restrictions- A private agreement on a deed that impacts the use of land

Easement by Prescription

Created through continual use over a certain period of time. It must be continual, visible, & w/o approval. Example - a private road becomes public.

Credit unions

Credit unions are member-based cooperatives that provide credit for auto loans and home loans. They take deposits and offer savings vehicles, money markets, and the like. Their rates tend to be pretty competitive.

Sales Contract Transaction Process

Deposit Earnest Money: The buyer writes a check for the deposit that secures the offer. Begin Title Work: A title officer performs a title search to make sure there are no clouds on the title. Complete Inspections: The buyer will arrange for any inspections on the property, including pest inspections. Perform Appraisal: The lender will order an appraisal, which will be used to determine the value of the property for the purpose of obtaining a loan. Obtain Homeowners Insurance: The buyer finds and secures homeowners insurance. Obtain Loan Approval: The lender will inform the title company that the loan request has been approved. At this time, a closing appointment will be scheduled. Obtain Payoff of Existing Mortgage: The closing agent will send notice to the seller's lender asking for full payment of the existing mortgage. Obtain Closing Costs: The buyer must obtain a cashier's check, wire transfer, or a certified check in the amount due at the time of closing. Perform Closing: All of the required title and loan papers will be signed by the buyer. Depending on the type of closing, the seller may have already signed all the necessary paperwork. Record the Change of Ownership: The county records the property deed, as well as the mortgage or deed of trust if the buyer obtained financing.

Environmental Site Assessment for Commercial Properties

Development of any site usually starts with an environmental impact statement, or EIS, that describes how development may impact the environment. This written statement will be used to consider ways to minimize the negative environmental impact of the project. CERCLA may also impact developers. CERCLA stands for the Comprehensive Environmental Response, Compensation and Liability Act. CERCLA identifies sites that have hazardous substances and requires the responsible party to clean them up. It used to be that even if new buyers didn't know that the site was contaminated when they purchased the property, they were held responsible for clean-up anyway. But when SARA—the Superfund Amendments and Reauthorization Act—passed, an "innocent land owner" defense amendment was made to CERCLA that says land owners aren't responsible if they didn't know about the contamination when the property was purchased. Of course, the owner must have acted responsibly when he did find out—no covering it up—and must have done due diligence in investigating the property when it was purchased. If all of that happened, then the land owner may not be held liable.

1/12 plan

Divide your monthly payment by 12; add this amount to your mortgage payment each month.Not only will you pay an extra mortgage payment, by dividing the amount by 12, you are repaying 1/12 immediately, which is better than saving the entire amount up and making one extra payment at the end of the year. Example Mortgage payment is $1,600/12 = $133.33. Payment = $1,733.33/month.

biweekly plan

Divide your mortgage payment in half; pay half of it every two weeks You will make an extra full mortgage payment each year (26 half-payments = 13 full payments) Example Mortgage payment is $1800. Every two weeks, borrower pays $900, making for 26 payments of $900, or an extra $1800 paid each year.

Avoid Unauthorized Practice of Law in Texas

Do Use of promulgated forms: Use existing forms that have been promulgated by TREC Addenda: Use forms promulgated by TREC Explaining contracts: Explain clauses to your clients Investment advice: Crunch numbers for your clients Property taxes: Notify buyers that a sale will likely prompt an increase in property taxes Referrals: Provide a qualified list of professionals to your clients Tenant rights: Know and understand tenant rights Don't Use of promulgated forms: Create your own real estate forms Addenda: Write addenda that cover unfamiliar or unusual circumstances Explaining contracts: Interpret legal consequences of specific actions Investment advice: Recommend specific investments or forecast profits/losses Property taxes: Predict what the increase will be Referrals: Recommend a specific professional Tenant rights: Advise clients on tenant/landlord rights and responsibilities

Noncomforming loans

Don't meet all qualifying guidelines set by Fannie Mae and Freddie Mac. Frequently are "jumbo loans," above the loan limit for government-backed loans.

Terminating Easements

Easements may be terminated in several ways: The easement owner may release the easement if it is no longer needed A dominant and servient land could be merged into one parcel The easement owner could abandon the easement The necessity of an easement by necessity could be terminated (e.g., by building a new access road for the dominant tenement) An easement with a deadline could expire

Real property characteristics

Economic Scarcity: It's true what they say—you can't make more land. Improvements: A land's value can be affected, either positively or negatively, by the changes that are made to it. Improvements can have an impact on the areas and communities surrounding the land, as well.Permanence of investment: Improvements, such as sewer, roads, and utilities, are long-term, stable investments with relatively stable returns over time.Location or area preference: A property's value is in large part dependent on its situs (area where it is located and market desirability for the area). Physical Immobility: The geographic location of a piece of land is fixed; it can never be changed.Indestructibility: While improvements may deteriorate over time, the land itself cannot be destroyed.Uniqueness: One parcel (piece of land) will not be exactly like another. This is the concept of nonhomogeneity.

eminent domain

Eminent domain is the power of the government to take private land for public use. It is the ultimate police power. When the government actually takes someone's property, it's called condemnation. In this situation, a condemned property is first appraised by the condemning governmental authority. The owner of the property is then offered the appraised value for the property seized. The owner can decline this amount and hire an attorney if it seems too low. In 2009, the Texas Eminent Domain Amendment—a constitutional amendment that imposed additional restrictions on the government's powers of eminent domain—was approved in Texas. This amendment prohibits the taking, damaging, or destruction of private property, unless that action is taken for the ownership, use, and enjoyment by the State, or for the elimination of urban blight on a specific piece of land. (Note: As used in this amendment, "the State" includes political subdivisions of the state, as well as the public or entities that, under the law, have been granted the power of eminent domain.) This amendment also prohibits the taking of private property for certain economic development or for the enhancement of tax revenues.

Estate at Sufferance

Estate at sufferance is the continuation to occupy property after legal authorization has expired.

Ownership terms

Estate in severalty: Although the name sounds like "several," don't let that fool you. The root word, "sever," means one person owns the property, and all other interests are severed. Co-ownership: Property with ownership by more than one person, also called concurrent ownership. Types of co-ownership are: Tenancy in common: Each person is entitled to possession of the whole. If one dies, that person's ownership is inheritable, and doesn't necessarily pass to the other owner(s). Joint tenancy: This is defined as equal ownership with undivided rights of possession and requires unity of four separate conditions: All owners must have the same type of interest in the property, all must receive their title at the same time from the same source, all must have the same percentage of ownership, and all must have the right to undivided possession in the property. Joint tenancy includes the right of survivorship, meaning when one joint tenant dies, that person's share automatically goes to the other surviving joint tenant(s). Tenancy by the entirety: This type of tenancy also has the right of survivorship. Only available to married couples, this form of ownership also includes unity of time, title, interest, possession, and marriage. Key to this form of ownership is that creditors of one spouse can't attach liens to or sell the interest of the debtor spouse. Only creditors with claims against the couple may attach and sell the interest of the property owned in this manner. Also, one spouse can't transfer interest in the property without the consent of the other spouse. Tenancy by the entirety can't be reduced to tenancy in common or joint tenancy. Such a change of ownership would require divorce, an annulment, or for the couple to amend the title. Example Ken and Barbie, a married couple, purchased a home together as tenants by the entirety. Unbeknownst to Barbie, Ken had a serious gambling problem and had run up $35,000 in debt by the time they were married. Creditors can seek a judgment against Ken, but they can't lien Ken and Barbie's house, or force a sale of the home to collect on the debt

FHA Loans and the Mortgage Insurance Premium

FHA financing is popular because borrowers with lower credit scores and smaller down payments (as little as 3.5%) can still get a mortgage loan. The Federal Housing Administration insures loans for lenders that meet certain underwriting criteria. Borrowers must pay a mortgage insurance premium (MIP) for the life of the mortgage loan, so it's wise to encourage them to weigh all of their options before deciding which type of loan works best for them. Borrowers pay a portion of the MIP at closing; the remaining premium is prorated and built into the monthly mortgage payments. FHA doesn't set a maximum sales price or focus solely on borrowers with lower credit scores and smaller down payments. There is a maximum loan amount, however, so borrowers must pay anything above that in cash.

Secondary Mortgage Market Players

Fannie Mae (Federal National Mortgage Association or FNMA) Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) Farmer Mac (Federal Agricultural Mortgage Corporation) Ginnie Mae (Government National Mortgage Association or GNMA) Lending institutions that buy loans from other lenders.

Areas of focus

Fannie Mae can purchase any type of loan, but primarily deals with conventional loans from commercial banks. Freddie Mac can purchase any type of loan, but primarily deals with conventional loans from smaller lending institutions (thrifts). Farmer Mac purchases agricultural loans and loans from rural lenders. Ginnie Mae guarantees mortgage-backed securities (MBSs) that contain loans insured or guaranteed by a U.S. government agency.

fee simples estates

Fee Simple Absolute Highest possible interest in property Grants the owner all legal rights with no limitations other than public or private restrictions (e.g., zoning laws) Example Kevin purchased a condo. He has all rights of ownership, including the right to sell and to convey his property to his heirs at his death. His rights are restricted by the covenants created by the condo association. Fee Simple Defeasible The property holder owns the property with all legal rights, but subject to a condition. If the condition is breached, the property may go back to the original owner. Example The Millers gave their son, Steve, the family property, provided he didn't marry his girlfriend, of whom they didn't approve. If he marries her, they can regain ownership of the property. Fee Simple Defeasible Estates Fee Simple Determinable An estate granted using a phrase such as, "so long as," "while," or "during" a stated condition. The original owner retains a possibility of reverter (an interest that may be granted or willed to another). The granted ownership will end when the stated condition terminates (or is breached). The property then automatically transfers to the holder of the possibility of reverter. Example Janice's parents gave her a condo near the university while she was earning her degree. As long as she is enrolled in classes, she owns the condo. When she graduates, ownership of the condo automatically reverts to her parents. Fee Simple Subject to a Condition Subsequent An estate given on the condition that the owner does or doesn't take a specific action, using phrases such as, "on condition that" or "provided that." The grantor has a right of reentry if the condition is violated. Right of reentry may be granted or willed to another. Should the stated condition be violated, the estate doesn't automatically revert to the original owner or holder of that right. The holder of the right of reentry must take legal action to claim ownership. Example Brenda gave her Elvis Museum to Del, provided that Del continues to use it as a museum. If Del instead turns in into the Heartbreak Hotel, Brenda may recover the property, but must take legal action to do so. If she doesn't take action, the property remains with Del, even if it's not being used as a museum.

remainder interests

Fee simple present interest in conjunction with receipt of title upon the death of the life tenant

loan application stage

Find a home: Once the buyer is pre-qualified, she can begin looking for homes. Receive pre-approval letter: Once a property is identified, the buyer will meet with a lender to obtain pre-approval. This is a written statement from a lender that a borrower would qualify for a certain loan amount based on her verified income and credit report. Complete the Uniform Residential Loan Application: This is the formal loan application that lists all assets (items of value) and liabilities (items of debt) in order to determine the borrower's net worth (how much an individual is worth). Credit report: This is pulled to verify income and work history. A tri-merge credit report contains data from all three major reporting firms. From this report, the credit score is determined (generally, the lender will base rates on the middle score). Appraisal: This is performed to determine the home's market value (the price the home could be sold for). This determination is based partly on the sales comparison approach, but appraisers use many other factors to determine value. Title search: This is performed to determine a clear title. Obtain title insurance: Lenders will often require title insurance to insure against financial loss from defects in title to real property. Obtain homeowners insurance: Lenders require proof of homeowners insurance to ensure that the home is covered against any loss that could occur due to physical hazards.

Defining the Mortgage and Deed of Trust

First, some basics: In title theory states like Texas, actual legal title to the property temporarily passes to a trustee to secure the debt. The borrower retains possession rights and equitable title, but legal title stays with the trustee on behalf of the beneficiary (lender) until the loan is repaid. In lien theory states, the lender places a lien on the mortgaged real property, while the borrower retains both "equitable" and "legal" title. In Texas, a lender will use either a deed of trust or a mortgage, so you'll want to understand the differences between them. A mortgage is a legally binding document that creates a lien (or security interest) on a piece of property and gives the lender (or mortgagee) the right to foreclose on property if the borrower (or mortgagor) defaults. In Texas, the deed of trust is the most commonly used instrument of conveyance. A deed of trust is similar to a mortgage except that it involves a third party called a trustee, usually a title insurance company, which acts on behalf of the lender (aka beneficiary). When a borrower (aka trustor) signs a deed of trust, the borrower gives the trustee title (ownership) of the property, but holds the right to use and live on the property. The trustee holds the original deed of trust until the loan is paid in full. Unlike a mortgage, a deed of trust also gives the lender the right to foreclose on the property without taking the borrower to court first.

Pur Autre Vie Life Estate

For the life of someone else; this estate is not inherited and measured by the life of someone else.

Fruits of Nature and Fruits of Industry

Fruits of nature (fructus naturales) are plants that don't require annual cultivation. These include trees, perennial shrubs, and some grasses. Fruits of nature are considered real estate. Fruits of industry (fructus industriales), on the other hand, are plants that require annual cultivation. These include crops of fruits, vegetables, wheat, and corn. Fruits of industry are also known as emblements, and are considered personal property, even though they're a part of the soil.

reliction

Gradual recession of water which uncovers land that usually belongs to the riparian owner.

Groundwater

Groundwater, also known as percolating water, is the water found below the earth's surface (such as well water). Aquifers are a major source of groundwater and supply over half of the water needs for the state of Texas. In Texas, groundwater is considered private property that belongs to the owners of the land above it. The Texas courts have adopted the common law rule known as the rule of capture, which says that a landowner has the right to use or sell all the water that he can drill and capture from beneath his land. In fact, Texas courts have consistently ruled that a landowner has a right to pump all the water that he can from below his land, even if it causes the wells of adjacent land owners to go dry. This groundwater law is often called the "law of the biggest pump," so named because the deepest pump gets all the water, while the more shallow well goes dry. However, there are exceptions to this Texas groundwater law. In the following five situations, a Texas landowner can take legal action if someone interferes with that owner's groundwater rights: If an adjoining neighbor trespasses on the land to remove water— either by directly drilling a well on the land owner's property, or by drilling a "slant" well on the neighbor's property that crosses the property line underground. If there is "malicious or wanton conduct" in pumping water solely to injure the adjoining landowner. If a landowner wastes artesian well water by letting it to run off their land or to percolate back into the water table. If someone illegally pollutes/contaminates a land owner's well. If there is damage to the surface of the land, including sinking of the land, due to negligent over-pumping from adjoining land. Sources of Groundwater In Texas, the legal presumption is that all sources of groundwater are percolating waters, rather than from subterranean rivers. Therefore, unless it can be conclusively shown that a subterranean river is the source of the underground water, the land owner is presumed to own that water. (Note that the Texas Water Code's definition of "underground water" expressly excludes both underflow and subterranean rivers; at this point, the Texas law with regard to subterranean waters has not been settled.) Groundwater Conservation Since 1985, groundwater conservation districts have been established to help strengthen law that help residents manage the groundwater over-pumping issue locally. Typically, these districts have the authority to publish rules to conserve, protect, recharge, and prevent the waste of underground water.

Set dollar over

If paying 1/12 extra feels like too much, even an extra $25 per month can make a difference Using automatic payments, increase your payment by an amount that feels comfortable, and have the extra portion applied toward principal. Example You pay an extra $25 or $50 each month toward principal.

Reverse Exchange

If your clients find and close on an investment property and then decide to sell another property, they can do a tax deferral "backward." This is called a reverse exchange. The investor must still meet the 45- and 180-day deadlines, however. No extension is possible.

Surface Water Rights in Texas

In Texas, the right to use surface water is either determined by riparian or littoral rights, or the doctrine of prior appropriation. Let's look at what each of these terms means: Riparian rights: Water rights granted to landowners whose land abuts a river or stream under common law. Land that was acquired before 1895 carries riparian rights. (To remember this, keep in mind that both Riparian and River begin with the letter "R.") Littoral rights: Water rights granted to landowners whose land borders closed bodies of water, such as lakes and oceans. (An easy way to remember this is that both Littoral and Lake begin with the letter "L.") As we said, land that was acquired before 1895 still carries riparian rights. However, any land purchased after 1895 does not carry riparian rights, and therefore, is subject to Texas prior appropriation. Doctrine of prior appropriation: In Texas, the state controls the right to use any water—including rivers, lakes, streams, watersheds, and more—with the exception of water used for certain domestic purposes. If individuals have a need for water, they must demonstrate their need for a beneficial use for the water (for example, for the irrigation of crops) by applying for and obtaining a permit from the Texas Commission on Environmental Quality (TCEQ). Keep in mind that the issuance of the permit does not grant permission to access the water through someone else's land. To access the water over someone else's land, you must obtain that right-of-way access, or easement, from the individual land owner.

transfer tax

In most states, the transfer of a property from one person to another triggers a tax known as a transfer tax. This tax becomes payable when the deed is recorded, sometimes through the purchase of "stamps" from the recorder of the county in which the property is located. These stamps must be affixed to the deeds and other conveyance documents before those documents can be recorded. Recordation with the stamps in place is proof that transfer taxes have been paid. In states where these stamps aren't used, the taxpayer pays the transfer tax to the county clerk or recorder as required by state and local law.

Townhomes/houses

Just what is the difference between a townhome and a townhouse? Frankly, they're two names for the same thing. Many owners choose townhomes because they're less expensive than single-family homes. Townhomes share one or more walls with their neighbors, but with no neighbors above or below, it's bound to be quieter than a lot of condos or apartments. Some townhomes are two levels with the garage at the side, but others are three levels and include a garage underneath. Some townhomes don't have garages, but instead use assigned parking spaces. A townhome does share an advantage with condos and apartments because owners don't have to hassle with yard work. Many have small fenced yards or courtyards, and usually someone else takes care of the mowing if there's any grass. The homeowner's association covers the big stuff—roof repair and replacement, exterior and common area maintenance. And use of a pool or clubhouse, if they exist, is included in the homeowner association dues. Even though the homeowner association dues—and the politics in the association—can be a nuisance, many owners think a townhome is the best of both worlds. A home without the hassle of a single-family detached home.

Land, Real Estate, and Real Property

Land Land is defined as the earth's surface to the center and the airspace above, including trees, water, and other natural attachments. Real Estate Real estate is defined as land and the permanent man-made additions attached to the land, such as buildings, fences, utilities, etc. Real Property Real property includes attributes of both land and real estate, plus the legal bundle of rights.

Periodic estate

Lease with regular rent payments and no stated ending date

TILA Violations

Lenders that violate TILA face fines and imprisonment. Intentional violations: Fines up to $5,000 and/or imprisonment up to 12 months Unintentional violations: Damages of two times the finance charge, up to $1,000 maximum

Mortgage bankers and mortgage brokers both concentrate on mortgage lending.

Mortgage bankers actually do the lending. They have in-house loan processors and underwriters. Wells Fargo Mortgage is an example. Mortgage bankers can close pretty quickly because they fund their own loans, but their choice of offerings is narrow because it's limited to their own products. On the other hand, mortgage brokers work with multiple lenders to search for and negotiate the best deal for a particular borrower's circumstances. They don't loan the money out themselves, so they're not tied to a specific suite of loan products.

Deed of trust 101

Number of Parties Three: Trustor/borrower, beneficiary/lender, and trustee How Title is Held The trustee holds legal title on behalf of the beneficiary until there is a default on the debt or the loan is paid off in full. Maintenance of Collateral Beneficiary rights are protected with language that requires the trustor to maintain the property by: Paying property taxes and insurance Maintaining the physical condition of the property Allowing the beneficiary the right to inspect the property Release When Loan is Paid in Full The release clause directs the trustee to execute a deed of reconveyance, which conveys title to the trustor. In Case of Default Non-judicial foreclosure is typical. The power of sale clause is standard in a deed of trust, so that the trustor allows the beneficiary the right to nonjudicial foreclosure. The trustee arranges for auction of property; a court order is not required. Time and costs required to foreclose tend to be less than judicial foreclosure. The trustor is given notice of the sale and can cure the default and reinstate the loan prior to the sale. The trustor does not have any statutory right of redemption. The auction sale is final.

Mortgage 101

Number of Parties Two: Mortgagor/borrower, and mortgagee/lender How Title is Held Creates a lien against the property. The mortgagor holds legal title. Maintenance of Collateral Mortgagee rights are protected with language that requires the mortgagor to maintain the property by: Paying property taxes and insurance Maintaining the physical condition of the property Allowing the mortgagee the right to inspect the property Release When Loan Is Paid in Full The lender executes a satisfaction of mortgage form, which is recorded to give notice that the mortgage terms have been met. In Case of Default Judicial foreclosure is typical. The mortgagee files suit against the mortgagor to initiate judicial foreclosure. If the mortgagee proves the mortgagor is in default, a court-ordered sale of the property takes place. The property is sold at auction to highest bidder. Time and costs required to foreclose tend to be greater than a non-judicial foreclosure. The mortgagor has a right to cure the default before the judge's ruling; to use an equitable right of redemption up to the foreclosure sale; or to use a statutory right of redemption after the foreclosure sale. Specific rights depend on state law.Equitable right of redemption allows mortgagor to pay off loan in full prior to auction and maintain property ownership.Statutory right of redemption allows mortgagor a period of time after the property is sold at auction to pay off loan and associated costs and get the property title back. If the state law allows and a power of sale clause is included with the mortgage, non-judicial foreclosure can be used with this instrument.

Pre-qualification stage

Obtain pre-qualification letter: Getting pre-qualified is an informal process that involves the buyer being interviewed by a mortgage professional about her income and expenses. The purpose of this step is to give the buyer an idea of the price range she can afford. It can also let the seller know that, based on this initial information, the buyer will qualify for the loan.

Remainderman

One entitled to receive a remainder interest in some estate sometime in the future.

Taxation as a Government Power

One form of government power that we all know and love (okay, maybe not) is taxation. The purpose of taxation is to meet the needs for public works by funding it through a stable source of income that shares the burden among many. Taxes on real estate include: Annual property taxes assessed by local and regional government entities to support and enhance transportation, utility, and school districts Transfer taxes on the transfer of real property by individuals or entities Special assessment levies in specific districts that finance projects such as road or utility improvements and installations for homeowners in that district Taxation is one of the inherent burdens on private land ownership. Unpaid taxes become a lien on real estate. In most states, property tax liens take priority over any and all other liens that might be attached to the property. That means if the property forecloses, unpaid property taxes are paid first, and other creditors wait their turn in line.

Deed restrictions

One way to encumber a property, is through a deed restriction, which is a private agreement that impacts the use of the land. A covenant is a type of deed restriction. Covenants and other deed restrictions are usually placed on the land by the owner when the property is sold, and they may be included in the deed itself. You will often see deed restrictions (which are also known as restrictive covenants) imposed by a developer who wants to maintains specific standards in a subdivision that's still under development. The developer doesn't want early residents in the development to create issues that will impede future sales. For instance, a deed restriction may involve the types and heights of fencing that may be used. Residents may be prohibited from using plastic fencing, parking their recreational vehicles on the street, or placing satellite dishes where they will be in view of the street.

freehold estates

Ownership for an undetermined length of time; an example is home ownership.

Life Estates

Ownership, possession and control for someone's lifetime

PMI Termination

PMI may terminate automatically or at the borrower's request under certain circumstances.

Conventional Loans and Private Mortgage Insurance

PMI protects the portion of a mortgage loan not covered by the down payment. It shields the lender if foreclosure becomes necessary. Lenders figure that if borrowers have more of their own money at stake, they're less likely to default. In addition, the higher the down payment, the less the lender has to get out of the property at a foreclosure sale in order to break even.

Discharge of Contract

Partial performance means that only a portion of what a party has agreed to has been completed. Sometimes, partial performance is enough for the other party; sometimes, it results in a termination. Specific performance is a lawsuit to force the other party to perform under the contract terms (no monies, just actions). It means that a party must do exactly what they agreed to do. So if a seller agreed to sell a property and then later reneged, the buyer can sue for specific performance, meaning the seller must sell the property as agreed. No other property or monetary damages equal specific performance—only meeting the terms of the original contract qualifies. Substantial performance (of ample or considerable amount) occurs when one party has met most but not all of the terms specified in the contract, and therefore may be required to pay damages for the terms not met. For example, a painter is paid to paint a 200-foot fence and only completes 190 feet. This can also refer to sellers who do not fully complete agreed-upon repairs, but the buyer will still accept the property and fulfill the transaction. Impossibility of performance occurs when the property is destroyed or made the subject of eminent domain. The parties cannot legally or practically do what they've agreed to do, so they are released from their obligations under the contract. Operation of law is the manner in which an individual acquires rights or liabilities automatically due to law, and not through an agreement or act of their own. It exists because the courts have determined, through prior cases, what the parties intend. For example, homestead rights are automatic, because the law says they exist. There is no need for an individual to file documents to obtain homestead rights. Another example of operation of law is if a person dies intestate (without a will), that person's heirs will inherit their property due to the law of descent and distribution. This type of right exists through the operation of law, because even without a will, the law says the deceased person's heirs inherit that person's property. Similarly, if an individual dies while in the process of completing a real estate sales transaction, the individual's heirs are required by law to meet the terms of the contract.

Ownership of Real Estate by Businesses

Partnership: General vs. Limited Kalib Nouri was the idea man. He had a new idea nearly every two minutes. When he saw the empty lot next to the strip mall, he knew that it would be the ideal location for a car wash. The trouble was, he didn't have the capital outlay it would require to get the project off the ground. He turned to his two best friends, Manny Davis and Kirk Whitman, and asked them if they'd go in with him. They agreed but couldn't decide on their form of ownership. Manny wanted to be very involved in the process. Kirk was busy with his family and other obligations, and really didn't know the first thing about car washes, so he preferred to be the "strong but silent partner." He was happy to invest—anything Kalib dreamed up usually paid off—but he didn't want the liability that such an enterprise would mean. The three hashed out a deal: Kalib and Manny would be general partners; Kirk would be a limited partner. They drew up a partnership agreement and a payout plan based on their investments, involvement, and risk. Although all three partners were chipping in an equal amount of cash, because Kalib and Manny were assuming the most risk and would be more involved, they would receive their return on investment and a profit, before Kirk received his return on investment. Corporation vs. LLC Jeb Kawasaki already had a tri-plex and was getting ready to purchase two small single-family houses to rent out. He was a little worried about liability, however, and decided he needed a corporate shield of some kind. He met with an advisor, who ran him through the options. If he incorporated, his personal assets would be protected in the event of a lawsuit. If he formed a limited liability company (LLC), provided it was managed correctly, only the assets the owned—and none of Jeb's other assets—would be subject to a claim or lawsuit. Jeb liked the freedom that an LLC offered him in the management of his properties. For example, in his LLC operating agreement, he could expressly set forth and/or limit the rights, powers and obligations of any other members he decided to bring on. Plus, he felt that the formalities of a corporation were a bit over his head—he didn't want to hold annual meetings with himself, for instance. Another plus? For now, because he was only one owner, he might not have to file a separate tax return and his profit or loss could be included on his tax filing. In contrast, if he formed a corporation, the corporation would have to file a separate return. "I hate taxes!" Jeb cried. "I'll go with an LLC." Syndicates They'd been friends in college. The smartest one in the group—Tito Fuego, or Tito Textbook, as they liked to call him—had a thing for facts and figures. One spring break, Tito, Catherine, and Wes had all gone to Vegas. Starting with just $20, Tito had won $1,200 at the blackjack table. He knew which cards had been played—memorized them—and played the odds. Now Tito was buying and selling real estate. He seemed to have a knack for that, too, and asked his friends and all of their relatives and friends (200 people in all) if they'd like to invest in his next purchase—a strip mall he'd had his eye on. It would be a joint enterprise, and he assured them they would make at least 22% on their investment within eight months. One hundred and fifty people said yes! Tito would keep them informed about the progress of their investment. Because this was an organization with many participants, and because it was an investment of money, a common or joint enterprise—undertaken for the purpose of making a profit, and one in which profit is derived solely from the management efforts of others—this would likely qualify as a syndicate that would be considered to be dealing in securities. Therefore, it would be covered by the Federal Securities Act of 1933 and be subject to the rules and regulations of the Securities and Exchange Commission. Cooperatives The Greener Grass Co-op is a group of people enjoying a co-housing community in a lovely older neighborhood in the city. They are individuals, couples, and families of varied backgrounds and ages—from one year old all of the way to 70-plus—who live in a community where the members act as an extended family to one another, while honoring personal needs for privacy and independence. Greener Grass Co-op is a dense, urban village with a physical design that encourages social interaction. Individual homes have most of the features of conventional homes, and the residents also enjoy extensive common facilities. Because GGC cares deeply about the environment, it incorporates environmentally sustainable practices in construction, in its community, and in day-to-day living. GGC is owned commonly as personal property, not real property. Members/residents purchase shares of ownership and help with the organization, day-to-day functioning, and maintenance of the community. Periodic workdays are planned when highly delegated teams are organized and community meetings are held. The membership votes on rules and guidelines. There is very little turnover at GGC, but residents sign a voluntary agreement that they will not sell or lease their unit to a person or persons who do not wish to fully participate in the community. The seller must also offer his or her home for purchase by the community or to an individual or individuals within the community before putting it on the open market. Condominium Projects "Condominiums may be residential, industrial, or commercial," Marcus Shelby told his audience, which was touring the Downtown Abbey Condominium building. "We're commercial," he explained, "and we rely on our condominium declarations to define commercial units project by project. As a result, this building will be home to many commercial enterprises, from medical offices to retail storefronts to cafes and restaurants. We're 80% leased, and we just got our certificate of occupancy last week." Marcus went on to explain that the declaration did include certain provisions required by statute, which included a description of the property and each unit, a description of the ways in which the condominium is governed and dues are assessed, repair and maintenance responsibilities, and ownership interest between the condominium association and the owner. Unlike cooperatives, condominiums are real property, whether residential, industrial, or commercial. Unit owners do not own the building itself or any common areas, but they instead own the airspace within their units, and a share in an interest in the common areas. As real estate, condominiums may be transferred similarly to how other properties are transferred.

water rights

Percolating The right to draw water from underground resources (such as wells) for the landowner's use. Riparian The right to access and use rivers, streams, and other flowing bodies of water adjacent to the property. Littoral The right to access and use ponds, lakes, oceans, and other stationary bodies of water bordering the property.

Four Phases of Environmental Site Assessment

Phase I: Investigation: Property is reviewed and examined; surrounding properties may also be evaluated. Phase II: Testing: This phase is prompted by the results of Phase I and is only conducted if necessary. If it is, the necessary testing will be conducted and the results shared. If the tests show nothing amiss, then the assessment ends. If a problem is found, then Phase III is put into action. Phase III: Clean-up: During this phase, governmental agencies may step into the process. Any necessary clean-up will be done. Phase IV: Management: During this phase, the project is monitored by the appropriate parties and any on-going or potential issues are addressed.?

lien theory

Principle in which the mortgagor retains both legal and equitable title to property that serves as security for a debt. The mortgagee has a lien on the property, but the mortgage is nothing more than collateral for the loan.

Texas Real Estate Commission Forms

Promulgated Contracts Unimproved Property Contract One to Four Family Residential Contract (Resale) New Home Contract (Incomplete Construction) New Home Contract (Completed Construction) Farm and Ranch Contract Residential Condominium Contract (Resale) Promulgated Addenda Addendum for Sale of Other Property by Buyer Addendum for Back-up Contract Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement Seller's Temporary Residential Lease Buyer's Temporary Residential Lease Seller Financing Addendum Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum Addendum for Coastal Area Property Addendum for Property Located Seaward of the Gulf Intracoastal Waterway Addendum for Property Subject to Mandatory Membership in an Owner's Association Third Party Financing Addendum for Credit Approval Loan Assumption Addendum Addendum for Reservation of Oil, Gas and Other Minerals Short Sale Addendum Addendum for Property in a Propane Gas System Service Area Promulgated Amendment Amendment to Contract Promulgated Resale Certificates Condominium Resale Certificate Subdivision Information, Including Resale Certificate for Property Subject to Membership in a Property Owner's Association Promulgated Notice Notice of Buyer's Termination of Contract Promulgated Consumer Disclosures Disclosure of Relationship with Residential Service Company Approved Optional/Voluntary Use Forms Notice to Prospective Buyer Seller's Disclosure of Property Condition Texas Real Estate Consumer Notice Concerning Hazards or Deficiencies Information About Brokerage Services Lead-Based Paint Addendum Non-Realty Items Addendum Reverse Mortgage Financing Addendum

other commerical leases

Proprietary lease: This is the lease used by owners of cooperative apartments who purchase shares of the corporation that owns the building; the proprietary lease holder does not own the apartment, but a proprietary lease to their residential unit. Ground lease: This is a type of lease in which the tenant leases property upon which the tenant intends to build. The lease term is designed to be long enough for the tenant to recoup the investment for the outlay of cash to build the building. When the lease expires, the improvement belongs to the landowner. Generally a net lease is used where the tenant must pay rent plus taxes, insurance and maintenance (plus repairs). A net ground lease typically has a term of just under 50 years. Oil and gas leases: Under these special lease agreements, the landowner receives a cash payment for executing the lease. The lease typically gives the oil or gas company time to determine whether oil or gas exists, and a deadline by which drilling must begin. If the option to drill is not exercised within the stated timeframe, the lease expires. If it is exercised, the landowner generally receives royalties on the oil or gas extracted. Variable lease: A variable lease is one in which the lease payments change at predetermined intervals. These may be based on changes in an economic index, such as the Consumer Price Index. Sandwich lease: A sandwich lease is one in which the original tenant, Tenant A, subleases to a new tenant, Tenant B. The lease between Tenant A and the landlord is a sandwich lease Lease purchase: A lease with option to purchase is common in residential properties, but may also be used in commercial transactions. In such a lease, a portion of the lease payment may go toward the purchase price. The purchase contract between the owner and the lessee is the primary consideration; their lease is secondary. Sale and leaseback: Sale and leaseback arrangements are common in situations where a commercial building owner needs capital but wants to remain in the building. The building owner will sell the building to an investor, and lease it back. In that way, the original building owner can recoup 100% of the current equity in the building without having to move business locations.

prepayment plans

Provided there is no pre-payment penalty involved, it is usually best for borrowers to pay off the principal of their mortgage as quickly as possible if they want to reduce the amount they will pay in interest over time. When borrowers make their regular mortgage payment, interest is paid before principal. Only a small portion of the initial payments go toward principal, and this is true for several years, with the amount applied toward the principal gradually increasing. However, anything extra the borrower puts toward the mortgage payment can be applied directly to the principal immediately, reducing the principal, which reduces the amount the interest is based on. The sooner a borrower does this, the better because it can reap huge interest savings over time. There may be reasons not to pay off your mortgage early. Many financial advisors recommend paying off high-interest loans first. However, other advisors say the opposite: pay off the long-term debt first because over time it can cost you more, even if the interest rate is low. There are also tax disadvantages to lowering the interest you pay. And putting funds toward your principal mean they are not available for other uses (they are not liquid). If you were to lose your job, for instance, you would have trouble getting a home equity loan.

an inheritable estate

Provides the most complete form of ownership and bundle of rights in real property

Right of Redemption in Texas

Redemption is a period where the borrower still has a chance to cure the default, sometimes even up to a year after the foreclosure sale. There are two types of redemption: Equitable right of redemption is the curing of the default prior to the foreclosure sale Statutory right of redemption is the curing of the default even after the foreclosure sale. Some states allow a defaulting homeowner to cure the default as long as one year after the foreclosure sale. Texas has no statutory right of redemption. In Texas, sold is sold, except under very specific circumstances: Sales for unpaid ad valorem taxes, in which case a former owner of a homestead or agricultural property has a two-year right of redemption. HOA foreclosure of an assessment lien, in which case a former owner may redeem no later than the 180th day after notice.

Foreclosure Alternatives

Refinance: This option may allow the borrower to use the equity in the home to pay the delinquent amount. Depending on the interest rate of the new loan, monthly payments may even be reduced. Repayment plan: Some homeowners are able to work out a schedule with their lender to make a full regular monthly payment plus a little extra each month to repay the delinquent amount over a specified period of time. Forbearance plan: Under special circumstances, a lender may grant a forbearance, which provides for a temporary reduction or suspension of payments that will be increased at a later point to repay the delinquent amount over time. Mortgage modification: This option may allow a refinancing of the debt and an extension of the mortgage term. HUD partial claim: For an FHA-insured loan, the lender may be able to obtain a one-time payment from the FHA-Insurance Fund to bring the mortgage loan current with payments. Bankruptcy: Some financial advisors recommend bankruptcy to avoid foreclosure. This is something you should never suggest as an alternative, because the credit hit is hard and takes years to recover; however, it is an option recommended in lieu of a foreclosure. Always advise clients to seek legal and financial advice. Never recommend a specific strategy to avoid foreclosure. Renting: Provided they can get enough rent to cover their mortgage payment, borrowers can rent out their homes temporarily, either moving into less expensive housing, or moving in with family or friends. When they're financially able, they can reclaim possession according to the terms of the lease they've worked out with their tenants. Foreclosure alternatives where the borrower doesn't keep the home: Sale: If there's enough equity in the property, the borrower may be able to sell the property for more than is owed. Assumption: With this option, the borrower would sign over the property to another person. That person would then take possession of the home and take over making the payments. Not all lenders allow assumptions, and some will hold the original owner liable if the subsequent owner defaults. Pre-foreclosure sale: This option may allow the borrower to sell the property prior to foreclosure, but usually at an amount less than what's necessary to pay off the loan.

New lending rules

Regulation Z Lenders must provide residential loan borrowers with all the important information related to the loan such as the annual percentage rate Community reinvestment act Lenders must show that they serve the community's low- to moderate income housing needs Equal credit opportunity act Lenders must not discriminate based on protected class RESPA Lenders must provide written disclosure of estimated settlement costs to borrowers Truth in lending act Lenders much disclose the terms and conditions of loans

Reversionary Interest

Right of repossession of the property by the owner after the end of the life estate

savings and loan association

Savings and loan associations—also called thrifts—specialize in taking in savings deposits and then lending out through mortgages and other loans. They're required to keep their commercial lending at or under 20%, so they're very much tied to consumers and mortgage loans.

Types of property in texas

Separate property (solely owned by a spouse) and community property (owned in common in equal shares by both spouses).

Business Types That Own Real Estate

Sole Proprietorship A sole proprietor is a familiar business model—you are one! While you may hang your license with your broker, unless you are on salary, you are an independent contractor—a business of one. When sole proprietors want to conduct business, they can use their own name, or their own name in combination with a business name. For example, if your name is Jane Smith, you can call your business "Jane Smith, doing business as (dba) Wonder Woman." You could not do business as "Wonder Woman" or hold title to property as "Wonder Woman," or any business name other than your own without also using your name. When only one person owns a piece of property and title is in that person's name, this is ownership in severalty because ownership interest is severed from all others. Partnership If you and your best friend buy a parcel of real estate, you may choose to own it as a partnership, under a tenancy in common agreement. With a tenancy in common, either of you may sell your interest, or your interest may be passed down to heirs. This type of ownership does not have the right of survivorship. You could, instead, own as joint tenants, which would include the right of survivorship. If you die, your partner gets full ownership, or if your partner dies, you, in turn, get full ownership. A partnership doesn't necessarily mean just two people. It may also be a business organization owned by two or more partners and could include thousands of people (though such a large number would likely require a more structured format). There is no requirement for all partners to have an equal interest in the business. Partnerships may be either general or limited. A general partnership conveys personal liability to partnership debts that exceed the partnership assets. General partners are jointly and separately liable for these debts. So if you are in business with one of your partners, and he absconds with all of the partnership funds, leaving behind creditors, you are liable to those creditors, as are any and all partners. Creditors don't care who took the money—they will hold all partners responsible. A limited partnership always has one or more general partners who assume liability. The other partners are limited in their liability regarding the amount of money they have contributed. Limited partners are also limited in authority. To protect their immunity from partnership debts, they may not participate in the managing of the partnership. Limited partners who do may become generally liable. Limited partnerships are a common form of holding real estate. Usually, the general partner is the one who discovers the investment opportunity and brings in limited partners for their funds. The general partner will do the work, and the limited partners will profit or see a loss from their investments according to the partnership agreement, and the success or failure of the project. Corporation Corporations are defined by law. If someone said to you, "Quick! Touch that corporation!" you wouldn't be able to comply. Corporations do not exist in bricks, mortar, or even people, but are an intangible, taxable, recognized legal entity. Corporations have tax rates separate from individual tax rates. The articles of incorporation is a document that creates the corporation. Corporations can receive, hold, and transfer title to real property, and may give, or hold a mortgage to secure a debt owed to the corporation. Property owned by a corporation is owned in severalty, which you may recall is also how property is owned by a sole proprietorship. The corporation's bylaws give authority to named individuals who may sign documents on its behalf. Corporations may be Subchapter S (permitted to function as a corporation but taxed as a partnership), or a C corporation, which must pay corporate income tax to the IRS. The shareholders in a C corporation see double taxation: one at the corporate level, another at the shareholder level. Subchapter S corporations do not pay corporate income taxes, and so they avoid the double taxation. In addition, shareholders in a Subchapter S may deduct losses on their income taxes representing their share of the corporation's losses. Limited Liability Company and Limited Liability Partnership Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs) are favorable forms of business in terms of taxation and liability. Owners of the LLC or LLP (who are called members, not shareholders) are not personally liable for LLC/LLP obligations, are taxed as partnerships, and do not require a general partner. Syndicates and Joint Ventures Syndicate Syndicates are groups of investors pooling their money in pursuit of a single investment goal, such as buying an office building. The syndicate is organized by a sponsor who does the investment legwork and property management and who asks many investors to join in the real estate investment, with everyone sharing in the profits. The sponsor can be an individual or a business organization. Syndicates sometimes meet the definition of "dealing in securities" and therefore must adhere to the rules and regulations of the Securities and Exchange Commission. An investment is a security, as defined by the Federal Securities Act of 1933, if it is: An investment of money A group enterprise Intended to make a profit, and that profit is solely derived from the management effort of others So if you are a "silent partner" in a group investment where the intention is to make a profit, and you sit back while others manage the project, this may well meet the definition of syndicate. Joint Venture Joint ventures are not a business enterprise, per se, but a temporary organization formed by two or more parties to invest in real estate (or other investments). Participants may be corporations, partnerships, LLCs, or other entities. The parties may hold title as joint tenants or tenants in common.F

Alienation Clause

Some loans will include an alienation clause that prevents future buyers from assuming the loan. This clause is also called a due-on-sale clause, which means that the entire debt must be repaid at the time of sale. Lenders that allow assumption may require the new borrower to pay an assumption fee, and possibly a higher interest rate.

Title Theory

Some states interpret a mortgage to mean that the lender is the owner of mortgaged land. Upon full payment of the mortgage debt, the borrower becomes the landowner.

Sub-Surface Rights vs. Surface Rights

Sub-surface rights refer to the rights to the natural resources found beneath the surface of the earth. In Texas, sub-surface rights include: Oil and gas rights Other mineral rights Surface rights, on the other hand, refer to the rights to use the surface of the earth. Surface rights include the following: Underground water Limestone Strip-mined coal Gravel Iron ore

physical components of land

Surface rights include both land and water rights. Subsurface rights pertain to the right to use underground resources such as natural gas and minerals. These are often referred to as mineral rights. Air rights involve the right to use the open space above buildings up to a height established by law.

Liens

Tax- A lien created to ensure the payment of property taxes Mortgage- Used as collateral for a loan to purchase a home Mechanics- contractors may file this lien to collect the money owed to them

tax deffered exchange

Tax-deferred exchange agreements provide property owners who are interested in selling and reinvesting in "like-kind" properties the opportunity to defer paying capital gains taxes. The catch is that these "exchanges" must be done according to the rules in the tax code. Because these agreements are made possible under section 1031 of the Internal Revenue Code, you will sometimes hear them referred to as a 1031 tax-deferred exchange, or simply a 1031.

Types of government power

Taxation Legal power: Lien Owner compensated? No Eminent Domain Legal power: Involuntary title conveyance for the public good Owner compensated? Yes Escheat Legal power: Involuntary conveyance at death when no will exists and no heirs or creditors are found Owner compensated? No Police Legal power: Governmental authority to do what's right for the public good Owner compensated? Maybe*

Mortgage Disclosure Improvement Act

The Mortgage Disclosure Improvement Act, which was enacted in 2009, requires lenders involved in residential mortgage transactions to adhere to a 3-7-3 schedule for certain disclosures to the borrower. Updated forms were put in use in 2015. The Loan Estimate replaced the Good Faith Estimate, and the Closing Disclosure replaced the HUD-1 Settlement Statement. 3 Days - Lender must provide the borrower with a truth-in-lending (TIL) statement and Loan Estimate within three business days after loan application. 7 Days - Borrower must be given at least seven business days after receipt of the TIL and Loan Estimate before signing loan documents. 3* Days - Lender must provide the borrower with new disclosures and wait three business days before funding the loan if the annual percentage rate (APR) has changed more than 1/8 of a percent (0.125) from the original or most recent TIL and Loan Estimate.

Texas Deceptive Trade Practices—Consumer Protection Act

The Texas Deceptive Trade Practices—Consumer Protection Act (that's a mouthful!), or DTPA, as it is more commonly known, is established in the Texas Business and Commerce Code, in Chapter 17, Subchapter E. The purpose of the DTPA is "to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection." We will focus, of course, on any such practices or actions as they apply to real estate licensees and sellers.

Truth in Lending Act and Regulation Z

The Truth in Lending Act was enacted as part of the Consumer Protection Act in 1968. TILA's purpose was to better educate the public about the costs of credit and financing through improved disclosures that are required of lenders and credit providers. Originally, the Federal Reserve had supervisory responsibility over TILA. The Fed enacted Regulation Z, which contained the laws and statutes for implementing TILA. In 2011, the Dodd-Frank Act shifted part of TILA's rulemaking authority to the Consumer Financial Protection Bureau (CFPB). The purpose of the CFPB is to promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services. The CFPB has a three-pronged approach to its mission of consumer protection: Education, through plain-English notices, such as "Know Before You Owe" publications for mortgagors, credit borrowers, and consumers obtaining student loans. Enforcement, through rule-making, supervision, and enforcement of federal consumer financial protection laws, and restricting unfair, deceptive, or abusive acts or practices against consumers. Research, through response and investigation of consumer complaints, researching consumer behavior, and monitoring financial markets for new risks to consumers. Varying disclosure rules apply to lenders, depending on the type of loan or credit being issued. For example, a company issuing a credit card has different rules than a lender offering home purchase financing. Let's see how these rules help consumers. Imagine you want to obtain a loan. After researching lenders, you've narrowed down your options to two choices: Loan A: $1,000, term = one year, interest rate = 5%, $25 transaction fee Loan B: $1,000, term = one year, interest rate = 6%, no transaction fee

Basis

The basis of the original property will carry over to the new property. It doesn't change. So if your investor has a property worth $500,000, which has a basis of $100,000, and then exchanges it for a property also worth $500,000, the basis in the new property is $100,000, plus any new debt taken on and any cash paid out. The new property has to come with the same or greater debt load for the investor. If it doesn't, the investor will be liable for the gains on the difference. The IRS doesn't want an investor pocketing any change on gains realized. Any cash the investor receives from the proceeds of the sale is taxable and is called boot. It doesn't mean the property doesn't qualify for a tax-deferred exchange, but the taxes on the boot are due and payable.

When would a lender require a mortgage insurance premium?

The borrower has an FHA mortgage.

contractual provisions

The capacity to contract: This means that the person signing the lease must be a competent, sane adult. A lease to a person who is incompetent in the eyes of the law can be voided by that person. A description of the premises. This should include the street address and unit number. For long-term leases, it's prudent to also include the legal description. A clear statement of the "term" or length of the lease. There should be no room for interpretation between the parties. Texas law requires that the beginning and ending dates of a lease be clearly stated in the lease. However, the requirement for a definite termination date does not apply in the cases of periodic estates, tenancies at will, and tenancies at sufferance under the Texas Landlord-Tenant Act. Specification of rent and how it is to be paid (consideration). Unless the lease provides otherwise, rent is due in arrears, similar to the way a mortgage payment is paid. This means that the tenant will pay for rent after having lived there a month. Most landlords dislike this, and therefore most leases stipulate that the tenant will pay rent in advance. If rent is the landlord's consideration, what is the tenant's consideration? It is possession and the right to quietly enjoy the property. In Texas, leases have the implied covenant of quiet possession, which means that landlords must give the tenant actual possession of the leased premises. This means that, if the beginning date of your lease arrives and there is a holdover tenant in the property, it is up to the landlord to do whatever is necessary to recover possession of that property from that holdover tenant, and to pay the costs that are involved in doing so. Options and the right of first refusal. Many leases include an option that gives the current tenant the right to renew their lease on their current premises, but this option requires that tenants give the owner/landlord notice by a specific date as to whether they plan to renew their lease. Because the tenant is given the opportunity to have control of the space in the future while not committing to it right away, most people consider options more beneficial to tenants than they are to landlords. Another provision, the right of first refusal, lets the tenant have the "first crack" at another vacant space in the building over another party. This right says that the tenant can match an offer from that other party for that vacant space. This clause is most commonly seen in leases where the tenant anticipates needing to expand in the future. Another, related lease is the lease with an option to buy—often simply called a lease with an option—in which the lessee is given the opportunity to purchase the property at the end of the lease. "Lease with option" agreements are complex and varied, and, as such, you should strongly encourage any clients who are interested in such an arrangement to seek legal advice and assistance with such a contract. Improvements are not required. Neither the landlord nor the tenant is required to make improvements to a leased property. If the tenant wants to make alterations, they must get the landlord's permission. However, make sure that your tenant clients understand that, unless their improvements to the property qualify as trade fixtures, any improvements generally become the property of the landlord once the lease is terminated; as of the lease termination, they're considered the landlord's real property. Long-term leases must be in writing. For leases of a year or longer, the statute of frauds requires that they be in writing to be legally enforceable. Shorter-term leases may also be in writing, but that is not required for the lease to be legally binding. However, it's recommended that all leases are put in writing, no matter their term. This protects the interests of both parties. For written leases, both parties should sign the lease. Contracts must be signed by all parties. This includes leases. The signature of the parties is their acknowledgment of their agreement to abide by the lease terms. Use provisions must be included. "Use" means how the tenant will use the property and what activities will be allowed. A residential lease will provide that the tenant may use the premises reasonably for its intended purpose. In the absence of a "use" specification, it is understood that the lessee may use the premises for any lawful purpose. A commercial lease often allows the premises to be used "for any lawful purpose," provided the use does not violate any private deed restriction or be out of character for the area. In commercial leases, the use provision is frequently a point of negotiation. A commercial lease may not state "for any lawful purpose," but instead may state, "for no other purpose" than the one set forth in the lease. Leases are usually expressed in annual terms. However, the term may be for six months or it may be month-to-month, or any duration agreed upon by the parties.

Primary Mortgage Market

The primary mortgage market is the market in which the banks that actually originate the loans operate. They have the cash, and they loan it to their borrowers. But let's say a bank had $1 million to loan, and it made 10 $100,000 loans. It would be out of cash. Then, if these were 30-year fixed rate residential loans, the lender would need to wait 30 years for the loan to be repaid (with interest). It's hard to make money when you can only sell your product every 30 years. Enter the secondary market. Most primary lenders don't hold onto loans. They loan the money at one price, then package and sell their loans to lenders on the secondary market for slightly more money. They keep money moving into and out of their system. So, working together, the primary and secondary markets make home loans possible.

Escheat

The state takes property upon an owners death if there is no will & no heirs exist.

Promissory note should include

The terms of repayment, including principal and interest (the charge for the use of the money) and discount points A discount point is an up front charge to make up for difference between the rate the borrower is receiving and the rate the lender normally requires.Discount points can be seen as the amount a lender charges to initiate a loan.Also, borrowers can pay discount points up front at the initiation of the loan as a way to reduce interest rates or monthly payments (or both) The length of the loan Late fees Any prepayment penalties (penalties charged for early repayment of the loan, resulting in the lender receiving less overall interest than agreed) A description of the circumstances under which the borrower may default A description of what happens if the borrower defaults (such as foreclosure) An accurate date (in case the chronological order of property rights ever needs to be determined) Signature of borrowers including spouse or partner responsible for repayment (some states exclude spouse liability if not listed or signed as party on note)

offer and acceptance

This is also called mutual agreement, or just acceptance. Offer and acceptance occurs only when there is a meeting of the minds, or when the parties are in complete agreement about the purpose and terms of the contract. Most states require that the terms and conditions of the contract be in writing; the wording must express the agreed-upon terms and must be clearly understood by the parties. An offer is a promise made by one party, requesting something in exchange for that promise. The party who makes it is the offeror. An acceptance is a promise to be bound by the exact terms made in the offer. The party who accepts is the offeree. The offeror can revoke the offer at any time before acceptance. An offer can also be terminated if the offeree doesn't accept within the time period stated in the offer.

Timeshares

Timeshares A timeshare property is one in which there is multiple shared ownership or multiple shared use of a piece of real estate. More than a hotel room, timeshares are condominium-style units that typically consist of one to three bedrooms, multiple bathrooms, a full kitchen, and a living room. They're nearly always furnished, and amenities such as indoor and outdoor swimming pools are common. Timeshares are nearly always found in resort locations—when else but vacation time would you want the use or ownership of a dwelling for only one to two weeks a year? Timeshare Estates A timeshare estate is fee simple ownership, conveying all the rights of ownership. Timeshare estates are pieces of real estate owned by multiple, unrelated individuals who, in addition to their ownership rights, each hold the right to occupy the dwelling unit in one- to two-week intervals during the year. If there were 52 owners, each owning the right to use the unit for one week a year, each would own 1/52 of the property. Such an estate may be held as a tenancy in common (in which a separate agreement must be executed to establish the specific time period for use) or an interval ownership (which is an estate for years in which the buyer has ownership of and title to the unit for the time selected and the number of years designated upon purchase). Like other forms of owned real estate, timeshare estates can be sold or passed down to heirs. Some buyers of timeshares purchase them not simply for their vacation value, but for their anticipated appreciation over time. Any investment carries risk, however, and timeshares are no exception. Not all properties will appreciate, and some may decline in value. Resale timeshares often do not recoup the buyers' initial investment. Timeshare Use A right to use timeshare (also called a timeshare use) doesn't convey ownership, but simply the right to occupy the property for one or two weeks a year, continuing for a specified number of years. The week or weeks to be used are specified in advance, with buyers of high-season dates paying more than low-season purchasers. Some timeshares allow owners to swap out their weeks if for some reason they can't use their designated week. The majority of the timeshare market is fee simple: 70% fee simple, 30% right-to-use. Get Away From It All A twist on timeshares is a vacation ownership. Vacation ownership is basically a way to prepay for a vacation rather than renting it. Buyers agree to a one-time purchase price and an annual maintenance fee, and in return get their selection of accommodation time and have the right to use the unit for a specified number of years. As with other timeshares, there are two types of vacation timeshares: right-to-use (timeshare use) and fee simple (timeshare estate). In a right-to-use vacation ownership, the buyer receives a lease on the property, usually for one to two weeks a year and for a specified number of years (15 to 50, or the owner's lifetime). Buyers can usually rent, give, or sell their time to others. Some vacation ownership plans operate on a "points" system where the buyers can book vacations in different locations based on the number of points purchased, with more popular resorts and dates costing more points, and less popular resorts and dates costing fewer points. Fee simple ownership for a vacation timeshare works in the same way as with other forms of timeshare: ownership can be enjoyed, sold, or passed down to heirs. For vacationers who like to camp, a campground membership is another option. The owner of a campground membership buys the right to use the developer's facilities (e.g., camper and trailer hookup, restrooms) and may use the campground at any time during the year.

Hypothecation

To pledge property as security for an obligation or loan without giving up possession of it.

indoor air quality in texas

Toxins can make indoor air quality unsafe. New construction was a concern a few years back when builders were using urea-formaldehyde foam insulation. It contained formaldehyde, which can be a health hazard in high quantities. Even though manufacturers were asked to stop using UFFI in the mid-80s, it's still in a lot of homes built before that time For those who experience symptoms, formaldehyde can cause asthma and other respiratory issues. It's also been linked to cancer in animals. Eye, nose, and throat issues, rashes, and breathing difficulties are other symptoms. Radon kits are available to test formaldehyde concentrations. Most people don't react until the levels are in the range of 0.1 to 1.1 parts per million. Homeowners can also call in a qualified inspector if they suspect formaldehyde might be an issue. Treatment consists of increasing the ventilation and circulation of the home, bringing in more outside air. The more the material ages, the less of an issue it becomes. Usually material that's two or three years old isn't a problem.

Termination of ownership

Types of ownership termination are: Termination of joint tenancies: Joint tenants may sell their personal share of ownership; however, the buyer of that share does not become a joint tenant, because the required four unities do not exist. The new buyer didn't receive a title at the same time as the other tenants, so the unity of time is destroyed. Therefore, the new owner is a tenant in common. The remaining tenants continue as joint tenants, with the right of survivorship shared between them. The new buyer, as a tenant in common, has an inheritable share. Termination of co-ownership by partition: Remember that in a tenancy in common, each person is entitled to possession of the whole. But what if you hate your co-tenant(s)? In that case, you may want to bring legal action to have the property partitioned, which would allow each tenant to have a specific, divided portion (partition) of the property exclusively. In the case of an equitably divided piece of land, each tenant would receive title to a separate tract according to that person's share of interest. In cases where it's impossible to do an equitable split, a court may order the sale of the property and determine the appropriate share of proceeds to be distributed to the tenants in common.

ondemnation and Water Rights

Under certain circumstances, water rights may be acquired by a city or county through the condemnation process. For this to occur, the locality must have made an effort to acquire water supplies from an alternate source, show the need for the water rights, and have a water conservation plan in place. Taking and Inverse Condemnation "Taking" is associated with the Taking Clause from the Fifth Amendment of the US Constitution, and the Fourteenth Amendment, due process. Taking occurs when a private property is acquired by a government entity. Condemnation is one form of taking. When a government takes property and that entity fails to give the landowner just compensation, it's also taking and is called inverse condemnation. Inverse condemnation also occurs without seizing the property; such as when government regulation decreases the value of the property or prevents the property owner from enjoying the economic benefit of the property. The government regulation of private property that results in diminished use or value constitutes inverse condemnation when: It deprives the owner of all economically viable uses of the property; and The property owner can no longer get a reasonable return on the investment in the property. If a property owner does not receive just compensation they can seek an inverse condemnation suit, allowing the landowner to self-execute a taking claim to the government. This claim would be for the just compensation required under the state and constitutional laws.

Like-Kind Exchange

Under section 1031 of the Internal Revenue Code, the owner of real property can sell that property and then reinvest the proceeds in a "like-kind" property, and defer paying any capital gains taxes. To qualify as "like-kind," the exchange must be done according to the rules in the tax code; it doesn't require replacing an apartment building with an apartment building, etc.

Navigable vs. Non-navigable Waterways

Under the larger classification of riparian rights, there exist the smaller categories of navigable or non-navigable waterways. Specifically, Texas classified streams as either navigable or non-navigable. These are defined as follow: Non-navigable waterways: Private owner owns land under the water to the center of the waterway Navigable waterways: Public waterways that aren't owned by a private landowner; these are considered public easements over which the public has the right to travel.

mortgage commitment stage

Underwriting: This is the process of comparing the borrower's credit, assets, and other financial factors, together with the property's appraised value, against the lender's standards. Underwriting occurs after the loan package is complete and results in the loan being approved or rejected. If the loan is approved, the loan documents are sent to the closing agent. Final approval: The final approval is communicated to all interested parties through a loan commitment letter, stating that the lender has approved the loan and has committed to issue the loan. The loan commitment is only good for a short time. If there is a delay in the closing, the buyer may need to resubmit the loan application and start over.

Usury

Usury often involves unscrupulous lenders who take advantage of a consumer's naivety or circumstances to get them to sign loans with not just unfavorable but nearly impossible terms. Usury laws prohibit interest rates above a given percentage, typically on personal and consumer loans, from any private lenders.

VOCs

Volatile organic compounds are found in paint, air fresheners, cleansers, new mattresses, and building materials. To reduce VOCs in the home, consumers should stick to natural scents—those made from nature, not chemicals designed to mimic nature. Purchasing no- or low-VOC paint is another good option. Other ways to reduce indoor toxins are to select natural materials, such as bamboo flooring, wool carpeting, and jute rugs.

"Subject to"

When a buyer takes a loan "subject to" an existing mortgage, the buyer isn't responsible to the lender for repaying the debt. An agreement is made between the seller and the buyer for the buyer to take over the seller's loan payments. This arrangement is common in land sale contracts, with the buyer either making the payments directly to the lender, or to the seller. Buyers who want to protect themselves from the property going into foreclosure should make payments to the lender, not the seller, who may keep the payments and not pay toward the loan. However, in a subject-to arrangement, if the property is foreclosed on, the seller is on the hook for the debt, not the buyer, leaving the buyer sitting in a foreclosed-upon property. Subject-to arrangements also carry risks to the seller. If the buyer is supposed to pay the lender directly and doesn't, the seller is in default, not the buyer. The seller would have to sue the buyer to collect.

probate

When a person leaves a will when they die, a legal process takes place to determine the validity of the will and to ensure the assets of the estate are distributed according to the deceased person's wishes. This legal process is called probate. Probate can also be used in situations where no will has been left. The probate process is initiated when the personal representative (or in some cases, a family member who is not the personal representative) petitions the court to begin the probate process. Probate can be a lengthy legal process, taking from several months in many cases, to several years for more complex estates, such as when a will is contested. However, not everything in an estate has to go through probate. Property held in joint tenancy or tenancy by the entirety passes immediately to the other tenant or tenants. For bequeathed property (that is named in the will), before the executor or administrator (the person charged with distributing the estate's assets according to the terms of the will) may give away one dollar, the court has to determine that the will is legal, and hear out any person contesting the will. Before heirs inherit, creditors have to be paid off and estate taxes paid. When a person dies without leaving a will (intestate), the court's role is to determine the rightful heirs, and then appoint an administrator to distribute the estate's assets in accordance with the law of descent and distribution.

Escheat in Texas

When a property owner dies without having a will in place, the property is distributed to heirs in accordance with inheritance law. But if no heirs or creditors can be found, the state can take the property through its powers of escheat. In Texas, the ownership of real estate reverts to the state. The same is true for the real property of an owner who has no heirs or will, and has been absent for seven years. It may seem opportunistic of the government to take personal property when a person dies without a will or creditors who can make a claim on their property. But imagine what would happen if the property lay vacant and unused for years. By taking possession, the government can put the property back into use for the public good

Lump Sum plan

When bonus money arrives (tax refunds, etc.), allocate a portion (or all) of it toward principal.The sooner principal is paid down, and lump sum payments are great for this, the less interest you will pay over time. Example You receive a tax refund of $2000, and add that to your monthly mortgage payment that month. It reduces your principal owed by $2,000.

How APR Factors In

Which loan is the better deal for the consumer? Loan B! The interest rate doesn't tell the whole story. This is where the annual percentage rate (APR), which accounts for charges and fees associated with a loan or credit in addition to the interest rate, gives you a clearer picture. Let's walk through this: With Loan A, you're paying $50 in interest (5% x $1,000) plus $25 in other charges or fees. The lender deducts the transaction fee from your loan total, so you actually only receive $975, but pay $75 total for the loan. Divide this by your amount received ($75 / $975) and we get an APR of 7.7%. With Loan B, you're paying $60 in interest (6% x $1,000) and no fees. Divide this by your loan amount ($60 / $1,000) and we get an APR of 6%. Loan B has a much lower APR. Fortunately for consumers, they don't need to calculate the APR for a loan. Why? Regulation Z requires lenders to use a standardized measure for interest rates (the APR). Lenders must disclose the APR, finance charges, the lender's name, the total amount being financed, the number of payments due, as well as the amount and dates of payments. Lenders must also disclose information related to loan assumption and late and pre-payment penalties. A real estate loan is likely the largest loan a consumer will ever take on. These disclosures apply to real estate lenders and are contained in either the Loan Estimate or the Closing Disclosure the lender provides to borrowers.

proration rules and methods

Who pays the costs on the day of closing for property taxes, utilities, etc.? Typically the seller pays the costs on the day of closing. Some local practices provide that beginning with the day of closing, all expenses are the buyer's, and all income (e.g., from a current renter) goes to the buyer. When you're taking your licensing exam, any questions about proration will tell you who owns the property on the day of closing so you can calculate properly. How are mortgage interest, taxes, insurance, and other similar expenses prorated? These can be calculated one of two ways. Using a statutory year: Sometimes these items are prorated based on a 360-day statutory (aka "banker's) year (30 days x 12 months). Using a calendar year: The other method is to prorate based on a 365-day calendar year. Calculations using this method use the exact number of days in each month of the year. A note about insurance: amounts prepaid by the seller are likely to be prorated and refunded to the seller by the insurance company, rather than the buyer. Because insurance rates are based on a variety of factors like credit ratings, insurance claims, etc., the buyer will likely purchase a new policy. How are accrued real estate taxes assessed but not yet due prorated? Normally, these are prorated to the day of closing. The seller will receive a debit and the buyer a credit for the amount owed as of the day of closing. Again, the calculations will include who actually "owns" the day of closing. Example Here's a sample item from our seller, Karen, and buyer, Vince. The real estate taxes assessed on the property are $785 for the year. The taxes aren't due until the following January 1. Closing is held on May 31. Here is how that would look on the closing statement: Accrued period of taxes owed by Karen at closing using the statutory year: $785 ÷ 12 = $65.42 per month $65.42 × 5 full months (January 1-May 31) = $327.10 Therefore, $327.10 is the amount Karen owes for taxes accrued and not yet paid, and this amount will appear as a debit to Karen and a credit to Vince at closing. If, instead of closing on May 31, closing were on June 15, this is a mid-month closing, and the partial month would be prorated by dividing the monthly amounts by 30 and then multiplying by the appropriate number of days. Since seller Karen will own the day of closing, the calculation is: $65.42 ÷ 30 = $2.18 $2.18 × 15 = $32.70 $327.10 (January 1-May 31) + $32.70 (June 1-June 15) = $359.80 How is rent prorated? The seller typically receives rent for the day of closing (but see above: sometimes the buyer receives all income beginning with the day of closing).

estate for years

With a written estate-for-years tenancy, the lease expires on the specified end date, so no separate notice (from either party) is required.

manufactured homes

a manufactured home is a structure that is at least 320 feet in size, and built on a permanent chassis to be transportable. It is designed to be used as a dwelling— including plumbing, heating, air conditioning, and electrical systems once it is connected to the utilities—with or without a permanent foundation

primissory note

a written and signed promise to pay a sum of money at a specified time

Easement by gross

an individual or company's in or right to use land

In a deed of trust situation, the lender is a ______.

beneficiary

partition

divide into parts

Occupation Code Section 1101.155 Rules Relating to Contract Forms

found in Title 7. Practices and Professions Related to Real Property and Housing; Subtitle A. Professions Related to Real Estate, Chapter 1101. Real Estate Brokers and Sales Agents) says: (a) The commission may adopt rules in the public's best interest that require license holders to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by the commission. (b) The commission may not prohibit a license holder from using for the sale, exchange, option, or lease of an interest in real property a contract form that is: prepared by the property owner; or prepared by an attorney and required by the property owner. (c) A listing contract form adopted by the commission that relates to the contractual obligations between a seller of real estate and a license holder acting as an agent for the seller must include: a provision informing the parties to the contract that real estate commissions are negotiable; and a provision explaining the availability of Texas coastal natural hazards information important to coastal residents, if that information is appropriate. Added by Acts 2001, 77th Leg., ch. 1421, Sec. 2, eff. June 1, 2003.

Reservation life estate

grantor reserves possession of all or a portion of the land for the rest of their life while deeding it to grantee

Janice, who has lived in an apartment for many years, is interested in moving to a cooperative. She submits an application to the cooperative's review board, but her application is rejected. The board ______.

it is not required to disclose the reason it was rejected

Urban Homestead

land used for a home or family or single adult, 10 acres and all improvements thereon.

A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclose on the property if the borrower defaults. Who or what entity is considered the mortgagee?

lender

Rural Homestead

limited to 100 acres for one person, 200 acres for a family.

Which of the following entities commonly acts in the primary market?

local credit union

Compared with condominiums, the monthly fees for a cooperative owner are typically ______.

much higher

Annexation

occurs when personal property is attached to real property, which makes it a fixture.

basic property rights

right of possession right of control right of exclusion right of enjoyment right of disposition

severance

separation

In situations where taxes aren't paid at or prior to closing, who pays for the current year's taxes in accordance with the TREC residential One to Four Family (resale) contract?

the buyer pays them

Easements Appurtenant

the permanent right to use another persons land for the benefit of a neighbor

In a deed of trust situation, person or entity that holds "legal" title is a ______.

trustee

Which covenant is a promise by grantors to grantees that they will warrant and defend the title against the lawful claims of others?

warranty

Commercial banks

—Bank of America, Chase, Citigroup, and the like—make consumer and business loans, offer investment products, and take deposits.