Real Estate Fundamentals Midterm 1

Covenant of seizin

A promise that the grantor of a deed truly has good title and the right to convey it

The interest being conveyed in a deed is specified in the:

Habendum clause

Mortgage

Interest in property as security for a debt

Factors that make it uniquely difficult to establish clear title in real estate compared to most personal property items include: a. Size of real estate. b. Length of the ownership history in real estate. c. Value of real estate. d. Land use controls. e. Serious deficiencies of property law in the United States.

Length of ownership history in RE

Timeshare

Multiple individuals have interest in one property; estate is divided into separate time intervals

Estate in severalty

Ownership by one person, one corporation, one partnership

Real Property

Rights in land and permanent structures

Deed

Special form of written contract used to convey a permanent interest in real property

**Legal land description methods:

1) Method of metes & bounds - Perimeter of property through a series of directed line segments 2) Subdivision plat map - Subparcels are identified & given a lot number 3) Government rectangular survey - A rectangular system of land survey divides a district into 24-square mile quadrangles from the meridian (north-south line) and the baseline (east-west line). The tracts are divided into 6-mile-square parts called townships, which are in turn divided into 36 tracts, each 1 mile square, called sections. The rectangular survey system was specified by Congress in 1785 to mark large tracts of land that the United States received in its early years, including the Northwest Territory. The rectangular survey system specifies locations by using a rectangular coordinate system. It consists of principal meridians that run north and south and indicate longitude, and base lines that run east and west and indicate latitude.

Requirements of a Deed

1. Grantor (with signature) and grantee 2. Recital of consideration 3. Words of conveyance 4. Covenants 5. Habendum clause 6. Exceptions and reservations clause (if any) 7. Description of land 8. Acknowledgement 9. Delivery

Judicial deed

A deed issued as a result of court-ordered proceedings

A developer of a subdivision wants to preserve the open space and natural habitat that runs along the back portion of a series of large lots in the proposed subdivision. He is debating whether to use restrictive covenants to accomplish this or to create a habitat easement on the same space. What are the pros and cons of each choice?

A developer may choose to use restrictive covenants to limit the use of the land for environmental purposes, while maintaining the quality, stability, and value of the surrounding lots. Restrictive covenants are strictly private because only parties of interest can enforce the covenant. In the case of an isolated deed restriction, the owner who created the restriction or that owner's heirs are the only persons who can enforce the restriction. Court decisions frequently follow common law, which holds that property should be used productively, and favor fewer restrictions over the use of land. Whether the restriction is in an isolated deed or part of a general set of subdivision restrictions, the courts have been reluctant to maintain them for an unreasonably long time. Even in states where no time limit exists, courts may refuse to enforce restrictions due to changing neighborhood character, abandonment (neglect of enforcement), and changing public policy. In most states, it is difficult to maintain individual restrictive covenants for more than a few decades, and several states have enacted time limits of 20 years or so. On the other hand, the developer may choose to use a habitat easement on the property. A habitat easement can limit the use of the land for the specific purpose of protecting the environment. An easement in gross, defined as the right to use land for a specific, limited purpose unrelated to any adjacent parcel, will achieve the developer's objective. The easement can be transferred to another owner without the transfer of a parcel of land. The easement is less likely to "fade away." Courts are more likely to honor and protect the easement than a neglected restrictive covenant.

Tenancy by the entirety

A form of joint tenancy for husband and wife In some states it occurs automatically when property is conveyed to a husband and wife jointly. In other states it must be created explicitly. As with joint tenancy, at the death of a spouse, tenancy by the entirety can reduce probate costs and complications since no disposition of property occurs in the eyes of the law

Condominium

A form of ownership combining single person ownership with tenancy in common (common spaces) Essentially a "fee" interest in a particular portion of a real property (like the second floor of an office)

Tenancy for years

A leasehold interest for a specific period of time (can be a month/6months/year/etc.) While all leases should be put in writing, this is especially true for the lease conveying a tenancy for years because the lease may be the only tangible evidence of the landlord-tenant understanding. If the term is for more than one year (a year and a day, or more) the lease must be in writing to be enforceable.

Government Rectangular Survey

A method of describing land that utilizes a grid map. That map includes base lines that run east and west. These lines are crossed by meridians that run north and south, Townships run six square miles broken into 36 sections of one square mile.

Metes & Bounds

A method of land description which involves identifying distances and directions and makes use of both the physical boundaries and measurements of the land Measurement of PERIMETER of property through a series of directed line segments

Some people in the real estate industry have suggested that it is good to require a title insurance commitment as evidence of title for rural property, but that it is satisfactory to use the less costly abstract with attorney's opinion as evidence of title for a residence in an urban subdivision. Discuss the merits or risks of this policy.

A platted urban subdivision effectively has a relatively short history in which title could become "clouded." The creation of the subdivision, by implication, represents a point in time where there was very little question about status of title. Thus, only what has happened to the property subsequently may put marketable title at risk. This greatly shortens the portion of the title history that may contain threats to title. Thus, title insurance may not be as valuable as with unplanted land. Title insurance not as necessary with urban subdivision because when the subdivision was created there was clear owner; trace from there. Unplatted is more complex because not a clear line of ownership history.

Title search?

A process of deed verification that makes up an important part of "clear title" Examining the evidence in public records

Covenant against encumbrances

A promise that the property is not encumbered with liens, easements, or other limitations except as noted in the deed

Covenant of quiet enjoyment

A promise that the property will not be claimed by someone with better claim to the title

Easement?

A right to use a land for a specific and limited purpose

Why might it be advisable to require a survey in purchasing a 20-year-old home in an urban subdivision?

A survey can be useful, even in a fairly recent subdivision, to affirm that fences are not encroaching, or that an addition to a structure does not violate a setback. In addition, it is generally good for a purchaser to know the boundaries of the acquired property because often fences and shrubs can create false impressions of boundary locations.

Actual notice

Actual notice is a law term, used most frequently in civil procedure. It is notice (usually to a defendant in a civil proceeding) delivered in such a way as to give legally sufficient assurance that actual knowledge of the matter has been conveyed to the recipient.

"Equitable redemption"

All 50 states recognize ER which gives the owner of the property the right to redeem ownership by paying off the mortgage during the period between the foreclosure filing and the foreclosure sale

Subdivision plat map

Also known as recorded plat; a subdivision map filed in the county recorder's office that shows the location and boundaries of individual parcels of land

Lien?

An interest in real property that serves as security for an obligation

Periodic tenancy

Any lease that has no definite term at the start. Often oral and informal Simpler and quicker, but carries more risk of owner/tenant misunderstanding MINIMUM NOTICE: Generally, one-half the payment period

Mechanics' liens

Arise from construction and other improvements to real estate Following completion of a contract, contractor has period of time to establish a lien on the property improved

General lien

Arises out of actions unrelated to ownership of the property Two mains ones: 1) unpaid federal taxes 2) winning judgment in a suit; court puts liens on your property until you pay off debt or it gets seized

Tenancy at will

At the end of a lease, there can be a short period of time when it suits both the landlord and tenant for occupancy to continue Agreement that the tenant will stay until either the landlord or tenant gives notice

Title

Bundle of rights that you own under the law; deed is the mechanism used to transfer title

Nonpossessory interests

Bundles of real property rights that do not include possession

Exceptions & reservations clause

Can contain a wide variety of limits on the property interest conveyed

Real Estate is generally divided into two broad markets:

Commercial & Residential

Requirements of valid deed include:

Competent grantor In writing Habendum clause Delivery

Important for a condo buyer to know the details of...

Condominium declaration: A condominium is created by recording a declaration in the public records of the county where the land is located, executed and acknowledged with the requirements for a deed. Bylaws: The condominium bylaws are a self-governing document for the association. The bylaws will also cover meetings, voting, proxies, budget, assessments, including special assessments, insurance coverage, and restrictions on the use of the units and the common areas.

Constructive notice

Constructive notice is the legal fiction that signifies that a person or entity should have known, as a reasonable person would have, of a legal action taken or to be taken, even if they have no actual knowledge of it.

Deed restrictions

Deed restrictions are private agreements that restrict the use of the real estate in some way, and are listed in the deed. The seller may add a restriction to the title of the property. Often, developers restrict the parcels of property in a development to maintain a certain amount of uniformity.

Habendum clause

Defines or limits the type of interest being conveyed A habendum clause is a clause in a deed or lease that defines the type of interest and rights to be enjoyed by the grantee or lessee. In a deed, a habendum clause usually begins with the words "to have and to hold"

Specific liens

Derives directly from events related to a property Can include property tax and assessment liens, CDD liens, mortgages, and mechanics' liens

If documents conveying interests in real property are properly recorded in the public records, they are binding or enforceable on all persons, regardless of whether those persons are aware of the documents, by the:

Doctrine of constructive notice

Community Property

Each spouse owns an equal one-half share of interest in any property "fruits of the marriage"

Easement appurtenant vs easement in gross?

Easement appurtenant - Easement that runs with the land; transfers to next owner automatically...involves two adjacent parcels Easement in gross - No dominant estate because there is only one dominant parcel (example is power line company and house)

Examples of titled estates?

Fee simple absolute Fee simple conditional Conventional life estate Legal life estate

The "highest-quality" form of deed is the:

General warranty deed

Types of Deeds:

General warranty deed Special warranty deed Quitclaim deed Deed of bargain and sale Judicial deed Trustee's deed

Real estate historic trends

Generally have gone up...exception is housing bubble that took place in 2008

Good title

Good Title means, with respect to any Property, a good and valid title to such Property that is free from reasonable doubt, is superior to any other titles and claims with respect to such Property, and could not be reasonably expected to expose the party who holds such title to the hazards of litigation with respect to the validity and priority of such title.

Property tax lien

Governments exercise an automatic property tax lien on benefitting properties (those who receive benefits from taxation) to assure payment

Quitclaim deed

Has none of the covenants of the warranty deed Worded to imply no claim to title, only to convey what interest a grantor has

The traditional common law concept of landlord-tenant relationship was that the landlord's obligation was simply to stay off the property and the tenant's obligation was to pay the rent. Explain why this is an obsolete arrangement for apartment residents in an urban society.

Historically, the common law application of a landlord-tenant relationship centered on agrarian relationships formed in pre-industrial England. Modern society views residential tenancy as the provision of services. It can be difficult or impossible for one tenant, alone, in an apartment complex to control pests or repair a roof, etc. Thus, the obligation of the landlord must be more than merely to "stay away" from the property. States have enacted elaborate residential landlord-tenant laws that take great strides in defining the rights and obligations of both parties under a residential lease. Laws address such matters as obligations for care and repair of the premises, rights of entry, handling of deposits, notification requirements, and many other matters.

Special Warranty Deed

Identical to the general warranty deed, except that it limits the time of the grantor's warranties to her time of ownership Grantor asserts only that she has created no undisclosed encumbrances during ownership, but asserts nothing about encumbrances from previous owners

**If a grantee obtains title insurance, what value, if any, is there in the covenant of seizin in a warranty deed?

If a grantee has title insurance, the covenant of seizin remains an indication that the grantor really believes they hold good title. The title insurer can still bring action against the grantor of a false title, even though the grantee has been indemnified for loss of title and property.

If a landowner sells the front part of a parcel of land, retaining the back portion as a "landlocked" parcel, and if there is an existing informal path across the front parcel to the back one, the seller is likely to retain the path as a(n):

Implied easement by prior use

Restrictive covenants

Impose limits on the use of land

Priority of liens

In case of default, any lien can lead to sale of the property to compensate the creditor holding the lien The priority, after Property Tax, Assessment, and CD liens is by chronology Creditors receive no relief until all those with prior liens have been satisfied

General Warranty Deed

Includes the full set of legal promises the grantor can make Effectively warrants against any and all competing claims that may arise from chain of title that are not spelled out in deed

Rules used by courts to determine whether something is a fixture include:

Intention of the parties Manner of attachment Character of the article and manner of adaptation Relation of the parties

Estates (possessory interests)

Interests in real property that include possession Can range from complete bundle of rights (Fee Simple Absolute) to a claim that is little more than squatter's rights (tenancy at sufferance)

Right of survivorship

Is one spouse/joint tenant dies, the other one takes sole responsibility of the property

Purchase & sale contract

Lays out the duties of the parties ("terms") required in order for rights to be transferred ("conveyed")

Leasehold?

Leasehold interests are possessory interests and are therefore estates. They differ from freehold estates in three respects: 1) They are limited in time 2) The right of disposition is diminished because the property ultimately reverts to the landlord 3) They are not titled interests

Legal life estate?

Legal life estates are created by the action of law. In Florida, for example, a family residence that is declared a homestead carries the possibility of becom- ing subject to a life estate. If a family having minor children occupies a homestead resi- dence, and if one spouse dies, Florida's homestead law gives the surviving spouse a life estate and gives the children "vested remainder" interests in the residence. While intended to protect the surviving family, this law can create as many problems as it solves. If the surviving spouse needs to sell the residence to relocate, a trustee must be created to act on behalf of the minor children to convey their interests in the sale. Thus, additional legal costs and delays are likely to result.

A friend has owned and operated a small recreational vehicle camp on a lake in Daytona Beach, Florida. It is close to the ocean and close to the Daytona Speedway, home of the Daytona 500 and a host of other prominent races. The occupants are very loyal, making reservations far in advance, and returning year after year. She is asking your thoughts on whether to continue the camp as a short-term rental operation, or to convert it and sell the parking spaces as condominium parking spaces, or to convert to condominium time-share lots. What thoughts would you offer?

Maintaining ownership of the small recreational vehicle camp provides the owner continued control of the property, but she also retains responsibility for property management and expenses associated with running the camp. Converting the space to condominium parking would require an effective transfer of the property from your friend to the condominium association. The land on the lake would no longer belong to your friend, and she would lose any future use of the land. In addition, bylaws and a condominium declaration must be created. Time-share lots would divide the estate into separate time intervals. By creating timeshare condominium lots in a tenancy for years, the land could revert to your friend after a set number of years.

Mineral rights?

Mineral rights, including rights to oil, gas, coal, and other substances that are mined, can be separated from land ownership When this occurs, the owner of mineral rights also receives an implied easement to retrieve the resources

Fee simple absolute?

Most complete bundle of rights possible, and has the greatest value All possible rights of exclusive possession, use and enjoyment, and disposition are possessed by the owner

Tenancy at sufferance

Occurs when a tenant that is supposed does not This tenancy, at least until the landlord accepts a rental payment, differs from trespassing only in that the tenant previously occupied the property under a legitimate leasehold interest

A friend has an elderly mother who lives in a house adjacent to her church. The church is growing, and would welcome the opportunity to obtain her house for its use. She would like to support the needs of her church, but she does not want to move and feels strongly about owning her own home. On the other hand, your friend knows that she will not be able to remain in the house many more years, and will be faced with moving and selling within a few years. What options can you suggest as possible plans to explore?

One possible option is to unbundle the fee simple absolute into an ordinary life estate and remainder estate. The church can purchase a remainder estate while the owner retains a life estate. The owner thereby receives either additional income or, if the remainder is donated, a tax deduction. This simplifies the eventual settlement of her estate, while assuring the continued right to occupy her home. At the time of her death the remainder estate becomes a complete fee simple absolute owned by the church. Another possible option is an outright sale to the church and the creation of a tenancy for years in which the elderly mother rents the property from the church, creating a leasehold estate for a period of time.

Fee simple conditional?

Ownership is subject to a condition or trigger event Owner's bundle of rights is complete unless the trigger event occurs, which may cause ownership to revert to a previous owner (or heirs) This uncertain interest held by the previous owner (or heirs) is called reverter interest

US v Causby

Planes next to farm, fly over and scare chickens, flying too low...Causby wins Result: Some space above your land belongs to you

The most common form of legal description for urban resi- dential property is the:

Plat lot and block number (subdivision plat map)

If a neighboring landowner drives across a person's land openly and consistently for a number of years, the neighbor may acquire an easement by:

Prescription

Title insurance?

Protects against loss in the event of deed defects Required to protect lenders against defects in deeds that may lower the value of the loan collateral (the property) Lenders have a contingent claim on the property (a lien that can be exercised in the event of default)

Elective share

Provision that gives a surviving spouse a share of most of the wealth of the decedent

Two fundamental documents involved in sale/transfer?

Purchase & sale contract - Lays out the duties of the parties ("terms") required in order for rights to be transferred ("conveyed") Deed - Enforceable document that shows property rights have been transferred

Deed of bargain and sale

Purports to convey the real property and appear to imply claim to ownership Otherwise, very much like quitclaim deed

A deed used mainly to clear up possible "clouds" or encum- brances to title (conflicting interests) is the:

Quitclaim deed Worded to imply no claim to title, only to convey what interest a grantor has No warranties of title

Real estate as a good

Real estate is both an investment and a consumption good

Why are restrictive covenants a good idea for a subdivision? Can they have any detrimental effects on the subdivision or its residents? For example are there any listed in the chapter that might have questionable effects on value of a residence?

Restrictive covenants are used most often in subdivision developments to ensure the quality, stability, and value of the lots. However, they can sometimes have detrimental effects on the subdivision. For example, adding a free standing garage or a chain link fence to one's residence may ideally increase the value, but the existence of restrictive covenants may limit a homeowner's ability to increase the property's value in that manner. Excessive restrictive covenants may diminish the property's value by effectively reducing the rights of the owner. Restrictive covenants may also become obsolete if the character of the neighborhood changes and hinder a property owner's rights.

What are the three parts of property's bundle of rights?

Right of use ("quiet enjoyment") Exclusion - Preventing use of property by others Disposition - Authority of sale (transfer of rights)

Explain how rights differ from power or force, and from permission.

Rights have three characteristics. First, rights are claims or demands that our government is obligated to enforce. Second, rights are nonrevocable and cannot be canceled, ignored, or otherwise lessened by other private citizens. Third, rights are enduring and do not fade away with time. Rights are different from power because the government is obligated to honor and support the claims arising from rights. Government will not support claims without right, based merely on the use of force or threat. The government is obligated to defend property rights in subsequent generations, and it does not have the power to abandon this obligation. Unlike permission, which is revocable, rights are nonrevocable and cannot be taken away or lessened in stature by other private citizens.

Personal Property

Rights in any other kind of object, including intellectual matters

CDD (community development district) lien

Secures bonds issues to finance improvements within a specific community

Name at least six adverse (conflicting) claims to property or other title defects that will not be evident from a search of property records but which might be detected by inspection of the property and its occupants.

Six adverse claims that will not appear in a search of records include: Claim to adverse possession Easement by prescription Easement of necessity Easement by estoppel Leasehold claim Easement for extraction of crops or mineral rights

Freehold?

Substantial or complete estates that are indefinite in length Titled interests we commonly think of as ownership

Tenancy in Common

The "normal" form of direct co-ownership, and is as close to the fee simple absolute estate as possible. Each co-owner retains full rights of disposition and is free to mortgage, or to convey his/her ownership share to a new owner who receives exactly the same set of shared rights

Subdivision

The act of dividing land into pieces that are easier to sell or otherwise develop. The division of a lot, tract, or parcel of land into two or more lots, plats, sites, or other divisions of land for the purpose, whether immediate or future, of sale or of building development. Splitting one large parcel into smaller legal parcels aka "platting" Subdivisions require the submission of a site plan

In the United States, the bundle of rights called real property seems to have gotten smaller in recent decades. Explain what has caused this. Why is it good? Why is it bad?

The bundle of rights has gotten smaller in recent decades because of the government's increased use of its police power. The government has the duty to protect the health, safety, and welfare of the American people. Additionally, after the 1970's, the consciousness of "Spaceship Earth" alerted many Americans to environmental concerns and the potential adverse environmental and ecological effects of some land uses. On the other hand, excessive regulations interfere with property owners' rights to do as they please with their property. If the exercise of police power goes too far, it becomes a "taking," which requires just compensation.

Interests

The bundle of rights that an owner of real property holds Can be dismantled and separated

Joint tenancy

The distinctive feature of a joint tenancy is the right of survivorship The interest of a deceased co-owner divides equally among the surviving owners, and nothing passes to the heirs of the deceased

**The use of Torrens certificates, never large in the United States, has diminished in recent years. Explain how marketable title laws, recently adopted in many states, might have made Torrens certificates less interesting and useful.

The idea of a Torrens certificate was to eliminate the need for a search of historical public records to affirm chain of title. Marketable title laws may have accomplished this objective in that they usually establish a "root" transaction that generally is taken for face value as the status of title at that time. Unless there is evidence to the contrary, title search need not reach back earlier than the "root" transaction. Thus, much of the value of the Torrens certificate is accomplished without the admin costs of maintaining an elaborate certificate updating process.

Conventional (or ordinary) life estate?

The rights of disposition of the fee simple absolute are unbundled and separated completely For example, suppose an older homeowner lives adjacent to an expanding university, and the university would like to acquire her residence for future university use. Suppose also that she is willing to sell, but is not interested in moving. A possible solution is for the university to purchase a remainder estate while the owner retains a life estate. In this arrangement the homeowner retains all rights of exclusive possession, use, and enjoyment for her lifetime while the university gains the right of disposition. The owner is compensated either through cash payment or a tax deduction (if the remainder is donated) and simplifies the eventual settle- ment of her estate, while assuring the continued right to occupy her home. At the time of her death the life estate and remainder estate are rejoined, becoming a complete fee simple absolute owned by the university.

Which of these is a widely used form of "evidence of title"?

Title insurance commitment A title commitment is basically the title company's promise to issue a title insurance policy for the property after closing. The title commitment contains the same terms, conditions, and exclusions that will be in the actual insurance policy.

**Explain how title insurance works. What risks does it cover? Who pays for the insurance, and when? What common exceptions does it make?

Title insurance protects an owner (or lender) from legal challenges or complications with title. Title insurance protects a grantee (or mortgagee) against the legal costs of defending title, and against loss of the property in case of an unsuccessful defense. It can't save a title that is genuinely false; however, it indemnifies the policy holder against litigation costs and compensation for loss of property if that should occur. The seller generally pays for the insurance. For a mortgage policy protecting a lender, the borrower pays. Note (exceptions/limits): Title insurance is not hazard insurance; it does not protect owner from the threat of physical damage to the property, only a legal attack on the owner's title. Title insurance typically excepts any facts that would be revealed by an inspection and survey of the property.

Modes of Conveying Real Property

Voluntary, with a deed ("normal" transaction) Voluntary, without a deed (implied easement) Involuntary, with a deed (probate/bankruptcy/divorce) Involuntary, without a deed (action of water, easement by prescription)

Conveyance without a deed:

Voluntary: Implied easement - Often created when a subdivision map is placed in the public records...generally includes utility easements and potentially easements of access that are not in any specific deed...also implied easements of necessity and by prior use Easement by estoppel - If one landowner gives another access and the other depends on the land Dedication - Dedicate the streets right-of-way Involuntary: An owner may involuntarily and unknowingly give up rights to land Can be easement by prescription or title by adverse possession Occurs if others use property and their use meets five conditions: 1. Hostile to the owner's interests (acting like owner) 2. Actual - land must be employed in some natural or normal use 3. Open and notorious - there can be no effort to hide or disguise use from the owner 4. Continuous - possession must be uninterrupted by a period specified by state law (can be anywhere from 5-20 years) 5. Exclusive - claimant cannot share possession with owner, neighbors, or others

License

Whereas an easement is a right to use another's land for a specific and limited purpose, a license is PERMISSION to do so Unlike an easement, a license is revocable by the grantor

How do liens work if there is multiple?

Whichever created first takes precedence; exception is that government liens ALWAYS have priority

Restrictive covenants vs easements

While an easement provides a right to use someone else's land, a restrictive covenant places limits on how an owner can use his or her own property