11 trust fund/FDIC/Accounting/Columnar record/return checks/seller buyer credit&debit/seller net sheet/prepaid & accrued/IRS reporting/REO/Liquidity/dynamic,static,financial,capital business risk/subordinate lease/ground lease/sale and lease back/converti

BROKERS can use other method of accounting, besides columnar

3 main components: 1. a journal 2. a cash ledger 3. a beneficiary ledger

Commercial loans usually are predicated on the borrower providing the lender with:

An audited financial statement An appraisal A cash flow projection

Closing Disclosure.

If the buyer and seller both have costs to pay, how do the parties know who pays what? Answer: through a document called the Closing Disclosure.

Static risk

Insurable business risk that includes insuring for accident liability, fire, theft, and vandalism

You're a California broker. That means you must reconcile your trust fund accounts ____________.

Monthly

Prepaid items(已经接替buyer付) go in the seller's credit column and the buyer's debit column. These include: Accrued expenses (还没付给buyer) go in the seller's debit column.

Prepaid taxes Rent paid by the seller under a lease assigned to the buyer Utilities billed and paid in advance Heating oil in the tank

The Sale Leaseback and Other Lease Financing

the owner of a building, who needs to raise capital, sells the building to an investor and then leases the building back from the investor. a sale leaseback provides 100% financing whereas a traditional commercial mortgage might only provide 70% financing. It allows the investor to realize the tax benefits of real property ownership as well as the security of owning a building with a (generally speaking) solid tenant From the tenant's standpoint, it works because the business doesn't have to be relocated, and the equity's completely available. There's no down payment required! Sale leasebacks are popular with properties that would be difficult to finance. the investor gets the income tax write-offs, ownership in the property, and a committed tenant. The seller pays rent and usually operates under a net lease, which means that the seller will also be responsible for taxes, insurance, and maintenance of the property.

Capital risk

(1) The ability to secure financing at an affordable rate; (2) The loss of principal amount invested

SENDING CHECKS FROM BUYERS TO ESCROW

--Copy of check --Receipt from escrow company

WITHDRAWING TRUST FUNDS

--Copy of issued check

COLLECTION OF MANAGEMENT FEES

--Property management agreement --Copy of cancelled check

TRUST FUND DEPOSITS

--Receipt for deposits each time collected

RECONCILIATION OF BANK ACCOUNT RECORDS

--Record of reconciliation activity

brokers are not required to keep records with FDIC

1. Gives the broker an adequate record of deposits and disbursements that can be shared with their clients. 2.Serves as proof of balances, and can solve issues of imbalances, should they occur. 3.Provides the broker with an accurate list of account beneficiaries and how much is owed to each.

columnar records requirements

1. The record keeping method must be in accordance with generally accepted accounting principles. 2.The record keeping method must be in a format that is easy to trace. 3.The record keeping format must be in a format that is easy to use in reconciling records.

title issues do still occur with REO properties. These include:

1. • Delays due to an internal audit The lender has requested a title audit to ensure that the foreclosure was properly handled. Sometimes a lender will request a title audit. Due to the previous "robo signing" fiasco (where banks that foreclosed on consumers in record numbers were later found to have hired people off the street to rubber-stamp the foreclosure documents) and the resulting lawsuits, 2.Clouds on titles: Typical REO title clouds include prior tax sales that the bank didn't know about, errors in the original recorded mortgage documents, etc. If an easy solution isn't available, a quiet title action may be needed. This can take several months and adds legal fees and other costs You should recommend that your buyers pay the extra premium on REOs to get the "homeowners" level of title insurance.

Loan Estimate

A Includes whether or not the lender intends to transfer service of your loan B Includes an estimate of the amount of cash to bring to close C Displays the total interest you will have paid off in five years D Includes projected monthly payments for the entirety of the loan E Lists loan terms on the first page

RESPA

A RESPA stands for Real Estate Settlement Procedures Act B RESPA ensures that a buyer in a residential real estate transaction financed by a federally related mortgage loan has knowledge of all settlement costs. C RESPA disclosures include costs associated with the settlement, lender servicing, and escrow account practices, and business relationships between settlement service providers. D Borrowers who are affected by RESPA must receive certain documentation. If the borrower does not receive the documentation at the time of application, the lender must mail the documentation to the borrower within 3 business days of receiving the loan application. E RESPA expressly prohibits the payment of kickbacks or unearned fees between settlement service providers.

buyer's debits

A debit is a charge (an amount a party has to pay). A credit is an amount that will show up as an amount in the party's favor—either an amount a party has already paid, an amount that must be reimbursed, or an amount that is promised

robo-signer

A robo-signer is an employee of a mortgage servicing company that signs foreclosure documents without reviewing them. Rather than actually reviewing the individual details of each case, robo-signers assume the paperwork to be correct and sign it automatically - like robots. banks routinely used affidavits signed by employees who did not personally review the documents and had no basis for believing that the homeowner was in default or that the bank owned the loan.

Short Sale Title Transfer Issues

A short sale occurs when the market value of the property (and the eventual sales price) is less than the net proceeds the borrower will get when selling it. The only option for sellers who don't have enough money to make up the difference between what's owed and the sales price is to request permission from their lender (or lenders) to repay less than the total amount owed.

Closing Disclosure document

B Contains a summary of both the borrower's and seller's transactions and the gross amount due from both parties C Includes a section for both the borrower and the seller where adjustments can be taken into account for items unpaid by the seller D Has a place to compare the loan estimates with the actual closing charges E Identifies the total settlement charges, which include but are not limited to real estate broker fees, reserves deposited with the lender, and title charges F Includes detailed information about the terms of the loan

If BRE form 4522 is used, BRE form 4523 must also be used.

BRE forms 4522 and 4523 are STRONGLY SUGGESTED when trust funds are deposited into a trust fund bank account. BRE form 4524 is optional. Records can be kept manually or in a computerized record-keeping system.

The _____________ requires brokers to maintain proper documentation for all transactions connected to their real estate business.

California Bureau of Real Estate

RETURNING CHECKS TO BUYERS

Copy of check

Table of Activities Requiring Accounting Documentation

EARNEST DEPOSITS Real estate purchase contract with buyer signature Receipt for earnest deposit

TRUST FUNDS ARE ANYTHING OF VALUE GIVEN TO US,

EVERY TIME SOMEONE WRITES ME A CHECK FOR EARNEST MONEY, FOR EXAMPLE, THAT CHECK IS TRUST FUNDS. RIGHT? N SOMETHING LIKE THE TITLE TO A CAR CAN BE USED AS TRUST FUNDS

Seller Credits

Escrow balance on assumed loan (if applicable) Insurance premium prorate refunded Property tax prorate refunded Purchase price Sale of personal property (if applicable)

foreclose properties

Foreclosed properties may also have title issues, including: Unpaid tax liens Additional unrecorded owners Disputed title and loan paperwork Buyers who seek to purchase foreclosures may face additional challenges, including: Higher closing fees due to the complicated paperwork Attorney fees Closing delays Homeowners who decide to redeem their property by paying back amounts owed (in many states, this can only happen before the foreclosure sale)

what three records must be reconciled at least monthly?

Journal, cash ledger, beneficiary ledger

Commercial Mortgages

Loan Guidelines Borrowers who apply for commercial business loans must be prepared to provide specific documents relating to the business, including two or three years of tax returns, financial statements, accounts receivable and accounts payable documents, and collateral offered to secure the loan. Just as with construction loans, an applicant for a commercial loan must provide the lender with a portfolio that describes the project.

NON-TRUST FUNDS ARE, WELL, NOT ENTRUSTED TO US.

MONEY WE WOULD HAVE RECEIVED WITHOUT A CLIENT, NONE OF THOSE THINGS CAME FROM A CLIENT FOR THE PURPOSE OF SECURING A REAL ESTATE TRANSACTION. RENTAL INCOME GENERAL OPERATING FUNDS SALES COMMISSIONS. deposit from a broker owned real estate

Transfer tax or conveyance fee

Negotiable between the parties, usually paid by the seller. State transfer tax is set at $1.10 per $1,000 of value of the purchase price. Local rates vary from county to county.

Nonny is purchasing a rental property where the tenants pay month-to-month rent. Which of the following is the most likely way for the rent to be prorated?

Nonny will receive prorated rents beginning the day after closing.

real estate owned, or REO

Occurs when a property doesn't receive an acceptable bid in a foreclosure sale, and the bank takes ownership of the property The lender's goal is to sell REOs as quickly as possible, so generally, the lender has taken steps to remove obstacles Liens and other title issues may have been cleared, homeowner redemption periods may have expired, and tenants have likely been evicted or have left on their own

Property taxes generate approximately ______ of local government revenue.

One third

Probate

Probate is the court-supervised process of distributing the decedent's estate to heirs and creditors according to the deceased person's will. If the decedent's will doesn't name an executor, the court will appoint an administrator to be the decedent's representative and manage the property according to California Probate Code.

The representative is responsible for:

Publishing a notice to creditors of the decedent's death Conducting an inventory and obtaining an appraisal of the property in the decedent's estate Making a report to the probate court of the estate's assets and liabilities Distributing the proceeds of the estate as the court directs Paying (from the estate's assets with court approval) the expenses incurred while administering the estate, state and local taxes, and creditor's claims

DAMAGE DEPOSITS AND RENTS FROM TENANTS

Receipt for deposits and rent each time collected

BRE 4524

Record of all trust funds received that were not placed in a trust fund bank account A TRANSACTION OF TRUST FUNDS

BRE 4522

Record of trust fund bank account activity for all trust funds received and paid out A JOURNAL OF ACTIVITY

Which federally related lending transactions does RESPA cover?

Refinance loans Second mortgages Home equity loans Lines of credit New first mortgage loans

The representative may be paid a fee, with the court's approval, for these services

Sell the property to pay off a debt or honor a special request Grant an exclusive right to sell the property for 90 days (i.e., enter into a 90-day listing agreement) Accept offers The representative need not use a real estate broker to sell the real property of the estate, but when a broker is used, the broker fee (commission) is subject to statute and court approval. If you are involved in a transaction involving probate, the important point to remember is that the court must approve of the representative's decisions before the transaction can proceed.

Which of the following is provided at the time of a buyer's offer and shows what the seller's proceeds will be if the seller accepts the offer?

Seller net sheet

BRE 4523

Separate records for every individual transaction or beneficiary from a trust fund bank account A RECORD OF ALL ACCOUNT

IRS Reporting Requirements

Some real estate closings must be reported to the Internal Revenue Service using Form 1099-S. These include closings that involve: -Land (either improved or unimproved), and including air space -Any permanent structure such as residential, commercial, industrial -Condominium units including fixtures and common elements (including the land) -Shares in a cooperative -air space right The IRS will require the following information to be included: -Sales price and date of closing -Seller's Social Security number -Address or legal description -Buyer's portion of the property tax credited to the seller Generally the closing agent will notify the IRS; if not, the lender should. However, brokers and the parties to the transaction can also be held liable if the required report is not filed.

liquidity

The ability to quickly convert your property to cash

Your firm is undergoing an audit. What could happen if a discrepancy is found?

The broker may undergo disciplinary action

Lenders often take a very long time to approve short sales.

The original lender isn't getting everything owed to them in a short sale, so there may be nothing left to pay a junior lender. Some junior lenders would rather take their chances with a foreclosure sale than approve a short sale—or they may be willing to approve provided they are guaranteed a certain amount at closing.

land is not liquid.

The second investor, who desperately wanted to get his money out of his first parcel of land,

who pays the costs on the day of closing for property taxes, utilities, etc.?

The seller

How are mortgage interest, taxes, insurance, and other similar expenses prorated?

These are usually prorated based on a 360-day calendar year (30 days x 12 months).

recording fee

These filing fees are nominal and are required to clear all defects, so that the buyer can be presented with a clear title.

satisfication of an existing lien

This expense applies when the seller owes on an existing mortgage; it is paid to the seller's lender from the seller's proceeds.

Trust Fund Bank Account

Those funds should then be deposited into a trust bank account. Regulations for the handling of trust funds have been set forth by the California Commissioner of Real Estate and the California Business and Professional Code. Trust funds are closely monitored by these regulating bodies, so following their regulations is always the best policy.

The Business and Professions Code requires that transactional records be kept for how long?

Three years

maintain a reserve of funds?

To ensure there are sufficient funds to pay property taxes and renew hazard insurance should the borrower miss a monthly payment

Another Option

To offset the risk of some commercial loans, some lenders will offer "convertible mortgages", which give the lender the option to convert the outstanding balance owed into a specified percentage of ownership in the property.

Safety of a Trust Account

Trust fund accounts are specifically designed to provide extra protection. FDIC insures trust fund accounts in the same way it insures banks. Trust funds deposited into an account specifically designated for this type of funds are safe from: Vulerability of the funds in the case of the licensee or broker's incapacitation or death Funds potentially being "frozen" should the licensee or broker end up in litigation

Prorated items will be either accrued or prepaid. Accrued expenses go in the seller's debit column. They're expenses that the seller owes at the day of closing, but that the buyer will eventually pay, so the seller gives the buyer a credit for these items at closing. Typical prorated accrued items include:

Unpaid real estate taxes Tenant's rent the seller collected for a period of time in which the buyer will own the property Interest on the seller's mortgage assumed by the buyer (if applicable)

Long-term leases are also used in ground leases.

a lease of unimproved land which the lessee intends to develop. A requirement of the lease is that a building will be constructed. After the lease period expires, the building belongs to the owner of the land. And by leasing the land for a long term, the owner can receive lease payments, realize the appreciated land value after the lease expires (e.g., 20 years) and then get ownership of the building as well. For the lessee, the advantages are obtaining the right to use the property without having to buy it. The lease is generally long enough for the lessee to realize profits from the building.

Equity build-up

addition in value to the property beyond what the investor originally invested as a down payment.

Business risk

an investment will not realize the required return on investor capital

trade fixtures=chattel

are items that may appear to belong to the property but are instead the tenant's possession. For example, any equipment that the tenant installs on the property in order to conduct business is likely a trade fixture. T

assignment contract,

assignment contract, the assignor can designate an assignee at a later date to fulfill the duties and responsibilities of the contract. requiring buyers to obtain a separate written agreement with the seller to a specific assignee in the Assignment of Agreement Addendum before the assignment will be allowed.

Buyer Credits

assumed mortgage and accrued interest on mortgage (if applicable) Balance due from buyer at closing Contract for deed balance (if applicable) Earnest money deposit already paid New mortgage money Purchase money mortgage (if applicable) Unpaid real property taxes prorated

other types

beneficiary ledger with details of each transaction cash ledger in form of credits journal of all trust funds transaction in chronological order

Loan estimate - Lists the charges the buyer is likely to pay at settlement

closing disclosure - Used prior to closing to provide an itemization of all the actual costs/charges imposed by the lender on the borrower and seller

Owning and Leasing Commercial Properties

commercial property managers also have the role of negotiating leases, either on behalf of tenants or on behalf of the building owners. Generally, residential tenants simply pay the going lease—there is no negotiation. With commercial tenants, negotiation is key to securing a deal that is profitable for the landlord while being affordable for the commercial tenant.

Financial risk

directly related to leverage: the higher the leverage, the higher the risk

buyer's credit

earnest money already paid balance of the loan seller's share of any prorated items that buyer will pay in the future

seller's debit

expenses seller's share of prorated items pay off seller's current mortgage

investors purchase commercial property because

generate regular cash flow

a subordinate lease

gives the lender the power to evict the tenant in the event that the owner does not make their mortgage payments. The tenant must agree to subordinate their lease to the lender's mortgage.

a deed in lieu of foreclosure,

giving up ownership to the bank that holds the mortgage. foreclosure is usually a lengthy and complex legal process. Distressed homeowners may attempt to obtain loan modifications or other types of assistance to forestall the foreclosure and stay in their homes. For example, declaring bankruptcy can put a halt to the foreclosure process while that legal issue is straightened out.

Money can either grow or decrease in value over time.

inflation & deflation

Pyramiding

makes use of one investment to finance another. This can be done through sale or refinance. For instance, if an investor purchases a $100,000 property that rises in value to $150,000, the investor could tap the equity ($50,000) to finance a subsequent investment. T

seller's credit

purchase price buyer's share of prorated items seller has prepaid

buyer's debit

purchase price of the property expenses prorated items seller has prepaid

trust funds are not interest bearing

regulated by --business professional code --real estate commissioner regulation The two sets of regulations are set by California law and the California real estate commissioner. Deposit into a bank trust account is negotiable.

Other Qualifications

require the borrower to use a percentage lease with certain tenants. often include assignment of leases, personal guarantees] a large (by residential standards) down payment. shorter payback terms, generally 15 years (with a few loan programs available for 20 and 25 years). balloon payments, with large lump sums due to the lender every three to five years. After the lump sum, the mortgage can continue (roll over) but the rate may change based on a renegotiation between lender and borrower.

assignment is not allowed when using California Association of REALTORS® contracts

requiring buyers to obtain a separate written agreement with the seller to a specific assignee in the Assignment of Agreement Addendum before the assignment will be allowed.

should i buy residential or commercial income property?

residential: -more easily liquidated -amazing financing -hussel free - easy get filled with tenants. commercial: -larger down payment -property size much bigger -don't have the skill to lease up the property

not licensee responsibility

review property tax bill to ensure they are accurate

mortgage interest on assumed loan

seller's debit 抵押贷款利息

columnar

separate listing of all beneficiary log of all trust funds received journal of all trust funds received

Dynamic risk

uninsurable because it's determined by economic, tax, and market changes

assessed values,

which are used to determine property tax rates, are also used to calculate state aid for education, which is the second largest revenue source for schools.

seller net sheet

will help the seller determine what the net proceeds will look like if the seller accepts the offer