TEXAS REAL ESTATE PREP_Chapter 8

Natural causes can also lead to Involuntary Alienation. Please list how.

Through accretion, avulsion, erosion and reliction (memorize as this is a test question).

Some covenants associated with general warranty deeds are?

(not on test but good to know) 1. The Covenant of Seizen -- the owner has the right to sell the property; 2. The Covenant Against Encumbrances: all known limits to the title are stated; 3. The Covenant of Quiet Enjoyment: uninterrupted use of the property is granted.

There are 6 main criteria to ensure a deed is VALID. What are they?

1. Competent parties (Grantor and Grantee); 2. Consideration (legal consideration can be 'good' or 'valuable'. Love and affection is an example of 'good' consideration. Money is 'valuable' consideration; 3. Words of Conveyance or the granting clause -- a written statement that indicates transfer of some interest in real property from one person to another. The Habendum Clause or 'to have and to hold' clause usually follows words of conveyance; 4. Execution: the GRANTOR must sign the deed; 5. Delivery: title does not pass until the deed is DELIVERED AND ACCEPTED. Delivery can be into escrow and must be made during the lifetime of the Grantor; 6. Legal Description of the property.

Recording Title has certain main steps or facts that apply. List the 7 ideas and then define if necessary.

1. Recording is not a requirement of a valid deed; 2. Recording gives 'Constructive Notice' of ownership which is notice to the world and protects against fraudulent sale. Taking possession of a property is also 'Constructive Notice' of ownership; 3. Recording is always done in the county where the property is located; 4. A document must always be ACKNOWLEDGE before a notary before it can be recorded and must be in ENGLISH; 5. An acknowledgement is a declaration to a notary authorized to take oaths that the signature is a free and voluntary act. An acknowledgement VERIFIES THE SIGNATURE; 6. TIME and DATE of recording establishes PRIORITY. Recording is done at the county clerk's office on Monday-Friday from 8am to 4:30pm; 7. please note that just because a deed is acknowledge in from of a notary DOES NOT make it constructive notice.

There are many types of deeds. Name the 3 most common.

1. Special Warranty Deed; 2. Bargain or Sale Deed; 3. Quitclaim Deed. (memorize all of these as they are on the test)

There are many terms that are directly related to wills and the creation of wills. List the 8 main terms and then define.

1. Testator; 2. Testate; 3. Executor; 4. Title by Devise; 5. Intestate; 6. Administrator; 7. Attorney - in - Fact; 8. Probate. (NOTE, MEMORIZE ALL INCLUDING THE DEFINITION BELOW AS THESE TERMS WILL BE USED IN OTHER QUESTIONS)

When financing involved in a closing there are two processes that are mandatory, name them.

1. first step is closing of the loan between the buyer and the lender which will provide the funds for the second step which is; 2. the closing o the property and the execution of the sales contract. All is called closing and funding...the contract is now fully executed.

List the legal guidelines that a lender must follow in regards to notices to the debtor/borrower and the foreclosure process.

1. notice of foreclosure must be sent by CERTIFIED MAIL , 21 days before the court house sale/foreclosure sale; 2. the notice must also be posted at the door of the county court house and filed in the county clerks office; 3. with a TRADITIONAL MORTGAGE (not a deed of trust) the foreclosure will be recorded as a Lis Penden's at the county court house clerks office.

Investors have many advantages when it comes to real estate and the tax code. List and explain what those advantages are. Memorize This Information --TEST

1. one major advantage is the ability to depreciate their investment on their income returns. Keep in mind the following info: a. with income producing property LAND can NEVER be depreciated, b. only the improvements can be depreciated; c. the straight line method is used; d. the economic life of a property is defined as the period during which improvements contribute to value or are being depreciated and e. when the improvements are fully depreciated, that is the end of the economic life

List the pros of a short sale for the lender.

1. the lender can adjust the commission of the real estate brokers; 2. the lender saves the delay and expense of a foreclosure.

What is the escrow agents responsibilities?

1. to close the transaction per terms on the sales contract; 2. to not close if there are any terms not agreed to and get them resolved before closing; 3. the seller's deed and the buyer's money are deposited with the escrow company; 4. the escrow agent records the deed once all title conditions and other requirements of the agreement are met; 5. once all title conditions are met the buyer receives the deed, the seller receives his funds and the sale is executed or closed.

Investment Advantage #2 for real estate is? ON TEST

2. another advantage is the 1031 exchange where investors can defer taxation of capitol gains by making a property exchange. If the exchange is between 2 properties that are not equal in value then additional Capitol or property is included in the transaction to even out the exchange. This additional property or money is call BOOT which is taxed when the exchange occurs. The investor MUST hold the property for a minimum of 1 year with a 1031 exchange.

Define Lis Penden's.

A Lis Penden's gives constructive notice that a lawsuit affecting a particular property has been filed and is pending.

Define Testator.

A Testator is one who makes a will.

Define "Alienation".

A change of ownership of real property.

Define 'Deed'.

A deed is a written legal instrument that when executed and delivered, conveys title to or an interest in real estate.

Investment Advantage for real estate #5 is?

A home owner can deduct his property taxes and the interest on his mortgage. He can also deduct discount points and prepayment penalties on loans.

Investment Advantage #4 for real estate and married couples or married couples filing separately is? ON TEST

A married couple (or married filing separately) can also have tax free capital gains if they sell their primary residence in which they have resided for 2 of the last 5 years with a limit up to $500,000 for a couple. A tax payer can do this unlimited times!

What is the impact of a short sale on a borrower?

A short sale will result in a negative impact (loss of 200 points or more) on the credit report of the defaulting borrower; 2. the borrower may be sued by the lien holder for the balance of the money that is owed.

Define 'Accretion'.

Accretion is the build up soils resulting in a boundary change. Internet -- Increase in land area due to the permanent retreat of the high-water mark of a water front property or by soil deposition by river, stream, or sea waters. .

Name all terms that explain involuntary alienation.

Accretion, Reliction, Erosion, Alvulsion

Define Intestate.

One without a will is intestate.

Define 'Patent'' as it pertains to title transfer.

Patent is when the government transfer title to an individual.

One term, 'Alluvion', is sometimes associated with involuntary alienation which it is NOT! Define.

Alluvion = DIRT. The internet defines as a legal term describing the increase in the area of land due to sediment (alluvium) deposited by a river. This changes the size of a piece of land (a process called accession) and thus its value over time. (internet def....per instructor, alluvion = dirt)

Define Executor.

An Executor is the person NAMED in the will to settle the estate.

Define abstract of title.

An abstract of title is a condensed history, taken from public records or documents, of the ownership of a piece of land. or, an abstract of title, or title abstract, briefly summarizes the various activities affecting ownership of a parcel of land.

Define Administrator.

An administrator is appointed by the court to settle the estate of an intestate. The property will be divided according to the Laws of Descent and heirs will have Title by Descent.

Define Attorney-in-Fact.

An attorney-in-fact is someone who has power of attorney to act for another. An attorney in fact MAY NOT act for another AFTER the person has died.

On a HUD 1 statement how does the buyer's loan amount and earnest money show?

As a credit to the buyer

Define 'Avulsion'.

Avulsion occurs when soil is washed repositioned leading to a change in direction of a river. (Mississippi). Internet -- Sudden and abrupt change in the boundary between two pieces of land due to flood waters or a change in a river's course. Avulsion does not change the ownership of the removed land which remains the property of the original owner.

How is the process of 'Dedication' actually performed?

By recording the plat of the subdivision at the local court house.

What are the buyer's options in a foreclosure sale if the Trustees Deed IS NOT delivered on time?

The buyer may use a vendees lien to protect his interests

Define "Chain of Title".

Chain of Title is a list of all owners of the property or succession of conveyances whereby the present owner obtained title.

RESPA used to be administered by HUD. That is no longer correct. What organization is now responsible for managing RESPA?

Consumer Financial Protection Buereau which is actually over HUD.

True or False: apartment complexes are also included under RESPA?

False

Investment Advantage for real estate #7 is?

First time home buyers may withdraw up to $10,000 from an IRA (individual retirement account) without penalty (BUT NOT WITHOUT TAX) for the down payment on a home.

Define Foreclosure.

Foreclosure is the legal process instituted by a Trustee, Lien Holder, or Creditor, after a debtor's default on his payments.

What is considered the best and strongest deed?

General Warranty Deed because it guarantees and protects against defects, it offers the buyer the best protection, warrants title to the sovereignty of the soil, it is the most common deed mentioned in sales contracts. A buyer who wants to ensure that the seller is conveying good title should demand a general warranty deed.

What is another name for Redemption?

It is also called a borrower's 'equity of redemption or equitable redemption'. Note, a lender would almost prefer equity of redemption to deed in lieu of foreclosure.

In regards to the lender notice of pending foreclosure sale or court house sale....must the borrower/debtor received the certified letter to make it valid and enforceable?

NO

When will the policy actually be issued?

Once payment for the policy has been received...usually at closing.

List the 5 areas that title insurance will provide protection.

Protection will be given for 1. forged deeds, 2. illegal acts of trustees, guardians or trustees; 3. false claims of ownership; 4. human error in copying and recording; 5. loss or destruction of records and for additional money, survey or boundary issues.

What law places restrictions on requirements for tax and insurance escrow accounts -- no more than 2 days in advance?

RESPA

What law requires lenders to supply buyers with a good faith estimate of closing costs within 3 business days of loan application?

RESPA

RESPA covers 5 main areas which are:

RESPA allows: 1. any party to the transaction to choose the title company, and any party can pay for the policy; 2. prohibits kickbacks; 3. Places restrictions on requirements for tax and insurance escrow accounts -- NO MORE THAN 2 MONTHS IN ADVANCE; 4. Requires landers to supply the borrower with a good faith estimate of closing costs within 3 business days of loan application; 5. requires use of the HUD Uniform Settlement Statement form aka HUD1.

Define RESPA.

Real Estate Settle Procedure Act regulates closings on 1-4 family residential property with federally related financing

Define 'Redemption'.

Redemption is the time period up to the day of foreclosure where the borrower has the option to reclaim the title to a property if he has the ability to pay what he owes.

Define 'Reliction'.

Reliction is when a river dries up. Internet -- Increase in the land area due to the gradual recession or shrinkage of a body of water such as a lake or sea, or change in the boundaries of a land due to a change of course by a river or stream.

What is another name for 'Deed in Lieu' of foreclosure?

Sometimes called a 'Friendly Foreclosure' or Voluntary Deed.

Define 'Subrogation clause' as it applies to a title policy.

Subrogation Clause allows the title company to assume the rights of a buyer with respect to any claim against the seller, if the title company has made payments to that buyer to satisfy that claim.

Define Testate.

Testate is one who has a VALID will.

What government entity sets the title policy premiums?

The State Board of Insurance (many states including Texas)

Define 'Accession'.

The accretion of alluvial soil deposits along the banks of a stream.

What happens to the junior liens in the event there are any with the Deed in Lieu of Foreclosure?

The lender must accept responsibility of all junior liens.

In a foreclosure, what happens if the property sells for more than what is owed?

The lender will give the excess to the debtor.

If the property is sold by the lender and garners LESS than what is owed by the debtor, what are the lenders options at this point?

The lien holder can sue the debtor for a Deficiency Judgement.

Who begins the foreclosure process?

The lien holder or lender.

Define 'Erosion'.

The washing away of soil leading to a boundary change. Internet - Eating away of a coastline or land by the action of water, ice, and/or wind, or wearing away of a surface by corrosion or traffic.

What happens to all junior liens upon the sale of a foreclosed property?

They are wiped out with the sale.

Define the Foreign Investment and Real Property Tax Act and its purpose.

This act was passed to ensure that nonresident aliens and foreign corporations pay US income tax on the gains from the sale of US real property. The title company will hold 10% from the seller's sale price over $300,000.

Define "Abstract of Title".

This is a complete history of all recorded events affecting title to the property.

Why would a lender want to do a Deed in Lieu of Foreclosure?

This is the fastest way for a lien holder to get title to the property.

Define a Deed in Lieu of Foreclosure.

This process is when the lender accepts a deed from the borrower who is in default in lieu of beginning the foreclosure process.

Define Quitclaim Deed.

This type of deed gives NO warranties or guarantees. It offers the LEAST protection. It is used to clear a cloud on the title or to cure a defect in title. If there is a cloud on the title and no one available to sign a Quitclaim Deed to cure that cloud, a court action called "Quiet Title Suit" or an "Action to Quiet Title" will correct the problem.

Define 'Title Insurance'.

Title Insurance policy agrees to compensate or reimburse the insured against any losses sustained as a result of defects in the title, other than those exceptions listed in the policy.

Define Title by Devise.

Title by Devise is when an inheritance is transferred to another by a will.

True or False: A buyer with a signed and dated sales contract, who has not yet gone to closing, has equitable title in the property he is buying.

True

True or False: Premiums are paid ONE time. A NEW policy must be issued each time the property changes ownership, or is refinanced.

True

True or False: Title insurance must compensate owners for defects missed by the title company in its search process.

True

True or False: Title insurance will NOT pay for defects known to the buyer PRIOR to the policy being issued.

True

True or False: Unlike other types of insurance, title insurance protection is for the PAST not the FUTURE.

True

True or False: We debit the SELLER and credit the BUYER for unpaid taxes, unearned rent and tenant security deposits.

True

True or False: We debit the buyer and credit the seller for homeowner association fees, prepaid taxes and fuel in the tank.

True

True or False: We debit the seller with NO entry for the buyer for accrued interest and existing loan payoff and fees necessary to furnish marketable title (commission).

True

True or False: a Title Policy may contain a subrogation clause.

True

True or False: title insurance will defend title at its own espense, as well as pay any claims against the property, if the title proves to be defective.

True

True or False: we debit the buyer and no entry to the seller for prepaid interest and charges associated with the loan, such as points.

True

True or False: Deeds need not be dated, signed by the GRANTEE, or recorded.

True (memorize this, test)

Define Legal and Equitable Title.

Upon the creation of a binding offer to buy , the seller holds legal title for the buyer who has equitable title. Legal Title transfers at closing.

Define 'Dedication' as it applies to title transfer.

When a developer turns over the streets in a subdivision to the local government, this is called Dedication.

When does the Deed of Trust for the property being foreclosed upon officially come to an end in a foreclosure sale?

When the buyer receives the Trustee's Deed and/or receives a receipt showing proof of payment/sale at the courthouse steps.

What is a title report and what is the purpose of the report?

a snap shot of title at the time the report is made and obligates the title insurance company to issue a policy of title when any curative requirements have been met.

Investment Advantage #3 for real estate is? ON TEST

an individual can have a tax-free capital gains on the sale of real property up to $250,000 IF the property was his principal residence for at least 2 years of the last 5 years.

On a HUD 1 statement, the sales price shows up how?

as a credit to the seller

When does the buyer received the deed?

at closing

How is an abstract of title created?

by examining PUBLIC records.

Who does the 'Owner's Policy' protect and for how much value?

the buyer up to the contract price

Define Probate.

the judicial process to prove or confirm a will, or to settle the estate of one who dies intestate. Title to real property transfer at probate. Probate MUST BEGIN within 4 years of death.

Investment Advantage for real estate #6 is?

the owner of a single family property can depreciate the property IF it is used for rental property.

Who reviews the abstract of title and renders an opinion of title?

the title company attorney

What is the HUD1 for?

this form is presented to divide all closing costs, charges, expenses and commission (to the agents involved) to both the buyer and the seller. Another name is 'closing statement' and often includes the 'prorations' of property taxes, HOA fees, PID fees and so on. In our area, it is customary to prorate up to and including the closing day. If the fees are prorated UP TO closing day, then the fees for closing day are negotiable.

Define "Title Report".

this is a preliminary report - current condition of the title - the basis for the title policy which includes current owner's type of title (fee simple for example), owner's rights, easements, taxes, liens

Define Short Sale.

this is a sale of secured (with a lien on it) real property that produces less money then is owed to the lender.

Define 'Conveyance'.

this is any instrument or document that transfers an interest in real property. Ownership is most often transferred by DEED, PATENT or WILL.

Define 'Voluntary Alienation'.

this occurs when an owner transfers title to another typically using a written document such as a deed, or a will, or a power of attorney.

Who does the lender or mortgagees policy protect and for how much value?

this title insurance policy protects the LENDER/Mortgagee up to the loan balance.

Define Special Warranty Deed.

this type deed guarantees title only against defects arising under the grantor's period of ownership. Defects existing prior to that time are not covered.

Define Bargain or Sale Deed.

this type of deed has only one covenant and sheriff's, trustees, officers of the court, executors use this type of deed. This deeds provides NO warranties about the condition of the title. It only promises that the Grantor has the right to convey the title.

Define 'Involuntary Alienation'.

this usually happens in court as in a foreclosure, bankruptcy, condemnation, escheat, adverse possession or inheritance without a will.

How is a seller finance or loan assumption shown on a HUD 1 statement?

this would be a debit to the seller and a credit to the buyer -- REMEMBER - ALWAYS DEBIT FOR A DEBT and CREDIT FOR CASH ON THE HUD 1 STATEMENT

When is the insurance policy delivered?

upon payment, at closing.