UNIT 1: THE REAL ESTATE BUSINESS, UNIT 2: LICENSE LAW AND QUALIFICATIONS FOR LICENSURE, UNIT 3: REAL ESTATE LICENSE LAW AND COMMISSION RULES, UNIT 4: AUTHORIZED RELATIONSHIPS, DUTIES, AND DISCLOSURES, UNIT 5:REAL ESTATE BROKERAGE ACTIVITIES AND PROCE...

Define caveat emptor.

"let the buyer beware."

Distinguish between actual notice and constructive notice.

1. Actual notice is direct knowledge acquired in the course of a transaction. When the townspeople witnessed the transfer of earth or twig from one party to another, they witnessed the buyer's physical possession of the land. Actual notice was accomplished when the townspeople viewed the transfer of ownership rights. Assume that a seller verbally discloses to the buyer that there is a construction lien on his home for an unpaid pool repair job. The seller has given the buyer actual notice that there is a lien on the property. 2. Constructive notice (also called legal notice) is accomplished by recording a 11 document in the public records. When the pool company records a construction lien on the property for the unpaid repair job, it gives the world constructive notice of the lien

Identify why the social security number is required on the license application.

A U.S. Social Security number is required to apply for a real estate license. In the Full Legal Name section of the license application, applicants must enter their names as they appear on their Social Security cards. Florida law requires that an applicant's Social Security number be disclosed on all professional license applications. The Social Security number is used to determine whether applicants are in compliance with child support obligations

Identify the events that will cause a brokerage relationship to be terminated.

A brokerage relationship between a principal (or a customer) and a broker may be 8 terminated for any one of the following reasons: 1. Fulfillment of the brokerage relationship's purpose (for example, finding a ready, willing, and able buyer). 2. Mutual agreement to terminate the brokerage relationship. 3. Expiration of the terms of the agreement. (If no term is specified, the courts have ruled that a brokerage relationship may be terminated after a "reasonable" time.) 4.Broker renounces the single agent relationship by giving notice to the principal or the broker renounces the transaction broker relationship by giving notice to the customer. 4. Principal revokes a single agent relationship or the customer revokes a transac- tion broker relationship, by giving notice. (In this case, the principal or the customer may be liable for damages, such as advertising expenses, incurred by revoking the brokerage relationship before the termination date of the listing contract or exclusive buyer contract.) 5. Death of a seller's broker or the seller before the broker finds a ready, willing, and able buyer. 6. Death of the buyer's broker or the buyer before the broker finds a suitable prop- erty for the buyer. 7. Destruction of the property or condemnation by eminent domain. 8.Bankruptcy of the principal or the customer.

Distinguish between a CMA, BPO, and an appraisal.

A comparative market analysis CMA is a marketing tool that is prepared for a potential buyer or seller based on recent sales of similar properties, property is currently on the market, and expired listings. A CMA may not be referred to a represented as an appraisal. A broker price opinion BPO is a brokers written opinion of the value of real property. A broker may charge a separate fee for a BPO, provided it is not used in connection with originating a federally related loan and it is not labeled as an appraisal. An appraisal is the process of developing and communicating an estimate of the properties value appraisals are needed for many types of real estate activities. The Florida real estate appraisal board (FREAB) regulate state certified and licensed appraisers only a state certified or licensed appraiser can prepare an appraisal that involves a federally related transaction appraisers charge a fee based on the time and difficulty of the appraisal assignment appraisers are not paid a commission to reduce the possibility of a conflict of interest the ethics role of the uniform standards a professional appraisal practice USPAP states that it is unethical for an appraiser to except compensation that is contingent on the value of the property.Real estate brokers and associates me a praise real property for compensation certain exceptions excess however they may not represent themselves a state certified or licensed appraiser unless they also hold those licenses and certifications.

Recognize requirements of a valid deed.

A deed containing all the requirements of state law is said to be valid. A valid deed will be recognized by the courts. In Florida, for a deed to be valid, the following elements are required: ■ In writing (statute of frauds) ■ Names of the grantor and the grantee ■ Grantor must be of legal capacity (competent and of legal age) ■ Consideration must be described ■ Granting clause (words of conveyance) ■ Legal description ■ Signed by the grantor and two witnesses (deeds do not have to be acknowledged, notarized, or recorded to be valid in Florida, but if the grantee wants to give constructive notice of ownership, the deed must be notarized before it can be recorded in public records) ■ Voluntary delivery and voluntary acceptance of the deed

Identifying features of a fixed rate amortized mortgage.

A fixed-rate amortized mortgage consists of a series of fixed, equal monthly payments over the loan term. Typical mortgage loan terms are 15-year and 30-year terms. At the end of the loan term, the loan is completely paid off. For example, a loan with a 30-year term will be paid in full in exactly 30 years (360 monthly payments). The monthly payments are constant (same monthly payment) each month for the loan term. Fixed-rate amortized mortgages are sometimes referred to as level-payment plan mortgages because the bor- rower pays the same mortgage payment each month. Mortgage Amortization Table. An amortization table is a spreadsheet that lists each monthly payment for the entire loan term. An amortization schedule allocates each monthly payment into two components: Interest paid. A portion of each monthly payment is applied to interest. Interest is the amount lender gets paid for making the loan to the borrower. The amount of the mortgage payment allocated to interest in the largest portion of the monthly payment in the early years of the loan term. Principal paid. After the interest charges are allocated, the remainder of the monthly payment is applied to paying off the loan. This portion of the monthly payment is called principal. As the loan balance is gradually paid off, the amount allocated to interest gradually decreases, and the amount allocated to principal gradually increases.

Identify the homeowners' association disclosure requirements.

A homeowners association is a Florida corporation responsible for the operation of a com- munity or a mobile home subdivision. Voting membership is made up of parcel owners, and membership is a mandatory condition of parcel ownership. Homeowners associations may impose assessments that, if unpaid, may become a lien on the parcel. Florida Statute 720 requires sellers of property subject to a mandatory homeowners association to provide buyers with a disclosure summary regarding the association, the existence of restrictive covenants, and any assessments that the association imposes (see Figure 11.3). The disclo- sure summary must be supplied by the developer or by the current owner

Define enforceable contract.

A legally binding contract that the law will recognize

Recognize exemptions to the post-license education requirements.

A licensed sales associate who has received a four-year degree or higher 18 in real estate from an accredited institution of higher education is exempt from the sales 19 post-license education requirement

Identify the liscense region requirements to accept referral fees from lenders.

A mortgage loan originator must be licensed to receive compensation for taking a residential mortgage application I negotiating the terms of a residential loan. Real estate license he may not except a referral fee from a lender unless the real estate license is also licensed as a mortgage loan originator.

Distinguish among agency relationships in general business dealings.

A person who delegates authority to another is called the principal. A person who accepts the authority (and the responsibilities, duties, and obligations associated with that authority) is called the agent. An agent is the person entrusted with another's business. An agent is authorized to represent and act for the principal. E X A M P L E : The broker is the principal in dealings with the sales associates and broker associates because the broker delegates to the associates the responsibility of representing the broker's interests. Sales associates and broker associates are agents of their broker or owner-developer (if registered with the DBPR under an owner-developer). The broker's associates (sales and broker associates) are authorized and consent to repre- sent the broker in dealings with buyers and sellers, and landlords and tenants.

Recognize conditions of voluntary relinquishment of a real estate liscense

A person who no longer wants to engage in the real estate business can volun- tarily relinquish or cancel the license, provided there is no investigation or disciplinary proceeding pending against the licensee. The licensee sends written communication to the DBPR indicating that the licensee is retiring or no longer desires to be licensed. When a license is canceled, it becomes null and void. Cancellation of a license is effective on the date the Commission accepts the voluntary relinquishment. Cancellation does not involve disciplinary action.

Recognize exemptions from a real estate license.

A person who performs real estate services for others must be licensed, unless specifically exempted by law. The Florida statutes identify specific exemptions from the requirement to be licensed as a real estate broker or sales associate. The exemptions have been organized into five groups for study purposes. The five groups are: 1. Owner exemptions 2. Exemptions based on career 3. Salaried employee exemptions 4. Court and legally appointed persons 5. Miscellaneous exemptions Read pg 35

Recognize the payment structure for licensed personal assistants and the activities of unlicensed personal assistants.

A sales associate may pay the licensed personal assistant for nonbrokerage activities on a salaried or an hourly basis. A sales associate may not compensate a personal assistant for brokerage activities that require a license.

Distinguish among the types of statutory deeds and identify important clauses contained in each type of deed.

A statutory deed is a deed whose format is defined by state law. There are four types of statutory deeds: (1) quitclaim deed, (2) bargain and sale deed, (3) special warranty deed, and (4) general warranty deed. Quitclaim Deed. A quitclaim deed provides the least protection to the grantee. A quit- 4 claim deed contains a premises section with a granting clause that conveys what interest 5 (if any) the grantor may have when the deed is delivered. The grantor makes no warran- 6 ties about the quality or extent of the title being conveyed. Quitclaim deeds are used to 7 clear existing or potential clouds on the title. To clear the title of possible trouble spots and 8 defects, the grantor releases any claim or interest in the property. Words of conveyance 9 used in a quitclaim deed are remise, release, and quitclaim. 10 Bargain and Sale Deed. A bargain and sale deed is similar to a quitclaim deed because 11 the grantor makes no warranties about the quality or extent of the title being conveyed. 12 Unlike the quitclaim deed, the bargain and sale deed contains a seisin clause indicating the 13 grantor has title to the property; however, the grantor makes no express warranty against 14 encumbrances. The granting clause in a bargain and sale deed uses the words grants, bar- 15 gains, and sells. The bargain and sale deed is most often the deed that is transferred from a 16 foreclosure or tax sale. In such cases, the grantor is a bank or tax authority, and therefore 17 would not necessarily know of any encumbrances that may have been attached to the land 18 by the previous owner. A bargain and sale deed is used when the grantor does not want 19 to guarantee against any encumbrances. The bargain and sale deed includes a habendum 20 clause (ownership interest) that declares the bundle of legal rights (estate) the grantor is 21 transferring (see Figure 9.5). 22 Special Warranty Deed. A special warranty deed is similar to the bargain and sale deed 23 because it contains a seisin clause indicating the grantor has title to the property. Like the 24 bargain and sale deed, the special warranty deed uses the words grants, bargains, and sells. 25 An important distinction between a bargain and sale deed and a special warranty deed is 26 that the grantor in a special warranty deed guarantees the title against title defects arising 27 during the period of the grantor's ownership of the property, but not against defects exist- 28 ing before that time. Like the bargain and sale deed, the special warranty deed includes. habendum clause (see Figure 9.5). General Warranty Deed. The general warranty deed (or sometimes warranty deed) provides the greatest protection to the buyer because the general warranty deed contains all the covenants and warranties available to give the grantee every possible future guarantee to title protection. The general warranty deed is the most commonly used deed in Florida. If a real estate sale contract does not specify the type of deed to be delivered, a general warranty deed must be used. In addition to the granting clause and the habendum clause the general warranty deed contains the following covenants: Covenant of seisin. The covenant of seisin (also seizin) is included in three of four types of statutory deeds; the covenant of seisin is not included in the quitclaim deed (see ➆, Figure 9.4 and Figure 9.5). Covenant against encumbrances. The grantor warrants that the property is free from liens or other encumbrances, except as noted in the deed. This clause gives the grantee notice of all encumbrances (liens, restrictions, and so forth) associ- ated with the property (see ➈, Figure 9.4). Covenant of further assurance. The grantor promises to sign and deliver any legal instrument in the future that might be required to make the title good. Covenant of quiet enjoyment. The grantor guarantees peaceful possession undis- turbed by hostile claims of title. Covenant of warranty forever. The grantor guarantees to forever warrant and defend the grantee's title against all lawful claims (see ➇, Figure 9.4 and Figure 9.5).

Identify the essentials of a valid contract.

A valid contract is one that complies with the provisions of contract law and contains four essential elements: •Contractual capacity of the parties (competent parties) •Offer and acceptance (mutual assent) Legality of object (legal purpose) •Consideration

Distinguish among the parties and property involved in a will.

A will is a legal instrument used to convey title to real and personal property after the person's death. To die testate indicates the decedent (deceased person) prepared a will before death. Conveyance of property according to a last will and testament is voluntary alienation because the person who left a will—the testator (male) or testatrix (female)— intended to gift property to a particular individual. A gift of real property is a devise and the recipient of the gift is the devisee. A gift of personal property is a bequest and the recipient is the beneficiary (see Figure 9.1).

Recognize illegal schemes concerning anti-trust laws.

Antitrust laws protect competition. Brokers risk their assets and their careers by attempting to get other brokers to fix commissions. The Sherman Antitrust Act, the Clayton Antitrust Act, and the Federal Trade Commission deal with preserving competition and ensuring against restraint of trade. It is illegal for real estate brokers to conspire to fix commissions or fees for the services they perform. Local real estate boards and multiple listing services may not fix commission rates or splits between cooperating brokers. A violation of antitrust laws is a criminal offense. Two prohibited acts are the following: • Price-fixing occurs when competing brokers conspire to establish a standard commission rate rather than letting the rate be set by the open market. Even if a price fix is lower it is still a violation of the law. A broker's office can establish a commission rate, but it must do so independently of any other brokerage. Licens- ees should never make statements such as "the going rate" or a "normal commis- sion rate" to avoid even the impression of price fixing. • Market allocation occurs when brokers agree to split up competitive market areas among themselves and not compete in each other's areas.

Review the requirements for advertising.

Anyone who advertises or claims to be providing real estate services is acting as a real estate broker. Therefore, under Florida law, advertising is considered a broker activity. All advertising must be in the name of the brokerage and under the supervision of the broker. Sales associates may not advertise real estate services in their own names. The broker is accountable for all advertising, regardless of who actually prepares the advertisement. Advertising includes letterhead stationery and flyers, business cards, yard signs and billboards, newspaper and magazine ads, internet, radio and television, promotional materials, and so forth.

Identify the requirements to form a professional association in a sales associates legal name.

Broker associates and sales associates may form a professional association so that the broker can pay commission to the professional association rather than to the individual licensee. Forming a professional association for income tax purposes (after consultation with a CPA or an attorney) should not be confused with forming a brokerage business entity to conduct real estate services. Recall that broker associates and sales associates must work under a broker or an owner-developer. A licensed broker associate or sales associate may register with the Department of State (DOS) a professional corporation (PA), limited liability company (LLC) or a profes- sional limited liability company (PLLC) in her legal name only. The associate may then provide proof of the DOS registration and be issued (for a fee) a real estate license in the licensee's legal name, including the appropriate professional designation. For example, a sales associate licensed as Jane Doe could form a professional corporation and be issued her real estate license in the name Jane Doe, PA. Jane would be required to provide the DBPR proof of the creation of a professional corporation that is registered with the DOS.

Recognize the requirements for recordkeeping and retention of disclosure documents.

Brokers must retain brokerage relationship disclosure documents for five years for all residential transactions that result in a written contract to purchase and sell real property. Documents may be stored in a digital format. Files of properties that have failed to close must also be retained. If a transaction fails to close, the broker should retain the brokerage relationship disclosure documents with the purchase and sale contract and other documents associated with the property and place them in the "dead" (failed to close) file. The Commission may disci- pline a licensee for failure to abide by any provision in Section 475.278, F.S., including the duties owed to customers and principals, disclosure requirements, and recordkeeping requirements set forth in the law.

Review contract negotiation.

CONTRACT NEGOTIATION An offer demonstrates an intention to enter into a contract. In the normal sequence of forming a contract, one party begins by making an offer. Assume that Rebecca is selling a parcel of land that she owns. Ken makes an offer to purchase the lot from Rebecca for $34,000. Ken is the offeror (the person making the offer) and Rebecca is the offeree (the person who receives the offer). A common misconception is that the purchase contract form, when completed with the buyer's information, is a contract. In actuality, it is the buyer's offer; the buyer's criteria has been inserted in the blanks on the contract form to create the buyer's offer. It is not a contract until both parties have reached an agreement on the price, terms, and conditions. Frequently, the offeree will make a counteroffer by altering the terms of the original offer. For example, if Rebecca decides to make a counteroffer of $35,500 and asks Ken to pay all the closing costs, Rebecca has replaced Ken's original offer with a counteroffer. A counteroffer nullifies the original offer and substitutes a new offer in its place. When a counteroffer is made, the role of both parties also changes. Because Rebecca's counteroffer is based on new terms and conditions, she has "changed hats" and is now the offeror. Likewise, Ken is receiving the new terms and conditions, so he has become the offeree. It is not uncommon for a series of offers and counteroffers to take place before a meeting of the minds is accomplished. Once a meeting of the minds is reached—that is, when one party accepts the offer of the other party and communicates such acceptance— a contract has been formed. Both parties then are obligated to perform according to the contract. An offer is terminated when any of the following happens: ■ Counteroffer. A counteroffer indicates a willingness to contract, but on terms or conditions different from those contained in the original offer. It is not an accep- tance because it indicates an unwillingness to agree to the terms of the original offer. The original offer is dead forever and cannot be later accepted. Each time a counteroffer is made, it nullifies the corresponding offer. The only offer that the offeree can consider is the one that is currently being made to the offeree. Acceptance. Communication of the acceptance of an offer creates a contract. An acceptance must be a mirror image of the terms of the offer. Letters and other written communications, including a signature, may be sent by electronic means or facsimile, and will be considered part of the contract. If Rebecca had accepted Ken's offer of $34,000 for her property instead of making a counteroffer, the offer would have become a contract on that acceptance and its communication. Rejection. To effectively terminate an offer, a rejection must be communicated by the offeree to the offeror. If Rebecca had chosen to reject Ken's offer, the offer would have terminated when Rebecca communicated the rejection to Ken. Withdrawal by offeror. An offeror may withdraw (or revoke) the offer at any time until notice of the offeree's acceptance is received by the offeror or the offeror's designated agent. Suppose, for example, that Rebecca decides to withdraw her counteroffer of $35,500. She may do so as long as her intention is communicated to Ken before he accepts her counteroffer. Lapse of time. Ordinarily, when an offer is made, a time limit for acceptance of the offer is specified. The offer terminates after expiration of that time. If no time limit for acceptance is specified, the offeree is considered to have a rea- sonable length of time. This time period is based on such considerations as the method of communication used, the location of the parties involved, and the terminology and nature of the offer. Death or insanity. The death or insanity of either the offeror or the offeree termi- nates the offer. An offer is not assignable (transferable); it may be accepted only by the person to whom it is made. Destruction of the property. Destruction of the subject matter terminates the offer.

Identify the procedures involved regarding citations.

Citation. DBPR investigator-auditors have the authority to immediately issue citations in the field for minor violations discovered during an investigation or audit. Citations involve fines that currently range from $100 to $500 per offense and may include other assessments (for example, require educational course attendance). Figure 6.1 is a partial list of violations for which citations may be issued. It includes citation violations pertaining to sales associates, broker associates, and brokers only. The fines are listed to demonstrate the importance the FREC places on each violation. Licensees receiving a citation have 30 days to accept or reject the alleged violation(s),as specified in the citation. For licensees who do not dispute the matter, the citation penalty will become effective (a final order) and the case will be closed. Licensees who dispute the alleged violation(s) must file a written objection. Licensees are allowed to state their case and, based on the merits, will have their case dismissed or carried forward to a formal hearing. For licensees who fail to pay their fines in a timely manner, the FREC will file an administrative complaint. Administrative Fine. The FREC may impose a maximum fine of $5,000 per violation of Chapter 455, F.S., and Chapter 475, F.S. The Commission has established in rule a list of violations and a range of recommended fines for each violation (see Figure 6.3 on page 11 150). Suspension. The maximum period for which the FREC may suspend a license is 10 years. Florida statutes refer to many acts that are unlawful, any one of which may result in license suspension. Each unlawful act constitutes grounds for suspension or revocation of licensure, depending on the seriousness attached to the offense by the Commission. A second suspension for the same or a different violation may result in revocation of the license. Licensees must continue all renewal requirements during the period of suspension. Revocation. The most severe type of administrative penalty that the FREC is authorized to impose is revocation of a license. The FREC treats revocation of a license as permanent. When the FREC revokes a license, that licensee is put out of the real estate business. At its discretion, the FREC is empowered to revoke a licensee's license for any of the causes that constitute grounds for suspension or denial. When a real estate broker's license is suspended or revoked, all licenses issued to sales associates who work for the penalized broker become inactive. The associate's license status in the DBPR records will reflect as Current/Inactive. Sales associates can activate their license by registering under another broker. If the revoked or suspended broker is a partnership or corporation, affected sales associates, partners, officers, and directors may. request registration with a new employer or in the same partnership or corporation if it reorganizes to requalify under Florida statutes and FREC rules. Revoke without prejudice. A license may be revoked or canceled if it was issued through the mistake or inadvertence of the Commission. Such revocation or cancellation shall not prejudice any subsequent application for licensure filed by the person against whom such action was taken. Probation. The FREC may, in addition to other disciplinary penalties, place a licensee on probation. The Commission is empowered to set the time period and conditions of probation. Probationary conditions may include, for example, requiring the licensee to attend a prelicense or post-license course or other educational offering, attend one or more Commission meetings, submit to and successfully complete the state-administered examination, or to be subject to periodic inspections by a DBPR investigator.

Distinguish between commingling and conversion.

Commingle To commingle funds is to mix the money or other personal property of a buyer or a seller with a broker's own money or property, or to combine escrow money with personal or business funds. Commingling is sometimes called intermingling. Conversion Brokers may not use earnest money funds for their personal use. Conversion is a licensee's personal use or misuse of client (or customer) monies.

Distinguish between the disclosure requirements for purchasing from a developer and resale condominium units.

Condominium documents are a set of written instruments describing the condo- minium and the association. The four condominium documents in the following list are required to be given to buyers of residential units sold by the developer and to buyers of resale condominium units (see Figure 8.8). 1.Declaration. The declaration of condominium is an important condominium document because it is the document that creates the condominium. Creation of the condominium occurs when the declaration is recorded in the official records of the county where the property is located. 2.Articles of incorporation. The operation of a condominium is carried out through its association. The articles of incorporation create the corporate entity respon- sible for operating the condominium. 3.Bylaws. The bylaws describe the rules and regulations of the association. It pro- vides for the administration of the association, including procedures for calling meetings, determining voting requirements, and so forth. Each purchaser, by accepting title to a unit, automatically becomes an association member and is bound by the association rules and regulations. 4.Frequently asked questions and answers sheet (FAQ). The FAQ informs prospective purchasers about restrictions on the leasing of a unit, information concerning assessments, and whether and in what amount the unit owners or the association are obligated to pay rent or land use fees for recreational facilities. Condominium Units Sold by a Developer. In addition to the four condominium docu- ments listed previously, there are two additional disclosures required to be given to pro- spective buyers when purchasing residential units from a developer (see Figure 8.8). 1.Prospectus. The developer is required to provide a prospectus (offering circular) to purchasers if the condominium consists of more than 20 residential units. The prospectus summarizes some of the major points detailed in the condominium documents. 2.Estimated operating budget. The estimated operating budget provides detailed esti- mates of various common expenses that are to be shared by the unit owners. Buyers who are purchasing condominium units from the developer have a 15-day can- cellation period. The developer must include a disclosure statement in the sale contract stating that the buyer has the right to cancel the agreement within 15 calendar days after the date of signing the contract and receipt of the condominium documents (6 documents in total listed previously). The developer will require buyers to sign a receipt for condo- minium documents. Buyers should verify that they have received all the documents listed on the receipt before signing. Resale Condominium Units Sold by Unit Owner. In addition to the four condominium documents previously discussed, unit owners of resale condominium units must give buy- ers three additional disclosures (see Figure 8.8). 1. Most recent year-end financial report. 2.Rules of the association. 3.Governance form. The governance form was developed by the Division of Florida Condominiums, Timeshares, and Mobile Homes to educate prospective purchas- ers on the rights and responsibilities of the condominium board and unit owners. The form was developed for use by condominium unit owners to give prospective buyer. The contract for resale of a residential condominium unit must include a rider stating that the buyer acknowledges receipt of the condominium documents and that the prospec- tive buyer may cancel the contract within three business days after the date of execution of the contract and receipt by the buyer of the condominium documents. The cancellation period does not begin until the condominium documents have been delivered. A buyer should verify that all documents have been received before signing the receipt for delivery of the documents. If a prospective buyer chooses to timely cancel the contract, a real estate broker may return the escrowed binder deposit to the prospective purchaser without first securing the seller's permission, provided the broker is notified in writing that the buyer is canceling the contract during the statutory cancellation period. Even if the seller objects, the real estate license law states that the broker may return the deposit to the purchaser without having to notify the Commission of conflicting demands (also see "Disposition of Escrow Deposits" in Unit 5).

Distinguish among the types of contract classifications.

Contracts can be classified by their method of formation, their content, or their legal effect. Formal and Informal Contracts Formal Contract. Historically, a formal contract was in written form and under seal. The seal has evolved from the old wax impression on a document to the word seal or the letters L.S. (locus sigilli, Latin for "the place of the seal") that appear after the signatures of parties signing the contract. The term formal contract also refers to a contract that depends on a particular form. For example, a negotiable instrument such as a promissory note is called a formal contract. A fill-in-the-blank contract on a preprinted form is also considered to be a formal contract. Today, the seal is not required for contracts to be valid. Informal Contract. Informal contract refers to an oral contract as opposed to a written contract or specialty instrument. An oral agreement is also called a parol contract. There- fore, informal or parol contracts are verbal agreements as opposed to written or formal contracts. Bilateral and Unilateral Contracts The very name of the contract classification often indicates the way in which the contract was arranged, the requirements for its performance, or even the type of parties bound by the contract. Bilateral Contract. A bilateral contract obligates both parties to perform in accordance with the terms of the contract. Both parties promise to do something; one promise is given in exchange for another. E X A M P L E : A sale contract is a bilateral contract because the buyer and the seller exchange reciprocal promises to buy and sell the property. Unilateral Contract. A unilateral contract obligates only one party to an agreement. One party makes an obligation to perform without receiving in return any promise of performance from the other party. There is no obligation on the part of the other party involved. E X A M P L E : A broker promises to pay a $1,000 bonus to the sales associate who gets the greatest number of new listings by the end of the month. The broker has prom- ised to pay a bonus; however, the sales associates working for the broker are under no obligation to acquire new listings. Express and Implied Contracts A contract is classified as either express or implied according to how the contract is created. Express Contract. An express contract is an actual agreement between the parties, the terms of which are declared orally or in writing, at the time of entering into the agreement. At the time parties enter into and communicate the terms of the agreement, an express contract is created. The primary requirements are mutual understanding and agreement. Real estate listing agreements and sale contracts are express contracts. Implied Contract. An implied contract is inferred by the acts or conduct of the parties. The obligations and conditions of the contract are not stated in words but are implied by the acts of the parties. Every day, we enter into implied contracts. For example, if a person walks into a restaurant and orders dinner, an implied contract has been created. It is implied that the customer will pay for the service after enjoying the meal without actually discussing the actual payment or agreeing to pay for the meal until after the service has been rendered. Executory and Executed Contracts A contract is either executory or executed, depending on the extent to which the contract has been performed. Executory Contract. An executory contract is an agreement between parties that involves promises to be completed at a future date. A purchase and sale real estate contract, between the time of signing the contract and the time that the title is conveyed from the grantor to the grantee, is an executory contract because the parties have not fully performed. Executed Contract. An executed contract exists when both parties have performed their obligations. All of the parties to the contract have performed the promises stated in the contract. At title closing, a real estate sale contract is executed. A real estate sale contract becomes an executed contract when the title closing is completed and all the promises of both buyer and seller have been fulfilled (see Figure 11.2).

Recognize example of facts that materially affect the value of residential property.

Disclose all known facts that materially affect the value of residential real property and are not readily observable to the buyer. Real estate licensees have a duty to disclose to buyers all known facts (such as defects) that materially affect the value of resi- dential property. Material defects have to do with the property, the structure, and issues not readily observable to a buyer (such as mold that was not remediated but covered with drywall, a pending change in zoning, and so forth). It does not concern information about previous occupants. For example, if it is known to a licensee that there is a rotting wood floor under the wall-to-wall carpeting, the licensee is obligated to inform the buyer of the condition of the wood floor.

Calculate the approximate increase in yield given the number of points charged.

Discount points are an up-front charge paid at closing to increase the lender's yield. One discount point is equal to 1% of the loan amount. Each discount point increases the yield by about 1⁄8 of 1%. Increased yield formula Convert 1⁄8 of 1% increase in yield for each discount point 1÷8=.125 .125 × number of points = increased yield

Distinguish prohibited activities under the fair housing act.

Discrimination against any of the protected classes in the sale or rental of housing, financing of housing, or the provision of brokerage services is illegal. It 16 is a violation of the Fair Housing Act to do any of the following activities: •Channel homeseekers to or away from particular neighborhoods because they are members of a protected class (commonly called steering) •Use the entry, or rumor of the entry, of a protected class into a neighborhood to persuade owners to sell (commonly called blockbusting) •Deny loans or insurance coverage by a lender or an insurer that present differ- ent terms or conditions for homes in certain neighborhoods (commonly called redlining) •Refuse to rent to, sell to, negotiate with, or deal with a member of a protected class •Quote different terms, conditions, or privileges for buying or renting •Advertise that housing is available only to people of a certain race, color, reli- gion, sex, national origin, handicap status, or familial status • Deny membership in or use of any real estate service, broker's organization, or multiple listing service •Make false statements concerning the availability of housing for inspection, rent, or sale

Define eminent domain.

Eminent domain gives government the power to take land from an owner through a legal process called condemnation. The taking must be for a public pur- pose. The government must pay a fair price for any land taken under eminent domain. The government may exercise this power (or delegate it to railroad and utility companies) regardless of whether the owner wants to part with the property. Therefore, it is a form of involuntary alienation.

Distinguish among the various statutes important to real estate

Florida Statute 20. Chapter 20, Organizational Structure, establishes the struc- ture of the executive branch of Florida's government. The Florida Constitution provides for the legislative, executive, and judicial branches of government. The executive branch executes the programs and policies adopted by the Legisla- ture. The policies are implemented by the departments of the executive branch, including the Department of Business and Professional Regulation (DBPR). Florida Statute Chapter 475. This law is often called the Real Estate Professional Practice Act. Chapter 475 was created by the Florida Legislature to establish the legal rights and responsibilities of real estate licensees and real estate appraisers. Chapter 475 is divided into four parts. Part I pertains to real estate brokerage. Real estate licensees are responsible for knowing the provisions of this chap- ter. The Florida Real Estate Commission (FREC) implements, interprets, and enforces the regulatory provisions of Chapter 475. Part II of Chapter 475 pertains to real estate appraisers and sets forth the requirements for licensed and certified appraisers according to federal statute. The Florida Real Estate Appraisal Board (FREAB) regulates state-certified, licensed, and registered trainee appraisers. The FREAB functions very similarly to the Florida Real Estate Commission (FREC). Both quasi-judicial bodies follow the same procedures for disciplining licensees. Part III of Chapter 475, the Commercial Real Estate Sales Commission Lien Act, gives a broker lien rights for earned commission. This act applies only to commercial property (not residential property). The lien is only against the owner's net proceeds (personal property) from the sale and does not attach to the commercial real property (also see "Liens on Real Property" in Unit 5). Part IV of Chapter 475, the Commercial Real Estate Leasing Commission Lien Act, gives a broker lien rights for earned commission associated with a bro- kerage agreement to lease commercial real estate. Chapter 455. Chapter 455, Business and Professional Regulation: General Pro- visions, defines the general legal practice and procedure for the DBPR and the licensees of all professions regulated by the DBPR, including real estate. Section 455.10 of the statute provides that an individual cannot be disqualified from practicing an occupation or profession regulated by the State of Florida solely because the person is not a U.S. citizen. Another section of this statute sets forth laws regarding Commission and board organization, meetings, compensation, and so forth. This statute also concerns the unlicensed practice of a profession, including real estate. Requirements concerning license examinations and the use of professional testing services are set forth in Chapter 455. This law also man- dates what actions the DBPR may take in regulating licensees. Licensees who fail to comply with the provisions of this chapter can be disciplined by the FREC. Florida Statute 120. The Administrative Procedure Act defines the procedural process by which regulatory agencies decide and implement agency action. The licensing and disciplinary process for real estate licensees is outlined in this chapter. Chapter 61J2. Chapter 61J2 is the rules of the Florida Real Estate Commission. It is a set of administrative rules developed by the Florida Real Estate Commission, pursuant to the rulemaking process outlined in Chapter 120, Florida Statutes. Administrative rules are published in the Florida Administrative Code (FAC). (Appraisal rules are in Chapter 61J1 of the FAC.).

Calculate the timeline for delivering and depositing escrow funds.

Florida law mandates the time frame for depositing escrow funds. Sales associates and broker associates who receive a binder deposit from a buyer or a rental deposit from a ten- ant must deliver it to their broker-employer no later than the end of the next business day. Saturdays, Sundays, and legal holidays are not counted as business days. When a sales associate or an employee (such as a receptionist) of the brokerage company accepts funds on behalf of the broker, the broker is liable for those funds. Therefore, it is extremely important that brokers train their personnel regarding the importance of turning over all earnest money in a timely manner. Brokers must place trust funds into an escrow account immediately, which is defined in rule as no later than the end of the third business day following receipt (by the broker or an agent of the broker) of the item to be deposited. The first day of the three-business-day period is the day that the sales associate must deliver the deposit to the broker. E X A M P L E A sales associate receives a deposit from a buyer on Tuesday (no legal holidays are involved). The sales associate has until the end of the next business day (Wednesday) to deliver the deposit to the broker. The broker has until the end of the third business day following receipt of the item to be deposited (Friday).

Identify the number of days notice in tenancy at will.

Florida statute calls this a tenancy without specific term. Tenancies at will may be writ- ten or oral agreements. All the duties and obligations of a landlord-tenant relationship exist in a tenancy at will, and notice of termination is required by either party. Notice for termination of tenancies at will is set in statute and is based on the time interval between rent payments: ■ Week to week—7 days' notice ■ Month to month—15 days' notice Other actions that will terminate a tenancy at will include sale of the property or the death of the owner or the renter.

Identify the features of the federal telemarketing law.

Florida's telemarketing law is administered through the Department of Agriculture and Consumer Services (FDACS). The FDACS maintains a "no sales solici- tation calls" registry for consumers who do not wish to receive telephone solicitation calls on their residential and mobile telephones. Consumers may apply online to be included on the state registry. The Florida statute mandates that the FDACS include in the Florida registry listings from the national registry that relate to Florida. Violators of Florida's Tele- marketing Act may be fined for each illegal call. A major difference between the state and federal telemarketing laws is that the Florida law exempts real estate licensees who solicit listings in response to a "For Sale" yard sign (see Figure 5.4). However, the federal law does not exempt calls to for sale by owners (FSBOs) whose numbers are on the national registry. If a phone number is on both the national and the state registry, the FCC ruled that real estate licensees must comply with the national registry, regardless of the Florida exemption. Florida's law which provides an exemption for real estate licensees who wish to solicit listings from FSBOs is considered less restrictive and is therefore preempted by the federal law. The federal law provides the following exceptions: A sales associate associate representing a potential buyer may call the FSBO seller, but only if the associate has an actual buyer interested in the property and for pur- poses of negotiating a sale. A sales associate may contact individuals with whom the associate has had an established business relationship, even if those customers' numbers are on the national registry. For example, the company that previously listed a property may contact the former customer to solicit new business for up to 18 months after the business transaction has been concluded. Sales associates may contact a customer for three months after a business inquiry or application (such as a customer who registered at an open house or a FSBO seller who requested information from a sales associate).

Review the formal hearing process.

Formal Hearing. If the licensee-respondent requests a formal hearing or if the licensee- 15 respondent disputes the allegations, the DBPR requests that the case be prosecuted 16 under Chapter 120, F.S. Hearings under Chapter 120 are conducted by full-time Florida administrative law judges who are employed by the Division of Administrative Hearings (DOAH). The DOAH may legally employ only those persons who have been members of The Florida Bar in good standing for the preceding five years. Administrative law judges are not subject to control, supervision, or direction by any party, commission, or department of state government. Once an administrative law judge is assigned, the DBPR may take no further action except as a litigating party. The administrative law judge has the power to swear witnesses, to take their testimony under oath, and to issue subpoenas. A subpoena is a command to appear at a certain time and place to give testimony or to produce records. Failure to comply with a subpoena could result in a finding of contempt of court. The administrative law judge prepares and submits to FREC a recommended order that includes the administrative law judge's findings of fact and conclusions of law and the recommended penalty, if any, in accordance with the Commission's range of penalties as set forth in rule. Any party of record in the case may submit (within the statutory time 31 limit) written exceptions to the administrative law judge's recommended order.

Identify which types of debts are protected from forced sale of homesteaded property.

Homestead property is protected from forced sale to satisfy judgment liens for debts owing to personal loans, credit card debt, and so forth. Homestead protection does not prevent foreclosure for nonpayment of property taxes, special assessments, mortgages, homeowners association fees, con- dominium association fees, vendors' liens, or construction liens secured with the homesteaded property.

Identify requirements for becoming licensed through mutual recognition.

If a holder of a real estate license from a state with which Florida has a mutual rec- ognition agreement desires a Florida real estate license, the individual submits a Florida real estate license application. The applicant requests mutual recognition on the license application and indicates from which state mutual recognition is being requested. An applicant applying for mutual recognition must obtain a certification of license history from the Real Estate Commission in the state where the applicant is licensed. A certification of license history must contain the applicant's initial license exam information, current license status, the number of active months of licensure within the preceding five years, and whether any disciplinary action has been taken against the licensee. The certification is submitted with the application. Real estate applicants approved for licensure under mutual recognition are exempt from the prelicense education course. However, the mutual recognition applicant must demonstrate mastery of Florida's real estate license law by passing a written Florida-spe- cific real estate law license exam. The exam consists of 40 questions worth 1 point each. A grade of 30 points (75%) or higher is required to pass the exam. After demonstrating knowledge of Florida license law, the applicant is issued a Florida real estate license. Indi- viduals who receive a Florida real estate license under mutual recognition must fulfill the same post-license and continuing education requirements as all other Florida real estate licensees

Recognize requirements for renewal of a involuntary inactive license.

If a licensee fails to renew an active or voluntary inactive license before the expiration date (other than the first renewal), the license reverts automatically to involuntary inactive status. The licensee must complete continuing education and renew the license to either active or voluntary inactive status within the next two years. A license is placed in involuntary inactive status for no more than two years. After two years the license automatically expires (becomes null and void) by operation of law with- out further FREC or DBPR action. Ninety days before expiration of an involuntary inactive license, the DBPR notifies licensees of this upcoming deadline. Once their license becomes void, individuals who want to practice real estate again must reapply for licensure, retake the 63-hour prelicense course, and retake and pass the license exam. Involuntary inactive licensees may activate their licenses during the two-year period following expiration of a valid current license only after satisfactorily completing FREC- prescribed courses of instruction. When a licensee has been involuntary inactive for: • 12 months or less, they may satisfy the education requirement by completing 14 hours of FREC-approved continuing education; or •more than 12 months but less than 24 months, they are required to complete 28 hours of a Commission-prescribed reactivation education course. The FREC may reinstate the license of an individual whose license has become null and void if the Commission determines that the former licensee failed to comply with the statute because of illness or economic hardship. The former licensee must apply to the FREC for reinstatement within six months after the date that the license became null and void (see "Hardship Cases" in Unit 2).

Recognize the appropriate way to handle security deposits and advance rent when tenant occupied properties are sold. I

If the lease is to continue after the sale, arrangements need to be made regarding an assignment of the lease, transfer of the security deposits and advance rent, and an accounting of the tenant's funds. At closing, the Closing Disclosure should reflect the transfer of the security deposit and the advance rents to the buyer, and the prorated rent for the month of closing. The Florida Residential Landlord and Tenant Act requires that when a rental property is sold or in the event of a change in the designated rental agent who is holding deposits and advance rent, the tenants' funds must be transferred to the new owner or rental agent, together with any earned interest and a final accounting showing the amounts to be cred- ited to each tenant's account.

Distinguish among the features of the various brokerage relationships.

In a residential transaction, there are three brokerage relationship options that a real estate broker will assume for buyers and sellers: 1. Nonrepresentation (no brokerage relationship) 2. Single agency 3. Transaction broker Nonrepresentation (no brokerage relationship) : Florida law allows prospective buyers and sellers to opt out of representation. A broker working in a no brokerage relationship is not an agent of either party in a transaction. A broker working in a nonrepresentation capacity with a seller can enter into a listing agreement with the seller and be paid compensation. Similarly, a brokerage firm working in a no brokerage relationship capacity can work with a buyer. The broker may only relay information to the parties and may not negotiate on behalf of either party. The parties in a no brokerage relationship are referred to as customers. Chapter 475 defines customer as a member of the public who is or may be a buyer or a seller of real property and may or may not be represented by a real estate licensee in an authorized brokerage relationship. Therefore, the seller (or the buyer) who chooses nonrepresentation is a customer under the no brokerage relationship. Single agency Florida license law defines a single agent as a broker who represents, as a fiduciary, either the buyer or the seller, but not both, in the same transaction. Recall that the bro- ker does not represent either party in a no brokerage relationship. What makes a single agent relationship unique is that only one party in a transaction may be represented by the brokerage in a fiduciary capacity. A fiduciary relationship is a relationship of trust and confidence between the broker as agent and the person who delegated the authority to the broker (the principal). A fiduciary relationship between a broker and a buyer or a seller exists only when a single agent relationship is chosen. The terms principal and client should only be used when referring to a single agent relationship. When a broker enters into a single agent relationship with either a seller or a buyer in a real estate transaction, the broker is an agent of the principal (buyer or seller, but not both). The sales associates and broker associates who work with the principal on behalf of their broker are subagents of the broker's principals. Subagents (the broker's associates) have the same duties as the agent (broker). Therefore, sales associates and broker associates owe the same fiduciary obligations to the broker's principals as does their broker. This is true regardless of whether the associates, for tax purposes, are employees or independent contractors of the broker. Transaction broker A transaction broker is a broker who provides limited representation to abuyer, a seller, or to both parties in a real estate transaction. Transaction brokers do not represent either party in a fiduciary capacity. Recall that a fiduciary owes complete alle- giance (undivided loyalty) to the principal. It is not possible to give undivided loyalty to both the buyer and the seller. In a transaction broker relationship, the parties to a real estate transaction are giving up their rights to the undivided loyalty of a licensee. Limited representation allows a broker (and the broker's associates) to facilitate a real estate transaction by assisting a buyer and a seller who are both parties to the same transaction within that brokerage. In this case, a broker will not work to represent one party to the detriment of the other party. Because associates represent buyers and sellers in the same brokerage relationship as that of their broker, it doesn't matter if one associate is working with both the buyer and the seller or one associate is working with the buyer and another associate is working with the seller. All licensees are providing limited representation to both parties. Because a transaction broker does not represent the seller (or the buyer, or both parties) in a fiduciary capacity, Florida law refers to the parties as customers.

Recognize the duties owed in a transaction broker relationship.

In a transaction broker relationship, the broker and the broker's associates are bound to the three duties required in all brokerage relationships (duties 1-3) and two duties also required of single agent brokers (duties 4-5). The sixth and seventh duties enable the broker to provide a nonfiduciary limited representation (see also Figure 4.1). Account for all funds. Deal honestly and fairly. Disclose all known facts that materially affect the value of residential property and are not readily observable to the buyer. Use skill, care, and diligence in the transaction. Present all offers and counteroffers in a timely manner. Exercise limited confidentiality, unless waived in writing by a party. Perform any additional duties that are mutually agreed to with a party. However, a real estate licensee must be careful not to accept duties beyond the scope of limited representation.

Identify the section numbers and a Township.

In writing a legal description of a section, it is customary to show the section number first, then the township tier number and direction, and last the range number and direc- tion. For example, Section 36, Township 1 South, Range 1 West of the Tallahassee principal meridian and base line identifies Section 36 within the township that is located immedi- ately southwest of the intersection of the principal meridian and base line. It is abbrevi- ated to Sec 36, T1S, R1W (refer to the shaded Section 36 in Figure 10.6).

Identify which tenancies feature right of survivorship.

Joint tenancy and tenancies by entries

Identify regulations and violations concerning kickbacks.

Kickbacks A kickback (or rebate) is an unearned fee paid to a licensee associated with a real estate transaction for non-real-estate services (payment for something other than one of the eight services of real estate). Kickbacks are legal only under limited conditions. Here is a list of important facts regarding kickbacks and rebates: • The parties to the transaction must be fully informed of the kickback. Before payment and receipt of the kickback, the buyer and the seller must be fully informed of all facts regarding the kickback. For example, assume a broker refers buyers to Nifty Blinds and receives $25 for each buyer who purchases window treatments from Nifty. The broker, before payment and receipt of the $25, must fully advise all parties in the transaction of the arrangement the broker has with Nifty Blinds. • The kickback must not be prohibited by other law. The Real Estate Settlement Procedures Act (RESPA) prohibits the payment of a kickback or unearned fee associated with a settlement (closing) service, including title searches, title insurance, attorney services, surveys, credit reports, and appraisals. A person paid a fee regarding settlement services must have actually rendered (performed) the service (see Real Estate Settlement Procedures Act [RESPA] in Unit 13). • It is unlawful to share a commission with an unlicensed person other than the seller or the buyer in the transaction. Florida law allows the sharing of the commission with the buyer or the seller in a real estate transaction, provided the rebate is dis- closed to all interested parties. Sharing a portion of the commission with a party to the transaction is an example of a legal (permissible) kickback or rebate. • It is unlawful for a licensee to pay an unlicensed person for performing real estate services. Florida law prohibits a real estate licensee from paying an unlicensed person money for the referral of real estate business. However, Florida license law does provide that a property management firm or the owner of an apart- ment complex may pay a finder's fee (or referral fee) of no more than $50 to an unlicensed person who is a tenant of the apartment complex for the referral of a prospect who becomes a tenant of the apartment complex.

Recognize the lead-based paint disclosure requirements.

Lead-Based Paint Disclosure When purchasing or renting pre-1978 housing, the Residential Lead-Based Paint Hazard Reduction Act requires that: sellers and landlords disclose to prospective buyers and tenants the presence of known lead-based paint in residential property built before 1978;sale contracts and leases include a disclosure about lead-based paint, either as a separate document, or the disclosure may be incorporated into the sale contract or lease; an EPA pamphlet regarding the danger of lead-based paint be given to buyers and tenants before the sale or lease of residential property built before 1978; and sellers allow homebuyers a 10-day period during which to conduct an inspection for the presence of lead-based paint (sellers are not required to pay the cost of the inspection)

Recognize requirements to notify the DBPR concerning a change in current mailing address.

Licensees are responsible for notifying the DBPR in writing of their current mailing address, email address, and place of practice. Current mailing address is the current residential address a licensee uses to receive mail through the U.S. Postal Service. A post office box is an acceptable mailing address. The DBPR sends official communication to a licensee at the last known mailing address or email address, referred to by the DBPR as the address of record. Licensees must notify the DBPR in writing within 10 days of a change in current mail- ing address. Licensees may mail or fax the appropriate form to the DBPR, or licensees may submit a change of address online at the DBPR Online Service website. The DBPR may issue a $500 citation for failure to timely notify the Commission (DBPR) of the current mailing address or a change in the current mailing address.

Distinguish between lein theory and title theory

Lien Theory Today, most states, including Florida, are lien theory states. The borrower retains title to the property. The lender is protected with a lien on the real property to secure the payment of the mortgage debt. If the borrower defaults on the mortgage debt, the lender will foreclose to recover the money owed. Title Theory In some states, title to the mortgaged property is conveyed to the lender through a mortgage deed or to a trustee through a deed of trust. This mortgage theory is called title theory. If the borrower defaults, the lender may take possession of the property. The borrower retains equitable title to the property. Once the debt is paid in full, the lender conveys legal title to the borrower. (See also Legal vs. Equitable Title to Real Property, 13 Unit 9.)

Review the characteristics of a life estate and the types of estates that occur at the end of the life esstate.

Life estates are another type of freehold estate that can be created by the person who holds the fee simple title to real property. An estate in real property that is limited in duration to the life of its owner or the life of some other designated person is a life estate. During the time an owner enjoys a life estate, the owner must maintain the property and not permit waste (anything that reduces the value of property) to occur. The life estate owner also must pay the taxes and property insurance and keep current any mortgage(s) or lien(s) to preserve the property. Because these life estates are created by agreement of the parties, they are conventional life estates. A conventional life estate can be created by a grantor who conveys a life estate to another individual. When a life estate is formed, two distinct ownership interests emerge from the original fee simple estate: the life estate and a remainder interest. Because these two parts are ownership interests, owners of either part can sell, mortgage, or gift their interest. The duration of a life estate is determined by the lifetime of a designated individual, so the deed creating the life estate must provide for transfer of title upon the designated person's death. At the end of the life estate, title reverts to the original grantor (estate in rever- 7 sion) or conveys to a third party (remainder estate). Estate in reversion. If the title will revert (return) to the original grantor (previous owner), an estate in reversion (reversion estate) is created. In Example 1, Lucille conveyed a life estate to Andrew. Because title to the property reverts to Lucille (the original grantor) upon Andrew's death, Lucille's interest in the home is an estate in reversion. Remainder estate. If the title will be conveyed to a third party, called a remainderman, the remainderman owns a remainder estate while the life estate exists. The deed that established the life estate also designates the remainderman. When the life estate ends, the remainder man receives a fee simple estate. If there is only one remainderman, the grantee receives a fee simple estate in severalty.

Given a scenario determine the maximum amount that may be recovered from the real estate recovery fund.

Maximum Payment from the Fund. Florida Statute sets limits on the maximum payment per real estate transaction and the maximum payment against a real estate licensee for multiple claims for recovery from the fund. Payment from the fund may not exceed $50,000 for a claim resulting from a real estate transaction, or the unsatisfied portion of the judgment claim, whichever is less, regardless of the number of claimants. Total payments for claims based on judgments against one real estate licensee may not exceed, in the aggregate, $150,000.

Distinguish between conventional and non-conventional mortgage loans.

Mortgage loans can be grouped into two general categories. 1.Conventional loans carry no government guarantee or government insurance for the lender if the borrower fails to repay the loan. The lender assumes the full risk of default in a conventional loan. To offset the lender's risk, borrowers are some- times required to purchase insurance to protect the lender against the borrower's default. 2.Qualifying for a conventional loan is generally more difficult than quali- fying for a loan that is guaranteed or insured by a government agency. Nonconventional loans are backed by the federal government. Nonconventional loans include FHA-insured and VA-guaranteed loans. Nonconventional loans offer more flexible options for borrowers.

Distinguish between multiple licenses and group license.

Multiple licenses are issued to a broker who qualifies as the broker for more than one business entity. For each business that a person is a broker, a separate broker license must be obtained. Additional (multiple) broker licenses may be issued by the DBPR when it is shown that the additional licenses are necessary and that the licenses will not be used in a manner that is prejudicial or harmful to another person. A broker who holds more than one Florida broker license is said to hold multiple licenses. Because sales associates and broker associates may have only one registered employer at a time, sales associates and broker associates may not hold multiple licenses. E X A M P L E : Jane Doe is the broker for both Extra-Fine Real Estate Services and Extra-Fine Property Management. One company handles only sales, while the other handles only rentals. Jane must register both real estate companies with the DBPR. Therefore, she needs multiple broker licenses to qualify both brokerage entities. E X A M P L E : Ray Jones is a sales associate registered under Extra-Fine Real Estate Services. Ray would like to try representing a few landlords that purchased his listings. He is wondering if he can work for both Extra-Fine Real Estate Services and Extra-Fine Property Management since Jane Doe is the broker of both companies. Sales associ- ates and broker associates may engage in real estate activities that require a real estate license only on behalf of the brokerage company where the associate is registered. It is true that Jane is the broker of both companies, however, the associate is registered under Extra-Fine Real Estate Services, and sales associates may have only one registered employer at any one time. Group License A group license is sometimes issued to sales associates or broker associates who are registered under an owner-developer. An owner-developer may own properties in the names of various entities. If the entities are all connected so that ownership and control is with the same individual(s), sales associates and broker associates employed by the owner- developer may be issued a group license. The owner-developer sends an affidavit to the DBPR with a list of all the legal com- pany names used by the owner-developer. This allows the associate to sell for all the affili- ated entities owned by the owner-developer. Owner-developers are not required to hold real estate licenses if they only sell their own properties. The owner-developer is registered with the DBPR under a pseudo number (not a real estate license) that is entered into the DBPR records. The pseudo number becomes a placeholder under which sales associates and broker associates register. To activate a sales associate license under an owner- developer, the sales associate and the developer complete the appropriate section of form DBPR RE 11. The sales associate's name and license number are entered on the form. The owner-developer's name, business location address, and pseudo number are entered on the form. In actual practice, the sales associate (or broker associate) is issued a real estate license and no distinction regarding group license is made on the associate's license. For example, Joseph Jones is an owner-developer. He owns and controls two development companies, Happy Estates and Excellent Homes. If associate Alice is employed by Jones to sell properties for both development companies, she has a group license. Alice has one sales associate license and one registered employer (Jones).

Review the licensed examination requirements concerning beginning work as a licensee.

New sales associates must change their license to active status before legally operating as a sales associate. A change from inactive to active status is accomplished by submitting DBPR form RE 11: Change of Status for Sales Associates and Broker Associates. The form is signed by the broker or owner-developer and the sales associate. Florida brokers may also register new licensees online at the DBPR's website. New licensees must not begin working until the DBPR website indicates that the license has been changed to active.

Define nolo contendre.

No lo contendre is a plea of no contest injured any criminal court of law. The defendant does not admit or deny the charges, the fine or a sentence may be imposed by the court.

Review the requirements concerning post dated escrow checks and insufficient funds.

Postdated Checks and Insufficient Funds. Occasionally, a licensee may be given a postdated check (considered a promissory note) as an earnest money deposit. Extreme caution should be taken in handling such deposits. The seller's approval must be obtained before accepting the postdated check. Once accepted, the broker should secure the instrument in a proper place, such as an office safe, until the date on the check becomes current, and then immediately deposit the check into the broker's escrow account. A broker will not be held responsible for the nonpayment of an escrow check, provided the broker timely deposits the check into the escrow account and the broker's own culpable negligence did not cause the check not to be honored.

Define power of attorney.

Power of attorney is a written legal document designating some other person as an attorney-in-fact. An attorney-in-fact is authorized to perform certain acts for another as authorized in the power of attorney.

Review lot and block number legal descriptions.

Probably the most common type of legal description used for single-family dwellings located in developed subdivisions is the lot and block (recorded plat) method of land description. The lot and block method can be used only where plat maps, or simply plats, have been recorded in the public records. The platted subdivision is divided into large areas called blocks, and each block is subdivided into smaller areas called lots. The lots are usually numbered for convenience in identifying them. If the lots are numbered, the blocks may be assigned letters to eliminate confusing block numbers with lot numbers. For

Identify protected classes under the fair housing act.

Race Color Religion Sex Handicap status Familial status National origin

Identify a specific township and range number.

Range. To create the grid system, surveyors established vertical (north-south) range lines parallel to the principal meridian (PM) every six miles. This resulted in a series of lines six miles apart on either side of the PM. Each resulting six-mile-wide vertical (north-south) strip of land on either side of the PM is called a range. Each range is numbered beginning at the PM. The first vertical (north-south) strip of land to the east of the PM is numbered Range 1 East or more concisely, R1E. The range numbers increase by 1 moving farther from the PM. For example, the next range east of the PM is R2E, then R3E, and so on. The numbering also begins with 1 to the west of the PM. The first range west of the PM is R1W, then R2W, and so on (see Figure 10.4). Tier or Township. The surveyors also established horizontal (east-west) township lines parallel to the base line (BL) every six miles. This resulted in a series of lines six miles apart on either side of the BL. Each resulting six-mile-wide horizontal (east-west) strip of land on either side of the BL is called a tier or simply township. To help remember that tiers are horizontal strips, think of the tiers of a wedding cake. Each tier is numbered beginning at the BL. The first horizontal (east-west) strip of land above (north of) the base line is numbered Township 1 North, or more concisely, T1N. The township line numbers increase by 1 moving farther from the BL. For example, the next township tier north of the BL is T2N, then T3N, and so on. The numbering also begins with 1 below (south of) the base line. The first township tier south of the

Identify the types of documents that may be prepared by real estate licensee.

Real estate licensees may assist buyers and sellers with the completion of four types of contracts, as directed by the buyers and/or sellers: 4. Listing agreement. A listing agreement is an employment contract between a broker and a seller. Buyer brokerage agreement. A buyer brokerage agreement is an employment con- tract between a broker and a buyer. Sale and purchase contract. A sale and purchase contract is a contract between a buyer and a seller. If the licensee acts as agent or facilitator for one or both of the contracting parties, the licensee may prepare the sale and purchase contract. Option contract. An option contract is an agreement between an owner of a prop- erty (the optionor) and a party interested in the property (the optionee) to keep open for a specified period of time an offer to sell or lease real property. In order to reduce liability, licensees are strongly advised to recommend that the buyer or the seller have a real estate attorney draft option contracts. Option contracts are explained in detail later in this unit. Real estate brokerage offices typically use standardized listing agreements, buyer bro- kerage agreements, sale and purchase contracts, and option contracts. The Florida Real- tors® and other professional groups have developed standardized contracts for use by their members. This is desirable because the use of standardized contracts greatly reduces liabil- ity. Changing the preprinted words of any form contract by a nonlawyer can be viewed as the unlicensed practice of law. If more extensive language is needed in a contract beyond simply filling in the blanks, this language should be approved by an attorney before it is inserted.

Identify examples of personal property vs. fixtures and list the criteria used for determining whether an item is a fixture.

Real property is basically land and improvements to the land. Property that is not real property is personal property (also called chattel). Personal property usually consists of items having a limited life that are easily movable from one place to another. Just as the term realty is used to denote real property, the term personalty is used to indicate personal property. It is important to distinguish between real property and personal property in a real estate transaction. All personal property included in the sale should be identified in the contract for sale, or the seller is entitled to remove the property. A fixture is an item that was originally personal property that has been permanently attached to real estate in such a way that it is now legally part of the real property. A bathtub, for example, was personal property in its container in a warehouse, but once permanently attached in a home, it became real property. Some items, such as drapes, ceil- ing fans, and chandeliers, are more difficult to classify. In those cases where contracting parties have not had the foresight to include such items in a real estate sale contract, the courts generally use the following set of legal tests to decide whether an item is a fixture. The manner in which an article is attached to real property generally indicates whether it is a fixture or personal property. Normally, if removing the item would result in damage to real property, the article is classified as fixture. A set of built-in storage cabinets in the utility room would usually be considered a fixture if removing it would damage the wall.

Review the fair housing case and recognize appropriate responses to questions concerning protected classes of people.

Refuse to respond to questions presented in the effort of identifying protected classes of people

Identify the requirements to self-report.

Requirement to Self-Report Florida Statute requires licensees to inform the Commission, in writing, within 30 days of being convicted or found guilty of a crime. The requirement for written notification also applies to licensees who have entered a plea of nolo contendere (no contest) or a plea of guilty, regardless of adjudication, to a crime, regardless of where the event occurred. Crimes that must be reported include misdemeanor offenses and felonies. To report the crime, the licensee should download and print the Criminal Self-Reporting Document, and mail the completed form to the Division of Real Estate.

Recognize who may compensate liscense sales associates who prepare broker's price opinions.

Sales associates may perform BPO's only at The direction and under the control and management of the associates employing broker. If a sales associate or broker associate performs a BPO, the compensation must be paid to the broker and not directly to the sales associate or broker associate who prepared the BPO. A broker directly compensates the associate.

Identify the maximum penalties for first degree and second-degree misdemeanors.

Second-Degree Misdemeanor. Misdemeanors of the second degree are the least serious misdemeanor crimes in Florida. If the Florida legislature fails to classify a misdemeanor, then it is punishable as a misdemeanor of the second degree. Therefore, a criminal violation of real estate license law (Chapter 475) is a misdemeanor of the second degree unless specifically deemed in statute to be a more severe violation. For example, it is a misdemeanor of the second degree to advertise property or services in a fraudulent, false, deceptive, or misleading manner. The maximum criminal penalty for a second-degree 10 misdemeanor is a fine of $500 and/or imprisonment for 60 days (see Figure 6.2). First-Degree Misdemeanor. A first-degree misdemeanor is the most serious type of misdemeanor crime in Florida and, therefore, has harsher penalties. For example, Florida Statute 475.453, F.S., specifically states that it is a first-degree misdemeanor to fail to provide accurate and current rental information for a fee. The maximum penalty for a first-degree misdemeanor is a fine of $1,000 and/or one year in jail (see Figure 6.2).

Identify how brokers who act as an agent for the owner must handle rental security deposits.

Section 83.49, F.S., provides that brokers holding security deposits and advance rent may disburse the funds from the rental escrow account without complying with the Commission's escrow dispute and notification procedures, provided the broker has fully complied with the Florida Landlord and Tenant Act (see Unit 5).

Review the liscense application information concerning compeleting background information.

See page 26-27 of book

Distinguish among the types of settlement procedures and deadlines that apply.

Settlement Procedures The broker must institute one of the four settlement (or escape) procedures within 30 business days from the time the broker received the conflicting demands. For example, if a broker waits 10 business days to report the conflicting demands, the broker has just 20 business days remaining to implement one of the settlement procedures. The four settlement procedures are as follows: 1. Mediation. If all parties give written consent, the dispute may be mediated. Mediation is an informal, nonadversarial process intended to reach a negotiated settlement. An independent third party works with the disputing parties to help them resolve their differences. If an agreement is reached between the parties, the mediation is reduced to an enforceable written agreement. If the mediation process is not successfully completed within 90 days following the party's last demand for the disputed funds, the licensee must employ one of the other three settlement procedures. 2. Arbitration. Arbitration is a process whereby, with the prior written consent of all parties to the dispute, the matter is submitted to a disinterested third party. Each side presents its case to a third party, who makes a binding judgment in favor of one side or the other. The parties must agree in advance to abide by the arbitrators final decision. 3. Litigation. If the disputing parties cannot agree, a disputing party may file a law- suit so that the matter can be resolved in a court of law. Such a legal process is called litigation. The litigation can involve either of two court procedures: a) Interpleader. If the broker does not have a financial claim to the disputed escrow funds, the funds can be deposited with the court registry. The broker is then excused from the case, and the disputing parties argue their case in court. This court procedure is called interpleader. b) Declaratory judgment. Brokers who believe they are entitled to a portion of disputed funds can file a court action called a declaratory judgment. In this court procedure, the judge declares each party's rights to the disputed escrow funds. 4. Escrow disbursement order (EDO). The broker may request that the Commission issue an escrow disbursement order (EDO), a determination of who is entitled to the disputed funds. The FREC will not issue an EDO if the funds are held in an attorney's escrow account or by a title company. An EDO procedure is only available if the disputed deposit does not exceed $50,000 and the funds are held in a brokerage escrow account. If informed in writing that the Commission will not issue an EDO, the broker must use one of the other settlement procedures. In such an instance, the broker must notify the Commission which settlement procedure will be used. FREC rules require a broker to notify the Commission within 10 business days if the dispute is settled between the parties or if the mat- ter goes to court before the EDO is issued.

Define settlement stipulation.

Settlement Stipulation Sometimes a licensee-respondent and the licensee's attorney (if the licensee has legal counsel) will meet with a DRE attorney before a hearing to discuss a possible settlement and enter into a stipulation. A stipulation is an agreement as to the facts of the case and the penalty reached between the attorneys for the DRE and the licensee or licensee's attor- ney. The stipulation must be approved by the FREC for it to be effective. The licensee and the licensee's legal counsel, where there is one, are encouraged to appear before the FREC to defend the stipulation. The FREC will approve or deny the stipulation during a Commission meeting. If the FREC denies the stipulation, it usually provides guidance to the DRE attorney concerning additional penalties it believes appropriate in order for it to support a revised stipulation.

Define the terms associated with water rights.

Surface rights include land and water rights. Two types of water rights are as follows: • Riparian rights are associated with land abutting a flowing waterway, such as the banks of a river or stream. The property owner does not own the river or stream but has a right to use the water, such as for fishing and boating. The right is held in common with other riparian owners to make reasonable use of the waters that flow past, provided the use does not alter the flow of water or contaminate the water. Littoral rights are associated with land abutting tidal bodies of water, such as an ocean or a sea. Littoral owners own land that abuts water that is nonflowing, including ponds and lakes. Littoral rights include ocean-front property and gulf- front property. The littoral owner's rights include ownership of the land adjacent to the water up to the average high-water mark. Land

Distinguish among the different types of administrative penalties.

TYPES OF ADMINISTRATIVE PENALTIES ■ Notice of noncompliance is a warning for a minor violation (an initial offense only) that allows a licensee 15 days to correct the minor infraction without consequence (nonresponse could result in disciplinary action). ■ Citation concerns a violation of no substantial threat to the public and involving a fine that currently ranges from $100 to $500. ■ Denial of license application (or refusal to renew a license). ■ Probation allows the licensee to continue to practice real estate under the guidance of the FREC for a period of time while completing conditions specified by the FREC, such as to complete education courses, attend FREC meetings, and satisfy all the terms of the penalty. ■ Fine may be up to $5,000 for each violation of Chapter 455 and Chapter 475. ■ Suspension of a license (for up to 10 years). ■ Revocation of a license is permanent.

Distinguish between the features of a joint tenancy and a tenancy in common.

Tenancy in Common. When two or more persons wish to share the ownership of a single property, they may choose to do so as tenants in common. It is the most frequently used form of co-ownership, except for husband-and-wife ownership. Tenants in common may acquire title on the same or different deeds, at the same or different times, and with equal or unequal shares of ownership. As tenants in common, each owns an "undivided interest" in the whole property. An undivided interest is interest in the entire property, rather than ownership of a particular part of the property. For example, Sally and Kathy own a house as tenants in common. Sally holds two-thirds interest in the entire property, and Kathy owns one-third interest in the entire property. When Sally and Kathy die, their interest in the property will descend to their heirs. On Sally's death, for example, her two-thirds interest in the property will descend to her legal heirs (or as instructed in her will). Joint Tenancy. A major difference between a joint tenancy and a tenancy in common is that joint tenancy is characterized by the right of survivorship. Right of survivorship means that the share of a co-owner who has died goes to the surviving co-owner(s) and not to the deceased tenant's heirs. Joint tenants have an undivided interest in real prop- erty. A joint tenancy can exist only when the four "unities" of possession, interest, title, and time are present.

Identify requirements concerning the equal opportunity poster.

The 1988 amendment also created the equal housing opportunity poster. The poster features the equal housing logo and a statement pledging adherence to the Fair Housing Act. The poster (see Figure 7.3) is available without charge from the Department of Housing and Urban Development (HUD). The poster must be displayed at real estate offices and other businesses involved in the housing industry. In the event a discrimination complaint is made against a broker, HUD considers failure to prominently display the equal housing opportunity poster in the broker's place of business as evidence of discrimination.

Distinguish among the commission's general powers and duties.

The FREC makes decisions and sets policies that are carried out by the Division of Real Estate. The powers and duties of the FREC fall into three general areas of responsibility: 1. Executive powers to regulate and enforce the license law are delegated to the Commission by the legislature. • Foster the education of applicants and licensees. The Commission fosters the education of licensees and instructors in ethical, legal, and business prin- ciples. It also prescribes post-licensing education requirements and continu- ing education requirements to qualify for license renewal. Executive powers include publication of educational materials. • Adopt a seal. The seal, when affixed to rules, regulations, or other official documents, properly signed, becomes prima facie evidence that the document is authentic (see "Prima Facie Evidence" in Unit 2). • Establish fees. The Commission uses the DBPR estimates of required revenue to determine the amount of licensing fees needed to implement the real estate license law and other laws and regulations relating to the regulation of real estate practitioners 2. Quasi-legislative responsibilities include the power to enact and revise admin- istrative rules and bylaws and decide questions regarding the practice of real estate. • Create and pass rules and bylaws. The Commission promulgates (adopts) rules that enforce the Florida statutory license law. • Regulate professional practices. For example, when requested and deemed appro- priate, the Commission may issue an escrow disbursement order (EDO) to determine the disposition of escrow (earnest money) deposits in the case of a dispute when requested by the broker holding the escrowed funds. The Com- mission also establishes rules to support regulations requiring that records be maintained by brokers and the manner in which deposits of money, funds, checks, or drafts are to be made in escrow, pending disbursement. 3. Quasi-judicial responsibilities include the power to grant or deny license appli- cations, to determine license law violations, and to administer penalties. •Grant or deny applications for licensure. The Commission certifies an applicant as qualified before a license is issued. • Suspend or revoke licenses and impose administrative fines. The Commission adopts, by rule, guidelines for the disciplinary actions that it imposes. • Make determinations of violations. The Commission is obligated to report any criminal violation of Chapter 475, when it knows of such violations, to the state's attorney having jurisdiction. Furthermore, the FREC must inform the Division of Florida Condominiums, Timeshares, and Mobile Homes when any disciplinary action is taken by the FREC against any of its licensees.

Review the FREC composition, qualifications, and compensation.

The Florida Real Estate Commission (FREC) is the regulatory body charged by the Florida Legislature with protecting the general public by regulating real estate brokers and brokerage firms, broker associates, sales associates, and real estate schools and instructors. The FREC is also charged with fostering the education of real estate licensees and permit holders. This includes the regulation of proprietary real estate schools and all noncredit, FREC-approved courses offered by colleges, universities, community colleges, and area tech- nical centers. The objective of such regulation is to protect the public (consumer protec- tion) by ensuring that real estate licensees have at least a minimal degree of competence. The Florida Real Estate Commission (FREC) consists of seven members Composition of the Florida Real Estate Commission: •Five of the members are professional (licensed) members, of which: • four must be Florida real estate brokers who have held active licenses during the five years preceding appointment; and • one must be either a Florida real estate broker or sales associate who has held an active license during the two years preceding appointment. • Two remaining members are consumer (unlicensed or lay) members who have never been real estate brokers or sales associates. • At least one of the seven members must be 60 years of age or older. Term of Office and Compensation: •The governor, subject to confirmation by the Florida Senate, appoints Commission members to four-year staggered terms. There is no legislated maximum number of years. •Commissioners may serve, though Commissioners may not serve more than two con- secutive terms. Each member of the Commission is accountable to the governor, not the DBPR, for proper performance. All FREC members are exempt from civil liability while performing in their official capacity. •Commission members do not receive a salary. In lieu of salary, they are paid $50 per day for each day they attend an official meeting and for each day they participate in other Commission business. •Commissioners also are reimbursed for out-of-pocket travel expenses, including mileage, meals, and hotel charges associated with their official duties.

Distinguish among the remedies for breach of contract.

The Florida Real Estate Commission ordinarily has no authority or jurisdiction over breach-of-contract actions. Remedies for breach of contract are imposed by the court that considers the lawsuit. There are four legal remedies for breach of a contract: 1. Specific performance. If awards of money damages do not afford sufficient relief, the wronged party may sue for specific performance to have the courts force the other party to perform as the contract specifically states. This action is termed relief in equity because the party bringing the lawsuit is not seeking money dam- ages. Instead, the party is asking the court for a remedy to create a fair outcome. If the party bringing the lawsuit is successful, the court will order the breaching party to do what the party promised to do in the contract. Typically, specific performance is sought by a buyer against a breaching seller. 2. Liquidated damages. Frequently the parties will stipulate an amount of money in the contract (usually the earnest money deposit) to be paid in the case of default by the buyer. This amount is called liquidated damages to the seller. 3. Rescission. To rescind is to cancel or annul the contract. If a court orders the parties placed back to their original positions as though the contract had never existed, both parties are relieved of their respective obligations under the con- tract. An injured buyer is entitled to the return of any earnest money, and the seller is obligated to return any earnest money or payment received. 4. Compensatory damages. Another remedy for breach of contract is a suit for dam- ages. Usually the party bringing suit seeks an amount of money equal to the extent of loss suffered (compensatory damages). A wronged party may find that a certain property was misrepresented but decide to accept the property and, in addition, sue for damages. On the other hand, the buyer may decide to refuse the property and still sue for damage

Recognize the energy efficacy disclosure requirements.

The Florida legislature passed the Florida Building Energy-Efficiency Rating Act (Act) to provide for a statewide uniform system for rating the energy efficiency of new and exist- ing buildings. The rating system applies to all public, commercial, and residential build- ings. The Act requires that buyers, at the time of or before signing a sale contract, receive an information brochure notifying the purchaser of the option for an energy-efficiency rating on the building. The brochure contains a notice to residential purchasers that the energy-efficiency rating may qualify the purchaser for an energy-efficient mortgage from a lending institution

Identify requirements under the interstate land sales for disclosure act.

The advertising and sale or lease of real estate in one state to buyers in another state is subject to federal regulations. The Interstate Land Sales Full Disclosure Act (ILSA) is intended to prevent fraudulent marketing schemes when land is sold without being seen by purchasers. ILSA requires disclosure of full and accurate information regarding the property to prospective buyers before they decide to buy. ILSA is administered by the Consumer Financial Protection Bureau. Developers must register subdivisions of 100 or more lots with the bureau before they can offer unimproved lots in interstate commerce by telephone or through the mail.

Identify the document that explains the compensation structure for property management services.

The compensation agreement is detailed in the management agreement.

Identify the purpose of the due-on-sale clause.

The due-on-sale clause allows the mortgagee (lender) to demand the outstanding loan balance plus accrued interest. If the property or any interest in the property is sold or transferred without the lender's prior written consent, the lender may require immediate payment in full.

Distinguish between the two types of time-share ownership.

The form of time-share ownership is normally divided into two types of legal formats: 1. Interval ownership. Interval ownership is a "deeded interest" time-share format that provides for fee simple ownership of each unit in specific time increments and allows the buyer to purchase a fractional interest in a unit. The owner has the right to sell, rent, will, or give away the fractional interest in the unit. 2. Right to use. The time-share purchaser receives the right to use the unit for a specified number of years, usually 20 to 40 years. At the end of the specified years, the usage rights revert to the developer-seller. The developer can increase or add fees and assessments, and sell the time-share to a third party. At the end of the specified years, the usage rights revert back to the developer-seller. Owners may lose their right to use if the developer goes bankrupt.

Identify the types of expenses that may and may not be paid from the recovery fund.

The fund can never reimburse for punitive damages, treble damages, or interest.

Calculate loan-to-value ratio given the sale price and down payment.

The loan-to-value ratio (LTV) is the relationship between the amount borrowed and the appraised value (or purchase price) of a property. Lenders use this ratio as the measure of financial risk associated with lending and borrowing money. The higher the LTV (or the greater the loan compared with the property's value), the lower the lender's safety cushion should the borrower default.Loan-to-value ratio (LTV) loan amount ÷ sale price (or value) = loan-to-value ratio (LTV)

Distinguish among the different types of leases.

The major characteristics of five types of leases are described as follows (also see Figure 9.8): ■In a gross lease, the tenant (lessee) pays a fixed (base) rent and the landlord (lessor) pays all expenses associated with the property, including taxes, utilities, insurance, and repairs. However, it is not uncommon for the tenant to pay unit- related utility costs. Most residential and office building leases are gross leases (also called straight leases or flat leases). ■ In a net lease, the tenant (lessee) pays fixed rent plus property costs such as maintenance and operating expenses (taxes, insurance, and utilities). Net leases are typically used on commercial property. The terms net, net-net, and triple-net are often used in commercial real estate. The number of "nets" indicates thatthe tenant is assuming more and more of the expenses. ■ In a triple-net lease, the tenant pays all operating and other expenses in addition to the fixed rent. These expenses include taxes, insurance, assessments, maintenance, utilities, and other charges associated with the property. In a percentage lease, the tenant pays rent based on gross sales received by doing business on the leased property. Percentage leases are common with large retail stores, especially in shopping centers. A percentage lease can be either net or gross. ■ In a variable lease, the tenant pays specified rent increases at set future dates. ■ in a variable lease is usually tied to an index, such as the consumer price index (CPI) ■ in a ground lease, the tenant leases the land only and erects a building on the land. ■Ground leases (or land leases) are long-term leases that will run for terms up to 99 years. Ground leases are characterized by separate ownership of the land and building(s)

Review reciprocity for US armed service members.

The occupational opportunity act provides reciprocity to active duty and former active duty members of the US Armed Forces and their spouses, including surviving spouses. Former active duty members must have been honorably discharged. In the case of the surviving spouse, the member of the Armed Forces must be must have been serving on active duty at the time of death. To qualify for a reciprocal real estate license the eligible military applicant, spouse, or surviving spouse must currently hold a valid real estate license issued in another state, US territory, or foreign jurisdiction. After a satisfactory background check is completed, the DBPR must issue a reciprocal real estate license without requiring the application to complete prelicense education or take the state license exam. Once the license is issued, the licensee is responsible for complying with license renewal requirements including applicable renewal fees.

Identify the requirements under the statute of frauds and recognize types of documents that fall under the statute of frauds.

The statute of frauds requires that contracts conveying an interest in real property and all contracts that are not performed within one year from the date they become effective must be in writing and signed to be enforceable. An enforceable contract is a contract that the courts will recognize as legally binding. Contracts covered by Florida's statute of frauds include the following: ■ Purchase and sale contracts ■ Option contracts ■ Deeds and mortgage instruments ■ Lease agreements for a term longer than one year ■ Listing agreements for a term longer than one year ■ Buyer representation agreements for a term longer than one year

Identify the time Associated with the statute of limitations.

The statute of limitations is the period of time, set by statute, during which the terms of a contract may be enforced. It protects people from being compelled to perform or oth- erwise be sued after a period of time has expired. The times vary, depending on whether it is an oral contract or a written contract: Written contracts—five years Oral contracts—four years Partly written and partly oral—five years for the written portion and four years for the oral portion

Distinguish among the types of listings.

The type of listing agreement used by the broker and owner determines the rights and obligations of the parties. Open Listing. In an open listing, the owner reserves the right to sell the property and to list it with any number of brokers. The first broker to secure a buyer who is ready, willing, and able to purchase at the terms of the listing earns the commission. If the owner sells the property, no broker is entitled to a commission. Open listing agreements are unilateral contracts because the only promise made is that the seller will pay a commission if the broker causes a transaction to be consummated. Exclusive-Agency Listing. A seller gives an exclusive-agency listing to one broker who handles the transaction. The seller reserves the right to sell the property without paying a commission, unless the buyer was introduced to the property by the broker or others acting under the broker. If the broker or another person acting under the broker's authorty sells the property before the seller is able to do so, the broker is entitled to a commis- 2 sion. Exclusive-agency listings are bilateral contracts because both parties are obligated 3 to perform. 4 Brokers rarely agree to this type of listing. When brokers and their associates market 5 a property, they are expending resources up front in hopes that the listing sells and the 6 expenses, plus a profit, are realized. There is too great a risk with an exclusive-agency list- 7 ing that the seller will sell the property and the marketing expenses will go unreimbursed. 8 Exclusive Right-of-Sale Listing. The exclusive right-of-sale listing (or exclusive-right- 9 to-sell listing) is the type of listing that gives the broker the greatest degree of protection. 10 The seller gives the listing to a selected broker, who then becomes the exclusive real estate 11 agent of the owner for the sale of the property during the time the listing contract is in 12 effect. The broker therefore is assured of a commission regardless of who sells the property. 13 Even if the owner sells the property during the contract period, the broker is entitled to 14 a commission. Exclusive right-of-sale listings are bilateral contracts because both parties 15 are obligated to perform. 16 Net Listing. The amount of commission to be paid in a listing agreement is most often 17 based on a percentage of the sale price. Alternatively, the commission can be paid on a 18 net basis. An open listing, exclusive right-of-sale listing, or exclusive-agency listing can 19 be structured as a net listing. A net listing is created when a seller agrees to sell a property 20 for a stated acceptable minimum amount, called the seller's net. The broker retains the pro- 21 ceeds in excess of the seller's net as commission. The seller's net plus the broker's commis- 22 sion and closing costs equal the total sale price. Net listings are legal in Florida, however, 23 the broker may not misrepresent the value of the property to gain a financial advantage The broker and the seller jointly arrive at a listing price. The broker then retains, as commission, all proceeds of the sale after the costs of sale are paid and the seller receives the agreed-upon net amount.

Distinguish between the owners title insurance policy and the mortgagee's title insurance policy.

There are two types of title insurance (see Figure 9.3): 1. Owner's policy is issued for the total purchase price of the property. It helps to protect the new owner (or the owner's heirs) against unexpected risks such as forged deed signatures and damages for any defect in the title (unless listed as an exception in the policy). A one-time premium is paid when the policy is issued. The policy is not transferable to another owner. 2. Lender's policy is issued for the unpaid mortgage amount. The lender policy (or mortgagee policy) protects the lender against title defects. Unlike the owner's title insurance, the lender's title insurance is transferable. If the mortgage lender sells the mortgage to another investor, the title insurance is assignable to the new lender. The lender policy will protect the new owner of the mortgage up to the unpaid balance of the mortgage loan. Most lenders require lender's title insur- ance as a condition of issuing a mortgage loan.

Identify third-degree felonies and the penalties for third-degree felonies.

Third-Degree Felony. Felonies are the most serious type of crimes. A first-degree felony is a more serious type of felony crime than a second-degree felony or a third-degree felony. If the Florida legislature does not designate the degree of felony, the crime is a third-degree felony. The maximum penalty for a third-degree felony is a fine of $5,000 and/or five years in jail. Three third-degree felonies associated with license law are listed as follows: •Making misleading statements or giving false information on a DBPR license application •Conducting unlicensed activity, including providing real estate services for com- pensation without a real estate license •Theft or reproduction of a DBPR license exam

Calculate the number of acres when given a government survey system legal description.

To calculate the acreage in a government survey legal description, multiply the denominators of each fraction together and then divide 640 by the result. If the word and appears in the description, calculate the acreage on each side of the word and separately and then add the two acreages together.

Identify the components of adjustable rate mortgage loans.

Unlike a fixed-rate mortgage that has an interest rate (and monthly payment) that does not change for the entire loan term, an adjustable-rate mortgage (ARM) is a loan that has an interest rate that can change at preset intervals, based on a predetermined index. Typically, ARMs feature an initial fixed-rate period for the first three to 10 years. The interest rate then may adjust each year thereafter once the initial fixed period ends. For example, a 5/1 ARM is a 30-year term loan. The first five years of the loan feature a fixed interest rate. Thereafter, the interest rate can adjust each year up or down based on the index. 3/1 ARMs and 5/1 ARMs often provide the lowest interest rates and monthly payments during the first three or five years, respectively. This type of loan can be advan- tageous for growing families who intend to move to a larger home in a few years. Also, conventional ARM loans do not have a due-on-sale clause and therefore are assumable. ARMs aren't for everyone. Many borrowers want the security of knowing that their inter- est rate (and their monthly mortgage payments) will remain the same for the entire loan term. DoARMs also tend to be more popular when fixed-rate interest rates are high as bor- rowers are hoping to refinance their ARMs when fixed interest rates decline. The primary components of adjustable-rate mortgages are as follows. Index. The index is an economic indicator that is used to adjust the interest rate in the loan. Lenders legally are allowed to link the interest rate of an ARM with any recog- nized index. Many indexes are tied to U.S. Treasury securities. The index moves up and down with fluctuations in the nation's economy. The index must not be controlled by the lender, and it must be verifiable by the borrower. Margin. The margin (or spread) is the percentage added to the index. The margin rep- resents the lender's cost of doing business plus profit. The margin percentage remains constant over the life of the loan. Calculated Interest Rate. The calculated interest rate is arrived at by adding the index to the lender's margin. Formula: Calculated Interest Rate index + margin = calculated interest rate E X A M P L E : Assume the borrower has an ARM tied to the one-year T-bill rate with a margin of 2.25. If the T-bill rate is 4%, the calculated interest rate is: 4% index + 2.25% margin = 6.25% calculated interest rate Adjustment Interval. The interest rate on an ARM adjusts periodically based on the adjustment interval established in the mortgage loan documents. Some ARMs adjust annually based on the index. A hybrid ARM allows the borrower to lock in a fixed rate for a longer time than the usual one year before the adjustments begin. With a 5/1 hybrid, for example, the initial interest rate is fixed for the first five years and then beginning with year 6, the rate adjusts annually (pegged to the index) for the remaining term of the loan. Interest Rate Caps. ARMs typically include rate caps to limit how much the interest rate may change per adjustment. Most ARMs have two types of rate caps—periodic cap and lifetime cap. A periodic cap limits the amount the interest rate may increase at any one time, usually a year. For example, the interest rate may be capped to not increase more than 2% during an annual adjustment interval. ARMs typically also feature a lifetime cap that caps the total amount the interest rate may increase over the life of the loan. For example, the loan might have a lifetime cap or ceiling of 6% over the life of the loan. Payment Cap. A payment cap limits the amount the monthly payments can increase during any adjustment. The purpose of a payment cap is to protect the mortgagor from unaffordable high monthly payments. If interest rates rise sharply but the payments do not because of a payment cap, the unpaid interest is added to the loan balance. Nega- tive amortization occurs when the mortgage payments are not large enough to cover the interest expense. The result is the mortgage loan balance increases (instead of decreas- ing). Negative amortization can result in a mortgagor owing the mortgagee more than the house is worth. Teaser Rate. Sometimes a lender will offer borrowers an initial below-market interest rate called a teaser rate. The low rate is usually offered for the first year of the loan, with a sharp annual rate increase at the next rate-adjustment period to bring the loan in line with the agreed-upon index.

Identify examples of voluntary liens.

Voluntary liens are ones the owner places against the property to secure payment of a long-term debt, such as a mort- gage lien. Involuntary liens are created by law to protect interests of persons who have valid monetary claims against the owner of real property.

Review the requirements in the landlord tenant act regarding returning security deposits.

When money is given to a landlord as a security deposit or advance rent, the landlord is obligated to account for such deposits in one of three ways: 1)Hold the money in a separate non-interest-bearing Florida bank account for the benefit of the tenant. The landlord may not commingle, hypothecate—that is, pledge as security for a debt—or use any such funds until the funds are due the landlord. 2)Hold the money in a separate interest-bearing Florida bank account for the benefit of the tenant. In this case, the landlord must pay the tenant at least 75% of the annualized average interest rate payable on the account or 5% per year, simple interest, whichever the landlord elects. The landlord must not commin- gle, hypothecate, or use any such funds until actually due the landlord. 3.Post a surety bond with the clerk of the circuit court in the county in which the rental property is located in the total amount of the security deposits and advance rents or $50,000, whichever is less. The landlord must pay the tenant interest on the security deposit or advance rent held on behalf of the tenant at the rate of 5% per year simple interest. Landlords who choose this method are not obligated to place the funds (deposits) into a separate account.

Define assignment of mortgage.

When ownership of a mortgage is transferred from one company or individual to another, it is called an assignment. This process is accomplished by executing an assignment of mortgage. The assignment of mortgage is a legal instrument stating that the mortgagee assigns (transfers) the mortgage and promissory note to the purchaser. The assignment of mortgage is signed by the assignor (mortgagee) and delivered to the assignee (investor). The assignee becomes the new owner of the debt and security instrument *in summary :Assignment of mortgage transfers ownership of a mortgage and note from one company or individual to another.

Distinguish between the promissory note and mortgage loan instrument.

loan instruments An important part of purchasing a home is to find a lender that will finance the pur- chase. Some buyers are fortunate enough to pay cash for their purchase; however, the typical buyer must secure financing for the purchase. The lender will require the borrower to sign two legal documents: (1) a mortgage, and (2) a promissory note. Mortgage A mortgage is an instrument that pledges the property as security (collateral) for the debt. It is the legal document that, when recorded, creates a lien on the real estate that secures the debt. A mortgage specifies the procedure that will be followed if the borrower doesn't repay the loan. For the lender, the property becomes security to ensure recovery of the loan. Hypothecation refers to the pledging of property as security for repayment of a loan without surrendering possession of the property. Mortgages identify the property being used to secure a loan and contain the borrower's promises to fulfill certain other obligations to the lender. A mortgage instrument must be in writing to be enforceable. The mortgage is recorded to establish constructive notice of the lien and to establish pri- ority ahead of subsequent liens (see also Notice to Legal Title, Unit 9). Parties to a Mortgage. There are two parties to a mortgage: (1) the mortgagor, or bor- rower (debtor), and (2) the mortgagee, or lender (creditor). The mortgagor owns the property, and the mortgagee owns the mortgage. A mortgage is regarded as an investment or chattel (personal property) by the mortgagee and, like other such investments, may be sold to another investor if desired (see Figure 12.1). Promissory Note The second part of the home loan process involves the promissory note. A note is a legal instrument that serves as evidence of a debt. A note is a promise to repay the debt, and it makes the borrower personally liable for repayment of the obligation. Think of the note as an IOU for the money borrowed to purchase the home. Recall that the borrower has signed a mortgage instrument that is recorded by the lender to create a lien on the property. Because the buyer also signs a promissory note, if the collateral pledged in the mortgage is sold in foreclosure and the proceeds are not sufficient to cover all that is due from the borrower, the lender can sue the borrower for the remaining unpaid balance. The note is usually a separate legal instrument and must be signed by the borrower. The note is not witnessed nor is it usually recorded. A promissory note (or simply note) must accompany all mortgages in Florida. The note provides the financial details of the loan's repayment: Amount of debt. In return for the loan, the borrower promises to pay to the lender the amount of the loan, called the principal, plus interest. Interest rate. Interest is charged on the unpaid principal until the full amount of the principal has been repaid. Interest rates are stated as yearly (annual) rates. Repayment method. The amount of the monthly payment and the due date are indicated. The monthly payment consists of principal and interest (also called debt service). The payment is applied to interest before principal. Term or time period to repay. The date that the loan ends (has been fully repaid) is called the maturity date. Borrower's failure to pay as required. The borrower agrees to pay a late charge if the monthly payments are paid late. The lender also warns the borrower that if the payments are not paid in full each month on the due date, then the borrower will be in default. If the borrower defaults (violates the terms of the mortgage), the lender can call the loan (demand repayment of the entire loan before the end of the term).