CA real estate exam CH 16-31

A taxing jurisdiction has a mill rate of 14.7. What is an owner's tax bill if his assessed value is $250,000?

$3,675.00

Which of the following is the dollar value of the mill rate 86.5?

0.0865

Ken has fallen behind on his property taxes. He has received the "intent to sell" notice and is terrified of losing his home. Ken lost his job and cannot immediately repay the back taxes. How can Ken keep from losing his residence?

After the "intent to sell" notice, a five-year period of redemption begins. Ken can redeem his property from delinquency by paying all back taxes, interest, penalties, and any other applicable fees.

Marita tells Alexandra they must obtain their broker-dealer license from the Department of Corporations to engage in the sale of real estate syndicate security interests. Alexandra disagrees with Marita, explaining they both have their broker licenses and that is sufficient. Who is correct and why?

Alexandra is correct. Section 25206 was added to the Corporations Code making obtaining a broker-dealer license optional.

Marita and Alexandra set up a Limited Partnership. Marita is named General Partner and Alexandra is named Limited Partner. Marita embezzles funds from the investors. Is Alexandra liable for Marita's indiscretion?

Alexandra is only liable if she is named as a general partner in the certificate or if she participates in control of the business.

Which level of government is in charge of all planning controls?

Although all levels of government have laws, regulations, and ordinances that must be recognized and followed, the state housing law is a uniform law that must be adopted by ALL cities and counties in California.

Judy and Xavier are planning a very large addition to their home. The kitchen will be doubled in size with a new hearth room, and a large new master suite will complete the renovation. They live in a neighborhood of houses in the $500,000 range. This addition will change the appraisal value of their home substantially. Which principle of value applies?

Contribution

Roof and Architectural Styles in California

Roof Styles: Victorian roof; Gable roof; Hip roof; Mansard (French-style) roof; Pyramid roof; Shed roof; and Gambrel roof (used on barns and Dutch Colonial homes). Architectural Styles: New England Colonial; Georgian Colonial; Southern Colonial; California Bungalow; California Ranch; Spanish; Cape Cod; Victorian; French Norman ; French Provincial; English Tudor; and Monterey

Roy Malone owns a large piece of land in the Sonoma Valley. He is planning to subdivide the land into five lots for the construction of luxury homes. If Roy carries through with this project, what are his roles and his next steps?

Roy is considered a Subdivider. His first step should be a development plan; however, this plan must include all state and local government regulations, the Subdivided Lands Law, the Subdivision Map Act, the California Environmental Quality Act, zoning, and local general and specific plans.

The sewers in Mary's neighborhood need replacing. In fact, the entire sewage system for her city needs replacing. The city has imposed a tax that will pay for all of the sewer updates in the area. What type of real estate tax applies?

Special Assessment Tax

A local school has been destroyed by fire. Nothing has been salvaged and the school will have to completely rebuilt. What are the three methods of determining the cost of rebuilding?

Square Foot Cost; Unit in Place; and Quantity Survey Method

Maurice is a builder of new residential housing in the San Fernando Valley. He builds high-end homes in various subdivisions in the area. Maurice has been paying into a fund that is used by the government for low-to-moderate-income housing. Is Maurice required to pay into this fund and, if so, why? Does he have any other options?

Maurice IS required to pay into this fund due to the Inclusionary Zoning Ordinance. He must either set aside a designated number of units for low-to-moderate-income housing; or, in certain cases, like Maurice's, he may pay into the fund. If he refuses his building permit will be denied.

Home Construction Styles

-The one-story home, which is the easiest to build and maintain, but occupies more land per square foot of living space than the other styles; -The split-level home, which is very popular in California because this style not only better utilizes the land where there is varying topography, but is also aesthetically pleasing. This style is more expensive to construct, though; and -The two-story home, which contains a single foundation and roof that supports two floors of living area. Because of this style, there is a lower cost per square foot. The "downside" to a 2-story home is that stairs must be used to reach the second floor, and the height of the structure is more difficult to reach for repair and maintenance issues.

Alex, a Nevada developer, has a very large development of attached retirement villas. He is interested in advertising this development in California. Alex has previously advertised and sold condos in his Arizona development to citizens of California. What must Alex do to promote and sell his Nevada development in California?

According to the Interstate Sales Full-Disclosure Act, Alex must obtain a public report from HUD and deliver a copy of this report to each prospective buyer.

Adaptation of Zoning Ordinances

Adaptation of Zoning Ordinances - Tests of validity of power: Zoning ordinances must not violate the rights of individuals and property owners. The power must be exercised in a reasonable manner. The provisions must be clear and specific. The ordinance must be free from discrimination. The ordinance must promote public health, safety, and general welfare under the police power concept. The ordinance must apply to all property in a similar manner.

Patrice has purchased a century-old townhouse in San Francisco. She wants to make some changes and updates to both the exterior and interior. She isn't happy with the historic pediments outside the townhouse. Patrice's vision is of a minimalist, clean, modern home that reflects her personal style. Which type of zoning regulation, if any, may affect Patrice's vision of a minimalist town home?

Aesthetic Zoning

Mrs. Jenkins has lived in her little 1940s cottage for forty years. Her home is immaculately maintained; it has a beautiful, well-manicured garden, and is just as lovely inside as outside. Unfortunately, the same cannot be said for the rest of her neighborhood. Other neighbors have let their properties go downhill. There is absolutely no curb appeal to any of the other homes in her neighborhood. Mrs. Jenkins' neighborhood is definitely in decline. Which type/types of depreciation applies/apply?

Economic, Environmental, or External Obsolescence

Lily, a licensee, has been referring her first-time home buyers to Safe Insurance Company for all of their insurance needs. The insurance company has been providing Lily with "motivation" in the form of cash to keep the referrals coming. Which law or act prohibits this type of violation?

RESPA

Jerry is interested in purchasing a lot for new construction in a new subdivision. The Commissioner has issued a preliminary public report in this case, allowing the subdivider to take reservations for lot purchases. Does Jerry have any recourse to change his mind?

Jerry may change his mind on the lot he has reserved. He is not committed simply because of the reservation. He may legally back out and receive a full refund, up until the time the final report is issued.

Real Estate Syndication

Real estate syndication gives a person the chance to channel his or her private savings into real estate investments for which other financing cannot be obtained or is not available because of the large amount of money involved. In addition, syndication allows for professional management. Professional management, which is a service that might not be within the financial reach of the smaller investor, is considered essential to a successful syndication. So we know that real estate syndication combines the money of individual investors, along with the management of a sponsor, to invest in real estate and achieve a good rate of return on that investment. Now you're probably wondering HOW, exactly, this is done. Syndication is accomplished through three phases: Origination (planning and buying the property, following registration and disclosure mandates, etc.); Operation (in which the sponsor generally manages BOTH the syndicate and the actual property); and Completion or Liquidation (the property's resale).

California State Income Tax

The income tax laws favor homeowners over renters by allowing several income tax advantages to persons who become homeowners. In California, income tax is a progressive tax, which means that the federal and state tax rates increase with income level increases. California income tax law is patterned after federal tax laws, but there are a few differences between the two. The following regulations apply to income taxes in California: The tax brackets for individuals and corporations are different for state income tax purposes than they are for the purposes of federal income taxes. There are special rules regarding new residents and their need to file their California income tax statement. The impact of federal income taxes is more important than that of state taxes. Income tax laws in California are constantly changing; so be sure to turn to a professional if you have questions.

California Property Taxes (continued)

Regarding new construction since March 1, 1985, the "full cash value" for tax purposes is the real estate value at the time of completion, plus the inflation factor of 2% per year, cumulatively to the present year. Even adding improvements to a person's existing home will affect the tax bill, because even though the person's home keeps its present full cash value as shown on the tax records (prior to the improvements), the NEW improvements are then valued separately as of the date of completion. Again, BOTH of these figures are adjusted by the 2% inflation factor/value increase, and the total of these amounts equals the full cash value of the property for tax purposes. NOTE that the following conveyances are considered transfer exclusions: transfers between spouses; a transfer of a principal residence of $1 million or LESS, between parents and children; replacing a property due to government eminent domain; or replacing a property due to a disaster. The county assessor will not reappraise such a property and will not increase the property taxes on it in these situations.

Qualification as a Trust

Regarding taxation, there are many legal mandates that must be fulfilled to meet the qualification for a "trust" and thereby qualify for the tax benefits of other regulated investments, such as mutual funds, as mentioned previously. One of these requirements is that the company must distribute at LEAST 90% or MORE of its income to its shareholders. (If this requirement is met, then that company does NOT pay federal taxes on that distribution, but only on the retained earnings, which are taxed at corporate rates.) Additional regulations are as follows: The REIT must be beneficially owned by at least 100 investors. No five, or fewer, persons may hold more than 50 percent of the beneficial interests. Transferable shares or certificates of interest must prove the beneficial interest. In California, each share or certificate of interest must carry with it an equivalent vote.

10 Principles of Real Estate Value

1. Highest and Best Use: The possible use of a property that would produce the greatest net income and thereby develop the highest value. Example: An area of the municipality has developed into commercial office buildings. If there is a vacant piece of land or a single family home in the area, one could assume that the highest and best use for this property at that time would be for an office building. This is the first "principal" that an appraiser should determine when establishing value. An appraiser would ask him/herself, "What is the highest and best use for this property at this time?" 2. Substitution: The maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property. (Comparison shopping- basis for market data approach.) Example: this is the principle used when determining value based on the Market Data or Sales Comparison approach to value. This principle is based on the fact that similar properties will bring similar values. (Substituting one property for another) 3. The Law of Supply and Demand: The value of a property increases when the supply is short and decreases when there is too much. Similarly, the value increases when the supply is short, and decreases when there is little demand. Example: In an area where few properties are sold from year to year, when a property is placed on the market it will usually sell quickly. Conversely, when there are many properties to choose from, the market for an individual property will be in less demand. If a large employer in an area closes, the likely effect on the area's real estate values will reflect the principal of supply and demand.

Principles of Value, Continued

8. Assemblage: The combining of two or more adjoining lots into one larger tract to increase their total value. Example: An investor wants to buy property in an area because he/she believes that it will have a future value. He/she purchases one building after another until all the property desired is "assembled." Individually, the properties had a lower value, but once they are all "assembled" into one piece, that piece should be worth more money. "Plottage" value is the increased value resulting from the combining of adjacent lots into one larger lot. 9. Competition: When one business attracts another business of similar type; together they may make more money than they would have singularly. Too much competition is ruinous. As an example, just look at what some of the large chain stores have done to the downtown areas in small towns. On the other hand, shopping centers in large cities attract shoppers every day. 10. Change: Real property is constantly changing--expanding, stabilizing, declining or being reborn. We are all familiar with areas that have or may be going through these changes. Example: Downtown Chicago has gone through all of the cycles above, and many other areas of the country are experiencing the same.

Principles of Value, Continued

4. Conformity: An appraisal principle of value based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the contributory value. (The more the properties are alike, the more they retain value.) Example: A million dollar home in a neighborhood of one hundred thousand dollar homes will not usually return the investment. Conversely, a one hundred thousand dollar home in a neighborhood of million dollar homes may benefit because of the value of the million dollar homes. 5. Regression and Progression: As stated earlier, regression and progression occur between dissimilar properties. This means the value of the better quality property is affected adversely by the presence of the lesser quality property and a lesser house will benefit from a larger house. 6. Anticipation: Property can increase or decrease in value in expectation of something in the future, such as appreciation or rezoning. Example: If a person discovers that an airport is going to be built in an area and buys the land in "Anticipation" of a future value. Another example would be if a person has knowledge that a zoning change is about to take place, which will make the property more valuable, and buys the property in "Anticipation" of a future value increase. 7. Contribution: Means the value of any component of a property is what it gives to the value of the whole or what its absence detracts from the whole. Example: A fully remodeled kitchen or bathroom adds to the value of a property. A kitchen or bathroom that has not been remodeled would subtract from value. Think of the items that would be the most important to you as a consumer, and usually they will add value to a property. While a finished basement that is below grade is nice to have if you live there, the seller may not realize full value from the improvement. Appraisers will not give full value to the improvement if it does not have a walkout from that level. These types of components either add or subtract from value. End of Page

Alexandra and Marita have formed a REIT. They have their investors and resources and are ready for business. The REIT will be investing in an assorted portfolio of real estate and mortgage investments. What type of REIT have Alexandra and Marita formed?

A Combination Trust

Common Interest Developments

A Common Interest Development, or CID, is a project in which there are common areas used by all tenants, with the exception of separate interests to use as individual living units, and managed by a nonprofit association. There are 4 basic types of common interest ownership, defined as "subdivisions." These are as follows: Planned development (PD); Community apartment project; Condominiums (and time sharing); and Stock cooperatives (also known as "Co-ops"). As you probably remember, we discussed the topics of condos and co-ops in Chapter 5. We'll cover the other two - planned developments and community apartment projects - here. A planned development, also known as a Planned Unit Development (PUD), is a subdivision in which the lots are owned separately, but certain areas are owned in common by all owners. A Common Area is the part of the lot or Chapter in the subdivision that is shared equally by all owners (undivided interest). An undivided interest is the right of any owner to use ANY part of the project. An example of a PUD is a subdivided tract of homes, each on its own lot, that share a tennis court or swimming pool built on a separate lot. (The tennis court or swimming pool is owned in common with the other tract owners.) In this type of subdivision, an owner's association is elected by all of the owners to manage and maintain the common areas of the development. Community Apartment Projects are two or more apartments that are defined as a subdivision, in which the operation, maintenance, and control is usually exercised by the governing board elected by the owners of the individual fractional interests in the subdivision. Each owner receives an undivided interest in the land, along with an exclusive leasehold right to occupy a unit.

The Steps of the General Plan

A Resource Analysis: This step is to recognize the individual characteristics of the community, particularly the community's strong points and weak points. To figure out these characteristics, many substudies are needed, including a population trend study, a land use survey, an analysis of the community's financial resources and facilities, and an economic base study; Formulation of Community Goals: This step is considered the most difficult part of urban planning, due to the conflict of various special interest groups, who each want their OWN goals achieved as the "community goal." Citizens should have input into this step; however, the community plan must be based on the desires of the COMMUNITY RESIDENTS, not JUST on what the staff planners want. Once the goals are set forth, then a plan to achieve these goals must be established. This plan, sometimes known as the master plan, should encompass ALL aspects of the projected growth, including the social, economic, and physical features. The general plan must NEVER be undertaken as an inflexible, permanent fixture, because the attitude, needs, and resources of a community can change. The plan, while considered a "long-range" plan, must allow for short-range flexibility; AND The Plan Implementation: The third and final step in urban planning is the implementation of the general plan. This step requires the local government to utilize the various land-use controls we've discussed, including police power, eminent domain, taxation, and control over government spending, so that the plan can be achieved. The 3 most powerful tools for implementing a community plan are subdivision (as previously discussed), environmental regulations (both federal and state), and zoning.

Veronica has recently completed her surgical residency and is tired of paying rent. She needs a residence that is very low maintenance due to her grueling surgical schedule. Condos and Stock Cooperatives (co-ops) have both been high on her list. Help Veronica differentiate between these two residential options.

A condominium buyer receives a fee interest, or deed, to her unit. A stock cooperative is a corporation formed to own the land. Veronica would not receive a grant deed, but does share in the corporation and the right to occupy a specific unit.

Legal Descriptions in the United States

A legal description is NOT THE ADDRESS of the property. This method of describing a parcel of real estate is known as: Lot and Block system. This legal description lists the lot, block, subdivision, county, city, and state. Specifically, this method lists lot and block numbers that refer to a recorded subdivision plat map located in the public records of the county in which the land is located. If a parcel of land is described using this method, it is necessary for there to be a PLAT MAP to locate the parcel. Any question you might see here or on the real test concerning the best example of a "Legal description," based on the " Lot and Block" system, should be answered without including the address of the property. (Lot 12, Block 6, Quiet Village Subdivision, etc.) The Metes and Bounds system is sometimes used to describe irregular pieces of property or in areas where a lot and block system is not in place. A description starts at a designated place on a parcel called a Point of Beginning (POB) and proceeds around the outside of the tract by reference to linear measurements and directions. Monuments are fixed objects used to establish real estate boundaries. A property description using the metes and bounds system must BEGIN AND END at the point of beginning (the same identifiable point). If the description does not meet these guidelines, it is not a valid description.

Sam is selling one of his rental homes. His advertisement reads: "For Sale By Owner - Owner Will Finance - No Down Payment!" What are the criteria for being considered a creditor under Truth in Lending?

A lender must lend funds 25 times a year and/or must lend the funds for at least five housing loans annually.

Depreciation

A loss in value due to any cause; any condition that adversely affects the value of an improvement. For appraisal purposes, depreciation is divided into 3 classes according to its cause: physical deterioration, functional obsolescence, and external (economic) obsolescence. There are 3 types of depreciation: Physical deterioration Functional obsolescence Economic (external) obsolescence PHYSICAL DETERIORATION - A reduction in utility or value resulting from an impairment of physical condition, which deterioration can be divided into either curable (painting/routine maintenance) or incurable types (installing siding on a building which also needs major interior repairs). A form of depreciation caused by the action of the physical elements, such as wind or snow, or just ordinary wear and tear. FUNCTIONAL OBSOLESCENCE - A loss of value of an improvement due to functional inadequacies, often caused by age or poor design. For example, functional obsolescence may be attributable to such things as outmoded plumbing fixtures, inadequate closet space, poor floor plan, excessively high or low ceilings, or antiquated architecture. Functional obsolescence may be curable such as putting in a new electric stove instead of a wood burning stove. Functional obsolescence may be incurable, as in the case of wide columns in a building that cannot be removed, or curable, as in the case of an inadequate electrical system that can be updated. More specifically, curable deterioration or obsolescence is distinguished from incurable as a function of the costs to remediate the subject item in relation to the value the remediation added to the property. Thus, if it costs $3,000 to upgrade the plumbing fixtures, and the value generated by the upgrade is $5,000, then the obsolete plumbing was curable. If the $3,000 repair returned $1,500 in value to the property, the plumbing obsolescence would be considered incurable. Remember: It is important for students to be able to distinguish between physical deterioration, functional obsolescence, and external obsolescence. If you encounter a quiz, exam, or state exam question that presents a series of depreciation items, and asks you for the total deterioration, or functional obsolescence, or external obsolescence, or any combination thereof, remember to only add those items that fall within the category of depreciation that the question is asking for! End of Page

Real Estate Investment Trusts

A real estate investment trust, also known as a REIT, is a type of company that sells securities specializing in real estate ventures, and requires a minimum of 100 investors. REITS, sometimes referred to as the "mutual funds" of the real estate business, were created in 1960 as an aspect of the federal tax law to encourage small investors to combine their resources with the resources of others so the companies could, together, raise venture capital for real estate transactions. REITs invest in an assorted portfolio of real estate and mortgage investments. There are two types of REITs: An Equity Trust: A company that invests in real estate itself or in several real estate projects; or A Mortgage Trust: A company that invests in mortgages and other types of real estate loans/obligations There are also combined trust companies that engage in both equity AND mortgage trust investments, known as "combination trusts." These companies are not as prevalent as either equity trusts or mortgage trusts.

Truth in Lending and the APR

Annual Percentage Rate - An expression of the relationship of the total finance charge to the total amount to be financed. Use of APR permits the consumer to compare rates. A standardized yardstick expressing the true annual cost of borrowing is expressed as the "APR." This law does not include a computation of unearned finance charges. Legal fees to prepare deeds, survey fees, recording fees, and title insurance premiums, are not included in the finance charges. In order to be considered a creditor under TRUTH IN LENDING, a lender must lend funds 25 times a year and/or must lend the funds for at least 5 housing loans annually. An owner of property advertising acreage for sale could advertise "no down payment." The owner is not considered a lender under Truth In Lending guidelines. Rescission Clause - (Does not apply to residential purchase money or first mortgage or deed of trust loans.) A clause in a contract, required by some state subdivided land sales laws, that informs a purchaser of his/her rescission rights as provided by state law.* HOME IMPROVEMENTS - APPLIANCES - FURNITURE! 3-day Right of Rescission applies here. * In California, the right of rescission generally does NOT APPLY to first deeds of trust to buy a home, NOR does it apply to loans carried back by the seller in the transaction.

Jose has heard rumors that a zoning change will be taking place involving a piece of undeveloped sale property. Jose buys the property in hope the zoning change will take place, making the property much more valuable on the market. Which principle of value applies?

Anticipation

Serena is studying for her California real estate license. She is very confused about base lines, meridians, townships, and ranges. Keeping these sets of intersecting lines straight has Serena stumped. Can you help?

Base lines are horizontal and run east/ west; meridians are vertical and run north/south; township lines are horizontal running east/west from a principal base line; and ranges are vertical running north/south on either side of a principal meridian.

Which of the following is not a level of licensing for real estate appraisers?

Certified Specialized Real Estate Appraiser

Which of the following is not considered a type of common interest ownership?

Community Apartment Project Condominiums Stock Cooperatives None of the Above: correct

Condos and Co-ops

Condominiums are the most common type of Planned Development. A condo is the ownership of the land and buildings in common with the other owners, plus the individual ownership of specific "air spaces." Don't confuse the word condo with the term "townhouse;" while a condo is a type of OWNERSHIP, a townhouse is simply a type of building. Condos CAN be used for residential, industrial, or commercial reasons, but in California, the residential condo is the most common. Keep in mind that community apartment project purchasers ONLY have a leasehold interest in the apartment. A Condominium buyer, on the other hand, gets a FEE interest or DEED to his unit. Each condo has a separate grant deed, trust deed, and tax bill. When selling a condominium, the seller must give a copy of the following documents: (1) The CC&Rs; (2) the governing laws, known as the by-laws, of the association; and (3) the condo association's most recent financial statement. Remember that Timesharing is a form of ownership in which each of the investors holds a specific Chapter (or home) and owns the right to occupy that home for a specified period each year. There can be 52 holders who each own a specific one-week share in one Chapter at a resort property. A Stock Cooperative (better known as a cooperative or co-op) is a CORPORATION formed to own the land and improved real property, that either owns OR leases real property. The buyer does NOT receive a grant deed, but DOES own a share of the corporation, and the right to occupy a specific unit. This "right to occupy" CAN be conveyed ONLY with the share of stock in that corporation.

What is the true purpose of Truth in Lending Law?

Disclosure

More Taxes in California

Documentary Transfer tax, which is levied upon the transfer of real estate, at the rate of $0.55 per $500.00 of consideration, or fraction thereof. Estate and Inheritance tax. While the federal government sometimes taxes the estates of deceased persons, California has ELIMINATED inheritance taxes altogether. Gift taxes apply to the voluntary transfer of property from the owner (donor) to the receiver (donee). As with estate taxes, even though California does NOT tax gifts, the federal government does. Miscellaneous taxes, including sales and use taxes (used in the sale of a business opportunity or mobile home).

Economic Obsolescence and Effective Age

ECONOMIC, ENVIRONMENTAL, OR EXTERNAL OBSOLESCENCE - A loss of value (typically incurable) resulting from extraneous factors that exist outside of the property itself; a type of depreciation caused by environmental, social, or economic forces over which an owner has little or no control. If there is a change in zoning, external obsolescence is likely to occur, as in the following examples: to a residence if an industrial plant is built next to it; to a well-maintained house in a deteriorating neighborhood; and to a motel where a new highway is being built that results in difficult access to the motel. Other causes might be proximity to nuisances and changes in land use or population. Also called locational, economic, or environmental obsolescence. This type of obsolescence is almost always INCURABLE! Effective Age: Differs from the actual age (chronological age) by such variable factors as depreciation, quality of maintenance, and the like. Remodeling can extend the economic life of a structure by reducing or mitigating the impact of actual age and increasing the structure's life expectancy. Example: If a person maintains a building, keeping it in good repair, the "Effective Age" is reduced. So a 20-year-old building looks like it's 15 years old. Chronological Age: Actual age in years of the building, based on building date. The "Chronological Age" of a building cannot be changed. If the building is 20 years old, the "Chronological Age" is 20 years.

Police Power

Earlier in this course, we explored the topic of police power. Police power is the constitutional right of the government to regulate private activity to promote the general safety, health, and welfare of society. As we discussed earlier, police power includes such things as zoning, health codes, building codes, set-back requirements, and environmental regulations. Police power also allows the government the power to regulate private land use WITHOUT being compensated. Eminent domain gives the government the power to acquire the title to private land for public use, in exchange for a PAYMENT of "just compensation," as we discussed earlier in this course. Through eminent domain, the state may acquire land for streets, parks, public buildings, public rights-of-way, and similar uses. No private property is exempt from this exercise of government power. Now it's time to focus on another way in which police power is used in the United States - to control and direct land use regarding subdivisions. Subdivision regulation will be our focus for much of this chapter. Let's move on to discuss specific legal land descriptions used throughout the United States . You'll need to understand these legal descriptions before you can fully grasp the subdivision laws in California.

Fair Lending Laws

Federal legislation passed in 1974 to ensure that the various financial institutions and other firms engaged in the extension of credit exercise their responsibility to make credit available with fairness and impartiality and without discrimination on the basis of race, color, religion, national origin, sex or marital status, age, receipt of income from public assistance programs (food stamps, social security), and ensure good faith exercise of any right under the Consumer Credit Protection Act. (Creditor must state reasons for denial of credit.) The act applies to all that regularly extend or arrange for the extension of credit. A real estate licensee is considered a "creditor" if the licensee routinely assists sellers in determining whether a proposed buyer in a land contract or purchase-money mortgage is creditworthy. Regulation B, which implements the act, contains partial exemptions from procedural provisions for business, securities and public utilities credit. The overall enforcing agency for ECOA is the Federal Trade Commission. Lenders can base lending decisions on a consumer's: Incomes Net worth Job stability Credit rating A lender cannot discriminate based on minority background, but can refuse a loan if the person cannot qualify financially (bad credit). The Housing Financial Discrimination Act, or the Holden Act, is the California State law prohibiting financial institutions from engaging in discriminatory loan practices. This law attempts to prohibit redlining. Redlining, as you may recall, is the illegal loan practice under which a lender refuses to grant a housing loan in a certain geographic area, based on the neighborhood trends, and without regard for any merits of the borrower or the home itself.

Planning

In California, the law requires that every incorporated city and county have its own planning commission. A planning commission is an organization made up of citizens that have been appointed by the members of the city council or the board of supervisors. The primary responsibility of planning commissioners is to advise elected officials on land-use issues. These commissioners do NOT make the actual decisions, as the decision-making is the duty of the city council or board of supervisors. Many California cities and counties also have planning departments, which are agencies within the city/county government whose employees include professionally trained planners. Note that planning department employees provide technical services (rather than just recommendations, as planning commissioners do) for the planning commission, elected officials, and the citizens. Under the California Government Code Section 65300, every city and county is required to develop its own general plan. The general plan is extremely important because all land-use decisions of the city or county must be consistent with the general plan. In fact, the general plan has been described by California courts as being "a constitution for all future developments." The general plan not only outlines specific goals and objectives for its community, but also outlines the steps that will need to be taken in order to achieve these goals. The three primary steps are as follows: A Resource Analysis; Formulation of Community Goals; AND The Plan Implementation.

The Smiths have decided to move to Antigua. They are transferring the ownership of their $950,000 home in Oakland to their daughter, Renee. Renee has heard about Proposition 13 and is nervous about not being able to afford the increase in property taxes. Does she need to worry?

In the state of California, transferring a principal residence of $1 million or less from a parent to a child is considered a transfer exclusion. The property will not be reappraised nor the taxes increased.

Taxing Terms

Income Tax Withholding Employers must provide all employees with W4 forms. Employers must file with the IRS a Form 941. The wage and tax statement for all employees showing the total wages paid and amounts withheld during the year is called a Form W2. The form given to Independent Contractors is called Form 1099. While we are discussing forms, the IRS has form #8300, which is used if a consumer pays $10,000.00 or more in cash towards a transaction. That sum must be reported to them. Free Rent and FICA Contributions: When computing income for federal tax purposes, managers must indicate wages paid in any form other than money at their fair market value. Included in this category are automobiles furnished to employees and living quarters provided for on-site managers. A qualified accountant or attorney must determine the proper treatment of any item of compensation given to an employee in lieu of salary. Different treatment and amounts are applicable depending on the item and circumstances in each case. Under current regulations, the fair market value of living quarters furnished to a manager at the place of employment is NOT TAXABLE to the employee, if the employee is required to reside on the premises as a condition of employment. The Federal Insurance Contributions Act (FICA) provides for social security retirement fund taxation to be paid by employers of one or more persons. The rate of tax is set by Congress and shared by the employer and employee. The employer must withhold the proper amount from employees' paychecks and submit the total contribution from both parties to the federal government. The frequency of payment varies with the amount of the contribution. Check the latest regulations available from local social security offices. When computing the FICA payment due, compensation other than wages (including a free apartment) must be shown as income at fair market value.

Maria, a single mother of three, has been saving to buy the family's first home. Her budget is limited, but there is a home she can easily afford on the market. Unfortunately, there have been zoning changes in the area, and a twenty-four hour convenience store is located across the street. Is this deterioration curable or incurable?

Incurable

Who enforces the codes of the California State Housing Law?

Local Building Inspectors

Lot 19, Block 8, Western Acres Subdivision, City of Sacramento, County of Sacramento, State of California. Which method of legal description applies?

Lot and Block System

Merle has a rural piece of land in the northern part of the state. He is in the process of selling it to a developer. The property has a pair of one-hundred-year-old trees that mark the entrance to the property. A stream and a bluff mark the end of Merle's property. What method of real estate description would best suit Merle's land?

Metes and Bounds System

California Zoning

Most California cities and counties have adopted ordinances that divide their jurisdictions into land use districts or zones. Within each zone, a specific set of regulations controls the use of land. There are often zones for single-family residences, multi-family dwellings, commercial uses, industrial activities, open space or agriculture, and, sometimes, mixed uses. The authority for local zoning is derived from the police power in Article XI, Section 7 of the California Constitution. State law supplements the authority by setting forth minimum standards and procedures for exercising zoning regulations. This provides cities and counties with a great deal of local discretion in controlling land use. Keep in mind that zoning, as a police power action, is invalid unless it rationally promotes the public health, safety, and welfare. Inclusionary zoning is an ordinance that requires a builder of new residential housing to set aside a designated number of units for low- to moderate-income people. (Should the developer refuse to provide these units, then the building permit will be denied.) There are certain cases in which, instead of providing these "inclusionary units," the builder might be required to pay into a fund that is used by the government to provide low-to moderate-income housing. To encourage a builder's participation in this program, the builder is allowed to construct more units per acre than normal. Unfortunately, this program has an economic downside, because participating builders frequently just increase the purchase prices on their REGULAR units to offset the BUILDER'S losses on the inclusionary units. Building codes set the standards for the types of materials to be used for construction, electrical wiring, fire prevention standards, etc. Most cities use the BOCA (Building Officials Conference of America) requirements for building. A Building Permit from a city clerk or other municipal official is usually required to build, alter, or repair an existing building. The purpose of a building permit is to control compliance with building codes and zoning ordinances by examining the plans and inspecting the work. A fine can be levied if the work is not to code.

Which of the following equations is the correct application of the capitalization rate?

Net Operating Income divided by Capitalization Rate = Value

What are the steps set forth for a real property securities dealer? Which Article do the regulations fall under?

Obtaining a Commissioner's Permit; an RPSD endorsement on a broker license; and proof of a $10,000 surety bond. The regulations fall under Article 6.

Shanta, a property manager of a retail center, is using the Income Capitalization Approach in trying to project future earnings for the partners who own the center. She first estimates the annual potential gross income, subtracts an appropriate allowance for vacancy and collection losses to arrive at a gross income, deducts operating expenses (including debt service and mortgage payments). This gives her the Net Operating Income. She then applies a capitalization rate to the net income to determine the value. Did she use the correct steps?

No, when Shanta was deducting operating expenses, she included debt service and mortgage payments when they shouldn't have been included.

Ricardo's Restaurant is currently located between two subdivisions. The restaurant has been in business for over forty years. Currently, the area no longer allows any commercial activity. The zoning board ruled Ricardo's may continue to operate unless it is sold, destroyed, or used for any other commercial purpose. Which zoning exception applies to Ricardo's?

Nonconforming Use (Legal)

Article 7

On "hard money loans" (cash) of $30,000.00 and over for first trust deed loans, and $20,000.00 and over for JUNIOR deeds of trust, the broker MAY CHARGE as much commission as the borrower will agree to pay. * The regulations also require that the broker provides to BOTH the buyer and seller, on first trust deed loans UNDER $30,000.00, and on junior trust deed loans UNDER $20,000.00, copies of the appraisal report. Loans on owner-occupied homes that are negotiated by a broker for a term of 6 or more years may not have a balloon payment. In any situation that involves a balloon payment, the SELLER is required to notify the BUYER between 60 and 150 days BEFORE the payment is due. If the home is NOT occupied by the owner, then the loans are exempt from balloon payments, IF the loan term is less than 3 years. Threshold Reporting is the requirement to report annual and quarterly loan activities (review of trust fund) to the California BRE, IF, within the past 12 months, a broker has negotiated any combination of 10 or more loans to a subdivision OR a total of more than $1,000,000.00 in loans. Regulations for "big lending," as this is known, include the requirement that advertising must be reviewed by the DRE. The intent of the threshold reporting regulations is to protect the public by overseeing the loan activity of these "big lenders," who are using their real estate licenses to take on such activities. *Note that usury laws have been passed to establish the maximum rate of interest that may be charged on specific types of loans. In CALIFORNIA , this maximum rate is 10%, or 5% over the Fed discount rate, whichever is greater. However, as noted above, there ARE cases in which the lender is exempt from this law.

Alexandra and Marita are forming a real estate syndicate. They have their initial investments and are ready to proceed. What happens next?

Origination, Operation, Completion or Liquidation

Value

Physical Life Vs. Economic Life Physical Life: Actual age or life of a structure that is considered habitable as opposed to economic life. Example: A building sitting vacant without a tenant has a "Physical Life," but there is no economic life because there is no income. Economic Life: Estimated period where an improved property will yield a return over and above economic rent. In the case of an older structure, economic refers to the period during which the remaining improvements are depreciated for tax purposes. Economic life is the period during which an improvement has value in excess of its salvage value. Also called service life or useful life. Incurable vs. Curable: As stated previously, the deterioration of an improvement that it is not economically feasible to repair or correct is considered incurable, as defined by an adverse gap between the cost to repair and the ending value resulting from the repair. Economic obsolescence is nearly always incurable. Since the negative factor is external to the property, it is impractical to even contemplate that a homeowner will spend funds to 'fix' something that may not even be a part of his or her property - much less to assume that if the expenditure was made that it would increase the property's value beyond the amount expended.

California Property Taxes

Property taxes and subventions represent the largest single source of income for local governments. In California, about HALF of the state's one hundred million acres are owned by governments. This means they are exempt from property taxation. There are 5 taxes that every real estate licensee should be aware of, since the transfer of real estate is significantly affected by the amount of taxes and which party is paying the taxes. These are property taxes, special assessments, documentary transfer tax, gift and estate taxes, and federal and state income taxes. We will focus on the California state-specific taxes throughout the remainder of this chapter. Let's take a look first at Property Taxes and Proposition 13. Proposition 13 limits the maximum annual tax on real property at 1% of market value, PLUS the cumulative increase of 2% in market value each year after, due to the annual inflation factor. This means that rather than using a pure ad valorem system, the property taxes in California are now levied using a system that is based on the date of acquisition. Under Proposition 13, if there hasn't been a change in ownership since March 1, 1975, then the 1975 value is considered the "initial cash value" needed to figure out the annual taxes, as explained above. If there has been a new owner since March 1, 1975, then the new owner's "full cash value" for the purposes of taxes is the sales price, OR the value of the property on the date of the transfer. (In this case, a supplemental tax bill would be sent to the new owner.) In other words, whenever there is a change in ownership, the full cash value for tax purposes is adjusted to the CURRENT market value of the property. Note that the new owner often ends up, as a result of this regulation, paying DRAMATICALLY more real property taxes than the previous owner was paying.

John and Thom purchased a home that only had one previous owner. It is a simple three-bedroom, two-bath ranch. The previous owner built the home in 1964 and recently passed away. John and Thom had looked at the previous owner's property taxes and found them to be quite manageable. When they received their first assessment, they were shocked. Which proposition is attributed to this dramatic increase in property taxes?

Proposition 13

Louise recently turned 65, retired, and is downsizing to a smaller home. She was concerned about moving from the home she owned for 40 years with its low assessment to a smaller home, but with a much larger assessment. Which proposition eases her worries?

Proposition 60 allows homeowners 55 years and older to transfer their base-year property tax value to another home of equal or lesser value.

CMA Vs. Appraisal

Real estate salespeople are called upon to provide comparable sales to a seller who wants to list a property for sale. This is called a Competitive Market Analysis, or "CMA." This task is usually accomplished by looking at the properties that have been sold recently in the marketing area of the property. However, the CMA is not the basis upon which a lender determines a loan amount or an insurance company issues a policy for a potential purchaser. To establish market value, insurance value, salvage value, and/or tax value, an independent licensed fee appraiser is employed to determine value. A Real Estate Appraisal is an estimate or opinion of value. There is no question that making an appraisal is one of the most important functions in the entire chain of selling and purchasing a property. There is also not any doubt that two appraisers could appraise the same property for totally different values. During this section of the course, we will take you through the appraisal process. The goal of the appraiser is to determine: Either the market value, insurance value, salvage value, and/or the tax value of a property. Compensation of the appraiser is based on time and effort, never on the established price of the property. The first step in the appraisal process is to define the problem. The appraiser has to ask himself/herself "Why am I doing this appraisal? Is the purpose of this appraisal for market value, insurance value, salvage value, or tax value?"

More Article 7

Remember that anyone who negotiates real estate loans MUST BE A REAL ESTATE LICENSEE. In addition to this regulation, anyone who makes COLLECTIONS on real estate loans, if that person makes more than 10 collections per year OR collects more than $40,000.00, he or she must be licensed as a California real estate BROKER. Under Article 7, brokers who negotiate trust deed loans have specific limitations regarding commissions and expenses. The maximum commissions for loans subject to Article 7 are: For first loans: 5 percent of the principal of a loan of less than 3 years; 10 percent of the principal of a loan of 3 years or more; For second or other junior loans: 5 percent of the principal of a loan of less than 2 years; 10 percent of the principal of a loan of at least 2 years but less than 3 years; 15 percent of the principal of a loan of 3 years or more. Any costs and expenses of making a loan must meet the requirements set forth in Article 7. The charges made to a borrower cannot exceed 5% of the loan or $390.00, whichever is greater, to a maximum of $700.00. Such charges include appraisal fees, escrow fees, notary and credit investigation fees, but EXCLUDE actual title charges and recording fees. Under Regulation 2843, the amount charged cannot exceed the actual costs and expenses paid, whether these are incurred or "reasonably earned." In addition, no charge can exceed the amount customarily charged for the same or comparable service in the community in which the services take place.

Reproduction Cost

Reproduction Cost Example: If a landmark (church, historical building, etc.) had a fire or was destroyed in any way, we would want to "Reproduce" it as close as possible to original construction and look. Replacement Cost Example: If my house had a fire, I would be happy to "replace" the damage to the property using current methods of construction and materials. Cost can be determined by one of three methods: Square foot cost: Using outside measurement, how many square feet times a cost for either replacement or reproduction. Unit in place: In the "Unit in Place Method," the replacement cost of a structure is estimated based on the construction cost per unit of measure of individual building components, including material, labor, overhead and builder's profit. Most components are measured in square feet, although items such as plumbing fixtures are estimated by cost. The sum of the components is the cost of the new structure. Quantity survey method: The quantity and quality of all materials (such as lumber, brick, and plaster) and the labor are estimated on a unit cost basis. These factors are added to indirect costs (for example, building permit, survey, payroll, taxes, and builders profit) to arrive at the total cost of the structure. Because of the detail and the time consumed, this method is usually used only in appraising historical properties. It is however the most accurate method of appraising new construction. Steps involved in the COST APPROACH: Estimate the value of the land alone, as if vacant. Determine either the replacement or reproduction cost of the building, Deduct all accrued depreciation from the replacement cost. Add the estimated land value to the depreciated replacement or reproduction cost.

Additional Subdivision Notes

Subdivided land projects that are located in another state, even though they are offered for sale in California, do NOT need to have a public report from the Commissioner or DRE. Out-of-state subdividers must simply include certain disclosures in both advertising and sales agreements. Any foreign properties that are offered for sale in California are considered "buyer-beware" situations, because there are very few restrictions placed on them. Any Californian who considers purchasing property that is out of the state OR out of the country should always seek legal advice before entering into any sales agreement. Keep in mind that a subdivision project is not one to be entered into lightly, since the process requires a great deal of time AND money. In fact, the average subdivision takes months to process, while a MAJOR development can take years. ANY advertising and promotions by subdividers MUST follow the DRE's guidelines. One such requirement is that the public report must be given to each advertising media selected by the subdividers. Another subdivision advertising mandate is that a TRUE COPY of ANY advertising material proposed for use for a land project offering must be submitted as part of the documentation required BEFORE the public report is issued.

A chain of restaurants would like to begin opening new sites along the Pacific Coastline. The owner wants all of the restaurants beachside with customer access to the beach and water from the restaurant. Which of the following ordinances or acts could govern the planning and opening of the beachfront restaurants?

The California Conservation Act and The California Environmental Quality Act of 1970 (CEQA) The Clean Air Act The National Environmental Policy Act (All of the Above.)

The McMillan Development Corporation is in the preliminary stages of building a commercial office development. They have received the building permit and all of the necessary approvals to break ground. Where do they go for guidance on the types of materials approved for construction, electrical wiring, etc.?

The City Planning Commission Building Officials Conference of America (Both B and C)

This form of syndication avoids double taxation but has a lack of centralized management. Which form fits the description?

The Corporate The Joint Venture Both B and C

This form of syndication allows limited liability for the investors but has negative tax features. Which form fits the description?

The Corporate Form

Developers and Subdividers in California

The Difference Between a Developer and a Subdivider: This could be one and the same person doing both jobs; however, you must know the difference between the two. A developer is one who attempts to put land to its most profitable use through the construction of improvements, such as commercial condominiums or subdivision projects. A subdivider is an owner whose land is divided into two or more lots and offered for disposition. A subdivider must understand the potential difficulties involved in subdividing and the market for each project. The subdivider's development plan must take into account all state and local government regulations, including the Subdivided Lands Law, the Subdivision Map Act, the California Environmental Quality Act, zoning, and local general and specific plans. As you probably know, real estate developers tend to function in a larger business "arena" than real estate brokers. Developers "manufacture" residential, commercial, or industrial sites, either as vacant lot subdivisions or as improved or partially improved subdivisions. The goal of a developer is to supply the type and price range of product that will satisfy the market, but the ways in which they achieve their goals vary between individuals.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act is a law for lenders that prohibits them from discriminating against race, color, religion, national origin, sex, family size, handicap, marital status, age, or dependency on public assistance in the granting of credit to consumers. ECOA indicates that a lender can base lending decisions on an individual's income, net worth, job stability, and credit rating. Income would most interest a lender when making a loan. If a person applying for a loan is relying on income from child support for repayment of a loan, the income must be revealed to the lender. On the last several screens, you have reviewed the Truth In Lending Law, The Real Estate Settlement Procedures Act, TRID, and the Equal Credit Opportunity Act. While all of the information in this chapter and others is important, you must understand the purposes of all of these federal laws.

Income Approach to Value

The Income Capitalization Approach is a value based on the present value of the rights to future income. This is for income generating properties. The steps are as follows: Estimate the annual potential gross income. This is equal to the number of units times the annual rent for each unit. Deduct an allowance for vacancies to arrive at Effective Gross Income. Add non-rental income to effective gross income to derive Annual Gross Income Deduct the annual operating expenses from Annual Gross Income to derive net operating income.If you are given the monthly income and no other information in a problem, you must assume that it is the net income. The first step is to multiply by 12 to find the annual net income, and then finish the problem. Estimate the rate of return that an investor would demand for this investment. This rate of return is called the Capitalization (Cap) Rate. Divide the Cap Rate into the net operating income to identify the property's value, or I / R = V where I is net operating income; R is the cap rate; and V is the value. As a memory tool, remember the formula: I / R = V (Income divided by Cap Rate = Value) This can be converted to solve for the cap rate and the net income as well: I / V = R (Net Income divided by Value = Cap Rate) and V x R = I (Value x Cap Rate = Net Income)

This is the most frequently used organizational form for real estate syndicates. Which form fits the description?

The Limited Partnership

Ernesto is a developer who is building low-to-moderate-income, federally funded homes. He is building multi-family town homes that will help those graduating from welfare education programs get a new start off of public assistance and into the job market. Which of the following federal laws plays a major role in Ernesto's development?

The National Environmental Policy Act The Clean Air Act (Both A and B)

California Special Assessments

The Street Improvement Act of 1911: A law used by cities and counties for street improvements. A typical example of this is that the local government hires a contractor to improve streets, and then each owner along that street is liable for paying a pro rata share of that cost. The owner might either pay the contractor in full within 30 days, OR the local government might sell bonds to raise revenue to pay the contractor. The Mello-Roos Community Facilities Act of 1982: A law used to finance public services, such as waste treatment plants, parks, and schools, in newly developed areas. This can result in extra-high taxes, in addition to the normal property taxes, and MUST be made known to any buyer before a purchase takes place. Now, let's discuss the taxation of personal property. As a general rule, only "tangible personal property" that is used in BUSINESS is taxable. There is no tax on intangible personal property, including shares of stock, household furnishings, personal effects, and loans due. Personal property taxes are divided into two categories: Secured, and Unsecured. This depends on whether the owner of the personal property ALSO owns the real estate where she keeps her personal property. This topic, along with any other tax issues you've read herein, contains many regulations, and should be discussed with a tax professional or tax assessor.

The Subdivision Map Act, the Subdivided Lands Law, and Land Projects all have a minimum number of lots required to meet requirements. Which of the following is correct?

The Subdivision Map Act regulates the division of two or more lots; The Subdivided Lands Law defines a subdivision as a division of land into five or more lots; and a Land Project must have fifty or more vacant lots.

A small group of investors are in the initial stages of putting together a real estate investment trust (REIT). Which of the following is not a qualification?

The company must distribute at least 85% or more of its income to its shareholders.

Appraisal Process

The appraisal process is outlined below: State the problem. The appraiser determines why he/she has been hired to make an appraisal on the property. As stated earlier, is the job to determine market, insurance, salvage, and/or tax value? Gather, record, and verify the necessary data using all of the tools available. The appraiser uses the three appraisal processes: market data or sales comparison, cost, and income approaches. (More later in this section about these approaches to value.) Analyze and Interpret using the following information: Neighborhood Analysis: A gathering of facts about a neighborhood to determine the appeal to the buyer. These facts include: employment stability, convenience to employment, convenience to shopping, adequacy of public transportation, recreation facilities, adequacy of utilities, property compatibility, protection from detrimental conditions, police and fire protection, general appearance of properties, appeal to the market, zoning ordinances, topography and building codes. Neighborhood Cycle: The process of neighborhood change, involving the four phases of change. (See Principle of Change.) Site Analysis: A gathering of facts about a particular location. These include: estimate of highest and best use, identification of key features, and identification of possible legal or physical problems. Example, if an appraiser is comparing a home with another property that had low taxes, good community programs, and was located in a convenient area, he/she should conclude that this home has economic desirability.

Beth and Brian have been informed a convenience store is going to be built on the corner across from their residence. They are furious and want some answers as to how this could be happening in their neighborhood. Who should they go to for answers and the final word on the decision?

The city council or board of supervisors

Eye on California: Appraisal

The following regulations apply to appraisals in California: The estimate of the cost of replacing a building is usually made by the square foot method, which requires measuring the building and dividing it into rectangles. The appraisal of mobile homes attached to foundations on individual lots uses the same approaches as for other residential properties, and the market data approach works best in this appraisal effort. Regarding the appraisal of a mobile home on a fee-owned space, appraisers should use the appraisal method taken in regard to a residential condominium appraisal. Any appraisal for a real estate transaction that involves federal insurance OR assistance MUST be undertaken by a licensed or certified appraiser. In California, the appraiser must have a special license or certificate issued by the California Office of Real Estate Appraisers.

Under Article 7, what is the maximum amount that may be charged to the borrower for loan costs and expenses? Also, under Article 7, if the home is not occupied by the owner, under what circumstance is the loan exempt from a balloon payment?

The maximum amount that may be charged to the borrower for loan costs and expenses is 5% of the loan, or $390.00, to a maximum of $700.00. If the loan term is less than three years, and the home is not occupied by the owner, the loan is exempt from balloon payments.

Zoning

The regulation of structures and uses of property within designated districts or zones. Zoning regulates and affects such things as use of the land, lot sizes, types of structure permitted, building heights, setbacks, and density (the ratio of land area to improvement area). Zoning laws are enacted in the exercise of police power and are upheld as long as they may reasonably protect the public health, safety, morals, and general welfare of an area. Counties and/or municipalities generally enact their own zoning ordinances pursuant to an enabling act of the state. Bulk Zoning: Controls density and avoids overcrowding--such as restrictions on setback, building height, and percentage of open area--as its primary purpose. Aesthetic Zoning: Requires that new buildings conform to specific types of architecture (all Spanish fronts, colonial, etc). Directive Zoning: Encourages zoning as a planning tool to use land for its highest and best use. Zero Lot Line: A term generally used to describe the positioning of a structure on a lot so that one side rests directly on the lot's boundary line. Such construction is generally prohibited in many areas by setback ordinances unless, of course, it is a part of a special space-conserving project (Party Wall, Patio Home, Planned Unit Development). Enabling Acts: A statute creating the power or authority to carry out an activity, as under the provisions of a federal housing program, or to do something not previously authorized. For example, a condominium law creating the unique condominium of ownership. In simplest form, zoning districts are divided into residential use, commercial use and industrial use. These can be broken down into other subcategories within each category.

What is included in the APR?

The total finance charge to the total amount to be financed.

California Subdivision Laws

The two basic California subdivision laws are the Subdivision Map Act, found in the Government Code, Sections 66410, et seq., and the Subdivided Lands Act, found in the Business and Professions Code, Sections 11000 - 11200. It is necessary for every licensee applicant to be familiar with the extent and purpose of the Commissioner's jurisdiction over the sale or lease of newly subdivided land. At some point in a California licensee's real estate career, he will usually end up working with the sale of subdivided property or called on for advice in preparing a subdivision for the market. The term "subdivision" includes all of the following: A condominium project, a community apartment project, or the conversion of five or more existing dwelling units to a stock cooperative. You should know that there are times when a principal is creating a subdivision without realizing it. It is up to the broker not only to recognize such an act, but also to be knowledgeable about the subdivision laws so that the principal does not inadvertently violate the law. When selling subdivided property, the broker must make certain that two important requirements of the subdivision law are followed. First, the broker must furnish the prospective buyer with a copy of the subdivision public report, obtain a receipt, and give the prospective buyer an opportunity to read the report before the prospect makes an offer to purchase. Second, it is the broker's responsibility to handle any deposit or purchase monies as described under California law. The Subdivision Map Act is a law that requires the mapping of all new subdivisions. This act regulates the DIVISION of 2 or more lots for the purpose of selling, leasing, or financing said lots, either at that time or in the future. The map shows the relationship of the subdivision to other lands, and each parcel in the subdivision is delineated and identified. The Subdivision Map Act is administered by LOCAL OFFICIALS, and focuses on the PHYSICAL aspects of a subdivision, including: The streets; The design of the subdivision; The sewers; and Other details that fall into the "physical aspects" category. In addition to addressing the specific physical mandates for a subdivision, the Subdivision Map Act also outlines the procedure that must be used to file subdivision maps that result in the LEGAL creation of a subdivision.

Mobile Home Taxation

There are four principal prerequisites for transforming a mobile home into real property: Obtaining a building permit; Attaching the mobile home to an approved foundation; Recording a document reflecting that the mobile home has been affixed to an approved foundation system; and Obtaining a certificate of occupancy. A mobile home installed on a foundation system is considered a fixture or improvement to the real property. Note that provides the "base year value" of a mobile home converted from the vehicle license fee to local property tax is its full cash value on the LIEN DATE for the fiscal year in which it has been enrolled. Once the mobile home has been attached to a foundation, the Department of Housing and Community Development (HCD) must cancel the registration. The next step is recording the title with the county recorder, which transfers the ownership. Note that once the mobile home is attached to the foundation, it is PROHIBITED to remove it from the foundation, UNLESS both of the following conditions are met: ANYONE who has a title to any estate or interest in the real property consents to this removal; and The mobile home owner notifies BOTH HCD AND the local assessor (of its intended removal) 30 days prior to the removal.

How many primary steps must be taken to develop a general plan? Who is required to develop a general plan? What are the primary steps, in order, to achieve the desired general plan?

There are three primary steps that must be taken to achieve the general plan. Under California Code, every city and county is required to develop a general plan. The steps are as follows: A Resource Analysis, Formulation of Community Goals, and The Plan Implementation.

Tim owns a mobile home he wants to transform into real property. He attaches the mobile home to an approved foundation; records a document reflecting that the mobile home has been affixed to an approved foundation system; and obtains a certificate of occupancy. Which step, if any, did Tim leave out?

Tim forgot to obtain a building permit.

Real Estate Taxes

There are two types of real estate taxes. Both are levied against specific parcels of property and automatically become liens on those properties. Taxes need not be recorded to be valid! Special Assessment Taxes: A tax or levy imposed by a city, county, or state only on those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or a sewer. These taxes are usually assessed by frontage foot and are always paid before general taxes and first deed of trust in case of a foreclosure. These taxes must also be paid before the property can be transferred, unless there is an agreement in writing otherwise. This is not the same as a special assessment required by subdivisions as required by restrictions and covenants. General Tax: Used for the general operation of the governmental agency authorized to impose the tax. These taxes are called "Ad Valorem." The words "AD VALOREM" are Latin for "according to valuation," usually to a type of tax or assessment. Real property tax is an Ad Valorem tax based on the assessed valuation of the property. Each property bears a tax burden proportionate to its value, as opposed to a specific tax per Chapter based on quantity, such as a tax per gallon of gasoline or package of cigarettes. Real estate is ASSESSED for tax purposes by county assessors or appraisers. An assessment is an official valuation of real property for tax purposes based on appraisals by local government officials. Sale prices of comparable land are used to estimate land values, whereas building values are based on an amount representing the improvement's replacement cost less depreciation. Occasionally one county or another is out of line with others in the state in real estate taxes. When this is the case, an Equalization Factor is multiplied times the taxes to make the rate more equal to the rest of the state.

Federal and State Planning Controls

There is some controversy over which level of government should be "in charge" of planning control--should it be national, state, or local? In the past, planning has been considered a "local" issue, but time has shown that what might be GREAT for one community (a chemical company, for example) could be quite bad (even dangerous) for another. (Think of the pollution from that chemical company to the community just across the border.) Regardless of individual opinions, the current trend is toward more regional, state, AND federal control over land use. Federal laws that play a major role in land-use issues include the National Environmental Policy Act and the Clean Air Act. The National Environmental Policy Act requires an environmental impact report on all projects that use federal funding, while the Clean Air Act makes it mandatory for all businesses, including real estate developers, to meet air quality standards. The federal government also states that development cannot take place in a "wetlands" area, but there is little clarification on exactly what "wetlands" are, and there have been a number of lawsuits due to this misunderstanding. In California, there are additional laws (including the subdivision laws we've already covered) which play important roles in planning, zoning and other land-use permitting decisions by government agencies. One such law is the California Environmental Quality Act of 1970 (CEQA). The main purpose of this law is to provide procedures and information to ensure that governmental agencies will consider and respond to the environmental effects of their proposed decisions. The state has adopted CEQA Guidelines to implement the CEQA process. The CEQA requires an environmental impact report of major real estate projects. To be granted a building permit, a builder must prepare a Negative Impact Report (NIR) for a minor project that will have little or no environmental concern. For a major project, an expensive and fully-documented Environmental Impact Report, or EIR, must be prepared by the builder. Another California law that relates to planning is the California Conservation Act, which creates controls on the 1,000-mile California coast.

The cost approach to value may be derived by:

Total Land Valuation + Depreciated Value of Building = Value of Property Cost Approach

Financing Laws - Truth in Lending

Truth In Lending Law: ( Regulation Z) The purpose of this law is DISCLOSURE. The law requires lenders to disclose to buyers the true cost of obtaining credit so that the borrower can compare the costs of various lenders. The regulation requires that the consumer be fully informed of all finance charges, as well as the true annual interest rate, before a transaction is consummated. The Truth in Lending Law does not control interest rates and does not control costs to close a transaction. (RESPA, the Real Estate Settlement Procedures Act, covers costs to close. This law will be covered shortly.) Truth In Lending applies to residential loans, federally related 1-4 family properties, non-commercial properties, and family farms. Commercial transactions are not covered under the Truth in Lending law. Two major sections of Truth In Lending: Annual Percentage Rate (A.P.R.) Advertising

Sydney has inherited her grandmother's estate worth approximately $4.5 million. She is worried about paying taxes on the estate and the inheritance. How will these taxes affect her new estate and inheritance?

While the federal government sometimes taxes the estates of deceased persons, California has eliminated inheritance taxes altogether.

More State Laws

Until 1970, local codes were allowed to vary from the state housing laws. But times have changed. Currently, the state housing law is a UNIFORM code that MUST BE adopted by ALL cities and counties in California. Remember that these codes are enforced by local (rather than state) building inspectors. There are some cases in which local variances in the laws are permitted, but this is ONLY after a study has found that there is sufficient reason to deviate from the uniform state code. The California State Contractor's License Law requires that anyone who does the business of a contractor be licensed as such. This does not include a property owner working on his own property; however, if that owner wishes to build with the intent to sell the finished real estate project, then he must be licensed OR have a licensed contractor do the work for him.

More California Real Property Taxes

Under Proposition 60, homeowners 55 years of age and over are allowed to transfer their base-year property tax value to another home of equal or lesser value in the same county and keep their low assessment from their former home. Proposition 90 follows the same general idea, but allows the privilege to be applied to a home purchased in ANOTHER county, IF that county's Board of Supervisors CHOOSES to apply Proposition 90. Real property taxes run from a fiscal year beginning July 1 until June 30 of the following year. Real property tax becomes a lien on the January 1 that precedes the fiscal tax year. This tax can be paid in two equal installments, with the first installment due November 1 (delinquent by December 10, or the following business day by 5:00 p.m. if December 10 falls on a holiday or weekend); and the second installment due February 1 (delinquent by April 10, or the following business day by 5:00 p.m. if April 10 falls on a holiday or weekend). Or, if the taxpayer prefers to make a single payment, then both installments may be paid when the first installment is due (November 1). Should an owner fail to pay his property taxes when they are due on June 30, then the tax collector will publish a notice of "intent to sell" the property to the state of California because of these unpaid taxes! This is not a REAL sale, however; it is known as a book sale. In a book sale, the property owner still owns the real estate, but the owner's name is entered into a delinquent account book, and this begins a 5-year period of redemption. During this 5-year period, the owner can redeem the property by paying all back taxes, interest, penalties, and any other applicable fees. If the CURRENT taxes are paid on time, then the delinquent taxes may be paid in 5 annual installments. If, after 5 years, the taxes remain unpaid, the delinquent property reverts to the state, and the former owner loses the title. A seller or his or her agent is required to deliver to the prospective purchaser a disclosure notice that includes both of the following: 1102.6c. (a) In addition to any other disclosure required pursuant to this article, it shall be the sole responsibility of the seller of any real property subject to this article, or his or her agent, to deliver to the prospective purchaser a disclosure notice that includes both of the following:1. A notice, in at least 12-point type or a contrasting color, as follows:"California property tax law requires the Assessor to revalue real property at the time the ownership of the property changes. Because of this law, you may receive one or two supplemental tax bills, depending on when your loan closes.The supplemental tax bills are not mailed to your lender. If you have arranged for your property tax payments to be paid through an impound account, the supplemental tax bills will not be paid by your lender. It is your responsibility to pay these supplemental bills directly to the Tax Collector.If you have any question concerning this matter, please call your local Tax Collector's Office."2. A title, in at least 14-point type or a contrasting color that reads as follows: "Notice of Your 'Supplemental' Property Tax Bill." Keep in mind that including the required information in the Mello-Roos disclosure may satisfy the disclosure notice requirements of this section. Supplemental taxes may be assessed whether a new loan is obtained or an existing loan is assumed to accomplish the purchase of the property, or whether the property is purchased without financing.

Jacinda makes collections on real estate loans. Last year, she made approximately 20 collections and collected $38,000. Must Jacinda be licensed?

Yes, if a collector makes more than ten annual collections, or collects more than $40,000, he/she must be licensed as a California real estate broker.

A mill rate is used in real estate

taxation, to determine the owner's tax bill.

Deanna is thinking of taking the step from renter to homeowner. She has a very stable position as a surgical nurse and excellent credit. She doesn't, however, have a large sum of cash handy for the down payment. One Sunday morning, she notices advertising for new condos where "no down payment is required." Should she look for any other information in the ad?

Yes, she should make sure the amount or percentage of down payment is there; terms of repayment; annual percentage rate and if an increase is possible; total finance charge; and total number of payments and due dates.

Land Projects and the Interstate Land Sales Disclosure Act

A "major" development, or subdivision, describes a land project. A land project is a speculative subdivision development of 50 or more vacant lots that are located in a rural area that has fewer than 1,500 registered voters within 2 miles. Such subdivisions are most often sold only AFTER a very intensive promotional undertaking in those urban areas that tend to be a long distance from the development. To avoid second thoughts or impulse buying, a purchaser of a lot in a land project is allowed a limited amount of time after the SALE to "cool off" and rescind (cancel) the sale, without paying a penalty. The current California regulation allows the purchaser 14 days after the signing of the purchase agreement in which he may rescind his offer and receive a FULL refund. Under the law, any contract to buy or lease land in a land project may be rescinded, IN WRITING, and without cause, within 14 days after the signing of the initial purchase/lease contract. Let's discuss the Interstate Sales Full-Disclosure Act now. This federal law regulates land sales between two or more states. If a developer of 50 or more lots wants to advertise his development in another state or states, he must obtain a public report from the United States Department of Housing and Urban Development (HUD), and then deliver a copy of this report to each prospective buyer. (You might notice that this law is very similar to the California State subdivision regulations.) This law is intended to reduce the fraudulent land sales that tend to take place via mail or out-of-state advertising. Under this law, out-of-state buyers have 7 days after receiving the public report to rescind the contract.

The Appraisal Process, Continued

Estimate Land Value - For appraisal purposes, land never depreciates in value. Estimate the value of the property by each of the three approaches to value (explanation to follow)Market Data (sales comparison)Cost (or Summation)Income Reconcile estimated values for the final value estimates - This is the final step in the appraisal process, in which the appraiser reconciles the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property. An appraiser never averages comparable sales to obtain a final value. The appraiser evaluates all three methods of appraising property--market data (sales comparison), cost, income--and determines which would be best to use for the property in question. Example: If an appraiser is asked to appraise a single family home or a vacant lot, the approach to value most often used is the Market Data or Sales Comparison. Assuming recent comparable sales can be found, the appraiser would compare the subject property to the comparable and determine value. If there are no comparable properties, then the appraiser may have to use the cost approach to value, and determine replacement cost of the components of the property. Usually, this approach is used for unusual properties where comparable properties cannot be found. (Church, school, post office, etc.) Last, the appraiser may apply the income approach if the property is income producing. Usually, this is not the case in a residential property. Report final value estimates - Types of Appraisal Reports:Letter: A short business letter stating all essential data but not including supporting data.Short or Form: Contains all basics of a regular appraisal and is used primarily for homes.Narrative: The most comprehensive of all appraisal reports. Used for commercial and investors.

Exceptions to Zoning

Exceptions to Zoning: Buffer Zones, such as landscaped parks and playgrounds to separate and screen residential areas from nonresidential areas. These "Buffer Zones" are used between areas of properties being used for different purposes. For example: A "Buffer Zone" (like a park) would be placed between a residential subdivision and a commercial development. Nonconforming Use: An improvement that does not comply with the zoning ordinances because it was constructed prior to the adoption of the zoning laws, and its use is one that clearly differs from current zoning. Usually, nonconforming uses result when a zoning change leaves existing properties in violation of the new ordinance. This type of nonconforming use is a LEGAL nonconforming use. A board usually treats this kind of situation by allowing it to continue either: indefinitely;until the structures are torn down;only while the same use continues; oruntil the property is sold. Example: If a bowling alley is in an area that no longer allows commercial activity, the zoning board rules that the bowling alley may continue to operate until it is sold, destroyed, or used for any other commercial purpose. If the property burns down, it cannot be rebuilt as a bowling alley without obtaining a variance. Without the variance from the proper governmental authority, the property becomes residential use. An illegal nonconforming use is one that conflicts with the ordinances that were in place before the use commenced. For example, if the bowling alley in the previous example is sold, and the new owner continues to operate the property as a bowling alley, it is now an illegal nonconforming use. A Variance may be sought to provide deviation from an ordinance such as installation of a sign for a business, or a change of zoning, so long as it is before the construction or reconstruction takes place. Spot Zoning is the reclassification of one piece of property in an area for a specific purpose, such as a convenience store in a residential neighborhood. This is also called contract zoning. Conditional Use Permit: A property owner is granted a special use permit for a property that is deemed to be in the public interest contrary to the zoning that exists, such as a restaurant near an industrial plant.

An appraiser is appraising a property that was built 65 years ago. The home has wonderful architectural charm, hardwood floors, and beautiful original molding, but it also has tiny bathrooms, and the closet space is nonexistent. Which type/types of depreciation applies/apply?

Functional Obsolescence

The Rules of an Appraiser

If an appraiser is hired to determine Market Value, he/she is looking for what the sales price would most likely bring in an open market if the following conditions were met: Appraiser's Ground Rules Payment must be in cash or its equivalent - The appraiser assumes the buyer is either paying cash for the property or is in the process of obtaining a loan. Buyer and seller must be unrelated and acting without undue influence, menace, or duress. - The transaction is "Arms Length," meaning there is no relationship between the buyer and seller. For example, a sale from a father to a daughter would not be considered an "Arms Length" transaction, nor would a sale of a property in a divorce situation be a comparable for an appraiser to use to establish market value.Other examples of an "Arms Length Transaction" violations:The seller is being forced to sell at a reduced price because of an impending divorce or other similar situation.A buyer is being forced to purchase because he has been transferred to a new town, and his home has been sold in the area from which he is relocating. Example: His wife and 5 children are on the way to town, and it is either buy something today, or find a motel or a rental property. The property has NOT been marketed for a reasonable time in an open and free-flowing market.Both buyer and seller were NOT well-informed consumers.

Eye on California: Real Estate Appraiser Licenses

In California, there are four levels of licensing for real estate appraisers. Trainee (AT) - Trainee licensed appraisers must be supervised by a certified residential or general licensee in good standing at all times. They may appraise any property for which their supervisor is licensed to appraise. Supervising appraiser may have no more than three trainees. To receive this license, an individual must complete 150 Hours of education including the 15-hour National USPAP course module. Trainee applicants must also complete an approved Supervisory/ Trainee Appraisers course prior to obtaining a Trainee Appraiser license. Residential (AL) - Residential licensed appraisers can appraise any non-complex 1-4 family property with a transaction value up to $1 million. They can also appraise non-residential properties with transactional value up to $250.000. Residential licensees still have 150 hours of education but have 1000 hours of acceptable experience within 6 months. Certified Residential (AR) - Certified Residential appraisers can appraise any 1-4 family property without regard to transaction value or complexity. They can also appraise non-residential properties with transactional value up to $250.000. These licensees require an additional 50 hours of appraisal education and, for most, at least some college education. Full requirements can be found on the Department of Consumer Affairs Bureau of Real Estate Appraisers website. AR licensees must also have 1500 hours of experience within 12 months. Certified General (AG) - Certified General licensees can appraise all real estate. They must have a total of 300 appraiser education hours and a Bachelor's degree. Additionally, they must have 3000 hours of experience within an 18-month period.

Eye on California: Real Estate Appraiser Licenses Cont

In addition to the required educational hours, the following experience requirements also apply: Licensed: 2,000 hours encompassing 12 months of acceptable experience. Certified-Residential: 2,500 hours encompassing at least 30 months of acceptable experience. Certified-General: 3,000 hours, encompassing at least 30 months of acceptable experience. At least 1,500 hours of the experience must be non-residential. Once the person has met the educational and experience requirements, he must pass an examination. Then his appraisal license or certification is issued for a 2-year period. For those who meet the educational but not the experience requirements, the training license is issued for the least complicated of the appraiser designations: the "Licensed" appraiser. (This was explained under "D" on the previous screen.) NO training licenses exist at higher appraiser certification levels. Real estate appraiser licenses are valid for two years. However, continuing education requirements are submitted every four years. For more information about California real estate appraiser lic

Jim and Kim Scott have been working very hard to rebuild their credit. They are now in good financial shape to buy their first home. The couple has been working with a mortgage broker, Ted, to assist them in finding the best loan. They complete the application, are approved for a loan, complete other paperwork, and are now obligated to complete the loan. A week before they are due to close, they receive the Mortgage Disclosure Statement, outlining all of the costs and terms associated with the loan. The costs and terms are not what they had previously understood. Are they stuck with this loan?

No, the Mortgage Disclosure Statement should have been presented to them within three days of the broker's receipt of their written loan application, or before the Scotts were obligated to take the loan.

Beverly, an African-American woman, has applied for a mortgage on a new home. She has a reliable job as a court reporter and has been employed for ten years. Her income is substantial enough to pay a mortgage, in her budget, and still have seventy percent of her income remaining. She has, however, been at least ninety days late on several bills one year ago. Beverly has since caught up on her credit card bills, paid them on time, and reduced their balances by half. She has just been turned down for a mortgage by her bank. Has she been discriminated against?

No. Beverly's brush with delinquency is too fresh on her record for the bank to issue a mortgage. Although she has taken the steps to correct the issues, ninety days late on several debts is substantial. She more than likely did not meet the bank's financial requirements.

Approaches to Value

Sales Comparison Approach (also called Market Data Approach) Used for appraising residential property or vacant land. This approach compares the subject property to similar properties and makes adjustments on the basis of the date of the sale, the location, the physical features, and/or amenities. An appraiser is asked to appraise a residential property. Example: The appraiser finds a property located in the same neighborhood and wants to use it as a comparable sale. The comparable has more bedrooms than the subject, one less bath, and one less garage. The appraiser will have to subtract the extra bedrooms, from the comparable, add a bathroom to the comparable, and add a garage to make the properties equal. Memory Tools: SBA: If the subject property is better, add value to the comparable. CBS: If the comparable property is better, subtract value from the comparable. Example: The comparable has a fireplace and the subject property does not: Subtract the fireplace (value) from the comparable. The subject property has a fireplace and the comparable does not: Add the fireplace (value) to the comparable. Adding and subtracting are always done to the comparable, never to the subject property. Cost Approach (also called Summation Approach) Used on buildings that do not have market data because they are unusual properties (school, post office, library, etc., or a building without income). Reproduction cost: To replace with the same materials as original construction (much more expensive!) Replacement cost: To replace with current materials and methods with utility and function similar to original.

Syndication Forms

Syndications can be undertaken in different forms, including: The Corporate Form, which allows for both centralized management and limited liability for the investors, but, on the downside, has negative tax features that make it unappealing for modern syndicates. The General Partnership, or Joint Venture, which avoids the double taxation (which a "regular" corporation would incur), but, on the negative side, there is an unlimited liability provision, as well as a lack of centralized management. The Limited Partnership offers many of the advantages found in both of the above syndication forms: the corporate advantages of limited liability and centralized management, and the tax advantages of a partnership. Because of this, the limited partnership form is one of the most frequently used organizational forms for real estate syndicates. * The Limited Liability Company, added in 1994, includes a liability limitation not unlike that offered to corporation shareholders. * Eye on California: The California Revised Limited Partnership Act, also known as the RLPA, can be found under the Corporations Code Section 15632. The RLPA says that a limited partner is NOT liable as a GENERAL partner UNLESS that limited partner is ALSO NAMED as a general partner in the certificate of limited partnership OR IF that limited partner participates in control of the business. Note that if the limited partnership agreement otherwise satisfies specific tax requirements, then that limited partnership is taxed as a PARTNERSHIP, RATHER than as an association taxable as a corporation.

What is the correct order of regulatory agency jurisdiction changes to non-corporate California real estate syndicates since The Real Estate Syndicate Act's inception in 1970?

The Department of Corporations, The California Department of Real Estate, The Department of Corporations

Which of the following statements concerning California's three sets of base lines and meridians is true?

The Humboldt Base Line and Meridian in the northwestern part of the State; The Mt. Diablo Base Line and Meridian in the central part of the State; and The San Bernardino Base Line and Meridian in the southern part of the State.

RESPA

The REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) of 1974 was created to ensure that the buyer and seller in a residential real estate transaction involving a new first mortgage loan have knowledge of all settlement costs. The Act is administered by the Consumer Financial Protection Bureau (CFPB). Previously, RESPA required lenders to provide a HUD "Guide to Settlement" booklet and a Good Faith Estimate (GFE) of all costs related to settlement to borrowers within 3 days of loan application. RESPA also required the use of the HUD-1 settlement statement at closing plus a final good faith estimate and Truth-in-Lending Statement. Effective October 3, 2015, the real estate industry has new requirements as specified in the TILA/RESPA Integrated Disclosure (TRID) Rule. According to the TRID rule: Lenders must give a copy of the booklet, "Your home loan toolkit" to every person at the time of application for a loan. Lenders must provide a Loan Estimate of settlement costs at the time of loan application or within three business days of application. Loan Estimate Form A Closing Disclosure, a form designed to detail all financial particulars of a transaction, must be delivered to the borrower at least three days before closing. The actual time frame is based on the method of delivery. The settlement agent must also provide the seller with the Closing Disclosure, which may be done at consummation. The form shown for the Loan Estimate and the form for closing should be compared by the borrower to determine if all Loan Estimate Items shown in the estimate match at the closing. It is important that you understand the required Closing Disclosure, both for your licensing exam and for your real estate career. Please thoroughly review the Closing Disclosure Information. You will want to open the sample Closing Disclosure form for fixed rate mortgage as you review. The following information on RESPA requirements is effective until October 3, 2015. After October 3, these documents will continue to be used for certain loans. Lenders must give a copy of the HUD booklet, "Shopping for Your Home Loan" to every person at the time of application for a loan, or within three days of application. The booklet explains closing costs and the loan buying process. Lenders must provide a Good Faith Estimate (GFE) of settlement costs at the time of loan application or within three business days of application. Uniform Settlement Statement (HUD-1) - This is a form designed to detail all financial particulars of a transaction. This must be made available to the borrower at or before closing. The borrower may request to see the form one business day prior to closing. RESPA prohibits kickbacks or unearned fees paid to lender for referring customers to insurance agencies, etc. RESPA is administered by the Consumer Financial Protection Bureau (CFPB). As before, RESPA prohibits kickbacks or unearned fees paid to lender for referring customers to insurance agencies, etc. R E S P A K (a memory tool to help you remember that RESPA prohibits KICKBACKS to real estate licensees.) Violators of RESPA can face punishments of up to one year in jail, and/or a $10,000.00 fine.

The California Department of Corporations and Real Estate Syndicate Act

The Real Estate Syndicate Act, under the California Business and Professions Code, went into effect in 1970. This law handed the jurisdiction of some non-corporate syndicates from the Department of Corporations to the Department of Real Estate. Other syndicate offerings remained with the Department of Corporations. However, the Real Estate Syndicate Act was repealed eight years later, again turning the regulation of ALL REITS to the Department of Corporations, where it remains. Today, the Department of Corporations has the authority to grant either a permit or an exemption in deciding whether a given form of business for pooling investment money constitutes a securities offering. In 1977, Section 25206 was added to the Corporations Code, permitting real estate brokers to engage in the sale of real estate syndicate security interests without having to obtain a broker-dealer license from the Department of Corporations. A related provision was also added to the Real Estate Law at that time, should a real estate broker violate the Corporations Code or its regulations in these real estate syndicate interest sales, exchanges, or trades.

More Legal Descriptions

The Rectangular Survey System, sometimes referred to as the government survey system, or Government Rectangular Survey System, is the third method used in describing a parcel of real estate. This system is based on sets of intersecting lines. Principal Meridians run north and south. Base Lines run east and west. Township lines are lines running east and west, parallel with the base line and six miles apart. Range Lines are lines on either side of a principal meridian and are divided into six-mile-wide strips by lines that run north and south parallel to the meridian. A Township is a 36-square-mile area formed by the intersection of a township and range lines. Each township square is divided into 36 Sections, each one mile square. California 's Base Lines and Meridians When accepted by county or city authority, the map is filed in the county recorder's office. Documentation can then describe any lot in the subdivision by indicating the lot number, the block, and the map. The description also includes the name of the city, county, and state. For example: "Lot 14, Block B, Parkview Addition (as recorded July 17, 1956, Book 2, Page 49 of maps), City of Sacramento, County of Sacramento, State of California." As we discussed earlier in this chapter, in using the township and section system, we begin with base lines, which are horizontal, and meridians, which are vertical. Regarding land descriptions, we move "townships" (north or south) from a principal base line and "ranges" (east or west) from a principal meridian. California has 3 sets of base lines and meridians: The Humboldt Base Line and Meridian in the northwestern part of the State; The Mt. Diablo Base Line and Meridian in the central part of the State; and The San Bernardino Base Line and Meridian in the southern part of the State.

Subdivided Lands Act

The Subdivided Lands Act is a law that was designed to protect the purchasers of property in new subdivisions from fraud of misrepresentation when these purchasers are buying subdivided land. Keep in mind that under the Subdivided Lands Act, a subdivision is defined as a division of land into 5 or more lots for the purpose of selling, leasing, or financing, whether now or in the future. (Do not confuse this with the previously discussed Subdivision Map Act, in which subdivisions are defined as having 2 or more lots.) The Subdivided Lands Act is primarily concerned with any marketing aspects of a subdivision, and is administered by the California Real Estate Commissioner. Under this act, a new subdivision of 5 or more lots may NOT be offered for sale until the Real Estate Commissioner issues a public report for the subdivision. The Commissioner will not issue the public report until he is certain that the developer has met all statutory requirements - including, in particular, those financial arrangements established to assure completion of any promised subdivision facilities. Remember that the public report is simply a statement by the Commissioner that the subdivider has followed all applicable laws and regulations - it is NOT the Commissioner's recommendation or endorsement of the development. Before each lot in a new subdivision may be sold, the subdivider must deliver a copy of the Commissioner's public report to the prospective buyer, who must then sign a statement attesting that he has read the public report. This statement must be kept on file by the subdivider for 3 years. It is ONLY after ALL of the preceding steps have been completed that the subdivider can sell each lot. The public report is valid for 5 years. Should a material change in the subdivision occur, then an amended public report must be issued by the Commissioner. Such material changes could include contract forms, the sale of 5 or more lots to a single buyer, or physical changes, such as lot or street lines. Remember that the entire public report process only applies to the first sale of each lot in a new subdivision. When a lot is resold, there is no need for the subsequent buyer(s) to receive a public report. In some cases, the Commissioner might issue apreliminary public report. A preliminary public reportgives the subdivider the opportunity to take reservations for a purchase, pending the approval and issuance of a public report. If the prospective buyer decides not to buy a property he's reserved, he is NOT committed simply because he made a reservation. The buyer can legally back out of the reservation and receive a FULL refund, up until the time that the final report is issued and a binding purchase agreement is signed.

Alexandra and Marita's company has qualified as a trust. It has distributed 96% of its income to its shareholders. Which earnings require the payment of federal taxes?

The company only pays federal taxes on the retained earnings, which are taxed at corporate rates.

Articles 5 and 6

Under Article 5, licensees are prohibited from pooling funds. This means that a broker must NOT accept funds UNLESS the funds are meant, and so noted, to be for a specific loan transaction. Before a broker can accept the lender's money, he must first OWN the loan OR have an unconditional written contract to buy a specific note; AND the broker must also have the authorization from the prospective borrower, giving him permission to negotiate a secured loan for the borrower. Under Article 6, regulations are set forth for a real property securities dealer. A DRE broker license and the following endorsement are required. In California, anyone who wishes to sell real estate investment type security must FIRST obtain a Commissioner's Permit. This permit is the approval of the proposed real property security and plan of distribution, and will be granted if the Commissioner finds that the security and plan of distribution are fair. The permit is not a recommendation, but merely the Commissioner's authorization of the sale. The Commissioner's Permit is valid for one year, and it may NOT be used in advertising unless the permit is shown in FULL. The cost of the permit is $100.00. Note that the Commissioner's Permit requires a $10,000.00 surety bond. A Real Property Securities Dealer is anyone acting as the principal or agent, who engages in the business of selling real property securities, including promissory notes or sales contracts, OR who accepts funds to be reinvested in real property securities or to be placed in an account. A California licensed broker is permitted to act in this capacity IF he first receives an RPSD endorsement on his broker license. This endorsement requires a broker to submit the endorsement fee of $100.00, along with the proof of a $10,000 surety bond.

California Homeowner's Exemption and Military Exemption

Under Section 218, an owner-occupied residential dwelling is entitled to a $7,000.00 DEDUCTION from the full appraisal value. (This also applies to an owner-occupied unit in a multiple unit residential structure, an owner-occupied condominium, cooperative apartment, or unit in a duplex). To claim this California Homeowner's Exemption, a person must have been the owner and lived in the home on or before January 1, and must file for the exemption with the assessor's office by February 15. Once claimed, the homeowner's exemption remains in effect until the title is transferred or the exemption is terminated by the owner. The bottom line savings from the Homeowner's Exemption is $70.00 (take the $7,000.00 x 1% tax = $70.00). Section 205 provides for a California resident who has served in the military during war time an exemption of up to $4,000.00 of full value of the property. This applies to property owned by qualifying veterans or the unmarried spouses of deceased veterans. This exemption results in a tax savings of up to $40.00. This exemption may NOT be applied to a property on which the homeowner's exemption has been successfully applied. Under Section 205.5, upon the death of an eligible veteran, the exemption rights are extended to EITHER the unmarried spouse OR the pensioned father or mother of the veteran. Note that there are also special rules for disabled veterans. In some cases, depending on a veteran's income and extent of disability that has resulted from injury or disease incurred during military service, a disabled veteran may receive an exemption of $40,000, $60,000, $100,000, or $150,000 of the full cash value of his/her residence. A veteran may contact either the California Department of Veterans Affairs or the county assessor for more information regarding the disabled veteran's exemption. In some cases, a disabled veteran may not be required to pay ANY property tax. In California, there are special laws that allow a partial OR FULL refund of property taxes for certain senior citizens. In addition to this, the California legislature has passed laws that allow certain senior citizens to defer the payment of property taxes due to the county and city. The regulations that concern senior citizens and property taxes change frequently; so always contact the local tax assessor for current information.