Real Estate Exam II.txt

  1. 1 Yd^2
    9 ft^2
  2. 1 yd^3
    27 ft^3
  3. Board Foot
    Cubic measure = 144 in^3 or 12" x 12" x 1"
  4. Time of Interest Earned Formla
    Time = Interest Earned / (Principal x Rate)
  5. Percentage of Return Formula
    Net / Down Paymnt = Percentage of Return
  6. One Mill
    1/10 cent
  7. Return on Investment Formula
    Investment x Rate = Return
  8. Negotiable Instrument Requirements:
    • 1) Unconditional promise to pay
    • 2) Written
    • 3) Signed by maker
    • 4) Payable at a time
    • 5) Payable in money
  9. Note:
    • 1) Primary evidence of debt
    • 2) Promise to pay
    • 3) Security is trust deed or mortgage
  10. Bearer Paper
    Payable to cash and noone need sign
  11. Order Paper
    Payable to particular person who must sign for money
  12. Holder in Due Course
    Person who received a negotiable instrument not knowing the defenses of the maker
  13. Defenses:
    • 1) Forgery
    • 2) Raised Note
    • 3) Incapacity
    • 4) Fraud as to nature
    • 5) Discharge in bankrupsy
    • 6) Illegality
  14. Forgery
    Signature was not the makers
  15. Raised Note
    Amount due was altered
  16. Incapacity
    No legal or mental ability
  17. Fraud Due to Nature
    Person signing didn't know it was a negotiable instrument
  18. Illegality
    Instrument wa given for an illegal purpose
  19. Ways to Endorse:
    • 1) Blank endorsement
    • 2) Special endorsement
    • 3) Qualified endorsement
    • 4) Restictive endorsement
  20. Blank Endorsement
    Holder signs their name and it becomes cash
  21. Special Endorsement
    Named party must endorse
  22. Qualified Endorsement
    "without recourse" precludes the holder from any personal liability
  23. Restrictive Endorsement
    Limits any additional transfer of endorsement
  24. Hypothecate
    To give somethign as a security without giving up possession
  25. Valid Mortgage:
    • 1) Must be recorded to effect 3rd parties
    • 2) Need not be recorded to be valid
  26. Satisfaction of Mortgage
    notice of removal of lien when Mortgage is paid off
  27. Mortgage Foreclosure Process:
    • 1) Post 20 day auction
    • 2) All bidders bid cash except mortgagee
    • 3) Mortgagee can bid up to lien
    • 4) 3 months to redeem if cover debt
    • 5) 1 yr if not cover debt - sheriff's deed
  28. Mortgagor in Possession
    Mortgagor who keeps possession, but is obligated to pay rent; not favored in CA
  29. Deficiency Judgement
    Judgment against debtor if the foreclosure isn't enough
  30. No Deficiency Judegement:
    • 1) Sale provision
    • 2) Property worth more than debt
    • 3) Mortgage is purchas-money loan
  31. Purchase-Money Loan:
    • 1) Seller carry-back
    • 2) Cash loan to purchase 1-4 units
  32. Ficticious Mortgage
    Mortgage used for terms to simplify furture mortgages via reference
  33. Trust Deeds
    3-party instruments with trustor, trustee, and beneficiary
  34. Trustor
  35. Trustee
    Holds naked legal tital as security
  36. Beneficiary
    Lender or seller
  37. Deed of Recnveyance
    Lender trustee returns title after payment in full
  38. Trustee vs Mortgage
    • 1) Trustee moves title
    • 2) Deficiency judgement possible as a mortgage
  39. Steps to Foreclose
    • 1) 3 mo - Notice of default
    • 2) 20 before sale - Notice of sale
    • 3) Trustee's Sale
    • 4) Reinstatement
  40. Norice of Default
    Borrower is notified via mail within 10 days that notice was recorded
  41. Notice of Sale
    • 1) Notice published in newspaper after 3 mo period and at least 20 days prior to sale
    • 2) Potponements until 365 days from original sale date
    • 3) After 3 postponements must readvertise, unless delay was mutually agreed upon
  42. Reinstatement
    Trustors payment of debts plus forclosing costs 5 days prior to sale to redeem house
  43. Statute of Limitations and Mortgage
    4years of no payment
  44. Statute of Limitations and Trust Deed
    10 yrs from last payment or 60 years from inception
  45. Beneficiary Statement
    Borrower's request for current status must be furnished within 21 days
  46. Junior Encumbrances
    • 1) Can file a request for notice of default to be notified when one is recorded
    • 2) Can request a notice of delinquency from the senior lienholder
  47. Rent Skimming
    Felony not to apply rents to mortgage (applies to 5+ properties purchased within 2 yrs)
  48. Land Contract
    Seller retains title as security
  49. Land Contract Default
    • 1) Quiet Title action
    • 2) Action for ejectment
    • 3) No deficiency judgements allowed
  50. Equitable Title
    Legal title acquired upon payment
  51. RE Broker and Assigned Contract
    Must be recorded in 10 days
  52. Land Contract Requirements:
    • 1) Legal description
    • 2) Statement of yrs to payoff
    • 3) Existing Encumbrances
    • 4) Basis for tax estimation
    • 5) Satisfy Map Act requirements
    • 6) $ of the contract
  53. Land Contract Seller Responsibilities:
    • 1) Cannot encumber over buyer's obligation
    • 2) Buyers payments first applied to encumbrances
    • 3) Taxes and ins in a trust for purpose
  54. Acceleration Clause
    Entire loan is due upon some happening of an event
  55. Alienation or Due on Sale Clause
    Most popular acceleration clause where the note is due upon sale to another
  56. "Or More" Clause
    Allows prepayment of the loan without penalty
  57. Assignment of Rents
    Mortgage lender has a right to collect the rents on a property in foreclosure
  58. Defeasance Clause
    Cancelation of the lien upon payment
  59. Clause Against Recording
    Mortgages can't be recorded
  60. Subordination Clause
    Agreement that the mortgage will be secondary (typically when primary is a construction loan)
  61. Subrogation Clause
    Release of trustor by replacement with another
  62. Lock-in Clause
    Pre-payment possible but must pay all of the interest (not allowed for 1-4 units)
  63. Blanket Encumbrance
    Mortgage or Trust deed covering multiple properties
  64. Pledge
    Giving personal property as a security for a loan
  65. Taking Subject to a Loan
    Buyer recognizes seller's unpaid encumbrance
  66. Security Agreement
    Used for financing personal property
  67. Financing Statement
    Constructive notice of interest in a security agreement
  68. Soft-Money Loan
    Seller carry back
  69. Purchase-Money Loan
    Cash money loan for the purpose of buying RE (Also includes Seller carry back)
  70. Partially Amoritized loan
    Amoritized loan with a larger payment at the end
  71. Ballon Payment
    Payment more than twice the smallest regular payment
  72. Straight loan
    Unamoritized interest-only loan
  73. Piggyback loan
    Loan shared by 2 lenders
  74. Rollover or Renegotiable Mortgage
    Short-term loan amoritized over long term which is rewritten at the current interest rate when the short term is up
  75. Wraparound or All-Inclusive Trust Deed
    Second trust deed finances seller and pays 1st mortgage
  76. Growing-Equity Mortgage
    Payments increase annually to reduce period of loan
  77. Bi-weekly Mortgage
    Mortgage is paid every two weeks
  78. Option ARM
    Owner has option to make lesser payments
  79. Sharing-Appreciation Mortgage
    AKA SAM; Lender agrees to low interest rate for a share in the appreciated value upon sale
  80. Open Mortgage
    Can be prepaid without penalty
  81. Mortgage Warehousing
    Interum financing by a mortage broker
  82. Collaterally Secured
    Loan secured by other loans
  83. Participation Loans
    Loans where lender gets in on share of profits
  84. Packaged Loan
    Loan covering both real and personal property
  85. Seasoned Loan
    Loan with a min 3 yr payment history
  86. Legal Rate of Interest
    Rate carged when contract states should charge interest, but non is listed (10% for judgements)
  87. Maximum Rate of Interest
    10% or 5% above Federal Reserve charges
  88. Usury
    Loan sharking
  89. Open-Ended Mortgage
    Mortgage that can increase up to an agreed upon amount
  90. Discounting a Loan
    Selling a loan for less that its face value
  91. Discount Loan
    Loan with which interest is taken out in advance
  92. Obligatory Advance
    Advance that a lender must make (ie construction loans)
  93. Take-Out Loan
    Permanent loan on a property done with construction
  94. Standby Loan Commitment
    Promise for permanent financing
  95. Origination Fee
    AKA points on a loan
  96. Expansionary Policy
    Plenty of $ and a low cost
  97. Contraction policy
    To fight inflation less money at a high cost
  98. Federal Reserve Functions:
    • 1) Buy and sell Govt securites
    • 2) Raise and lower discount rate to member banks
    • 3) Raise and lower reserve requirements for banks
    • 4) Amount of currency in circulation
  99. Holden Act
    CA Housing Financial Discrimination Act of 1977 which prohibits redlining
  100. Redlining
    Lenders who refuse to lend in a specific area
  101. Fair Credit Reporting Act:
    • 1) Notification of negitive action because of a credit report
    • 2) Told source of credit report
    • 3) Information contained in the report
    • 4) Confidentiality
    • 5) Disputed entries investigated
    • 6) Obsolete data removed
    • 7) Advance notice if invetigative report is to be made
  102. Real Estate Settlement Procedures Act
    Disclosure of RE loan costs
  103. FNMA
    Federal National Mortgage Association
  104. Escrow Max
    Prorated taxes and ins plus 2 mo payment
  105. RESPA
    RE Settlement Procedures Act
  106. Regulation Z
    Truth in Lending Law stating how much borrower pays in credit %ly
  107. Trigger Term
    If one term is used in advertising then all terms must be included
  108. Seller Financing Disclosure Law:
    • 1) Status of loan and terms
    • 2) Warning of possible negitive amoritization
    • 3) Warning of balloon payment
    • 4) Credit report info
    • 5) Advice on requesting notice of default
  109. Article 5
    • 1) Money recieved must be for specific loans
    • 2) Can't keep funds for 25 days w/o written authorization
    • 3) To service loan must have written authorization
    • 4) Record 10 days after close of escrow
    • 5) No misleading ads
    • 6) No gift offer to intice loan
  110. Article 7
    Loan fees (1sts = $30,000 and 2nds = $20,000)= 5% of the loan or $390, but not to exceed $700 (inc title charges and recording fees)
  111. Chapter 8
    Chapter 8
  112. Lending Factors
    • 1) Collateral
    • 2) Capacity
    • 3) character
  113. Collateral
    Security for a loan
  114. Capacity
    Ability to pay for a loan
  115. Character
    A person's credit history
  116. Front-End Ratio
    Ratio of PITI / Gross Income
  117. PITI
    Principal, Interest, Tax, and Ins
  118. Back-End Ratio
    (PITI + debts) / Gross Income
  119. Lender Ratio Preference
    • 1) Front-end < 28%
    • 2) Back-end < 36%
  120. Not Included as Income
    • 1) OT
    • 2) 50% of rental income
  121. Old Rule of Thumb for Housing Costs
    < 2 1/2 Gross income
  122. Primary Financing
    1st loan on a property
  123. Secondary Financing
    Junior liens
  124. Characteristics of Secondary Financing:
    • 1) Short period (<7yrs)
    • 2) Higher interest rate
    • 3) Noninstitutional lenders
    • 4) Balloon payment
  125. Mutual Savings Banks
    NE states make govt-ins or govt-garanteed loans anywhere in US
  126. CALHFA
    CA Housing finance Agency who does conventional lending for low and and moderate income families
  127. Subprime lenders
    Lenders who make loans conventional lenders turn down
  128. Noninstitutional Lenders
    Do not take deposits
  129. Loan Servicing Companies
    do not make loans
  130. Mortgage Bankers (Mortgage Companies)
    Largest source of purchase-money loans who use their own funds to originate loans that are then sold on the secondary mortgage market
  131. Mortgage Broker
    RE licensees who arange loans that tend to be higher and for less qualifiable individuals
  132. FHA
    Federal Housing Administration
  133. Mortgage Insurance Premium
    Government insured protection for borrowers who default
  134. Substitution of Liability
    Release of liability
  135. Direct Endorsement
    Lenders can fund without direct FHA approval
  136. Conditional Committment
    Blanket approval by FHA for anyone satisfying criteria
  137. Firm Committment
    Direct approval by FHA of a particular applicant
  138. FNMA
    Fannie Mae or the Federal national Mortgage Association deals in secondary mortgage market
  139. Freddie Mac
    Federal Home Loan Mortgage Corporation dealing in secondary mortgage market
  140. Conforming Loans
    Satisfy Freddie Mac and Fannie Mae purchase requirements
  141. Jumbo Loans
    Loans more than the Freddie Mac and Fannie Mae alottment
  142. Ginnie Mae
    Government National Mortgage Association that garantees securities when noone else will
  143. Ginnie Mae Programs
    • 1) Mortgage-backed Securities
    • 2) Special Assistance Functions
    • 3) Management and Liquidation Functions
  144. Mortgage-Backed Securities
    Garantee of securities backed by pools of mortgages where investors get shares of interest and principal
  145. Special Assistance Functions
    For low income, moneies are reimbursed for the difference from the sale on the secondary mortgage market
  146. Management and Liquidation Functions
    Manages the stock of government owned mortgages
  147. Farmer Mac
    Federal Agricultural Mortgage Corporation in secondary mortgage market for farms and rural lands
  148. CRV
    Certificate of reasonable value
  149. CALVET
    CA Vet Farm and Home Purchase Program where the state takes the loan and then sells it under a land contract
  150. Sydicate
    Group of people operating an investment where some are active and others are not
  151. Blind Pool
    Monies raised for an unspecified property
  152. REIT
    RE Investment Trust
  153. Securites
    Investors are hands-off in management
  154. Market Value
    Cash price a willing informed buyer will pay
  155. Loan Value
    Figure lender will give with property as security
  156. Insurance Value
    Replacement value
  157. Book Value
    Original Cost + Improvements - Depreciation
  158. Exchange Value
    Value worth as an exchange
  159. CA Assessed Value
    100% of market value at time of sale
  160. Subjective Value
    Value of use by owner
  161. Nondirect Value
    Value not related to property (ie below-market financing, special sale terms)
  162. Objective Value
    Market value
  163. Elements of Value:
    • 1) Utility
    • 2) Scarcity
    • 3) Demand
    • 4) Transferability
  164. Most Important Elements of Value:
    • 1) Utility
    • 2) Demand
  165. Least Important Elements of Value
  166. Influences on RE Value:
    • 1) Physical
    • 2) Economic
    • 3) Social
    • 4) Political
  167. Physical Influences on RE Value:
    • 1) Topography
    • 2) Size
    • 3) Shape
    • 4) Soil
    • 5) Location
    • 6) Acessibility
  168. Development Method
    Appraiser's valuation based on highest and best use of land
  169. Assembleage
    Several small parcels come together to creae one large parcel that has greater value than the sum of all of the individual parcels
  170. Plottage
    Extent to which value is increased by assembleage
  171. Methods of Appraisal:
    • 1) Market-Comparison
    • 2) Cost Approach
    • 3) Income-Capitalization
  172. Market-Comparison AKA:
    • 1) Market Data
    • 2) Sales Comparison
  173. Cost Approach AKA
    Replacement Method
  174. Market-Comparison
    Primarily for single family homes
  175. Comparative Market Analysis AKA
    Competitive Market Analysis
  176. Comparative Market Anaylsis
    Preped by a RE agent to estimate likely sales price
  177. Comparables
    Adjustments are made + and - to subject property
  178. Principle of Progression
    Higher value because of more expensive homes in the area
  179. Principle of Regression
    Lesser value because of cheaper homes in the area
  180. Cost Approach Process:
    • 1) Find replaement building cost
    • 2) Deduct accrued depreciation
    • 3) Add value of land
  181. Replacement Cost
    New building with same utility value
  182. Reproductin Cost
    Exact duplication of building
  183. Means of Estimating Repacement Cost:
    • 1) Square-foot Method
    • 2) Cubic-foot Method
    • 3) Quantity-Survey method
    • 4) Unit-in-Place Method
    • 5) Index Method
  184. Square-Foot Method
    Square-foot X average construction cost
  185. Cubic-Foot Method
    More acurate as it includes height
  186. Quantity-Survey Method
    Materials and labor cost out (used primarily by contractors)
  187. Unit-in-Place Method
    Cost per unit (room, outlet, parking space, etc)
  188. Index method
    Original cost inc or dec based on construction cost index since building
  189. Effective Age
    Age appraise uses that can be different than actual age due to use
  190. Observed-Condition Method
    Estimating depreciation based on condition, not age
  191. Building Life
    40-50 years
  192. Cieling on Value
    Cost approach gives
  193. Cost Approach Good use:
    • 1) Newer buildings
    • 2) Land with highest and best use
    • 3) Service buildings (schools, libraries)
  194. Economic Rent
    Rent a property can demand
  195. Contract Rent
    Stated rent in leasing agreements
  196. Capitalizaton Rate
    Higher the risk; the higher the capitalization rate
  197. Split Rate
    Seperate capitalization rates for land and building
  198. Band of Investment Method
    (% value of trust deed X Rate) + (% Equity X Desired return) = Cap Rate
  199. Gross Multiplier
    Number multiplied by income to get a rough estimation of value
  200. Economic Life
    Period of time a building contributes to the net income of the property
  201. Net Spend
    Cash flow
  202. Types of Depreciation:
    • 1) Physical Depreciation
    • 2) Functional or Built-in Obsolecence
    • 3) Economic and Social Obsolecence
  203. Physical Deterioration
    Wear and tear
  204. Functional or Built-in Obsolescence
    Poorly designed, outdated
  205. Economic and Social Obsolecence
    Loss in value due to forces outside the property
  206. Remainder Depreciation
    Depreciation that is left to be acrued
  207. Curable Depreciation
    Depreciation where it is economically feasible to correct defects
  208. Incruable Depreciation
    Depreciation where it is not economically feasible to cure the defects
  209. Straight-Line Method of Calculating Depreciation
    Equal sum eah year is deducted (27 1/2 for residential and 39 for investment)
  210. Accelerated Depreciation
    Increased depreciation that is no longer permissible
  211. Sinking Fund
    Setting aside and investing amount of money so that when depreciation is done there are funds to replace the building
  212. Reserve For Replacement
    Accounting reserve to replace chattle
  213. Agricultural Land
    Price per acre
  214. Commercial Lots
    Price per front foot or square foot
  215. Industrial Lots
    Price per square foot or acre
  216. Residential Lots
    Price per lot
  217. Neighborhood
    Homogeneous area
  218. 100% Location
    Best commerial area in a community
  219. Depth Table
    4-3-2-1 rule where 40% of value is on 1st 25% of lot, 30% on the next 25% and so on
  220. Excess Land
    Land that does not contribute to the value
  221. Abstractive Method
    AKA Allocation method where site value can be found by subtracting improvements from market value of property
  222. Land Residual Method
    (Property + Improvements) - (Cap Rate X Improvement Value) / Value of Property = Residual Land Value
  223. Developnent Method
    When determining highest and best use; Expected Improved Property - Improvement =
  224. MAI
    Member of Appraisal Institute
  225. SRA
    Senior Residential Appraiser (Appraisal Institute)
  226. Restrictive Use Appraisal
    Letter report that is the least informative and the least expensive
  227. Summary Apprasial Report
    Short form report where boxes are checked (typically for lender appraisals)
  228. Self-Contained Report
    AKA narative report which is the most comprehensive and expensive; rarely used for single family homes
  229. Certified Appraisal
    Appraisal must meet statutory guidelines
  230. Uniform Residential Appriasal Report
    Report required by FHA, VA, HUD, Freddie Mac, and FNMA
  231. Reconciliation (Correlation or Bracketing)
    Appraisers attempt to look at all methods to determine best value
  232. Economies of Scale
    Larger development can be built a a smaller per unit rate (Costco style)
  233. Pricipal of Contribution
    Max values are achieved when improvements return highest net relationship to investment
  234. Principle of Balance
    Value is created at equilibrium of land use to maintain highest and best use
  235. Principle of Integration and Disintegration
    Development (integration or grownth) to equilibrium (stable use or maturity) to disintegration (decline or old age)
  236. Legal Requirements of Escrow:
    • 1) Binding contract
    • 2) Conditional delivery
  237. Escrow Conflict Purchase Agreement
    Most recent prevails
  238. No Escrow License:
    • 1) Title ins co
    • 2) Banks
    • 3) Trust co
    • 4) Atorneys
  239. Escrow Co
    • 1) Inc
    • 2) DOC license
    • 3) Common in So cal
  240. DOC
    Department of Corporations
  241. Escrow Services:
    • 1) Preps escrow instructions
    • 2) Requests payoff
    • 3) Collects pest control
    • 4) Collects fire ins
    • 5) Balances prorations
    • 6) Collects ending balances
    • 7) verifys recording
  242. Escrow Cancellation
    Escrow can keep partial payment
  243. HUD-1
    Uniform Settlement Statement give 1 day before close of escrow
  244. Termination of Escrow:
    • 1) Full performance
    • 2) Multual cancellation
    • 3) Revocation
  245. Title Ins Co Services:
    • 1) Search for legal title
    • 2) Investigate title records
    • 3) Ins against financial loss from title defects
  246. Title Searches:
    • 1) Courthouse search
    • 2) Title plant
  247. Preliminary Title Report:
    • 1) Owners
    • 2) Legal description
    • 3) Encumbrances
    • 4) Tax status
  248. Abstractor
    Specialist in county court recording docs
  249. Title Ins Policies:
    • 1) Standard policy
    • 2) Extended coverage policy
  250. Standard Title Ins Policy Types:
    • 1) Standard owners
    • 2) Standard lenders
    • 3) Standard joint protection
  251. Standard Owner's Policy
    Ins owner for purchase price
  252. Standard Lender's Policy
    Ins lender for loan amt
  253. Standard Joint Protection Policy
    Co-ins for owner and lender
  254. CLTA
    California Land & Title Assoc
  255. Standard Policy AKA
  256. ALTA
    American Land & Title Assoc
  257. Extended Policy AKA
  258. Abstract of Title
    Summary of Title
  259. Certificate of Title
    Certificate stating owner and encumberances
  260. Garantee of Title
    Garantee accuracy of search
  261. Closing Cost Rule of Thumb
    3% purchase price
  262. Buyer's Non-Recurring Closing Costs:
    • 1) Loan origination fee
    • 2) Appraisal
    • 3) Credit report
    • 4) Structural pest contraol inspection
    • 5) Tax service
    • 6) Recording fees
    • 7) Notary fees
    • 8) Assumption fee]
    • 9) Title & escrow fees
  263. Tax Service
    Review of yearly tax records to ensure lender taxes are paid
  264. Assumption Fee
    Fee to assume seller's loan
  265. Buyer's Recording Closing Costs:
    • 1) JHazard ins
    • 2) Tax proration
    • 3) tax & ins reserves
    • 4) Interest due before 1st loan payment
  266. Tax Year
    July 1st-June 30th
  267. Transfer Tax
    • $1.10 per $1,000
    • $0.55 per 4500/fraction
  268. Seller Closing Costs:
    • 1) Transfer tax
    • 2) Prepayment penalty
    • 3) Structural pest control work
    • 4) RE commission
    • 5) Discount points
    • 6) Recording & notary fees
    • 7) Title & escrow fees
    • 8) Nat. Haz disclosure fees
Card Set
Real Estate Exam II.txt