Principles of Real Estate Ch. 9

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  1. Fee Simple estate in land is just another fancy way of saying
    Ownership
  2. What are the three basic forms of ownership?
    • -severalty, title is held by one owner; 
    • -Co-ownership, title is held by two or more persons or two or more legal entities.;
    • -trust, title is held by a third person for the benefit of another, called the beneficiary.
  3. Why is the form of ownership important to a broker?
    -determines who must sign the various documents involved, and the purchaser must determine in what form he wishes to take title.
  4. Forms of ownership are controlled by the laws of the state in which the land is located.
    True
  5. Vested
    presently owned by
  6. Jointly and severally
    collectively and individually
  7. What are the forms of concurrent ownership?
    • -tenancy is common; 
    • -joint tenancy;
    • -community property
  8. Tenancy in common
    • -unity of possession, but separate titles
    • -a form of co-ownership by which each owner holds an undivided interest in real property as if the sole owner.
    • -ownership shares MUST be equal
    • -upon death of the owner, the interest passes to heirs.
    • -most common type of concurrent ownership
  9. Ownership in Severalty
    one owner or organization;  one name on deed
  10. Undivided interest
    unity of possession among the co-owners
  11. Joint Tenancy
    • -if one owner dies, the other joint tenancy owner inherents the entire property; right of surviorship.
    • -cannot will a joint tenancy
    • -cannot joint tenant with a corporation b/c a corporation cannot die
    • -if a joint tenant dies owing debt, the surviving joint tenant is free of unsercured debts
    • -joint tenants cannot be created by law, they must write out the agreement
    • -a joint tenant has the right to sell, mortgage, or transfer the interest without the consent of the other joint tenants.
    • -time, title, interest and possession-TTIP
  12. If someone buys a joint tenant, that person becomes what
    tenant in common
  13. Community property
    • property title with husband and wife; laws differ from state to state
    • -owned by both regardless of who's name is on the deed
  14. Common law dictates that four unities are required to create a joint tenancy which are...
    • -unity of time
    • -unity of title
    • -unity of interest
    • -unity of possession
    • -these four unities are present when title is acquired by one deed, executed and delivered at one time and conveying equal interests to all the grantees who hold undivided possession of the property as joint tenants
  15. Joint Tenancy can be terminated by...
    • -when any one of the four essential unities of joint tenancy is terminated; such as selling interest to another
    • -can also be terminated by operation of law; as in bankruptcy or foreclosure sale proceedings
  16. What is the right to partition?
    • When tenants of common or Joint tenants want to terminate the co-ownership of real estate, but the other parties do not.  A tenant can file a suit in court to partition the land.  
    • -If the court determines that the land cannot be divided into equal parts of value, it will order the real estate sold and divide the proceeds of the sale among the co-owners
  17. What is separate property under community property?
    • -sole ownership
    • -property acquired before marriage or property received as a gift or inheritance.
    • -can be transferred without non-owning spouses consent
  18. What is a trust?
    • -is an arrangement where legal title is transferred from a trustor to a trustee.
    • -The trustee will hold title and manage the property for a benefit of another party called the beneficiary.
    • -is very often used as an estate planning tool or to provide animinity to a true owner of the property.
  19. What is a testamentary trust?
    • -is created by a will, and becomes effective upon the death of the testator
    • -many times parents with minor children will set up a testamentary trust that will become effect should they both pass simultaneously.
  20. What is a living trust?
    aka inter vivos trust; a trust that is to become effective during the life of the trustor.
  21. What are the two types of living trusts?
    • -revocable living trust-can be changed or revoked at any time, outlines instructions for managing assets during and after the trustor's life, the trustor can act as the trustee, retaining the right to control adn use the assets for the rest of his life, the trustor can also be the beneficiary upon the trustor's death. 
    • -irrevocable living trust; cannot be amended or revoked once they are executed, the assets are permanently removed from the grantor's estate and transferred into the trust, higher tax rate.
  22. What is a living will?
    is a document that allows a person to refuse medical treatment
  23. What a land trust?
    • -only real estate can be transferred into the trust.
    • -the trustee holds legal and equitable title to real estate
    • -the beneficiary retains the power to direct the trustee, manage the property and draw income from the trust
    • -simple, living, revokable
    • -fake ownership, makes it hard to get a hold of the real owner
    • -no names, just po box
  24. trustor
    the person who creates the trust
  25. Beneficiary
    the person who benefits from the trust
  26. Trustee
    the party who holds legal title to the trust property interest and is entrusted with carrying out the trustor's instructions regarding the purpose of the trust.
  27. The trustee is a ________, who acts in confidence, trust, or responsibility in the management of property for the beneficiary.
    fiduciary
  28. An individual, corporation, or any other legal entity, such as a trust company, can be a trustee.
    true
  29. The trustee's power and authority is not limited by the terms of the trust agreement in the will or deed in trust.
    false, they have to follow exact directions of the trustor
  30. Real estate is the only asset in a ____ trust.
    land
  31. Generally the _____ is the beneficiary.
    owner/trustor
  32. Ownership of real estate business by sole proprietorship
    • -exists when a single individual operates a business, owns all the assets, and assumes personal liability for all debts.
    • -simplest form of business ownership
    • -the sole owner assumes the risks for all assets owned whether used in the business or personally owned, creditors can go after owners personal assets.
    • -all profits and losses are reported directly on the sole owner's personal income tax return.
    • -Ex: brokerage company, can use an "assumed name" such as Alicia Bennett, doing business as ABC Realty.
  33. DBS
    • doing business as
    • -also called assumed name
  34. What are the types of Business Organization Ownership?
    • -partnerships
    • -corporations
    • -limited liability companies
    • -real estate investment trusts (REITs)
  35. What is Ownership by Partnership? And what are the two types of this ownership?
    • -an association of two or more people who operate a business as co-owners and share in the business's profits and losses.
    • -General partnership; all partners are liable for all losses
    • -Limited; are obligated to the extent of their investment; includes general partners and limited partners (owners and lenders); can be continued after the death, withdrawal or bankruptcy of one of the partners.
  36. Limited Liability Partnership
    -is managed like a general partnership, but a partner is not personally liable to any person, including a partner, for any obligation of the partnership unless the obligation relates to an action or omission or arises under a contract or commitment entered into the while the partnership is an LLP.
  37. A general partnership is required to file an Assumed Name Certificate for each name that the business will use and must be filed with the county clerk in each county in which the business premises will be maintained, not required to register with the secretary of state.
    True
  38. What is a Corporation?
    • -is an artificial person, or legal entity, created under the authority of the laws of the state from which it receives its charter.
    • -Ownership of severalty
    • -Owned by stockholders
    • -Liability limited to the amount invested
    • -Double taxation
    • -managed and operated by a board of directors
    • -have a charter that holds the rules
  39. A licensee should ask for a copy of the corporate resolution authorizing a sale before listing a property.
    true; however a deed signed by an officer of the corporation is prima facie evidence that a resolution of the board of directors was adopted.
  40. What is a resolution in a corporation?
    -a statement from all board of directions on what purpose a property is being sold and purchased; has to benefit everyone in the corporation, not just for personal use.
  41. The death of one of the officers or directors does not affect title to property that is owned by the corporation.
    True; they hire more in if one dies or leaves
  42. What is the main disadvantage of corporation ownership on income property?
    • -Profits are subject to double taxation unless organized by an S corporation.
    • -a corporation must pay a franchise tax, file an income tax return and pay tax on profits.  The remaining profits distributed to stockholders as dividends are taxed again as part of the stockholders' individual incomes.
  43. S corporation
    • -a corporation that is more like a partnership regarding tax purposes, avoiding the double taxation feature of corporation.  
    • -Is limited to only 75 share holders, so a small corporation and brings in small amount of money.
  44. Limited Liability Company (LLC)
    • -owners (members) have a pass-through tax advantage of a partnership or maybe taxed like a corporation
    • -neither managers, nor members are liable for company debts or liabilities.
    • -no restriction on the number of shareholders.
  45. An LLC has a board of directors.
    -False, an LLC consists of owners and investors (shareholders).
  46. A membership interest an LLC is considered...
    personal property, but they do not own property or make decisions; the stock is considered personal property, but the shareholder cannot just walk on the property as if they own it.
  47. A corporation has owners.
    • false; shared by shareholders and board of directors.
    • -independent of owners.
  48. Advantages of Sole Proprietorship
    • -easy and inexpensive to form or dissolve
    • -profits go to owner
    • -direct control of business
    • -freedom from government regulations
    • -no special taxation
  49. Disadvantages of Sole Proprietorship
    • -hard to raise capital
    • -unlimited liability and potential loss
    • -limited expertise in all areas
    • -trouble finding employees
    • -large personal time commitment
    • -unstable business life
  50. Advantages of Parternships
    • -easy and inexpensive to form
    • -diverse skill and expertise
    • -flexibility
    • -relative freedom from government regulations
    • -no special taxation
  51. Disadvantages of Partnerships
    • -potential conflicts between partners
    • -unlimited liability and potential loss
    • -sharing profits
    • -hard to leave or end a partnerhship
  52. Advantages of a Corporation
    • -limited liability
    • -easy to get financing
    • -easy to transfer ownership
    • -unlimited life-span
    • -tax deductions
  53. Disadvantages of a Corporation
    • -double taxation of profits
    • -costly and complex to form
    • -government restrictions
  54. How does double taxation work on a corporation?
    -the companies profits get taxed and than the individual investors profits (dividends) are taxed.
  55. Dividends and capital gain are what
    profits made by the shareholders that they receive from the company when the company has done good or profits from selling the stock.
  56. What is the organizational structure of corporations?
    • -Shockholders elect board of directors
    • -board of directors elect officers (top management); President, Vice President, Treasurer, Secretary
  57. Series LLC
    • permitting one or more series (units) to be established within a master LLC. 
    • -each unit has it's own members and may be managed separately from the master LLC.
    • -Members of one series have no rights to the assets or income of any other series.
    • -Series are protected from debts and liabilities of the master LLC.
  58. What are the three key features of a Series LLC?
    • -having its own assets and liabilities
    • -being responsible for it own debts and obligations
    • -conducting part of the business of the master LLC or conducting wholly different businesses.
  59. All corporations and limited liability companies doing business  in Texas must be registered with the secretary of state.
    True
  60. Business Franchise Taxes
    taxes on corporate or LLC businesses that make over a $1 million a year.
  61. Syndicate
    • -joining together of two or more people or firms to make and operate a real estate investment.
    • -not a legal entity, but may be organized into a number of different ownership forms
  62. Cooperative
    • -purchaser has stock ownership (personal property) and a proprietary lease.
    • -title to land and building is held by the cooperative
    • -type of corporation
    • -fees and taxes are shared
    • -disadvantage; if some shareholders don't pay their monthly bills, it falls on the rest of the shareholders and can be foreclosed under them for lack of payment.
  63. A cooperative building has one lien on it.
    True; the mortgage is signed by the cooperative.
  64. A cooperative stock consist of...
    • -control property through their stock ownership and their voice in the management of the cooperative.
    • -can block prospective purchasers
  65. Condominium
    • -ownership of apartment buildings
    • -can also be ownership in the form of commerical property, office buildings, or multiuse buildings.
    • -fee simple title to a unit (owning from carpet to ceiling nad paint to paint)
    • -pro rate ownership of limited and general common elements (indivisible parts of the building and land)(tenants in common)
    • -pro rata ownership of the homeowners' association
  66. What is the minimum number of units in a condo?
    4
  67. A prospective buyer must receive several documents from the seller for a condo.  If the buyer does not receive the required disclosures prior to signing a purchased contract, the buyer may cancel the contract before the ___ day after the date the buyer receives the required disclosures, and all payments __________________.
    • -6ht
    • -made before the cancellation must be refunded to the buyer.
  68. A condominium property generally is administered by _______________ and is governed by____________________.
    • -an association of unit owners according to the bylaws set forth in the declaration.
    • -a board of directors or office entity.
  69. Assessments
    -the fees that the association gives to the condo owners for maintenance, repair, fire and extended-coverage insurance.
  70. What is the difference between condo and townhome ownership?
    • -townhome is fee simple ownership (owns the ground underneath)
    • -condo, the land is held as part of the general common elements.
  71. Time-share
    • -ownership that permits multiple purchasers to buy undivided interests in the same piece of property; can use the facility for a fixed time period; the rights terminate after a specified time; fraction of the cost of ownership.
    • -Vacation club; type of time-share
    • -time-share disclosure statement must be given prior to the purchaser's signing a contract.
  72. What must a developer and a salesperson be apart of to sell a time-share?
    • -a developer must register the time-share plan with the Texas Real Estate Commission.
    • -salesperson must be an employee of the builder project, owner of the time-share interest, or be licensed with TREC as a broker and salesperson.
  73. Purchaser's Right to Cancel of a time-share
    contract may be canceled by the purchaser before the 6th day (or other time period stated) after the date the purchaser signs the contract.  Cancellation is without penalty and all payments made by the purchaser must be refunded.
  74. The two most common forms of co-ownership in Texas is..
    -tenancy in common and community property
  75. Howard and Tinker purchased a parcel of real estate.  The seller's deed received at the closing conveyed the property "to Howard Evers and Tinker Chance" without further explanation.  Thus Howard and Tinker...
    are tenants in common
  76. Ownership of real property by one person without the ownership participation of others is called
    severalty
  77. The term right of survivorship is closely associated with a
    joint tenancy
  78. Because a corporation is a legal entity (an artificial person), real estate owned by it is owned in
    severalty
  79. In a trust, title is vested in the
    trustee
  80. Harold owns a fee simple title to unit 12 and 5% of the common elements.  What does Harold own?

    A. a condominium
    B. a townhouse
    C. a cooperative
    D. a land trust
    A.
    (this multiple choice question has been scrambled)
  81. A condominium is created when
    the owner or developer files a declaration of condominium and a condominium regime plat in the public record
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Principles of Real Estate Ch. 9
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Principles of Real Estate Ch. 9
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