Real Estate Exam II

9 ft^2

27 ft^3

Cubic measure = 144 in^3 or 12" x 12" x 1"

Time = Interest Earned / (Principal x Rate)

Net / Down Paymnt = Percentage of Return

1/10 cent

Investment x Rate = Return

• 1) Unconditional promise to pay
• 2) Written
• 3) Signed by maker
• 4) Payable at a time
• 5) Payable in money

• 1) Primary evidence of debt
• 2) Promise to pay
• 3) Security is trust deed or mortgage

Payable to cash and noone need sign

Payable to particular person who must sign for money

Person who received a negotiable instrument not knowing the defenses of the maker

• 1) Forgery
• 2) Raised Note
• 3) Incapacity
• 4) Fraud as to nature
• 5) Discharge in bankrupsy
• 6) Illegality

Signature was not the makers

Amount due was altered

No legal or mental ability

Person signing didn't know it was a negotiable instrument

Instrument wa given for an illegal purpose

• 1) Blank endorsement
• 2) Special endorsement
• 3) Qualified endorsement
• 4) Restictive endorsement

Holder signs their name and it becomes cash

Named party must endorse

"without recourse" precludes the holder from any personal liability

Limits any additional transfer of endorsement

To give somethign as a security without giving up possession

• 1) Must be recorded to effect 3rd parties
• 2) Need not be recorded to be valid

notice of removal of lien when Mortgage is paid off

• 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

Mortgagor who keeps possession, but is obligated to pay rent; not favored in CA

Judgment against debtor if the foreclosure isn't enough

• 1) Sale provision
• 2) Property worth more than debt
• 3) Mortgage is purchas-money loan

• 1) Seller carry-back
• 2) Cash loan to purchase 1-4 units

Mortgage used for terms to simplify furture mortgages via reference

3-party instruments with trustor, trustee, and beneficiary

Borrower

Holds naked legal tital as security

Lender or seller

Lender trustee returns title after payment in full

• 1) Trustee moves title
• 2) Deficiency judgement possible as a mortgage

• 1) 3 mo - Notice of default
• 2) 20 before sale - Notice of sale
• 3) Trustee's Sale
• 4) Reinstatement

Borrower is notified via mail within 10 days that notice was recorded

• 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

Trustors payment of debts plus forclosing costs 5 days prior to sale to redeem house

4years of no payment

10 yrs from last payment or 60 years from inception

Borrower's request for current status must be furnished within 21 days

• 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

Felony not to apply rents to mortgage (applies to 5+ properties purchased within 2 yrs)

Seller retains title as security

• 1) Quiet Title action
• 2) Action for ejectment
• 3) No deficiency judgements allowed

Legal title acquired upon payment

Must be recorded in 10 days

• 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

• 1) Cannot encumber over buyer's obligation
• 2) Buyers payments first applied to encumbrances
• 3) Taxes and ins in a trust for purpose

Entire loan is due upon some happening of an event

Most popular acceleration clause where the note is due upon sale to another

Allows prepayment of the loan without penalty

Mortgage lender has a right to collect the rents on a property in foreclosure

Cancelation of the lien upon payment

Mortgages can't be recorded

Agreement that the mortgage will be secondary (typically when primary is a construction loan)

Release of trustor by replacement with another

Pre-payment possible but must pay all of the interest (not allowed for 1-4 units)

Mortgage or Trust deed covering multiple properties

Giving personal property as a security for a loan

Buyer recognizes seller's unpaid encumbrance

Used for financing personal property

Constructive notice of interest in a security agreement

Seller carry back

Cash money loan for the purpose of buying RE (Also includes Seller carry back)

Amoritized loan with a larger payment at the end

Payment more than twice the smallest regular payment

Unamoritized interest-only loan

Loan shared by 2 lenders

Short-term loan amoritized over long term which is rewritten at the current interest rate when the short term is up

Second trust deed finances seller and pays 1st mortgage

Payments increase annually to reduce period of loan

Mortgage is paid every two weeks

Owner has option to make lesser payments

AKA SAM; Lender agrees to low interest rate for a share in the appreciated value upon sale

Can be prepaid without penalty

Interum financing by a mortage broker

Loan secured by other loans

Loans where lender gets in on share of profits

Loan covering both real and personal property

Loan with a min 3 yr payment history

Rate carged when contract states should charge interest, but non is listed (10% for judgements)

10% or 5% above Federal Reserve charges

Loan sharking

Mortgage that can increase up to an agreed upon amount

Selling a loan for less that its face value

Loan with which interest is taken out in advance

Advance that a lender must make (ie construction loans)

Permanent loan on a property done with construction

Promise for permanent financing

AKA points on a loan

Plenty of $ and a low cost

To fight inflation less money at a high cost

• 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

CA Housing Financial Discrimination Act of 1977 which prohibits redlining

Lenders who refuse to lend in a specific area

• 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

Disclosure of RE loan costs

Federal National Mortgage Association

Prorated taxes and ins plus 2 mo payment

RE Settlement Procedures Act

Truth in Lending Law stating how much borrower pays in credit %ly

If one term is used in advertising then all terms must be included

• 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

• 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

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)

Chapter 8

• 1) Collateral
• 2) Capacity
• 3) character

Security for a loan

Ability to pay for a loan

A person's credit history

Ratio of PITI / Gross Income

Principal, Interest, Tax, and Ins

(PITI + debts) / Gross Income

• 1) Front-end < 28%
• 2) Back-end < 36%

• 1) OT
• 2) 50% of rental income

< 2 1/2 Gross income

1st loan on a property

Junior liens

• 1) Short period (<7yrs)
• 2) Higher interest rate
• 3) Noninstitutional lenders
• 4) Balloon payment

NE states make govt-ins or govt-garanteed loans anywhere in US

CA Housing finance Agency who does conventional lending for low and and moderate income families

Lenders who make loans conventional lenders turn down

Do not take deposits

do not make loans

Largest source of purchase-money loans who use their own funds to originate loans that are then sold on the secondary mortgage market

RE licensees who arange loans that tend to be higher and for less qualifiable individuals

Federal Housing Administration

Government insured protection for borrowers who default

Release of liability

Lenders can fund without direct FHA approval

Blanket approval by FHA for anyone satisfying criteria

Direct approval by FHA of a particular applicant

Fannie Mae or the Federal national Mortgage Association deals in secondary mortgage market

Federal Home Loan Mortgage Corporation dealing in secondary mortgage market

Satisfy Freddie Mac and Fannie Mae purchase requirements

Loans more than the Freddie Mac and Fannie Mae alottment

Government National Mortgage Association that garantees securities when noone else will

• 1) Mortgage-backed Securities
• 2) Special Assistance Functions
• 3) Management and Liquidation Functions

Garantee of securities backed by pools of mortgages where investors get shares of interest and principal

For low income, moneies are reimbursed for the difference from the sale on the secondary mortgage market

Manages the stock of government owned mortgages

Federal Agricultural Mortgage Corporation in secondary mortgage market for farms and rural lands

Certificate of reasonable value

CA Vet Farm and Home Purchase Program where the state takes the loan and then sells it under a land contract

Group of people operating an investment where some are active and others are not

Monies raised for an unspecified property

RE Investment Trust

Investors are hands-off in management

Cash price a willing informed buyer will pay

Figure lender will give with property as security

Replacement value

Original Cost + Improvements - Depreciation

Value worth as an exchange

100% of market value at time of sale

Value of use by owner

Value not related to property (ie below-market financing, special sale terms)

Market value

• 1) Utility
• 2) Scarcity
• 3) Demand
• 4) Transferability

• 1) Utility
• 2) Demand

Price

• 1) Physical
• 2) Economic
• 3) Social
• 4) Political

• 1) Topography
• 2) Size
• 3) Shape
• 4) Soil
• 5) Location
• 6) Acessibility

Appraiser's valuation based on highest and best use of land

Several small parcels come together to creae one large parcel that has greater value than the sum of all of the individual parcels

Extent to which value is increased by assembleage

• 1) Market-Comparison
• 2) Cost Approach
• 3) Income-Capitalization

• 1) Market Data
• 2) Sales Comparison

Replacement Method

Primarily for single family homes

Competitive Market Analysis

Preped by a RE agent to estimate likely sales price

Adjustments are made + and - to subject property

Higher value because of more expensive homes in the area

Lesser value because of cheaper homes in the area

• 1) Find replaement building cost
• 2) Deduct accrued depreciation
• 3) Add value of land

New building with same utility value

Exact duplication of building

• 1) Square-foot Method
• 2) Cubic-foot Method
• 3) Quantity-Survey method
• 4) Unit-in-Place Method
• 5) Index Method

Square-foot X average construction cost

More acurate as it includes height

Materials and labor cost out (used primarily by contractors)

Cost per unit (room, outlet, parking space, etc)

Original cost inc or dec based on construction cost index since building

Age appraise uses that can be different than actual age due to use

Estimating depreciation based on condition, not age

40-50 years

Cost approach gives

• 1) Newer buildings
• 2) Land with highest and best use
• 3) Service buildings (schools, libraries)

Rent a property can demand

Stated rent in leasing agreements

Higher the risk; the higher the capitalization rate

Seperate capitalization rates for land and building

(% value of trust deed X Rate) + (% Equity X Desired return) = Cap Rate

Number multiplied by income to get a rough estimation of value

Period of time a building contributes to the net income of the property

Cash flow

• 1) Physical Depreciation
• 2) Functional or Built-in Obsolecence
• 3) Economic and Social Obsolecence

Wear and tear

Poorly designed, outdated

Loss in value due to forces outside the property

Depreciation that is left to be acrued

Depreciation where it is economically feasible to correct defects

Depreciation where it is not economically feasible to cure the defects

Equal sum eah year is deducted (27 1/2 for residential and 39 for investment)

Increased depreciation that is no longer permissible

Setting aside and investing amount of money so that when depreciation is done there are funds to replace the building

Accounting reserve to replace chattle

Price per acre

Price per front foot or square foot

Price per square foot or acre

Price per lot

Homogeneous area

Best commerial area in a community

4-3-2-1 rule where 40% of value is on 1st 25% of lot, 30% on the next 25% and so on

Land that does not contribute to the value

AKA Allocation method where site value can be found by subtracting improvements from market value of property

(Property + Improvements) - (Cap Rate X Improvement Value) / Value of Property = Residual Land Value

When determining highest and best use; Expected Improved Property - Improvement =

Member of Appraisal Institute

Senior Residential Appraiser (Appraisal Institute)

Letter report that is the least informative and the least expensive

Short form report where boxes are checked (typically for lender appraisals)

AKA narative report which is the most comprehensive and expensive; rarely used for single family homes

Appraisal must meet statutory guidelines

Report required by FHA, VA, HUD, Freddie Mac, and FNMA

Appraisers attempt to look at all methods to determine best value

Larger development can be built a a smaller per unit rate (Costco style)

Max values are achieved when improvements return highest net relationship to investment

Value is created at equilibrium of land use to maintain highest and best use

Development (integration or grownth) to equilibrium (stable use or maturity) to disintegration (decline or old age)

• 1) Binding contract
• 2) Conditional delivery

Most recent prevails

• 1) Title ins co
• 2) Banks
• 3) Trust co
• 4) Atorneys

• 1) Inc
• 2) DOC license
• 3) Common in So cal

Department of Corporations

• 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

Escrow can keep partial payment

Uniform Settlement Statement give 1 day before close of escrow

• 1) Full performance
• 2) Multual cancellation
• 3) Revocation

• 1) Search for legal title
• 2) Investigate title records
• 3) Ins against financial loss from title defects

• 1) Courthouse search
• 2) Title plant

• 1) Owners
• 2) Legal description
• 3) Encumbrances
• 4) Tax status

Specialist in county court recording docs

• 1) Standard policy
• 2) Extended coverage policy

• 1) Standard owners
• 2) Standard lenders
• 3) Standard joint protection

Ins owner for purchase price

Ins lender for loan amt

Co-ins for owner and lender

California Land & Title Assoc

CLTA

American Land & Title Assoc

ALTA

Summary of Title

Certificate stating owner and encumberances

Garantee accuracy of search

3% purchase price

• 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

Review of yearly tax records to ensure lender taxes are paid

Fee to assume seller's loan

• 1) JHazard ins
• 2) Tax proration
• 3) tax & ins reserves
• 4) Interest due before 1st loan payment

July 1st-June 30th

• $1.10 per $1,000
• $0.55 per 4500/fraction

• 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