Mortgage info
This is general info about mortgages. It is NOT legal advice or any other advice. It should not be relied on in any way and should always be verified.
Community Property is used in California, part of civil law, carried over from Spanish law.
Real Property vs. Personal Property
· Personal Property also called chattel
· Real Property is: land, any permanent fixtures attached to land such as house or building, anything appurtenant to the land such as an easement, anything attached to the land such as trees, anything deemed immoveable.
· Emblements are personal property. I.e. Harvested crops are personal property; actual plant itself is real property.
· Property may change form; real to personal and back to real.
Fixtures
· Real property that began as personal property
· Refrigerator, Ceiling Fan, Custom built in Shelves
· Become real property when attached to another real property
· Cost is NOT a test for fixtures.
Trade Fixtures
· Can be removed if doing so does not damage property.
1. Built in work benches
2. Dividing screens or temporary walls
3. Cash registers
Types of Estates in Real Property
· Freehold Estate- Highest form of ownership. 2 Types: Fee Simple Estate and Life Estate
1. Fee Simple Estate- owner has greatest power over title: can sell, trade, or will as he sees fit.
2. Life Estate: Estate in property that continues for life of a particular person. Life may be that of owner or some other specified person.
· Leasehold Estate- Lease between tenant or lessee and landlord or lessor. Leaseholds considered personal property or chattel real. 4 types or leasehold estates:
1. Estate for years- leasehold of fixed duration.
2. Estate from period to period- often called month to month tenancy.
3. Estate at will- tenant occupies property for an indefinite period of time which one or both parties may terminate at will. 30 days notice to terminate in California.
4. Estate at sufferance- tenant remains on land after lease has run out.
· Characteristics of a Lease
1. All leases are contracts whether written or oral.
2. Landlords must sign all written contracts.
3. Possession by tenant is considered acknowledgement of lease contract.
4. Contracts must be backed by consideration (or form of rent).
5. Once written, contract cannot be altered by oral means.
Characteristics of Real Estate: Physical, Economic, Social
· Physical- Fixed in place and indestructible
· Economic- Land that people want to live and work on is scarce. Location next to other pieces of land.
· Social Controls- restricting ownership rights for benefit of community: eminent domain, zoning, pollution controls.
Financing:
· Leverage: Buy now for some money down and rest later. Sometimes 0% down (100% leverage) is possible. More typical is 20% down (80% leverage)
· Hypothecation: Borrower keeps possession and control, lender holds lien or underlying right in property.
Real Estate Cycles—Impacted by:
· Supply and demand
· Availability of financing
· Population attributes
· Political Attitudes- laws promoting growth vs. laws limiting new development
· Income Taxes
o Tax Relief Act of 1997 (TRA ’97)
§ Exempts some profit on primary residence for income taxes.
§ $250,000 for individuals, $500,000 for married filing jointly.
§ Property must be primary residence for 2 of 5 years before the sale.
§ Exemption can only be used every two years.
Monetary System
Disposable Personal Income: total income minus taxes, mortgage or rent, and other non-tax payments. I.e. Available for personal consumption.
Discretionary Income: Earned funds left over for investment after allocations for necessities and reserves.
Money, Supply and Demand
· M1 “Narrow Money”- Cash held by public, demand deposits, checking accounts, credit union share accounts
· M2 “Broad Money”- M1+savings, i.e. Money market funds, savings deposits, time deposits up to $100,000
· M3- M2+large time deposits at all depository institutions
Depository Institutions Deregulation and Monetary Control Act of 1980, (DIDMA)
· All depository institutions came under Fed control.
· Gave variety of financial institution ability to offer diverse financial products. I.e. checking at Merril Lynch, brokerage at Bank of America.
Organization of Fed
· 12 Districts
· All controlled by president appointed 7 member board in Washington DC
Functions of Fed
· Issuing currency
· Supervising and regulating member banks
· Clearing and collecting checks issued on member banks
· Functions most closely associated with real estate finance:
o Regulation of reserve requirements
o Determination of discount rates
o Open market operations
o Ensuring Truth-in-Lending Act (Reg. Z) requirements are met.
· DIDMA 1980- expanded Fed control of reserve requirements for nonmember banks
· Discount Rate: rate fed charges on loans to member banks
· Federal Funds Rate: rate banks charge each other for loans
· Open Market Operations: Fed trading in capital markets to balance the economy.
Truth-in-Lending Act (Regulation Z)
· Applied to creditors who make unsecured loans 25 times a year or 5 times a year for loans secured by real property.
· Right to rescind: 3 days to rescind loan that has security interest in borrowers primary residence.
Does not apply in the following situations:
o Refinancing non owner occupied property
o Residential purchase money, first mortgage, or trust deed loans
o Borrower refinances a loan where no new funds are advanced to borrower
· Requires disclosures. 5 most important:
1. Amount to be financed
2. Finance charge
3. Annual Percentage Rate
4. Total Amount of the payments
5. Total sales price (for any credit sales)
· Required disclosures must be grouped together, set off in a box in different or bold type or different color background to make them stand out.
United States Treasury
· Controls daily money operations of the federal government
· Manages government debt
· Collects income and social security taxes
FDIC
· Can do anything to reinstate solvency of failed institution
o Place institution in liquidation
o Organize new institution to take over failed institutions assets or liabilities
o Merge insured deposits with those of another institution
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
· Reform, recapitalize and consolidate federal deposit insurance programs
· Deposit Insurance Fund (DIF)-eliminated FSLIC. Under control of FDIC
2006 Budget Reconciliation Bill
· SAIF(Savings Association Insurance Fund) and BIF (Bank Insurance Fund) consolidated into DIF
· Indexes $100,000 insurance limit to inflation every 5 years, beginning in 2010.
· Increases deposit insurance for certain retirement accounts to $250,000 and indexes to inflation.
· Allows FDIC Board to set assessments
Federal Home Loan Bank System
· 12 Regional banks
· Directed by Federal Housing Finance Board
· Membership required of all federally chartered savings institutions
· State chartered institutions can join by meeting financial and management requirements
· Provides members with national market for their securities.
· Administers Individual Development and Empowerment Account Program (IDEA)
o Matches down payment money 3 to 1 up to $15,000 of households with income less than 80% of HUD median income for the area.
California Agencies for Real Estate Financing
· California Department of Savings and Loans
· California Housing Finance Agency (CHFA)
o Provides real estate loans for low income families through approved lenders.
o Obtains funds to by the loans through sale of tax free bonds.
· California Department of Banking
o Supervises state chartered banks and foreign banks doing business in CA
o Licenses business and industrial loan companies, issuers of travelers’ checks, and transmitters of money to other countries.
· California Department of Insurance
o Regulates insurance companies: financial stability, rating and underwriting procedures
o Administers agents’ licensing exams
· California Department of Corporations
o Handles securities transactions
o Franchises businesses
o Licenses and audits thrift and loan companies, credit unions, money order issuers, escrow companies, broker dealer investments.
o Licenses, regulates and performs surveillance of companies lending money and or selling commodities or securities, or advising or receiving funds from public in fiduciary capacity.
o Regulates real estate syndications
· California Department of Real Estate
o Enforces real estate law to protect public
o Investigates complaints against licensees
o Regulates subdivisions, non exempt franchises, and real property securities
o Screens and qualifies applicants for licenses
o Investigates non-licensees performing actions of a licensee
o Cannot settle or litigate commission disputes or give legal advice.
· Office of Real Estate Appraisers (OREA)
o Implements requirements of FIRREA regarding real property appraisals.
ESTATES IN REAL PROPERTY
Freehold Estates
· Fee Simple Absolute: Allows property owner to use property now and for an indefinite number of years. No limits or conditions. Largest bundle of rights.
· Fee Simple Qualified or Free Simple Defeasible: Estate transferred with limitations, conditions, or qualifications.
Life Estate
· Estate granted for a definite period of time. Owner has right to use property during his life, or the life of some other individual.
· Owner has all rights of fee ownership EXCEPT conveyance of property by will.
· Reversion- Possession returns to original owner when life estate ends.
· Remainderman- Persona life estate reverts to upon death of the current owner, not the original owner of the estate.
Leasehold Estates: Leaseholds considered chattel real.
· Estate for Years- Lease for a definite period of time. Can extend to 99 years.
· Estate from Period to Period- Usually month to month, renewed each time, usually requires one month notice to terminate.
· Estate at Will- Indeterminable amount of time, no express rent.
· Estate at Sufferance- Tenant remains on land after lease has run out.
Characteristics of Every Lease
· Landlord must sign all written contracts, tenant acknowledges lease through possession. Not all contracts are written.
· Contracts must be backed by some form of consideration or rent.
REAL PROPERTY
· Land, permanent fixtures attached to land (buildings), anything appurtenant to the land such as an easement, anything attached to the land such as trees.
· Airspace- considered personal property, can be restricted if used in a disruptive way.
· Minerals- Coal in ground considered real property, out of ground considered personal property. Oil and gas not considered real property because of their fluid nature. Becomes property when it is reduced to possession.
· Water Rights- Real property, but cannot be owned. Under Doctrine of Correlative Rights landowner may take reasonable share of water.
o Littoral- property owner rights of land bordering lake or ocean
o Surface- rain runoff rights and regulations
o Riparian- Right to use adjacent rivers and streams as defined in doctrine of correlative rights.
o Underground- landowner’s right to use underground or percolating water
o Right of Appropriation- Allows state to allocate non-riparian property owners to take surplus ground water for their personal use. (often agricultural)
· Permanent Fixtures
o Buildings or other structures
o Growing plants attached to the land with roots
o Items permanently fixed in or on a house or building
· Appurtenances- Anything used with the land for its benefit. Easement, stock in mutual water company.
· Immovable by Law- For example an orchard growing on property. Produce that is growing can be negotiated in the sale; trees themselves are immovable by law and considered real property.
· Personal Property- Chattel
FIXTURES
· Began as personal property, became real property when permanently attached to real property.
· 5 Tests to determine what is a fixture: COST is NOT a test.
1. Method of Attachment- more permanent, probably a fixture.
2. Adaptability- Item adapted to specific room or space, probably a fixture
3. Relationship of the parties
4. Intention of Person Attaching the Item- If tenant purchases a ceiling fan, and notifies landlord of intent to take it when they vacate then it is not a fixture. (This is an important test.
5. Agreement between Parties- Parties can put intentions into writing to avoid disputes.
· Trade Fixtures- can be removed provided removal does not damage property.
o Built in Work Benches
o Dividing screens or temporary walls
o Cash Registers
DESCRIPTIONS OF LAND
Lot, Block, and Tract System also called Subdivision System
· Plat Map- shows divisions within lot, block, and tract system
Metes & Bounds
· Used mostly for complicated or irregularly shaped properties
US Government Section and Township Survey
· Public Land Survey (PLS) system. Rectangular survey of baselines and meridians.
· California has 3 pairs, San Bernardino, Mount Diablo, and Humboldt.
· Range Lines every 6 miles east and west of meridian.
· Township lines every 6 miles north and south of baseline.
· Each township is 36 square miles.
· Township divided into 36 sections, each section is 640 acres.
ENCUMBRANCES
Limitation on real property imposed by someone other than the owner
· 2 Types of encumbrances:
1. Non-money encumbrances: Easements, building restrictions, zoning requirements, and encroachments.
2. Money encumbrances: Restrictions or liens such as mortgages and trust deeds, tax liens, mechanics liens, judgments, attachments and special assessments.
· General Liens-apply to all property owned by debtor
o Court judgment
· Specific Liens-attach to one specific property
o Mechanics liens
o Trust deeds
· Voluntary liens
o Mortgage/Trust deed
o Line of credit
· Involuntary liens
o Mechanics lien
o Tax lien
o Judgment
Mechanics liens
· Can be filed by contractors, subcontractors, architects, engineers, surveyors, material suppliers, machinists, equipment lessor, truckers, laborers or workers.
· Professionals who indirectly supply materials and work to property owner (i.e. subcontractors working for general contractor) can utilize mechanics liens to ensure payment.
· Homeowner can protect himself from liens by parties that were not paid by general contractor by requiring general contractor to obtain payment bond.
Steps taken to initiate mechanics lien:
1. Preliminary Notice: Written notice to property owner that lien may be filed for non-payment. Notice must be given within 20 days of project start.
2. Starting Time: When construction begins or when materials are first delivered.
3. Completion Time: When project is completed, when property owner begins to use improvement, or when construction has stopped for 60 days.
4. Notice of Completion: Owner may file with county 10 days after project finish. Once filed contractors have 60 days to file liens, all others have 30 days. If owner does not file notice, all parties have 90 days to file liens.
5. Foreclosure Action: After mechanics lien filed, filer has 90 days to bring foreclosure action.
6. Service of Process and Court Decision.
Tax liens and special assessments
· Special assessments and local taxes are specific liens
· Government taxes are general liens
Attachments and Judgments
· Attachment- Court orders freeze on property awarded to another in a lawsuit.
· Judgment- Decision in court case-General Lien
· Writ of Execution- Court order directing officer of the court to satisfy a judgement out of the debtor’s property. May be requested by lien holder.
Lis Pendens: Pending litigation.
Easements or right-of-way
· Non-possessory interest- right to use someone else’s land for specific purpose.
· Servient tenement- gives easement
· Dominant tenement- receives right
· Easement in Gross- Benefits public utility
Creation of Easement
· Contract
· Express Grant from property owner
· Express Reservation- Dominant tenement sells but reserves easement rights in the deed.
· Implied Grant/Reservation- Created through implication of law
· Necessity- Landlocked property
· Prescription- Open and notorious use for 5 or more years, must have valid reason for crossing land.
Eight ways to terminate Easement
1. Express agreement
2. Lawsuit
3. Abandonment
4. Estoppel- Not being used, no longer necessary, or utilizes land based on recommendations made by dominant tenement
5. Merger of the easement- Dominant tenement purchases property from servient tenement
6. Destruction of servient tenement
7. Adverse possession
8. Excessive use
Covenants, Conditions, and Restrictions
· Covenant- Promise to engage in or abstain from a certain action
· Conditions- Similar to covenant, except if not followed property is surrendered to the original owner or grantor
· Restrictions- Limitations placed on certain property or properties in a certain area. Zoning, deed restrictions.
Encroachments
· Improvement on real property that crosses boundary into another property by at least 6 inches.
· Owner of encroached upon property has 3 years to remove encroachment.
· If encroachment fulfills requirements for easement by prescription, the owner may earn the right to used encroached upon land.
· Examples: fences, walls, buildings, trees or shrubs, drives or walkways
Homestead Declaration
· Recorded document protecting a certain amount of homeowner’s investment
· Protection will guard against foreclosure from certain creditors and judgeemtns against the homeowner.
· Does not apply to trust deeds, mechanic’s liens, liens filed prior to homestead filing.
· Amounts: Head of household $75,000, disabled/over 65 $150,000, all others $50,000.
· Only one property at a time.
Marketable Title
· Title a person is likely to accept in confidence that it will be free and clear of any challenge of ownership.
· Title Insurance- guarantees marketable title against risk. Two types:
1. Standard Policy- Issued according to California Land Title Association (CTLA) uniform standards. Does not cover:
§ Title defects known to policy holder at time of issuance or shown in a survey.
§ Rights or claims of people in possession of the property.
§ Easements and liens not shown in public records
§ Changes in land use dictated by zoning laws
§ Water rights& Mining claims
§ Reservations
2. Extended Policy- American Land Title Association (ALTA)
§ Covers above items, except title defects known to policy holder at time of issuance or shown in a survey.
§ Lenders and buyers usually go for extended policy