Consolidated RE Exam 1 Review Essay

Submitted By dam2005
Words: 4320
Pages: 18

Real Estate Finance – Exam 1 Study Guide
1. The difference between real and personal property
a. real estate – property that is tangible, land and/or improvements permanently attached on or to the land (non-movable)
b. personal property (personalty) – all intangibles and movable things
2. What is meant by an estate
a. Everything a person owns, to include real and personal property
b. Real property = deed, personal property = bill of sale
3. The types of estates and the various interests one can acquire in real estate (i.e. Fee simple, life estate, remainder, and reversion)
a. Two basic types:
i. Freehold – have ownership for indefinite period ii. Leasehold – right to possess and use the property by another for a period of time
b. Freehold
i. Fee Simple (1)- best ownership you can and possessory, get all rights transferred from the seller
1. Qualified Fee (2)– fee simple ownership with a qualification placed on it (ex. Deed restriction ii. Life estate (3) – deed ownership interests in property to someone else for their lifetime only. (When they die it reverts back to you/estate. Interest is called future reversionary interest. Vested remainderman (next child in line of reversionary remainderman (original owner of property)).
c. Leasehold estate
i. Estate for years – most common, lease specifies exact duration of tenancy ii. Estate from year to year – continues for successive periods until either party decides to terminate at end of a period.
4. How a leased fee estate can have value
a. (in class) If lessee rents property and value of property increases, lessee can sublease the lease and gain value
b. (in book pg 6) Original fee owner of leased property is considered to have this type of estate. They have given up property rights to lessee (leasehold estate). Value of estate now depends on lease payments expected during duration of tenancy plus value of property when the lease terminates and the original owner receives the revisionary interest. This estate can be used as security for a loan or sold.
5. The meaning of abstract of title
a. Done by self (history of ownership of the property) or hire an attorney to do it (probably go back 100 years) and will issue an opinion based on their research to determine rights of the property

6. The three general methods of title assurance
a. (1) Seller must provide warranty as part of the deed
b. (2) Do an abstract and get opinion of title from an attorney (or do yourself), if only reference public records things can be overlooked
c. (2) buy title insurance (best method) – includes public record info and additional information not readily accessible to public and will cover any unexpected problems with the title
7. The types of deeds
a. General Warranty - (most common & desirable) offers most comprehensive warranties about the quality of the title
b. Specialty Warranty – same as general except limits their application to defects and encumbrances that occurred only while grantor held title to property
c. Bargain and sale – conveys property without seller warranties “as is”
d. Quitclaim – offers grantee least protection, only conveys what rights grantor MAY have in the property
8. The difference between a mortgage and a note
a. Note – instrument that signifies that you owe debt to someone (normally done at same time with mortgage)
b. Mortgage – created when one party pledges real property to another as security for an obligation owed to that party
9. The concept of mortgage payment acceleration (acceleration clause) and forbearance
a. Acceleration clause allows lender to declare payments due immediately if past due on payments. Allows lenders to foreclose faster.
b. Forbearance – Lender allows time for borrowers to make up payments in default when they believe borrowers will do so and that benefit outweighs time and expense related to foreclosure
10. The meaning of recourse and non-recourse financing
a. Recourse – personally liable for balance of debt, lender will look to…