Chapter 2. Real Estate = Land + Fixtures Real Property = Ownership rights to R/E Personal Property = all other ownership rights Estate = an interest in real estate Kinds of Estates: • Freehold: Indefinite duration, at least a life time.
Estates of Inheritance • Fee Simple: Highest form of ownership • Defeasible Fees: Estate will terminate on the occurrence of a certain condition. • Example: A conveys property to X church so long as it is used as a church. • Estate for the life of another. Example: to X so long as my daughter lives. • Estates Not of Inheritance (Life Estates) • Conventional Life Estate • Reversion to the grantor’s heirs on the death of the life tenant. • Remainder (Remainderman) – the person(s) who gets the estate on death of the life tenant.
Marital Life Estates: husband and wife often have an interest (1/3 life estate in NC) in any property owned by the other. It is often necessary to when a married grantor conveys property owned in severalty to have the spouse sign the deed, so that the spouse waives any claim to a marital life estate. • Nonfreehold (leasehold) Estates • Estate for years • Periodic tenancy
Ownership of Real Estate • Ownership in Severalty • Concurrent Ownership • Tenancy in Common – no right of survivorship • Joint Tenancy – right of survivorship • Tenancy in the Entirety – joint tenancy for husband and wife. Divorce terminates tenancy in the entirety and creates tenancy in common. • Hybrid Forms of Ownership • Condominium – tenancy in common for the common areas.
Townhouse: townhouse owner gets deed to a tract of land & common ownership of common areas. • Time share Ownership: NC gives purchaser 5 days to cancel purchase. • PUD (Planned Unit Development) • Ownership by a business organization • Corporation • Partnership • Limited Partnership (or syndicate) • REIT
Assurance of Title: Deed, Will, or Lease are evidence of title (an interest or estate). All documents relating to real estate must be in writing (statute of frauds). How is title transferred? • By Descent (Intestate Succession) • By Will • By Deed (voluntary Alienation) • Involuntary Alienation - Examples: Adverse Possession, Lien Foreclosure, Escheat, Eminent Domain (condemnation)
Essential Elements in a Deed • In writing • Grantor must have legal capacity • Grantor/Grantee identified • Property Description must be adequate • Metes (distances) & Bounds (directions) • Reference to Plat or Map • Government Survey System (not in NC) • Informal Reference – must be unambiguous. • Operative words of conveyance
Grantor must sign • Deed must be delivered • Deed must be sealed (in NC) Kinds of Deeds • General Warranty Deed: covenants of 1) seisin, 2) right to convey, 3) against encumbrances, & 4) warranty and quite enjoyment (grantor agrees to defend the title of the grantee).
What is an Encumbrance in Real Estate? • Leins • Restrictive Covenants • Pending Litigation (Les Pendens) • Easements • Zoning Laws (local police power) Other Kinds of Deeds • Special Warranty Deed • Quitclaim Deed
Methods of Title Assurance • Title Examination (by an attorney) • Abstract of Title • Opinion of Title • Title Insurance (Chicago Title Ins. Co.) • Title Recordation: NC is a racehorse state. • Revenue stamps ($1 per $500 of value) • Title must be acknowledged before a notary • Recorded at the Registrar of Deeds Office
Mortgages: A debt (note) secured by R/E • Title Theory States – Deed of Trust (NC) • Lien Theory States – Mortgage Important Elements of a Mortgage • Escrow • Acceleration Clause • Prepayment Penalty • Due-on-sale clause (non-assumable) • Recording a Mortgage
Mortgage Default and Foreclosure • Alternatives to Foreclosure: workouts and restructuring • Foreclosure • Judicial Foreclosure (Lien Theory States) • Non-Judicial Foreclosure (Title Theory States) • Equity of Redemption: 10-day upset bid period. • Deficiency Judgement • Deed in Lieu of Foreclosure (friendly forclosure) • Tax Sale: parallels the foreclosure procedure.
Real Estate Math Calculating Brokerage Commission: $ Commission = Commission Rate * Price Calculating Net Price to Seller: Net Price = Sales Price (1 – c) where: c = commission rate
Calculating Area: Area of a rectangle = length * width Area of a triangle = ½ * base * height Volume of a Cube = length * width * heigth Units of Measure: 1 mile = 5,280 feet 1 acre = 43,560 sq. feet
Sample Problems • Calculate the agents commission when the sales price is $250,000 and the rate is 6%. • Calculate the Sales Price if the seller wants $150,000 net after commission and the rate is 6%. • Calculate the number of acres in a tract of land that is 1,000 feet deep and 250 feet wide. • Calculate the square yards of carpet needed for a room measuring 12 by 18 feet. • Calculate the number of cubic yards of cement needed for a driveway that is 100 feet long, 10 feet wide, and 6 inches deep. • Calculate the price per square foot of a 20.5 acre tract that sold for $325,000.