Real Estate Terms

1
Real Estate Terms Concepts

• Jerry Rioux, CCRH Board Member
• grioux_at_sbcglobal.net
• http//www.angelfire.com/jazz/jrioux/

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Workshop Outline

• Part I - Terms Concepts
• Part II - Financing
• Part III - Purchase Process

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Part I

• Terms Concepts

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What Is Real Estate?

• Land
• Affixed to the Land
• Appurtenant to Land
• Immovable by Law

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Real Estate Bundle of Rights

• Old English Concept of Ownership
• The Right to Possess, Enjoy, Control and Dispose
  of Real Estate
• The Individual Rights May be Bought and Sold or
  Rented Separately

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Title Estates

• Title Ownership of Real Estate
• Estate Character of Interest
• Fee Simple
• Less Than Fee Estate
• Life Estate

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Real Estate Legal Descriptions

• Lot, Block and Tracks
• Metes and Bounds
• Section and Township

8
Deeds

• Legal Documents that Convey (Transfer) the Title
  to Real Estate
• Usually Recorded against the Property in the
  County Recorders Office

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Examples of Deeds

• Warranty Deed
• Grant Deed
• Quitclaim Deed
• Tax Deed
• Trust Deed (or Deed of Trust)
• Deed of Reconveyance

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Encumbrances

• Things that Burden the Title to Property
• Claims of Others to Property
• Non-Monitory Encumbrances
• Monitory Encumbrances

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Non-Monitory Encumbrances

• C C Rs
• Easements
• Encroachments
• Mineral Rights
• Leases
• Regulatory Agreements
• Public Rights of Way

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Covenants, Conditions and Restrictions (C C Rs)

• Private Land Use Controls
• Lot Size, Set-Backs...
• Home Size, Architectural Style
• Parking, Pets
• Public Deed Restrictions
• Price Occupancy Controls

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Covenants, Conditions and Restrictions (C C Rs)

• Judicial Enforcement
• Invalid
• Racial Religious Covenants
• Unenforceable
• Restrictions the Cause Waste
• Can Be Released by Beneficiary

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Monitory Encumbrances

• aka Liens
• Loans, Taxes Assessments
• Voluntary or Involuntary
• General or Specific
• Blanket Encumbrances CoverMultiple Parcels

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Lien Priorities

• Based on Recording Dates or Subordination
  Agreement
• Legal Description (lot split)
• C C Rs
• Property Taxes
• 1st Mortgage
• 2nd Mortgage

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Real Estate Contracts

• Real Estate Purchase Agreement
• Land Contract (Contract for Deed)
• Option
• Lease Option
• First Right of Refusal

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Valid Real Estate Contracts

• In Writing
• Capable Parties
• Mutual Consent
• Lawful Object
• Sufficient Consideration

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Purchase Contract

• Consideration
• Purchase Price
• Timing
• Financing Other Terms
• Contingencies

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Contingencies

• Financing
• Appraisal
• Clear Title
• Due Diligence

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Option to Purchase

• Right to Purchase
• Consideration
• Time Limits for Performing
• Extension Fees
• Purchase Price or Formula
• No Obligation to Buy

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First Right of Refusal

• Right to Buy
• When Offered for Sale
• Match Price or Formula
• Limited Time to Perform
• No Obligation to Buy

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Title Insurance Companies

• Title Plants - duplicates county records
• Organizes Records by Parcel
• Provides Title Reports
• Records Documents
• Issues Title Insurance

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Title Reports

• Preliminary (not Title) Reports
• Lists Ownership Interests and Encumbrances
• Encumbrances are Exceptions to the Title
• Buyers want Exceptions Removed

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Types of Insurance

• Title Insurance
• CLTA ALTA
• Mortgage Insurance
• PMI MMI
• Hazard Insurance
• also Flood Earthquake

25
Escrow

• Independent 3rd Party who Processes Real Estate
  Sales Transactions
• Acts Only When All Conditions Are Met
• Divides or Allocates Costs as Agreed
• Can Handled by
• Title Insurance Companies
• Private Escrow Companies
• Real Estate Brokers

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Closing Costs - Recurring

• Property Taxes
• Insurance
• Interest
• HOA Dues
• Assessments

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Closing Costs - Non-Recurring

• Escrow Fees
• Title Insurance
• Transfer Fees
• Recording Fees
• Doc Prep Fees
• Loan Fees Points
• Home Warrantee

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Part II

• Financing

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Single Family Financing

• Value of Collateral
• Payment Ratios
• Buyers Credit Worthiness
• Stability of Buyers Income

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Loan to Value Ratio (LTV)

• Loan Amount
• divided by Property Value
• 160,000 / 200,000 80
• 97 and 100 are Possible
• over 80 needs Mortgage Insurance

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Payment Ratio (Housing)

• PITI
• Principal
• Interest
• Taxes
• Insurance
• divided by Gross Income
• 28, 32, 40...

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Payment Ratio (Overall)

• PITI
• plus Other Recurring Debt
• divided by Gross Income
• 36, 40, 45...

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Market Rate Home Buyer
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Assisted Home Buyer
35
Multi-Family Financing

• Value of Collateral
• Debt Coverage Ratio
• Market Demand Absorption Rates
• Buyers Credit Worthiness
• Management Capacity

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Proforma or Pro Forma

• Jargon for Budget
• Project Financial Performance
• Development Pro Forma
• Operating Pro Forma
• Development Operating together

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Development Pro Forma
38
Sources of Funds
39
Operating Pro Forma
40
Operating Pro Forma
41
Appraisals

• Estimates of the Value
• Three Approaches
• Competitive Market
• Income
• Replacement Cost
• MAI Appraisals

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Competitive Market Approach
43
Income Approach
44
Types of Lenders

• Institutional
• Banks and Savings Banks
• Pension Funds
• Insurance Companies
• Non-Institutional
• Mortgage Bankers
• Mortgage Brokers
• Government

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SL Concept

• Intermediation
• Accept lots of small short-term deposits to make
  30-year home loans
• Disintermediation
• Depositors withdraw money faster than it is
  collected from Borrowers

46
Secondary Mortgage Market

• The Buying and Selling of Mortgages
• Lenders Now Originate, Sell and Service Mortgages
• Fannie Mae Freddie Mac
• Government Chartered Companies
• Sell Mortgage-Backed Securities

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Types of Loans

• Amortized Loan
• Fixed Rate Adjustable Loans
• Balloon Payment Loan
• Straight Note
• Insured Guaranteed Loans

48
Typical Loan Documents

• Promissory Note
• Deed of Trust
• Regulatory Agreement
• (assisted housing only)

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Promissory Note

• Agreement to Repay the Loan
• Amount Borrowed
• Interest Rate
• Repayment Terms
• Other Conditions
• Between Lender Borrower

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Straight Note

• Frequently used for interim financing and seller
  carry back loans
• monthly payments of interest only
• balloon payment of principal
• due on specific date or occurance

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Straight Note (example)

• Borrow agrees to pay Lender 200,000 plus
  interest at the rate of 12 per annum. Borrow
  shall make monthly payments of interest only in
  the amount of 2,000 on the first of each month
  beginning June 1, 2001. The principal balance
  shall be due and payable in full on May 1, 2006.
• Dated May 1, 2001 Signed Borrower

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Deed of Trust

• Pledge of Real Estate as Collateral for Repayment
  of the Loan Amount
• Recorded Against Property
• Parties to a Trust Deed
• Borrower (Trustor)
• Lender (Beneficiary)
• Trustee (Holder of Title)

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Typical Loan Conditions

• Late Payment Fees
• Agreements to Maintain Property, Pay Property
  Taxes Carry Insurance
• Agreements to Perform Other Things
• Acceleration Clause (Due on Default)
• Alienation Clause (Due on Sale)

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Part III

• Purchase Process

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Real Estate Purchase Process

• Identify Needs
• Search for Property
• Gain Site Control
• Conduct Due Diligence
• Secure Financing
• Secure Everything Else
• Close Escrow

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Identify Needs

• Desired Location
• Desired Characteristics
• Desired Cost
• Land w/ Zoning Services
• Building of Adequate Size on Bus Line

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Search for Property

• Local Real Estate Brokers
• Talk with Planning Departments
• Public/Private Records Research
• Drive Around Target Areas
• Contact Property Owners Directly

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Gain Site Control

• Purchase Contract
• Option
• Lease
• Partner or Joint Venture
• Disposition Development Agreementfrom
  Redevelopment Agency

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Conduct Due Diligence

• Review Title Clear Exceptions
• Verify Zoning, Utilities, etc.
• Conduct Studies
• Environmental Studies/Reviews
• Structural Studies
• Termite/Pests
• Soils Studies

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Secure Financing

• Loan Commitments
• Loan Guarantees
• Grants Subsidies
• Make Sure Property Qualifies
• Make Sure Management Qualifies

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Secure Everything Else

• Re-Zone, Use Permit, Subdivision Map and/or
  Development Approvals
• Project Design Review
• Construction/Rehab Plans Specs
• Bids from Contractors

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Close Escrow

• Bring it All Together
• Satisfy Conditions
• Exchange Promises
• Exchange Money
• Exchange Title

63
Develop the Property

• Whether New Construction, Major Rehab or Less,
  the Real Work Begins Now...