Tuesday, June 30, 2009

Real Estate Notes 2

Real Estate Settlement Procedure Act (RESPA)
RESPA applies only to first mortgages and regulates the closing process in order to protect purchasers and sellers. The main goal of RESPA is to eliminate kickbacks for referrals by closing agents or attorneys for specific title companies as well as to prevent sellers from requiring buyers to purchase title insurance from a specific title company. Bundling of services is permitted, and real estate brokers are allowed to collect fair use fees for services performed in conjunction with transactions. Brokers may collect a fee (as long as the fee is disclosed in writing) for using a computerized loan originator (CLO) system to help homebuyers find a mortgage and begin the application process. When a brokerage has an affiliate title company, escrow service, or mortgage brokerage, this relationship must be disclosed in writing to the customer, and customers are free to obtain these services from other companies. Referral fees are not exchanged between affiliates.


Regulation Z
Governs Truth in Lending practices. Regulation Z requires disclosure of all financing terms and conditions if a low interest rate, downpayment or other enticement is featured in an ad. This does not apply in this case, however, because Regulation Z applies only to institutions, not individuals selling their own property.

Licensees may not use advertisements that target or discriminate against any particular race, color, religion, national origin, sex, handicap, or families with children. Regulation Z requires full disclosure of loan terms if any information about credit terms, beyond APR and price of property, are given. All advertising must be done in the name of the real estate firm and may not imply that it is the ad of a private party. Although eloquent verbiage is allowed, the ad may not misrepresent the property in any way that would not be obvious to potential buyers (i.e. a buyer could ascertain for themselves whether or not a lot is truly "treed").

Truth in Lending
"No down payment required" triggers the Truth in Lending disclosures because it is a specific statement about only one aspect of the financing. "Easy terms" does not trigger the regulation because it's non-specific. Owners are not covered. They can advertise down payments.

APR stands for "Annual Percentage Rate" and expresses the true cost of the loan by factoring fees such as points, recording fees, appraisal fees and such into the interest rate. For example, a mortgage that showed an interest rate of 5.75% on the promissory note might have an APR of 6% when associated costs are factored in.

Right of Redemption
In most states, by paying the debt after a foreclosure sale, the mortgagor has the right to regain the property. This right of redemption is called "statutory" because it is legally mandated by law, as opposed to a custom lenders could follow or not at their option.


Income of any type--whether alimony, child support, freelance work or a second job--only needs to be disclosed if the applicant is relying on it to qualify for the loan.

Restrictive covenants are most commonly associated with subdivisions and community management associations and are intended to maintain consistency within the neighborhood. While viewed as a benefit by most, they do limit the owner's use of the property and are binding on future owners.

1 mile squared = 640 acres

According to the parol evidence rule which excludes any prior verbal or written evidence not specified in the contract, the blinds will not convey with the condo. This would be a circumstance in which neither the real estate sales associate nor the buyer was careful in constructing and approving the contract.
Contracts
Duress and undue influence are conditions leading to a voidable contract.
Change of heart is not sufficient reason to end a contract except by breach of contact. Misrepresentation by error (no intention to deceive) can result in an unenforceable contract.
Fraud (intention to deceive) can allow the defrauded party to rescind or collect damages.
Agency
Since a third party was led to believe this was the listing agent, ostensible agency is in effect and the agent is eligible for the commission. In this case, Owners agreed to let the agent show the house and never denied that she was their agent, so Buyer was under the impression that an agency relationship existed. The owners should have questioned the agent's involvement at an earlier point if they hadn't intended to pay her a commission.

Florida statutes presume that, in the absence of a signed agreement for single agency or no brokerage relationship, all sales associates are working as transaction brokers serving to represent all parties in a limited manner and produce a sale between the buyer and the seller. Transaction brokers provide limited representation to both parties, and a sales associate originally working as a buyer's agent or seller's agent can, with the written consent of both parties, transition to a transaction brokerage relationship in order to assist both parties.

Gross Rent Multiplier
Property value divided by the monthly rent. This is used as a quick, short-hand "guesstimate" for a property's approximate value. Sometimes this calculation produces a positive cash flow; other times a negative one--and one is not necessarily better than the other. Far more detailed calculations are necessary to determine a property's real market value and attractiveness as an investment.

Obsolescence
Economic - building an airport nearby. Economic obsolescence occurs when factors unrelated to the property itself and outside of the owner's control diminish its value. A quick way to judge whether or not a property has become economically obsolete is to analyze whether, under the new circumstances, the location would still be chosen as a home site and, if yes, at what value compared with the current property.
Functional - steep stairwell in a 1.75 level home
External - is caused by events outside of the owner's control, such as a zoning change that makes the building's current use non-conforming.

FREC
Although engaging in the practice of real estate without a license is a third-degree felony in Florida, this would be a criminal case and not under the oversight of FREC. FREC can, however, discipline licensees for license law infractions, including suspension and revocation of licenses and the imposition of administrative fines. FREC also has jurisdiction over the Recovery Fund and may levy special fees as long as the Recovery Fund does not exceed $1 million. FREC may also specify circumstances under which a broker is allowed to disburse funds from escrow accounts without notifying FREC.

Title
Tenants in common have flexibility in how they divide ownership and assign survivorship rights. Joint tenants, on the other hand, own property in equal shares while a general partnership is a business unit serving other shareholders. Severalty, as stated previously, is sole ownership.

Spot zoning refers to the practice of reclassifying one piece of property in a manner inconsistent with the surrounding properties. When it occurs, it is often widely criticized and often overturned, except in circumstances that benefit the surrounding area, such as a corner grocery store or recreation area.

Real Estate Recovery Fund
No one with a current, valid, active real estate license at the time of an alleged act would be eligible for damages from the Real Estate Recovery Fund. In order to be eligible to receive a payment from the Real Estate Recovery Fund, an individual must have a final judgment from a civil court against a licensee (may be waived in case of licensee's death) and must make the claim within 2 years from the actual act or discovery of the act (as long as no more than 4 years have elapsed since the act). Additionally, the claimant must have notified the commission by certified mail at the time the action against the licensee was initiated. Any monies already recovered from other sources must be applied to the court-awarded damages.

"Due care" refers to the licensee's obligation to ensure that all steps in the transaction process are followed with professionalism and accuracy. Errors that a broker or salesperson could reasonably have been expected to avoid and that damage a client (such as the loss of a sale) may be legally actionable.

In banking math, eight discount points increase the percentage yield from one point spread to the next. Thus six discount points would increase the percentage yield 3/4 of a point.

A salesperson may only be compensated by his broker.

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