Chapter 27 Glossary — Estates, Ownership & Title +10California · Real Estate · English

Fee simple (also called fee simple estate or absolute ownership) is the greatest interest one can have in real property. It is unqualified, of indefinite duration, freely transferable and inheritable, and gives the owner unconditional power of disposition.

• ✓Fee simple is the maximum possible estate in land
• ✓Fee simple is freely transferable and inheritable with indefinite duration
• ✓Absolute ownership is a synonym for fee simple estate

Joint tenancy is undivided ownership by two or more with equal shares and right of survivorship. Tenancy in common gives undivided interests without survivorship and interests need not be equal. Community property is acquired by spouses during marriage. Tenancy by the entireties (certain states) is joint ownership by husband and wife with survivorship. Severalty is ownership by one person only.

• ✓Right of survivorship is the distinguishing feature of joint tenancy
• ✓Tenancy in common has no right of survivorship and interests need not be equal
• ✓Severalty ownership means sole ownership by one person

A defeasible fee (base or qualified fee) is a fee simple absolute interest capable of being defeated or terminated upon a specified event. Fee Simple Defeasible (called Conditional Estate in California) is granted subject to a condition subsequent. A determinable fee may end upon happening of an event that may or may not occur.

• ✓Fee Simple Defeasible is granted subject to a condition subsequent
• ✓A conditional estate terminates on the happening of the specified condition
• ✓A determinable fee ends on an event that may or may not occur

A life estate is held for the duration of the life of some person, limited by the life of the holder or another. A freehold estate is of indeterminable duration (fee simple or life estate). An estate of inheritance may descend to heirs; all freehold estates are estates of inheritance except life estates.

• ✓A life estate lasts for the duration of a designated person's life
• ✓Freehold estates include fee simple and life estates
• ✓All freehold estates are estates of inheritance except estates for life

A leasehold estate is a tenant's right to occupy real estate during the lease term and is a personal property interest. Estate for years has a definite limited period; estate from period to period (periodic tenancy) has no definite termination but a fixed rental period; estate at will is terminable by either party; estate at sufferance arises when a tenant wrongfully holds over.

• ✓A leasehold estate is a personal property interest, not real property
• ✓Estate for years is for a definite, limited period of time
• ✓Estate at sufferance arises when a tenant wrongfully holds over after lease expiration

The bundle of rights includes all legal rights of ownership: use, possession, encumbering and disposition. Appurtenances (rights-of-way, easements, water rights, improvements) belong to and pass with the property unless a contrary intention is manifested.

• ✓Bundle of rights includes use, possession, encumbering, and disposition
• ✓Appurtenances pass with the real property unless contrary intent is shown

Fee simple (also called absolute ownership or fee simple estate) is the greatest, most complete interest one can have in real property. It is unqualified, of indefinite duration, freely transferable and inheritable. A fee simple defeasible (conditional estate) is subject to a condition subsequent and may be terminated on the happening of a specified event. A determinable fee ends on an event that may or may not occur.

• ✓Fee simple estate is the greatest interest one can have in real property — unqualified, indefinite, transferable and inheritable
• ✓Fee simple defeasible/conditional estate terminates upon occurrence of a condition subsequent
• ✓A determinable fee may end on the happening of an event that may or may not occur
• ✓Fee is an estate of inheritance in real property

Cotenancy means ownership by more than one person (e.g., tenancy in common, joint tenancy). Joint tenancy is undivided ownership with equal shares and a right of survivorship. Community property is property acquired by husband/wife during marriage not held separately; each spouse has equal rights of management, alienation and testamentary disposition.

• ✓Joint tenancy includes right of survivorship and requires equal shares
• ✓Community property is acquired during marriage; each spouse has equal management and testamentary rights
• ✓Cotenancy = ownership of an interest by more than one person

A freehold estate is an estate of indeterminable duration (fee simple or life estate). A life estate (estate for life) is a possessory freehold estate held for the duration of the life of some person; it may be measured by the holder's life or another's life. Estates of inheritance may descend to heirs; all freehold estates are estates of inheritance except life estates.

• ✓Freehold estate = indeterminable duration; includes fee simple and life estate
• ✓Life estate lasts for the duration of a person's life and is not inheritable
• ✓All freehold estates are estates of inheritance except estates for life

A leasehold estate is a tenant's right to occupy real estate during the lease term and is a personal property interest. Estate for years is for a definite, limited period. Estate from period to period (periodic tenancy) has no definite termination date with a fixed rental period. Estate at sufferance arises when a tenant wrongfully holds over. Estate at will is occupancy for an indefinite period terminable by either party. Chattel real is an estate related to real estate such as a lease.

• ✓Leasehold estate is a personal property interest, not real property
• ✓Estate for years has a definite, limited term; periodic tenancy has no fixed termination date
• ✓Estate at sufferance arises when a tenant holds over wrongfully after lease expiration
• ✓Estate at will is terminable by one or both parties

Bundle of rights includes all legal rights incident to ownership: use, possession, encumbering and disposition. Appurtenances are rights and improvements that belong to and pass with the property (rights-of-way, easements, water rights). Appurtenant items pass with the land when transferred unless contrary intention is shown.

• ✓Bundle of rights = use, possession, encumbering and disposition
• ✓Appurtenances pass with the land upon transfer unless a contrary intention is manifested
• ✓Typical appurtenances include easements, rights-of-way and water rights

Abstract of title is a summary of all transfers, conveyances and legal proceedings showing continuity of ownership and elements impairing title. Chain of title is a history of conveyances/encumbrances from the original patent. Certificate of title is an attorney's written opinion of ownership. Color of title appears to be good title but is not title in fact. Cloud on title is a claim impairing title until removed (e.g., by quitclaim deed or quiet title action).

• ✓Chain of title traces conveyances from the original patent to determine current vesting
• ✓Cloud on title can be removed by a quitclaim deed or a quiet title action
• ✓Certificate of title is an attorney's opinion, not a guarantee
• ✓Color of title appears valid but is not actual title

ALTA title policy (American Land Title Association) expands risks beyond the standard policy to include unrecorded mechanic's liens, unrecorded easements, facts a survey would show, water/mineral rights, and rights of parties in possession. ALTA owner's policy gives buyers/owners the same protection ALTA gives lenders. Exceptions are matters excluded from a specific parcel's coverage; exclusions are general matters excluded from coverage.

• ✓ALTA policy covers unrecorded liens, easements, survey facts, and rights of parties in possession
• ✓Standard policy provides less coverage than ALTA extended coverage
• ✓Exceptions are specific to the parcel; exclusions are general matters removed from coverage

Adverse possession is acquiring title through possession for a statutory period under certain conditions by someone other than the record owner. Accession is addition to property by man or natural forces; accretion is accession by natural forces (alluvium). Avulsion is sudden loss of land by water action. Erosion is gradual wearing away of land. Escheat is reverting of property to the State when no heirs exist.

• ✓Adverse possession requires possession for the statutory period under specified conditions
• ✓Accretion adds land gradually by natural forces; avulsion is sudden loss of land
• ✓Escheat transfers property to the State when heirs are lacking
• ✓Abandonment (failure to occupy/use) may result in loss of rights

The loan-to-value ratio is the percentage of a property's value that a lender can or may loan to a borrower.

• ✓An 80% ratio means the lender may loan 80% of appraised value
• ✓Based on the property's appraised value

Negative amortization occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so unpaid interest is added to the principal due.

• ✓Occurs when payments do not cover accruing interest
• ✓Unpaid interest is added to the principal balance
• ✓Can result from a payment cap on an adjustable rate mortgage

A mortgagor is one who gives a mortgage on their property to secure a loan (the borrower). A mortgagee is one to whom the mortgage is given (the lender or creditor).

• ✓Mortgagor = borrower who gives the mortgage
• ✓Mortgagee = lender/creditor who receives the mortgage

Loan administration (also called loan servicing) refers to the handling of a loan from origination to maturity by mortgage bankers, who both originate loans and service them.

• ✓Servicing includes handling loan payments, delinquencies, impounds, payoffs, and releases
• ✓Mortgage bankers both originate AND service loans
• ✓Also called loan servicing

The loan application is the source of information on which the lender bases the decision to make the loan. It defines loan terms and describes the borrower and the real estate to be mortgaged.

• ✓Includes borrower name, employment, salary, bank accounts, and credit references
• ✓Describes the real estate to be mortgaged
• ✓Stipulates loan amount applied for and repayment terms

Loan closing occurs when all conditions are met and the loan officer authorizes recording of the trust deed or mortgage; the disbursal of funds resembles a real estate sales escrow closing.

• ✓Borrower receives less than loan amount due to title, recording, service, and other fees withheld
• ✓Also called 'funding' the loan
• ✓Loan officer authorizes recording when all conditions are met

A loan commitment is the lender's contractual commitment to make a loan based on the appraisal and underwriting.

• ✓Based on appraisal and underwriting
• ✓Is a contractual commitment by the lender

A note (promissory note) is a signed written instrument acknowledging a debt and promising payment. The note rate determines annual interest charged; a straight note repays principal in a lump sum at maturity.

• ✓Note rate is also called accrual rate, contract rate, or coupon rate
• ✓A promissory note establishes personal liability and is the evidence of the debt
• ✓A straight note repays principal in a lump sum at maturity with interest paid in installments or at maturity

An open-end mortgage permits the mortgagor to borrow additional money after the loan has been reduced without rewriting the mortgage. A package mortgage covers real property, improvements, and movable equipment/appliances.

• ✓Open-end mortgage allows re-borrowing without rewriting the mortgage
• ✓Package mortgage covers real property plus movable equipment/appliances

California passed the nation's first real estate licensing law in 1917, which was declared unconstitutional. The Real Estate Act of 1919 was then adopted and upheld by the State Supreme Court as a reasonable exercise of state power to regulate citizen conduct in the public interest.

• ✓California passed the nation's first real estate licensing law in 1917
• ✓The 1917 law was declared unconstitutional; the Real Estate Act of 1919 replaced it and was upheld
• ✓All 50 states and the District of Columbia have real estate licensing statutes

Government regulation of real estate agents has its foundation in the police power — the power of the state to enact laws within constitutional limits to promote order, safety, health, morals, and general welfare. Laws must be necessary and proper for a genuine public interest and cannot impose unreasonable burdens.

• ✓Police power is the power of the state to enact laws promoting order, safety, health, morals, and general welfare
• ✓Police power laws must be necessary and proper for the protection or advancement of a genuine public interest
• ✓Neither state nor local authority may impose onerous, unreasonable, or unnecessary burdens

Business and Professions Code Section 10153 requires that real estate examinations test knowledge of the English language, arithmetic used in real estate, understanding of conveyancing principles, agency obligations, and knowledge of the Real Estate Law, Subdivided Lands Law and Commissioner's Regulations. The DRE cannot waive the written examination requirement.

• ✓The DRE cannot waive the written examination requirement for any prospective licensee
• ✓B&P Code Section 10153 mandates testing of English language, arithmetic, conveyancing, agency and real estate law knowledge
• ✓Exams test understanding of obligations between principal and agent and canons of business ethics

The examinations test general legal effect of agency contracts, deposit receipts, deeds, mortgages, deeds of trust, chattel mortgages, bills of sale, land contracts of sale, and leases, plus principles of business and land economics and appraisals.

• ✓Candidates must understand general purpose and legal effect of deeds, mortgages, deeds of trust and leases
• ✓Candidates must understand principles of land economics and appraisals
• ✓Candidates must understand bills of sale, chattel mortgages, and land contracts of sale

Real estate financing comes from depository institutions and non-bank sources. Understanding these distinctions is fundamental for brokers and mortgage loan brokers.

• ✓Depository institutions include savings and loan associations, savings banks, commercial banks, thrift and loans, and credit unions
• ✓Non-banks include mortgage bankers, finance lenders, private individuals/entities, pension funds, mortgage trusts, investment trusts, and hedge funds
• ✓Insurance companies are neither depository institutions nor non-banks; they invest premium dollars in real property equities and mortgage loans

The expansion of non-depository lenders led to development of a secondary market through securitization of mortgage loans into mortgage backed securities.

• ✓Mortgage backed securities are qualified by registration for intrastate and by coordination for interstate public offerings
• ✓Securities may be qualified by exemption as private placements under federal and state law
• ✓The secondary mortgage market surpassed traditional loan sources dominant before the 1990's

Life and health insurance companies invest substantial resources in loans secured by real property.

• ✓Life and health insurance industry invests 9.85% to 10.87% of total assets in mortgage loans
• ✓During the last approximately 30 years these companies shifted to income-producing (commercial) properties rather than residential

When a loan application is made, a preliminary report is obtained from a title company to describe the terms of the offer to insure title. It identifies the property (APN, street address, legal description), the current vesting (owner of record), and reveals proposed title policy exceptions such as taxes, liens, easements, and encumbrances. When all title objections are resolved, a lender's title policy insuring the lender's interest must be obtained when the loan is funded.

• ✓A preliminary report identifies property, current vesting, and proposed title policy exceptions
• ✓A lender's title policy must ordinarily be obtained at the time the loan is funded
• ✓The title insurer agrees to defend and indemnify the lender against losses from title defects known or discoverable when issued

A staff or independent fee appraiser inspects the property to estimate present market value and future trends. The loan-to-value (LTV) ratio is the relationship between the loan amount and the fair market value. Most lenders base loan amounts on purchase price or appraised value, whichever is less. The appraisal ascertains current market value, description/condition of land and improvements, applicable zoning, neighborhood conditions, and nature of occupancy.

• ✓Loan-to-Value ratio is the relationship between loan amount and fair market value of the security property
• ✓Most lenders base loan amounts on purchase price or appraised value, whichever is less
• ✓The appraisal must verify zoning consistency with current uses

Depending on the fact situation, lenders address property issues including occupant title claims, sales price and terms for purchases, refinance origination data, additional assessments, historical/projected operating income for income property, and whether work has occurred within the last 90 days that might result in a mechanics' lien.

• ✓Lenders must determine if any work occurred within the last 90 days that might result in a mechanics' lien
• ✓For income property, historical and projected net operating income supporting debt service must be evaluated

When a variable rate mortgage's APR may increase after consummation, the advertisement must state that fact. For example, a 6% initial APR that may vary without limit can be advertised as '6% APR, subject to increase after settlement.' The regulatory trend may impose a 'worst case example' when making such disclosures.

• ✓If the APR may be increased after consummation, the advertisement must state that fact
• ✓A variable rate transaction involves future interest rates unknown at settlement
• ✓Review most recent Regulation Z amendments and Official Staff Commentaries before advertising

Graduated payment mortgages with fixed interest rates, fixed-rate 'buydowns,' and 'step-rate' mortgages are NOT variable rate mortgages. These involve different interest rates known at settlement or loan closing, whereas variable rate transactions involve future interest rates unknown at settlement.

• ✓Fixed-rate buydowns and step-rate mortgages are not variable rate mortgages
• ✓Variable rate disclosure language may not be used for graduated payment mortgages with fixed rates
• ✓All rates in a step-rate mortgage are known at settlement/closing

A seller or creditor/lender may advertise a reduced simple interest rate resulting from a buydown if the ad shows the limited term to which the reduced rate applies, the simple interest rate for the balance of the term, and the APR determined under Commentaries to 12 CFR 226.17(c). Where more than one reduced rate applies, each rate and its respective term must be shown.

• ✓Must show limited term of reduced rate, the balance-of-term simple rate, and the APR
• ✓Where more than one reduced rate applies, show each rate and respective term
• ✓May show the effect of the buydown on payment schedule without triggering additional disclosures under 226.24(c)

Adjustable rate mortgages often have a first-year 'discount' or 'teaser' where the initial rate is substantially reduced (often the margin/spread is not added in year one). An ad for such a plan can show the simple interest rate during the discount period as long as it also shows the APR. Unlike buydowns, it may not be necessary to show the simple rate after the discount period. Example: '6% first-year financing. APR 8.41%; APR subject to increase after settlement.'

• ✓Ad can show the discount-period simple rate only if it also shows the APR
• ✓APR in discounted plans is a composite figure reflecting the first-year rate, subsequent rate, and credit costs
• ✓May show the effect of the discount on the payment schedule during the discount period without triggering other disclosures

In some transactions (particularly graduated payment loans), payments for the first years may be based on a rate lower than what the borrower is liable for, creating 'negative amortization.' Ads containing effective rates must include: (1) the effective/payment rate; (2) the term of the reduced payments; (3) the note rate at which interest is actually accruing; and (4) the APR.

• ✓Effective-rate ads must disclose the effective/payment rate, term of reduced payments, note rate, and APR
• ✓The advertised APR must reflect interest for which the borrower is liable even if not paid during reduced-payment period
• ✓An ad for effective/payment rate may NOT show monthly payments without triggering disclosures under 226.24(d)

When appraising, an inspector evaluates whether the house and outbuildings have a harmonious appearance and are properly situated on the lot. The appraiser must judge whether the home is overbuilt or underbuilt for the site and whether it is properly oriented to take advantage of climatic conditions.

• ✓Determine if the house is too large (overbuilt) or too small (underbuilt) for the site
• ✓Assess proper orientation of the house on the lot for climatic advantage
• ✓Improvements should have a harmonious appearance on the site

The appraiser inspects the exterior to determine quality of construction and resistance to wear and the elements. This includes examining the foundation, walls, and roof, checking gutters and drainspouts, verifying roof overhangs, measuring exterior dimensions to obtain areas, and describing yard improvements for value estimation.

• ✓Inspect foundation, walls, and roof to determine construction quality
• ✓Verify adequate gutters, drainspouts, and roof overhangs to protect the structure
• ✓Measure exterior dimensions to obtain building areas

The interior inspection determines the building's durability, floor plan arrangement, attractiveness of design, grade and quality of materials, and adequacy of heating, cooking, electrical, and plumbing equipment. The appraiser notes room sizes, window placement for light/ventilation, evaluates whether the traffic pattern is functionally proper, and confirms the home has modern conveniences for its price class.

• ✓Evaluate durability, floor plan, design, materials, and equipment adequacy
• ✓Assess whether the traffic pattern is functionally proper
• ✓Confirm the home has modern conveniences necessary for its price class

A residential sale transaction proceeds through concluding the sale (buyer and seller agree to terms with fully executed agreement and joint escrow instructions), legal transfer of title (title insurance furnished, escrow has funds to cash out seller's equity, instruments executed and recorded), and completing the financing with a final settlement statement (disbursement of funds and written accounting to all parties).

• ✓Transfer of title and transfer of money are treated as simultaneous acts
• ✓The escrow holder prepares a settlement statement for the principals to show escrow instructions were fully performed
• ✓A transaction begins when a broker obtains a listing (agency contract) from the property owner

C.A.R. provides standardized forms used in typical transactions. Key forms include AD (Disclosure Regarding Real Estate Relationships), RLA (Residential Listing Agreement Exclusive), RPA-CA (Residential Purchase Agreement and Joint Escrow Instructions), TDS (Real Estate Transfer Disclosure Statement), CR (Contingency Removal), FLD (Lead Based Paint Hazards), NHD (Natural Hazard Disclosure), and SSA (Short Sale Addendum).

• ✓The listing form is the RLA; the purchase agreement is the RPA-CA
• ✓Extensive re-writing of standard forms could be construed as unauthorized practice of law
• ✓C.A.R. helps defend claims that a preprinted provision of a current C.A.R. form is unlawful

An owner enters a listing (RLA) with a listing broker after receiving the AD form. The listing is placed in the MLS unless the seller uses form SEL to exclude it. A selling broker finds a buyer, an offer is made (preceded by AD), negotiated, and accepted forming a contract (RPA-CA). Agency relationships must be confirmed.

• ✓The AD form must be given to the seller before entering into the listing
• ✓The RLA allows 5 days for management approval to cancel
• ✓If dual agency exists, agents must disclose the relationship as soon as practicable
• ✓Form SEL is used if the seller does not want the property in the MLS

IREM was organized in 1933 by property management firms to foster professionalism and provide a source of management experience data. Membership required firms to adhere to specific ethical guidelines. In 1938 IREM shifted its focus to certifying individuals rather than firms, since only a person can be qualified as having 'ability.'

• ✓IREM was founded in 1933 to foster professionalism in property management
• ✓Original member firms had to maintain separate bank accounts for their own funds and clients' funds with no commingling
• ✓Members had to carry a satisfactory fidelity bond on all employees handling funds
• ✓Members could not take discounts or commissions from client expenditures without full disclosure to and permission from the property owner

After 1938, IREM restricted membership to individuals meeting educational and experience requirements. The Certified Property Manager (CPM) is the primary designation; the Accredited Residential Manager (ARM) requires a lesser degree of training and on-site experience. A firm using at least one CPM can earn the Accredited Management Organization (AMO) designation.

• ✓CPM (Certified Property Manager) is granted to individuals meeting educational and experience requirements
• ✓ARM (Accredited Residential Manager) requires a lesser degree of training and on-site experience
• ✓AMO (Accredited Management Organization) is a firm designation requiring at least one CPM
• ✓Only individuals, not firms, can be certified as qualified property managers

NARPM was born in the late 1980s to serve fee managers of single-family homes, holding its first national convention in November 1989. It offers professional designations and promotes ethics, professionalism, and fair housing practices through its Code of Ethics and Standards of Professionalism.

• ✓NARPM was founded in the late 1980s with its first convention in November 1989
• ✓RMP (Residential Management Professional) and MPM (Master Property Manager) are individual designations
• ✓CRMC (Certified Residential Management Company) is for firms managing single-family homes
• ✓CSS (Certified Support Specialist) is a designation for support staff