Chapter 27 Glossary — Title, Deeds & Conveyances +15California · Real Estate · English

A deed conveys title from grantor to grantee. Grant deed is a limited warranty deed assuring no prior conveyance and freedom from grantor-placed encumbrances. Warranty deed contains full warranties; special warranty deed warrants only against defects during grantor's ownership. Quitclaim deed relinquishes any interest without warranty. Gift deed has no consideration.

• ✓A deed must be properly executed and delivered to convey title
• ✓A grant deed assures the grantor has not already conveyed and title is free of grantor's encumbrances
• ✓A quitclaim deed conveys any interest without any warranty of title

Recording places a document on file with the County Recorder to give public (constructive/legal) notice. Priority of claims is generally based on time and date of recording, with earliest recorded receiving preference. Public records impart constructive notice of matters relating to land.

• ✓Recording gives constructive (legal) notice to the public
• ✓Lien priority is generally determined by time and date of recording
• ✓Public records impart constructive notice of matters relating to land

Title insurance protects owners or lenders against certain losses such as defective or unmarketable title. Standard policy covers recorded matters; ALTA (extended) policy covers additional risks like unrecorded mechanic's liens, easements, survey facts, water/mineral rights and parties in possession. Exceptions are excluded specific matters; exclusions are general excluded matters.

• ✓ALTA extended coverage insures against risks a physical survey would reveal and parties in possession
• ✓Standard title policy does not cover unrecorded liens or survey matters
• ✓A title report discloses title condition prior to policy issuance

An abstract of title summarizes all transfers and legal proceedings showing continuity of ownership. Chain of title traces conveyances from the original patent. Marketable title is one a reasonable purchaser would accept. Color of title appears good but is not title in fact. Cloud on title impairs title until removed.

• ✓A chain of title traces ownership back to the original patent
• ✓Marketable title is title a reasonable, informed purchaser would accept
• ✓A cloud on title can be removed by quitclaim deed or quiet title action

An acknowledgment is a formal declaration before an authorized officer (notary public) that execution was the signatory's free act. A notary public takes acknowledgments, signs the certificate and affixes an official seal. Verification is a sworn statement as to correctness of an instrument's contents.

• ✓An acknowledgment confirms the signatory executed the instrument as his/her free act
• ✓A notary public is authorized to take acknowledgments and affix an official seal

Agency is the relationship between a principal and agent arising from a contract (express or implied, written or oral), where the agent is employed to deal with third parties. An agent acts for and with authority from the principal. Actual authority is expressly given by the principal or law. Discretionary powers allow the agent to make judgment-based decisions. Delegation of powers is conferring an agent's powers upon another.

• ✓Agency may be created by express or implied, written or oral contract
• ✓Actual authority is expressly given by the principal or by law
• ✓An agent acts for and with authority from the principal (the person the agent represents)

A fiduciary is a person in a position of trust and confidence, such as broker to principal. Fiduciary duty requires the agent to act in the highest good faith toward the principal and not obtain any advantage by the slightest misrepresentation, concealment, duress or pressure. A gratuitous agent (unpaid) becomes bound to act in good faith once undertaking the agency.

• ✓Fiduciary duty requires the highest good faith toward the principal
• ✓The agent must not gain advantage through misrepresentation, concealment, duress or pressure
• ✓A gratuitous agent, once undertaking to act, is bound to act in good faith and obey instructions

A listing is an employment contract between principal and agent to perform services regarding property. Exclusive agency listing entitles the broker to commission if sold through any broker, but not if the owner sells without an agent. Exclusive right to sell listing entitles the broker to commission if sold during the listing term by any broker or the owner. Commission is the agent's compensation, typically a percentage of the selling price.

• ✓Exclusive right to sell listing pays the broker even if the owner personally sells the property
• ✓Exclusive agency listing does NOT pay the broker if the owner sells without an agent
• ✓A listing is an employment contract authorizing the agent to perform services

Dual agency is when the agent acts concurrently for both principals in a transaction. Imperative necessity gives an agent expanded authority in an emergency, including power to disobey instructions when clearly in the principal's interest and no time to obtain instructions. Attorney in fact is authorized under a power of attorney (limited or general).

• ✓Dual agency means representing both principals concurrently in the same transaction
• ✓Imperative necessity allows an agent expanded emergency authority when acting in the principal's interest
• ✓Attorney in fact acts under a power of attorney which may be limited or general

An independent contractor acts for another but sells final results, and their methods of achieving results are not subject to another's control. This differs from an agent whose acts and methods may be directed by the principal.

• ✓An independent contractor controls the methods used to achieve results
• ✓An agent's methods may be subject to the control and direction of the principal

Market value is the highest price in terms of money which a property will bring in a competitive and open market under all conditions for a fair sale, with buyer and seller acting prudently and knowledgeably.

• ✓Requires a competitive and open market
• ✓Buyer and seller act prudently, knowledgeably, and free of undue pressure
• ✓Distinguished from market price, which is paid regardless of pressures, motives, or intelligence

The market data approach is one of three appraisal methods, comparing recently sold similar-type properties to the subject property. It is commonly used for residential property.

• ✓One of three appraisal methods
• ✓Compares recently sold similar properties to the subject property
• ✓Commonly used for comparing residential properties

Replacement cost is the cost to replace a structure with one of equivalent utility using modern materials and standards. Reproduction cost is the cost to replicate the subject exactly with the same quality and design.

• ✓Replacement cost uses modern materials and current standards
• ✓Reproduction cost creates an exact replica with same workmanship and design

Physical deterioration is loss in value from wear and tear (curable and incurable). Obsolescence is loss due to reduced desirability from outdated design and may be functional or economic.

• ✓Physical deterioration comes from wear, tear, use, and elements
• ✓Obsolescence may be functional or economic
• ✓Straight line depreciation depreciates at a constant rate over useful life

Plottage is the increased value of two or more contiguous lots when joined under single ownership for use as a larger lot; also called assemblage. Plottage increment is the appreciation created by joining ownerships.

• ✓Plottage requires contiguous lots joined under single ownership
• ✓Also called assemblage
• ✓Plottage increment is the appreciation from combining ownerships

Key appraisal principles: substitution sets maximum value by cost of an equal substitute; progression enhances a lesser property near higher-valued ones; supply and demand affects value; surplus productivity fixes land value.

• ✓Principle of substitution: value set by cost of equally desirable substitute
• ✓Principle of progression: lesser property enhanced by higher-valued neighbors
• ✓Principle of surplus productivity: net income after labor, organization, and capital is imputed to land

A narrative appraisal is a summary of all factual materials, techniques, and methods used to set a value conclusion. Quantity survey is a highly technical cost estimate method (price take-off) detailing raw materials and installation costs.

• ✓Narrative appraisal summarizes all factual materials and methods
• ✓Quantity survey is called the price take-off method
• ✓Quantity survey details quantities and prices of raw materials plus installation costs

A real estate association/board is a voluntary organization whose members engage in some phase of the real estate business. Membership in a local association/board automatically makes one a member of the CALIFORNIA ASSOCIATION OF REALTORS and the NATIONAL ASSOCIATION OF REALTORS. This is known as the 3-way agreement. Affiliate membership is open to financial institutions, trust, title, and escrow companies.

• ✓Local association membership automatically confers CAR and NAR membership (3-way agreement)
• ✓Affiliate membership is open to financial, trust, title, and escrow companies
• ✓Licensees fulfilling membership requirements are eligible for REALTOR or REALTOR-ASSOCIATE membership

A trade association is a voluntary nonprofit organization of independent and competing business units engaged in the same industry or trade, formed to resolve the industry's problems, promote its progress, and enhance its service.

• ✓A trade association is a voluntary nonprofit organization
• ✓Its members are independent and competing business units in the same industry

The California Real Estate Association was formed at Los Angeles in 1905, and officially changed its name to the CALIFORNIA ASSOCIATION OF REALTORS on January 1, 1975. Pioneer California organizations include the San Diego Realty Board (1887) and San Jose Real Estate Board (1896). CAR's purpose is to serve members, promote free enterprise, and preserve the right to own real property.

• ✓The California Real Estate Association was formed in Los Angeles in 1905
• ✓The name changed to CALIFORNIA ASSOCIATION OF REALTORS on January 1, 1975
• ✓The San Diego Realty Board (1887) was the pioneer California real estate organization
• ✓CAR offers legislative advocacy, legal services, standard forms, and insurance programs

An agreement between brokers cooperating in the sale of real property to divide fees is neither illegal nor against public policy and is enforced like other contracts not required to be in writing. No partnership or joint venture is created. A cooperating broker who is the procuring cause may recover the selling broker's share from the listing broker. The original broker cannot deprive a cooperating broker of a portion by settling with the principal for less. There is an implied warranty the owner will pay the specified commission, and the original broker is liable to the cooperating broker regardless of a lesser settlement unless the cooperating broker consents. The listing broker is liable to the cooperating broker only if the listing broker actually received a commission from the seller.

• ✓Broker-to-broker commission-division agreements are legal and enforceable, creating no partnership or joint venture
• ✓A cooperating broker who is the procuring cause may recover its share from the listing broker
• ✓The listing broker is liable to the cooperating broker only if the listing broker actually received a commission from the seller
• ✓An abandonment of the division agreement by the cooperating broker frees the listing broker from liability for a share

Under an open listing, a sale by the owner to a person not referred by the broker does not violate the listing and creates no liability. Where there is no termination date in an open listing, the owner may not take advantage of the broker's failure by dealing directly with the agent's prospect. An agency contract that is irrevocable for a fixed time does not prevent the owner from selling within that time to a person with whom the agent had no prior negotiations.

• ✓Under an open listing, the owner may sell to a buyer not referred by the broker without owing a commission
• ✓The owner may not deal directly with the agent's prospect to avoid paying a commission
• ✓An irrevocable-for-a-fixed-time agency does not bar the owner from selling to persons the agent never negotiated with

The commission amount is set in the broker's employment contract. Absent incapacity to read or fraud preventing understanding, the signing party is bound by the express terms. Compensation is usually a percentage of the purchase price. If no amount is stated, the law implies a promise to pay the usual or customary commission charged in the neighborhood for like services. If the owner accepts an offer below the listed price, the listing and deposit receipt usually expressly provide for payment of a commission.

• ✓Commission is set in the employment contract; the signing party is bound absent fraud or incapacity
• ✓If no amount is stated, the law implies payment of the usual/customary commission for like services in the neighborhood
• ✓Accepting an offer below the listing price still typically obligates commission payment per the listing and deposit receipt

MLBs became a substantial source of residential mortgage loan origination. The term 'originate' has expanded over time.

• ✓MLBs originated 50 to 70% of residential mortgage loans (secured by 1 to 4 dwelling units) before the 2007-2008 meltdown
• ✓'Originate' historically meant to fund or make a loan; it now includes arranging loans for lenders and employee loan representatives
• ✓MLBs and lender representatives are re-characterized as Mortgage Loan Originators (MLOs) under the federal SAFE Act of 2008

California MLBs make and arrange loans relying on funds from private investors/lenders, traditionally based on property equity.

• ✓These loans traditionally financed 1 to 4 residential units based on equity rather than purchase
• ✓These loans relied largely on equity in the security property and less on borrower credit worthiness

Vertical construction loans require additional documentation beyond standard loan processing: current preliminary report with date-down, land survey (for ALTA extended coverage), soils report, geologic hazard report, environmental impact report or negative declaration, contractor's resume and construction contract with cost breakdown, design professional contracts and subcontractor bids, government approvals (e.g., Coastal Commission), appraisal showing 'as is' and 'as completed' values per USPAP, evidence of Subdivided Lands Law compliance, and insurance policies.

• ✓Construction appraisals must estimate value 'as is' and 'as completed' in accordance with USPAP
• ✓A land survey may be required for ALTA extended coverage showing exact location of improvements
• ✓Subdivision projects must comply with the Subdivision Map Act with a proper final tract or parcel map

Loan documents securing land development or construction loans are unique and include construction loan and security agreements, UCC-1 filings, assignments of contracts with contractors/subcontractors/design professionals, and assignments of plans, specifications and building permits. These should be reviewed by knowledgeable legal counsel before proceeding.

• ✓Construction loans require UCC-1 filings and assignments of contracts and plans
• ✓Loan documents for construction should be reviewed by legal counsel before proceeding

A creditor/lender must retain evidence of compliance with TILA and Regulation Z (other than advertising requirements under 226.16 and 226.24) for two years after disclosures are required to be made or action is required to be taken. Enforcement agencies may require longer retention.

• ✓Retain compliance evidence for two (2) years after disclosures/action required
• ✓Advertising requirements under 226.16 and 226.24 are excepted from this general rule
• ✓Agencies may require longer retention to carry out enforcement under Section 108 of TILA

A creditor/lender must permit the agency responsible for enforcing TILA and Regulation Z to inspect its relevant records for purposes of compliance.

• ✓Creditor/lender must permit inspection of records by the enforcing agency
• ✓Inspection is for purposes of verifying compliance

The increasing use of syndicates led to the Real Estate Syndicate Act (Business and Professions Code Sections 10250 et seq.) in 1969, operative January 2, 1970. It applied only to noncorporate syndicates owned beneficially by 100 persons or less, formed for the sole purpose of investing in real property. Jurisdiction over these offerings transferred from the Department of Corporations to the Department of Real Estate, while other syndicate offerings (e.g., oil and gas) remained with the Department of Corporations.

• ✓Real Estate Syndicate Act enacted 1969 (B&P Code 10250 et seq.), operative January 2, 1970
• ✓Applied only to noncorporate syndicates of 100 persons or less formed solely to invest in real property
• ✓Jurisdiction moved to DRE; oil/gas and other syndicates stayed with Department of Corporations

Effective January 1, 1978, the Real Estate Syndicate Act was repealed and regulation of all real estate syndicate interest offerings was again vested in the Department of Corporations. A given form of business pooling investment money may constitute a securities offering for which organizers must seek a permit or exemption from the Department of Corporations.

• ✓Effective January 1, 1978, the Real Estate Syndicate Act was repealed
• ✓Regulation of syndicate offerings returned to the Department of Corporations
• ✓A syndicate may be a securities offering requiring a permit or exemption from the Department of Corporations

The 1977 legislation added Corporations Code Section 25206, enabling real estate brokers to sell certain types of security interests without obtaining a broker-dealer license from the Department of Corporations. It also added a provision to the Real Estate Law making it a basis for disciplinary action if a broker violates certain Corporations Code provisions or Corporations Commissioner regulations in transactions involving sale, exchange, or trade of real estate syndicate interests. Brokers should consult Department of Corporations Release No. 62-C (July 2, 1980).

• ✓Corporations Code Section 25206 allows brokers to sell certain security interests without a broker-dealer license
• ✓Violating Corporations Code provisions in syndicate interest transactions is grounds for disciplinary action
• ✓Brokers should consult Department of Corporations Release No. 62-C (July 2, 1980)

An appraisal report should include: a final value opinion in dollars; the value date (past, present, or future); adequate property description including legal description; latitude of reasoning; market and factual data; and signature/certification including license number. Requisites are outlined in USPAP Standards 1 and 2.

• ✓Report must state final value opinion in dollars for the property
• ✓Effective date of value differs from the date of the appraisal (writing/delivery)
• ✓Report must be signed, include license number, and state no present/contemplated interest
• ✓Time of inspection is generally taken as the effective date of value unless otherwise informed

Letter reports are Restricted Use Reports (Standards Rule 2-2(c)) for clients familiar with the area. Form reports are Summary Reports (Standards Rule 2-2(b)) used by lenders, e.g., URAR and SRIPAR. Narrative reports are Self-Contained Reports (Standards Rule 2-2(a)), complete documents for court and out-of-town clients.

• ✓Letter report = Restricted Use Report, governed by Standards Rule 2-2(c)
• ✓Form report = Summary Report, governed by Standards Rule 2-2(b)
• ✓Narrative report = Self-Contained Report, governed by Standards Rule 2-2(a)
• ✓Content and depth of discussion, not format, define the report type in USPAP terms
• ✓URAR = Uniform Residential Appraisal Report; SRIPAR = Small Residential Income Property Appraisal Report

Appraisals are used for transfer of ownership, financing and credit, taxation (ad valorem), condemnation, insurance, and miscellaneous reasons like fraud, damage, and division-of-estate cases. Only improvements can be depreciated, not land, for taxation purposes.

• ✓Appraisals are used for transfer, financing, taxation, condemnation, and insurance
• ✓Normally only improvements can be depreciated, not the land
• ✓Insurance appraisals are based principally upon cost of replacement
• ✓Division-of-estate cases include wills, divorce, and rival claimants

Public records must be checked to verify the property's legal description, correct street address, lot size/dimensions, location relative to the nearest cross street, any easements/restrictions/reservations, the Assessor Parcel Number, assessed value and taxes, and any changes in zoning or street pattern.

• ✓Verify proper legal description, street address, and lot dimensions
• ✓Check for easements, restrictions, reservations, or other interests affecting the property
• ✓Confirm the Assessor Parcel Number, assessed value, taxes, and any zoning changes

To support an appraisal, sales of single family vacant lots should be obtained and verified, and sales of improved single family residences within the same neighborhood should be recorded for comparison purposes.

• ✓Obtain and verify sales of single family vacant lots
• ✓Record sales of improved single family residences in the same neighborhood

Both laws share a common core definition of subdivision as the division of improved or unimproved land for the purpose of sale, lease, or financing, whether immediate or future.

• ✓Common definition: division of improved or unimproved land for sale, lease, or financing whether immediate or future
• ✓The two laws differ on threshold number of parcels and various exemptions

The Subdivided Lands Law and Subdivision Map Act differ significantly in parcel thresholds, exemptions, and coverage of various property types.

• ✓Subdivided Lands Law: 5 or more lots/units/parcels; Map Act: 2 or more
• ✓Subdivided Lands Law has no contiguity requirement; Map Act requires contiguous land
• ✓Subdivided Lands Law excepts 160-acre and larger parcels designated by government survey; Map Act has no such exception
• ✓Subdivided Lands Law includes undivided interests; Map Act does not
• ✓Subdivided Lands Law exempts expressly zoned industrial/commercial subdivisions; Map Act includes them
• ✓Stock cooperatives: Subdivided Lands Law includes them; Map Act only includes conversion of 5 or more existing dwelling units

With regard to the sale of real property, brokerage operations may be divided into: securing listings (developing an inventory) through leads, referrals, and direct canvassing; prospecting for buyers through advertising; negotiating or bringing together a 'meeting of the minds' of buyer and seller; and assisting with closing (transfer of property by the required instruments). Firms compete for listings and cooperate with other brokers to find buyers.

• ✓The four elements are: securing listings, prospecting for buyers, negotiating, and assisting with closing
• ✓Brokerage firms compete for listings but cooperate with other brokers to find buyers

There are three types of property managers. The individual property manager is a real estate broker who manages properties for one or more owners. The individual building manager is employed by a property manager or owner and usually manages a single large property. The resident manager is employed by a broker, managing agent, or owner to manage an apartment building on a part- or full-time basis.

• ✓The individual property manager is a real estate broker managing property for one or more owners
• ✓The individual building manager usually manages a single large property
• ✓The resident manager manages an apartment building on a part- or full-time basis
• ✓Asset managers make owner-level decisions on change of use, refinancing, and sale, and often supervise other property managers

An individual property or building manager's qualification for the CPM designation is determined by training, experience, and number of units managed. The ARM designation additionally considers the size of the property along with training and experience.

• ✓CPM qualification is based on training, experience, and number of units managed
• ✓ARM qualification adds the size of the property to training and experience criteria

The 1943 legislation required persons engaging in business as mineral, oil and gas brokers or salespersons to secure a Mineral, Oil and Gas (M.O.G.) license from the Department. In 1967, the M.O.G. salesperson license was discontinued due to declining appeal, but the broker classification was retained. Real estate brokers did not need an M.O.G. license if the transfer of a mineral, oil or gas interest was 'purely incidental' to the sale, lease or exchange of real property; otherwise, a special M.O.G. permit was needed for up to ten transactions per year.

• ✓1943 legislation required a separate M.O.G. license for brokers and salespersons
• ✓The M.O.G. salesperson license was discontinued in 1967; broker classification retained
• ✓Real estate brokers needed no M.O.G. license if the interest transfer was 'purely incidental' to a real property transaction
• ✓A special M.O.G. permit allowed a real estate licensee to engage in no more than ten M.O.G. transactions per year

In 1984, the licensing laws for mineral, oil and gas brokers were further simplified to conform them to those relating to real estate brokers. This simplification eliminated bonding and quarterly report requirements previously imposed on M.O.G. brokers.

• ✓1984 laws conformed M.O.G. broker licensing to real estate broker requirements
• ✓1984 changes eliminated bonding and quarterly report requirements

Using a 360-day year, to find interest for 30 days at 12% or 60 days at 6%, simply move the decimal point two places to the left. Since 12% per annum equals 1% per month, and 1% is the hundredth part, pointing off two places divides by 100. Example: $8432.67 at 12% for 30 days = $84.33.

• ✓Move decimal two places left for 30 days at 12% or 60 days at 6%
• ✓12% per annum equals 1% per month
• ✓Pointing off two places effectively divides by 100

Quick mental shortcuts exist for common rates: 4%—multiply principal by days, cut off right-hand figure, divide by 9; 5%—multiply by days, divide by 72; 6%—multiply by days, cut off right figure, divide by 6; 8%—multiply by days, divide by 45; 10%—multiply by days, divide by 36.

• ✓5%: multiply by days and divide by 72
• ✓6%: multiply by days, cut off right figure, divide by 6
• ✓8%: multiply by days and divide by 45
• ✓10%: multiply by days and divide by 36

For 7%, compile the interest for 6% and add 1/6 of that amount. For 9%, multiply principal by number of days, cut off the right-hand figure, and divide by 4.

• ✓7%: compute 6% interest and add 1/6
• ✓9%: multiply by days, cut off right figure, divide by 4

For non-standard rates and days, build interest by proportion: compute 6% for 60 days, take half for 3%, add for 9%. Then add fractional day interest (6 days = 1/10 of 60 days; 3 days = 1/2 of 6 days). Example: $7397.64 at 9% for 69 days = $127.61.

• ✓6 days interest = 1/10 of 60-day interest
• ✓3 days interest = 1/2 of 6-day interest
• ✓Combine full-period and fractional-day interest for total