Elect 7 - Semi Fi Lesson 1

Legal Considerations in Appraisal

• Ownership of real estate is a direct function of constitutional guarantees.
• Six legal considerations involved in the ownership of real property that a professional appraiser must understand:
• Fundamental definitions of legal interests
• Limitations on ownership of real estate
• Forms of legal interests
• Property ownership forms
• Four types of legal descriptions
• Types of real estate transfers

Fundamental Definitions of Legal Interests

• Property: all things which are, or may be the object of appropriation.
• Res nullius: physical things that have not or have never had an owner, cannot be owned, and are not, or more accurately cannot be, appropriated.
• Res: things owned by an individual, a group of people, or the state.
• Res Alicujus: things owned by someone, belonging to a particular person.
• Res Alienae: things owned by others, or a group of people.
• Res Communes: property status of a thing while it remains in a wild, unappropriated state, can be owned and are owned by the state.

Real Estate

• Relates to the land and all improvements permanently attached to the land, either by nature or by people.
• Property taxes are the primary funding basis for local operations, including schools.
• If property taxes are not paid, governments have the right to acquire the properties, although proper legal procedures must be followed.

Limitations on Ownership of Real Estate

• Private restrictions on property ownership:
• Deed restrictions
• Easements
• Leases
• Mortgages
• Liens
• Deed restrictions: limitations on the use of real estate through a written legal document that is usually recorded.
• Deed restrictions usually relate to a specific parcel or even a defined subdivision or planned use development.
• When deed restrictions are in conflict with zoning, usually the more restrictive prevails.

Forms of Legal Interests

• Partial interests:
• Air rights
• Surface/subsurface rights
• Air rights: particularly important in urban areas, do not extend indefinitely, and have height limitations imposed by public or private restrictions.
• Surface/subsurface rights: also come into play more in urban areas, where a government agency may acquire subsurface rights for construction of an underground sewerage system.

Property Ownership Forms

• Individual (severalty): the most common form of ownership where one person or corporation owns the entire bundle of rights, still subject to governmental and private restrictions.
• Tenancies: created when the bundle of rights is divided, relating to the possession of title or other ownership form and the right to use and occupy property.
• Undivided interests: relate to the ownership of real property, where the property itself cannot be divided, only the ownership interest.
• Special forms of ownership:
• Condominium
• Cooperative
• Time-share

Special Forms of Ownership

• Condominium: a form of ownership in which an owner has an interest in a certain unit, and also owns a pro-rata share of the common areas within the development.
• Cooperative: a form of ownership in which a corporation owns the land and improvements, and the residents own stock in the corporation.
• Time-share: a partial form of ownership in which other time-share owners purchase the right of use/occupancy for a specified period of time.

Forms of Legal Descriptions

• Four types of legal descriptions:
• Metes-and-bounds description
• Government (rectangular) survey system
• Lot-and-block system
• Monuments system
• Metes-and-bounds description: begins at a point of beginning, using angles and distances to define the geometric shape, and makes reference to a specific land lot, within a district/barangay, within a city/municipality.

Possession of Real Property

• Possession must be apparent, continuous, and uninterrupted for a certain period of time.
• Possession must be exclusive and claimed by the person having the apparent possession.

Forms of Legal Interest

• Fee Simple Estate: The most complete form of ownership, limited by the four powers of government.
• Partial Interests: Any interest less than a fee simple interest, including leased fee estate and leasehold estate.

Partial Interests

• Leased Fee Estate: A landlord's interest in a property when there is a lease encumbering the property.
• Leasehold Estate: A tenant's interest in a leased property.

Limitations on Ownership of Real Estate

• Governmental Restrictions: Includes zoning restrictions, eminent domain, and escheat.
• Private Restrictions: Includes deed restrictions, easements, leases, mortgages, and liens.

Private Restrictions on Real Estate Ownership

• Deed Restrictions: Limitations on the use of real estate through a written legal document, usually recorded.
• Mortgages: A loan or promissory note secured by the real estate, which can lead to foreclosure if not paid back.
• Liens: A charge against a property in which the property is security for payment of a debt.
• Encroachments: A trespass on another's land, which can be corrected by force.
• Adverse Possession: A method of acquiring ownership through possession, requiring several requirements.

Property Ownership Forms

• Tenancies: The possession of title or other ownership form, and the right to use and occupy property.
• Undivided Interests: An interest in the real property, where the property itself cannot be divided, only the ownership interest.

Special Forms of Ownership

• Condominium: A type of ownership where an owner has an interest in a certain unit and a pro-rata share of the common areas.
• Cooperative: A form of ownership where a corporation owns the land and improvements, and residents own stock in the corporation.
• Time-Share: A partial form of ownership where multiple owners purchase the right of use/occupancy for a specified period of time.

Forms of Legal Descriptions

• Legal descriptions are methods of describing real estate to recognize its unique characteristics with regard to location.
• There are four types of legal land descriptions: metes-and-bounds description, government (rectangular) survey system, lot-and-block system, and monuments system.

Metes-and-Bounds Description

• A metes-and-bounds description begins at a point of beginning (POB) and uses angles and distances to define the geometric shape of the parcel.
• It also makes reference to a specific land lot, within a district/barangay, within a city/municipality.

Real Estate and Fixtures

• A dishwasher is considered personal property until it is installed, at which point it becomes a fixture and part of the real estate.
• Examples of fixtures include light fixtures, stoves, and permanently installed basketball goals.

Limitations on Ownership of Real Estate

• Even with fee simple ownership, there can be private restrictions placed on the property by previous owners or developers.
• These restrictions may include minimum floor areas, architectural controls, and placement of improvements.
• Governmental controls, such as zoning and building codes, can also limit the use of real estate.

Public (Government) Restrictions on Real Estate Ownership

• There are four public or governmental restrictions on real estate ownership, known as the four powers of government:
  • Police power: the right of government to regulate land use for the public good, including zoning and building codes.
  • Eminent domain: the right of government to acquire private property for public use.
  • Escheat: the right of government to take possession of property if the owner dies without an heir.
  • Taxation: the right of government to impose taxes on real estate.

Fundamental Definitions of Legal Interests

• Property: all things that can be owned, including physical objects and intangible rights.
• Res nullius: things that have never been owned or can never be owned.
• Res aliquojus: things owned by individuals.
• Res communes: things that are common to all, such as public parks.

Real Estate

• Real estate refers to land and all improvements permanently attached to the land, including buildings and other structures.

Limitations on Ownership of Real Estate

• Private restrictions on real estate ownership can include:
  • Deed restrictions: limitations on the use of real estate through written legal documents.
  • Easements: the right to use part of the land for a specific purpose, such as utility lines or highways.
  • Leases: contractual agreements between property owners and tenants.
  • Mortgages and liens: financial obligations that can limit the use of real estate.

Easements

• Easements can be temporary or perpetual, and can be conveyed from seller to buyer.
• An easement appurtenant is an easement that runs with the land and can be conveyed from seller to buyer.
• An easement in gross is an easement that serves only one person and cannot be conveyed from seller to buyer.

Leases

• A lease is a contractual agreement between a property owner and a tenant, specifying the use of a property for an identified period of time.
• The tenant acquires the right to occupy and use the property, while the owner receives the right to collect rent and has the right of reversion.

Forms of Legal Interests

Partial Interests

• Air rights are particularly important in urban areas, where buildings are constructed within an identified air space.
• Surface/subsurface rights can be sold or acquired, such as for underground sewerage systems or overhead walkways.

Property Ownership Forms

• Individual (severalty) ownership is the most common form of ownership, where one person or corporation owns the entire bundle of rights.
• Other forms of ownership include joint tenancy, tenancy in common, and community property.

Real Estate Ownership

• A dishwasher is personal property when delivered to a construction site, but becomes a fixture and part of the real estate when installed.
• Examples of fixtures include light fixtures, stoves, and permanently installed basketball goals.

Limitations on Ownership of Real Estate

• Fee simple is the purest and most complete form of real estate ownership, but it is not exclusive.
• Private restrictions may be placed on the property by the previous owner or developer, such as minimum floor area, architectural controls, and placement of improvements.
• Governmental controls also limit the ownership of real estate.
• When purchasing real estate, one should recognize that the purchase is made subject to these restrictions.

Public (Government) Restrictions on Real Estate Ownership

• The four powers of government that limit the ownership of real property are:
  • Police power
  • Eminent domain
  • Escheat
  • Taxation
• Police power is the right of government to regulate land use for the public good, and includes zoning and building codes.
• Zoning is intended to promote orderly development of land and generally tends to maximize and maintain an individual parcel's value.

Fundamental Definitions of Legal Interests

• Property refers to all things that can be owned or may be the object of appropriation.
• Res nullius refers to things that have not or have never had an owner, and cannot be owned.
• Res aliquus refers to things owned by individuals or a group of people.
• Res communes refers to things that are common to all and can be owned by the state.

Real Estate

• Real estate relates to the land and all improvements permanently attached to the land, either by nature or by people.

Private Restrictions on Real Estate Ownership

• Easements convey the right to use part of the land for a specific purpose, and divide the bundle of rights.

• Examples of easements include utility companies acquiring easements to extend utility lines through property, and governmental authorities acquiring temporary easements to widen a highway.

• Easements can be classified into two types:

  • Easement appurtenant, which runs with the land and can be conveyed from a seller to a buyer.
  • Easement in gross, which serves only one person and cannot be conveyed from a seller to a buyer.

• Leases are contractual agreements between a property owner (lessor) and a tenant (lessee), specifying the use of a property for an identified period of time.

• The owner usually receives the right to collect rent from the tenant and has the right of reversion, which is the right to get the property back at the end of the lease.

• Mortgages are loan or promissory notes secured by the real estate, and if the loan is not paid back according to the agreed upon terms and conditions, the lending institution can acquire title to the property through foreclosure.

• Liens are charges against a property in which the property is security for payment of a debt, and can take many forms, including condominium association fees and mechanic's liens.

• Encroachments are trespasses on another's land, and can be forced to correct the encroachment.

• Adverse possession is a method of acquiring ownership through possession, and requires several requirements, including open and continuous use of the property for an extended period of time.

Property Ownership Forms

• Special forms of ownership include time-shares, in which other time-share owners purchase the right of use/occupancy for a specified period of time.

Forms of Legal Descriptions

• Legal descriptions are methods of describing real estate to recognize its unique characteristics with regard to location, and include:
  • Metes-and-bounds description
  • Government (rectangular) survey system
  • Lot-and-block system
  • Monuments system

Metes-and-Bounds Description

• A metes-and-bounds description begins at a point of beginning (POB) and uses distance and direction to describe the perimeter of the parcel, eventually returning to the POB.
• A basic understanding of plane geometry is needed in this system because of the emphasis on angles and distances.