Property Ownership, Controls, and Regulations Summary PDF

**Chapter 1: Property --** **Ownership, Controls, and Regulations** **https://www.digitalofficepro.com/ pdf to mp3** **https://www.naturalreaders.com/online/ super reading my PDF** **Classes of Property**: - **Real property** refers to land and anything attached to the land, such as build...

**Chapter 1: Property --** **Ownership, Controls, and Regulations** **https://www.digitalofficepro.com/ pdf to mp3** **https://www.naturalreaders.com/online/ super reading my PDF** **Classes of Property**: - **Real property** refers to land and anything attached to the land, such as buildings and trees. - **Personal property** is anything that is not real property and is movable. Documents like trust deeds and mortgages are personal property, even if they refer to real property. - ***Chattel Real***: A lease that is personal rather than real property. - ***Crops***: Can be real or personal property depending on whether they need to be replanted annually or not. - ***Fixture*:** An item of personal property that is permanently attached to real property. - *Five Tests of a Fixture **(MARIA)*****: Method of attachment, Adaptability of the item, Relationship of the parties, Intent of the parties, Agreement between the parties.** - **Riparian Rights**: Rights of a landowner to reasonable use of water from a watercourse adjoining their land. - **Accession**: Addition of property by natural means (accretion) or unnatural means (annexation). - *Accretion*: Gradual addition to land by the deposit of soil by water. - *Reliction*: Inc rease in land caused by the permanent withdrawal of a body of water. - *Avulsion*: Sudden and violent tearing away of land, typically during a flood. **Estates** - **Freehold Estates**: Ownership interest in real property for an indefinite duration or a life estate for an uncertain duration. - *Fee Simple Estate*: The greatest interest a person can have in real property. It includes present and future interest in the title and is transferable and inheritable. - *Life Estate*: Ownership measured by the life of the holder or another person. It can be sold, encumbered, or leased but only for the term of the life estate. - *Estate in Reversion*: Future interest that returns to the grantor. - *Estate in Remainder*: Future interest held by a third party after the life estate ends. - **Less-Than-Freehold Estate**: Legal interest in real property held by a tenant. - *Estate for Years*: A lease for a fixed term. - *Estate from Period to Period*: A month-to-month tenancy. - *Estate at Will*: Tenancy without a written agreement. - *Estate at Sufferance*: Occupancy of property without paying rent or permission from the landlord. **Methods of Holding Title -- Forms of Ownership** - **In Severalty**: Owned by one person alone. A corporation (being a "legal person") - **Co-Ownership**: Title can be held as tenants in common, joint tenants, community property, general partnership, or limited partnership. - *Tenancy in Common*: Each tenant owns an individual part and can transfer their interest to a third party. There is no right of survivorship. - *Joint Tenancy*: **four unities of joint tenancy: time, title, interest and**. Includes the right of survivorship. The whole title is vested in each tenant. Upon death, the interest passes to the remaining joint tenants. - *Community Property*: Owned by a married couple or registered domestic partners. - *General Partnership*: Created by agreement, with all partners personally liable for debts. - *Limited Partnership*: Requires at least one general partner with limited partners having liability limited to their investment. - *Corporation*: Legal entity holding title in severalty. **Legal Descriptions** - **Metes and Bounds**: The term metes refers to distances, **Bounds are natural or artificial boundaries**, such as rivers and roads. Single monuments or markers such as rocks, fences, iron pipes or other natural or artificial objects also may be used. - **Recorded Maps or Lot and Block System**: Identifies property using recorded maps and lot numbers. - **Rectangular Survey System**: Uses townships and ranges for rural properties. Townships are six-mile squares with 36 sections. **25 of which are perfectly** **Sections: Sections are 1-mile squares in every township. Because townships are 6 miles by 6 miles, there are 36 square miles or 36 sections in a township. Sections are always numbered and located in the same relative positions in any township. As illustrated in this township plat.** Facts about Townships and Section Meridians run north and south Baselines run east and west Range Lines run north and south, parallel to the principal meridian every six miles. Township Lines run east and west, parallel to the baseline, every six miles. Sections are one mile by one mile, 36 in each township and contain 640 acres. 5,280 feet = one mile **Government and Real Property** - **Police Power**: Government's authority to regulate for the common good without compensation. - **Eminent Domain**: Government's power to take private property for public it is done through a process called "condemnation". - *Note:* **Inverse condemnation** is the opposite of eminent domain. Use with just compensation. - **Taxation**: Government's power to taxation to regulate the behavior of the people - **Escheat**: Property reverts to the state when there are no heirs. **Public Restrictions and Control** - **Planning Agency**: Prepares a master plan for long-term development. - Duties: It prepares and adopts a master plan for the city's or county's long term physical development which includes: - **Zoning**: Regulates land use, height limitations, and density restrictions. - *Amendment*: Zoning change for an entire area. - *Nonconforming Use*: Continuation of a use that no longer complies with current zoning. - *Variance*: Allows deviation from strict compliance to prevent economic hardship. ***Conditional Use*: Special use permit for a different use. Zoning classifications and symbols:** **A -Agriculture C -Commercial** **R -Residential M -Manufacturing** **R-I -Single family R-3 -Multiple Units** **Subdivisions** - **Subdivision Map Act: Controls the design of subdivisions and requires maps for local approval.** - **Subdivided Lands Act: Prevents fraud in marketing subdivisions of five or more parcels.** - **Interstate Land Sales Full Disclosure Act (ILSFDA): Federal law regulating sale of unimproved residential lots in interstate commerce.** **Private Control of Real Property** - **Covenant: Agreement to do or not do certain things.** - **Condition Subsequent: If unmet, may result in loss of title.** - **Conditions Precedent: Condition that must be met before the transfer of title.** **Encumbrances: Buyers commonly purchase encumbered property.** - **Liens**: Money burdens placed on property, either voluntarily or involuntarily. - *Specific Liens*: Burden a particular parcel. - *General Liens*: Burden all property of the owner in the county. - **Mechanic's Lien**: Right to record a lien for unpaid work performed on property. - **Preliminary 20-day Notice:** the person performing the work must notify the property owner that he or she is working on the property. **Notice of Completion** The owner may record a Notice of Completion stating that the work has been performed. **Time Limits for Court Action** ***A time limit for recording a claim of lien applies to all claimants.*** **If a Notice of Completion If a Notice of Completion** **has been recorded has not been recorded** Contractor has 60 days Everyone has 90 days after All others (subs) have 30 days completion of the project Claimant may have up to one year if credit terms are involved. **Priority** The priority of a mechanic's lien jumps backward in time to the date that the entire project began **Notice of Non-Responsibility** A recordable document that protects a title owner against a mechanic's lien. **Government liens always have priority**. Multiple government liens have parity with each other. All mechanics's liens date back to the beginning of the improvement which is earlier than the date of recording. This is different from judgment liens which take effect as of the date of recording. There is a **limited period of time in which to file** (record) a mechanic's lien. - **Lis Pendens** -- notice of pending litigation concerning title or possession of real property. \(5) **Attachment Lien (Writ of Attachment)** -- property is held by court order as security for a possible judgment in a pending lawsuit. An attachment lien is valid for **three years**. \(6) **Judgment Lien** -- when an "Abstract of Judgment is recorded, it creates a **court ordered general, involuntary lien upon all real property of the debtor located in the county of recordation**. A judgment lien is valid for ten years and enforced by way of an "execution sale." The court orders the sale of property to satisfy a judgment with a "**Writ of Execution**". I. **Non-Money Encumbrances (Easements, Encroachments, and Restrictions)** -- effect the physical condition or use of the property. **A. Easement- the right to enter or use another person's land within definable limits**. It may be created for any length of time and it is **irrevocable** during the time limit specified. All easements are real property. - - Definitions: B. **Creation of an easement** - \(3) Easement by Necessity: - An easement created by a court to *prevent landlocked property*. C. Terminated multiple ways depending on how it was created. **Encroachments**: Occurs when part of an improvement extends over the boundary line between properties. Fences and buildings are typical forms of encroachment. Even the roof eaves of a building can be an encroachment if it extends into the airspace of a neighboring lot. **Chapter 2** **Transfer of Property and Tax Implication of Property Ownership** **Methods of Acquiring Title** **Deed**: Common method of transferring title. Requires delivery and acceptance during the life of the grantor. **Voluntary Deeds** - ***Grant Deed***: Most important type, implies certain warranties. - ***Quitclaim Deed***: No warranties, often used to clear title defects. - ***Gift Deed*: Given** in return for love and affection. - ***Warranty Deed***: Rare in California, provides explicit warranties. - ***Reconveyance Deed***: Used to cancel a trust deed when a promissory note is paid in full. - **Involuntary Deeds**: Must be recorded to be effective. - ***Sheriff's Deed***: Conveys title from a foreclosure proceeding or execution of a judgment. - ***Tax Deed*:** Conveys title at the end of a tax sale. - ***Trustee's Deed***: Conveys title in a private foreclosure sale. **Essential Elements of a Valid Deed** - Must be in writing, - competent grantor-conveying party **Adverse Possession** - Ownership recognized by courts after fulfilling five elements - Open and notorious occupation, - continuous for five years, - hostile to the true owner's interest, - held under a claim of right or color of title, - Claim of right- Adverse possessor asserts claim that he/she is the owner. - Color of title- Holds document appearing to give good title (for example, a forged deed). e. Payment of taxes for five consecutive years. **Title Insurance** - Protects against losses from defective or unmarketable title. - Preliminary title report and commitment list policy exceptions and exclusions. - Standard and extended coverage policies offer different levels of protection. **b. Transfer by Will (Testate)** 1. **Types of Wills**: - **Statutory Will**: A form approved by statute. - **Witnessed Will**: More formal, typically created with legal assistance. - **Holographic Will**: Entirely handwritten by the testator. 2. **Transfer by Will**: - Real property transferred by will is called a **devise**, involving parties known as **devisor** (testator) and **devisee** (recipient). - Personal property transferred by will is called a **bequest**, with the property itself referred to as a **legacy**, involving parties known as **legator** (testator) and **legatee** (recipient). **c. Intestate Succession** 1. **Definition**: Occurs when a person dies without a will, known as dying intestate. 2. **Distribution**: Governed by the Law of Succession when no will exists. 3. **B. Public Recording System** 1. **Purpose and Role**: - Each county must have a County Recorder by state law. - The primary duty of the Recorder, Court, Clerk, and other public sources is to collect and maintain records in a convenient and secure public place for public inspection. 2. **Acknowledgement**: - A formal declaration before a notary public or certain officials by the grantor (person who signed the deed) confirming they executed (signed) the document. - Serves as protection against forgery and establishes the document as prima facie evidence in court. - A deed must be acknowledged to be recorded. Recording is optional but recommended for documents affecting property title. 3. **Notary Public**: - A licensed public officer who witnesses acknowledgments. - Cannot notarize documents in which they have a personal interest. - Employees of corporations may notarize deeds involving the corporation if they have no personal interest in the transaction. 4. **Public Inspection**: - Purchasers, lenders, and other interested parties can inspect public records to gather necessary information before entering transactions. - Failure to inspect can impact one\'s interests. 5. **Types of Notice**: - **Constructive Notice**: Recording documents notifies all persons (the world) of their existence, regardless of whether they personally inspected the records. This principle is known as constructive notice. - **Actual Notice**: Direct and explicit information about a fact, such as visible claims on a property. - Priority of interest is established by the principle \"first in time, first in right,\" meaning the first recorded interest generally holds priority over later ones. 6. **Unlikely to be prorated:** 7. Insurance- Buyer will purchase new policy. If the term of seller's 8. insurance is not complete, insurer may charge "**short rate**". (Example: if full year's policy was \$1,000, but policy is cancelled after 6 months, short rate might be \$650 for the half-year) **Capital Losses** With only a few exceptions, capital losses result when an owner sells, exchanges, or otherwise disposes of assets for less than he paid for them. Capital losses are fully deductible against capital gains. **Installment Sale** A method of reporting gains for income tax purposes when the sales price is being paid in one or more installments, such as with promissory note, or a lump sum is being paid in a tax year after the year of sale. **Tax deferred Exchanges (Section 1031)** **Exclusion on Sale of Principal Residence** **(a) Since May 7, 1997, a single taxpayer may exclude up to \$250,000 and married persons filing jointly may exclude up to \$500,000 of the capital gain on the sale of their principal residence.** **(b) This exclusion is allowable each time a taxpayer sells his or her principal residence but cannot be done more than once every two years.** **(c) A taxpayer must have owned and lived in the home as a principal residence for at least two of the five years prior to the sale.** **Escrow/Closing Statements** - Neutral third party manages the transfer of funds and instruments. - Escrow instructions must align with the original contract. - Escrow agents act as dual agents for both buyer and seller until closing. - Closing statements detail debits and credits for both parties. **Tax Aspects of Real Property** - Property tax based on value, assessed by county tax assessors. - Tax calendar: No Darn Fooling Around (November 1, December 10, February 1, April 10). - Special assessments and supplemental assessments apply. - Income tax considerations for ordinary income, capital gains, and losses. - Tax deferment methods: installment sales and Section 1031 exchanges. - Homeowner's tax advantages include exclusions on the sale of the principal residence and personal income tax deductions. **Chapter 3** **Contracts in Real Estate** 1..**Creation of a Contract**: - **Express Contracts**: Established by oral or written agreement. - **Implied Contracts**: Established by conduct. - **Bilateral Contracts**: Both parties promise and are obligated. - **Unilateral Contracts**: One party promises, obligation upon performance by the other. 2. **Performance and Discharge**: - **Executed Contracts**: Fully performed. - **Executory Contracts**: Not yet performed. - **Amendment**: Written changes agreed by both parties. - **Addendum**: Addition to a contract signed by all parties. - **Novation**: Substitution of a new agreement. - **Legal Impossibility**: Duty cannot be legally performed. - **Mutual Rescission**: Return to pre-contract positions. 3. **Remedies for Breach**: - **Damages**: Compensation for breach. - **Specific Performance**: Court-ordered fulfillment of terms. - **Liquidated Damages**: Pre-agreed sum for breach. 4. **Additional Notes on Contracts**: - **Oral Contracts**: Enforceable if proven, though not always required in writing. - contract. It is not always required that a contract be in writing. Many kinds of oral contracts are legally enforceable if the understanding can be proved to the satisfaction of the Court or jury. **B. Types of Real Estate Contracts** 1\. **Listings** a\. **Exclusive Authorization and Rights to Sell Listing** -- a contract in which the owner agrees to sell through the listing broker only. b\. **Exclusive Agency Listing** -- contract in which the seller agrees to pay a commission to the listing agent c\. **Open Listing (Nonexclusive Listing)** -- a contract given by the owner authorizing the broker to act as his agent d\. Net Listing A net listing may be an open, exclusive right to sell or exclusive agency listing. **General Listing Information:** a\. **Definite Termination Date**: An exclusive listing must specify a termination date agreed upon by both the seller and the listing agent. b\. **Due Diligence**: When a broker accepts an exclusive right-to-sell listing, they are obligated to use due diligence to find a buyer, which includes advertising the property. c\. **Authority to Accept Deposits**: Typically, the listing authorizes the broker to accept a deposit as the seller\'s agent. If a broker receives a deposit without authorization, they are considered the buyer\'s agent for that transaction. d\. **Oral Listings**: It is permissible for a real estate broker to accept a commission under an oral listing if the seller wishes to pay one. e\. **Broker\'s Safety Clause**: Included in the Exclusive Authorization and Right to Sell listing agreement. The broker must notify the seller immediately after the listing expires of the names of these prospective buyers. f\. **Non-Assignable**: A listing is a personal service contract and therefore non-assignable. g\. **Requirements of a Bona Fide Listing**: Include seller\'s and agent\'s signatures, terms of sale, property address, and broker/agent compensation. h\. **Commission Split Contracts**: Enforceable contracts to split commissions between brokers. i\. **Ownership of Listings**: Listings belong to the broker under whom the salesperson is licensed. The commission structure for salespersons is governed by a written agreement required by commission regulations. **Purchase Agreement** **a. Offer and Acceptance**: The buyer\'s signed form is an offer, becoming a contract only when the seller signs and communicates acceptance. **b. Response Time**: The seller must respond within a specified time. 1. No timely response revokes the offer, returning the buyer\'s deposit. 2. The buyer can withdraw the offer before the seller\'s acceptance. **c. Termination of Offer**: 1. Buyer withdraws before acceptance, getting the deposit back. 2. Seller rejects or makes a counteroffer. 3. Buyer dies before acceptance. 4. Time limit expires. **Names of Parties**: Both parties must have legal capacity. 1. **Description of Premises**: Must describe the rental property adequately. 2. **Rent Amount**: Specifies rent, typically due at the end of each term unless agreed otherwise. 3. **Term**: Must be in writing if it exceeds one year, per the Statute of Frauds. 4. **Intent to Rent**: Clear intention to rent, but specific words like let, rent, or demise are not necessary. 5. **Signatures**: Lessee\'s signature not required if rent is paid and possession is taken; lessor must sign. 6. **Delivery and Acceptance**: Lease must be delivered and accepted by the lessee. *Note*: To record the lease, the lessor\'s acknowledgment is needed. **Types of Lease Based on Rent Establishment** 1. **Flat, Fixed, or Straight Lease**: Rent is a fixed sum paid periodically. 2. **Net Lease**: Lessee pays agreed rent plus operating costs (maintenance, insurance, taxes). A Triple Net lease includes all these expenses. 3. **Graduated Lease**: Rent varies with an escalator clause. - **Step-up Lease**: Rent increases over time. - **Index Lease**: Rent is tied to an index. 4. **Percentage Lease**: Rent based on a percentage of gross receipts, with a minimum amount. 5. **Sandwich Lease**: Original lessee\'s interest after subleasing. 6. **Ground Lease**: Lease of land only, sometimes secured by improvements made by the lessee. **Property Management Agreement** A contract between a property owner and a brokerage managing the property. Compensation is usually a percentage of gross rent collected. **a. Parties**: 1. Property owner is the principal. 2. Broker is the agent. **b. Manager's Responsibilities**: 1. Marketing space to attract tenants. 2. Collecting rents and complying with rent control rules. 3. Negotiating leases and investigating applicants\' qualifications. 7\. **Option** a\. Optionee has no obligation to buy. f\. **Listing With Option to Buy** -- in order to exercise the option to buy, the **agent must reveal to seller (in writing), any offers on the property and the amount of his profit.** Additionally, to exercise his option the **agent must obtain the written consent of the seller.** **Chapter 4:** **Real Estate Finance** **A. Finance Documents** In real property financing, the lender typically uses one of two common security instruments: **a Mortgage or a Deed of Trust (Trust Deed).** Both serve as security for the loan, allowing the borrower to retain possession of the property while it is pledged as collateral. The key points are: 1. **Security Instrument:** - **Mortgage or Deed of Trust is used to secure the loan.** - **Recorded and becomes a public record.** - **Contains loan details.** 2. **Borrower\'s Note:** - **Signed by the borrower and held by the lender.** - **Not recorded.** - **Serves as evidence of the loan and can be sold.** **Terminology**: Although \"mortgage\" and \"trust deed\" are often used interchangeably, they are distinct instruments. **Parties** **(1) Mortgage** **(a) Mortgagor (Borrower)** **(b) Mortgagee (Lender)** **Promissory Note** A negotiable instrument serving as evidence of debt, also known as a \"debt repayment contract.\" - **Straight Note (Term Note)**: Entire principal paid at maturity. Interest may be paid during the term or at maturity, often with higher rates than amortized installment notes. - **Amortized Installment Note**: Requires periodic payments of both principal and interest, with amortization describing the gradual repayment of a loan. - **Balloon Loan**: Partially amortized, resulting in a larger balloon payment at the end. **3. Paid in Full -- Loan Security Release** **a. Mortgage** - When fully paid, mortgage obligation ends. - Mortgagee issues \"satisfaction of mortgage\" to mortgagor, recorded to notify full debt payment. **b. Trust Deed** - When fully paid: - Beneficiary instructs trustee to reconvey bare legal title. - Trustee executes and delivers reconveyance deed to trustor. - Recording reconveyance serves as notice of full debt payment. **4. Foreclosure** Foreclosure occurs when a borrower defaults on previously agreed covenants outlined in the loan document, which gives the lender the right to seize and sell the property to recover the loan amount. Some common default causes include: - Non-payment of principal and interest - Non-payment of taxes - Inadequate or no insurance - Failure to maintain the property (waste) **5. Default on a Mortgage** Default on a mortgage typically leads to a court foreclosure process. After a foreclosure sale: - The mortgagor (borrower) has the statutory right of redemption, allowing them to reclaim the property by paying off the loan in full. - The mortgagor retains possession until the right of redemption expires. **a. Mortgage Redemption** - The mortgagor can redeem by paying the entire loan amount plus all associated expenses. **b. Time Period for Redemption:** 1. **No Deficiency Judgment Available**: 3 months. 2. **Deficiency Judgment Available to Lender**: 12 months. - If the borrower doesn\'t redeem within the statutory period, the Sheriff issues a Sheriff's deed transferring title to the successful bidder. - Judicial foreclosure typically takes 1-2 years to finalize, prompting most lenders to prefer trust deeds for quicker foreclosure processes. **6. Default on a Trust Deed** - A beneficiary may opt for court foreclosure to pursue a deficiency judgment against the trustor. - More commonly, the beneficiary chooses trustee foreclosure via trustee sale, the fastest method, taking at least four months. **a. Insurance Companies** 1. **Loan Correspondents**: - Mortgage companies typically negotiate and service loans for insurance companies. 2. **Construction Loans**: - Insurance companies usually do not provide short-term construction loans. 3. **Preferred Loans**: - Favor large, long-term loans on existing commercial properties. - Example: A developer seeking a long-term loan to purchase and rehabilitate an existing shopping center would borrow from an insurance company. **c. Commercial Banks** - **Preference**: Favor short-term loans, making them a primary source for construction financing (interim loans). - **Regulation**: Controlled by the Federal Reserve Board, which influences the money supply through: 1. **Adjusting the Discount Rate**: Raising it tightens the money market. 2. **Changing Minimum Cash Reserve Requirements**. 3. **Buying or Selling Government Bonds**: Selling bonds through the Federal Open Market Committee tightens the money supply. **d. Non-Institutional Lenders** Non-Institutional lenders include: 1. **Mortgage Companies**: - **Operations**: Make real estate loans and sell them to investors. - **Loan Servicing**: Handle loan payments and day-to-day supervision for investors. - **Loan Types**: Provide funds for government-insured/guaranteed loans (FHA, VA) and conventional loans. 2. **Private Individuals**: - Engage in lending as non-institutional sources of financing. 3. **Organizations that are not Financial Institutions**: - Include various entities that provide real estate loans outside traditional banking institutions. **A. California Real Estate Laws and Regulations** **1. Real Estate Commissioner** **d. Renewal of Broker's License** - Requires 45 hours of continuing education, including Consumer Protection classes. **2. Real Estate Salesperson's License (held by natural person only)** **a. Education Requirement:** 1. Successful completion of three-semester unit college-level courses: Real Estate Principles, Real Estate Practice, and one optional course (e.g., Legal Aspects of Real Estate). **b. Experience Requirement:** 1. None. **c. License Application:** 1. After passing the license exam, a person has one year to apply for a license. **d. License Term:** 1. All real estate salesperson licenses are issued for four-year terms. **e. Continuing Education Requirements:** 1. **First Renewal** (salesperson and broker licenses): - 45 hours of continuing education, including: - 15 hours covering three hours each in Ethics, Agency Trust Fund Handling, Fair Housing, and Risk Management. - 18 hours of Consumer Protection courses. - 12 additional hours in either Consumer Protection or Consumer Service. 2. **Subsequent Renewals**: - 45 hours of continuing education of approved offerings. 3. **Failure to Meet Continuing Education Requirements**: - License is canceled if requirements are not met by the end of the four-year term. - A two-year grace period is provided to complete CE requirements, pay a late fee, and renew the license. - During the grace period, the licensee cannot perform licensed acts or receive compensation for such acts until CE requirements are met and the license is renewed.  **Sole Proprietor Broker:** - If a broker operates alone as a sole proprietor and their license is canceled due to reasons like death, suspension, revocation, or expiration, all their salespersons lose their ability to conduct real estate activities temporarily. - This \"cancellation\" means the broker cannot legally perform any activities that require a real estate license, but it\'s not a permanent loss of license.  **Real Estate Corporation (Designated Broker):** - When a broker serves as the designated broker for a real estate corporation: - a\. All real estate licenses are issued in the name of the corporation. - b\. The corporation must appoint a broker-officer. If the designated broker-officer can no longer serve (e.g., due to death), another broker-officer must be approved by the Bureau of Real Estate (BRE) to maintain the corporation\'s license.  **Real Estate Firm Partnership:** - In a partnership: - a\. Two brokers can form a partnership together. - b\. Salespersons work under the supervision of a broker who is a partner in the firm. - c\. Non-licensees can be part of the firm, but they cannot perform any activities that require a real estate license.  **Operating under a Fictitious Business Name (DBA):** - If a real estate firm operates under a fictitious business name: - a\. The firm must file a fictitious name statement with the County Clerk to register the DBA. - b\. This filing must be renewed every five years. - c\. The Bureau of Real Estate must receive a copy of the DBA filing to ensure compliance with regulatory requirements. **5. Prepaid Rental Listing Service License:** - **PRLS Company Definition:** A PRLS company provides lists of residential real properties to prospective tenants and charges them upfront fees for these lists. **6. Business Opportunity Brokerage -- Definitions:** - **Business Opportunity Definition:** It involves the sale of an existing business or enterprise, including its goodwill (anticipated continued patronage). **Sales Law:** - **a. Purpose:** Designed to protect both creditors and buyers of businesses. - **b. Buyer\'s Responsibilities:** - \(1) Record a Notice of Intention to sell at least 12 business days before closing. - \(2) Publish the notice in a newspaper of general circulation. - \(3) Mail a copy of the notice to the tax collector. - **c. Successor Liability:** A buyer who complies with these requirements avoids \"successor liability.\" - **d. Non-Compliance Consequences:** - \(1) The agreement between buyer and seller remains valid. - \(2) However, creditors may have the right to void the agreement. **Mobile Homes:** - **a. Classification:** Mobile homes are considered personal property under the jurisdiction of the Department of Housing and Community Development (HCD). - **b. Licensee Authorization:** Real estate licensees can assist in buying and selling mobile homes without needing a Mobile Home Dealer's License from HCD if: - \(1) The mobile home has been previously registered (used) with HCD. - \(2) It is located in a mobile home park where its use may continue for more than a year, or - \(3) It has been permanently installed on a foundation on the owner's lot and classified as real property. - **c. Advertising Withdrawal:** Licensees must withdraw advertising within 48 hours after being notified that a mobile home is no longer for sale. - **d. Transfer Notification:** Licensees must provide written notice of the transfer of a used mobile home no later than the end of the tenth calendar day after the sale. **Mortgage Loan Brokers** **Article 5 of the Real Estate Law:** - Regulates real estate licensees who broker loans. - Requires written authorization from lender or borrower: 1. Before accepting purchase or loan funds. 2. To service promissory notes or contracts of sale. **Article 7 of the Real Estate Law (Real Property Loan Law):** - Requires a Mortgage Loan Disclosure Statement for loans on 1 to 4-family residential transactions: 1. Must use a form approved by the Real Estate Commissioner. 2. Signed by both borrower and licensee, delivered before borrower is obligated. 3. Broker must retain a copy for three years. 4. Exemptions: lender is a bank/S&L, and broker\'s commission ≤ 2%. - Brokers must disclose when lending their own or relatives\' funds. **Real Estate License Requirements:** - Real estate activities require a broker\'s license, can be performed by a licensed salesperson employed by a broker. - Salespersons conduct business under the broker\'s name. - Brokers must supervise salespersons and manage transaction documents. - Authority can be delegated to another broker with written permission. **Salesperson Requirements:** - A salesperson must have written authorization and at least two years of recent full-time real estate experience to conduct activities requiring a real estate license. **Trust Account Management and Record Keeping Requirements:** 1. **Commingling:** - Commingling occurs when trust funds (money or other valuables held on behalf of others) are not deposited or placed into designated accounts within three business days. This is a misdemeanor. - Trust funds must be deposited into: - A neutral escrow account, - The hands of the principal (e.g., seller or buyer), - The broker's trust depository, - Or a designated fund account. 2. **Conversion:** - Conversion refers to the misappropriation of trust funds that belong to another party. This is considered a felony and is a serious offense. 3. **Record Keeping:** - Real estate brokers have a fiduciary duty to maintain accurate records of all trust funds they handle. - A trust record must document every instance of trust funds passing through the broker's hands. - Even unintentional failure to account for trust funds is a violation of the law. - There is no record requirement if funds are handled outside the broker's office, such as when a buyer directly deposits funds into escrow or pays the seller directly. - Specific requirements for record keeping include: - Keeping accurate records. - Retaining these records for at least three years. - Making these records available for inspection by the Commissioner. 4. **Trust Account Requirements:** - The trust account must be a checking account held at a bank or financial institution where the broker is designated as the trustee. - It must be segregated, meaning it should only contain funds belonging to clients or customers. - The account must allow for withdrawals without prior notice for authorized purposes related to real estate transactions. **Additional Trust Account Management Requirements:** c\. **Trustee Designation:** - The trust account must name the broker as the trustee. However, the broker can authorize a licensed salesperson employed by them or a bonded non-licensed employee (such as a bookkeeper) to withdraw funds from the trust account. d\. **Commission Transfer:** - Earned commissions should be promptly transferred from the trust fund account to the broker\'s operating account, as they are no longer considered trust funds once earned. e\. **Minimum Balance and Deposits:** - There is no requirement to maintain a minimum balance in the trust account. - The broker can deposit up to \$200 of their own funds into the trust account to cover service charges. f\. **Check Handling:** - All checks drawn from the trust account should be sequentially numbered. - Voided checks must be retained for record-keeping purposes. g\. **Monthly Reconciliation:** - The trust account must be reconciled monthly to ensure that the balance in the account matches the broker\'s records. This reconciliation helps to identify any discrepancies or errors promptly. h\. **Check Clearance for Deposits:** - A deposit should not be returned until the check from the offeror (buyer) has cleared the bank - Disbursements from the trust account that reduce the balance below the obligations to the principals (buyers or sellers) require their written consent. This ensures that funds are disbursed only with the explicit approval of the parties involved. **E. Fair Housing Laws** c\. **Prohibitions** It is a violation of the Federal Fair Housing Act to do any of the following: 1. Refuse to show, rent, sell, negotiate, or deal (if asked by seller or buyer to discriminate, broker should cancel listing.) 2. Offer different terms 3. Advertise limited availability 4. Make false statements regarding availability in order to change or maintain the ethnic character of a neighborhood (for example, directing a couple of mixed race to a different neighborhood). 5. Induce panic selling (for example, suggesting neighbors should sell because members of a certain racial or ethnic background have moved in.) This is an example of "blockbusting". d\. Complaints must be filed with the Department of Housing and Urban Development (HUD). The Civil Rights Act of 1968 allows a person who is discriminated against to bring a private action in a state or federal court. e\. The Federal Open Housing Law is enforced by the U.S. Attorney General when a conspiracy exists to resist the Law. 2. **California State Law** a\. **Unruh Civil Rights Act** -- prohibits discrimination by businesses. b\. **Rumford Act** -- forbids discrimination in housing transactions. - Complaints are submitted to the Department of Fair Employment and Housing, which also enforces fair housing laws on the state level. - In violation of the Rumford Act: (a) The owner must complete the rental or sale, or; (b) The complainant is entitled to the next available unit, or; (c) The owner must pay damages. c\. **Housing Financial Discrimination Act (Holden Act)** -- makes discrimination in lending practices illegal. 1. **Prohibits "Redlining"**: Lending institutions cannot charge higher interest rates or deny loans in certain neighborhoods based on \"suspect characteristics\" such as race, color, creed, age, national origin, etc. 2. **Prohibits Translation Fee**: Lending institutions are prohibited from charging borrowers a fee to translate loan documents into their language. d\. **General Fair Housing Information**: 1. **"Steering"**: Showing minority buyers homes only in segregated areas (e.g., avoiding showing Hispanic buyers homes in areas where no Hispanics currently live) is prohibited. 2. **Disclosure of Buyer/Tenant Characteristics**: The race, creed, or color of a buyer or tenant is not a material fact and should not be disclosed by an agent to their clients, even if asked. 3. **Price Discrimination**: Quoting different prices to minorities and non-minorities can lead to liability for damages in lawsuits. 4. **Racial Deed Restrictions**: Restrictions based on race in property deeds are unconstitutional and unenforceable, though the deed itself remains valid. 5. **Discrimination Against Unmarried Tenants**: Discriminating against unmarried tenants is a violation of fair housing laws. 6. **Panic Selling (Blockbusting)**: Persuading neighbors to sell by suggesting that members of another ethnic group are moving into the neighborhood is illegal under both state and federal law. 7. **Basis for Discrimination**: The only permissible basis for discrimination is a person\'s economic status, specifically their ability to pay rent or loan payments. 8. **Innocent Buyer**: A buyer who unknowingly purchases a home involved in discriminatory practices by the seller and agent is not guilty of discrimination themselves. 9. **Advertising**: Advertising a home in a minority neighborhood in a newspaper directed to minorities is legal, as long as the same home is also advertised in newspapers directed to the general public. 10. **Refusal to Show Property**: An agent is not guilty of discrimination if they refuse to show a minority buyer a home when instructed by the seller, who is away and has specified the home is not available for showing until their return. **Disclosure About AIDS** An agent is not required to disclose if a prior occupant had or died of AIDS, unless explicitly asked. **3. Other Laws and Regulations Regarding Discrimination** ***a. Real Estate Law*** Discrimination is grounds for the suspension or revocation of a real estate license. ***b. Real Estate Commissioner*** A licensee engaging in discrimination based on race, color, sex, religion, ancestry, physical handicap, marital status, or national origin -- the protected classes -- is subject to disciplinary action. ***c. California Attorney General*** The Attorney General opines that mentioning a person's race, color, or creed is not a material fact and should not be disclosed to an owner, even if requested. However, the ethnic composition of an area may be disclosed to a prospective buyer if it is done in good faith. ***d. National Association of Realtors (NAR)*** Members of the NAR violate the Code of Ethics if they: - Discriminate in administering professional services, or - Participate in any plan or agreement to discriminate. ***Exemptions to Fair Housing Laws*** 1. **Rental or Sale of a Single-Family Home by an Owner** 2. **Rental of Units in Buildings with 4 or Fewer Units if the Owner Occupies One of the Units** 3. **Nonprofit Organizations Restricting Lodgings to Members Only** 4. **Rental or Sale of Units in Buildings with at Least 80% Occupied by Individuals Aged 55 or Older Based on Familial Status** ***Equal Opportunity Poster Requirement*** 5. **Brokers Must Display \"Equal Opportunity\" Poster** - **a.** Poster must be in each office or place of business. - **b.** Failure to display can shift the burden of proof to the broker in a discrimination complaint. **Disclosures Regarding Real Property** **California Environmental Quality Act (CEQA)** - Since 1970, CEQA guidelines ensure governmental agencies consider the environmental impact of decisions, requiring Environmental Impact Reports (EIR) or Negative Declarations for developments. **Lead-Based Paint Hazards** - Owners of residential dwellings built before 1978 must disclose lead-based paint hazards to agents and prospective buyers or renters. Exceptions include foreclosures and senior housing. Agents must ensure: - **a.** Principals are aware of disclosure agreements. - **b.** Required notifications are made. - **c.** EPA pamphlet is received by buyer or lessee. - **d.** Buyers are offered an inspection. **California's Environmental Hazards Pamphlet** In addition to disclosing environmental hazards in the Transfer Disclosure Statement (TDS), the seller or the seller's agent can give the buyer the Environmental Hazards Pamphlet. **Natural Hazards Disclosure Agreement** - Statutory natural hazard disclosure agreements are mandatory for California real estate transactions, potentially with additional local requirements. If a property falls under TDS requirements, sellers and their agents must disclose information from specified sources, and all involved parties must sign. **Alquist-Priolo Special Studies Zones Act** - This legislation regulates development near hazardous earthquake faults to ensure public safety. - a\. Despite seismic shaking being more damaging, the act focuses exclusively on surface fault rupture. - b\. A \"special studies zone\" extends one quarter mile or more around the fault trace, posing potential hazards for human occupancy or construction. - c\. Real estate licensees acting as agents for sellers must disclose to potential buyers if a property is situated within a designated special studies zone. **Transfer Disclosure Statement (TDS)** - This is a mandatory disclosure that sellers and their agents must provide to buyers. - a\. Application: - Must be furnished to buyers promptly before property transfer. - Applies to all transfers of 1-4 family dwellings, as well as manufactured or mobile homes through sale, exchange, installment sale, or lease option. - Replaces the principle of caveat emptor (\"let the buyer beware\"). - Waivers are prohibited, even in sales designated \"as is.\" - No repairs are mandatory based solely on the TDS disclosure. *b. **Exemption*** - \(1) Sales ordered by the court, including foreclosure, bankruptcy, and probate. - \(2) Deed in lieu of foreclosure. - \(3) Administration of an estate or trust. - \(4) Transfer between co-owners. - \(5) Transfers between family members or as part of a divorce. c\. **Purchaser's Right to Rescind** - \(1) Buyers have three days to terminate an offer if the Transfer Disclosure Statement (TDS) is personally delivered. - \(2) Buyers have five days to terminate an offer if the Transfer Disclosure Statement (TDS) is mailed. d\. **Affirmative Duty of Listing and Selling Brokers** - Listing and selling brokers are required to conduct a reasonably competent and diligent inspection of residential properties listed for sale. They must disclose to prospective purchasers all facts materially affecting the value or desirability of the property that such an investigation will be included on the Real Estate Transfer Disclosure Statement. e\. **Disclosure of Certain Information** - \(1) The California Legislature specifies that certain information does not constitute a material fact: - No legal action can be taken against an owner, their agent, or the buyer\'s agent for failing to disclose: - That an occupant of the property had AIDS; or - The occurrence or manner of death of an occupant on the property, if the death occurred more than three years before the buyer offers to purchase, lease, or rent the property. - \(2) This statute clarifies that it does not affect disclosure laws related to any other physical or mental condition or disease. It also reaffirms that owners and agents must still disclose the physical condition of the premises as required. **Disclosure of Deaths and AIDS** 3. Information regarding a death occurring more than three years earlier: - \(a) The statute does not protect owners or agents from intentional misrepresentation in response to inquiries about deaths on the property. - \(b) Different rules apply to the disclosure of AIDS-related information compared to deaths. **Easton vs. Strassburger Decision** f\. Requirements based on the Easton vs. Strassburger decision: - \(1) Licensees must conduct a visual inspection of accessible areas. - \(2) Exemption from inspecting common areas in condominiums. - \(3) Sellers and agents (if employed) must be vigilant for \"red flags\" during inspections, indicating potential issues like cracks, foundation problems, roof leaks, and similar concerns. **Megan's Law (Database Disclosure)** 7. Statutory requirement for every lease and sales contract to include a notice about public access to database information on sex offenders in the neighborhood. **Agency Disclosure Law** 8. Requirements under the Agency Disclosure Law: - \(a) Licensees must promptly provide an agency disclosure form to both parties. - \(b) Mandatory in residential transactions involving one to four dwelling units. - \(c) The disclosure form does not establish an agency relationship or constitute a contract. - \(d) Agents must specify the types of agency relationships possible in the transaction on the form. - \(e) Agents must declare whom they are representing in the specific transaction. - \(f) Parties confirm whom they have elected to have represented them in the specific transaction through a separate written confirmation in the sales agreement. - \(g) The sequence of actions is: disclose, elect, and confirm. **6: Law of Agency** **Creation of Agency:** According to the California Civil Code, an agent represents a principal (client) in dealings with third parties (customers), which is legally termed \'agency.\' **A. Definitions of Agent:** 1. **Agent**: A broker under whose license a listing is signed or an offer to purchase is obtained. 2. **Listing Agent**: A salesperson working under a broker's license who secures a listing. 3. **Selling Agent**: - a\. A listing agent who finds a buyer. - b\. An agent who, with the listing agent, finds a buyer. - c\. An agent who locates property for a buyer. - d\. An agent representing a buyer offering to purchase a property listed for sale. 4. **Sub-agent**: An agent authorized by another agent (principal) to act on their behalf. 5. **Associate Licensee**: A real estate licensee (salesperson or broker) working under a broker's supervision. 6. **Dual Agent**: An agent representing both buyer and seller in the same transaction with their written consent. **B. Creation of Agency** 1. **Express Agreement (before the fact)** - a\. The client confers specific authority by contract (listing). 2. **Ratification (after the fact)** - a\. Agent acted beyond their authority. - b\. Agent acted without authority; principal may repudiate the agent\'s acts in a timely manner, avoiding liability. 3. **Implied Agreement (apparently the fact)** - Customer perceives the agent as their own due to the principal\'s actions, inaction, or words, potentially creating ostensible agency. **C. Termination of Agency** 1. Expiration of the term---listing period ends. 2. Death or incapacity of principal or agent. 3. Mutual agreement to rescind. 4. Principal revokes authority. 5. Agent renounces the agency. **D. Types of Agency** 1. **Actual Agency:** - Agent is formally employed by the principal through a written or oral agreement. 2. **Ostensible Agency:** - Resulting from the parties\' actions rather than explicit agreement. **3. Single Agency** - The agent (broker) exclusively works for one client. **4. Disclosed Dual Agency** - The agent (broker), with the consent and knowledge of all parties, represents both sides in the transaction. **5. Undisclosed Dual Agency** - Occurs when an agent represents both parties without their knowledge or consent, which is illegal. **E. Agency Disclosure** - The Civil Code mandates disclosing whom the agent represents and works with in any transaction involving residential properties, including sales, purchases, or leases over one year or previously registered mobile homes. 1. **Listing Agent** - Exclusively represents the seller. 2. **Dual Agent** - Represents both the seller and the buyer. 3. **Selling Agent** - Exclusively represents either the buyer or the seller. 4. **Disclosure Requirements** - Agency relationships must be disclosed in the sales agreement (deposit receipt) or a separate statement. 5. **Modification of Agency Relationship** - Requires knowledge and written consent from both parties. 6. **Prohibited Disclosures** - a\. Dual agents cannot disclose to the buyer that the seller is willing to accept less than the listing price without the seller\'s written consent. - b\. Dual agents cannot disclose to the seller that the buyer is willing to pay more than the offering price without the buyer\'s written consent. 7. **Timing of Disclosure** - Both listing and selling agents must provide a copy of the agency disclosure form to both the buyer and seller and obtain signed acknowledgment of receipt. a\. The listing/seller's agent must give it to the seller before the listing contract is signed. b\. The selling/buyer's agent must give it to the buyer before the buyer signs an offer to purchase. **F. Responsibility of Agent** **1. To Client (Principal) (OLD CAR)** **a. Obedience: Follow all lawful instructions of the client.** **b. Loyalty: Act with utmost good faith.** **c. Disclosure: Disclose all material facts that could affect or influence the client's judgment or decision, without discrimination.** **d. Confidentiality: Do not disclose non-public information that may affect the client\'s interests to third parties.** **e. Accounting: Safeguard and account for all entrusted items such as money and deposit checks in a third-party escrow or trust account, as required.** **f. Reasonable Skill, Care, and Diligence: Perform duties with reasonable skill, care, and diligence.** ***2. To Customer*** **a. Honesty and Fairness: Act honestly and fairly towards customers.** **b. Disclosure of Material Facts:** **(1) Neither the client nor the agent may withhold material facts regarding the property's value or desirability.** **(2) Provide the customer with a Transfer Disclosure Statement (TDS).** **c. Skill and Diligence: Demonstrate skill and diligence as measured by a standard of reasonableness in all interactions with customers.** ### G. Commissions and Fees #### 1. Broker a\. **Receiving Compensation:** Only a broker can receive compensation for real estate services performed. A broker may receive funds from anyone, including brokers from other states, and can pay another broker or employed salesperson. b\. **Negotiability of Commissions:** Commissions are fully negotiable and are determined by mutual agreement of the parties, except in two cases: - \(1) In probate sales, commissions are set by the court. - \(2) Under Article 7 of the Real Estate Law, commissions, fees, and costs for certain loans are limited by law. c. **Commission Disputes:** The real estate commissioner does not intervene in commission disputes. d. **Proof of License:** To sue for a commission, the licensee must prove they were licensed at the time the services were performed. #### 2. Salesperson **a. Compensation Source: A salesperson may receive compensation only from their employing broker for activities requiring a license. b. Commission Rights: A salesperson is only permitted to sue their broker for a commission because brokerage contracts are always between the owner and the broker---never the salesperson.** #### 3. Types of Listings **Various types of listings specify when and the amount of commission the agent may earn. The exact commission amount will be detailed in escrow statements.** #### 4. Employment Agreement **The Employment Agreement (contract between Broker and Salesperson) typically includes:** - **The commission division percentage payable to the salesperson.** - **Information about which acts by the salesperson will be compensated and when commissions will be paid. This contract is a requirement as per Real Estate Commission Regulations.** **MISCELLANEOUS REAL ESTATE PRACTICE** 1. **Broker's Desk Cost** - **Calculated by dividing the operating expenses of the office by the number of salespersons.** 2. **Company Dollar** - **Calculated by subtracting commissions paid to salespeople from the gross income of the brokerage.** 3. **Negotiability of Commissions** - **Real estate commissions are negotiable. Brokers would violate anti-trust laws if they collectively set fixed commission rates. Listings for one-to-four residential units must disclose that commissions are negotiable.** 4. **\"Realtor\"** - **Refers to a real estate broker who holds active membership in a real estate board affiliated with the National Association of Realtors (NAR).** **CHAPTER 7** **Valuation/Appraisal of Real Property** **APPRAISAL:** An appraisal is an opinion of the value of a specific property on a given date. It is valid only for that date. It is a felony for an appraiser to use improper methods when appraising property financed by a government loan. **A. The Appraisal Process** 1. **Definition of the Problem:** The first step is to clearly define what is to be appraised. 2. **Data Collection:** Once all relevant data is collected, the appraiser proceeds to the next step. 3. **Reconciliation of Value Indications:** This step involves correlating different value indications to arrive at a final opinion of value. 4. **Opinion of Value:** The final step is providing an opinion of the property\'s value. 5. **Marketability and Acceptability:** These factors are crucial in determining the appraised value of residential property. Assessed value is not significant in appraisals. 6. **Types of Appraisal Reports:** Under the Uniform Standards of Professional Appraisal Practice: - **Restricted Use Report (Letter Form Report)** - **Summary Report (Short Form Report)** - **Self-Contained Report (Narrative Report; most detailed and complete)** **B. California Licensing Requirements -- Office of Real Estate Appraisers** 1. **Residential Appraisal Licensees:** - May appraise residential property (1-4 units) up to a transaction value of \$1 million. - Non-residential property can be appraised up to a transaction value of \$250,000. 2. **Certified Residential Appraisers:** - Authorized to appraise all residential property and non-residential property up to a transaction value of \$250,000. 3. **Certified General Appraisers:** - Have the authority to perform all types of appraisals without transaction value limitations. **Notes on Valuation/Appraisal of Real Property** 1. **Competitive Market Analysis (CMA):** - **A real estate licensee can perform a CMA but should not refer to it as an appraisal.** 2. **Definitions:** - **Cost: Historic figure representing labor, material, and capital to create a property.** - **Price: Present amount paid by a buyer for a property today; market price is the actual price paid.** - **Value: Represents the worth of a property.** - **Type of Value: Determined by the Statement of Purpose; specifies the type of value sought.** - **Financial Matters: Not included in appraisal reports; property is appraised under the assumption it is \"free and clear\".** **C. Principles of Valuation** 1. **Principle of Substitution (Comparison, Market Data):** - **Maximum value determined by cost of acquiring an equally desirable substitute property; foundational to market data approach.** 2. **Principle of Highest and Best Use:** - **Identifies optimal use of land for greatest net return over time; crucial for appraising vacant land or land with existing structures.** 3. **Principle of Contribution:** - **Evaluates how a component (e.g., a swimming pool) in income property contributes to net return.** 4. **Principle of Regression:** - **Value of more expensive home can decrease if lesser quality homes are built nearby.** 5. **Principle of Progression:** - **Value of a property of lesser value tends to increase when surrounded by properties of greater value.** 6. **Essential Elements of Value (D.U.S.T.)** 7. 1\. **Demand** -- desire in the marketplace. 8. 2\. **Utility --** ability of the property to satisfy a need or desire. 9. 3\. **Scarcity** -- availability in the marketplace. 10. 4\. **Transferability** -- the property must be transferable as to use or title to be marketable.