많은 분들이 찾으셔서 올립니다. 부동산 중개인 자격증을 준비하시는 분들 뿐만 아니라 일반인들께도 미국 (뉴저지) 부동산 시장에 대한 전반적인 상식을 늘리시는데 도움이 될 것입니다.^^
정리한 내용들이 너무 길어서 pdf 파일도 다운 받으실 수 있도록 첨부하였습니다.
NJ Realtor Exam Study Material.pdfChapter 1: Real Estate Licensing
- Real Estate License Act (Title 45, Chapter 15): Law governing the practice of real estate in NJ
- NJ Real Estate Commission:
o Purpose is to protect the public
o 8 members appointed by governor (5 RE brokers having been licensed >=10 years, 2 general public, 1 representing a department of the sate government) serving 3yr (renewable) except governmental member (can be changed anytime) who serves at the pleasure of the governor. The governor has the right to remove any member for cause
- Classes of Licenses (All >= 18, 2 yr term expiring on June 30th):
o Broker: authorized to operate a RE business, to hire salespersons. At least one broker for the entire RE company, called the “broker of record.” 150 hr pre-license course
o Salesperson: receiving compensation only from the broker. The supervising broker is required to furnish “guidance & direction” and responsible for the RE acts of salespersons under his/her supervision. Salesperson’s license is kept by the broker. The salesperson receives an identifying pocket identification card
o Broker-salesperson: fulfilled all of the requirements of a broker yet chooses to work in a sales capacity for & in the name of a broker
o REALTOR R: member of a specific trade organization
o REALTOR –ASSOCIATER: Salesperson who joins a particular real estate trade group
- Activities covered
o When working for another person anticipating a fee or commission, a broker’s license is required to
§ List RE for sale
§ Sell, exchange, buy, auction or rent RE
§ Collect rent
§ Solicit prospective purchasers or sellers
§ Negotiate a RE loan
§ Sell lots for a developer
§ Sell business opportunities that involve RE
o Salesperson
§ Negotiating purchase, sale or exchange of real estate
§ Negotiating RE loans
§ Leasing, renting and collecting rent
§ Selling lots for a developer
o Also permitted to handle the sale and resale of mobile homes but must follow DMV & RE commission’s regulations
- License Term
o All licenses begin on July 1 & end in June 30
o Licenses renewed biennially
- Exemptions for licensing
o Owners handling their own property
o Attorneys, executors, trustees, receivers, administrators, legal guardians and others handling real estate under court order
o Attorneys may handle RE during the normal practice of law
o Banks, trust and insurance companies
** Attorneys who intends to engage in general RE brokerage must obtain a RE license
- Exceptions
o An honorably discharged war veteran with a service-connected wound or disability may be exempt from payment of license fees & experience for broker or broker-salesperson
o Education waive:
§ Licensed broker from other state
§ Person licensed as NJ broker within last 5yrs
§ Someone with equivalent college courses
§ NJ attorneys
§ Certain applicants with equivalent course in another state
- Payment for services
o Sharing any commission with an unlicensed person including gifts or money is forbidden. Kickbacks, finder’s fees are also forbidden. A broker is, however, allowed to pay other broker
o Salesperson may receive compensation only from his/her own supervising broker (a referral fee to any licensed broker is legal)
- Unlicensed Assistants
o May not
§ Show property
§ Answer any questions about listed property
§ Make cold calls by phone or in person seeking business from potential listers, purchasers, tenants, or landlords
§ Discuss or explain a contract or any other real estate document with anyone outside the brokerage firm
§ Make telephone calls for rent collection or
§ Except when accompanying a licensee, host open houses or promotional booths, distribute promotional material, or attend a home inspection
o May (헷갈리는 것들만)
§ Process and submit listings and changes to multiple listing system
§ Deposit earnest money, security deposits, and rent
§ Follow up on loan applications or
§ Compute commission checks
- Non-residents license qualification: same requirements + must also file irrevocable consent to be sued in NJ
- Corporations license qualification: granted license if one officer holds broker’s license and becomes broker-of-record
- Temporary License
o If a broker of record becomes incapacitated, a salesperson with >= 3 yr experience can get the temporary license which must be made within 30 days of the date of the broker’s death and is effective for one year from the date of issuance
- Fees & Renewal
o License becomes void if not renewed on July 1st for 2 consecutive yrs
o Original license fees (’04)
§ Salesperson $160 (including GF) + $78 (for fingerprinting)
§ Broker $288?
o Renewal: Salesperson ($100) / Broker ($200)
- Transfer & Termination
o When a licensee resigns or is terminated, the terminating broker has 5 days to send the completed termination confirmation to the Commission & gives the license to the licensee.
o A broker who leaves the business must return all licenses to the Commission, close out the escrow account, remove signs, notify clients and provide the Commission with a name and address where past records will be available for 6 years
- Guaranty Fund
o Purpose: to reimburse members of public who have been defrauded by licensees or unlicensed employee of a broker and who can collect damages in no other way
o How public can collect: First obtain court judgement, naming the REC as a party to the suit. Apply within 6 yrs to the RE GF for payment. A criminal claim must also be filed against the offending party
o No spouse of a licensee ma bring action against the licensee
o At time of initial issuance – salesperson $10, broker $20. Max $20K per offense
o If there is not enough in the fund, REC may assess licensees an additional amount at the time of license renewal
o Once the fund pays a claim against a broker or salesperson, that person’s license is revoked until the Fund is reimbursed, with interest
- Interstate property
o NJ’s RE Sales Full Disclosure Act requires registration of out-of-state subdivided land offered to NJ residents (prior approval & registration with the Bureau of
§
o Buyers have up to 7 days to cancel contracts for purchase or lease of such lands
o Brokers who handle out-of-state subdivisions must register and pay a fee
o Recent RE commission rules address non-NJ properties that are advertised in NJ in languages other than English – subsequent forms must be made available to prospective purchasers in the same language
- Rental Referral Agencies
o Required to have a RE license and to enter into a written contract with each prospective tenant
o No rental property may be offered without the landlord’s consent; oral consent must be confirmed in writing within 24 hrs
o Units that are (actively) advertised must be checked every day to see still available; simply listed (not advertised) units every 3 days
o Fees >= $25 must be deposited in trust account
- Special regulations apply to rental referral agencies and to the sale of out-of-state developments, major in-state subdivisions and property involving common ownership
** Other Information:
- A nonresident broker requesting a NJ license must agree to be sued in NJ
- Those allowed to sell RE without a license do NOT include… b.
a. Banks b. insurance brokers c. attorneys d. owners
Chapter 2: Commission rules and regulations
- A SALESPERSON may NOT
o Accept any compensation except from her supervising broker
o Maintain an escrow account or hold funds belonging to others
o Work for more than one NJ broker at a time
- License Law & Rules
o Licensees are governed by the RE License Act(Title 45, Chapter 15) and also the rules of the RE Commission.
- Place of business: Main office & Branch offices
o Every resident broker must have a place of business in the state. A branch office requires a duplicate license and a broker-salesperson as a full-time supervisor. No office may be located in the home of a salesperson who is in the broker’s employ. This avoids the practice known as license lending, in which a broker permits her license to be used by another person or business entity without actually supervising the business
o Under some circumstances, however, a RE office may be in the home of a broker if there is a separate entrance
- Trust account (Escrow account)
o Each broker maintains a special trust account, also known as an escrow account, for funds belonging to other persons. Brokers must deposit such funds within 5 business days of receipt.
o Mixing escrow funds with the broker’s own money is called commingling and is forbidden. Nominal amount may be left to cover service charges, fees etc
o If a client places >$25 advance fees, the broker must give the client an account within 90 days of how the money is being spent
- Regulation of documents
o The broker must keep for at least 6 yrs copies of all financial records, listings and contracts, as well as numerous other documents; unaccepted offers must be kept for 6 months. Every person signing a RE document must immediately receive a duplicate original.
- Broker business relationship
o The broker must pay salespersons any commissions due within 10 days after the broker receives the fees. When a salesperson leaves, commissions are paid in accordance with the agreement signed by the salesperson and the broker, and the broker must make an accounting in writing within 30 days of termination of any funds still due the salesperson
o Licensees can prepare sales contracts only on one family to four family dwellings and one family lots, and every contract or lease (>125 days) prepared by a licensee must carry specific language notifying the tenants or buyers and sellers that they have 3 business days in which to seek attorney’s review of the contract.
o At the first meeting, give Buyers, sellers, landlords, tenants the CIS based on NJRE regulations
o Listing contracts must include Attorney General’s Memorandum of the Law Against Discrimination
o
o Broker as Disclosed Dual Agent: permitted to represent both buyer & seller if obtains informed, written consent of both parties and any other agent involved
o Although brokers owe special duties to their principal if they are functioning as agents, they must deal fairly with all parties to any transaction
o Unless otherwise instructed by the client(i.e. Waiver of Broker Cooperation), brokers must cooperate with other firms to find buyers for a specific property. All written offers must be promptly transmitted to the seller
- Illegal price-fixing: can’t discuss commission rates between competing brokers
- Advertising: All ads must…
o Include broker’s business name except on business cards
o All ads must specify the property’s municipal location. Such phrases as “in the vicinity of” are prohibited, unless the body of the ad contains the exact municipal location
o If a broker mentions being a member of an MLS(Multiple-listing service) in any ad he runs, the full name of the MLS must be spelled out EXCEPT spot ads(짧은 광고), For Sale signs and business cards
o Any statement that refers to a home warranty must state whether inspection is required, if warranty is mandatory, and whether the purchaser is responsible for the payment of fees in connection with the warranty
o Advertising offering free appraisals is prohibited, although CMA(comparable market analysis)s are permitted
o No ads can refer to financing without including the words “to a qualified buyer”
- Probation, suspension & revocation
o The RE Commission must give 10 days notice of a hearing if a violation is suspected. It can put licensees on probation, suspension or revocation
o Guilty Knowledge(broker에게): Awareness of wrongdoing with no attempt to stop it
o The Commission can promptly revoke the license of anyone convicted of certain crimes, among them forgery, burglary, robbery, and theft
o The Commission can suspend a license for anyone awaiting trial for a number of serious crimes
o Fines of up to $5K for a first offense and up to $10K for following ones
- Listing fees are negotiable between clients and brokers, and no contract can indicate that there is any set fee schedule. Every seller who lists RE must receive a copy of the Attorney General’s Memorandum of the Law Against Discrimination
*** Other Information
- An escrow account may be opened in any authorized NJ financial institution
- Every person who signs a contract is entitled to receive a duplicate original IMMEDIATELY
- The Commission will rule that someone could never again get a license after 3 violations
- “Reasonable effort” licensees are required to make to determine all material information about a property’s physical condition could include;
o Asking the seller or the seller’s agent about the property’s condition
o Performing a visual inspection
Chapter 3: Agency, Brokerage and Ethical Considerations
- Brokerage defined:
o RE brokerage is the bringing together, for a fee or commission, of people who wish to buy, sell, exchange, or lease RE.
o A transaction broker works with buyer, seller, or both without representing either one in an agency relationship
- Agency:
o Types of Agency:
§ Universal agent
§ General agent: property manager
§ Special agent: RE broker
§ Attorney-in-fact: created by a power of attorney, a legal written authorization that stipulates the specific areas of authority in which the agent may act
o RE brokerage is commonly governed by the law of agency
o The RE broker is the agent, hired by either a buyer or a seller of RE to find or sell a particular parcel of RE
o Principal or Client: The person who hires the broker
- Fiduciary responsibilities: The principal & the agent have a fiduciary relationship under which the agent owes the principal the duties of COALD
§ Care: 집의 physical condition, closing 절차들 제대로 알기. 빠뜨리는 거 없기
§ Obedience: 준법. 적법한 한 principal의 instruction 준수 (가격 관련)
§ Accounting: 자료 복사 및 배포, 돈 바로 escrow에 입금, buyer check이 broke할 가능성 있을 경우 seller에 disclose 등
§ Loyalty: principal’s interest first! Seller’s agent – Seller의 저가 용납 의사를 buyer에게 알려선 안됨 / Buyer’s agent일 경우도 반대로 마찬가지
· “brokers or salespersons must not buy property listed with them for themselves or for accounts in which they have a personal interest without first notifying the principal of such interest”
· “The agent who subtly discourages efforts by co-brokers in a multiple-listing system in hopes of securing a sale within the listing office is not acting in the client’s best interest”
§ Disclosure: 가격, foreclosure 가능성 등 알려야
o General duty of fair dealing: although an agency relationship binds the agent to the principle with certain specific duties, RE licensees are required to deal fairly and honestly with all parties
o Undisclosed dual agency is illegal
- Broker-salesperson Relationship
o Salespeople may assist brokers as either employees or independent contractors. The salesperson is the brokers agent and usually the seller’s subagent (or, if specifically retained as such, the buyer’s subagent)
o Independent contract vs. employee
§ NJREC requires the agreement between broker & salesperson to be in writing and to include a termination agreement
§ Employees:
· must have income tax, SS, and unemployment tax withheld from wages by broker
· may receive “employee benefits” from broker
· must adhere to office regulations
§ Independent Contractors
· Assume responsibility for paying own income tax and SS
· Cannot receive any “employee benefits” whatsoever from broker
· Can be told what company expectations are
§ The IRS has provided safe harbor guideline under which independent contractor status will not be challenged when the associate is licensed, has fluctuating income, and works under a written contract specifying independent contractor status
o Broker’s compensation
§ Generally form of a commission, often but not always a % of the selling price
§ Earned: Procuring cause of sale. Broker produces a ready, willing and able buyer with a meeting of the minds (agreement between a buyer and seller on major points)
§ Paid: at closing of title
§ Broker may still be entitled to a commission;
· Owner changes his mind & refuses to sell
· Defects in the owner’s title
· Owner commits fraud
· Owner unable to deliver possession within a reasonable time
· Owner insists on terms not in the listing
· Owner & Buyer agree to cancel the transaction
§ Seller considered liable for commission when broker has produced a buyer willing to meet the seller’s terms, even if the seller defaults
o Salesperson’s compensation
§ Set by mutual agreement between broker & salesperson
§ REC requires salesperson’s commission be paid by the broker within 10 days of receipt by broker
- Agency and the consumer
o Creation of agency with sellers and buyers: In NJ, written contact such as Exclusive Listing Agreement or Exclusive Buyer Agency Agreement
o Disclosure of Agency
§ NJREC mandates agency disclosure
§ NJREC requires agents furnish CIS before any discussion of a seller’s/landlord’s or buyer’s/tenant’s motivation or financial situation is initiated
§ CIS(Consumer Information Statement): describes the types of business relationships a RE agent can enter into with a customer or client and the duties associated with each relationship
§ Not required: Short-term rentals – those held for not more than 125 consecutive days are excluded from the formal written disclosure requirement. CIS is not required for commercial, multi-unit apartments transactions
o Termination of Agency
§ Death or incompetency of either party
§ Destruction or condemnation of the property
§ Expiration of the term of the agency
§ Mutual agreement to terminate the agency
§ Renunciation by the agent
§ Revocation by the principal
§ Bankruptcy of either party
§ Completion or fulfillment of the purpose
o Buyer as principal
§ Represent 1 party: can collect a fee from both, provided that the broker gives full written disclosure to and gets consent from both
§ Represent both: can collect from ONLY 1 of them
- Dual agency
o Possible only after following strict rules governing disclosure of their role
o Be careful not to use “my buyer,” which could actually be construed as creating an inadvertent dual agency relationship
- Disclosure issues
o Defects affecting physical condition of property must be disclosed
o Seller must disclose known hidden or latent defects
o Social conditions/psychological impairments are not considered physical conditions and need not be disclosed
o CLUE(Comprehensive Loss Underwriting Exchange) report: source of information about past problems in a building
o Buyer’s broker is required to disclose any material defect that would affect the buyer’s ability to complete the transaction (i.e. financial problem – ex: earnest money check that bounces)
o Off-site condition (NJ Supreme Court):
§ New construction: 5 days to cancel contract
§ Resale: notice only. No right to cancel
o Megan’s law: county prosecutor contacted AFTER closing of sale or lease of property to be alerted to sex offenders in area (even if licensee knows it, she cannot disclose it. Just refer the buyer to NJ police and let him investigate it)
- Misrepresentation:
o Innocent (honest): false statement by someone who believes the information is true
o Negligent (unintentional): should have known better
o Fraudulent (intentional): deliberate lie
o Puffing: extravagant statement of opinion without intention to deceive. Not misrepresentation
o Criteria used to establish agent’s liability:
§ A false or misleading statement by
§ A person who know it’s false with
§ Intent to deceive or defraud (or the effect is still to deceive or defraud) and
§ Damages
o May avoid misrepresentation by sticking to the truth and not using absolute statements
- Antitrust law (sate & federal)
o Price-fixing: when brokers conspire to set prices for the services
o Allocation of customers or markets: agreement between brokers to divide their markets and refrain from competing with each other’s business
o Considered to be a misdemeanor punishable by a max $100K fine with 3yr in prison (Sherman Antitrust Act). If somebody gets loss, triple the value of actual damages
- Ethics, Liability, and Disciplinable offenses
o Possible for a broker to incur liability even though acting in all honesty and with good will. Situations that may lead to professional liability fall under;
§ Breach of fiduciary duties
§ Failure to observe standard of care
§ Conflict of interest
§ Misrepresentation
o Possible results:
§ Loss of client and listing, customer & sale, commission
§ Civil lawsuit for damages
§ Criminal prosecution
§ Suspension or loss of license
o In many cases, full disclosure in advance prevents liability
- Defense against claims of liability
o E&O (Errors & Omissions) Insurance (≈ medical malpractice insurance): subject to the limitations of a particular policy, it defends against many circumstances except fraud. Many brokers & some individual salespersons carry it
o NJ outlaws the use of Dual contracts. The license of a person found guilty and could be suspended or revoked. Such action becomes a misdemeanor, punishable by fine and/or imprisonment of up to 3 yrs
o Ethics:
§ Established standards for integrity and competence in dealing with consumers of an industry’s services
§ Defined a code of conduct for relations within the industry, among its professionals
§ NAR code of ethics: based on the “Golden rule,” “Do unto Others”
- Professional organizations & Code of Ethics:
o Major Professional organizations providing a code of ethic for their members include NAR(National Association of Realtors), NAREB(Nat’l Association of RE Brokers(Realtists)
o NJAR offers a variety of educational courses including a specific course leading to the designation of Graduate, Realtors Institute (GRI)
o
*** Key Terms:
- Puffing: harmless exaggeration as salesmanship
- Latent defect: problem not discoverable by normal prudent inspection
- Procuring case: the one who brings about a sale
- Megan’s Law: legislation requiring that communities be alerted to the presence of sex offenders
- Power of attorney: written authorization of agency
- Innocent misrepresentation: unintentional deception committed in ignorance
- Negligent misrepresentation: fraud committed by someone who should have known better
*** Other Information:
- The RE broker can be hired as an agent through the document known as a listing agreement
Chapter 4: Fair Housing
- Federal Fair Housing Law:
o Civil Right Act of 1866: no exceptions are allowed
o Federal Fair Housing Laws of 1968 (Title VIII of the Civil Rights Act)
§ Prohibits Race, Religion, Color, National origin when selling or leasing residential property
· “Racist Realtor Can Never Have Financial Success”
o Discriminatory actions include refusing to deal with an individual or a specific group, changing any terms of a real estate or loan transaction, changing the services offered for any individual or group, making statements or advertisements that indicate discriminatory restrictions, or otherwise attempting to make a dwelling unavailable to any person or group because of membership in a protected class
o Exemptions
§ Sale/rental of single family home, owned by individual who doesn’t own more than 3 homes at one time, & when;
· Broker, sales person, or agent not used
· Discriminatory advertising not used
§ If owner is not living, only 1 sale within 24month period
§ Rentals in owner-occupied 1~4 family dwelling
§ Dwelling units owned by religious organizations may be restricted to people of same religion
§ Private club restrict to its members, as long as not operated commercially
o Amendment
§ Sex (’74), Handicap & Familial status (’88)
§ Exemptions (Housing intended for older persons)
· If it’s solely occupied by persons 62 and older, or
· if 80% of its units are occupied by at least one person 55 or older
o Equal Housing
§ When HUD investigates a broker for discriminatory practices, it considers failure to display the poster evidence of discrimination
o Blockbusting, Steering & Redlining
§ Blockbusting(Panic Peddling): inducing panic selling based on prejudice
§ Redlining: refusal to lend in certain areas, usually inner-city
§ Steering: channeling homeseekers to or away from certain areas
o Enforcement (Federal)
§ 1yr to file with HUD(administrative law judge): may issue an injunction. Penalties: $10K/1st, $25K/2nd within 5yrs, $50K/additional within 7yrs
§ 2yrs to file federal lawsuit: can issue an injunction, actual & punitive damages, with no $ limit
§ Department of Justice may itself sue and additional penalties are $50K, $100K
§ Complaints filed under Civil Rights Act of 1866: heard in federal court. No $ limit
o Threats or acts of violence: report to police & FBI
-
o FHA protected classes + Marital, Ancestry, Sexual orientation
o Exemptions (Only rentals) examples
§ 여자 기숙사
§ 목사 숙소
§ An owner-occupant to discriminate except for race in the rental of a duplex or an up/down two-family dwelling
§ Fed exemptions for home-owners selling their homes don’t apply
§ No exceptions when a broker is involved
§ Never an exception for race
o Antidiscrimination poster should be displayed (failure $100 or more penalty)
o Enforcement (State)
§ Must be filed with the state’s attorney
§ Within 180 days after the alleged offense
§ 45 days to attempt conciliation
§ Comply with the law (“cease and desist”)
§ Enforced by the NJ supreme court
§ Fines up to $2K for the 1st offense & $5K for subsequent offense
§ Willfully interferes with the activities or who violates an order of the attorney general or the Division on Civil Rights is subject to a fine up to $500 and/or imprisonment for 1 yr
o Notice at Listing
§ REC requires a copy of the Attorney General’s Memorandum on discrimination be given to the homeowner at the time of listing
- State regulations on Rentals (State Statutes)
o NJ LAD protected classes + Source of income (welfare, Section 8 etc), Children in Family
o Multiple dwelling reporting: 25 or more apartments must file an annual report with the state Division of Civil Rights covering racial composition of the tenants and methods of advertising etc
- Zoning discrimination:
o The court cases known as
- Code for Equal Opportunity: The NAR has adopted a Code for Equal Opportunity
o HUD/NAR Fair Housing Partnership have developed a Declaration of Fair Housing Principles for REALTORS to use to promote fair housing to the public and within the firm
o Firms must develop their own individual Affirmative Fair Housing Marketing Plans instead of Voluntary Affirmative Marketing Agreement(VAMA) suggestions for developing and implementing fair housing partnerships in the community
- Implications:
o The complainant does not have to prove guilty knowledge or specific intent – only the fact that discrimination occurred
o Licensees must take special care that their ads include no language that could be considered discriminatory
*** Key Terms:
- Reverse discrimination: “benign” discrimination intended to correct past wrongs
- Tester: undercover checker who monitors fair housing compliance
| Protected Classes |
Civil Rights Act 1866 |
Federal Fair Housing 1968 |
NJ Law Against Discrimination |
| Race |
Y |
Y |
Y |
| Religion |
|
Y |
Y |
| Color |
|
Y |
Y |
| National Origin |
|
Y |
Y |
| Sex (Gender) |
|
Y(’74) |
Y |
| Handicap |
|
Y(’88) |
Y |
| Familial Status |
|
Y(’88) |
Y(Rental only. By Statues) |
| Marital Status |
|
|
Y |
| Ancestry |
|
|
Y |
| Affectional and Sexual Orientation |
|
|
Y |
| Source of Income |
|
|
Y(Rental only. By Statues) |
| Miscellaneous provisions |
|
|
Y(Rental only) |
| Property covered |
All Property |
Residential Only |
All Property |
| Lenders covered |
None |
Institutions only |
All lenders |
| Exemption for sale of a single family dwelling |
None |
- Broker not involved - Owns no more than 3 - No discriminatory ads - If not owner-occupied, 1 sale every 24 mos. |
None |
| Exemption for rentals |
|
- Owner occupied, 1~4 family |
- Owner occupied, 2 family |
| Exemption for housing restricted to one sex |
None |
None |
Yes |
| Exemption for religious orgs. |
None |
Yes |
Yes |
| Exemption for private clubs |
None |
Yes, if not operated commercially |
None |
| Enforcement |
Federal Court |
- 1 yr to HUD – ALJ(Administrative Law Judge) can issue an injunction - 2 yrs to |
- 180 days to Attorney General - Division of Civil Rights investigates - Can issue a cease and desist order |
| Fines 1st offense |
No limit |
$10K |
$2K |
| Additional Offenses |
|
$25K/5yr, $50K/7yr |
$5K |
|
|
|
Department of Justice may also sue $50K, $100K limits |
- Violating an order of Attorney General or Division of Civil Rights: $500 - 25 or more units: Annual report to Division of Civil Rights - - NJREC: Seller given Attorney General’s Memorandum at listing |
Chapter 5. What is Real Estate
- Real Estate(=Land, improvements & bundled rights): Real estate ownership can be described as a bundle of legal rights. When a person purchases a parcel of RE, he or she is actually buying the rights previously held by the seller such as the rights of;
o Possession
o To use the property in any legal manner
o Enjoyment
o Exclusion
o Disposition or alienation
- Land vs. RE
o Although most people think of land as the surface of the earth, the definition of this word really applies not only to the earth’s surface but also to the mineral deposits under the earth and the air above it
o The term real estate expands this definition to include all man-made improvements attached to the land and the rights that go with it
§ RE ≈ Real Property ≈ Realty
§ Corporeal (tangible like buildings and trees) vs. Incorporeal (Intangible like views or rights)
o The same parcel of real estate may be owned and controlled by different parties, one owning the surface rights, one owning the air rights and another owning the subsurface rights
o Water rights: Littoral rights (related to lakes or seas) vs. Riparian rights (related to rivers, streams and waterways)
- Real Property vs. Personal Property
o Property: Everything that can be “owned”
o Hereditament: anything that can be inherited (Both R.P> & P.P)
o All property that does not fit the definition of real estate is classified as personal property
o Transferred by: R.P – Deed / P.P – Bill of sale
o Chattels: Tangible personal property
o Fixture: When articles of personal property are permanently affixed to land, they may become fixtures and as such are considered a part of the real estate
o Legal test of fixture (MARI):
§ Method of annexation of the item
§ Adaptation of the article to the RE
§ Relationship of the parties
§ Intention of the party annexing the item
o However, personal property attached to real estate by a tenant for a business purpose is classified as a trade fixture and remains personal property (ex: barbershop equipments – chairs, sinks, shelves etc)
o Severance: R.P -> P.P / P.P -> R.P
*** Key Terms & Other Information
- avulsion: 강줄기 같은 것이 갑자기 물줄기가 바뀌어 지형이 변함. No change in property line
- alluvion: 충적지
- accretion <-> erosion
- reliction: (물이 없어지면서) 땅이 생김
- emblements: 인조 경작물. Annual crops (personal property)
Chapter 6. Estates and Interests
- Estates in Land
o An estate in land is the amount and kind of interest a person holds in land.
o 1. Freehold estates: estates of indeterminate length
o 2. Less-than-freehold estates: length can be accurately determined (leasehold estates are personal properties)
o Freehold estates:
1. Fee simple estates: Most complete ownership of land possible
2. Fee determinable(=conditional fee / determinable fee) estates: ownership “as long as”
3. Life estates: can be granted for the life of the new owner or for the life of some third party (pur autre vie). At the end of the life estate, ownership can go back to the original owner (reverter) or pass to a designated third party (remainder). Can sell & inherit
o The right of dower and curtesy ceased to be created in
§ Inchoate (anticipatory) interest that becomes life estate upon death of spouse (consummated)
- Encumbrances (Liens (monetary) / Physical or Usage encumbrances)
o Encumbrances against RE may be in the form of liens, deed restrictions, easements, licenses and encroachments
o Liens are financial claims against a parcel of real property
§ General or Specific: General is covering all real and personal property of a debtor-owner / specific covering only the specific parcel of RE described in the mortgage, tax bil, building or repair contract or other document
§ Voluntary or Involuntary
§ Priority of Lien: With the exception of RE tax liens and Special assessment liens, the priority of liens is generally determined by the order in which they are placed in the public record of the county in which the debtor’s property is located
§ Mortgage liens (voluntary, specific) are given to lenders to secure payment for mortgage loans
§ Construction liens (involuntary, specific) protect general contractors, subcontractors and materials suppliers whose work enhances the value of RE. Retroactive to when work was done
§ A judgement (involuntary, general) is a court decree obtained by a creditor, usually for a monetary award from a debtor
§ Federal estate taxes and state inheritance taxes are general liens against a deceased owner’s property
§ Specific liens: special assessment lien / Ad Valorem tax lien / Mortgage lien / construction (mechanic’s) lien / utility lien
§ General liens: judgement / estate and inheritance taxes / deceased person’s debts / corporation franchise tax / IRS taxes
o Lis pendens (notice of pendency) is a recorded notice that a lawsuit is awaiting trial in court and may result in a judgement that will affect title to a parcel of RE. “cloud on the title”
o Easement:
§ Easement vs. License:
· Easement: a permanent right acquired by one person to use another’s RE
· License: a permission to enter another’s property for a specific purpose which may be withdrawn
§ Easements appurtenant: involving 2 separately owned tracts (“next to each other,” “adjacent”)
· Servient estate: the tract over which the easement runs
· Dominant estate: the tract that is to benefit from the easement
· Merger of parcels abolishes easement
§ Easement in gross: right such as that granted to utility companies to maintain poles, wires and pipelines
§ Easement by necessity: can sometimes be acquired to gain access to RE that would otherwise be landlocked (Ingress – enter / Egress – exit)
§ Easement by prescription: a permanent right to use the land, is sometimes granted by the courts when land has been used by a nonowner for 20 yrs and certain other requirements have been met. Not for public owned land
§ Easement run with the land and are binding on future owners of the property
§ Creation: by agreement, express grant, grant or reservation in a deed, implication, necessity, prescription or party wall agreement
§ Termination: purpose of the easement no longer exists, by merger of both interests with an express intention to extinguish the easement, by release or an intention to abandon the easement
o Encroachment: Physical intrusion of some improvement upon another’s land
o Deed restrictions: created by a seller
*** Key Terms & Other Information
- Estate in land: Amount of ownership
- Convey: transfer by sale or gift
- reversionary interest: future interest of an owner
- Tacking: adding successive periods of usage (related to easement by prescription)
- Remainderman: 3rd party who will gain eventual ownership
Chapter 7: Ownership of Real Estate
- Forms of ownership
o Tenancy in severalty: sole ownership. Title is held by one person or an entity
o Tenancy in common (>= 2 ownership if not specifically stated as something else in the deed)
§ An individual owner may sell her interest and has the right to leave the share to any designated heirs without consent of other members
o Joint tenancy
§ >=2 owners with the Right of survivorship(= cannot devise their interest in a property. Upon the death of one owner, that person’s share passes to the remaining co-owners)
§ However, can sell one’s interest
§ The intention of the parties to establish JT with right of survivorship must be clearly stated in their deed, and 4 unities must exist
· 4 unities: Time / Title / Interest / Possession
** Both TIC & JT have the right to force a sale by partition (= Physically separate parcel OR sell and divide the proceeds) the property **
o Tenancy by entirety (husband & wife ownership if not specifically stated as something else in the deed)
§ Right of survivorship (=cannot devise)
§ Cannot force a sale by partition
§ Divorce -> TIC
|
|
Sell |
Inherit |
Partition |
| TIC |
O |
O |
O |
| JT |
O |
X |
O |
| TBE |
X |
X |
X |
- Business ownership of real estate
o Corporation: a legal entity holding title to real estate in severalty (Cannot be JT. Sometimes TIC)
o Partnership: may own real estate in its own name
o Syndicate: group of companies or individuals who combine to make a profit in business
o REIT(RE Investment Trust): requires min. of 100 investors / at least 75% of income must come from RE / 95% of profit must be paid to investors / similar to mutual fund investment
- Condominium & Cooperative
o Refer to Forms of ownership not the type of buildings
o Condominium:
§ fee simple ownership of the living unit & undivided interest in common elements
§ Owner may mortgage the unit, receives individual bills, and arranges homeowner’s insurance
§ Management of common elements is administered by a homeowners’ association, which levies monthly fees
§ Bylaws provide reasonable regulations binding on all owners in the form of CC&R (Covenant, conditions & restrictions)
§ Not limited to residential dwellings (could be commercial, office condo)
§ In NJ, the creation of condominiums is regulated by the states Horizontal Properties Act
§ Conversion of rental unit requires approval 3yrs & 2 months before conversion / Disabled or > 62 who met income guidelines become protected tenants for up to 40 yrs
o Cooperative:
§ Owner receives (1) shares (= personal property) in a corporation that owns the entire building and a (2) proprietary lease to her apartment
§ Each owner shares responsibility for the debts of the corporation
§ BOD has the right to reject prospective buyers for financial and other reasons that are not discriminatory
§ Long-term stability of tenants is common
- Townhouse: refers to an architectural style.
- Timesharing: purchase of a resort or vacation property for a portion of the year
*** Key Terms & Other Information
- partition: court-ordered sale & division
- Horizontal Properties Act: regulates the creation of condominiums
- Proprietary lease: co-op owner’s right to apartment
- Reserve: money set aside for future repair
Chapter 8: Real Estate Taxes
- Tax Liens
o Ad Valorem Tax (“According to value” – General Tax): taxes levied on RE by various governmental agencies & municipalities
o Exemptions from General Taxes
§ In NJ, homeowners >= 65 (Senior) or disabled (who meet income <= $10K without SS & residency requirements) or war veterances & their unmarried surviving spouses – Annual deductions of up to $250 from property taxes
§ Religious, charitable and other not-for-profit purposes are totally exempt from property taxes
o Preferential treatment for farmlands which must meet the following requirements
§ Must be >= 5 acres in size, exclusive of homesite
§ Must earn >= $500/yr in gross sales for the first 5 acres. In addition, gross sales must average $5/acre on qualified agricultural land & $0.5/acre on woodland and wetland above the 5-acre minimum
§ Must have been actively used as farmland for 2 yrs immediately prior to the year for which preferential tax treatment is requested
o Tax rebate:
§ NJSAVER program: homeowners & tenants (18% of rent) whose gross income < certain amount
§ $50 to anyone >= 65, disability & certain surviving spouses
o Must file for exemption every 12/01 with local tax assessor
o Special assessments: levied to spread the cost of improvements such as new sidewalks, curbs, or paving to the real estate that benefits from them
o Unpaid taxes become a lien against property, usually taking precedence over other liens, and may be enforced through tax foreclosure or sale
- Taxation Process:
o 10/01 tax assessor determines assessed value of every ratable (taxable property)
o NJ goal: Full value assessment
o Periodic revaluation to bring every ratable up to market value
o Equalization rates: used to achieve uniformity; important in determining state funding to school districts
o Tax appeals: until 01/10, tax lists can be changed by the tax assessor. Then file with the county board of taxation up to 04/01. Further appeals can be made to NJ Tax Court & lastly to NJ Supreme Court
o Tax rate determination
§ Tax rate = (total monies needed / total assessments of all RE in jurisdiction)
§ NJ tax rate is $ per $100 of assessed values / Mills: $0.001
o The tax bill for each parcel is determined by multiplying the tax rate by assessed valuation
o Tax foreclosure: initiated if taxes remain unpaid 6 mos after end of tax yr
o Tax sale: held by local tax collector. Buyer receives tax sale certificate, not title
o Right of redemption:
§ Municipality purchases certificate: redemption period of 6 mos. Failure to redeem results in judical foreclosure, called in rem (against the property) proceeding
§ Private party purchases certificate: 2yr redemption period. After 2yrs, title may be obtained by foreclosure anytime within 20 yrs
- Income tax issues for home sellers
o Married home sellers filing jointly may take up to $500K capital gain ($250K for single sellers) on the sale of a principal residence free of any federal tax
o The home must have been owned and occupied as a main residence for at least two of the five years before the sale
o The exclusion may be used as often as every two years
o IRS가 <2yr이나 기간만큼 pro rate 적용받는 경우: a job transfer, health reasons, death, divorce, or multiple births
o Penalty-free withdrawals from IRA - First-time home buyers with the limit of $10K
*** Key Terms & Other Information
- Assessment roll: list of all taxable property
- Full-value assessment: estimate based on probable sales price
- Ratable: a taxable property
- Tax foreclosure: seizing of property for unpaid taxes
- Property taxes become a lien on the land every Jan. 1st
Chapter 9: Land-use regulations and environmental issues
- The control of land use is exercised through public controls, through private (or nongovernment) controls, and through public ownership
- Private controls
o Deed restrictions: Exercised by owners, generally subdividers, who control use of subdivision lots by deed restrictions. Form of encumbrances
o The usual recorded restrictions may be enforced by adjoining lot owners obtaining a court injunction to stop a violator
- Government Powers
o Held by federal, state, and local governments
o For the purpose of protecting the general welfare
o Limiting private rights in land include PETE
§ Police Power
§ Eminent domain: Government’s power to take private property for public use. For just purpose with just compensation by process of condemnation
§ Taxation
§ Escheat: Reversion of property to the state when intestate owner dies without heirs
- Public controls
o Ordinances based on the state’s police power to protect the public health, safety, and welfare
o Through power conferred by the state, cities and municipalities enact;
§ Planning (master plan)
§ Zoning
§ Subdivision regulations
§ Building codes
§ Environmental protection legislation
o Zoning ordinances:
§ Purpose: to implement a local master plan
§ Regulates and affects use of the land, lot sizes, types of structures permitted, building heights, setbacks (the minimum distance away from streets or sidewalks), and density
§ 5 major classification: RICIR (Residential/Industrial/Commercial/Institutional/Recreational)
§ Other zoning: cluster, multiple-use(permits PUD), buffer-zone (ex: greenbelt) etc
§ Exclusionary zoning: discriminatory local regulation. Has been outlawed by the
§ Zoning enforcement problems involve zoning boards of appeal, variance (=a use that doesn’t meet zoning requirements), and nonconforming uses (=existing use that doesn’t meet current zoning standards. Allowed if existed before the area was zoned)
o Subdivision regulations: maintain control of the development of expanding community areas so that growth is harmonious with community standards
o Building codes:
§ control construction of buildings by specifying standards for construction, pluming, sewers, electrical wiring, and equipment
§ A building inspector issues a CO (Certificate of Occupancy) when a completed building meets standards or CC(Certificate of Compliance) for an altered building
§ Certificate of continuing occupancy may be required by some municipality on every transfer of title on existing buildings
- Hazardous Substances (Environmental protection)
o Major substances: Radon, asbestos, lead-based paint & other lead hazards, underground storage tanks, Urea-Formaldehyde, Mold, Carbon Monoxide, Electro-Magnetic Field, groundwater etc.
o Asbestos: friable. Banned in ’78. Incapsulation
o Lead:
§ Requires disclosure statement attached to contracts & leases for residences built before prior to ’78 and lead-hazard pamphlet given to buyers/tenants by the federal government
§ Purchasers are not bound by any real estate contract until the 10 day period has expired (Purchasers may conduct survey or waive it)
o Radon: EPA (Environmental Protection Agency. federal) suggests readings over 4 pci not safe and corrective action needed. REC recommendations regarding disclosure of radon should be followed “The NJ REC advises sellers agents that they have a duty to keep confidential any information about radon test results or mitigation work until the contract of sale is entered into, unless the seller has authorized the agent in writing to discuss the matter with buyers”
o Urea Formaldehyde: banned ’82. impact has not been proved yet
o Mold: some mold spores are toxic, others are not. Cause of mold is intrusion of water
o Carbon Monoxide(CO): result of incomplete combustion. In NJ, detectors now required in all dwelling units
o Groundwater
§ NJ’s Private Well Testing Act: closing may not take place unless both buyer and seller certify in writing that they have received and reviewed a copy of the test (testing the water) results. Rental too.
o Effects of UF & EMF are not proved yet
- CERCLA(Comprehensive Environmental Response, Compensation, and Liability Act. Federal)
o Created super fund to clean up. Enforced by the EPA
o Landlord held liable under the act
o Innocent owner immunity: owner may be exempt if pollution caused by a 3rd party; property was acquired after the fact; owner had no actual or constructive knowledge of damage; due care was exercised at time of purchase (environmental assessment); reasonable precautions were taken
- ISRA (Industrial Site Recovery Act. NJ Law)
o Wetlands Act of 1970. Under this act, the DEP(Department of Environmental Protection) regulates certain activities in designated wetlands area
- Landmark Preservation district
o May restrict owner’s right to alter exterior by local government
*** Key Terms
- Condemnation: court action by which government takes personal property (Eminent Domain)
- DEP (Department of Environmental Protection): NJ agency overseeing natural resources
- Master plan: primary method by which local governments recognize development goals
Chapter 10: Listing Agreements
- Listing agreement
o Agreements by which a seller authorizes a broker to offer property for sale and agrees to pay a commission
o NJ Statue of Frauds: Listing must be in writing, must state rate or amount of commission & termination date for the agreement
o If the listing is not written, the broker must deliver a memorandum of the agreement to the seller within 5 days
o All listings must be taken in the name of the broker
o NJ recognizes 3 types of listing:
§ Open listing: given to any number of agents, with the commission going to the one who effects the sale. Owners may sell on their own without owing any commission. Not in MLS
§ Exclusive-agency listing: authorizes one broker to handle the property with the owner reserving the right to sell on his or her own without paying commission
§ Exclusive-right-to-sell listing: authorizes one broker to handle the property and to receive commission if the property is sold by anyone during the listing period
§ Net listing (illegal)
o MLS (Multiple-listing service)
o Every listing agreement must contain:
§ a definite expiration date
§ a statement acknowledging receipt by the seller of the CIS(Consumer Information Statement)
§ business relationship (seller’s agent etc)
o A signed copy must be given to the owner immediately, along with the Attorney General’s Memorandum on the NJ Law Against Discrimination
o Property Information Checklist for Listing
§ Names and addresses of owners
§ Adequate description of the property
§ A survey or dimensions of the lot (frontage and depth)
§ Number, size and layout of rooms
§ Square footage
§ Construction and age of the building
§ Information relative to the neighborhood (schools, houses of worship, transportation)
§ Current taxes
§ Special assessments
§ Dues (if a condominium or in a private community)
§ Amount of existing financing (including interest, payments, and other costs)
§ Utilities and average payments
§ Septic and/or well information, if applicable
§ Appliances to be included in the transaction
§ Date of occupancy or possession
§ Possibility of seller financing
§ Zoning classification (especially important for vacant land)
§ Flood zone information
§ A detailed list of exactly what is and is not included in the sales price
o Responsibility for Disclosure
§ Disclosure of any material info regarding the property
§ True tax figure
§ Search flood area map & insurance
§ Search public records regarding zoning
§ Search municipal restrictive ordinances such as Wetland Protection, etc
§ Inform seller of Carbon-Monoxide & smoke detector installed
§ Many brokers now require every seller to fill out a disclosure form at the time of listing. Eventually signed by the buyer and attached to the sales contract
o Cooperation with Other Licensees
§ Every licensee must fully cooperate with all other NJ Licensees in the sale of listed property, unless specifically ordered not to do so by the seller
§ Any MLS must receive a listing within 48 hrs of signing
§ Any written offer must be transmitted to the seller within 24 hrs
§ Listing contract must contain an explanation of the fee arrangements under which the RE firm cooperates on the sale of listings – “the split” must be specified
o No listing contract may prescribe or predetermine a fee or percentage
- Pricing the property
o A broker should furnish the seller with a comparative market analysis to aid in establishing the listing price
o The CMA includes material not usually considered in regular appraisals:
§ Properties that failed to sell
§ Currently on the market
§ Significant DOM(Days on Market) information
o Any written CMA includes a statement indicating that the CMA is not an appraisal and should not be considered as such
o The broker should convey to the seller the fact that the eventual selling price is set by the buying public through the operation of supply & demand in the open market
Chapter 11: Real Estate Contracts
- Essential elements of a valid contract
o Competent parties: >=18 of sound mind. Married person under age of 18 are considered adults. Minors may enter into valid contract but it’s voidable by minor until he or she reaches 18
o Offer and acceptance: meeting of minds
o Consideration: what parties promise to give or receive. Usually the sale price. Good (ex: love) & valuable (ex: $)
o Legality of object
- NJ Statute of Fraud
o Prior to 1966: all contracts for sale / leases for more than 3yrs had to be in writing
o After 1966: oral contracts are enforceable where there was “clear & convincing evidence”
- Types of contracts
o Express: parties state the terms. Orally or in writing
o Implied: demonstrated by acts or conduct
o Unilateral: one-sided contract. One party makes a promise to induce a second party to do something. Second party not obligated to comply but if he does, first party must perform (ex. Option contract)
o Bilateral: promise for promise. RE contract
o Executory: some element must be completed
o Executed(or fully executed contract): all promises fulfilled
o Validity of contracts
§ Valid: binding on all parties
§ Void: no legal force or effect
§ Voidable: may be rescinded by one of the parties (ex. Contract with minor)
§ Unenforceable: neither can sue the other to force performance (ex. 술취한 상태에서의 계약. During attorney’s review period)
o Undue influence and duress: voidable. Contacts must be signed as the free and voluntary act of each party
o Performance of contract: within time limits stated
§ Time of essence: may be included in contract or imposed by attorney when breach of contract has occurred
o Assignment: transfer of right/duties to third party. Assignor is secondarily liable if assignee breaches contract
o Novation: substituting new contact for an existing agreement. A new party may be substituted (= novation of the parties)
o Discharge of contract
§ Completely performed
§ Breached: one party defaults
§ Partial performance: with a written acceptance by the person for whom acts have not been done or to whom money has not been paid
§ Substantial performance: performed but not exactly as required. Possible damages보상 요구 가능
§ Impossibility of performance: can’t be legally completed
§ Mutual agreement: agree to cancel or rescind and return to the status quo
§ Operation of law: voiding by a minor, fraud; expiration of statue of limitations; altering contract without consent
o Default
§ Breach of contract: violation without legal excuse
§ Seller default:
· buyer may rescind and recover the earnest money deposit
· sue for specific performance – force the seller to perform the contract (i.e. convey the property)
· sue for compensatory damages
§ Buyer defaults:
· Seller may declare contract forfeited and seek liquidated damages
· Seller may rescind, requiring seller to return all payments buyer made
· Sue for specific performance
· Sue for compensatory damages
o NJ Statute of limitations
§ 6 yrs to file legal suit to enforce (lawsuits to recover real property have a 10-yr statute of limitations in NJ)
- Contracts used in RE
o Listing agreements, RE sales contracts(=offer to purchase), Leases
o NJ allows brokers to complete
§ Residential leases
§ Sales contracts for 1 to 4 family residences & vacant single lots
o May not draft commercial leases, option agreements, or sales contracts on tracts of vacant land, commercial property, or industrial property
o NJ Requirements
§ Business relationship (Note to buyer & seller)
§ Attorney review notice
§ Disclosures
· Off-site conditions
· Lead-based paint
· Megan’s law disclosures
o Federal Requirement
§ Lead-based paint survey: Purchasers are not bound by any real estate contract until the 10 day period has expired (Purchasers may conduct survey or waive it)
o Contract forms: All changes (ruled out) and additions(riders) usually are initialed by both parties. Handwriting > Typed > Printed
o Listing agreements: establish the rights of the broker as agent and of the seller as principal
o Buyer brokerage Agreements: establish the rights of the broker as agent and of the buyer as principal. They should clearly set forth when, in what manner, and by whom the agent is to be compensated
o Sales Contracts (= offer to purchase, contract of purchase and sale, earnest money agreement, binder and deposit receipt)
§ Sets forth all details of the agreement between a buyer and a seller for the purchase and sale of RE
§ Dictates the contents of the deed
o Offer & Acceptance
§ Meeting of the minds: buyer & seller agree on the terms of the sale. Accomplished through the process of offer & acceptance
§ Any attempt by the seller to change the terms proposed by the buyer creates a counteroffer. The buyer is relieved of his or her original offer because the seller has, in effect, rejected it
§ An offer is not considered accepted until the person making the offer has been notified of the other party’s acceptance
§ Legally binding signatures may be obtained via fax machines, but they should be followed up with original signatures ASAP
o Earnest Money Deposits (a good faith deposit):
§ customary, not essential.
§ Most contracts provide the deposit becomes the seller’s property if the buyer defaults (as liquidated damages). In certain cases, the seller might claim damages in excess of the earnest money
§ Deposited by a broker within 5days in escrow
§ Commingle illegal
§ Conversion illegal: broker uses escrow fund for personal use
§ No need to open a special escrow account for each earnest money deposit received. One account into which all such funds are deposited is sufficient, but a broker should maintain full, complete, and accurate records of all earnest money deposits
§ Any cash deposit >= $10K should be reported to the IRS
o Parts of a sales contract
§ Essentials:
· Contract in writing
· Competent parties
· Agreement to buy and sell
· Adequate description of the property (Address는 legal description 아님)
· Consideration (price and terms of payment)
· Grantor’s agreement to convey (type of deed specified)
· Place and time of closing
· Signatures of the parties
§ Usually included but not essential:
· Encumbrances to which the deed is made subject
· Earnest money deposit
· Mortgage financing the buyer plans to obtain and other contingencies
· Possession by the buyer
· Title evidence
· Prorations and adjustments
· Destruction of the premises before closing
· Default by either party
· Contingencies
§ Signature of a witness is not essential
§ Built before ’78: a copy of the EPA booklet on lead paint dangers
§ FHA financed property: buyer must receive and acknowledge a notice that the FHA recommends the use of a home inspector, and that its appraisal is concerned with overall value, not details of condition of the property, as well as a notice about potential mold and randon problems
o Contingencies
§ FHA or VA Loand: special clauses (amendatory clause) must be included in the sales contract that provide the contract may be voided if the peoperty appraises below the sales price
§ Provisions may be added stipulating that the seller furnish satisfactory reports on such matters as termite or insect infestation, quality of a private water supply, or condition of plumbing or heating equipment
§ In some municipalities, a certificate of continuing occupancy may be required for transfers of existing buildings – the contract should make it clear whose responsibility this is
§ The purchaser may add a stipulation that allows a walk-through inspection of the property shortly before settlement
§ Common provisions in the “subject to”;
· Purchaser’s need to secure a specific loan
· Purchaser’s right to a satisfactory report on the property by a licensed home inspector within a specified few days
· Approval of the contract by a family member within a short period of time
· Purchaser’s need to sell a present home before buying the next residence
o Seller may insist on an escape clause (also called a kickout or knockout clause) – allows the seller to look for a more favorable offer, with the original purchaser retaining the right, if challenged, either to firm up the first sales contract or to void the contract
§ Liquidation damages: amount of money, agreed to in advance by buyer and seller, that serves as compensation if one party does not live up to the contract
o Plain-language requirement:
§ 쉽게 써야 됨(NJ law). The plain-language requirement does not apply to agreements involving amounts over $50K
o Rescission of contract ( a return to the status quo)
§ Sales contract with Planned Unit Developments and other developments that are promoted with comprehensive advertising or incentive programs may be rescinded by the purchaser for any reason within 7 days of signing (only to RE covered under NJ Planned Real Estate Development Full Disclosure Act, not all RE transactions)
§ Interstate: 7 calendar days
§ Attorney review: 3 business days. Attorneys need not give any reason for disapproval
§ Refinance: 3 business days including Saturday rescission right
§ 1st mortgage: No rescission right
o Option agreements
§ Optionor (seller) gives an optionee (buyer) the right to buy or lease the owner’s property at a fixed price within a tated period of time
§ The optionor may be bound to sell; the optionee is not bound to buy
§ Contracts should be prepared by attorneys
o Land contracts (=contract for deed = installment sales contract)
§ Typically used as a means of seller financing
§ Seller (= vendor) retains fee ownership and does not execute and deliver a deed to the buyer until the terms of the contract have been satisfied
§ Buyer (= vendee) secures possession and an equitable interest(equitable title) in the property
§ Buyer pays installment, RE taxes, insurance premiums, repairs, and upkeep on the property
§ Broker should consult attorneys at every step
Chapter 12: Leases
- Leasing real estate
o right to possession and use for a specific period of time
o Property owner = lessor = landlord
o Tenant = lessee
o Demise: transfer of property by lease
o NJ Statute of Frauds: leases for more than 3yrs shall not be enforceable unless in writing and signed by all parties
o A lease may be recorded if it is for 2 yrs or more
- Leasehold estate
o Estate for years: definite time, specific terminate date
o Periodic estate (= estate from period to period): indefinite time, no specific termination date. Automatically renews when rent is given and accepted. month-to-month or holdover tenancy
o Tenancy at will: indefinite time with consent. Terminated with 3 months notice or death of either party
o Estate sufferance: holdover without landlord’s consent. Evicted at any time. The lowest estate in land (cf. Fee simple)
- Standard Lease Provisions
o May be oral, written or implied
o Essentials of valid lease:
§ Capacity to contract: sane adults
§ Demising clause: lessor to let and the lessee to take the premises
§ Description of premises: limitations. Use of premises
§ Lease term with beginning & ending dates – “for a term of 30 yrs beginning June 1, ’02, and ending may 31, 32”
§ Specifics of the rent – how it is to be paid
§ Signatures of all parties
o NJ requirements
§ Business relationship must be indicated together with CIS acknowledgement
§ Attorney review
§ Lead-based paint disclosure
§ Megan’s Law, Window Guard Notification also disclosed
o Security deposits
§ Protection against nonpayment and damages
§ Residential: 1 ½ months rent max
§ Commercial: no max amount fixed by law
§ Tenant noticed where security has been deposited in a NJ interest bearing account
§ Tenant entitled to all of the interest
§ Property sold: security turned over to new owner & tenant notified
§ Tenant vacates: landlord must turn over security within 30 days minus money held for damages. Failure to do so: double the security
§ The tenant is not entitled to apply the deposit to the last month’s rent, nor can the landlord keep the deposit if the only damage to the apartment can be construed as normal wear and tear
o Late payment
§ Rent is due and payable on date stipulated in lease
§ Landlords may charge a penalty for late payment
§ Senior citizens receiving SS old-age RR retirement pensions, or any other government pensions must be given 5 days grace period
o Legal principles of leases
§ May be recorded if for 2yrs longer
§ Implied covenant that landlord will give tenant possession
§ Improvements with permission of landlord, generally become property of landlord. Exception: trade fixture
§ Maintenance of property: lease includes implied warranty of habitability; tenant has right to repair and deduct if landlord fails to make repairs
§ Assignment: if allowed, tenant assigns lease to new tenant who is now responsible for lease & pays rent directly to landlord. Original tenant maintains secondary liability
§ Subletting: transfers portion of lease. Subleassee pays rent to sublessor who then pays the landlord. Sometimes known as sandwich lease
§ Destruction of premises: states liability of parties
§ Termination: lease for definite period expires at end of the period. If expiration date not specified, may be terminated with proper written notice. Upon death, survivor must give 90 day notice. Lease survives sale of property unless otherwise state
o Truth-in-renting (State requirement. Only residential):
§ NJ Dept. of Community Affairs statement of rights & duties of residential tenants and landlords. Landlord exempt from giving brochure to transient tenants and to tenants in one or two family (three, if owner occupied) houses (작은 규모는 번거롭게 이런 “right” 브로셔 배포할 필요 없음)
§ Disclosure of owners & mangers: required to inform names & addresses of property owner, officers, managing agents, superintendent etc. The disclosure also must be filed with local government and state agencies
§ Federal Crime Insurance: >= 10 units must provide the availability of special crime insurance in high-risk areas
o Americans with Disabilities Act
§ Title I(피고용인들 상대로): provides for the employment of qualified job applicants regardless of their disability and for employers to make reasonable accommodations necessary to perform job functions
§ Title III(Tenant & customer 상대로): prohibits discrimination in commercial property and requires property managers to ensure compliance with the Act
o Rental Referral Services
§ Written contract is required for a fee based referral services
§ >=$25 advanced fee must be deposited in an escrow account
o Rent control
§ Individual communities may set rent control
§ To encourage construction of more housing units, new construction is exempt from rent control
o Eviction
§ Landlord cannot evict without a court ruling…
§ Most frequent cause of eviction is rent non-payment and damage to premises
§ Cases of hardship: up to 6months to find a new housing
§ Condo conversion: Tenants with disabilities and those over 62 yrs (who have lived there for >= 2yrs & have income <= $50K or <=3* per capita) are protected (allowed to continue for up to 40 yrs)
§ Constructive eviction: landlord fails to provide basic services and premises are uninhabitable. Tenants must move first to claim constructive eviction
§ Actual eviction: tenant breaches lease, landlord files suit for possession (summary proceeding or dispossess proceeding)
o Type of Lease
§ Gross lease: Tenant pays rent. Landlord pays expenses (ex> residential lease)
§ Net lease: Tenant pays rent and some or all of expenses (ex> commercial lease)
§ Percentage lease: fixed rent and percentage of gross sales income (ex> retail lease)
§ Variable lease: graduated lease – rent increase at a set future date; Index lease – increased or decreased based on government cost of living index
§ Ground lease: owner leases land to erect a building. A net lease. Always long time. Building may be torn down or become the property of the landowner at end of the lease
§ Oil & gas lease: up front payment. If oil/gas found, royalty paid to landowner
o Property MGMT
§ Product manager (general agent) is someone who preserves the value of an investment property while generating income as an agent for the owners
§ Management agreement must be carefully prepared
§ PM should do…
· Draw up a budget of estimated variable and fixed expenses
o Operating Expenses: fixed expense – continuous expenses such as employee’s salaries, management fees, property taxes etc ; cash reserve fund for variable expenses – repair, decorating etc
o Capital Expenditures: renovation, replacement etc.
· Solicit tenants, collect rents, maintain the building, hire employees, pay taxes, deal with tenant problems, secure adequate insurance coverage
§ The Management Field
· The Institute of RE Management (IREM) is part of the NAR. Members may earn the designation Certified Property Manager(CPM).
· The Building Owners and managers Association International (BOMA International) is a federation of local associations of owners & managers
*** Key Terms
- Assignment: transfer of primary responsibility for a lease to another party. Original tenant still has secondary liability
- Holdover tenancy: situation when tenant remains after lease period has expired
- Tenancy at will: tenancy that may be terminated when landlord wishes
Chapter 13: Mortgage
- Notes & Mortgage
o Mortgage: a security instrument. pledges property as collateral for loan. Allows lender to foreclosure if borrower defaults on note. Creates a lien on the property
o Note (bond): promise to repay. Creates personal obligation. Borrower liable even if property goes down in value
o Mortgagor: borrower
o Mortgagee: lender
o Hypothecation: pledging of property as security for payment without surrendering possession
- Trust Deed
o A three party deed used in some parts of US
o Conveys RE, as security, to a trustee
o Default: lender can gain possession of the property quickly
- Provision of Mortgage Documents
o Legal description of property
o Signed by all parties
o Details borrower’s obligations / lender’s rights
o Recording mortgages, establishes priority over future liens. Mortgagor’s signature
- Duties of Mortgagor
o Pay debt in accordance with terms of note
o Pay RE taxes
o Maintain insurance to protect lender if property damaged or destroyed
o Obtain lenders authorization before making major alterations to property
o Maintain property in good repair
o Wait 30 days or obtain lender’s permission before placing a second lien
- Default
o Failure to meet duties of mortgagor can result in default on note. Following grace period (30 days) lender has right to foreclosure
o Acceleration clause: mortgage clause declaring entire debt due immediately
- Other clauses
o Defeasance clause: when debt is repaid, mortgage has no further claim on property
- Assignment of mortgage
o Note may be sold to third party or assignee (=another lender)
o Estoppel certificate: executed by borrower verifying amount that remains to be repaid and interest rate
o When debt is paid: assignee executes the satisfaction or release of mortgage
o In event of foreclosure: assignee files suit
- Interest rates
o Usury:
§ rate higher than allowed by law. applied to sellers & third party
§ seller may charge no more than 17% on first mortgage
§ Up to 30% on primary residences
§ If seller takes back a second mortgage, 16% on first $50K and up to 30% beyond
o Imputed interest: if seller uses artificially low interest rate, IRS will impute higher rate and tax seller accordingly
o Prepayment penalty: illegal in NJ
- 1st & 2nd mortgage
o 1st: with exception of taxes, takes priority over all other liens
o Future mortgages: 2nd mortgage or junior lien
o Subordination agreement: changes lien priority
- Satisfaction of mortgage lien
o When all loan payment paid full, lender is required to execute a release of mortgage, or satisfaction of mortgage (public record)
o NJ law requires the mortgagee to record the satisfaction or discharge of mortgage document (The borrower, however, may be charged for the recording fee)
- Assuming seller’s mortgage
o Assumption: assume responsibility for the mortgage and the note. Seller is secondarily liable
o Reduction certification: statement from mortgagee detailing amount currently due.
- Buying subject to seller’s mortgage
o Purchaser does not sign the note. Therefore not responsible for the debt if he defaults. Seller is still liable
- Alienation clause: also called resale clause or due-on-sale clause. Prevents assumption or subject to when property is sold
- Foreclosure
o Borrower default: lender petitions court. Foreclosure sale
o Lis pendeins filed in public record
o Public auction or sheriff’s sale. Advertised
o Taxes and special assessments have first priority
o Junior liens wiped out by sale
o Sheriff’s deed delivered to buyer in 10 days
o Deficiency judgement: personal judgement against signer of notes for the unpaid balance. Court order that borrower pay money lost by lender after foreclosure
o Deed in lieu of foreclosure:
§ friendly foreclosure by agreement rather than civil action
§ Mortgagee takes back property subject to all junior liens
*** Key Terms
- Subordination agreement: arrangement by which mortgage holder gives up priority
Chapter 14: Financing
- Mortgage Financing
o ’20: LTV 40%. Period 5yrs
o Now: LTV 95~100% Period 30yrs
- Types of Loans
o Amortized loans: “to kill off slowly over time” self-liquidating loans
o Fully amortized loan
o Straight payment plan: interest only
o Bi-weekly mortgage: 52 times/yr. usually shorter term than monthly payment
- Adjustable Rate Mortgages
o Adjustment period: anniversary date
o Index: most common is 1 yr US T-bills
o Margin: % above the index – 2~3%
o Cap: max change on any single adjustment
o Ceiling: max interest rate, lifetime cap (5~6%)
o Negative amortization: insufficient payment to cover interest. Shortfall added to principal
o Convertibility: converts ARM to fixed rate. Usually on 3rd or 4th or 5th yr of loan
o Initial interest rate: artificially low rate for first yr
o Assumability: with lender’s approval and payment of one point or more in service fees
- Tax deduction
o On interest paid on loans up to $1 mil (to purchase and/or improve both 1st & 2nd (vacation) residences)
o On home equity loans up to $100K
o Property taxes, prepaid interest, prepayment penalties can be deducted
- Points: prepaid interest. 1 point = 1%. Seller’s points not tax deductable. Buyers points are.
- Bydown: extra payment of points to lower interest rate
- Tax & insurance reserves
o Lenders may require escrow for taxes and insurance premiums
o Monthly payment may include PITI (= budget loan)
o RESPA limits the amount of TI reserves that a lender may require (2% of the loan amount)
- Conventional, Insured, and Guaranteed loans (Summary)
o Conventional loan: entirely between borrower and lender
o Insured loan: FHA – insured by FHA. Operated under HUD loan comes from local lending institution. Very low down payment
o VA – Guaranteed by VA. Loan comes from local lending institution. No downpayment is required
o Loans directly from the government: NJ Housing and Mortgage Finance Agency (NJHMFA) and RECD
- Conventional Loan
o Offered by lending institution who set their own standards
o Mortgages can be fixed, adjustable, graduated etc
o Private mortgage insurance (PMI): required on conventional mortgages with less than 20% down
- FHA – Insured loan
o FHA created in 1934. operated by HUD
o Loan created by lending institutions, insured by FHA
o FHA 203(b): most common. Used for one to four family homes. Lump sum mortgage insurance. Premium MIP(Mortgage Insurance Premium. <=1.5%) charged at closing either up front or included in loan. Additional MIP of 1/2 % year down payment and closing costs can be gifted. Seller can pay points and escrow fees not to exceed 6% of loan
o FHA sets top limits on its loans, depending on price levels in different areas (’05, $312,895 in
o Home evaluated by FHA approved appraiser, and loan amount is a percentage of this estimate of value FHA sets loan limit based on price & area
o Buyer must be owner occupant
o Assumability: loans prior to 12/15/89: no change in rate. No credit check. Original borrower still liable. Formal assumption will release original borrower. Loans after 12/15/89. buyer must qualify with lender
o FHA 203k: Loan to cover purchase price and rehabilitation
o Other FHA: ARMs. Graduated payment and no-down mortgage plans for veterans, police, teacher, fireman
o Amendatory clause: if property fails to appraise, buyer has option to cancel contract or pay difference using their own funds
- VA
o Veteran furnishes certificate of eligibility
o No down payment required. VA guarantees the top 25% of loan amount. Max guarantee is $89,913 allowing for loan up to $359,650
o One to four family owner occupied eligible
o Funding fee: paid by veteran, seller or added to loan, waived for veteran with service-connected disability
o VA appraisal = Certificate of Reasonable Value
o Amendatory clause must be included
o Widow or widower of veteran eligible
o Assumability:
§ loans before 3/1/88: need not be veteran nor prove qualification
§ After 3/1/88: credit check and pay fee up to 1%.
§ Loans after 1989: veteran is free of liability after a good faith assumption
- NJHMFA
o NJ Housing & Mortgage Finance Agency (NJHMFA): Below market interest loans. Low or no down payment to required buyers who purchase homes in urban target areas. Inner cities
o Outside target areas: first time buyers eligible
- Farmer’s home loan
o The RECD is an agency of the Dept of Agriculture that makes direct loans to borrowers for the purchase of inexpensive homes in rural areas and small towns
o For low income first time homebuyers, mortgage interest may be as low as 1%
Chapter 15: Primary & Secondary Mortgages
- Financing Techniques
o Purchase money mortgage: Any mortgage placed when property is bought. Seller financing
o Reverse mortgage: payments to borrower
o Home equity loan: for any purpose. Second mortgage
o Bridge loan: interest only. Interim financing. Short term
o Shared equity mortgage: profits shared when property sold
o Package mortgage: real estate + chattels (ex> furnished condo)
o Blanket mortgage: covers several parcels. Release clause allows a parcel to be removed
o Wraparound mortgage: financing purchase when existing mortgage is retained (no “Assuming”)
o Open-end mortgage: used to obtain funds to improve property
o Construction loan: finances improvements
o Sale-leaseback: real estate leased back to the seller. Buyer becomes landlord. Seller the tenant
o Land contract (contact for deed or installment contract): seller holds title until all payments satisfied
- Other seller-buyer arrangements
o Seller financing: seller “takes back” a purchase money mortgage. Seller is the mortgagee
o Lease-option: a lease in which tenant can buy if they opt to
o Lease purchase: tenant has binding contract of sale to buy at a future date
o Land contract: seller remains owner until contract is satisfied
o Sale-leaseback: buyer receives deed, seller becomes tenant
- Primary Mortgage Market
o Mortgage loans are generally made by institutional lenders such as banks, mortgage banking companies, life insurance companies, mortgage brokers, credit unions, pension and trust funds, finance companies and individuals such as sellers, investors, etc
- Application for credit
o Underwriting: application evaluated
o Loan commitment: acceptance of the loan
o Pre-approved loans: written commitment
o FICO scores: system of credit scoring
o Qualifying ratio: typical 28/36 (PITI)
- Government Influence in Mortgage Lending
o Federal Reserve System: control reserve system & discount rate
o Fannie Mae: private corp. buys conforming loans. Sells gove’t guaranteed FNMA bonds
o Ginnie Mae: Government corp. assists with low, moderate income and high risk mortgages. Issues pass through certificates guaranteed by Ginnie Mae
o Freddie MaC: purchases mortgages, pools them, sells bonds
o Non conforming, jumbo loans: higher than secondary market’s limit. Portfolio lender (>$400K)
- Truth-Lending Law, Reg. Z (Only residential)
o Advise borrower true cost of credit and APR
o Creditor: extends credit more than 25X a yr, 5X a yr if the transaction involves a dwelling as security
o No 3 day rescission on residential first loans
o Advertising must include the APR
o Triggering terms used (loan term, percentage of down payment, amt. of payment or fiancé charge); Any offer of financing must include the words “to a qualified buyer”
o Violation of Reg. Z:
§ Willful violation is a misdemeanor, subject to penalties up to $5K, 1yr imprisonment
§ $10K for each day the violation continues. A creditor is liable to a consumer for twice the amount of the finance charge (min. $100 ~ max. $1K) + court costs, attorney fees, actual damages
- Equal credit opportunity Act (ECOA)
o No discrimination against R.R.N.A.M.S & public assistance
- RESPA (Real Estate Settlement Procedures Act. Only for residential)
o Created to ensure buyer &seller in a residential RE transaction involving a new first mortgage loan have knowledge of all settlement costs
- NJ Truth-In-Lending Act
o Seller and buyer notified at least 12 days in advance of the closing of all charges or fees they must pay in connection with the loan
- Chapter 16: Appraisal
- What is appraisal
o Appraisal: estimate or opinion of value, based on supportable evidence and approved methods; complied by an independent licensed appraiser “Not fiduciary”
o Attributes of land
§ Finite in supply
§ Physically immobile
§ Durable
§ Unique in location and characteristics
§ Useful to people
- RE: Business of Value
o Value: monetary worth of goods, products or services. The present worth of future benefits
o In RE,
§ Cost related to the past
§ Price to the present
§ Value to the future
- RE Market
o Market: place where goods are bought and sold, according to force of supply and demand
o Supply: amount of goods for sale with the market at a given price during a given time
o Demand: number of people willing and able to accept the available goods at any price during a given period of time
o When supply increases, prices will drop; when demand does, prices will rise
- Appraising
o Appraising may be required for estate purpose, divorce proceeding, financing, taxation, relocation, condemnation, insurance, damage loss, feasibility
o Fee appraisal: independent contractor who offers services to different clients
o Staff appraisal: in house employee. Ex> banks
o NJ appraisers must be licensed or certified
- Value
o Value: present worth of future benefits arising from the ownership of real property
o Basic economic characteristics (DUST): Demand, Utility, Scarcity, Transferability
o Market value: estimate of price a ready, willing, able buyer, not forced to buy, will pay a seller, not forced to sell, after reasonable exposure to the market. Presupposes an arm’s length transaction. “Price that would be paid by an informed buyer”
o Market price: what a property actually sells for (Buyer sets)
o Cost: does not represent market value. May or may not be equal with market value
o Basic principles of value
§ Highest & best use: most profitable use
§ Substitution: value set by cost of purchasing another, equally desirable property
§ Supply & demand
§ Conformity: maximum value if property conforms to other homes in neighborhood
§ Regression: better property decreases value in presence of lesser quality property
§ Progression: lesser property increases value if located among better properties
§ Anticipation: expectation of future benefits creates value
§ Increasing returns: money spent on improvements causes an increase in value
§ Diminishing return: improvements no longer produce a value increase
§ Contribution: value of any component of property is not its cost, but its contribution to value of whole
§ Competition: profits attract competition, excess profit tend to attract ruinous competition
§ Change: real property is subject to change by natural phenomena and marketplace behavior
- 3 Approaches to value
o The Sales comparison approach
§ As known as market data approach
§ Used primarily for residential property
§ Compares subject with recently sold properties
§ Adjustments are made for: date of sale, location, physical features, Terms and condition of sale
§ Adjusted sales price represents the probable value range of the subject property
§ Gross rent multiplier: relates sales price of investment property to rental income. Monthly income for residential, annual for commercial
§ (Sales price/Rental Income)=Gross Rent Multiplier
o Cost approach: for school, public buildings, church, stadium etc
§ Also called appraisal by summation and based on principle of substitution
§ 5 steps to cost approaches:
· Estimate value of land as if it were vacant
· Estimate the cost of construction
· Estimate amount of accrued depreciation
· Deduct accrued depreciation from estimated construction cost
· Add estimated land value to depreciated cost of building
§ Reproduction cost: exact duplicate
§ Replacement cost: similar building
§ Reproduction/Replacement cost method:
· Square-foot
· Unit-in-place
· Quantity-survey
· Index
§ Depreciation
· In the cost approach, depreciation refers to the loss in value due to any adverse cause or condition that adversely affects the value (Res. 27.5 yrs / Comm. 39 yrs)
· 3 Types
o Physical deterioration: wear and tear. Curable or incurable.
o Functional obsolescence: physical or design features no longer considered desirable. Curable or incurable
o External (Economic) obsolescence: caused by factors outside subject property. Usually incurable
o Income capitalization approach
§ Based on present worth of future rights to income. Used for valuing income-producing properties (commercial)
· Estimate annual potential gross rental income
· Deduct vacancy and rent losses. Add income from other sources to arrive at effective gross income
· Deduct annual operating expenses (“Do Not Include Debt-Service”, management costs included) to arrive at annual net operating income (NOI).
· Estimate rate of return or capitalization rate by comparing annual NOI to sale price of similar properties
· Divide cap rate into the annual NOI to arrive at the estimate of property value
o Reconciliation: Art of analyzing and weighing the findings from the different approaches used to arrive at a single value estimate of market value
o Before and after method: used for partial taking of property by eminent domain. Determines owner’s compensation
- Appraisal process: methodical collection of data
o Specific data: detail of subject property
o General data: nation, region, city, neighborhood
- The profession of appraising
o MAI (Member of the Appraisal Institute)
o SRA (Senior Residential Appraisal)
o NJ Appraisal Licensing Law: all RE appraisals must be done by licensed or certified appraisers
§ Licensed residential: 90 hrs study/ 2,000 hrs residential apprenticeship. Up to $1,000K
§ Certified residential: 120 hrs study/ 2,500 hrs residential apprenticeship. No monetary cap
§ Certified general: 180 hrs study/ 3,000 hrs (2,000 res./1,000 commercial) apprenticeship. No monetary cap
*** Key Terms & Other Information
- Amenity: extra that contributes to owner satisfaction: clean air, view etc
- Situs: location; buyer’s willingness to pay more for certain locations
- Value is,
o The relationship between desired object and potential buyer
o The power of a good to command other goods in exchange
o The present value of future benefit
o
Chapter 17: investment and business brokerage
- Investing in RE
o Advantages:
§ Favorable rate of return
§ Inflation hedge
§ Tax advantages
o Disadvantages:
§ Not highly liquid over short term
§ Requires careful study and expert advise
§ Potential risk factor
- The Investment
o Appreciation: increase value & profit at sale
o Income property: held for producing income and generating profit on sale
o Cash flow: money remaining after all expenditures paid, including debt service. If cash flow is not enough to cover expenses, negative cash flow will result
o Pyramiding: refinancing using equity and appreciation. Build up, rather than selling or exchanging already owned properties to increase investors holdings
- Tax benefits
o Like-kind exchange: one property exchanged for another to defer capital gain tax (gain)
o Step 1: sale of relinquished property (RP)
o Step 2: identification of replacement properties within 45 days following the sale of the RP
o Step 3: purchase replacement property within 180 days following the sale of the RP
o Boot: when replacement property costs less than the one being sold, difference is the taxable “boot”
o Sample saving using a 1031 exchange
|
|
|
Exchange |
| Net equity (RP) |
$750K |
$750K |
| Capital Gain Tax |
$112.5K (15% of NE) |
$0 |
| Equity to Reinvest |
$637.5K |
$750K |
| Replacement* |
$2,250K |
$3,000K |
(* presuming 25% downpayment)
o Capital gain: taxable profit (the difference between adjusted basis and net selling price)
o In 2006, holding period long-term capital gains tax treatment – 12 months; maximum tax rate is 15%. Any gain due to past depreciation is taxed at 25%
o Basis: the initial cost of the real estate
o Adjusted basis: Basis + Improvements – Depreciation
- Depreciation
o Residential: cost of building divided by 27.5 yrs
o Commercial: 39 yrs
- Deduction & tax credits
o Deduction:
§ First $25,000 of loss can offset income from any source only if the owner of rental property actively participates in operation & management and has taxable income of no more than $100K (rate reduced $.5/$1 to $0 deduction @ $150K) before the deduction is made
o Tax credit:
§ Direct reduction in tax due, rather than a deduction from income before tax is computed
§ Up to $25,000 for older buildings and low income housing or up to 20% of money spent to renovate historic landmarks. Taxable income of no more than $200K (rate reduced $.5/$1 to $0 credit @ $250K)
§ After renovation, the property must be used as a place of business or rented – it can not be used as the personal residence of the person taking the tax credit
o Installment sale: profit taxed year by year, calculated at investors marginal tax rate, the rate at which the top dollar is taxed
- RE investment syndicates
o Syndicate: 2 or more carrying out >= 1 business projects. Not a legal entity
o Joint venture: 2 or more carrying a single project not permanent relationship
o RE investment syndicate: group of people pool resources to own / develop a piece of property
§ Private syndication: small group of knowledgeable investors
§ Public syndication: large group of investors, less knowledge
o Blue-sky laws: securities laws for registration of certain activities. RE agents may be required to obtain special license
- REITS (RE Investment Trusts)
o Investors can take advantage of the same tax benefits as mutual fund investors
o Must have at least 100 investors
o At least 75% of the trust income must come from RE
o 95% of profit must be passed on
- Business opportunity sales
o If business includes RE, anyone who sells or negotiates the sale for a fee must be licensed
o May include personal property such as; fixtures and stock in inventory, business name, customer list, special licenses (except: lottery license) and copy rights. If value exceeds $500, Statute of fraud requires written contract & bill of sale at closing
o Typical financing: seller provides a purchase money mortgage
- Uniform Commercial Code (UCC)
o Regulates transfer of personal property when business is sold
o Article 6: Bulk Transfer Act
§ Seller must prepare list of existing creditors
§ Purchaser and seller prepare list of all real and personal property included in the sale
§ 10 days prior to sale: purchaser must notify all listed creditors of pending sale and give details on how debts will be paid
§ Purchaser should keep the list of creditors for 6 months
§ The requirements of the Bulk Transfer Act are designed to protect the interests of the buyer as well as those of the seller’s creditors in the sale of a business
§ Noncompliance with this law is a criminal offense in NJ
Chapter 18: Subdivision and Development
- Development & Subdividing land
o Assemblage: a process that a developer combines 2 or more lots into one larger parcel
o Plottage value: when the resulting large tract is worth more than the total of the individual lots had been
o Subdivider: buys acerage, divides into smaller lots
o Developer (may be subdivider): builds on lots
o Subdivision: Second lot sold off larger parcel
o Subdivisions must meet certain standards set by the NJ Municipal Land Use Law
o NJ gives authority to local planning boards to approve plans, to issue zoning permits
o Individual municipalities can decide what is a minor subdivision, and does not require a public hearing, and what constitutes a major subdivision
- Land Planning
o
o Planning boards: establish criteria for approving new subdivisions, land dedication, bonding for improvements, zoning compliance, sewage disposal (Percolation test of the soil’s absorption & drainage capacities), water supply requirements, fire, safety, environmental…
o Environmental hazards: EPA has identified 403 chemicals. Environmental impact studies may be required
o Coastal regulations: DEP permit required for projects within 500ft of high water line
o Highest & best use study: prior to drawing preliminary subdivision plans
o Subdivision plans: close contact is initiated between the subdivider and local planning and zoning officials. In accord with planning and zoning controls, provides for size of lots, easements, utilities, impact fees
o Clustering: creates more open space
o Plat of subdivision (=development map (lot and block. streets)): recorded to protect against moratorium (= a halt to further development in the area).
o Covenants and restrictions: deed restrictions by subdividers control/maintain the quality & character of the subdivision. Can be set forth in a separate recorded instrument, referred to as a declaration of restrictions
o Development costs: lot usually 4 to 6 times higher than raw land value – installation of sewers or septic systems, water mains or wells, storm drains, landscaping, and streetlights, earthworks, paving, engineering and surveying fees etc
o Subdivision density: max houses per acre allowed by Density Zoning ordinances.
- Building regulations
o NJ Uniform Construction Code: The Commissioner of the Department of Community Affairs regulates alteration, construction, renovation, occupancy and use of all buildings
o Warranty and builders registration act(only for residential): all builders of new homes must give buyer a warranty up to 10 yrs. Does not apply to resales, newly constructed rental units, remodeled houses, or mobile homes
o Enforcement official: issues construction permits. Inspects the property and issues the CO/CCO
o Certificate of occupancy: required for all new or altered buildings prior to occupancy. Often required for transfer of title or change of tenants
§ CCO(Certificate of Continuing occupancy): Ensure against violations in existing buildings
o Smoke detector certificate: mandatory, prior to title transfer or occupancy change, for all one & two family homes. Carbon monoxide detector & approved fire extinguisher also required
-
o Statement of record filed with HUD when engaged in the interstate sale or leasing of 25 or more lots
- NJ Land Sales
o Planned RE development act: pertains to
§ Certain subdivisions within state involving common elements (condos, co-ops, PUD’s etc)
§ Subdivisions with more than 100 lots or with a homeowners association
§ Requires a disclosure statement, approval & registration with the REC bureau of land sales
§ The buyer has the right to cancel the contract within seven business days
- Hotel & Motel multiple dwelling health and safety act
o Applies to multiple dwellings with three or more units, hotel with 10 or more units, or sleeping facilities with 25 or more persons
o Inspection required:
§ Multiple dwelling - once every 5 years
§ Hotels - once every 3 years minimum
*** Key Terms
- Impact fees: charges to developers for extra roads, schools, and so forth
- Percolation: test of soils absorption and drainage capacities
- Dedication: turning over of private property (subdivision streets) to a municipality
- Construction permit: local municipality’s authorization for building plans
- PUD(Planned Unit Development): community with dense zoning and developer’s plan for entire land use
- UCC(Uniform Construction Code): NJ’s standards for building
- Warranty and builders registration act: state regulations for builders of new homes
- Gross density: the average maximum number of houses per acre that may, by law, be built in a subdivision
Chapter 19: Legal descriptions & Deeds
- Legal Descriptions
o Deed: instrument conveying title to real property. Must include legal description of land being conveyed (the deed usually does not describe improvements on the land)
o Metes & Bounds
§ Uses boundaries and measurements of land in question. Starts at designated point of beginning (POB), proceeds clockwise around boundaries of property, ends at (POB)
· Monuments: fixed objects used to establish real estate boundaries. May be natural or man-made
o Government survey system: rectangular survey system
§ Established by congress in 1785. Not used in NJ
§ System based on sets of two interesting lines: principal meridians and base lines
§ Township: a six mile square containing 36 square miles
§ Section: a township is divided into 36 sections, each section contains 1 square mile or 650 acres
o Recorded plat of subdivision
§ Method of land description utilizing lot and block numbers
o Preparation and use of survey
§ Survey: prepared by a licensed surveyor. Shows location and dimensions of parcel and location, size and shape of buildings
o Measuring elevation
§ Datum: point, line or surface from which elevations measured. Based on US Geological survey at sea level of NY harbor
§ Benchmarks: local permanent points of reference
o Condominium description
§ Condominium unit: multi-rise condo structures. Surveyed with reference to elevation above datum
§ Legal description: describes land, unit & common interest
- Deeds
o Deed: written instrument by which owner conveys right, title or interest in RE
o Statue of frauds: all deeds in writing
o Grantor: owner who sells or gives the land
o Grantee: new owner (who acquires the title)
o Warranty deeds
§ Full covenant and warranty or general warranty deed. Provides greatest protection
§ Grantor is legally bound by
· Covenant of seisin: warrants grantor is owner
· Covenant against encumbrances: property free from encumbrances or liens except those stated
· Covenant of further assurance: promises to obtain and deliver good title
· Covenant of warranty forever: if title fails, grantor will compensate for the loss
· Covenants extend back to all previous owners
o Bargain & sale deed with Covenants against Grantor’s Acts
§ Most common deed used in NJ. Also known as Bargin & sale with Covenants versus grantors’ acts (Bargain & sale CVG) or a special warranty deed
§ Grantors covenant that they have done nothing to encumber the property while it was in their possession only
o Bargain & sale deed
§ Contains no warranties
§ Implies grantor holds title to the property
§ Used in foreclosure and tax sale (sheriff’s deed)
§ Also called straight bargain & sale deed
o Quitclaim deed
§ Provides least protection of any deed
§ No covenants or warranties
§ Conveys only such interest, if any, as the grantor may have when the deed is delivered
§ Used for transfer within a family, divorce settlement, and to clear a cloud from a title
o Requirements for a valid conveyance
§ Grantor: must legal capacity; sound mind; 18 or older (incompetent or minor: voidable)
§ Grantee: named and identifiable
§ Recital of consideration: something of value given in exchange
§ Granting clause: states grantor’s intention to convey the property. May also state type of tenancy the grantee’s intend to use
§ Habendum clause: defines ownership in deed and begins with the words “to have and to hold”
§ Designation of any limitation on the conveyance of a fee simple estate
§ Adequate description of property
§ Exceptions and reservations: easements or other deed restrictions
§ Signature of grantor: signed by all grantors or attorney-in-fact
§ Acknowledgement(Notarized or witnessed signature) not required to be valid, but required for deed to be recorded
§ Delivery and acceptance: Before a transfer of title by conveyance can take effect, there must be actual delivery at the deed by the grantor and an actual or implied acceptance by the grantee
§ Deed does not have to be dated
o Execution of corporate deeds
§ Corporation can convey RE upon proper resolution passed by BOD
§ If all or most of RE is conveyed, the resolution must be from the stockholders
§ Deeds can be signed by an authorized officer named by a resolution properly passed by the BOD
*** Key Terms & Other Information
- A person legally authorized to locate land and give a legal description of it is a surveyor
Chapter 20: Transfer of Title
- Title
o Title: right or ownership of land
o Alienation: transfer of title to a parcel of real estate
o Transfer of title: title is transferred during a lifetime voluntarily (deed) or involuntarily (foreclosure, eminent domain, adverse possession) and at death either voluntarily (will) or involuntarily (law of descent and distribution, escheat)
- Transfer of Deceased person’s property
o Statute of descent and distribution: state laws for distribution of assets to heirs when a person dies intestate (without a will)
o Testate: having a will. Must be probated and all claims against the estate must be satisfied
o Probate: legal process to determine who will inherit and what assets are
o Executor (executrix): named in the will overseeing admin. and distrib’n
o Administrator: named by the court(if no executor is names or no valid will)
- Transfer of title by will
o Last will and testament: voluntary conveyance of property
o Devise: gift of real property by will
o Devisee: person receiving real property by will
o Legacy/bequest: gift of personal property (legatee)
o Testator (testatrix): party who makes a will
o In NJ, children can be disinherited
o Surviving spouse: entitled to at least one-third of the estate (statutory inheritance)
o Right of election: if the will does not provide the minimum statutory share, the surviving spouse can inform the court that he or she will take statutory share rather than what is named in the will
o Generally, an heir or a devisee does not receive a deed, because title passes by the law or the will
- Legal requirements for making a will
o Legal age (18), sound mind
o Voluntary act; free of influence
o A will must be in writing to be valid, & witnessed (preferably notarized)
o Holographic will: hand written. With no witnesses. Legal in NJ
o For real property acquired by a married deceased person before May 28, ’80, the surviving spouse is still entitled to a life estate of one-half interest in all real estate owned by the deceased, no matter what other provisions are made in the will
- Transfer of title by laws of descent
o In effect only when decedent dies intestate
o Primary heirs: spouse, children (natural & legally adopted) parents, close blood relatives
§ A surviving spouse becomes sole heir if the decedent leaves no parents or children
§ If there is a child or children, the spouse receives the first $50K plus ½ remaining estate; the rest goes to the children
§ If the decedent leaves parent(s) and a spouse but no children, the spouse receives the 1st $50K plus ½ remaining estate; the rest goes to the parent(s)
§ If there are children who are not the children of the surviving spouse, the spouse receives half the estate; the children the other half
§ Where no spouse survives, children become the sole natural heirs. Where there is neither a surviving spouse nor children or children’s own heirs, the estate goes first to parents, and failing that, to brothers and sisters or their heirs
§ In default of any other natural heirs, grandparents, aunts, uncles and first cousins may be considered heirs
o In the absence of heirs: the property reverts to the state by escheat. Property will be sold giving notice by publication in a newspaper in
-
Chapter 21: Public Records, Titles and Closing
- Public records & recording
o Necessity of recording: deed or mortgage may not be effective as far as later purchasers are concerned without recording
o Recording act gives priority to those interests that are recorded first
o All written instruments affecting the may be recorded in the public record of the county where the RE is located
o To be eligible for recording, acknowledgement, notarization are required
o Relying on the maxim of caveat emptor(“let the buyer beware”), the courts charge a prospective RE buyer or mortgagee with the responsibility of inspecting the property and searching the public records to ascertain the interests of other parties
o Constructive notice: what a buyer could find out or is charged with knowing. Necessitates inspecting the property and investigating title to the property
o Actual notice: purchaser has ascertained all pertinent facts regarding the property and now has direct knowledge title
o In NJ, it is duty of the purchaser to investigate the title of property to be conveyed
o Taxes need not be recorded
o Chain of title: shows record of ownership of property over a period of time
o Abstract of title: condensed history of all instruments affecting a property
o Gap in the chain: occurs when it’s not possible to trace ownership. Usually corrected by means of a quitclaim deed or by court action called suit to quiet title
- Evidence of Title
o Deed is not a proof of title. Only effective proof is search of public record
o Evidence of title: proves that seller is owner and has good titles
o 4 forms of title evidence
§ Abstract of title and attorney’s opinion: abstract is usually examined by the attorney for the purchaser
§ Title insurance policy: the most effective form of title evidence
· Insures against defects that may be found in the public records; forged documents; documents of incompetent grantors; incorrect marital statements; improperly delivered deeds
§
§ Certificate of title: prepared by an attorney and is an opinion of the title’s status. Often oral, or implied, representation. Does not provide protection of title insurance policy
- Marketable title
o Under contract terms, seller required to deliver a marketable or insurable title at closing. A marketable (or merchantable) title is one that is so free of significant defects that purchaser can be assured against having to defend it in the future
o It is the responsibility of the purchaser (his broker or his attorney) to research the title and raise any questions prior to acceptance of the deed
- Closing the title
o Closing: closing buyer’s loan and closing sale (inspecting title, deed, any documents regarding removal of undesired liens or encumbrances, survey, termite report, leases if any)
o Lender’s interest in closing: title insurance, fire and hazard insurance, survey, termite inspection, CO or CCO, escrow for tax and insurance, representation by attorney
o Homeowner’s insurance: usually names lender as lien holder who may also be paid in case of loss.
o Flood insurance may also be required if property is located in a flood prone area (HUD administers this program)
o NJ requirement: CO detector, smoke alarm, fire extinguisher
- RESPA(RE Settlement Procedures Act)
o Residential buyers and sellers must given knowledge of settlement costs
o Applies when purchase financed by federally related mortgage loan or transaction involves new first mortgage loan
o Requirements:
§ HUD booklet (Settlement Costs and You) must be given at loan application
§ Estimate of settlement costs provided when loan application is taken or within 3 business days by the lender
§ Loan closing information must be prepared on the HUD Uniform Settlement – On the borrower’s request, the closing agent must permit the borrower to inspect the settlement statement, one business day before closing
§ Prohibition against kickbacks: ex: lender for referring recent customers to the agency
- The Title Procedure
o On the date of closing, title or abstract company is usually required to make a second search of public records
o Seller executes an affidavit of title. A sworn statement to the title company and the buyer that there has been no changes since the date of the examination
- Checking the premises
o Buyer should make a final inspection and check the condition of the property
- Releasing existing liens
o Seller must secure a current pay off statement from the existing mortgage. If the buyer is assuming the loan, it is customary for the buyer to obtain a mortgage reduction certificate from the lender
o In some areas it is customary for the buyer to obtain a mortgage reduction certificate from the lender
- Closing in Escrow
o Seldom in NJ
o Disinterested 3rd party authorized to act as escrow agent coordinates the closing activities
o May be an attorney, title company, trust company, escrow company, escrow department of a lending institution (buyer & seller execute an escrow agreement after the sales contract is signed)
- Preparation of closing statements
o All financial responsibilities are prorated
o Prepared by attorney or a title company. The broker should, however, possess the necessary knowledge to prepare statements so as to give the seller an accurate estimate of sale costs
o Includes: proration of taxes and interest, attorney’s fee, broker’s commission, recording expenses, realty transfer tax, title expenses, loan fees, tax and insurance reserve (escrows), appraisal fees, survey fees etc
- Prorations
o Prorated at closing: taxes, rents, fuel, utilities, loan interest (paid in arrears at the end of period for which it is due)
o General rules for prorating:
§ Generally, buyer owns property on one day of closing
§ Expenses computed using 360 day yr, 30 day month
§ Special assessments usually paid in annual installments over several years
§ Rents adjusted by actual days in the month of closing
§ Security deposit transferred by seller to buyer
§ Unpaid wages are prorated
- Closing
o The seller’s attorney is responsible for all details of the transaction that concern the title to the property
o In some areas of southern NJ buyers and sellers don’t use attorneys, and RE licensees take a more active role in closing. Title officers prepare the settlement sheet and conduct the closing
- Other documents at closing
o RE sales must be reported to IRS by one of the following:
§ The person conducting the closing; the seller’s attorney; the buyer’s attorney; the title company; the RE broker
§ The report must include the seller’s name, address, tax ID number, full sale price
'미국 부동산 공부' 카테고리의 다른 글
| 미국 부동산 공부: 미국 뉴저지 부동산 중개인 시험공부 자료 정리 (2006년 자료) (0) | 2009/11/15 |
|---|---|
| 미국 부동산 : 모기지 및 재융자 상품, 쉽고 편하게 찾기 (1) | 2009/07/14 |
| 미국 부동산 공부: 허드(HUD)가 뭔가요? 허브 아닌가요? (0) | 2009/05/20 |
| 미국 부동산 공부: 모기지 융자 프로세스 (0) | 2009/04/26 |
| 미국 부동산 공부 : 모기지 및 재융자 승인 시 주요 고려 사항 (0) | 2009/04/24 |
| 미국 부동산 공부 : 모기지 상품들 (0) | 2009/04/16 |
이 포스팅이 도움이 되셨나요? 동의 혹은 반대하시나요? 짧더라도 여러분의 의견을 함께 나눠 주세요.
