Tucker School of

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Back Chapter 1 home inspection

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Inspection and or report of a ’s structural, mechanical and site conditions.

Back Chapter 1 categories of

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•Residential •Commercial •Industrial •Agricultural •Special purpose

Back Chapter 1 development

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Building of improvements on land, such as infrastructure, roads, drainage systems and even homes.

Back Chapter 1 Realtor®

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Real estate licensee who is a member of National Association of Realtors®; adheres to Code of Ethics.

Back Chapter 1 subdivision

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Separating one larger parcel into multiple smaller parcels or lots.

Back Chapter 1 salesperson

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Type of Real Estate license. One who operates under the supervision of a principal Broker.

Back Chapter 1 Broker

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Real estate licensee that can contract directly with clients to provide services for a fee. May also supervise other licensees if designated as the Principal Broker.

Back Chapter 1 Principal Broker

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One with a Broker’s license who has designated themselves to the Real Es- tate Commission as the party primar- ily responsible for all acts performed under that license. May “hold” the licenses of Salespersons and other Brokers.

Back Chapter 1

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Back Chapter 1

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Back Chapter 2 annexation

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Process by which personal property becomes real property (i.e. Taking building materials (personal property) and building a house (real property).

Back Chapter 2

economic characteris- tics of real property (4)

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•Scarcity •Improvement •Permanence of investment •Location (area preference/situs)

Back Chapter 2 appurtenance

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Right associated with ownership of a property, usually pertains to using an- other property. (i.e. right to a parking space by owning a condo).

Back Chapter 2

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Business of managing another’s prop- erty for consideration.

Back Chapter 2 emblements

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Annual crops. Considered to be per- sonal property. The fruit of our labor.

Back Chapter 2 bundle of legal rights

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Legal rights of ownership: •possession •control •enjoyment •exclusion •disposition

Back Chapter 2 fixture

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Personal property permanently an- nexed to real property, such as plumb- ing and lighting fixtures.

Back Chapter 2 improvement

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Man made additions or alterations to real estate. (i.e. Building a house or site work such as drainage lines.)

Back Chapter 2 land

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Surface of the earth down to the core and air space above, includes trees & water.

Back Chapter 2 real property

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Land + Improvements + Rights of ownership = Bundle of rights.

Back Chapter 2 personal property

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All that is not real property or human beings. Generally can be picked up and moved.

Back Chapter 2

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Process by which real property be- comes personal property. (i.e. Cutting down a tree.)

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physical characteristics of real property (3)

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•Immobility •Indestructibility •Uniqueness (non-homogeneity)

Back Chapter 2 subsurface rights

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Rights to the natural resources lying below the earth’s surface.

Back Chapter 2 real estate

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Land, plus all things attached to it, whether natural or artificial.

Back Chapter 2 trade fixture

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Personal property used in trade at- tached by tenant. Tenant may remove them prior to expiration, but if left, acquires them through accession.

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Back Chapter 3 capital gain

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Profit from the sale of an asset.

Back Chapter 3 cooperative

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Multi-tenant building owned by a cor- poration; tenant buys shares of stock and in exchange receives a proprietary lease that allows possession.

Back Chapter 3 equity

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Difference between market value and total debt on the property.

Back Chapter 3 common elements

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Parts of a property, where use and ownership is shared or “in common” among all the owners of individual units. (i.e. Lobby, elevator and pool in a condo complex.)

Back Chapter 3 condominium

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Development where individual units are separately owned and ownership of the common areas and the land is shared among all the individual unit owners.

Back Chapter 3 proprietary lease (in cooperative)

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Document, used in cooperatives, that gives a shareholder the exclusive right to occupy a particular unit.

Back Chapter 3 time share

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Ownership interest sold in annual occupancy intervals, typically by the week.

Back Chapter 3

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Back Chapter 3

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Back Chapter 4 agent

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Person authorized by the principal to act on their behalf. The agent works for the principal.

Back Chapter 4 fiduciary relationship

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Specialized relationship of trust and confidence between principal and agent. Agent must place the interests of the principal above all others, in- cluding themselves.

Back Chapter 4 fraud

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•Intentional misrepresentation of a material fact. •Failure to make a required disclosure such as a property defect.

Back Chapter 4 dual agency or lim- ited agency

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One agent representing both sides of a transaction. (i.e. Buyer and Seller.) The agent’s role is limited, they would not “take sides” in negotiations. Must have written informed consent from both principals.

Back Chapter 4 general agent

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Agent that represents a Principal in broad range of matters related to a specific property. (i.e. A property man- ager is usually a general agent.)

Back Chapter 4 latent defect

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Property defects that are “hidden” or not obvious to the eye. Usually struc- tural in nature.

Back Chapter 4 negligent misrepre- sentation

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Incorrect statement or information provided to a client or customer when the Broker should have known that the information was false.

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psychologically affected property or stigmatized property

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Property with a “reputation” because of events such as death, murder, or il- legal drug manufacture.

Back Chapter 4 principal

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Client. One who authorizes an agent to work on their behalf.

Back Chapter 4 puffing

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Exaggerating the benefits of a property. Usually refers to subjective issues such as beauty or views.

Back Chapter 4 universal agent

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Agent with virtually unlimited authority to act on behalf of the Principal. Can do anything the Principal could do personally.

Back Chapter 4 special agent

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Agent authorized to perform only spe- cific act(s) for a Principal. Real estate agents are usually special agents.

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Back Chapter 5 antitrust laws

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Body of federal law prohibiting many anti-competitive business practices such as price fixing and market allocation.

Back Chapter 5 independent contractor

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Employment arrangement where a per- son is hired to perform certain acts but is not an employee. Real Estate agents are usually employed in this manner. Taxes are not withheld. (The broker may dictate what the agent does, but not actually how they do it.)

Back Chapter 5 commission

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Fee or compensation for real estate services paid to Principal Broker.

Back Chapter 5 price fixing

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Conspiracy by Brokers to set fees in a market place, thus eliminating compe- tition. It is the conspiracy that violates anti-trust laws.

Back Chapter 5 employee

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Person hired by and under the super- vision of their employer. (Not an in- dependent contractor. Employer with- holds taxes and FICA from wages).

Back Chapter 5 procuring cause

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One who initiates and completes the series of events that cause a sale.

Back Chapter 5 group boycotts

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Conspiracy by two or more businesses to withhold patronage from a third in an effort to reduce competition. (i.e. Two brokerages conspire not to show the listings of a third brokerage be- cause they think the third’s fee struc- ture is too low.)

Back Chapter 5 real estate license laws

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State laws and regulations designed to protect the public by requiring mini- mum standards of practice and licen- sure of professionals in the real estate industry.

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Back Chapter 6 exclusive-right-to-sell listing agreement

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Listing where one agent is hired to ex- clusively represent the seller. If prop- erty sells, a fee is due regardless of the source of the buyer.

Back Chapter 6 buyer agency agreement

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Employment agreement where the agent is hired to represent a buyer.

Back Chapter 6 exclusive-agency listing agreement

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Listing where one agent is hired to exclusively represent the seller, but the seller retains the right to find a buyer on their own without having to pay a commission.

Back Chapter 6 open listing

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Listing where the seller may hire one or many agents on a “non-exclusive” basis, reserving the right to find a buy- er themselves. Agents earn a fee only if they procure the buyer.

Back Chapter 6 net listing

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Listing where Broker is entitled to any amount of the sales price in excess of the agreed “net” to the seller. Indi- ana law requires the maximum fee be stated.

Back Chapter 6 option listing

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Listing where the Broker has the right or option to purchase the property. (Could raise conflict of interest is- sues).

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Back Chapter 7 appurtenant easement

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Owner of property “A’s” right to use or cross “B’s” property. (These rights are a part of the ownership of property “A” and transfer if sold).

Back Chapter 7 accretion

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The gradual depositing of soil naturally eroded by wind and water from else- where.

Back Chapter 7 avulsion

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Sudden loss of land from earthquake or mudslide.

Back Chapter 7 license

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Revocable permission to use another’s land, usually for a specific purpose. (i.e. Someone allowing you to fish in their pond or tickets to a ball game.)

Back Chapter 7 police power

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Government’s authority to make and enforce laws or regulations.

Back Chapter 7 condemnation

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Process by which the government ex- ercises its right of to acquire title of property for public use or benefit.

Back Chapter 7 easement by pre- scription

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Use right created by a claimant’s unin- terrupted use of another’s land for the prescribed period of time. (Similar to “squatter’s rights”. Use must be with- out owner’s approval and not on public land).

Back Chapter 7 easement in gross

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Individual interest or use right in an- other’s land; usually commercial in na- ture. (i.e. utility lines, and rail roads)

Back Chapter 7 defeasible fee

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Ownership with “strings attached.” Grantor prohibits or limits specific uses of property. Breach could “re- vert” or return ownership to grantor.

Back Chapter 7 eminent domain

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Government’s right to acquire private property for “public use” through con- demnation with just compensation paid to the owner.

Back Chapter 7 encroachment

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Improvements illegally placed upon an adjoining property or beyond set back lines.

Back Chapter 7

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Monetary claim, lien, easement or other restriction attached to real estate decreasing its value.

Back Chapter 7 homestead

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Protection of the family homestead from unsecured creditor(s). Could create a life estate.

Back Chapter 7 Escheat

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Process by which ownership of real property could transfer to the state upon owner’s abandonment or death without will or heirs.

Back Chapter 7 life estate

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Ownership interest, limited by grantor, to the life of the grantee (life tenant) or other named party. (A less than fee simple interest where the grantor effec- tively controls where the property goes upon grantees death).

Back Chapter 7 fee simple absolute

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Highest form of ownership recognized by law.

Back Chapter 7 littoral rights

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Common law water rights of property owners bordering navigable lakes, seas and oceans.

Back Chapter 7 reversionary interest

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Rights that will return upon the occur- rence of certain events. (i.e. Rights of the grantor during the term of a life estate, or the rights of the lessor during the term of a lease.)

Back Chapter 7 riparian rights

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Common law water rights of owners bordering streams or rivers. Such rights include access and use.

Back Chapter 7 remainder interest

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Future rights of ownership of the party named by the grantor following the end of a life estate.

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Back Chapter 8 beneficiary

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Party who benefits from a trust.

Back Chapter 8 four unities of joint tenancy

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•Possession •Interest •Time •Title All four unities must exist for joint ten- ancy to be created.

Back Chapter 8 joint tenancy

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Form of co-ownership where the sur- viving co-owners acquire a deceased co-owners interest through the right of survivorship. (Joint tenants may give or sell their interest just not will them.)

Back Chapter 8 partition

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Judicial action to divide a property or its sale proceeds among the co-own- ers.

Back Chapter 8 general partnership

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Form of business ownership with two or more owners all sharing the risks and returns.

Back Chapter 8 limited partnership

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Business structure with two tiers of ownership, General Partner(s) making decisions and bearing personal liability and Limited Partners who only invest and bear no further liability.

Back Chapter 8 tenancy in common

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Form of co-ownership in which each owner has an undivided fractional interest in the whole. (Unlike a joint tenancy, owners have the right to will their interest).

Back Chapter 8 right of survivorship

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The right each joint tenant has to au- tomatically acquire a deceased joint tenant’s interest upon death.

Back Chapter 8 severalty

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Ownership of an entire property by one person or one corporation.

Back Chapter 8 tenancy by the entirety

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Form of co-ownership reserved for married couples. Each has an equal interest and right of survivorship. Can- not be partitioned by one spouse.

Back Chapter 8 trust

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Fiduciary agreement created by the trustor who conveys property to the trustee to hold and administer for the benefit of the beneficiary.

Back Chapter 8 trustor

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Person who creates a trust and places assets into it.

Back Chapter 8 trustee

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In a trust, the party who receives legal title to a property and carries out the trustor’s instructions.

Back Chapter 8

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Back Chapter 9 air lot

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A legal description referring to a spe- cific block of air such as a condomini- um.

Back Chapter 9 base line

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Primary East/West line used in the governmental or rectangular survey method of legal description.

Back Chapter 9 lot-and-block (recorded plat)

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Method of legal description utilizing plat maps that reference subdivisions and specific lots.

Back Chapter 9 metes-and-bounds

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Method of legal description. Begins at the POB (point of beginning) and follows the property’s perimeter refer- encing monuments and markers until returning to the POB.

Back Chapter 9 rectangular survey or governmental survey

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Method of legal description (aka: gov- ernmental survey system) that utilizes; a principal meridian, the intersecting base line, and township & range lines to create a grid system.

Back Chapter 9 principal meridian

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The primary North/South survey line utilized in the rectangular or govern- mental survey system of legal descrip- tion.

Back Chapter 9 section

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One square mile area (640 acres) within a township. (Used as part of the rectangular or governmental survey method of legal description).

Back Chapter 9 acre

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43,560 square feet

Back Chapter 9 township

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The six mile by six mile area created by the use of township lines and range lines within a rectangular survey legal description. (Contains 36 one mile square areas called sections).

Back Chapter 9 township lines

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East/West survey lines located every six miles north and south of the base line in a rectangular survey legal descrip- tion.

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Back Chapter 10 ad valorem tax

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Real Estate taxes allocated according to value.

Back Chapter 10 lien

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Claim or charge attached to real property used to enforce the re-payment of a debt.

Back Chapter 10 writ of attachment

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Judicial intervention where the court takes title to the property until the law suit is concluded. Title cannot be con- veyed until the writ is removed.

Back Chapter 10 lis pendens

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Recorded notice of pending law suit involving real property. Not a lien, just notice of a possible future lien.

Back Chapter 10 mechanic’s lien

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A specific involuntary lien on real property designed to protect those who have provided labor or material used to improve it.

Back Chapter 10 mill

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Method of quoting real estate tax rates. One mill = 1/1000 of one dollar. (i.e. 30 mills equals $0.030 and would be multiplied by the assessed value to de- termine the tax bill).

Back Chapter 10 judgment lien

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A general involuntary lien against a person and all their property (real and personal) (i.e. a court judgment)

Back Chapter 10 equalization factor

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A mechanism to adjust the ef- fective real property tax on a parcel whose assessment has fallen out of line with other .

Back Chapter 10 mortgage lien

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A specific voluntary lien placed on real property that has been pledged as col- lateral for a loan.

Back Chapter 10 special assessment

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A real estate tax levied against only those properties that will benefit from specific capital improvement projects such as sewers or street lights. (Al- ways a specific lien but could be either voluntary or involuntary).

Back Chapter 10 specific lien

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A lien placed against a specific piece of property. (i.e. if you borrow money to buy 123 Main St. and pledge that prop- erty as collateral, a lien will be created against only 123 Main St.)

Back Chapter 10 equitable right of redemption

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The right of a debtor to stop the forced sale of their real property by repaying the entire debt prior to sale.

Back Chapter 10 satisfaction

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Instrument provided by a creditor ac- knowledging the repayment of a debt. (Recording this satisfaction removes the lien created by the mortgage).

Back Chapter 10 subordination

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When a lien holder agrees to lower their position allowing another to have priority.

Back Chapter 10 assessment

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Official valuation of real property for tax purposes.

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Back Chapter 11 assignment

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The transfer of rights and or obliga- tions in a contract from one party to another.

Back Chapter 11 consideration

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Item of legal value, such as money, referenced in a contract as the motiva- tion for one party to enter in to it. Valid contracts must reference consider- ation.

Back Chapter 11 bilateral contract

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A contract in which each party promis- es the other something in return. En- forceable against both sides. (i.e., “I’ll buy if you will sell.”)

Back Chapter 11 contingency

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A part of some contracts stating that some event must take place before the agreement is enforceable. (i.e., “The buyer’s offer is contingent upon mort- gage approval.”)

Back Chapter 11 breach of contract

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Where one or both parties fail to per- form some obligation without legal cause. Could be cause for damages.

Back Chapter 11 earnest money

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Money tendered by the buyer when the offer is accepted to show they are act- ing in good faith. Common, but not a legal requirement.

Back Chapter 11 commingling

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The combining of earnest or escrow moneys with personal funds. (License Law and business ethics mandate that these funds be kept separate).

Back Chapter 11 executed contract

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Point when all promises by all parties to a contract have been fulfilled.

Back Chapter 11 express contract

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Contract where the terms have been put into words, either oral or written.

Back Chapter 11 option

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A unilateral right held by one party to a contract.

Back Chapter 11 implied contract

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A contract where the parties intent has not been stated in words, only inferred by their actions.

Back Chapter 11 statute of frauds

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Body of law requiring that some agree- ments to be put in writing to make them enforceable. (Real estate pur- chase agreements are subject to this law).

Back Chapter 11 land contract

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A type of sale where the vendor (sell- er) finances all or part of the vendee’s (buyer) purchase price, and legal title is not conveyed until debt is paid in full. Initially, the vendee only receives possession and equitable title. If the vendee defaults, they could lose all moneys paid to date.

Back Chapter 11 liquidated damages

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A part of a purchase agreement estab- lishing a pre-determined penalty for breach of contract by either party.

Back Chapter 11 unenforceable contract

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A valid contract where neither party could sue to enforce the terms. (i.e. Contracts that are subject to the Statute of Frauds, such as real estate purchase agreements, are legal and valid be- tween the parties, just not enforceable in a court of law).

Back Chapter 11 unilateral contract

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Contract in which only one party can be forced to perform. (i.e. An option agreement where the seller can be forced to sell but the buyer cannot be forced to buy).

Back Chapter 11 voidable contract

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A valid contract that can be voided by one or both parties. (i.e. Contracts entered under duress, with fraud or significant misrepresentations may be voided by the harmed party, but are valid until they are voided).

Back Chapter 11 void

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Without legal force. A void contract actually “never was” because it lacked an essential element or was for an il- legal purpose.

Back Chapter 11 equitable title

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The buyer’s interest in the property upon delivery and acceptance of the purchase agreement prior to . Not legal title, just the right to buy the property under the terms of the agree- ment.

Back Chapter 11 novation

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Substitution of a new contract replac- ing the original. One or more of the parties may change, but the intent remains the same.

Back Chapter 11 rescission

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Termination of an agreement, return- ing both parties to their original posi- tions.

Back Chapter 11 offer

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The presentation of contractual terms, that if accepted, creates a binding agreement.

Back Chapter 11 acceptance

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Complete agreement with all the terms of an offer or counter offer. Must be communicated to the offering party (offeror).

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Back Chapter 12 acknowledgment

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Formal statement that a signature is voluntary and not forged. (i.e. are typically acknowledged by a Notary Public.)

Back Chapter 12 general warranty

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Deed in which the grantor offers the grantee the greatest assurances that the title conveyed is free and clear of all liens and except as noted.

Back Chapter 12

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AKA squatter’s rights Process by which a claimant in pos- session of another’s land may acquire title if their possession continues for the statutory period in an open, notori- ous way and without permission of the owner.

Back Chapter 12 grantee

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Party that receives title through a deed.

Back Chapter 12 Deed

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Instrument by which ownership is con- veyed from the grantor to the grantee.

Back Chapter 12 grantor

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The party who conveys title to the grantee through a deed.

Back Chapter 12 devise

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A gift of real property through a will.

Back Chapter 12 habendum clause

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Clause used in deeds where less than fee simple title is being conveyed. De- fines the limits of the title conveyed. (Begins with the words “to have and to hold…”) (used to convey a time share interest or create a life estate).

Back Chapter 12 intestate

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When a person dies without a will. State law would then determine who inherits what.

Back Chapter 12 probate

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Judicial process to determine the valid- ity of the will, identify heirs, and rec- oncile all of the decedent’s assets and liabilities.

Back Chapter 12 title

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Ownership of real property.

Back Chapter 12 transfer tax

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Used in some states to make the trans- fer of real property ownership a tax- able event.

Back Chapter 12 quitclaim deed

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Deed in which the grantor makes no promises or representations regarding quality of the title conveyed or even if the grantor has title. (But whatever in- terest the grantor has, would convey).

Back Chapter 12 will

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Instrument by which a person states their wishes as to the disposition of their assets upon their death. Person making the will is known as the testa- tor.

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Back Chapter 13 abstract of title

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A written narrative of all past convey- ances regarding a property. Used to establish the “” in an effort to determine the quality of the title.

Back Chapter 13 chain of title

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Series of successive conveyances re- garding a property from the original land grant up to today.

Back Chapter 13 actual notice

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Actual knowledge.

Back Chapter 13 constructive notice

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Theory that information regarding a property’s title is available through dili- gent inquiry of recorded instruments or inspecting for actual possession.

Back Chapter 13 attorney’s opinion of title

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Following an inspection of the chain of title and public records, an attorney’s opinion as to the title’s quality or con- dition.

Back Chapter 13 marketable title

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Title to real estate that is deemed to be good or clear, and free of any litiga- tion.

Back Chapter 13 certificate of title

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Instrument prepared by an abstractor or attorney stating the condition of the title. Not title insurance, just a profes- sional’s opinion as to the quality of the title.

Back Chapter 13 priority

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Instrument by which a person states their wishes as to the disposition of their assets upon their death. Person making the will is known as the testa- tor.

Back Chapter 13 recording

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The act of placing documents regard- ing a specific property in the record- er’s office to give constructive notice of ownership or other interests. (Deeds, liens, restrictive covenants etc. are commonly recorded).

Back Chapter 13 title insurance

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Systematic review of public records regarding a piece of property to deter- mine ownership and the existence of any liens or claims.

Back Chapter 13 subrogation

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The substitution of one party for an- other regarding a lawful claim or right. (i.e. When a title insurance company pays a claim to satisfy a lien that a grantor failed to disclose, they may now sue the grantor through the right of subrogation).

Back Chapter 13 title search

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Instrument by which a person states their wishes as to the disposition of their assets upon their death. Person making the will is known as the testa- tor.

Back Chapter 13 suit to quiet title

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Court proceeding to settle questions regarding title and other claims re- garding a property.

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Back Chapter 14 acceleration clause

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Clause contained in a agreement, triggered by loan default that requires repayment of the entire debt immediately.

Back Chapter 14 deficiency judgment

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Judgment a creditor seeks against a borrower when a sale doesn’t satisfy the entire debt.

Back Chapter 14 alienation clause

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AKA “Due on Sale.” Clause in a mortgage loan agreement that requires repayment of the entire debt if the property is sold.

Back Chapter 14 discount point

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Fee paid to the lender to “buy down” the interest rate. Calculated as a percentage of the loan amount. (1 point equals one percent of the loan amount).

Back Chapter 14 deed in lieu of fore- closure

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AKA “Friendly foreclosure.” When a mortgagor deeds the property to the lender (mortgagee) to avoid foreclo- sure.

Back Chapter 14 foreclosure

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A judicial procedure to force the sale of real property pledged as collateral for a loan in which the borrower has defaulted.

Back Chapter 14 mortgagor

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The borrower in a mortgage loan who pledges their real property as collat- eral.

Back Chapter 14 prepayment penalty

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Fee charged by a lender for the early repayment of debt. (Prohibited on Federally related loans).

Back Chapter 14 mortgage

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Instrument by which a borrower (mortgagor) pledges real property as collateral, creating the lien. Allows the lender to foreclose upon loan default.

Back Chapter 14 promissory note

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Loan agreement detailing the specific terms and the borrower’s promise to repay.

Back Chapter 14 mortgagee

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The lender in a mortgage loan that receives and holds the pledge of real property (mortgage) as collateral until the debt is repaid.

Back Chapter 14 statutory right of re- demption

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Right, created through state statute, to repurchase property within a specified time frame that has been sold through a forced sale such as foreclosure or tax sale.

Back Chapter 14 assumption

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Agreement to become personally re- sponsible of another’s contractual obligations. Original party is not auto- matically released from obligation.

Back Chapter 14 defeasance clause

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Mortgage loan provision requiring the lender, upon repayment of the debt, to issue a “satisfaction” or “release” letter removing the lien created by the mortgage.

Back Chapter 15 usury

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Interest rate in excess of maximum legal limits.

Back Chapter 14

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Back Chapter 15 Adjustable-rate mort- gage (ARM)

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Mortgage loan with a variable interest rate that periodically adjusts. (Note rate = index + margin).

Back Chapter 15 Fannie Mae

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Secondary mortgage market player, buys a broad range of mortgage loans originated in local markets. Quasi-gov- ernmental agency that issues common stock.

Back Chapter 15 Freddie Mac

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Secondary mortgage market player, similar to Fannie Mae, buys primarily conventional loans. Doesn’t guarantee payment of Freddie Mac mortgages.

Back Chapter 15 amortized loan

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Mortgage loan with payments that in- clude both interest and principal which amortizes (kills off) the principal bal- ance over time. (i.e. A fully amortized loan would pay off the loan with the last regular payment. A partially amor- tized loan would be only partially paid off and would require a “balloon” pay- ment to fully retire the debt). Back Chapter 15 Ginnie Mae

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Secondary mortgage market player that is entirely a governmental agency, De- partment of Housing and Urban Devel- opment (HUD)

Back Chapter 15 buydown

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When the interest rate of a mortgage loan has been reduced through the payment of discount points or other fees paid at closing.

Back Chapter 15 loan-to-value (LTV) ratio

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The ratio of loan amount to market value. Indicates the percentage of the purchase price that is borrowed.

Back Chapter 15 FHA loan

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Mortgage loan insured by the Federal Housing Administration (FHA) and originated through approved local lenders.

Back Chapter 15 sale-leaseback

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Transaction in which the seller imme- diately back the property from the buyer.

Back Chapter 15 package loan

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Mortgage loan where the collateral in- cludes both the real property as well as personal property such as appliances and window treatments.

Back Chapter 15 secondary mortgage market

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Market place where mortgage loans originated in local markets are pooled and sold to investors. (i.e. Fannie Mae, Freddie Mac and Ginnie Mae).

Back Chapter 15 purchase-money mortgage

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A mortgage loan originated at the time of purchase. Not a refinance. (Term typically applies to a note and mort- gage from the buyer to the seller as part of the purchase price).

Back Chapter 15 straight loan

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AKA term or interest only loan. Mortgage loan where periodic pay- ments are “interest only.” The original principal balance is not reduced or repaid by regular payments, but added to the final interest payment.

Back Chapter 15 reverse-annuity mort- gage (RAM)

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Mortgage loan made in periodic pay- ments or draws from the lender to the borrower. Accumulating draws are not to exceed an agreed to LTV. (Allows borrowers with substantial equity in their home to create a periodic cash flow to be repaid in one lump sum upon sale or owners death).

Back Chapter 15 VA loan

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Mortgage loan for qualified veterans originated by local lenders but insured through the Veterans Administration. Key feature is zero money down.

Back Chapter 15 primary mortgage market

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Marketplace where mortgage loans are originated by local lenders like banks and mortgage brokers.

Back Chapter 15 wraparound loan

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AKA Swing loan or Bridge loan. Mort- gage loan where borrowers with an existing home and mortgage loan can borrow additional funds to purchase the next home prior to selling the cur- rent residence.

Back Chapter 15 private mortgage in- surance

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AKA- PMI Insurance policy that protects the lender in case of borrower default un- derwritten by private carriers, not the government. (Often associated with insured conventional loans when down payments are less than 20%.)

Back Chapter 15 balloon payment

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Final payment in a partially amortized loan. Borrowers would make smaller periodic payments with one final “bal- loon payment” that pays off the debt.

Back Chapter 15 Regulation Z (reg Z) Truth-in-Lending Act

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Federal disclosure law requiring lend- ers to disclose the true and effective cost of borrowing by using a standard- ized APR (annual percentage rate) which is a recalculation of the note rate to include other lender revenue such as points, finders fees etc. (Allows borrowers to more easily comparison shop). Back Chapter 15 blanket loan

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Mortgage loan covering multiple par- cels that anticipates the sale of indi- vidual parcels. (Enables developers to have one “master loan” over the entire development and sell individual lots without refinancing the entire loan).

Back Chapter 15 conventional loan

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Mortgage loans not insured by the Federal government, but meeting ba- sic credit and risk criteria. (Includes conventional and insured conventional loans).

Back Chapter 15

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Back Chapter 15

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Back Chapter 16 constructive

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Lease status; when a tenant is forced to vacate because the property has become unusable for its intended pur- pose due to conscious landlord ne- glect, terminating the lease.

Back Chapter 16 estate from period to period

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AKA: Periodic tenancy Lease that automatically renews until one party gives one period’s notice to terminate. (i.e. Month to month lease).

Back Chapter 16 estate at sufferance

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Lease status; when a tenant remains on the property following the expiration of a lease without landlord permission.

Back Chapter 16 gross lease

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Lease where tenant is not separately billed or obligated for operating ex- penses such as real estate taxes, insur- ance or common area maintenance.

Back Chapter 16 estate at will

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Lease of uncertain term or duration, tenant occupies the premises at the “will” of the landlord. Terminates upon death of either party.

Back Chapter 16 Lease

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Agreement where lessor conveys pos- session, quiet enjoyment, and some control to lessee in exchange for con- sideration.

Back Chapter 16 estate for years

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Lease for a specified period of time, not necessarily for years. Agreement not terminated by either party’s death or sale of the property, no notice re- quired to terminate. Most common form of lease.

Back Chapter 16

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Tenants rights during term of lease.

Back Chapter 16 lessor

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Landlord/owner.

Back Chapter 16 lease purchase

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Binding agreement to purchase just preceded by a lease.

Back Chapter 16 net lease

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Lease where tenant pays rent, plus their share of operating expenses such as real estate taxes, insurance and common area maintenance.

Back Chapter 16 lessee

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Tenant or renter.

Back Chapter 16 percentage lease

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Lease commonly used in retail estab- lishments and malls. Tenant pays rent, usually on a net basis, plus a “percent- age” of the business’s gross sales.

Back Chapter 16 ground lease

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Long term lease of an entire parcel regardless of any improvements. Usu- ally for , in a very desirable location, where the tenant constructs their own building.

Back Chapter 16 sublease

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Agreement where a tenant (sublessor) leases the property or space to a new tenant (sublessee). Original tenant remains liable to the landlord.

Back Chapter 16

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Back Chapter 16

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Back Chapter 17 casualty insurance

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Policy usually written to cover spe- cifically stated risks such as burglary, theft, vandalism, equipment damage, accidents and health.

Back Chapter 17 multiperil policy

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Commonly bundled package of insur- ance typical in apartment complexes and commercial buildings.

Back Chapter 17 corrective mainte- nance

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Actual repairs, part of a property man- ager’s job.

Back Chapter 17 preventive mainte- nance

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Maintenance efforts to prevent actual damage or need for corrective mainte- nance.

Back Chapter 17 life cycle costing

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Comparative analysis of the total life time cost of two alternative capital ex- penditures. (i.e. A may compare two different air condi- tioning systems, considering the initial capital investment, operating expenses, as well as the expected useful life of each, then make a recommendation to the owner). Back Chapter 17 property manager

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Party hired by a property owner to manage all or various aspects of the property. Considered an agent or fidu- ciary of the owner. (Responsibilities could include leasing, repairs, main- tenance, risk management, budgeting and record keeping).

Back Chapter 17 management agree- ment

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Employment agreement between owner and property manager. Sets forth the responsibilities of each party as well as compensation. Typically creates an agency relationship.

Back Chapter 17 risk management

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Typical fiduciary obligation of a prop- erty manager to assess, minimize and avoid risks to the property owner.

Back Chapter 17 Rent

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Payments from lessee to lessor as consideration for the right to occupy the space.

Back Chapter 17 tenant improvement

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Construction of improvements or al- terations to the leased space to accom- modate the tenant’s specific needs.

Back Chapter 17 surety bond

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Policy or bond intended to protect the landlord from an employee’s criminal acts or negligence while on the job.

Back Chapter 17 worker’s compen- sation

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Body of laws, or actual insurance poli- cy, protecting employees injured on the job. (Most states have worker’s com- pensation acts that require workman’s comp insurance policies).

Back Chapter 18 operating budget

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Detailed statement of a property’s op- erating income and expenses. Used by property managers and to determine the net operating income (NOI) and cash flow.

Back Chapter 17

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Back Chapter 18 anticipation

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Principal applied in an appraisal that the value of a property includes some “anticipation” or expectation of future events, good or bad.

Back Chapter 18 cost approach

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Method of property valuation based upon the lot value, plus cost of new improvements less depreciation. (Most useful for special purpose buildings or historic properties and determining adequate insurance levels).

Back Chapter 18 appraiser

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Licensed professional that applies ac- cepted and approved principals and methodology to estimate the market value or replacement cost of real prop- erty and improvements.

Back Chapter 18 economic life

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The expected useful life of an improve- ment.

Back Chapter 18 Assemblage

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The act of assembling or combining multiple parcels under one ownership and control.

Back Chapter 18 functional obsoles- cence

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Form of depreciation applied in ap- praisals. Addresses issues such as poor or outdated floor plans, or lack of improvements expected in today’s mar- ket. (i.e. A 5 bedroom home with only 1 bath suffers from functional obsoles- cence).

Back Chapter 18 conformity

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Appraisal theory suggesting that prop- erty values, particularly in residential areas, are maximized when the size, style and appearance of improvements are within a given range.

Back Chapter 18

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Statement included in appraisals indi- cating the use that would maximize val- ue. Use must be feasible and legal but not necessarily the properties current use. Appraisers must state the “highest and best use” in each appraisal.

Back Chapter 18 market value

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Estimate of a property’s sale price under normal, open and fair market conditions.

Back Chapter 18 square-foot method

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Method of estimating the cost of new improvements, by taking the known construction cost per square foot of comparable properties and applying it to the subject property. (Used in the cost approach to appraisal).

Back Chapter 18 progression

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The positive effect that better proper- ties have on the market value of lesser properties.

Back Chapter 18 regression

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The negative effect that lesser proper- ties have on the market value of better properties.

Back Chapter 18

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AKA Cap Rate Rate of return that a commercial prop- erty’s net operating income generates as a percentage of its value.

Back Chapter 18 reproduction cost

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Estimated cost to reproduce an exact duplicate of a subject property’s im- provements. (Useful in determining adequate insurance coverage of his- torical properties).

Back Chapter 18 contribution

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Appraisal concept that no one part or improvement to a property can be ac- curately valued without considering its effect on the value of the property as a whole. (i.e. “It may be a nice pool, but does it add to the property’s overall value?”).

Back Chapter 18 income approach

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Method of property valuation based on the property’s ability to generate in- come. (Net operating income divided by the desired cap rate equals the property’s indicated value under the income approach).

Back Chapter 18 depreciation

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A loss in value due to any cause.

Back Chapter 18 physical deterioration

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Type of depreciation to real property due to wear and tear, time and the ele- ments, or deferred maintenance.

Back Chapter 18 external obsoles- cence

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AKA economic obsolescence Type of depreciation due to forces outside of or “external” to the subject property. (i.e. Properties adjacent to landfills suffer from external obsoles- cence).

Back Chapter 18 plottage

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Profit, or increase in value due to as- semblage of multiple parcels.

Back Chapter 18

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Multiple of known sales prices to known monthly rents. Sales price divided by gross monthly rent equals GRM. Investors can apply the average GRM in an area to a subject property’s expected rent to determine value.

Back Chapter 18 replacement cost

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Estimate of current construction cost for like improvements to the subject property but not necessarily an exact duplicate.

Back Chapter 18 sales comparison ap- proach

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AKA Market Data Approach Appraisal method that adjusts the known market price of “comps” for differences between them and the sub- ject property. Most reliable method for valuing residential property.

Back Chapter 18 substitution

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Appraisal principal that recognizes competition. Regardless of the desir- ability of a subject property, the market will substitute lesser properties when they are perceived to be a better value.

Back Chapter 18 quantity-survey meth- od

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The most detailed method of estimat- ing construction costs in the “cost approach” of appraisal. Considers the exact quantity of all materials as well as historic accuracy. Used primarily to determine the reproduction cost for historic properties.

Back Chapter 18 unit-in-place method

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Method of estimating construction costs by line item, used in the “cost approach” of appraisal. Thorough, but not as detailed as the “quantity survey method.”

Back Chapter 18

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Back Chapter 18

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Back Chapter 19 building code

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Municipal regulations that set mini- mum standards of construction, design and material to protect public health and safety. Usually incorporate ADA guidelines.

Back Chapter 19 deed restriction

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Restrictions created and contained in the deed that limit a property’s use, occupancy, and improvements. (Can apply to one parcel (private deed restriction) or an entire subdivision (restrictive covenants). These restric- tions “run with the property” and bind future owners).

Back Chapter 19 developer

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One who constructs a development’s infrastructure like streets, sewers and common areas. May build actual struc- tures or sell improved lots to builders.

Back Chapter 19 nonconforming use

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Existing property use that conflicts with new . Frequently occurs when cities “annex” unincorporated areas.

Back Chapter 19 conditional-use permit

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A permit granted to a property owner whose use is in conflict with zoning but permitted because it is deemed a pub- lic benefit.

Back Chapter 19 Interstate Land Sales Full Disclosure Act

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Federal laws regulating the sale of unimproved lots across state lines. Requires disclosure of pertinent facts such as actual improvements in place, and availability of utilities.

Back Chapter 19 buffer zone

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Area of land between two parcels of different uses or zoning. Designed to create a more peaceful transition be- tween the two uses.

Back Chapter 19 subdivider

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One who cuts or divides a larger parcel into multiple smaller parcels, such as in the creation of a neighborhood or subdivision.

Back Chapter 19 variance

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Permission from the zoning board to “vary” from some part of the zoning. Not a change in the zoning, just permission to vary from it in one or more aspects. (i.e. A business seek- ing a store front sign three feet taller than allowed may seek a variance).

Back Chapter 19 zoning

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Municipal regulations that limit the use, density and character of real property. Zoning is the primary method of implementing the city’s “master plan.”

Back Chapter 19 Certificate of occu- pancy

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Official permit issued by the municipal building inspector certifying that the improvements comply with the build- ing code.

Back Chapter 19 amendment

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A change in zoning from one classifica- tion to another.

Back Chapter 19

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Back Chapter 19

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Back Chapter 20 Americans with Dis- abilities Act (ADA)

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Federal laws protecting the rights of the disabled in areas as employment and housing.

Back Chapter 20 disability

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A condition that limits one or more of life’s major activities.

Back Chapter 20 blockbusting

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AKA Panic Selling The illegal practice of inducing home sales by referencing the movement of persons of a certain race, religion or national origin into or away from an area.

Back Chapter 20 Equal Credit Oppor- tunity Act (ECOA)

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Prohibits discrimination in lending based on a person’s membership in any of the federally defined protected classes.

Back Chapter 20 Civil Rights Act of 1866

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Law enacted following the Civil War prohibiting racial discrimination but not limited to housing. (Upheld in Jones v. Mayer…”Where race in in- volved no exceptions apply.”)

Back Chapter 20 Fair Housing Act

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Federal laws prohibiting discrimination in housing (sale or rental) based on race, color, religion, national origin, sex, familial status or disability.

Back Chapter 20 familial status

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Protected class under the Federal Fair Housing acts prohibiting discrimina- tion against families with children, includes pregnant women.

Back Chapter 20 redlining

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Discriminatory practice by lenders, insurance companies, real estate firms and other service providers to deny service in targeted or “redlined” areas for reasons other than the economic qualifications of those residents.

Back Chapter 20 steering

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Discriminatory practice of directing home buyers or tenants towards or away from specific areas based on their membership in a protected class.

Back Chapter 20

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Back Chapter 20

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Back Chapter 21 asbestos

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Potentially hazardous substance used in many building materials. When bro- ken into air borne particles it can be inhaled and dangerous. Primary meth- od of remediation is encapsulation.

Back Chapter 21 encapsulation

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Method of securing or sealing various hazardous materials such as asbestos and lead based paint.

Back Chapter 21 carbon monoxide

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Gas resulting from the burning of fossil fuels such as coal, wood, natural gas. Dangerous or deadly if inhaled.

Back Chapter 21 Radon

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A naturally occurring radioactive gas that can concentrate in poorly ventilat- ed areas such as basements. Believed by the EPA to be a leading cause of lung cancer.

Back Chapter 21

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Back Chapter 22

closing statement or

settlement statement A method of reconciling prepaid and accrued items at clos- ing through debits and credits.

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AKA HUD-1 The balance sheet of the closing de- tailing all closing/settlement costs. Required when there is a residential 1st mortgage loan, but used in most closings. Primary instrument of RESPA compliance.

Back Chapter 22 good faith estimate (GFE)

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Disclosure lenders are required to provide borrowers within three days of loan application that details the settle- ment or closing costs the borrower is likely to incur.

Back Chapter 22 escrow

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Method of closing where both buyer and seller deposit the required docu- ments and money with a third party to close. The prevailing practice in some states. Not a “face to face” closing typical in Indiana.

Back Chapter 22 kickbacks

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Unearned and illegal referral fees of- fered or received when no service has actually been provided as defined by RESPA. (i.e. Real estate agents are prohibited from giving or receiving such fees from service providers such as lenders, title companies or apprais- ers. Referrals among real estate bro- kerages are exempt). Back Chapter 22 controlled business arrangement

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The bundling of services such as real estate brokerage, lending and title work. Requires the disclosure of any cross ownership among firms and the availability of other providers.

Back Chapter 2122 affidavit of title or vendor’s affidavit

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Sworn statement of the seller assuring there are no new liens, judgments or other defects to title.

Back Chapter 22 Real Estate Settlement Procedures Act (RESPA)

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Federal law requiring disclosure of all settlement charges/fees and prohib- its kickbacks. Applies when there is a residential 1st mortgage loan. The HUD-1is the primary instrument of compliance.

Back Chapter 22 credit

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An amount owed to one party and entered in their favor on the closing statement.

Back Chapter 22 debit

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An amount owed by one party and charged against them on the closing statement.

Back Chapter 22 prepaid item

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An expense paid in advance.

Back Chapter 22 accrued item

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An expense that has not yet been paid.

Back Chapter 22 proration

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A method of reconciling prepaid and accrued items at closing through debits and credits.

Back Chapter 22

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Back Chapter 22

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Back Chapter 22

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Back Chapter 22

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Back Chapter 22

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Back Chapter 22

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