Volume 1:

Hi:

Thank you for choosing REMI School for your professional development licensing. From time to time I am asked questions and I try my best to keep track of student inquiries. Here are some of the latest.

When paying special assessments, how long is given in the contract to settle any differences that may arise between the parties: Ans. 5 days

What is the primary difference between a land trust and agreement of sale. Ans: In an agreement of sale there is a transfer of title

In an agreement of sale there is the first conveyance of an interest in the , which we refer to as beneficial title, and is successful there is a second where the vendee arranges other financing and closes on the sale. Ques: Which of the two closings requires payment of the conveyance tax? Ans: the second closing

When must funds be paid to escrow for closing Ans: must be paid in good funds, at least one day prior to scheduled closing

Which is first in the condominium process: Declaration and By Laws, or . Ans: zoning because it is a feasibility item. If the property is not properly zoned then it will not be fit for a condo.

If taxes are paid by the seller through June 30, 2010 and the sale closes escrow at 8:01am on July 1, who pays the one day of taxes. buyer is charged/debited for one day of property tax.

When does title pass in land court. Remember Delivery and Acceptance is the key for recordation. Title passes at registration ( recordation in the regular system or registration in land court ).

I was asked the other day if a licensed agent and an unlicensed assistant are enroute to deliver documents and the licensed agent is detained, can the unlicensed agent deliver the documents. There are two issues involved. Only a licensee can negotiate or sell so if negotiation or selling is required: then no. Second, ultimately the licensed person is responsible for escrow documents. So an unlicensed person can deliver but it is clear they can do little else. The licensed agent remains responsible.

Under the Mortgage Fraud Act a licensee with a distressed listing can not purchase the distressed listing for 365 days from the date of the listing.

1 Who is responsible for escrow documents: the escrow officer of the licensee. Ans: the licensee. Remember, the licensee has responsibility for the fiduciary interests of the principal. The escrow officer is a neutral party.

How many days are provided to resolve a dispute over special taxes: Ans: 5 days

Hawaii is a Lien Theory State meaning the mortgagee has a lien and must seek authority from a court to foreclose to obtain the title.

Per the paragraph C-11 of the Purchase and Sale Agreement, how much of the standard title insurance policy is paid by the buyer: Ans 40% by buyer and 60% by seller

What three information pieces must be shown on every advertisement: Ans: Licensee Name; Licensee Designation ( e.g. R, RA ) and Agency Name.

What is the insurance settlement for value if the owner does not have co insurance: Cash Value which is the cost less depreciation

A damaged roof is what type of depreciation: functional

A bad floor plan; a one bath house; a one car garage is what type of depreciation: functional

A closure of the road near your home is what type of depreciation: external

Depreciation is defined as a decline in value for any reason

Is a notorious crime in the community a required disclosure under our license law: Ans. No. A required disclosure or material fact is one that must effect the physical structure.

What is the difference between insurance coverage for basic insurance and premium insurance: Premium insurance covers broken water pipes and flying objects that do damage.

Who sells flood insurance: Ans: the Federal Govt through cooperating insurance vendors

Who make VA loans: The Federal Govt through cooperating lenders

What type of lender typically is said to make large loans either 'at a distance' or 'outside its market area': Ans: Insurance companies

In order to qualify for the personal residence capital gain exemption, what rules must be followed: Ans live in the house 24 months of the last sixty months.

Watch for more to follow

2 The best to you.

The Staff at REMI School

Volume 2

Thank you for choosing REMI School of Real Estate. This email is one of a series of emails we use as a forum to answer either frequently asked questions or questions of interest asked by our students.

If you have a question, you are invited to write [email protected]. Here are some questions of interest and professional points to ponder.

Which of the three secondary lenders, Ginnie Mae, Freddie Mac and Fannie Mae is operated by a Department of Government? Ans: Ginnie Mae

What type of loan is described as interest only and having a balloon payment at its term: Ans Straight Loan

What type of loan securitizes both personal and as collateral for the loan. Ans: Package Loan

What type of loan securitizes more than one real property for the loan of funds? Ans: blanket loan

What is the primary difference between a Purchase Money Mortgage and an Agreement of Sale? The PMM allows for transfer of title.

Is a Lien Theory State or a Title Theory State? Ans: Lien Theory

In Hawaii within how many days must a mechanics lien be filed? Ans: Within 45 days from the completion of visible work

Describe a mechanics lien: Ans: Involuntary, Specific and Equitable

Describe a property tax lien: Ans: Involuntary, Specific and Statutory

Describe an income tax lien: Ans: Involuntary, General and Equitable

Describe a mortgage lien: Ans: Voluntary, Specific and Equitable

How many days notice must a or agent provide to the tenant in order for the landlord or agent to enter the leased space? Ans: 2 days

3 When must the grantee's funds be deposited into escrow? Ans: at one day prior to closing

Asked another way, who is ultimately responsible for the closing statement? Ans: licensee

Which of the following can not be used as the name of an agency? Ans: an unlicensed person or unlicensed entity

Funds held in trust for another and given to a licensee must be deposited within how many days? Ans: the next business day

Cancellation of any contract using Paragraph C-29 requires that the cancellation be delivered by what time: 11:59pm on the date of the expiration of the contingency

Is tenancy by the entireties limited only to married couples? Ans: No, it can also be used by reciprocal beneficiaries

Volume 3

As you know our school is quite active and our students regularly ask questions. We usually answer those questions directly with students and it turns out 99% are answered by email. And, from time to time students will call and questions are answered by phone or in person.

I gather those questions and list them in an email such as this for your educational use. Here are some recently asked questions.

Which of the following is a good example of reciprocal beneficiaries? Ans: brother and sister ( reciprocal beneficiaries are entitled to use tenancy in the entireties, as the law provides that any two people, who because the law will not permit them to marry, may be classified as reciprocal beneficiaries )

Will a Phase I report include a report of toxins on the site? Ans: No, Phase 1 is a superficial or cursory look at the property. Phase I is one of three phases of environmental reports used in compliance with CERCLA, the comprehensive environmental response and liability act. Phase 1 is only a look at who is on title and how the site is being used or has been used. If Phase 1 indicates more research into possible pollution or contamination is required, the Phase 2 report will be used to research the soil, take samples and determine levels of toxicity. If there is toxicity and the owner decides to clean up the site, then Phase 3 is the plan and the results.

The Phase 1,2,3 reports are used in purchases. Lenders dont want to lend if the property ( collateral ) is polluted. This is because the law requires every owner in the becomes responsible for the costs of clean up. If the bank

4 lends the land turns out to be polluted then the current owner may have to pay out large sums of money for the clean up or the collateral may be assessed with a lien that would damage the bank's position. So prior to the loan a lender will require a Phase I review.

Will a SMA Special Management Area affect decisions on shoreline development? Ans: yes, that is precisely what it was created for.

Which of the following is not a State land use classification? Urban, Rural, Preservation, Development, Conservation or Agriculture? Ans: Neither Preservation or Development are State Classifications. Only the four: Urban, Rural, Conservation and Ag or State Classifications

What is the property order of Division, Zone, Section, Plat, Parcel and if applicable Condo? Ans: that is the correct order

If the contract reads there are ten days provided for completion of an inspection or review, the ten days are measured as calendar or working days? Ans: calendar days

If the contract reads the contingency or term of the contract must be completed by a certain date, then what time of day of that date is the expiration of the contingency? Ans: 11:59pm of that day

Hawaii Conveyance tax is a progressive tax escalating in steps with the sale price of the property. Who is responsible for the amount over the base expense? Ans: unless contracted otherwise, it is the seller

Who pays conveyance tax? Ans: seller C-11a reads" Pursuant to the rules of the Department of Taxation, State of Hawaii, Seller must pay a higher conveyance tax if Buyer is ineligible to file a county real property tax home owner’s exemption on the Property.

Who is eligible for an ERS Loans ( Employee Retirements System )? Ans: current or retired employees of the State or Local Government buying single family, townhome or condo.

Are leasehold eligible for an ERS Loans ( Employee Retirements System )? Ans: Yes, as long as there is at least 35 years remaining on the lease with at least ten years fixed.

How many days may a principal broker be absent prior to notifying the real estate commission in writing that he or she has assigned those duties to a broker in charge? Ans 30 days

I hope these questions help you in your pursuit of your professional development dreams.

GENERAL NOTES

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Here are some recently asked and answered questions that you might find helpful. Please forward your questions, and the instructor should get back to you.

- When is the latest a client can deposit before recordation? is it one day, 2 days or the day of recordation? The State Law is three days. Just as an aside however, I have done it the same day when it was a bank error or no fault of the buyer.

-The exam was asking a question regarding HRS15 but I seem can't to find that section in the book. There is an HAR Title 16 Chapter 99. I am not familiar with HRS 15.

-True or False? When a property forecloses, does the winning bidder win at 20% down? False. have over bids of 5% meaning there is a winning bid, then the court or judge asks if there is an overbid. If someone wants to beat the previous or winning bid he or she must bid at least 5% more.

- Which is first when establishing a brand new condo? Getting the permit for zoning or establish the bylaws? Getting the permit for zoning. Remember the first step in the condo process is the question, "does it qualify under zoning?"

-If a seller pays his taxes until June 30. For July 1, is the seller neither credited or debited? True. But then, the Buyer is charged one day.

-When does title pass? Is it when the Grantor signs the ? or when it's delivered to land court? Wow..... Wow..... If you had not said land court, I would quickly say when it is delivered and accepted. Just the mere fact you signed the deed does not account for the requirement of a valid deed that it be delivered and accepted. Final answer: delivered to land court.

-Is the escrow officer responsible for the closing documents? Another great question. OK, lets review the roles and answer this question from the view of real estate agents as professionals with a fiduciarly level of responsibility. On casual glance it seems the escrow officer is responsible. After all the escrow officer prepares the documents. Also, the escrow officer is neutral.

The agent on the other hand is loyal to the client. The correct answer is the real estate licensee because of the licensees fiduciary duty created by agency. Remember, the fiduciary duties include: to give benefit of your knowledge, to care; to follow instructions; to account for any money; to be loyal and disclose. We also give advice and counsel.

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When you weigh the fiduciary obligations of agency ( the licensee ) to those of preparing the documents ( the escrow officer ) and not being an agent of the person the answer is clear.

On the question pertaining to how many days to resolve a dispute over property taxes, when in contract, the answer the I find in the Purchase and Sale Agreement pertaining to disputed matters is five (5) days. Given no other information I would rely on five days as being the answer.

I forgot to mention that you should read paragraph C-11 of the contract as the subject of closing costs is often test material.

Lastly, of the two points I said I would further research, the second was whether advertising must include the initials and or the name with the address of the agency. The HAR ( Hawaii Administrative Rules Chapter 19 Sub Chapter 99 paragraph 11 ) provide that four items be listed in an advertisement (a) licensee name as licensed by the commission; (b) Agency name; (c) licensee designation e.g. R, RA, S, B; and (d) if an address is given that is an unregistered place of business, then the Agency address musts be given.

Read this informational brochure from the real estate commission published on the URL below: http://hawaii.gov/dcca/real/real_ed/re_ed/ce_prelic/advertising_guidelines.pdf

While not an attempt to reproduce the pre license course, I trust the following outline will help you study selected materials. ( I wish you the best and call or email if I can be of further assistance. )

PROPERTY OWNERSHIP includes types of insurance to choose from and the measure of how an insurance company will compensate you. Know the difference between "actual cash value" and "replacement value". This has to do with co-insurance. If you have covered up to 80% of the value of the property, then you are likely eligible for replacement value, meaning the roof will be covered for the cost to replace. If you do not have co-insurance then you receive "actual cash value" which is the value of the roof less its depreciation. If the roof has a 30 year life and the roof is 10 years old when you suffer the damage, actual cash value is the replacement cost less 10/30ths because you used the roof for one third of its life. But if you have co insurance then the homeowner is given its full replacement value.

There is basic form insurance and premium form insurance. The difference is that Premium form covers more. Both forms cover fire, lightning, glass breakage, windstorm, hail, vandalism, theft, mischief, damage from

7 smoke and explosion. However, Premium Coverage includes FLYING OBJECTS, LEAKING OR FROZEN PIPES (WATER DAMAGE from plumbing).

Flood insurance is sold only by the Federal Government through you local insurance company.

Home Ownership also includes what expenses of home ownership are deductible. Those include mortgage interest and property taxes. So of the classic principal, interest, taxes and insurance PITI, which are deductible? Interest and insurance.

What is an affordable house? The front end ratio is usually 28% of income. Front end includes the ratio of mortgage debt to income. If income is $1,000 per month and mortgage payments are $280.00 per month, then the ratio is 28%. The back end ratio is a ratio of mortgage debt plus car loans and school debt. That ratio is usually acceptable at 36%. If a borrower is described as a 28% / 36% person, then they have a front end of 28% and a back end of 36%. That is good. (Unrealistic but good--- editorial comment)

How much can a married couple exempt from capital gains on their taxes is another Home Ownership Question. Today's tax law allows each person within a marriage to subtract $250,000 from capital gains on the sale of their personal residence as long as they have (1) lived in the house 36 months out of the last 60 months and (2) only take the deduction once every two years. The 36 months can be "live in it 8 months" move to another house for a year, then live in the house for 28 months. It is not unusual to have the the 36 months split up in a test question into several periods of time and the truth is the law provides that as long as you live in the house a total of 36 out of the last 60 you get the deduction. A single person gets $250,000 with the same set a rules and the married couple gets $500,000.

Other Home ownership questions include types of homes: condos, single family's, cooperatives ( shares of stock and proprietary lease); highrise developments called MUD's, and low rise developments called PUDs. There are converted use properties that were formerly warehouses and are converted to loft apartments. And while we dont see these in Hawaii, there are manufactured homes. Remember a condo is a collection of deeded common and limited elements all conveyed with a deed. Common elements are shared by other owners. Common elements include the elevators and parking lot. An assigned parking space or storage locker is a limited common element.

The decision to buy or rent is usually guided by affordability and mobility. Real Estate ownership lacks mobility and it is not a liquid asset that is easily converted to cash. However Real estate does provide: certain tax deductions, appreciation, equity growth as the loan is paid; and favorable capital gains treatment.

8 Last in the category are VA ( guaranteed loans) underwritten by the Veterans Administration and bought on the secondary market by FANNIE MAE and FREDDIE MAC. And there are FHA Loans available through participating banks and insured by HUD. These loans are regularly bought on the secondary market by Fannie and Freddie, quasi arms of the federal government but not a part of the Federal Govt. The only secondary market buyer of loans owned by the government is GINNIE MAE. It too buys VA and FHA loans.

On the State exam you need to understand that Land Court conveys title with three items (1) lien letter which replaces a title search; (2) deed and (3) transfer certificate of title. The Regular System provides only the deed search.

Key concepts for Property and Home Ownership include types of tenancies and their characteristics: Joint Tenancy with the four unities ( time, title, interest and possession ); Severalty, owned by one, to the exclusion of all others; Tenancy in common ( undivided fractional interests which may or may not be of equal portions; each interest can be sold; Tenancy in the Entireties ( where the marriage owns the property and serves as a form of asset protection)

Community property ( not in Hawaii) is property acquired during the marriage. Title is shared by the spouses. Property is not community property if inherited by one spouse or the other; was received as a gift.

Know what happens upon death in joint tenancy ( title passes to the other joint tenants equally ); in a tenants in common death causes the interest in title to pass according to will or laws of probate.

VALUATION and MARKET ANALYSIS; this includes how to value real estate. You learned about MIC which are the three appraisal methods of market ( comparative market analysis of closed sales and comparables); income approach which uses either the gross sales in the formula of or the net income which is used in the capitalization formulas where we divide NOI net operating income by an interest rate ( e.g. $20,000/.05 = $400,000 of value) where 5% is the cap rate and $20,000 is the net income. The IRV formula tells us if we want I (income) we multiply r and v. In the case above r is .05 and v is $400,000 so income must be $20,000. And likewise if we want r we divide i by v which would be $20,000/$400,000 which gives us a rate of 5%. The IRV is always written with "I" on top and VR below. That tells you whether to divide or multiply.

Cost is always an approach used with new buildings or unique old buildings. An old church would be appraised using the cost method, or a new subdivision would be a cost appraisal.

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An appraiser does appraisals. A does comparative market analysis or sometimes gives a brokers opinion of value. The state licenses appraisers. Appraisers give an opinion of value. Value is created only when a property can demonstrate degrees of having (1) demand; (2) utility ( usefulness ); (3) scarcity; (4) and transferability. We abbreviate this determinants of value as D U S T.

FINANCING PRINCIPALS AND PRACTICES: This is divided not Principals and Practices. Know these basics:

The Federal Reserve provides money to banks for those banks to lend. The cost of money to the banks is called the discount rate. Banks buy money from the Fed and lend it to consumers.

Banks, insurance companies, credit unions, savings and loans are primary lenders. These are sources for mortgage loans. Insurance companies among these are unique because they lend on the largest and most distant projects while the others tend to loan locally.

After these lenders make loans and hold security in the form of notes, or mortgages, the banks sell these security instruments to the secondary market. The secondary market provides liquidity to the financial system. The biggest organizations in the world comprise the secondary market. Among those in the secondary market are FREDDIE MAC ( privately owned ), FANNIE MAE ( privately owned ), and GINNIE MAE ( government owned and managed by HUD). Because no primary lender ( banks, credit unions, etc ) is big enough to loan and loan and loan, they need someone to buy the mortgages, notes and deeds they hold so they get money back into their vaults to loan. That is what the secondary lenders do -- they infuse money into the system.

In the simplest form the banks buy money from the Federal reserve and loan it out. The banks keep mortgages, notes and deeds as evidence of the indebtedness. The banks would run out of money if they keep loaning it so they bundle the mortgages, notes, and deeds ( which give a monthly cash flow ) and they sell these evidences of debt to the secondary markets, who give the banks cash to lend.

There are various types of loans: straight loans, which are interest only, and terminate with balloon payments.

There are amortizing loans which have a fixed payment with ever changing components of principal and interest. The first payment of an amortized loan is always determined by the same method. To calculate the first payment take the outstanding balance times the interest rate divided by 12

10 months. That is the interest. If you need to find out the principal portion, then subtract the interest that you just calculated from the fixed payment and the difference is the principal reduction. And it is this procedure that results in ever changing components ( amounts) of principal and interest because when you subtract the principal portion that you just determined, the outstanding balance changes. So when in the second and subsequent months you perform this change of outstanding balance that amount of interest is less. With less interest and the payment being fixed the amount of principal will be larger and again reduce the outstanding balance. Practice this calculation because it is often a question asked: what is the principal reduction in the first payment.

There are package loans which package personal property ( cars, furniture, for instance ) and real property.

There are blanket loans which cover more than one property. Because they cover more than one property we look to the lender to provide a partial release when we sell or convey one of the properties but not all of the properties.

There are open end loans like lines of credit or home equity loans where you can continue to draw on the loan up to a maximum.

There are construction loans which provide funds at an interest only rate until completion of the work and then convert to amortized loans.

Because lenders regularly need to re-sell loans to the secondary market to get more cash to lend, they prefer conforming properties. Those are properties that fit zoning requirements. If a bank makes a non conforming loan they typically can not sell it to the secondary market and therefore must keep it. When they keep a loan we call it a portfolio loan. We also say a loan is conforming when the credit scores are within a normal range and the down payment is at least 20%. Or we might say loan to value ratio is at least 80%. We call these conventional loans.

Finally, we speak of Private PMI. When a loan is not conventional but made with a downpayment less than 20% and is a non conforming loan the banks ask for an additional payment of PMI. If the loan were to fail the lenders call on the PMI insurance to offset some of the loss from default.

There are various forms of seller financing: These include a PMM ( Purchase money mortgage ) where the seller loans the buyer the down payment and takes a second mortgage as security for the loan. There is an agreement of sale where the seller takes a down payment of some sort and loans

11 the buyer enough to buy the house. I always consider PMM and Agreements of sale as almost opposites. One is a loan of the down payment and the other takes the down payment and loans the rest.

In an agreement of sale the ther term used for the seller is the vendor. The vendor retains legal title. The vendee only get a beneficial title. The security for the vendor is that title is retained by the vendor until all terms are met.

There are two closings for an agreement of sale. The first is where the vendor conveys the limited interest in the estate. But the second closing is where the terms have been met and the property is conveyed to the vendee. Only then, at the second closing, is conveyance tax paid.

Let us skip ahead to VA and FHA types of loans. VA loans are guaranteed. FHA loans are insured. VA loans have a certificate of value and FHA loans have an appraisal.

There are fundamentals of finance we call the Principals of Finance. They include important terms: Deed, the legal description of the real property; the note which is evidence of debt; and the mortgage which bridges the deed and note and triggers in case of default of the note or mortgage.

Upon conveyance the escrow companies will determine liens and pay the liens with the proceeds of the sale in the order the liens were recorded. Liens are categorized as General Liens or Specific liens. General liens allow a creditor to claim any assets of the borrower. Specific liens are security of a specific property and only allow the lender to sieze that property in the event of a default. Liens are further classified into equitable and statutory. Property Taxes become liens when due. Property taxes are statutory liens because they are created by STATUTE. Because of its status as an equitable lien, a property tax lien jumps in priority ( order of payment ) over all other liens. That is why a bank wants you to pay property taxes. failure to pay the property tax will move the property tax lien in front of the bank's mortgage lien.

An equitable lien is created by a court and a decision by the court. A mechanics lien is an equitable lien. A mechanics lien is specific. Income tax liens are equitable liens. But an income tax lien is general. If you have an income tax lien then it is a general lien against any assets of the creditor.

We have a list of voluntary conveyances which include gift, will, devise, sale, lease and we have a list of involuntary conveyances, , foreclosure, escheat. Foreclosure is one such example.

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Hawaii is a lien theory state because we rely on the mortgage as evidence of a lien. On the basis of the law recognizing the lien the lender can enforce the foreclosure. In a lien theory state the foreclosure process requires the lender to announce the foreclosure, follow a legal process and claim the deed. After claiming the deed the lender will sell the property to the highest bidder at an auction.

Some states have a right of redemption to reclaim the foreclosed property. If the foreclosure is for failure to pay the property taxes, Hawaii gives a one year right of redemption to the party who gave up the property. That party has one year to act in which time the party can pay the back taxes plus interest and reclaim their property.

A seller may cooperate with the lender in a situation with eminent foreclosure and give the deed in lieu of foreclosure. In other words, dont go through the process, just give up and convey the deed.

In a title theory state, the law lets the bank hold the title so foreclosure is a little faster, easier, etc.

On the other hand when a lien is paid in full, the bank (mortgagee) must give the mortgage to the borrower (mortgagor) under the terms of the defeasance clause. The defeasance clause is to be found in the mortgage document.

Other terms in the mortgage are acceleration clauses. They operate if you default, the bank may accelerate your loan and make all the principal due and owing immediately. Alienation clauses are clauses that say if the mortgagor violates or defaults on the terms of the loan documents, then the mortgagee may accelerate the loan. This is a common tool for the lender if the borrower uses an agreement of sale to sell the property and does not get approval from the lender. The mortgagee will see an agreement of sale as alienation of the property and accelerate the loan.

Novation is permission of the lender to substitute another person on the note or loan. To novate is to release a person from liability under the loan. In the example above, you use an agreement of sale to sell the property and the bank provides the original borrower with a novation, then the original borrower is off the note and the new borrower is completely responsible.

If you sell the property subject to the mortgage it is to say the person paid the equity to the seller and assumes the mortgage amount

There are clauses in the deed as well. The granting clause indicates the seller

13 (grantor) wishes to grant. It is followed by the Habendum clauses which indicates the extent of the estate being conveyed. This could be an absolute fee simple estate, a life estate, a time share, etc. The habendum clause begins with to have and to hold and must be consistent with the granting clause. The granting clause indicates the intention to convey and warrant, or to grant, bargain and sell. Then the habendum clause would indicate a warranty deed or a bargain and sale deed. It is from these clauses we determine the grantees ( buyers) interest in the real property.

In Practices of Finance we learn of the RESPA laws which are consumer protection laws to provide full disclosure to the home buyer. The laws regulate the practices of escrow, limiting the amount of escrow impounds for insurance and taxes, limiting rebates or kickbacks, and educating the consumer on costs to purchase a home.

MANDATED DISCLOSURES: Read HRS 508D for the four mandatory disclosures. Two are water and two are noise. The two water are flood zones and tsunami zones. The two noise are airport approaches and military installations.

We must disclosure lead paint for buildings built before 1978.

The seller must provide a sellers real property disclosure statement for residential properties of four units or less. The agent can not fill in the information for the seller. There are exemptions to providing the statement which include conveyance to a spouse or partner, court order or from a bank.

By providing the disclosure the liability shifts from the seller to the buyer for proving that a defect was concealed. After two years from delivery of the disclosure the seller is not liable for items disclosed.

The agent, buyer and seller must sign the lead paint disclosure and provide a lead paint information brochure.

TRANSFER OF TITLE: I explained the types of voluntary ( sale, gift, devise ) alienation and involuntary ( foreclosure, escheat, adverse possession, ) alienation, above.

The conveyance starts with a contract which must have the essential elements: ( competent parties, mutual promise, consideration, and legal purpose ) and reference a legal description as determined by a survey. A contract not having the essential elements is void. A contract seeming to have

14 the essential elements but upon closer scrutiny lacking one, such as legal age, is voidable by the party that is deficient.

Based on the survey the title company will complete a title search to find siezen ( who owns the property ) conduct a preliminary title search to determine quality of title, interest in the property, liens and and issue title insurance. Title insurance will protect the grantee from claims of third parties to the title. There are Owner's policies and lenders policies. The main difference is the lender policy is for the amount of the loan.

A title company will issue a deed backed by the insurance. A general warranty deed conveys the most rights associated with a property. A general warranty deed will insure five warranties: Siezen, that the grantor is the rightful owner and has the ability to convey; Encumbrances; that there will not be any liens or encumbrances not known or disclosed and that those that are required to be satisfied by the contract are satisfied at closing; Quiet enjoyment, that the title insurer will defend against all claims against title; Further Assurance; that any papers needing to be signed will be signed; warranty forever, that insurance will last forever to defend your ownership rights.

Next in line, and often a test quesition is the special warranty deed. It provides the same coverage as the general warranty deed except for one important distinction. It only covers the warranty period of the current owner or said another way of the grantor. it does not go back in the title search to determine if there might be claims against title for any previous owners.

Next is the Bargain and Sale Deed. In this list of general warranty deeds, special warranty deeds and now Bargain and Sale deeds, each conveys less quality and less rights than the one before. A bargain and sale deed only implies the grantor is seized of the property. It does not warrant that the grantor has the right to sell. The seller may or may not have the right.

Quit Claim deed simply says in its conveyance language, 'whatever interest I have in the property, I hereby convey. It has no expressed warranty.

In the deed of trust ( not used in Hawaii ) there is an extra step or person. The trustor conveys the title to the trustee for the use of the beneficiary. The deed of trust is held by the trustee. If there is a default, then the trustee must convey the deed to the trustor, who is the bank or a close cooperative of the bank. A reconveyance deed is used by the trustee to return the property to the trustor either in case of default or when the loan is satisfied in full.

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Escheat has a statutory period of 20 years. If no heirs claim a property after it has been abandoned the State takes the property under a right we call Escheat. Then the State will sell the property.

Eminent Domain is a RIGHT of th State to take land for public use. The State must pay a fair price for the land. The PROCESS of taking the land is Condemnation.

Devise is a gift of real property by will. Bequest is a gift of personal property. And Legacy is a gift of money.

Dower is a right of the surviving wife to half the estate of the deceased husband. Curtesy is the right of the surviving husband to half the estate of the deceased wife. Hawaii no longer uses dower and curtesy but instead uses right of election based on years of marriage. At one year the election is up to 3% and increases to a maximum at a marriage point of 15 years, the surviving spouse may elect to claim up to 50% of the marital property.

Finally, conveyance tax is paid by the seller at the time of sale but the seller is allowed up to 20 days from closing to make the payment to the State. On actual and full consideration paid for the transfer of realty, including and subleases, a tax of 10% per $100 is imposed for conveyances under $600,000; 20% per $100 for conveyances between $600,000 and $1 million; and 30% per $100 for conveyances in excess of $1 million. Also imposes a conveyance tax for condominiums or single family residences that do not qualify for a homeowners= exemption: 15% per $100 for properties valued up to $600,000; 25% per $100 for properties valued between $600,000 and $1 million; and 35% per $100 for properties valued at over $1 million. Minimum tax on each transaction is $1.00. Certain exemptions are allowed.

SUMMARY:

Read the Chapter summaries and glossary 3-5 days prior to testing. If you dont know a word in the glossary look it up. If any concept in the summaries troubles you read more on the subject.

I can say, generally, that sixty per cent of test is not experienced based. You can score 40% on the basis of experience. The test is deeply based in theory and requires reading the text and reviewing notes. Our course is based on graphics and narration. If you review only the slides without the narration, it will go quickly and can be used as a review to jog your memory. The Hawaii review chapter is highly regarded but requires about 3 hours of time to listen. You are likely very busy so you might

16 want to review just the Hawaii review slides and not play the narration if you are short of time.

Most important however is a need to browse through the book. Look at the chapter titles, the key words, the bold print, the answers to the questions and chapter summaries.

1. Notice the landlord must give to the tenant: 2 days Remember there are several types of leases. There is a tenancy for years and a tenancy for periods. A tenancy for years is a lease with a beginning and ending date. Normally no notice is required because the terms are spelled out in the lease. And then there is the tenancy for periods. This is usually a lease for a period of time like a day (hotel), a week ( rooming house ) or a month, which is most often called a month to month and is the most common form of tenancy for periods. Because the lease renews each period unless it is changed, we must create a mechanism for such changes. In other words we must decide how many days notice should be required to, say, increase the rent. Or, we must decide how many days notice are required for say, respond to an emergency repair. This is all provided in HRS 521, the Tenant Landlord Code. Notice to Enter the Apartment - 2days; Respond to an emergency Repair - 3 days; Demand Payment of Rent - 5 days; Cure a Default in the Lease - 10 days; Respond to a Regular Repair - 12 days; abandoning the apartment - 20 days; Notice by the Tenant that they intend to move out - 28 days; Notice by the landowner they intend to raise the rent - 45 days and so on. *2. What are the benefits of a land trust over an agreement of sale? Land trusts are common to only three states, Hawaii being one. A Hawaii land trust provides secrecy and an ability to convey ownership within the trust is simplified. Secrecy because once the trust is created there is no obligation to disclose owners. Further is the trustee wishes to convey to another person it may be in the form of a letter or other non recorded instrument. This makes it easy for a family to bestow real property to sons, daughters and others without going to escrow. Both are methods of holding title. A trust holds title through its trustor who lets the trustee hold the title for benefit of a beneciary. In other words we could say the attorney ( trustor ) creates the trust for you as the beneficary. The trustor then asks me to hold the title for safekeeping and perhaps I also should manage the property while you as beneficary use it. Then again, maybe you decide to rent it and live on the income. It differs from an agreement of sale in that an agreement of sale is a financing instrument with seller

17 financing. The seller holds the title as security. *3. When does the buyer's money need to be submitted to escrow? State law is the third business day prior to the date of recordation. I have seen many exceptions to this rule but the law is three days so that should be your answer. 4. Who is ultimately responsible for compiling the closing statement? See my answer above, but in short, the real estate licensee for the client. *5. a broker's license cannot be issued under or changed to any trade name, corporation name, or partnership name, part of a name, initials, or nickname of: an unlicensed person/ a real estate sales person/ a person who is associated with the borkerage/ a person who is not associated with the brokerage of employment 6. funds must be deposited into a trust account: by the next business day. True 7. Seller's disclosure statement must be given to a bona-fied purchaser. (other options: time share owner? spouse sale?) Your question is not quite clear but let me explain what we call the Sellers Real Property Disclosure Statement. It is required in the sale of a residential property including a property that is four units are less. It is intended to inform the buyer of the conditions of the property as the seller knows it. Only the seller may complete the disclosure. The agent is prohibited from completing the disclosure. We call the seller's disclosure statement a 10/15 contingency because it must be given to the seller within ten days of acceptance. And the seller must return the disclosure statement within fifteen days of receipt. it is state law that the delivery and return must be accompanied by a reciept evidencing delivery and return. The disclosure can not be older than six months from the acceptance date. Exceptions to use of the disclosure include sale to spouse, partner, by a bank, trustee or by court order. Of the choices you gave and the way the question was worded, the answer or best answer appears to be bona fied purchaser.

*8. C-51 time period must: include time to negotiate? be enough time for the buyer to inspect the property? *9. cancelation of C-29 must occur by: 11:59 the day of expiration? 2 days after expiration? 5:00 the day of expiration? 10. tenants by the entirety can only be used by married couples. No, it can also be use by reciprocal beneficiaries, those who are not permitted to marry ( i.e. brother and sister, etc ) can use tenants by the entireties, which is a special form of joint tenancy. So a husband and wife may take title to property in the form of a tenancy in the entireties and so could a brother and a

18 sister. 11. Phase I shows the level of toxins. No, Phase 1 will not provide insight into level of toxins. The Comprehensive Environmental Response and Liability Act CERCLA is law that obligates every owner in the chain of title to take responsibility and liability for the clean up of a polluted site. This pertains to commercial property. As such the law creates Phase 1, Phase 2 and Phase 3 inspection levels. A lender requires a borrower to conduct a Phase 1 inspection before the lender will consider a loan. The Phase 1 inspection exaimines chain of title and may take a cursory glance at the property. A Phase 1 report may be 50 to 100 pages but will only report the chain of title, the results of a site inspection, photographs, history of use as best as can be determined, and opinion as to the environmental status of the property. A Phase 1 report may indicate the parcel was used as a baseball field so no further investigation would be done. Or, the Phase 1 report may indicate the site was used for agriculture and may contain pesticides or fertilizers; or it was used as a manufacturing plant for making batteries. In either case the information in Phase 1 would be used to decide if a Phase 2 report was needed. The reason so much emphasis is placed on obtaining a clean Phase 1 report is that a lender will not lend if the lender believes the value of the security may be jeopardized by the cost or effects of contamination. If the Phase 1 report hints at or suspects environmental concerns, the bank or buyer may require a Phase 2 report, which will investigate and test for toxins. So Phase 1 would not show toxin levels. That would happen only if Phase 1 indicated a need for further testing. 12.urban, rural, preservation, and agricultural zoning I dont know the question, but these four are usually coupled when defining Land Use Categories of the State. These are the land classifications for the State of Hawaii. Urban is the city or populated areas and more closely governed by the zoning of the County; Preservation is governed by the State. The other two, Rural, the country, and agricultural are jointly presided over by both the State and County. 13. Division, zone, etc. (order) When you see a tax map key, the order is Division; Zone; Section; Plat; Parcel and Condominium number ( if condo number is applicable ). If it is a parcel map, then the parcel number is always shown with a double underline. *14. conveyance tax is: escalating? paid by the seller? based on the price and if seller used it as a residence? used solely by the bureau of conveyances? 15. ERS loans are for: 35 year leases? Which one does not belong: 2.5 years of no previous ownership? require an affidavit? are assumable? The answer is: require an affadavit 16. listing agreements are signed by at least one seller and the

19 broker They are signed by all owners and the broker. 17. Hula Mae loans I dont know the question but I can tell you about the Hula Mae program which is designed to provide loans for qualifying individuals and thus making homes affordable in Hawaii. (1) Homes must be in Hawaii and be single family residences or townhouse/condominium units; (2) Under the current program the loans may be amortized up to thirty years with an interest rate for a of 4.45%, subject to change; (3) usually the seller and buyer each pay 1 point for the loan but this is negotiable; (4) when a leasehold residence is to be purchased using Hula Mae financing, the remaining term of the lease must be at least 35 years and the lease rent must be fixed for no less than 10 years from the date of the mortgage loan; (5) You must be an owner-occupant throughout the term of the Hula Mae Mortgage Loan. If you sell prior to the term of the loan, Hula Mae may penalize you and claim a portion of the profit; and there are certain prohibited uses, which include: refinance existing mortgages; convert agreements of sale to purchase contracts; and or purchase fee simple title to leasehold properties. There are limits to these loans set by county. Currently, Honolulu, and Countie's limit is $644,429 and Hawaii County is limited to $505,125. And, just as there are limits set by county, the counties also have limits set on qualifying. For instance your income for a family of three or more can not exceed $99,820 in Honolulu County. In the same county, but for a family of two, the income can not exceed $85,560. It varies by county. The program is designed for those who need help so they set this income limit. Finally, what are the qualfying criteria:

Any person or family who:

o Is a resident of Hawaii. o Is a citizen of the United States or declarant alien. o Is 18 years or older. o Has not been granted a loan previously under the Hula Mae Program. o Has not (or whose spouse has not) owned or have any interest in a principal residence or a beneficial interest in a Land Trust involving a principal residence, within or without the State of Hawaii for a period of three years prior to applying for a Hula Mae Loan. This requirement does not apply to loans made in targeted areas. o Does not have income that exceeds the following limits: Hula Mae loans are made by any participating bank or savings and loan. 18. if the principal broker is out of town for more than ? days, a temporary broker must be assigned. (30) Up to 30 days a broker can remain off island and not assign a broker in charge. However if absent

20 for more than 30 days, the broker must notify the commission in writing and assign a broker in charge. *19. trustee gets the title when: the loan is paid off? yes And, that title has a special name. When the loan is paid, the title is called a reconveyance deed. The trustor will release and reconvey the title to the trustee who can at his option, deliver it to the beneficiary if the trust calls for the trustee to do so. The point it the trustee, who has the role to hold the title as security for the bank, is no longer needed in the legal arrangement. So when it is paid in full, it is likely the trustee will recovey to either the trustor who created the trust or to the beneficary who has used the trust body. The task and obligation will be described in the trust document. Licensees should be cautious using the term 'trust' as it could be a deed in trust, which is a testamentary trust used in a living will and created when the person is alive and there is a deed of trust which is a licensing document similar to a mortgage. We do not use a deed of trust in Hawaii. In Hawaii we have land trusts which is a title holding entity. A land trust has no relationship to a deed of trust. 20. a broker must release a salesperson within ? days of any request? ten days *21. if the seller has paid the property taxes until June 30 and the closing occurs on July 1, the property taxes: are assumed by the buyer? there are no prorations? the seller has a credit and the buyer has a debit? the buyer has a credit and the seller has a debit? The best process for developing this answer begins with the knowledge that property tax is due for one day because the facts tell us the Seller paid through June 30. With closing on July 1st, we must ask who owns the property on the day of closing. The answer is the buyer ( grantee ) owns it at of 12:01am on the date of closing. So the buyer must pay for the one day of July 1. Since the next payment due date for taxes in Hawaii is August 20 for the period July 1 through Dec 31, no one has paid for July 1. Therefore we know we can not charge the buyer and credit the seller. Conclusion: The way we would do it, is to charge (debit) the buyer for one day. We would neither debit or credit the Seller under the circumstance.

The ones I was unsure about have asterisks next to them. Please advise, if you have time. I only provided one answer for the ones I was absolutely sure about, so if they are incorrect, please also let me know.

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