Legal Concepts In Real Estate: Mortgage Lending P&p 3 Edition/updated Nov. 6, 2009
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Chapter 9
Legal Concepts in Real Estate
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
1
Chapter 9: Legal Concepts in Real Estate
Overview • These concepts detail: –Legal relationships between parties –How they affect property value • Distinction between real property and personal property • In-depth discussion of the rights of ownership
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
2
Chapter 9: Legal Concepts in Real Estate
Overview • These rules determine exactly what is being sold—and what is being mortgaged • Other items covered: – Public and private restrictions on property – How those interferences with property rights may affect value
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
3
Chapter 9: Legal Concepts in Real Estate
Overview Chapter 9 discusses: • • • •
The essential elements of a valid contract Real property versus personal property The bundle of real property rights Public and private restrictions on real property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
4
Chapter 9: Legal Concepts in Real Estate
Key Terms • • • • • • •
Annexation Annexer Appurtenances Attachments Building Codes Bundle of Rights Civil law
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
• • • • • •
Contract Deed restrictions Easement Eminent domain Encroachment Escheat
5
Chapter 9: Legal Concepts in Real Estate
Key Terms • • • • • •
Fixtures Improvement Location survey Nuisance Personal property Property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
• • • • • •
Real property Tort Trade fixtures Trespass Waste Zoning laws
6
Chapter 9: Legal Concepts in Real Estate
Basic Civil Law Concepts • Civil law is the body of law concerned with the rights and liabilities of one individual in relation to another • These rights, responsibilities, and remedies can be summed up in the three fundamental categories of civil law: 1. Contracts 2. Torts 3. Property Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
7
Chapter 9: Legal Concepts in Real Estate
Contract • An agreement between two or more parties to do, or not do, a certain thing – A legally binding promise • When two people enter into a contractual relationship, they voluntarily take on legal duties toward one another
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
8
Chapter 9: Legal Concepts in Real Estate
Valid Contract Elements – Competent parties, each side must have the capacity to enter into a contract (which in many states requires the legal age of majority) – Consideration, such as money or services to be performed – Mutual agreement, also known as meeting of the minds, which requires offer and acceptance of the terms of the contract
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
9
Chapter 9: Legal Concepts in Real Estate
Tort • A breach of standards of reasonable conduct imposed by law that causes harm to another • These legal duties are not voluntarily assumed • Law requires everyone to take reasonable care to avoid injuring another person or damaging another’s property • Tort law concerns the duties of reasonable conduct imposed by law
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
10
Chapter 9: Legal Concepts in Real Estate
Property Law • Property is something that is owned – Real or personal – Includes the rights of ownership in it
• The rights of ownership allow the owner to use, possess, transfer, or encumber the property owned • Property law includes rules about: – Acquiring and losing ownership – The rights and duties ownership carries with it Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
11
Chapter 9: Legal Concepts in Real Estate
Legal Concepts Affecting Property Value
• Never give legal advice unless you are a lawyer • Helpful to understand these concepts and how they may affect the value of real estate • Certain things are included with property: – Real property and personal property – Attachments and improvements – Real property rights – Appurtenances. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
12
Chapter 9: Legal Concepts in Real Estate
Legal Concepts in Real Estate
Law classifies all property as: • Real property − Bundle of rights − Also called realty • Personal property − Also called personalty or chattel
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
13
Chapter 9: Legal Concepts in Real Estate
Real Property • People think of land • Also encompasses: – Items attached to the land (attachments or improvements) – Rights that go with ownership of the land (appurtenances) – Limitations on the use of land (public and private restrictions)
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
14
Chapter 9: Legal Concepts in Real Estate
Attachments Things connected to the land, whether natural or man-made • Grow on the land (natural: Trees and shrubs) • Built on the land (man-made: Houses and fences) • All are generally considered real property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
15
Chapter 9: Legal Concepts in Real Estate
Fixtures Man-made attachments • Including any personal property attached to or closely associated with real property in such a way it has legally become part of the real property • Improvement
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
16
Chapter 9: Legal Concepts in Real Estate
Annexation • Legal term for attaching or affixing personal property to real property • Does not need to be mentioned in the purchase agreement • They are included by implication in the description of the real estate
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
17
Chapter 9: Legal Concepts in Real Estate
Legal Considerations • What makes something real property vs. personal property? • Two questions most courts consider: • •
What was the intention of the annexer? What was the purpose of the annexation?
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
18
Chapter 9: Legal Concepts in Real Estate
Annexer • The person who owned the item as personal property and brought it onto the real property – Did the annexer intend for the disputed item to become part of the real property, or to remain personal property? – Did the annexer acquire the item to improve the real property, or just for personal use?
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
19
Chapter 9: Legal Concepts in Real Estate
Annexation • Some personal property items are so closely associated with the house they become real property items • They may not be physically attached to the house • Courts also take into account the relationship of the parties involved
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
20
Chapter 9: Legal Concepts in Real Estate
Trade Fixtures • Any equipment or personal property a tenant installs for business purposes • Tenant is allowed to remove trade fixtures before a lease ends – Unless a written document forbids it
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
21
Chapter 9: Legal Concepts in Real Estate
Uniform Commercial Code (UCC) • A body of law that governs transactions involving personal property • Protects the: – – – –
Vendor of the personal property New owner of the property Lender Seller
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
22
Chapter 9: Legal Concepts in Real Estate
Uniform Commercial Code (UCC) • Solves problems: – By requiring the vendor to file – Within ten days of installation – With a financing statement with the office of the county recorder in the county in which the land is situated
• Vendors who fail to file in a timely manner lose their rights against the owner
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
23
Chapter 9: Legal Concepts in Real Estate
Bundle of Rights • Real property rights • Rights include: – Possession – Enjoyment – Disposal – Exclusion • Owner—if one secures the entire bundle of rights from another • Fee simple—the greatest estate one can have in real property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
24
Chapter 9: Legal Concepts in Real Estate
Appurtenances • Rights that go with real property – When real property is sold, appurtenant rights are ordinarily sold along with it • Fee simple ownership includes other appurtenances: – Access rights – Surface rights – Subsurface rights – Mineral rights – Some water rights – Limited air rights Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
25
Chapter 9: Legal Concepts in Real Estate
Bundle of Rights • It's possible for the owner to transfer only some of the rights of ownership • A lender must know if – The entire bundle of rights is being transferred – There are restrictions or past transactions that may limit the current transfer of ownership • May have a great effect on the value of the real property Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
26
Chapter 9: Legal Concepts in Real Estate
Public and Private Restrictions
Governments have four powers (remember P E T E): 1. Police power 2. Eminent domain 3. Taxation 4. Escheat
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
27
Chapter 9: Legal Concepts in Real Estate
Zoning Laws • Passed to protect the health, safety, and welfare of the community • Land use controls may limit development • Other zoning ordinances may also restrict: – How and where the building may be constructed on the property – Minimum lot size – Building height limits – Setback and side yard rules – Permitted building density, off-street parking requirements – Other things that a local government may feel are necessary
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
28
Chapter 9: Legal Concepts in Real Estate
Building Codes • Can include fire, plumbing, electrical, etc. • In most states, minimum building standards set by state law • Local government can require additional, stricter standards • The lender must consider whether the proposed highest and best use for the property can be achieved economically
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
29
Chapter 9: Legal Concepts in Real Estate
Environmental Protection Laws • Regulations can involve blocking or restricting land use where environmental concerns exist • Sometimes, this conflicts with landowners’ usage
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
30
Chapter 9: Legal Concepts in Real Estate
Eminent Domain • Affects real estate because: – Government involvement in fair market pricing – It makes adjacent land more or less valuable, depending on a proposed use
• Remember, eminent domain is the right; condemnation is the action
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
31
Chapter 9: Legal Concepts in Real Estate
Taxation, Special Assessments, and Escheat
• Taxation – Property taxes (ad valorem taxes) – Low taxes might encourage real estate activity – High taxes could have the opposite effect • Special assessments – Charges levied only against properties that benefit from a public improvement • Escheat – When property reverts to the state after a person without a valid will and without heirs dies Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
32
Chapter 9: Legal Concepts in Real Estate
Private Restrictions • Can be imposed by a former owner or developer • May or may not have an impact on land value, depending on their purpose and severity • The two main types are: 1. Deed restrictions 2. Easements
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
33
Chapter 9: Legal Concepts in Real Estate
Deed Restrictions • Limitations on real property use, imposed by a former owner through language included in the deed – AKA restrictive covenants – “Run with the land" – Enforceable against future property owners
• Usually these restrictions make a new owner promise not to use property in a particular way
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
34
Chapter 9: Legal Concepts in Real Estate
Covenants, Conditions, and Restrictions (CC&Rs)
• A declaration is often placed in the deed by the original subdivider of land, although they can also be added later • Keeps the subdivision attractive and protect the market value of properties
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
35
Chapter 9: Legal Concepts in Real Estate
Easement • A right to use another person's real property for a particular purpose – Can be public or private
• Important: Easements restrict how a parcel of land may be used because, usually, a structure cannot be put on an easement • The easement creates limited rights for the easement holder
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
36
Chapter 9: Legal Concepts in Real Estate
Easements • Can be put into a deed before a transfer of property occurs • Can be created separately as an agreement between the parties • An easement that grants access is referred to as a right of way (ROW) • Easements may have a negative impact on value if they severely limit buildable site area Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
37
Chapter 9: Legal Concepts in Real Estate
Trespass • Certain activities interfere with a property owner’s bundle of rights • Trespass—Physical invasion of land by another person with no lawful right to enter. – Interferes with the owner's possessory interest in the land
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
38
Chapter 9: Legal Concepts in Real Estate
Encroachment Occurs when a physical object intrudes onto neighboring property, often due to a mistake regarding boundary • Legal synonym for trespass, • Only used in reference to objects • Trespass refers to people
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
39
Chapter 9: Legal Concepts in Real Estate
Nuisance • Involves interference with the quiet enjoyment of land from the outside, so it does not involve interference with possessory rights • AKA external obsolescence • Can affect property values in the entire neighborhood • To be actionable, a nuisance must be more than a single occurrence Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
40
Chapter 9: Legal Concepts in Real Estate
Waste • Use or abuse of property in any way that would permanently damage or reduce its market value • Property owner is contractually obligated in the mortgage to take steps to preserve the property and prevent waste
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
41
Chapter 9: Legal Concepts in Real Estate
Summary •
Civil law is body of law concerned with rights and liabilities of one individual in relation to another. Contracts, torts, and property are the fundamental concepts of civil law. A contract is an agreement between two or more parties to do, or not do, a certain thing. Contract law concerns voluntarily assumed duties. A tort is a breach of standards of reasonable conduct imposed by law that causes harm to another. Tort law concerns the duties of reasonable conduct imposed by law. Property is something owned, real or personal, and includes the rights of ownership. The rights of ownership allow the owner to use, possess, transfer, or encumber the property owned. Property law concerns the rights and duties inherent in ownership.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
42
Chapter 9: Legal Concepts in Real Estate
Summary 2. Real property is land and everything attached or appurtenant to it. Real property rights are defined in terms of a bundle of rights that are conferred by ownership. These rights are the right of use, the right of enjoyment, and the right of disposal. If one secures the entire bundle of rights from another, that person is said to be the owner.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
43
Chapter 9: Legal Concepts in Real Estate
Summary 3. Attachments to real property are part of the real property. The two types of attachments are natural attachments (plants and trees), and man-made attachments (fences or buildings). Man-made attachments are called fixtures. A major fixture, such as a building, is called an improvement. Unless otherwise agreed, attachments are transferred with the land; personal property is not. Difficulties can arise over what is considered real property and what is considered personal property. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
44
Chapter 9: Legal Concepts in Real Estate
Summary 4. A fixture is personal property attached to or closely associated with real property such that it has legally become part of the real property. In deciding whether an item is a fixture, a court looks at the intention of the annexer, the nature of the item, manner of annexation, the purpose for which it was annexed, the relationship of the parties, and any written agreement. Written agreements always take precedence. Trade fixtures are an exception to the general fixture rules. Since they are installed by a tenant for use in business, trade fixtures may be removed when the lease period is over. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
45
Chapter 9: Legal Concepts in Real Estate
Summary 5. Public and private restrictions on land can affect value. Public restrictions: four powers of government: police power, eminent domain, taxation, escheat (P E T E). Government restrictions via police power that can impact land value include zoning, building codes, and environmental laws. Private restrictions on ownership are deed restrictions (restrictive covenants, CC&Rs) and easements; often used by original subdivider, but can also be added later. They must touch and concern the land to be legal (e.g., minimum house size). Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
46
Chapter 9: Legal Concepts in Real Estate
Summary 6. An appurtenance is a right that goes with or relates to real property, including air, water, mineral, and support rights. These rights are ordinarily transferred with the land, but may be severed and sold separately. Trespass, encroachment, and nuisance are three kinds of interference with these rights. Waste is use or abuse of property in any way that would permanently damage or reduce its market value. This will likely be limited by the lender in the mortgage documents. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
47
Chapter 9: Legal Concepts in Real Estate
Quiz 1. Which is NOT a primary focus of civil law? a. b. c. d.
compensating a tort victim determining ownership rights enforcing a contract punishing a criminal
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
48
Chapter 9: Legal Concepts in Real Estate
Quiz 2. In determining whether an item is a fixture, the most important test is the a. b. c. d.
intention of the annexer. physical attachment to realty. relationship of the parties. size of the item.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
49
Chapter 9: Legal Concepts in Real Estate
Quiz 3. Trade fixtures a. are considered the landlord’s personal property. b. are considered real property and can’t be removed by the tenant. c. can be removed by the tenant before the lease expires. d. can’t be removed unless the lease specifically states they are personal property. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
50
Chapter 9: Legal Concepts in Real Estate
Quiz 4. The bundle of rights conferred with real property ownership includes the a. b. c. d.
right of enjoyment. right of disposal. rights of enjoyment and disposal. rite of passage.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
51
Chapter 9: Legal Concepts in Real Estate
Quiz 5. Which is NOT a police power of government? a. b. c. d.
building codes environmental laws restrictive covenants zoning laws
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
52
Chapter 9: Legal Concepts in Real Estate
Quiz 6. The government's constitutional power to take private property for public use, so long as the owner is paid just compensation, is called a. b. c. d.
condemnation. confiscation. eminent domain. immediate possession.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
53
Chapter 9: Legal Concepts in Real Estate
Quiz 7. Private restrictions on land can include all of the following EXCEPT a. b. c. d.
deed restrictions. easements. eminent domain. restrictive covenants.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
54
Chapter 9: Legal Concepts in Real Estate
Quiz 8. An easement granting access to property is referred to as a. b. c. d.
DHA. FHA. POW. ROW.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
55
Chapter 9: Legal Concepts in Real Estate
Quiz 9. In looking for encroachments, a lender is most likely to order a(n) a. b. c. d.
appraisal. location survey. survey. title search.
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
56
Chapter 9: Legal Concepts in Real Estate
Quiz 10. A _____________ must occur outside of the property. a. b. c. d.
encroachment nuisance trespass waste
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
57
Legal Concepts in Real Estate
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
1
Chapter 9: Legal Concepts in Real Estate
Overview • These concepts detail: –Legal relationships between parties –How they affect property value • Distinction between real property and personal property • In-depth discussion of the rights of ownership
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
2
Chapter 9: Legal Concepts in Real Estate
Overview • These rules determine exactly what is being sold—and what is being mortgaged • Other items covered: – Public and private restrictions on property – How those interferences with property rights may affect value
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
3
Chapter 9: Legal Concepts in Real Estate
Overview Chapter 9 discusses: • • • •
The essential elements of a valid contract Real property versus personal property The bundle of real property rights Public and private restrictions on real property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
4
Chapter 9: Legal Concepts in Real Estate
Key Terms • • • • • • •
Annexation Annexer Appurtenances Attachments Building Codes Bundle of Rights Civil law
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
• • • • • •
Contract Deed restrictions Easement Eminent domain Encroachment Escheat
5
Chapter 9: Legal Concepts in Real Estate
Key Terms • • • • • •
Fixtures Improvement Location survey Nuisance Personal property Property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
• • • • • •
Real property Tort Trade fixtures Trespass Waste Zoning laws
6
Chapter 9: Legal Concepts in Real Estate
Basic Civil Law Concepts • Civil law is the body of law concerned with the rights and liabilities of one individual in relation to another • These rights, responsibilities, and remedies can be summed up in the three fundamental categories of civil law: 1. Contracts 2. Torts 3. Property Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
7
Chapter 9: Legal Concepts in Real Estate
Contract • An agreement between two or more parties to do, or not do, a certain thing – A legally binding promise • When two people enter into a contractual relationship, they voluntarily take on legal duties toward one another
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
8
Chapter 9: Legal Concepts in Real Estate
Valid Contract Elements – Competent parties, each side must have the capacity to enter into a contract (which in many states requires the legal age of majority) – Consideration, such as money or services to be performed – Mutual agreement, also known as meeting of the minds, which requires offer and acceptance of the terms of the contract
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
9
Chapter 9: Legal Concepts in Real Estate
Tort • A breach of standards of reasonable conduct imposed by law that causes harm to another • These legal duties are not voluntarily assumed • Law requires everyone to take reasonable care to avoid injuring another person or damaging another’s property • Tort law concerns the duties of reasonable conduct imposed by law
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
10
Chapter 9: Legal Concepts in Real Estate
Property Law • Property is something that is owned – Real or personal – Includes the rights of ownership in it
• The rights of ownership allow the owner to use, possess, transfer, or encumber the property owned • Property law includes rules about: – Acquiring and losing ownership – The rights and duties ownership carries with it Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
11
Chapter 9: Legal Concepts in Real Estate
Legal Concepts Affecting Property Value
• Never give legal advice unless you are a lawyer • Helpful to understand these concepts and how they may affect the value of real estate • Certain things are included with property: – Real property and personal property – Attachments and improvements – Real property rights – Appurtenances. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
12
Chapter 9: Legal Concepts in Real Estate
Legal Concepts in Real Estate
Law classifies all property as: • Real property − Bundle of rights − Also called realty • Personal property − Also called personalty or chattel
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
13
Chapter 9: Legal Concepts in Real Estate
Real Property • People think of land • Also encompasses: – Items attached to the land (attachments or improvements) – Rights that go with ownership of the land (appurtenances) – Limitations on the use of land (public and private restrictions)
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
14
Chapter 9: Legal Concepts in Real Estate
Attachments Things connected to the land, whether natural or man-made • Grow on the land (natural: Trees and shrubs) • Built on the land (man-made: Houses and fences) • All are generally considered real property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
15
Chapter 9: Legal Concepts in Real Estate
Fixtures Man-made attachments • Including any personal property attached to or closely associated with real property in such a way it has legally become part of the real property • Improvement
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
16
Chapter 9: Legal Concepts in Real Estate
Annexation • Legal term for attaching or affixing personal property to real property • Does not need to be mentioned in the purchase agreement • They are included by implication in the description of the real estate
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
17
Chapter 9: Legal Concepts in Real Estate
Legal Considerations • What makes something real property vs. personal property? • Two questions most courts consider: • •
What was the intention of the annexer? What was the purpose of the annexation?
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
18
Chapter 9: Legal Concepts in Real Estate
Annexer • The person who owned the item as personal property and brought it onto the real property – Did the annexer intend for the disputed item to become part of the real property, or to remain personal property? – Did the annexer acquire the item to improve the real property, or just for personal use?
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
19
Chapter 9: Legal Concepts in Real Estate
Annexation • Some personal property items are so closely associated with the house they become real property items • They may not be physically attached to the house • Courts also take into account the relationship of the parties involved
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
20
Chapter 9: Legal Concepts in Real Estate
Trade Fixtures • Any equipment or personal property a tenant installs for business purposes • Tenant is allowed to remove trade fixtures before a lease ends – Unless a written document forbids it
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
21
Chapter 9: Legal Concepts in Real Estate
Uniform Commercial Code (UCC) • A body of law that governs transactions involving personal property • Protects the: – – – –
Vendor of the personal property New owner of the property Lender Seller
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
22
Chapter 9: Legal Concepts in Real Estate
Uniform Commercial Code (UCC) • Solves problems: – By requiring the vendor to file – Within ten days of installation – With a financing statement with the office of the county recorder in the county in which the land is situated
• Vendors who fail to file in a timely manner lose their rights against the owner
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
23
Chapter 9: Legal Concepts in Real Estate
Bundle of Rights • Real property rights • Rights include: – Possession – Enjoyment – Disposal – Exclusion • Owner—if one secures the entire bundle of rights from another • Fee simple—the greatest estate one can have in real property
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
24
Chapter 9: Legal Concepts in Real Estate
Appurtenances • Rights that go with real property – When real property is sold, appurtenant rights are ordinarily sold along with it • Fee simple ownership includes other appurtenances: – Access rights – Surface rights – Subsurface rights – Mineral rights – Some water rights – Limited air rights Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
25
Chapter 9: Legal Concepts in Real Estate
Bundle of Rights • It's possible for the owner to transfer only some of the rights of ownership • A lender must know if – The entire bundle of rights is being transferred – There are restrictions or past transactions that may limit the current transfer of ownership • May have a great effect on the value of the real property Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
26
Chapter 9: Legal Concepts in Real Estate
Public and Private Restrictions
Governments have four powers (remember P E T E): 1. Police power 2. Eminent domain 3. Taxation 4. Escheat
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
27
Chapter 9: Legal Concepts in Real Estate
Zoning Laws • Passed to protect the health, safety, and welfare of the community • Land use controls may limit development • Other zoning ordinances may also restrict: – How and where the building may be constructed on the property – Minimum lot size – Building height limits – Setback and side yard rules – Permitted building density, off-street parking requirements – Other things that a local government may feel are necessary
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
28
Chapter 9: Legal Concepts in Real Estate
Building Codes • Can include fire, plumbing, electrical, etc. • In most states, minimum building standards set by state law • Local government can require additional, stricter standards • The lender must consider whether the proposed highest and best use for the property can be achieved economically
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
29
Chapter 9: Legal Concepts in Real Estate
Environmental Protection Laws • Regulations can involve blocking or restricting land use where environmental concerns exist • Sometimes, this conflicts with landowners’ usage
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
30
Chapter 9: Legal Concepts in Real Estate
Eminent Domain • Affects real estate because: – Government involvement in fair market pricing – It makes adjacent land more or less valuable, depending on a proposed use
• Remember, eminent domain is the right; condemnation is the action
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
31
Chapter 9: Legal Concepts in Real Estate
Taxation, Special Assessments, and Escheat
• Taxation – Property taxes (ad valorem taxes) – Low taxes might encourage real estate activity – High taxes could have the opposite effect • Special assessments – Charges levied only against properties that benefit from a public improvement • Escheat – When property reverts to the state after a person without a valid will and without heirs dies Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
32
Chapter 9: Legal Concepts in Real Estate
Private Restrictions • Can be imposed by a former owner or developer • May or may not have an impact on land value, depending on their purpose and severity • The two main types are: 1. Deed restrictions 2. Easements
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
33
Chapter 9: Legal Concepts in Real Estate
Deed Restrictions • Limitations on real property use, imposed by a former owner through language included in the deed – AKA restrictive covenants – “Run with the land" – Enforceable against future property owners
• Usually these restrictions make a new owner promise not to use property in a particular way
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Chapter 9: Legal Concepts in Real Estate
Covenants, Conditions, and Restrictions (CC&Rs)
• A declaration is often placed in the deed by the original subdivider of land, although they can also be added later • Keeps the subdivision attractive and protect the market value of properties
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Chapter 9: Legal Concepts in Real Estate
Easement • A right to use another person's real property for a particular purpose – Can be public or private
• Important: Easements restrict how a parcel of land may be used because, usually, a structure cannot be put on an easement • The easement creates limited rights for the easement holder
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Chapter 9: Legal Concepts in Real Estate
Easements • Can be put into a deed before a transfer of property occurs • Can be created separately as an agreement between the parties • An easement that grants access is referred to as a right of way (ROW) • Easements may have a negative impact on value if they severely limit buildable site area Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Trespass • Certain activities interfere with a property owner’s bundle of rights • Trespass—Physical invasion of land by another person with no lawful right to enter. – Interferes with the owner's possessory interest in the land
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Chapter 9: Legal Concepts in Real Estate
Encroachment Occurs when a physical object intrudes onto neighboring property, often due to a mistake regarding boundary • Legal synonym for trespass, • Only used in reference to objects • Trespass refers to people
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Chapter 9: Legal Concepts in Real Estate
Nuisance • Involves interference with the quiet enjoyment of land from the outside, so it does not involve interference with possessory rights • AKA external obsolescence • Can affect property values in the entire neighborhood • To be actionable, a nuisance must be more than a single occurrence Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Waste • Use or abuse of property in any way that would permanently damage or reduce its market value • Property owner is contractually obligated in the mortgage to take steps to preserve the property and prevent waste
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Chapter 9: Legal Concepts in Real Estate
Summary •
Civil law is body of law concerned with rights and liabilities of one individual in relation to another. Contracts, torts, and property are the fundamental concepts of civil law. A contract is an agreement between two or more parties to do, or not do, a certain thing. Contract law concerns voluntarily assumed duties. A tort is a breach of standards of reasonable conduct imposed by law that causes harm to another. Tort law concerns the duties of reasonable conduct imposed by law. Property is something owned, real or personal, and includes the rights of ownership. The rights of ownership allow the owner to use, possess, transfer, or encumber the property owned. Property law concerns the rights and duties inherent in ownership.
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Chapter 9: Legal Concepts in Real Estate
Summary 2. Real property is land and everything attached or appurtenant to it. Real property rights are defined in terms of a bundle of rights that are conferred by ownership. These rights are the right of use, the right of enjoyment, and the right of disposal. If one secures the entire bundle of rights from another, that person is said to be the owner.
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Chapter 9: Legal Concepts in Real Estate
Summary 3. Attachments to real property are part of the real property. The two types of attachments are natural attachments (plants and trees), and man-made attachments (fences or buildings). Man-made attachments are called fixtures. A major fixture, such as a building, is called an improvement. Unless otherwise agreed, attachments are transferred with the land; personal property is not. Difficulties can arise over what is considered real property and what is considered personal property. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Summary 4. A fixture is personal property attached to or closely associated with real property such that it has legally become part of the real property. In deciding whether an item is a fixture, a court looks at the intention of the annexer, the nature of the item, manner of annexation, the purpose for which it was annexed, the relationship of the parties, and any written agreement. Written agreements always take precedence. Trade fixtures are an exception to the general fixture rules. Since they are installed by a tenant for use in business, trade fixtures may be removed when the lease period is over. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Summary 5. Public and private restrictions on land can affect value. Public restrictions: four powers of government: police power, eminent domain, taxation, escheat (P E T E). Government restrictions via police power that can impact land value include zoning, building codes, and environmental laws. Private restrictions on ownership are deed restrictions (restrictive covenants, CC&Rs) and easements; often used by original subdivider, but can also be added later. They must touch and concern the land to be legal (e.g., minimum house size). Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Summary 6. An appurtenance is a right that goes with or relates to real property, including air, water, mineral, and support rights. These rights are ordinarily transferred with the land, but may be severed and sold separately. Trespass, encroachment, and nuisance are three kinds of interference with these rights. Waste is use or abuse of property in any way that would permanently damage or reduce its market value. This will likely be limited by the lender in the mortgage documents. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Quiz 1. Which is NOT a primary focus of civil law? a. b. c. d.
compensating a tort victim determining ownership rights enforcing a contract punishing a criminal
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Chapter 9: Legal Concepts in Real Estate
Quiz 2. In determining whether an item is a fixture, the most important test is the a. b. c. d.
intention of the annexer. physical attachment to realty. relationship of the parties. size of the item.
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Chapter 9: Legal Concepts in Real Estate
Quiz 3. Trade fixtures a. are considered the landlord’s personal property. b. are considered real property and can’t be removed by the tenant. c. can be removed by the tenant before the lease expires. d. can’t be removed unless the lease specifically states they are personal property. Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009
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Chapter 9: Legal Concepts in Real Estate
Quiz 4. The bundle of rights conferred with real property ownership includes the a. b. c. d.
right of enjoyment. right of disposal. rights of enjoyment and disposal. rite of passage.
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Chapter 9: Legal Concepts in Real Estate
Quiz 5. Which is NOT a police power of government? a. b. c. d.
building codes environmental laws restrictive covenants zoning laws
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Chapter 9: Legal Concepts in Real Estate
Quiz 6. The government's constitutional power to take private property for public use, so long as the owner is paid just compensation, is called a. b. c. d.
condemnation. confiscation. eminent domain. immediate possession.
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Chapter 9: Legal Concepts in Real Estate
Quiz 7. Private restrictions on land can include all of the following EXCEPT a. b. c. d.
deed restrictions. easements. eminent domain. restrictive covenants.
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Chapter 9: Legal Concepts in Real Estate
Quiz 8. An easement granting access to property is referred to as a. b. c. d.
DHA. FHA. POW. ROW.
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Chapter 9: Legal Concepts in Real Estate
Quiz 9. In looking for encroachments, a lender is most likely to order a(n) a. b. c. d.
appraisal. location survey. survey. title search.
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Chapter 9: Legal Concepts in Real Estate
Quiz 10. A _____________ must occur outside of the property. a. b. c. d.
encroachment nuisance trespass waste
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