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national chp.5
transfer of title
Term | Definition |
---|---|
5-1 purpose of a deed | to transfer title b/w the owner/grantor and the receiver/grantee |
written deed | a seller of real property will always be called on to provide a written deed |
every deed conveys... | whatever interest is held by the grantor -unless it specifically states that it is conveying a lesser interest |
major difference b/w types of deeds... | lies in the extent of the promises given by the grantor to the grantee |
deeds do NOT | -guarantee or prove ownership -have to be recorded for title to transfer (title passes upon acceptance of the grantee) |
type of deeds in private grants (voluntary alienation) | 1. warranty deed/general warranty deed 2. limited (special) warranty deed 3. bargain and sale deed 4. quitclaim deed |
warranty deed/general warranty deed | BEST FOR GRANTEE -5 covenants and a guarantee of title |
...covenant of seizin | grantor has right to CONVEY |
...covenant of quiet enjoyment | granee will not be disturbed by others |
....covenant against encumbrances | there are no unspecified encumbrances |
...covenant of further assurance | cooperation in signing additional documents |
...warranty forever | is guarantee of defense |
limited (special) warranty deed | warrants only those defects and encumbrances that occur during the grantor's period of ownership |
bargain and sale deed | contains only implied warranties that the grantor holds the title and possessions of the property |
quitclaim deed | BEST FOR GRANTOR -used as problem solver and to terminate deed restrictions -no promises, no guarantees ex- seller would use a quitclaim deed after foreclosure so there would be No future claims or liability |
public grant | government transfers ownership by LAND PATENT to private party |
essential elements of a valid deed | 1. competent grantor- age 18 and of sound mind 2. identifiable grantee 3. consideration- money or something of value 4. granting clause (words of conveyance) 5. legal description 6. executed by grantor(s) 7. delivered and accepted by grantee(s) |
5-2 special processes. | 1. conveyance after death 2. other ways of transferring rights (involuntary alienation) 3. recording |
conveyance after death -probate | process of distributing all of a deceased's assets -a will must go thru probate for real and personal property to be distributed -joint tenants do NOT go thru probate to claim title to property |
...devise | the act of transferring a deceased's interest in real estate to another by will (hook to deed) |
...bequest | act of transferring a deceased's interest in personal property to another (hook to bill of sale) |
...if person dies intestate | (w/out a will) laws of descent and intestate succession determine heirs/descendents |
...a will must | be made and signed prior to death |
involuntary alienation -adverse possession | ownership granted by the courts due to actual, open, continuous, hostile, notorious, and exclusive POSSESSION OF another's land for a minimum statutory period |
...easement by prescription/prescriptive easement | an easement prescribed by the courts due to actual, open, continuous, hostile, and notorious USE of another's land for a minimum statutory period |
...permissible easement | if all parties recognize, accept, and permit the possession of the property or use of the easement, it cannot be adverse possession or an easement by prescription -hostile implies that it is W/O the owner's permission |
recording | -generally not required for validity -gives constructive (legal) notice to protect interests |
...determines | priority (first in time, first in right) -deed that is not recorded creates the risk that a later interest could take priority -does NOT have constructive notice of ownership |
...what level of laws govern specifics of recording? | State laws w/ requirements: -recorded deeds/mortgages must be executed by grantors/mortgagors -docs must be dated -signatures should be acknowledged (notarized)- required in most states to record |
notarizing | acknowledgement shows signature is genuine and not made under duress |
5-3 title insurance | examiner checks and traces chain of title for history of conveyances |
title commitment/report | lists CURRENT TITLE STATUS and title defects (mortgages, easements) -promise to insure the title -it will NOT cover items listed as exceptions and defects |
standard title insurance policy | protects against defects discovered in the title after closing -NOT BEFORE closing |
...owner's policy | protects owner (buyer) and heirs while they have an interest -negotiable items that the seller may provide for the new buyer |
...mortgagee's policy | protects lender giving them title coverage -buyer often pays the premium for the lender |
...when are premiums paid? | once at closing -policy is issued at or after closing |
what is the buyers goal? | to obtain marketable (merchantable) title |
abstract w/ a title opinion | abstract of title (title abstract) -historical SUMMARY of all conveyances and encumbrances against the property |
...who is title opinion done by? | an attorney after reviewing an abstract |
quiet title action | used to clear title problems found in the abstract or title report -it is a legal action |
5-4 escrow or closing procedures | means by which parties to a contract carry out the term of their agreement |
where are terms of escrowing closing set? | in the purchase agreement |
closing statement- DEBITS and credits credit to the seller | anything that increases the amount of money the seller takes from the closing -sales price |
debit to seller | anything that decreases amount of money the seller takes from the closing -brokerage fee, mortgage payoff, or contract for deed |
credit to buyer | anything that decreases the amount of money the buyer must bring to closing -earnest money, new loan, or contract of deed |
debit to buyer | anything that increases the amount of money the buyer must bring to the closing -recording the warranty deed, loan origination, or discount points if paid by buyer |
...proration based on how many days a year? | 365 or 360 (30-day months) -exam will state which one to use |
rent is paid... mortgage interest is paid... taxes can be.... | rent- in advance mortgage interest- in arrears taxes- in advance or in arrears |
4-5 tax aspects capital gains | principal residence -no tax on first $250,000 of profit (single) or $500,000 of profit (married) from sale of principal residence |
...how long must owner live in residence? | 2 out of the past 5 years |
...exemption | can be taken every two years -once in a lifetime limit no longer exists |
investment property | 1031 tax-deferred exchange -used by investors to defer payment of capital gains taxes |
what does it allow investors to do? | sell one property and buy another w/out paying capital gains tax -investor will not have to pay taxes at closing on the 1st property and can defer the taxes owed to the new property...will not have to pay taxes until selling the 2nd property |
deductible items | POIT mortgage interest, property taxes (ad valorem taxes), discount points, certain loan origination fees |
not deductible items | principal, homeowners' insurance premiums, and HOA fees |
how does a taxpayer obtain a deduction? | must use an itemized return |
depreciation tax deduction for investment property -tax advantages | DEPRECIATION -often offset the disadvantage of liquidity |
depreciation | -treated as an expense and is a line item on an income statement -can only be applied to the building not the land (since land does not wear out over time) |
residential income property | must be depreciated over a 27 and half year period using straight-line depreciation |
commercial income property | depreciated over 39 years using straight-line depreciation |
straight-line depreciation | requires that an asset must be depreciated by equal amounts each year over its useful life -variable, accrued, and passive depreciation=not used for this deduction |
...to determine depreciation | value/# of years being depreciated X # of years already taken ex- $390,000/36x8= $80,000 |