Fin435 exam 1 textbook notes PDF

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Exam notes for first test - includes class notes....

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chapter 1

02/17/2019

Chapter 1 Notes: Real: all things permanently attached o

Personalty: all things not attached

o

We use the

 Value of a particular parcel of RE can be viewed as total price individuals are willing to pay for the flow of benefits associated w/ all these rights  Individual does not have to be owner to have rights to some benefits o

Lessee has right to possession and use of property for fixed period of time.

 Holder of mortgage also has some rights as a non-owner in real estate pledged as security for a loan o

In general, lender (mortgagee) has right to repossess or bring about sale of property if borrower defaults on mortgage loan

o

Although lender may not possess/use the RE, mortgage document provides lender w/ evidence of a secured interest.

 Classifications of Estates o

1. Based on rights: possession vs. not in possession 

Estate in possession (present estate in land) entitles owner to immediate enjoyment of rights to that estate



Estate not in possession (future estate in land) does not convey rights of estate until some time in the future (if at all)

 o



Represents a future possessory interest in property



Does not convert into estate in possession until particular event occurs

Estates in possession more common

2. Based on possession and use: freehold vs. leasehold 

Distinguished on basis of definiteness or certainty of duration



Freehold estate: lasts for an indefinite period of time – no date on which estate ends

 

Implies ownership of property by estate holder

Leasehold estate: expires on a definite date 

Implies only the right to possess and use property owned by another for a period of time

 Examples of freehold estates o

Fee simple estate 

(fee simple absolute estate)  freehold estate that represents most complete form of ownership of RE. Owner of a fee simple estate is free to divide up the fee into lesser estates and sell, lease, or borrow against them

 o

Other than gov’t restrictions, no conditions or limitations. Most common

Life estates 

freehold estate that lasts only as long as the life of the owner of the estate or the life of some other person. Upon death, property reverts back to original grantor (transferor), their heirs, or other designated person



ex: may wish to make gift of their property prior to death, but retain use and enjoyment until that time

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can be leased, mortgaged, or sold

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parties must be aware that estate will end w/ death of holder



marketability and value as collateral limited b/c uncertain

 Nonpossessory Estates: Future Estates o

Reversion: when the holder of an estate in land (grantor) conveys to another person (grantee) a present estate in property that has fewer ownership rights than the grantor’s own estate and retains for the grantor/grantor’s heirs the right to take back, at some time in the future, the full estate 

Grantor is said to have reversionary fee interest in the property

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Reversionary interest can be sold or mortgaged b/c it’s an actual interest in the property

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You don’t have full control over it, but you can live here

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Parents/kids – have a home – kids can live there up until some event (could be death) – then the estate goes back to the parents (the kids could mortgage and sell until that point) 

o

Interest in the property, but not fee simple

Remainder: exists when grantor of present estate w/ fewer ownership rights than grantor’s own estate conveys to a third person the reversionary interest the grantor/grantor’s heirs would otherwise have in the property upon termination of grantee’s estate



A remainder is the future estate for the third person

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Mortgageable interest in property

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Opposite of reversion – parents/kids example – grant to one child and when that child dies, it goes to another child



Third party involved

 Examples of leasehold estates (estates for years and estates from year to year)  leasehold estates classified on basis of the manner in which created/terminated o

Estate for years: tenancy for terms – most common 

Created by a lease – specifies an exact duration



Can be less than a year as long as termination specified

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Needs to be in writing if > 1year

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Can live as long as 99 years – giving lessee right to use and control property for that time in exchange for rent

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lease has value as long as specified rental payments fall below market rental rate

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while property is leased, original fee owner considered to have a leased fee estate – they have given up some property rights to the lessee

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value of leased fee estate = amount of lease payments expected + value of property when lease terminates and OG owner receives reversionary interest

o



may be used as security for a loan or may be sold

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exact duration, doesn’t have to be for a year

Estate from year to year 

continues for successive periods until either party gives proper notice of intent to terminate



generally short term (...