REAL ESTATE 1ST MIDTERM STUDY GUIDE

High priority- fixtures, covenants (types and descriptions), deeds, constructive notice,
Equations

CHAPTER 1 (Study more on markets)

- Real Estate, excluding primary residencies, accounts for approximately 25% of the
world’s economic health
- REAL ESTATE IS PROPERTY
o Anything that can be owned or possessed
 Tangible- physical things, such as automobiles, clothing, land
 Intangible- nonphysical things, include contractual rights, financial claims,
interests, patents, trademarks
- 3 Fundamental Terms for Real Estate
o Tangible Asset
 Defined as the land and its permanent improvements.
 Improvements on the land- any fixed structures such as buildings,
fences, walls, decks
 Improvements to the land- any components necessary to make
the land suitable for building construction. (Referred to as
infrastructure and consists of streets, walkways, drainage
systems, and other systems such as water, sewer, electric)
o Real estate is not only the surface of the earth but above
and below the surface as well
 Land- May include improvements to the land. Often referred to as
building site, and includes infrastructure but not any structures
 Raw Land- a larger area that does not include any improvements.
Important when the value of land is considered
 Tangible Assets as Property (Often Interchangeable)
 Personal- things that are moveable and not permanently affixed
to the land or structure.
o Motor Home is personal property (could be real,
depending on how it is secured to the land and legally
recognized by the jurisdiction
 Real- rights associated with the ownership and the physical
property of the estate
o Custom “site built” house is real property
o A Bundle of Rights
 “Bundle” of intangible rights associated with the ownership and use of
the site and its improvements
 These rights are to the services, or benefits the estate provides for
its users
 o EX- Real property as a bundle of rights provides owners
with the rights to shelter, security, and privacy, as well as a
location that facilitates business or residential activities
 LIMITATIONS
 Typically reduced by state/local land use restrictions
 The rights can be divided and distributed among multiple owners
and nonowners
o EX- apartment owner divides his full interest in the
property when he leases an apartment unit and grants to a
tenant the right to occupy and control access to the unit
o EX- Owner may purchase a property that has a utility
access granted through a portion of the property. Thus,
real estate can be viewed as a bundle of rights inherent in
the ownership of real property.
 Value of Bundle of rights
 Function of physical, locational, and legal characteristics.
o Physical- age, size, design, construction quality
o Locational
 Residential- convenience and access to places of
employment, schools, shopping, health care
 Commercial- visibility, access to customers,
suppliers, employees, availability of reliable data
and communications infrastructure
o An Industry/Profession
 Activities associated with evaluating, producing, acquiring, managing, and
selling real property assets.
 Include brokerage, leasing, property management,
appraisal/consulting, site selection, acquisition, and development,
construction, mortgage finance and securitization, corporate and
institutional real estate investment, and government activities
such as planning, land regulation environmental protection, and
taxation
- Real Estate and the Economy
o Generates over 25% of U.S. GDP, creates nearly 9 million jobs, and is source of
nearly 70% of local gov. revenues.
o Housing sector averages 17-18% of GDP
o Generates 20% of local gov revenues for property taxes
- Land Use in United States
o U.S. represents 6% of earths land area
o Acre- defined as 43,560 sq. feet. There are 640 acres in one square mile.
o Developed land accounts for 6% of the land
  Developed land consists of residential, industrial, commercial, and
institutional land uses (railroads, railways, rights-of-ways, construction
sites, utility sites, sanitary landfills, and other uses
 Developed land (73 million acres in 1982, to 113 million acres in 2010)
 Has increased 55% since 1982
- Markets
o User Markets- competition among users for physical location and space.
 Primary participants are potential occupants, owner occupants and
tenants, and renters.
 Demand derives from the need for these people have for
convenient access to other locations
 About 2/3 of households own their homes
o Capital Markets- serve to allocate financial resources among households and
firms requiring funds
 Risk free rates of various maturities (Treasury Yield Curve)
 Required risk premiums for risky investments
 Participants invest in stocks, bonds, mutual funds, private business
enterprises, mortgage contracts, real estate
 Equity interests- “owners of real estate” expect to receive a
return on their investment through collection of rent and
appreciation
 Debt Interests- “lenders” hold claims to the interest on borrowed
funds
 Public Capital Markets
 Absence of centralized market
 Assets trade infrequently in private transactions
 Common for whole assets to be traded in single transaction, and
less liquid than public markets

o Property Markets- determine the required property-specific investment returns,

property values, capitalization rates, and construction feasibility
  Capitalization rate- the ratio of a property’s annual net income from
rental operations to its value, fundamental pricing metric in commercial
real estate markets
 Market for ownership claims to RE assets
 Buyers/owners receive rights to cash flows generated by leasing
space to tenants.
 Demand (supply) side of property market is made up of investors
wanting to buy (sell) property
 Property is integrated, not segmented like space market
o Investment capital can come from anywhere
o EX- office space in Manhattan is purchased by investors
from around the world

- Characteristics of Real Estate Markets

o Heterogenous-Each property is unique
o Immobile Products
o Localized Markets- potential users of a property, and competing sites, generally
lie within a short distance of each other.
o Segmented- highly segmented due to the heterogeneous nature of products
 Investment-grade properties/Institutional-grade real estate- larger, more
valuable commercial properties, well over 10$ million.
 Segment of property market targeted by institutional investors
such as pension funds, publicly traded companies, and RE equity
funds
o Private Negotiated Transactions with High Transaction costs- Need to remember
the unique characteristics of each property

- Role of Government
o Local Gov has biggest influence on real estate. Affects the supply and cost of RE
through zoning codes and regulations. Affects rental rates in user markets
through property taxes
 o State Gov has least effect on real estate values. Through licensing, states
constrain entry into real estate related occupants.
 Statewide building codes, disclosure and fair housing laws, affect
operation of housing markets
 Affect the provision of public services important to a community,
including schools, transportation, social services
o National Gov affects with income tax policy, housing subsidy programs, financial
reporting. Consumer protection laws affect few aspects of household activity
more than they impact housing purchases/financing

CHAPTER 2

NATURE OF RIGHTS

- Principal definition of real estate “rights to land and its permanent structures”
- WHAT DO WE MEAN BY RIGHTS?
o Rights are claims or demands that our government is obligated to enforce
o They are non-revocable
 EX- employees may have an office in which they have privacy. This is not
ownership, but only access from the employer to do so and it is revocable
 Property rights are non-revocable, the ownership claims to a residence to
a residence can’t be cancelled, ignored, or lessened by another citizen
 They can be reduced by gov, there is a limit however
 “Taking”- when gov reducing becomes excessive, and gov must
then acquire property through due process of laws and with
compensation. (Eminent Domain)
o They are enduring, and do not fade away and gov is obligated to defend them
- Two Types of Rights
o Personal Rights- (personal freedoms) derive primarily from the Bill of Rights and
other amendments and clauses of the constitution
 Freedom of Assembly, Expression, Unreasonable search/seizure,
Protection of life, liberty, and property
o Property Rights- rights to things both tangible and intangible, derive from
ancient times and are as old as the notion of law itself.
 Vehicles, household goods, stocks/bonds, patents, software (Personal
Property)
 Residence, Utilities, streets, railroads, commercial/gov buildings (Real
Property)
 Principal rights in property include exclusive possession, use (enjoyment),
and disposition
 3 Components of Property Rights
 Prevent others from using it
 Enjoy the use or benefit of it for ourselves
  Get rid of it as we see fit (without harm to others)
- Real Property (Rights in Three Dimensions)
o Includes the rights to air space, as well as rights to subsurface down to the
center of the earth and the minerals contained therein.
 In large cities, many prominent structures are built on air rights alone
THE PROBLEM OF FIXTURES
- Fixture- an object that formerly was personal property but has become real property
- 4 Rules for Determining a Fixture
o 1. The manner of attachment: The question in this rule is whether removal of the
object results in damage to the property. (EX)- removal of vinyl floor covering
would damage a building, but a court may regard removal of wire connecting a
dwelling to cable service as being damage as well
o 2. The character of the article and manner of adaptation: Items that have been
custom designed or fitted tend to be regarded as fixtures. (Window screens,
storm windows, church pews custom shelves, custom security systems)
o 3. Intention of the Parties- Refers not to the private intention of the parties but
the facts of the situation and intention that an observer familiar with customary
practice would conclude from them (EX.- If a kitchen range or fridge is in a single-
family residence being sold, it normally is expected to remain with the seller. If
the appliances are furnishings in a rental, they would be expected to stay with
the building) ……(Rule of intention treats appliances as personal property in
single family residence, but as fixtures in apartment)
o 4. Relation of Parties: For landlord and tenant relationships, special version of
the rule of intention have evolved into
 A) Trade Fixtures- items installed by a commercial tenant to conduct its
business, are always considered personal property of the tenant unless
they are abandoned at termination of the lease. Despite the fact that wall
treatments, wall display cases, and so forth are usually custom fitted, and
usually “injure” the facility when removed, they still are regarded as
property of the tenant
 B) Agricultural fixtures, such as fences, also are considered property of
the tenant. Anything that is installed by the tenant remains personal
property
 C) Residential tenants also tend to be given the same protection. Any
item installed in the residence by the tenant is regarded as personal
property, at least until its abandoned
-Rule of Intention is the most recent, and dominant, rule. If there is conflict among the rules,
the rules of intention generally will prevail
-Very practical importance to the fixture issue for property value. Contract for the sale
of real estate applies only to real property unless personal property involved is explicitly
included. When property is purchased, including personal residencies, there are items on the
property that may or may not be fixtures. Thus, who owns them after sale of the property may
not be clear. In any real estate transaction, it is important for both parties involved to carefully
review the property with this issue in mind, and to draw up the contract so that there is no
ambiguity regarding disposition of these items.

REAL PROPERTY: BUNDLE OF RIGHTS

- Bundle of rights usually referred to as “Interests”

o Possessory Interests (Estates)
 Interests in real property that includes possessions are Estates
 Range from complete bundle of rights (fee simple absolute) to a claim
that is a little more than “squatter’s rights (tenancy at sufferance)
 The most complete estate, (tenancy at sufferance)……The weakest
state (tenancy at sufferance)
o Ownership Estates (Freeholds or Titled Interests)
 The more substantial or complete estates are those that are indefinite in
length
 Freeholds- The titled Interests we commonly think of as ownership, and
can differ by variations in the right of disposition
 OWNERSHIP WITH INHERITANCE
 Fee Simple Absolute
o The most complete bundle of rights, highest value
o Subject to limitations imposed by gov., all possible rights
of exclusive possession, use/enjoyment, and disposition
are owned by the owner.
o Traditional concept of land ownership
o It is this interest that is intended when persons of the real
estate would refer to owning or holding the “fee”
 Fee Simple Conditional
o Ownership is subject to a condition or trigger event
o Bundle of rights is complete unless the trigger event
occurs, which may cause ownership to revert to a previous
owner (OR heir)
 Reverter Interest- The uncertain interest held by
the previous owner (OR heir)
 EX- an owner could convey a small apartment
building to a university but require that the
property be used for a scholarship dorm. If
followed, University will enjoy all the rights of fee
simple owner, but will be returned to previous
owner/heir if rules not followed
 OWNERSHIP WITHOUT INHERITANCE
 Ordinary Life Estates and Remainder
o The rights of disposition of the fee simple absolute are
unbundled and separated completely
  EX- Older homeowner lives adjacent to expanding
university, uni. Wants to acquire her residence.
University can purchase a remainder estate, while
the owner retains life estate
 Homeowner retains all rights of exclusive
possession, use, and enjoyment for her
lifetime while the university gains the rights
of disposition. The owner is compensated
through cash payment or tax deduction (If
the remainder is donated) and simplifies
the eventual settlement of her estate, while
assuring the continued right to occupy her
home. At time of death, the life estate and
remainder estate are rejoined becoming a
complete fee simple absolute owned by
university.
 Legal Life Estate
o Created by the action of law.
 EX- Florida, a family residence that is declared a
homestead carries the possibility of becoming
subject to a life estate. If a family having minor
children occupies a homestead residence, and if a
spouse dies, Florida’s homestead law gives the
surviving spouse a life estate and gives the children
“vested remainder”. While intended to protect the
surviving family, this law can create many problems
as it solves. If surviving spouse needs to sell
residence to relocate, a trustee must be created to
act on the behalf of the minor children to convey
their interests in the sale. Thus, additional legal
costs and delays are likely to result.
 Families in Florida are advised to acquire
their primary personal residence by the
special joint ownership known as tenancy
by the entirety* (discussed later)
 Other Life Estates
o Life estates can arise out of a marriage. In English common
law, a right known as dower automatically gives a widow a
life estate in one-third of the real property of her decedent
husband.
 Today, however, dower generally has been
displaced.
o Leasehold Estates (Nonowner ship or Non-freehold) Estates
 Leasehold Interests are possessory interests and are therefore estates.
 Differ from freehold Estates in three aspects:
 Limited in Time
 The right of disposition is diminished because the property
ultimately reverts to the landlord
 They are not titled interests
 Essentially, they are a temporary conveyance of the rights of the
exclusive possession, use and enjoyment, but NOT the right of disposition
 Tenancy for Years (Estate for Years)
o A leasehold interest for a specific period of time (Could be
a few days or hundreds of years), state law permitting
o Until recently, the relationship between landlord and
tenant was governed entirely by terms of lease, however a
shift from rural to urban society and changing social needs
have altered thus.
 While all leases should be put in writing, this is
especially true for the lease conveying a tenancy
for years because the lease may be only tangible
evidence of the landlord-tenant understanding.
 If the term is more than one year (a year and a day,
or more) the lease MUST be in writing to be
enforceable,
 Periodic Tenancy
o Any lease that has no definite term at the start
o In contrast to Tenancy for Years, the lease conveying the
periodic tenancy often is oral, and is rather informal.
o Simpler and Quicker
 The arrangement carries more risk of landlord and
tenant misunderstanding.
 Length is implied by the payment period.
 Every state has specified requirements for
notification prior to terminating a periodic
tenancy, with both landlord and tenant
subject to same requirements
 Minimum notice period is one-half the payment
period, and begins the day after actual notification,
running to the end of the last day of the rental
period.
 EX-In Florida, for example, the periods for
notification are as follows: for year-to-year,
three months; for a quarterly period, 45
days; for a monthly period, 15 days; for a
weekly period, 7 days
  While periodic tenancy conveyed by an oral lease is
common between individual landlords and tenants,
it is less common where the landlord has multiple
tenants.
 The use of written rental contracts is a
superior practice that reduces risk for both
parties, thus adding to the value of the
property.
 Tenancy at Will
o Agreement that the tenant will stay until either landlord or
tenant gives notice
 Sometimes at the end of a lease, there is a short
period of time when it suits both the landlord and
tenant for occupancy to continue.
 EX- might occur if the building is being sold
or renovated in the near future.
 Tenancy at Sufferance
o Occurs when a tenant is supposed to vacate but does not.
o This tenancy, at least until the landlord accepts a rental
payment, differs from trespassing only in that the tenant
previously occupied the property until a legitimate
leasehold interest
 Changing Leasehold Concepts
o Until 1970, law of leasehold estates have evolved little
from English common law tradition of rural leaseholds.
 Obligation of the landlord was little more than to
get off the land and leave the tenant alone.
 In an urban setting of residential apartments, this
treatment of landlord-tenant relations was
woefully inadequate
 As a result, states have enacted elaborate
residential landlord-tenant laws that take
great strides in defining the rights and
obligations for care and repair of the
premises, right of entry, handling of
deposits, notification requirements
o In short, something of a revolution
has taken place in residential
leasehold law. The past few
decades, it has gone from common
law tradition of a simple agrarian
relationships found in preindustrial
England to the idea that an urban
 residential tenant is receiving shelter
services from the landlord that must
meet certain standards.
- NONPOSSESSORY INTERESTS
o Bundles of real property rights that do not include possession are particularly
varied and can affect the value of real estate significantly.
o Three different classes of nonpossessory Interests
 Easements
 The right to use land for a specific and limited purpose. The
purpose can range from very passive, such as access to view, to
virtually exclusive possession of the land, such as a street right-of-
way or railroad right-of-way.
o Easements Appurtenant
 Two distinguishing Features
 The easement appurtenant involves a
relationship between two adjacent parcels
of land
o Dominant Parcel
 Benefits from the parcel
o Servient Parcel
 Constrained or diminished by
the easement
 The easement appurtenant “runs with the
land”
o It becomes a permanent and
inseparable feature of both parcels
involved
 AFFIRMATIVE EASEMENTS APPURTENANT
 Give the dominant parcel some intrusive
use of the servient parcel (EX.):
o A driveway easement across one
parcel to another
o A drainage easement for storm
water from one parcel across
another
o Access across a parcel for sewer
service
o Common wall easement requiring
the wall of one townhouse to
support the floors, roof, and
structure of an adjacent one
o Common drive easement where
owners of adjoining lots must permit
 each other to use a driveway lying
on the shared property line
o Reciprocal parking easements
among separately owned parcels in
a shopping center
 NEGATIVE EASEMENTS APPURTENANT
 Allow no intrusion onto servient parcel.
(EX.):
o A sunlight easement that restricts
the configuration of adjacent
buildings to assure access to direct
sunlight.
o Scenic easement used to restrict
construction on adjacent parcels to
preserve a valued view
 EASEMENTS IN GROSS
 The right to use land for a specific, limited
purpose unrelated to any adjacent parcel.
 NO dominant parcel, one or more servient
parcels
 Unlike Easement appurtenant, it is
transferrable to another owner without
transfer of any parcel of land (EX.):
o Right of ways for roads
o Railroads
o Irrigation water
o Electric cables, gas lines
o Billboards
o Access for timber/crop harvesting
 Often referred to as Commercial Easements
 Noncommercial Easements
o Recreation purposes
 Fishing, boating,
snowmobiling
o Granted by landowner to
friends/family
o Conservation easements have
become important to preserve
wetlands or open spaces and well
fields for water supply
 ISSUE WITH EASEMENT IN GROSS
o Whether it is exclusive/nonexclusive
 o Owner of exclusive easement in
gross holds all the easement rights,
and can extend them to others, thus
giving additional persons access to
the easement and potentially
increasing the usage of burden on
servient land
o If not exclusive, owner of the
easement can’t extend his rights,
 Prevents proliferation in use
of the easement and
preserves more of the value
of the servient parcel
 License
 Important distinction both practically and
conceptually between an easement
 A license gives permission to use another’s
land, where an easement is the right to use
another’s land
o License is revocable by the grantor
 EX:
o Permission for various recreational
uses of land
 Regarded as terminated if land is sold or
grantor dies
 Can be granted orally, whereas easements,
being an interest in land, cannot
 Restrictive Covenant (Deed Restrictions)
 Impose limits on the uses of land
 They can be created when land is conveyed to a new owner by
placing a restrictive clause in the deed that conveys the property
o EX: not uncommon in past to place restrictive deed
prohibiting new owner from certain activities, such as the
sale of alcoholic beverages
o More common use of restrictive covenant today is to
control the character of land use in an entire subdivision. A
developer usually records a DECLARATION OF COVENANTS
 Contains a series of restrictions on the use of the
lots in order to improve the perceived quality,
stability, and value of the lots
 Examples of residential subdivisions restrictions
Include
  Setback line and/or height restrictions for
house
 Minimum floor area
 No freestanding garages
 No freestanding utility building
 No chain-link fences
 No recreational vehicles/boats parked in
view of street
 Strictly private, and can be enforced only by those who hold legal
interest in the property (based on state law)
 ISOLATED DEED RESTRICTION
o The owner who created the restriction or that owner’s heir
are the only persons who can enforce the restriction
 Court decisions concerning enforcement reflect
common law that property should be productive,
with less restriction being better
 When restrictions are ambiguous, court is likely to
interpret in favor of the current owner
 Enforcement of subdivision wide restrictions is similar to
enforcement of an isolated deed restriction, however by a
doctrine of rights known as:
o EQUITABLE SERVITUDE
 Says that Subdivision restrictions are deemed to
serve the interest of all owners present and future
in the subdivision lots, as well as others with
interests in the land
 Such as mortgage lenders, and even renters
 Whether the restriction is in an isolated deed or part of a general
set of subdivision restrictions, the courts have been reluctant to
maintain them for an unreasonably long time. Even in states
where no timeline exists, courts may refuse to enforce restrictions
due to changing neighborhood character, abandonment (neglect
of enforcement, sometimes called waiver) and changing public
policy.
 In most states, it is difficult to maintain individual restrictive
covenants for more than a few decades, and several states have
enacted time limits of 20 years or so.
 Liens
 An interest in real property that serves as security for an
obligation
 TWO TYPES
o General Lien
  Arises out of actions unrelated to ownership of the
property
 Most prominent example arises from a
court judge. If a property owner is
successfully sued for damages for any
reason, the court, in awarding the damages,
normally will ATTACH (place a lien on)
available real property of the defendant as
security payment of the damage award
 A second source of general liens is from
unpaid federal taxes. The lean is imposed
after the taxpayer has been billed for the
back taxes and fails to pay
o Specific Lean
 Derives directly from events related to a property
 Includes
 Property/assessment tax
 CDD liens
 Mortgages
 Mechanics license
 Property Tax and Property Assessment Liens
 Property Tax Lien
-Every real property owner is subject
to property tax as a primary means
of supporting local government
-Governments can exercise an
automatic PROPERTY TAX LIEN on
the benefiting properties on the
benefiting properties to assure
payment
-When a local government makes
improvements in a neighborhood,
such as street paving or utility
installations, adjacent properties
that receive the primary benefit will
be charged a “FAIR SHARE”
assessment, usually based on street
frontage (front footage of each lot),
though it is sometimes based on
building or lot size
- Payments are usually made in even
amounts over 10-20 years
 -The fair share assessment is
secured with an automatic
ASSESSMENT LIEN
-Both liens have senior priority over
all other liens
 Community Development Liens
o Secures bonds issued to finance
improvements within a private
community
o Attaches only to properties within
that community
o Recent creation that has grown
rapidly among large residential
developments
o Can secure financing for storm
water systems, streets, recreation
facilities, golf courses
o HYBRID
 Not a government lien like
the property/assessment
lien, but enjoys the same
priority as if it were
 Financing it secures is
commonly treated under
income tax law as tax-
exempt debt, as if it were
local government debt
 Mortgages
 An interest in property as security for a
debt.
 Exist for high percentage of all properties
 Property can have multiple mortgages,
which are ordered in priority by the date of
their recording
o Later mortgages are junior
mortgages, or they are identified by
order of creation as second, third,
and so forth mortgages
 Mechanic’s Liens
 Arise from construction and other
improvements to real estate
 If property owner defaults on construction
contract, it isn’t practical for the contractor
 to recover materials and services used to
improve the real estate
 SOLUTION IS MECHANICS LEAN
o Upon completion of contract,
contractor has period of time to
establish a lien on the property
improved
o They are deemed to be creative
 Some states consider it
starting when construction
starts, as others consider it
starting when the
construction contract was
signed
 HOA and Condo Association Liens
 Association has the power to place a lien on
an owner’s property in case the owner fails
to pay
 Effective date is as early as when the
covenants and rules are initially recorded,
or when the assessment becomes due
 Frequent provisions in the covenants
automatically subordinating the HOA lien to
a first mortgage,
 State law frequently makes HOA lien
subordinate to a first mortgage, but many
states have a partial reverse, elevating at
least part of delinquent HOA assessments
(say six-9 months) to a SUPER LIEN status,
superior to chronological liens.
 State law may set minimum number of
delinquent payments before HOA can
exercise a lien against a homeowner
o Priority of Liens
 In case of default, any lien can lead to sale of
property to compensate the creditor holding the
lien
 The priority, after property tax, assessment and CD
liens, is by chronology among all other liens, “The
traditional expression of the “all or nothing”
creditors in event of property sale
 Creditors receive no relief until all liens
senior to theirs is fulfilled.
 o Consequence of this ordering is that
a lienholder who forces sale has no
concern with liens below
 Difference between general/specific liens are
important in most states
 Designation of a principal residence as a
homestead usually creates automatic
protection of the residence from general
liens (except fed tax) up to some limit
 SO, while the homestead is subject to all other
liens, it is protected from a judgement awarded for
general debts
 Personal residence owned by husband and wife as
a tenancy by the entirety is protected from
judgement liens due to debt of one spouse alone
o Order
 1st- Property tax liens, Assesment Liens, and CDD
liens (Always first priority)
 2nd- Priority by chronology
 Mortgages, Mechanics, Federal tax
judgements, HOA/Condo liens
 Other Judgement Liens
 May be nullified by homestead, or by a
tenancy by the entirety if suit is against only
one spouse
- Direct CO-Ownership
o Each direct co-owner holds a titled interest in the property
o Each owner holds a freehold estate, but without exclusive possession to respect
to other co-owners
 Tenancy in Common
 The “normal” form of direct co-ownership and is close to the fee
simple absolute estate as possible
 Owners retain full rights of disposition and is free to mortgage, or
to convey his or her ownership share to a new owner
 No owner can use the property in a way that preempts the ability
of the other owners to similarly enjoy the property
 Common occurrence of this form of ownership is in the
disposition of an estate to the heirs
o Tenancy in Common as a Business Ownership
 Usually is inferior to other business entities
 Co-owners may bear personal liability in
judgements against the property, unless
each owner is a Limited Liability Entity
  Spousal interests in the property will be
governed by the state where the property is
located rather than the state or states of
residence of the co-owners
 Tax and legal implications of tenancy in
common may be less widely understood
than for standard business entities
 Resulting committee of owners is ill-
constituted to take action in a crisis
 Recently under U.S. income tax law, investors can
reduce the effect of income taxation by exchanging
rather than selling an investment property outright
 Joint Tenancy
 RIGHT OF SURVIVORSHIP
o The interest of a decedent co-owner divides equally
amongst among the surviving co-owners, and nothing
passes the heirs of the decedent
o Keeps land holdings intact
 Requirements to create joint tenancy
o Requires presence of the four unities
 Time]
 Title
 Interest
 Possession
 Meaning it must occur in a single
conveyance
o Can convey his own interest to another party, but the
portion of the property conveyed becomes a tenancy in
common for the new one
 Leaving one fewer joint tenants
 Tenancy by Entirety
 Form of join tenancy for husband and wife
 Some states occurs auto when property is conveyed to
husband/wife jointly, others must be created explicitly
 At the death of spouse, tenancy by entirety can reduce probate
costs and complications since no disposition of property occurs in
the eye of the law
 Neither husband/wife alone can pledge the property held in
tenancy by the entirety
o Property can’t be foreclosed in the event of default on an
obligation of only one spouse or the other, nor can it be
attached in on-tax related judgement against one spouse
alone
 Condominium
 Form of ownership combining single person ownership with
tenancy in common
 Owner holds a fee simple interest, as individual owner to a certain
space such as apartment
 Most common in apartments but occur for townhouses, parking
lots, marinas, offices
 IMPORTANT- Each owner can mortgage his interest independently
of other owners
 RAPIDLY GROWING
 Purchasing a condo entails a cost in ownership complexity and
restrictions on owner discretion that follows from living in close
proximity to others. Requires the creation and management of an
owner association
o Mini government that must maintain all common areas
and structures, make condominium bylaws, and levy and
collect owner assessments
 Condominium is created through a master deed or Condominium
Declaration:
o 3-dimensional descriptions of the space occupied by each
unit, description of the common facilities and areas, a
determination of the proportion of common areas
associated with each unit, provision for expansion of the
property
 Cooperative
 Not a form of true direct co-ownership but rather a proprietary
corporation
 Cooperative owns real estate as a single owner
o Each owner of the corporation holds a Proprietary lease
for some designated space
 Ownership interests from Marriage
o Dower/Curtesy
 Dower- gives a one-third life estate in all of the real
property of a decedent husband that was ever
owned by him during the marriage
 BAD- ignore personal property wealth and
because they created a (nonmarketable) life
o Elective Share
 Recognizing limitations of dower/curtesy, they
have been replaced by elective shares
 Gives a surviving spouse a share of the
wealth of the decedent
o Community Property
  Gives spouse 50% claim on all property acquired
from the fruits of marriage
 Separate Property
 Property that was acquired before the
marriage, or gifts/inheritance received
during the marriage
 Timesharing
o Multiple individuals have use of property, but the interests
aren’t simultaneous
 The real estate is divided into separate time
intervals
 Covers variety of legal arrangements with varying
levels of property rights and varying degrees of
user flexibility

CHAPTER 3

- DEEDS
o A special form of written contract used to convey a permanent interest in real
property
o Can convey the full fee simple absolute or a lesser interest such as a life estate,
conditional fee, or an easement
o Deed Restrictions
 Deed may “carve out” reductions in the rights conveyed
 Can also carve out easements
 EX- Deed can withhold mineral rights, timber rights, or water
rights, implying an easement of access to pursue these claims
o REQUIREMENTS
 Grantor (with signature) and grantee
 Only the grantor must be legally competent and of legal majority
age
 Ex- grantor could convey property to a grandchild, granted there
isn’t ambiguity
 Recital of Consideration
 When grantor conveys property, the event is done
 STILL, traditional to have statement of consideration in deeds, and
required by some states
o Not necessary to state the true consideration
o “For ten dollars and other good and valuable
considerations”
 Words of Conveyance
 Early in deeds will be “does hereby grant, bargain, sell, and coney
auto….”
 o Assures grantor clearly intends to convey an interest in
real property
o Indicates the type of deed offered by the grantor
 Covenants
 Legally binding promises for which the grantor becomes liable, if
promise prove to be false
 3 Types
o Covenant of Seizin
 Promise that the grantor truly has good title and
the right to convey it
o Covenant against encumbrances
 Promise that the property is not encumbered with
liens, easements, or other such limitations except
as noted in the deed
o Covenant of quiet enjoyment
 A promise that the property will not be claimed by
someone with a better claim to title
 Habendum Clause
 Defines or limits the type of interests being conveyed
 The phrasing determines the various property interests
 Exceptions and Reservations Clause
 Contain any deed restrictions the grantor wishes to impose on the
use of the property
 Carves out mineral, timber, water rights, or variety of easements
 Description of Land
 Important Requirement that it must be ambiguous
o 3 affective ways in modern times
 Metes and bounds
 Subdivision plat lot and block number
 Government rectangular survey
 Acknowledgement
 Confirms that the deed is the intention and action of the grantor
 Accomplished by having the grantor signature notarized
 Not required to make it valid, but for it to be placed in public
records
 Delivery
 Refers to an observable, verifiable intent that the deed is to be
given to the grantee
o TYPES OF DEEDS
 General Warranty Deed
 Includes the full set of legal promises the grantor can make,
 It warrants against any competing claims that may arise from the
chain of title that are not spelled out in the deed, such as
easements or encroachments
o Encroachments- intrusions on the property by structures
from adjacent land)
o Considered the “highest quality” deed and affords the
maximum basis for suit by the grantee in case the title is
defective
 Special Warranty Deed
 Identical to general warranty deed, except that it limits the time
of the grantor’s warranties to her time of ownership.
o The grantor asserts only that she has created no
undisclosed encumbrances from previous owners
o In California, the predominant form of deed is a grant
deed.
 Regarded as equivalent to the special warranty
 Quitclaim Deed
 Has none of the covenants of the warranty deed
 Worded to imply no claim to title, only to convey what interest
the grantor has
 Marketable Title
o One that is free of reasonable doubts
o One use of a quitclaim deed is to remove a divorcing
spouse
 Deed of Bargain and Sale
 Has none of the covenants of a warranty deed
 Purports to convey the real property and appears to imply claim
to ownership
 Judicial/Trustee’s Deed
 Judicial
o Sometimes called Officer/sheriff deed
o Issued as a result of a court ordered proceeding
o May include deeds issued by administrators of foreclosure
sales
 Trustee
o Issued by the trustee in court-supervised disposition of
property
 EX- Executor and administrator of an estate
 Guardian of minor
 Bankruptcy trustee
o VOLUNTARY CONVEYANCE OF A DEED
 Transfer that is a result from a sale and purchase, a gift, or an exchange
 Usually by a warranty, special warranty, or bargain and sale deed
 One Exception is voluntary conveyance of public property by a gov to a
citizen
 Solved with a PATENT
 Legally simple when considered a “quality deed” and little risk of being
clouded by the transfer
o INVOLUNTARY CONVEYANCE OF A DEED
 Conveyances from results beyond the control of the grantor
 Probate
o Death of property owner
 Testate- In accordance with a will
 Interstate- Without a will
o UPC
 Provides increasingly uniform terminology and
standards for probate
 Decedent will have a personal representative who
is responsible for administration of the procedure
o Devised
 When a will dictates the distribution of the
decedent’s real property
o Law of Descent
 No will
 State containing the property determines its
distribution among its heirs
 Bankruptcy
o Real property of the debtor, may be included in other
assets to be liquidated on behalf of the creditors
 Divorce Settlement
o Real property may transfer by a final judgement of
dissolution instead of a deed
 Condemnation
o By power of evident domain
 Government can take private property for public
purposes through due process, and with just
compensation
 Foreclosure
o Can be judicial or power of sale
o Property is disposed of by public sale
o Title obtained at foreclosure sale usually has significantly
more risks than normal
o VOLUNTARY CONVEYANCE WITHOUT A DEED
 When an easement arises incidental to a voluntary conveyance
 Implied Easement
 o Often created when a subdivision map is placed in the
public records
 On map will be utility easements and possibly
easements and possibly easements of access such
as bike paths or footpaths that do not appear in a
specific deed
o Easement by prior use
 When a path of access across part of the property
to a now landlocked parcel preexists, and if the sale
leaves that path as the only access and egress
o Easement of Necessity
 If the landlocked parcel has no path prior of access
and egress
 Easement by Estoppel
o Occurs when a landowner gives and adjacent landowner
permission to depend on her land
o EX- landowner gives neighbor permission to rely on sewer
access or drainage across his or her land
 Dedication
o When a developer creates a subdivision, it is common to
DEDICATED (Convey to the local government) the street
right of way and parks, school sites, retention ponds
o INVOLUNTARY CONVEYANCE WITHOUT A DEED
 Owner of land may involuntarily and unknowingly give up rights to land
 Easement by Prescription
o When the interest sacrificed is an easement
 Adverse possession
o When the interest sacrificed is a title to the land
 5 REQUIREMENTS
 Hostile to the owner’s interests, and under claim of right
o Without owners permission and acting like an owner
 Actual
o Land must be employed in some natural or normal use
 May be only seasonal or occasional when
appropriate to the use
 Open and Notorious
o No effort to disguise or hide the use from the owner or
neighbors
 Continuous
o Possession must be uninterrupted by a period specified by
state law, 5-20 years
 Exclusive
 o Claimant cannot share possession with the owner,
neighbors, or others
o REAL PROPERTY COMPLEXITY AND PUBLIC RECORDS
 Doctrine of Constructive Notice
 States that a person cannot be bound by claims or rules he has no
means of knowing, but once they are capable of knowing, they
CAN be bound
 The pubic has to be able to know about the contracts
 Statute of Frauds
 Law that requires any contract conveying a real property interest
to be in writing
 Thus, deeds, leases with a term of more than one year, and
mortgages must be in writing to be enforced
 Recording Statutes
 Laws that require a document conveying an interest in real
property must be placed in the public records if it is to achieve
construction notice
 Once in the public record, the document is binding to everyone
 Actual Notice
 Considered to have the same force as constructive notice
 When an asserted claim is open, continuous, and apparent to all
who examine the property
 Title
 A collection of evidence
o Must point to some person (or entity) as the holder of the
fee (titled) interest.
o Two kinds of evidence are pertinent
 Constructive and Actual Notice
- TITLE SEARCH, TITLE ABSTRACT, AND CHAIN OF TITLE
o Title Search
 The task of examining the evidence in the public records
 Object is to construct a Chain of Title
 Chain of Title- set of deeds and other documents that traces the
conveyance of the fee, and any interests that could limit it
o Title Abstract
 When each relevant document was summarized, and the documentaries
were compiled into a chronological volume

- EVIDENCE OF TITLE
o For contracts of real estate
o Demonstrating a good title is a central part of any real estate transaction
o Must Require
 Title abstract, together with an attorney’s opinion of title
  Title insurance commitment
o Title Abstract and Attorney’s Opinion
 The title abstract with attorney’s opinion is the traditional evidence of
title
o Title Insurance Commitment
 Equivalent to the traditional abstract and opinion of title
 Logic is that the insurer would not make a commitment before
conducting a title search and assuring a good title beyond reasonable
doubt
 TITLE INSURANCE
 Protects a grantee or mortgage lender against the legal costs of
defending the title and against loss of property
o Torrens Certificate
 Issued as evidence of good title after a property is first converted to the
Torren’s system by going through a careful title search and examination
o Marketable Title Laws
 Set limits on how far back a title search must go
 Certain types of claims, including restrictive covenants and easements in
some cases, may cease to be binding if they do not reappear in recorded
documents that postdate a so-called root of tile
- LAND DESCRIPTIONS
o Meets and Bounds
 Oldest of three major forms of land description
 Most flexible of descriptions and is capable of describing the most
irregular of parcels
 Very precise GPS and compass-directed walk around the
o Subdivision Plat Lot and Block Number
 A surveyed map of the subdivision placed in the public record with each
parcel
 Provide an unambiguous description of the property
o Government Rectangular Survey
 Large portion of US after `13 colonies was described by thus
 Numerous different regions surveyed differently
 FOR EACH REGION
 Baseline-running east and west
 Principal meridian-running north and south
o From these two reference lines a grid system was surveyed
 Checks- 24 sq miles
 Townshups-6 sq miles
 Sections- 1 sq mile

CHAPTER 4
- Externalities
o The unintended and unaccounted for consequences of one land user upon
others
- MONOPOLIES, EXTERNALITIES, AND OTHER MARKET DISTORTIONS
o Monopolies
 Misallocate resources by overpricing goods and services and producing
less output than is efficient for society’s view
 Natural Monopolies
 Water, sewer and other utility systems
o Hard to establish competition
 HoldOut
 When assembly of multiple private parcels, landholders can hold
hostage the entire project by offering too high of prices
o Externalities
 Positive
 Beneficial effects on property value
 Negative
 Congestion
o Pervasive form of externality in urban life when there is
too much traffic/schools/courts
 Urban Sprawl
o Development taking place in rural areas well beyond the
urban fringe
 Leapfrog development
o Other Market Distortions’
 Incomplete Information
 Uncertainty and Value Stability
 Counterarguments to Land Use Controls
- PUBLIC PLANNING FOR LAND USE CONTROL
o Comprehensive planning
 General guide to a community’s future growth and development
 Growth management Laws
 Local jurisdiction must have comprehensive plans submitted and
approved by state agency
 Large scale developments must be accompanied by ECONOMIC
AND ENVIRONMENTAL IMPACT STATEMENTS
o Studies that analyze the project’s effect on surrounding
areas
 Further development at the local level must be prohibited unless
adequate infrastructure are in place when development
commencement
o Concurrency Problem
 Local govs must include Affordable housing Allocation
o Must encourage or mandate a reasonable and fair
component of new housing construction for low-income
families
 States may provide laws
 Establish urban service areas
o Boundaries are delineated around a community within
which the local government plans to provide public
services where development is discouraged
 Establish extraterritorial Jurisdiction
o Power given to local government to plan and control
urban development outside their boundaries until
annexation can occur
o Smart Growth
 Mixed land uses
 Compact building design
 Range of household types
 Walkable neighborhoods
 Distinct and attractive communities
 Preservation of open space, farmland, natural beauty
 Variety of transportation
o New urbanism
 More explicit in advocating a traditional grid system

- GOVERNMENT’S POWER OF EMINENT DOMAIN

o Eminent Domain
 The right of government to acquire private property, without owners
consent for public use in exchange for just compensation
 Condemnation
o Legal procedure involved
o Inverse Condemnation
 Action initiated by property owner to recover the
loss in property value attributed by gov activity
o Public Use
 Determined by government if applicable for eminent domain
o Public purpose
 More broad term
 Any purpose of clear public benefit
 Regulatory Taking
 When the regulation of taking a property goes too far
- MECHANICS OF PROPERTY TAX
 o RATE=(BUDGETED EXPENDITURES-INCOME FROM SOURCES OTHER THAN
PROPERTY TAX)/(TOTAL ASSESSED VALUE OF ALL PROPERTIES-VALUE OF
PROPERTY EXEMPTIONS)
 Tax rates are stated in MILLS
 Dollars per 1000$ of value
o 2%= 20 mills of tax per 1000$
o Homestead Exemption
 If property owner occupies a home as family’s principal residency and has
claimed residency within the state
- CALCULATING TAX LIABILITY
o Assessed value
 The value for taxation
o TAXABLE VALUE= (Market Value * Tax Assessment)-Exemptions
o Effective Tax Rate
 Amount of tax paid/market value of property

CHAPTER 5

- CREATION, GROWTH, AND DECLINE OF CITIES

o Where cities occur
 PRODUCTION AND EXCHANGE MEET
 Most compelling where there’s intersection of different modes of
transportation
 Old days- Mostly where water met earth
 Industrial Days-Intersection of rail transportation with seaports or other
rail lines
- ECONOMIC BASE OF A CITY
o Economic Base
 Set of economic activities that a city provides for the world beyond its
boundaries
 Determines a city’s growth or decline
o Economic Base Multiplier
 Economic Base (export) activities and services bring money into a city,
which is then re spent and recirculated throughout the city
 As base firms and households re spend a larger share of their
initial income, their impact on the community becomes greater,
but lessens with money leaking out
o Local economic Activities
 Secondary activities
 Activities in a city that serve the local businesses and households and are
recirculating the income derived through the base activities
 Retail centers
 Government and public land uses
  Medical offices
 Competes with existing facilities for the total business derived
from export activity.

o Indicators of Community’s Economic Base

 % of total employment in given industry
 % in said industry of reference population (usually entire U.S.)
 Divide % of given industry by % of reference population
- Industry Economies of Scale
o Cost efficiencies that arise in a city due to concentration of an industry
- Agglomeration Economies
o Emergence of specialized resources in response to demand from multiple
industries
- BID-RENT MODEL
o A logical model used to explore the effects of demand for proximity
o Helpful in revealing:
 Influences on the way density of land use is determined
 How urban land value is determined
 Why land use changes occur
 Central Business District
 Point 0
o In General- We are trying to find the correlation of time saved to money saved
o Inversely- Time spent traveling equates to how much
money lost

EQUATIONS
RATE=(budgeted expenditures-other income)/(total assessed value-exemptions)

TAX LIABILITY

TAX=(MV*TAX ASSESSMENT)-EXEMPTIONS]

TAX VALUE

=TAX PAID/MV

COVENANTS

Covenant of seizin
Covenant agsint encumbrances

Covenant of quiet enjoyment

Deeds

General warranty
Special warranty
Judicial/trustee
Bargain and sale
Quitclaim

Requirements

Grantor with sig and trustee

Words of conveyance
Handembug clause
Exceptions and restrictions clause
Description of land
Covenants
Seizin
Against encumbrances
Quiet enjoyment
Recital of consideration
Acknowledge
Deliver

Fixtures
Manner of attachment
Characteristics of articles and manner of adaptation
Intent of parties
Relation of parties
Trade
Agriculture
Residentitial tenants