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477 Cards in this Set

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According to the IRS, how are real estate salespeople classified and what does this mean for them?

-Real estate salespeople are statuatory non-employees, therefore independent contractors

-Paid for services related to output and not hours worked

-Must be a written agreement between them and broker defining this arrangement, and must be reviewed every 12-15 months by both parties
How is the 'New York Department of State' related to New York State Real Estate activity, law, and licenses?
Regulates real estate activity in NY and issues real estate licenses
Name 3 categories of real estate licenses.
-Broker - licensed to represent a party in a real estate transaction for compensation

-Salesperson - licensed agent associated with a broker and may perform most acts of the broker on the broker's behalf

-Associate broker - a licensed broker working under the supervision of another broker
What are the four ways that employment can be classified?
-Independent contractor - does not work under direct supervision of employer

-Employee - worker is holding employee status

-Statuary employee - tax purposes; legal status is employee

-Statuatory non-employee - tax purposes; classified as independent contractor under law
What are the two specific codes of Section 441 found in NY law directing the operation of the independent contractor relationship, and what are the details of these codes?
Supervision by a Broker
--Must work 35 hours/week for 50 weeks/year, must keep written records, and must have regular, consistent personal guidance

Records to Be Maintained
--Must keep records for at least three years
What are the six different types of licenses for which real estate brokers can apply?
1. LLC and/or LLP (Limited Liability Company and/or Partnership )
2. Individual
3. Trade Name
4. Corporate
5. Associate
6. Partnership
acronym hint: LIT CAP
What is a pocket card?
It is a photo ID card made to "fit in one's pocket or wallet", issued by the department of state that signifies that one has satisfied the requirements of competency and trustworthiness to be issued a Real Estate license. It does/must have the name and principal business address of the licensee. And, in the case of a real estate salesman, the name and business address of the broker with whom the salesman is associated.
How are out of state licensees able to practice in NY?
If they are from one of the 10 states with which we have reciprocity, they may practice in NY once they sign an irrevocable consent, subjecting them to the jurisdiction of NY courts
What are the continuing education requirements for licensees?
Licensees must complete 22.5 hours of continuing education, including three hours of fair housing or discrimination
What are the requirements to update to a broker's license from a salesperson license?
-Must be 20 years old
-Must have 2 years of experience
-Must have 3,000 points in the field
Does everyone who works for a brokerage have to be licensed?
No - you can have an unlicensed office assistant doing administrative work like copying, passing out flyers, etc.
What is commingling?
Commingling is when money that is meant to be kept separate, like for a down payment, is combined with the broker's own funds. This is illegal
What is a blind ad?
Blind ads do not contain any information saying that advertiser is a broker and giving the broker's telephone number. Ads like these may fool the public into thinking a listing is for sale by owner. Blind ads are illegal
What is a net listing agreement?
A net listing agreement is one in which the seller says that they only want a certain price for their home and that anything over this price is the broker's commission.
Are automatic renewals of contract legal in NY
If a broker's license is suspended, then what happens to the agents working for him?
All of their licenses are suspended
If your license is revoked, how long do you have to wait to reinstate it?
One year
What is agency?
Agency is the relationship between a principal and a party representing their interests.
What are the six duties that a broker owes a client in a fiduciary relationship
Reasonable Care
What is a broker protection clause?
A broker protection clause is a period of time after the listing agreement expires, that, if the property sells in, the broker is still entitled to a commission. This clause is meant to protect the broker
What is vicarious liability?
Vicarious liability refers to which person is responsible for the actions of another.
What is a general agent?
A general agent has many responsibilities in his scope of representing the principal
What is a special agent?
A special agent can represent the principal in one aspect only. A real estate agent is a special agent.
What is a universal agent?
This type of agent represent a minor
What are the five types of misrepresentation / fraud?
-Intentional misrepresentation / active fraud - purposely making a false statement
-Intentional concealment / constructive fraud - purposely failing to disclose something
-Negligent misrepresentation - making a false statement about something the broker should have known was false
-Negligent nondisclosure - Failure to disclose for lack of exercising care in obtaining information about the property
-Negligent advice - giving incorrect professional advice
What is brokerage?
The business of bringing buyers and sellers together and assisting in the sale of real estate
Discuss referral fees and their place in the NY real estate market
Referral fees are legal so long as the person being referred gives their informed consent
What are the ways to terminate agency?
-Expiration of the terms / listing agreement
- Death of either party
- Mutual agreement by both parties
- Bankruptcy
- Completion of the goal (eg. selling the apartment)
- Revocation of the broker's license
What is a subagent?
A subagent is come who owes the same fiduciary responsibilities to the seller as the listing broker does
What is a single agent?
A single agent can represent either the buyer or the seller, but never both. Whoever the agent represents, this is who fiduciary responsibility is owed to.
What is a seller's agent?
A seller's agent is hired by the seller to represent them and has unlimited fiduciary responsibility to the seller
What is a Broker's Agent?
This person assists the listing agent or buyer's agent in locating a property to sell or buy, respectively.
What is a buyer's agent?
A buyer's agent is engaged by a buyer to help them best pursue their interests
Dual Agency
Dual Agency in NY is legal with the consent of both parties and the understanding by these parties that they will be giving up on undivided loyalty
Open-buyer agency agreement
The buyer only pays the agent who finds the house
Exclusive buyer-agency agreement
The buyer is legally bound to pay the free to the agent regardless of who finds the property
Exclusive-agency buyer-agency agreement
The buyer can only work with one broker, but he is entitled to find a property on his own. If he finds the property, he does not have to pay a broker fee, but if the broker finds it, he does pay the fee
What is designated agency?
Same brokerage, different agents - help gets rid of some of the trust issues associated with dual agency
What is an agency disclosure form, and when is it used?
Agency disclosure forms are required by each agent assisting in a transaction, and thy are necessary to all residential and real property transactions. This form must be presented to people at first substantial contact
What happens if someone refuses to sign the disclosure form?
The agent must sign a declaration of facts that he gave this form to someone and they refused to sign. The agent may then show the property
Exclusive right to sell
The property is only listed with one broker. If anyone should sell the property during this term of agreement, the broker still gets the commission.
Exclusive agency agreement
The property is only listed with one broker. If the owner sells the property himself, he doesn't have to pay commission, but if the broker or any other broker from an MLS sells the property, the broker gets commission
Open Listing Agreement
The property can be shown by as many brokers as the seller can give it to, and whoever sells the property gets the commission
Exclusive right to rent
The property is only listed with one broker. If the landlord should rent the property during this term of agreement, the broker still gets the commission.
Exclusive buyer agency agreement
The buyer pays commission, and all fiduciary responsibilities are owed to the buyer
Regulation 175.7
Agents must make clear which party they work for, and compensation is limited from more than one party in a transaction except when disclosure and consent are had by all parties
Non solicitation order
All brokers and salespeople must refrain from soliciting listings in a designated geographic area
What is the law about disclosing stigmatized property?
As an agent, you are not required to tell prospective buyers about deaths, homicide, HIV, etc. The buyer can submit a written inquiry for this information, and it is up to the seller to choose if they want to respond or not.
If a house is not currently hooked up to electricity, what should you do?
You must always disclose this prior to accepting any offers, as it could be a safety concern (eg. what if the agent flicks a switch not knowing there could be damage and starts a fire?)
Megan's Law
Megan's Law says that it is not up to buyers and agents to disclose if there is a sex offender in the neighborhood. This information is incredibly public since all sex offenders are forced to register, and buyers are expected to look it up themselves.
Sex Offenders Holding Real Estate Licenses
Is totally illegal.
NYC Bedbug Disclosure
Must give tenants information about bedbugs in the building for the previous year
Commission Escrow Act
Protects commission - must put a statement in the listing agreement about depositing commission with the county clerk is the principal does not pay the broker. Commission used to be bargained at closing, and this ensures that the broker's commission is given to them.
The Sherman Act
The Sherman Act was created in 1890 is the first antitrust law. It imposes penalties of $100 million for corporations and $1 million for individuals
The Clayton Act
The Clayton Act was created in 1914 and addresses certain anti-trust issues not explained in the Sherman Acts
What are the four elements that are prohibited in order to protect a free and open market?
-Price fixing - agreement among competitors to raise or lower prices

-Market division - dividing up the map or customers in a certain way

-Group boycott- agreement between firms not to do business with another firm or group

-Tie in arrangement - sending a customer to a certain mortgage agency, etc.
What is an encumbrance?
A non-possessory interest in a property. A person can have a claim or right to a property without actually possessing it. There are two types of encumbrances - easements and liens
What is an easement? How many types are there?
An easement is the right to use someone else's property for a specific purpose. There are two types of easements.

-Easement appurtenant - concerns two plots of land and one plot is usually burdened so that the other can do something
-Easement in gross - one plot of land is burdened for the benefit of an individual or corporation (usually govt.)
What are the ways that an easement can be created?
-Express grant - land is divided and seller retains easement to former land
-Implication-land is divided and there is long standing reason necessary for using land
-Necessity - land would be useless without this easement
-Prescription - 10 years
-Condemnation - Govt. power
-Party wall easement
What is a license in terms of an easement
A license is basically a temporary easement, but it does not run with the land
What is a lien?
A lien is a financial encumbrance on a property.
Please study the chart on page 98 in order to further familiarize yourself with liens
In what order are liens paid?
Liens are paid in the order that they were attached to the land. The one exception to this rule is property taxes - property taxes are always the first lien paid
What is adverse possession?
Adverse possession is when someone acquires to the title to someone else's land after ten years of continually using the land
Lis penden
Tells buyers that there is a lawsuit pending
What is Marketable Title?
Marketable title is one that is clear from undisclosed encumbrances that would affect the purchaser
What is an abstract of title?
The complete historical summary of the history on a title
RESPA (What does it stands for and what does it do?)
-Real Estate Settlement Procedures Act

- Regulates settlement and closing procedures and requires lenders, mortgage brokers, and servicers of home loans to provide borrowers with pertinent and timely disclosures
- Must provide buyers with information about the cost of buying - the expenses in ADDITION to the mortgage
-Requires the use of HUD-1 Settlement Statement for all federal-releated residential loans
What is a settlement statement?
A settlement statement is a document prepared by an attorney or closing agent that itemizes expenses and costs paid by the buyer and seller to close the real estate deal
Debits and credits
Debits are money that is owed, and credits are money that have already been paid. Buyers and sellers may have to work these out, especially if they move in the middle of the month.
The adjustment of expenses between buyer and seller
Accrued expenses
Items for which the cost has been incurred, but you haven't paid for it yet
Prepaid expenses
Items for which the cost has been incurred and paid for, but the seller will not be using it anymore because he doesn't own the property
What is a deed?
The actual document that shows that you have interest or ownership in a property
What is title?
Title is the actual lawful ownership of real property. You prove that you have title by showing your deed
What are the elements for a valid deed?
-Competent grantor - at least 18
-Identifiable grantee - buyer must have government issue photo ID
-Act of conveyance - clause that states that the grantor intends to convey title to the land
-Habendum clause - often comes after the granting clause / act of conveyance, it says "to have and to hold"
-Consideration - the money that you are paying
-Legal description of the property
-Limitations - how property may or may not be used
-Exceptions & reservations
-Signatures - grantors must sign, grantees don't have to
-Delivery and acceptance
Does a deed need to be recorded for it to be valid?
No, but if it is not recorded, it may not protect the grantee if it goes to court
Full Covenant and Warranty Deed
-Only given to the first homeowner of new construction
-Strongest, best deed there is
Bargain and Sale Deed
-This is the type of deed that 90% of used houses have
-There are no warranties with this property, but the grantor has the right to convey.
(Bargain and sale deed with covenants - Grantors are warranting only for the time they lived in the property, but not for previous owners)
Quitclaim Deed
-Really only used for transferring property, and often used when there is a problem with the house
-Often used to remedy clouds on a title
-Conveys whatever the interest the grantor hold
Judicial Deed (and the various types)
-These result from some type of court order

-Executor's Deed - used to convey property of deceased
-Administrator's Deed - person appointed by court to convey property of the deceased
-Guardian's Deed - used to convey property by a court-appointed representative
-Sheriff's Deed - used in sheriff's sale at foreclosure
-Referee's Deed - used in bankruptcy and foreclosures
Metes and bounds system
Property bounds are described in terms if distance (metes) and compass direction (bounds)

-Need an easily identifiable POB
-Work clockwise until you return to this point
-Rods=pins=markers in this system
Legal Description of a Property
The description of a property that distinguishes it from all other pieces of property
Block and Lot System
-Used for platted property and subdivided land
-Must consult a plat of subdivision to find your land
-Section, block, and lot = SEC, BLK, LOT
How many square feet are in an acre?
Voluntary Alienation
-Most common way to transfer land ownership
-Sale, gift, dedication, or grant of property
Involuntary Alienation & The Various Types
-Transfer of title against your will

-Eminent domain - government's right to take property for public use
-Foreclosure - if you can't pay the debts on your property
-Adverse Possession - if someone takes over your property for 10 years, they can claim title to it
Acquisition of title to land by its addition to real estate through human actions or natural processes
The land added to a property by accession
When land is lost due to sudden acts of nature like floods or earthquakes
Body of water recedes, exposing dry land
Die testate
Dying with a will
Die Intestate
Dying without a will
Devising land
Transferring land through a will
When someone dies without heirs and without a will, their property goes to the state through this process
Marketable title
Title that is free and clear from undisclosed encumbrances
Title search
Necessary to determine ownership and quality of title
Constructive notice
Something that should be known, even if it is not
Actua notice
Real knowledge of a fact
Chain of title
clear, unbroken record of the ownership of a property
Why is recording a real estate document in the public system important?
This provides evidence of constructive notice, since public records are available for anyone's inspection
Suit to quiet title
This may be required to close any missing links and remove the cloud on a title. This is the lawsuit filed to determine and resolve problems about a particular piece of land
Article 15 Proceeding
This is how you clear a known claim - it is part of the suit to the quiet title
Abstract of title
The chronological history of the title, listing all the documents that affect it
Title insurance
The protection given to lenders against loss due to disputes over ownership of a property and defects in the title not found in the search of public record
What are some things that happen at the closing?
-Closing of the buyer's mortgage loan and disbursement of funds
-Closing of the sale and transfer of the title
Bill of Sale
A document detailing things that the seller is is transferring to the buyer that should not be included in the price of the apartment, because it will fluctuate the market price
A survey is required for every sale, and it is the process of determining the physical size and boundaries of a property
Promissory note
Written promise to repay the money owned - signed by the borrower
Settlement Statement
Also called a closing statement, this itemizes all expenses and costs paid by the buyer and seller to close the real estate transactions
Typical Seller Closing Costs
-Attorney fees
-Condo or co-op fees
-Existing liens payment
-Recording Fees
-Transfer taxes
New York State Transfer Taxes
This is the biggest fee to sellers
This tax is $4 per $1,000 of the price, rounded up to the next two dollars

When this tax is greater than $500, it is rounded up to the next four dollars
New York City Transfer Taxes
1% of property that is less than $500,000
1.25% of property that is greater than $500,000
Typical Buyer Closing Costs
-Appraisal, credit report, survey fees
-Attorney's fees
-Bank fees
-Condo or co-op fees
-Home inspection fees
-Mortgage recording tax
-Title search & title insurance
-Flood certification fee
Proration = credit
This is the division between the buyer and the seller in proportion to the actual usage of the item
HUD-1 Settlement Statement
This is a RESPA requirement for federally related residential mortgages taht the buyer may review one day prior to closing
What is the definition of land in real estate?
Land is the surface of the earth, the subsurface to the center,a and air rights over your land. No two pieces of land can ever be exactly the same
What is real estate?
Physical land and everything both natural and man-made that is permanently attached to it
What is real property?
Real property is land, its attachments, and rights associated with the property
What are the five bundle of legal rights?
-Right of possession
-Right to quiet enjoyment
-Right to disposition - right to transfer to others
-Right of exclusion - stop others from using property
-Right of control - can physically alter the property
What is trespassing?
When another person invades your land
What is encroachment?
Trespassing by an object
What is a nuisance?
Anything that interferes with the quiet enjoyment of your property
What are riparian and littoral rights?
These refer to the rights of an owner of land contiguous to a body of water.

Flowing water = riparian
Ebb and flow = littoral
What is an appurtenance?
A right that goes with real property (air, water, mineral, etc)
What are percolating rights?
The right to use water underground / install wells
What is the rule of capture?
Whoever drills has the rights to it, even if you have to go under someone else's property.

This refers to oil and gas
Right to build vs. right to excavate
You may have the right to build, but that doesn't necessarily mean that you have the right to excavate- that is, the right to alter the land or your neighbor's land
What are attachments
Things that are attached to the land, either natural or man-made
What are fixtures?
Fixtures are personal property that is permanently attached to land or improvements

Eg. - Ceiling fans, built in bookcases, etc.
What is annexation?
When fixtures become real property by being physically attached to it
What is severance?
The detachment of fixtures that turns them back into personal property
Personal Property & Chattels
Personal property & chattels are the same thing. This is moveable property that is not fixed to the land
What is a freehold estate?
A possessory interest of uncertain duration - it may end, but no one knows when
Fee simple estate
-Fullest ownership
-Full bundle of legal rights
-No conditions on title
Qualified fee estate
-Seller puts condition on the deed
-This condition runs with the land
-Eg.-you can only use this land as a park
Fee on condition
-Seller gets a right of re-renty if a certain condition is not met
-Eg.- Will gets the title to the property if he gets married before he is 30
Life estates
-Only last as long as a certain person lives
-Can also be life estate pur autre vie, meaning dependent on another's life
Reversionary Life Estate
Property goes back to seller upon death of the measuring life in a life estate
Remainder Life Estate
Property goes to another person, the remainderman, when the person in the apartment dies, in a a life estate
What is a leasehold estate?
The holder has temporary but exclusive right to possession, but no title
What is ownership in severalty?
There is one owner
What are the four unities that define co-ownership
Unity of possession - all owners hold the same undivided right to possess the whole property

Unity of interest - all owners hold equal interests

Unity of time - all owners acquired their interests at the same time

Unity of title - all owners acquired their interests via the same deed or will
Tenancy in Common
-Each co-owner has equal undivided interest
-Only co-ownership that can be owned in unequal portions
Tenancy by the Entirety
-Involves only owners who are husband and wife, with each having an equal and undivided share of the property

-After a divorce, a couple owns a property as tenants in common
Joint Tenancy
-Has the four unities of co-ownership
-Must have equal, undivided interest and the right of survivorship
How does a corporation own property?
In severalty as the legal person
How are condos and co-ops different?
Condos are when each co-owner has a separate fee simple interest in an individual unit (apartment style ownership of real property)

Co-ops are where the residents are shareholders and get a proprietary lease on an individual unit and the right to use common spaces (apartment style ownership of stock)
Absolute ownership
You own the complete bundle of rights
What is a restrictive covenant?
When the grantor puts restrictions on the title
What are deed restrictions?
Deed restrictions are restrictive covenants that apply to all future landowners. These run with the land
How can you terminate a restrictive covenant?
-Setting a termination date
-Releasing the owner from the covenant
-Abandoning the property
-Changing the circumstances of the property or owner
Doctrine of laches
You extended your property rights for two years and other owners have not complained - therefore, they have lost the legal rights to go against you, as you lose these rights when you fair to assert them in a timely manner
Setback requirement
Structures must be located a specific distance from the front of the property line to the building line. This is an example of a private subdivision regulation
What are property taxes used for in NY?
Financing the government and public schools
What is power of escheat?
When a person dies intestate and has no heirs or creditors, the property reverts back to the state
What is eminent domain?
Eminent domain is the government's power to take your property for the public use, so long and it provides just compensation
What is condemnation?
Condemnation is the actual act of taking the property for eminent domain
What is taking?
A taking occurs when the government takes private property for public use but does not compensate the owner. This is illegal.
Interstate Land Sales Full Disclosure Act
-Protects consumers from marketing schemes that convince them to purchase land sight unseen by making landowners provide each purchaser with a property report that must be delivered three days before the contract is signed
US Army Corps of Engineers
-Plans, designs, builds, and operates water resources and other civil works projects
NY Office of Parks, Recreation, and Historic Preservation
-Oversees public recreation areas and administers federal and state preservation projects
NY State Article 9-A
Requires subdividers to be recorded before offering
-State Environmental Quality Review Act

-Assess environmental impact of any activity approved by the state or local government
-Environmental Impact Statement

-If a proposed action may impact the environment, this is necessary to explain what the impact might be
What is a planning board and what does it do?
In each municipality, they are involved in things that affect the city

-Creating a capital budget
-Develop city's plan
-Regulating plat, density, traffic
-Controlling subdivision plans
-Reviewing site plans
-Taking specific zoning actions
What is a comprehensive or master plan?
The written document that identifies goals, objectives, principles, and guidelines for growth and development of a community
What is the official map?
This is final and conclusive with respect to the location and width of the community's streets, highways, drainage systems and parks
What is density in real estate?
The number of families that can inhabit a plot of land
What is a plat?
A plat depicts the arrangements of buildings, roads, and other services in a development. They can be used in determining traffic patterns, cul-de-sacs, etc. This must be submitted by a developer
What is a zoning ordinance?
Zoning ordinances are local laws that divide a city into different areas - they set the type of use permitted under each zoning classification and specify requirements for compliance
What does the zoning board of appeals do?
The zoning board of appeals rules on requests for variances and interprets them. It protects landowners from the unfair applications of the laws in particular circumstances
What is an accessory use?
An accessory use is subordinate to the principal use of a property?
What is cluster zoning?
This allows developers to provide a varied selection of lot sizes and housing choices within a single area
What is incentive zoning?
A system where developers receive zoning incentives on the condition that specific physical social, cultural, benefits are provided to the community
What is as of right zoning?
This prohibits discrimination among landowners
What is spot zoning?
This is the ILLEGAL rezoning of a single parcel or a small area to benefit one or more property owners rather than carry out the objective of the master plan
Article 78 Proceedings
Way to challenge the zoning boards decision
Nonconforming Use
Land is not used in zoning law ways because its used was established before the law was enacted.

Eg.- June owns a flower shop in an area that is rezoned as residential
What is a variance?
Administrative relief that allows property to be used in a way that doesn't comply with zoning regulations
What is a use variance?
Allows you to use land in a way not permitted under current zoning laws. This is often allowed when the landowner would go through unnecessary hardship to conform.
What is an area variance?
When land is used in a way not typically allowed by dimensions or physical requirement.

Eg.- June buys a plot of land to build a house on. To build a house on a plot of land, it has to be 100 feet. She finds out her plot of land is only 98 feet, but it is useless to her if she can't build, so she requests an area variance
What do building codes do?
Building codes protect the public by setting minimum standards
What is a COO and who gives it?
The building department gives the COO, or the Certificate of Occupancy. This is issued to the builder after all of the inspections on a building have been done and it is deemed useable.

The COO is the birth certificate to the structure, and all properties built after 1938 must have this. It says if the building is mixed use, liveable, etc.
What do subdivision regulations do?
They enable property owners to maintain the quality and consistency of the residences in the subdivision
What are specifications?
Written documents explaining requirements for the scope of work. This is the wording in the blueprint that tells the builder how to put the structure together
What is a blueprint?
The detailed building plan
What are building codes?
They protect the public by setting minimum standards for building
NY State Energy Conservation Code
Minimum energy efficient standards in new commercial and residential buildings
What do building inspections do?
The government makes sure the building complies with codes
What are the NY well requirements?
In order to build, there needs to be a water supply to the property. If there isn't, are you able to build a well?
What are NY sanitary waste requirements?
You need a proper way to dispose of waste, either via a septic system or a municipal wastewater system. You cannot build until you have this.
Can mechanical systems be in the living space?
No, they must be separate
What is the foundation of a house?
The basic structure that supports the rest of the house
What are foundation walls?
The side walls that support the structure
What is a footer?
The underground base
What are the three types of bottoms floors for a house?
-Slab on grade construction, where there is a concrete slab and then you build up from there

-A crawl space - it is an unfinished space less than a full story but allows one to go in and do work

Basement - this is actually part of the house, but this floor is partially or fully below grade, and is used to support the rest of the structure
What are the three types of framing
-Platform construction - this is the best kind of framing, and is constructed one story at a time

-Post & Beam construction - good for single-level homes - is a type of framing with the floor for higher stories supported by beams that sit on top of posts and outside the wall perimeters

-Balloon - this isn't really used anymore because it isn't sturdy - studs go up the entire length of the house
What is a beam?
A generic name for a long piece of wood, metal, etc.
What is a stud?
A vertical beam that frames structures
What is a joist?
A horizontal beam that frames structure
What is a girder
The main horizontal bean - this supports the studs
What is a Lally column?
It is a steel support column for interior use. It is filled with concrete
What is a sill plate?
The bottom piece of a frame that is the first layer of wood to start construction of the house
What is flashing?
Flashing is added to the to the roof once it is in place to cover joints for the purpose of preventing water from getting into the joints
What is drywall / plasterboard / wallboard / sheetrock
A plaster sandwiched between two layers of coarse paper, and it is mold resistant
What is R-Factor?
The way to measure insulation. The higher the number, the better insulation there is.
What are the different types of insulation?
-Blanket insulation - made of mineral fiber,
-Foamed-in insulation - sprayed into an area, and it starts as a liquid but expands into a plastic solid
-Loose-fil or blown-in insulation - blown into an area, often an attic - made of fiber pellets and is good for small areas
-Rigid insulation - commonly used on basement walls and is made of fiberglass
-Reflective insulation-Used between roof rafters, joists, and wall studs, and is known for its reflective surface
What are the three different types of heating systems?
-Forced Warm Air - most preferred today, includes a furnace, heat ducts, distribution ducts

Steam System - produced in boiler room and carried through pipes

Hot Water System - use a boiler to heat and cool liquid
What is a BTU and what is it used for?
It is a British Thermal Unit, and it is a measurement of heating capacity. 5,000 BTU is the smallest window unit air conditioner you can buy
What are the different types of piping?
-Cast Iron- used in drainage, sewage, but can corrode

-Galvanized - steel with a protective coating - fine for water, cannot be used for gas lines

-Copper- ideal for water lines and often considered superior

-Brass- very expensive, rarely used anymore

-PVC- plastic piping popular with water supply, but it can't be used for hot water

-PEX- Flexible piping popular because it is resistant to bursting if pipes freeze
What is voltage, and what are normal voltage rates?
Voltage is a measure of force that pushes electricity through a wire.

110 volts are normal, 220 are needed for bigger things
What is amperage and what are normal rates?
Amperage is how much electricity is traveling through the wire

Minimum is 100 amps, but 200 is really needed
What is the different between a circuit breaker and a fuse?
A circuit braker is newer, and are panels that the electricity feeds into from the outside. Fuses are protective devices for a wiring system, and are older
What happens to contractors who don't put funds into an escrow account?
They are subject to a fine not exceed $250 per violation or 5% of the contract price, not to exceed $2500
What type of warranties does new construction needs?
-One year for workmanship
-Two years for plumbing, heating, electrical, cooling system
-Six years for material defects
What do the Clean Air Act and Clean Water Act do?
CAA- Develops quality air standards
CWA- structure for the discharge or pollutants in water
What is CERCLA?
-Comprehensive Environmental Response, Compensation, and Liability Act

-Addresses what to do with abandoned waste sites. Known as a Superfund as well

-Companies who hold petroleum are taxed - when they are done, we see if any of it has leaked onto the land, and if it has, this tax is used to clean it up

Can require short-term (immediate action / removal) or long-term (not immediately life threatening, but should reduce exposure)
What is SARA?
-Superfund Amendments and Reauthorization Act
-Increased the Superfund to 8.5 billion dollars
-Required review of rules and standards
What is abestos?
It is a cancer-cuasing material; if it is in your house, you must hire a contractor to not only remove it but also to destroy it. It cannot be released into the world or it will contaminate the air. You also need to see the certificate of removal
How should you deal with carbon monoxide?
You need to have carbon monoxide detectors in your house
What is a CFC?
-Pressurized gas that makes warm air cold and it depletes the ozone if let out in the air - it needs to be recycled in a vacuum
-Electromagnetic field
-Invisible field produced by electrically charged objects
-Risk if you live by a power plant
How should you deal with lead, and what form do people need to see?
Must give people the HUD lead paint disclosure form in buildings that were built before 1978. You also need to give a pamphlet to families about how to protect their homes from lead.
Homebuyers have a 10-day period to conduct a lead paint investigation at their own expense
HUD Lead-Based Paint Hazards Disclosure Form
Divided into three sections:

1- Seller's Disclosure - place for sellers to disclose known lead based paint issues
2- Purchaser's Acknowledgment - place for purchasers to acknowledge whether they received any reports, pamphlet, and the right to an assessment period
3- Agent's Acknowledgement - place for agents to acknowledge their role in compliance
How does mold grow?
Moisture, oxygen, and food source
What do termites eat?
What is radon, and what is its place in real estate?
It is a poisonous gas in the earth that can congregate in the basement
Define real property vs. personal property
Real property is land and everything attached to it; persona property is any property that is moveable and not affixed to land
What are the four value characteristics in real estate?
What are the three physical characteristics that give land value?
What is appraisal?
Appraisal is an opinion of the value of property, as a specified date, supported by objective data.
What are the three different approaches that can be used in an appraisal?
-Sales Comparison Approach - used most often comparing similar nearby property that sold recently

-Cost Approach - works well for generic properties. Calculate the cost of the building, subtract depreciation, and add in value of site. This is good when there may not be comparables, like for a church. Must consider depreciation, site value, etc.

-Income approach - good for commerical space. Estimates value of real estate by analyzing revenue that the property makes (eg- Starbucks on 57th makes most of it's money due to location)
What is depreciation, and the various types?
The loss in value to property for any reason.

Physical deterioration - actual wear and tear due to age, elements or other forces

Functional obsolescence- building is less desirable because of something inherent in the structure itself (outdated fixtures, bad design, etc)

External obsolescence - something outside the control of the property makes it less desirable, like it all of the sudden becoming a high traffic area
What are the two ways to perform the income approach?
1- Capitalization rate method- Take the net operating income of the building

2- Gross rent multiplier method- Used only for 1-4 residential unit properties where you take the total ross monthly rent. No deductions are made for expenses, vacancies, or collection losses
What does highest and best use refer to?
Most profitable legally permitted, economically feasible use for a property
What is an arm's length transaction?
A typical transaction, meaning this occurred under typical marketplace conditions
What is market value vs. market price?
Market value is the expected price; market price is the actual price
What are the three principles of value?
Substitution - informed buyer will not pay more for a home than a comparable substitute

Conformity - a particular homes achieves maximum value when surrounded by homes similar in style and function

Contribution - a particular item or feature is worth what it actually contributes in value to that property
What is the appraisal report?
The primary means of communicating appraisal results to clients.

The report must be clear, accurate, not misleading, contain sufficient information to be understood properly
What is a CMA
-Competitive Market Analysis

-Look at recently closed sales, things currently on the market, and recently expired listings, and DOM - days on market
What is market position?
Compared to your listing, how many similar properties are for same in the same neighborhood at a similar price?
What is effective age?
Age of a structure based on it's wear and tear, not necessarily its actual age?
What are testers?
Testers are people who visit real estate offices posing and home buyers, and they expect fair, equal treatment to make sure that you are not discriminating
Civil Rights Act of 1866
Prohibits any discrimination based on race or color - NO EXCEPTIONS
Title VIII / Fair Housing Act
This was enacted in 1968, and says that you cannot discriminate based on race, color, religion, or national origin when selling and leasing property.

Protects race, color, relgion, sex, disability, familial status, and national origin
Jones v. Mayer
Court held that the 1866 act applied to property
What does familial status mean?
This refers to a parent or guardian with a child under 18, or else a pregnant woman
Can you ever exclude children from homes?
Only in homes designated for the elderly
What does Title VIII say in reference to handicapped status?
Owners cannot refuse tenants the right to make handicapped improvements at their own expense
What is the difference between a reasonable accommodation and a reasonable modification?
Modification - structural change
Accommodation - exception to rule, policy or surface

Often the housing unit is responsible for the accommodation, while the tenant may be responsible for the modification
HUD / NAR Fair Housing Partnership
The two organizations share responsibilities for achieving fair housing,identifying issues, and determining future strategies
What are the three big fair housing violations?
Steering - channeling prospective buyers to or away from specific neighborhoods based on a protected class

Blockbusting - inducing any person to sell or buy a property based on representations made regarding entry into neighborhood of a certain type of person (suggesting ethnic makeup is changing, pressuring people to sell) (also referred to as panic selling / panic peddling)

Redlining - discriminating against anyone by a commercial lender in making a loan (mortgage brokers and insurance). The refusal to make loans based on property located in a particular neighborhood for discriminatory reasons
What is filtering down?
The process by which values in an area decline due to redlining because it is almost impossible to get a loan
What are the exemptions to Federal Fair Housing?
-Owner-occupied buildings
-Single-family homes
-Housing operated by organizations
-Housing operated by private clubs
-Housing for the elderly

What is the ADA?
The Americans with Disabilities Act protects discrimination based on disability
NY State Division of Human Rights
Created to enforce fair housing laws, and protects even more classes than federal laws do.

Examine the chart on page 266 for federal, state, and city protected classes
How long does someone who believes that they have been a victim of housing discrimination have to file?
They have to file a complaint within one year or bring a civil suit within three years of the incident
What is an express contract versus an implied one?
An express contract is often in writing, and an implied contract is one that has not been put into words but is implied by actions of the party
What is a unilateral versus a bilateral contract?
In a unilateral contract, one party makes a promise to another person. In a bilateral one, both parties make a promise to each other
What is an executory versus an executed contract?
An executuory contract is not finished yet; in an executed contract, all parties have fulfilled their obligations
Are an adult and a minor able to enter into a contract?
Yes, but only the minor can void the contract
What are the six essential elements of a valid contract
-Competent parties (legal age, sound mind)
-Lawful objective (purpose of contract must be legal)
-Consideration - (for value or money)
-Description - (include description of what's being contracted)
-Mutual agreement (meeting of the minds)
-Written format & signatures
What is the statute of frauds?
Requires certain types of contracts to be in writing and signed to be enforceable.
What is the plain language requirement?
For all property under $50,000, contracts have to contain words common in every day language
What is substantial performance?
A promisor does not fulfill all contractual obligations but does enough that the promise of the deed is fulfilled
What is material breach?
Material breach is a breach of contract important enough to excuse the non-reaching party from all contractual obligations
Why is "time is of the essence" dangerous?
It emphasizes that timely performance is an essential part of the contract, and can be dangerous for the buyer
What are conditions / contingency clauses?
They are provisions that make the parties' rights or obligations dependent on the occurrence of certain events (eg.- if you don't get a mortgage loan, then you don't need to complete the transaction)
What are the remedies to breach of contract?
-Cancellation (don't need to go to court if both parties agree)
-Compensatory damages
-Injunction (court order ordering a party what to do / not do)
-Liquidated damages (amount in a contract specified to be rewarded to the plaintiff if the contract is breached)
-Reformation (court alters contract to reflect true intention of parties)
-Rescission (termination of contract and all parties must give back anything that they received under
-Specific performance (court orders someone who has breached a contract to perform as agreed)
What is novation?
The substitute of a new contract for an earlier contract
How long can you bring legal action regarding a real estate contract for?
Six years
What are sales contracts?
The seller promises to convey title to real property in exchange for the purchase price
What is an earnest money deposit?
An inducement to have the buyer's offer accepted by showing the buyer that the seller is serious (Eg.- you have a higher percentage of the down payment, and that makes you more attractive)
What are the conditions that you can terminate an offer under?
-Lapse of time
-Death or incapacity
When does a broker earn their commission?
When the sale goes to contract, even if it never closes
What is a binder?
A sales agreement that basically lists the important information that will go in the sales contract
What data do you need for contract preparation?
Survey of property boundaries, list of encumbrances, the prior deed, property tax bills, and the COO
What is an "as is" clause?
An as is clause is a provision in a purchase agreement stating the buyer accepts the property in its present condition
What is an escape clause?
If the buyer needs to sell his property in order to have the money to buy the new one, the sellers can request a couple of days that allow him to pursue other buyers
What is a contingency versus a rider?
A contingency is a condition that must be met in order for the contract to be performed.

A rider is an amendment to the contract
What is an installment sales contract or a land contract?
The buyer makes payments to the seller in exchange for the right to occupy and use the property, but no deed to title is transferred until all of the payments have been made, as the seller holds the title to land as security
What is the Property Condition Disclosure Statement?
NY law requires seller to give this to buyers, and failure to provide it gives the buyer a $500 credit at closing
What is a leasehold estate?
Gives the holder temporary possession, without conveying title (given to tenant or lessees)
What is an estate for years?
An estate for years is a rental that has an expiration term. This is also known as term tenancy.

This is not ended with death.
What is a periodic estate?
A rental to a party for a period of time that if neither party wants to terminate, it can continue (Eg.- month to month, week to week, etc.).

This is not ended with death.
How can you terminate a periodic estate?
You must give at least one month and one day's notice
What is an estate at will?
This does not have a lease to specify termination date. You must give at least 30 days notice to someone you wish to move (Eg.- you are renting to a family member). Sometimes no rent is paid.

This will automatically terminate when the landlord or tenant dies
What is tenancy at sufferance?
The tenant stays in the residence after the lease has expired and they are no longer welcome. Landlords are not required to give these tenants notice of termination.
What are the standard lease provisions?
-Legal capacity to contract
-Demising clause (grants possession of property to lessee)
-Property description
-Lease renewal
-Use provision
-Terms listed in writing
-Signatures of both parties
Where should security deposits be held?
An escrow account
What does the NY State Warranty of Habitability Law say?
Property owners are required to lease property that is habitable and livable at the beginning of the lease and to maintain these conditions throughout the lease terms
What does the NY Multiple Dwelling Law and Multiple Residence Law say?
An owner renting a multiple family dwelling must keep the property in good shape
Can you apartment share?
Yes - a lease cannot restrict occupants in an apartment to just the tenant named on the lease. You must allow immediate family to share
What is assignment?
Assignment is when the lease contract is transferred from the lessee to someone else. The assignee and the lessee share equal responsibility in paying rent to the landlord.
What is a sublease?
A sublease is when a less gives the property to another party for the duration of the lease, but the original tenant is still responsible to the landlord for rent
What is a covenant? What is the most common one?
A promise, usually stated in a lease. The most common one is the covenant of private enjoyment.
What is an actual eviction?
An actual eviction is the forced, LEGAL removal of a tenant and their belongings from a leased premise. An eviction can only be legally done by a court
What is a constructive eviction?
When the tenant evicts himself because they are prevented from the covenant of quiet enjoyment. This may be due to no plumbing, heating, not habitable, etc.
What is a self-help eviction?
A self-help eviction is when the landlord uses physical force, threats, or other means to get rid of a tenant. This is illegal
What happens if the person on a lease dies?
The heirs or new owner must owner the existing contracts
What is a gross lease?
Tenants pay fixed rent but they pay own cable, utilities, etc.
What is a net lease?
Tenant pays rent and expenses associated with property (taxes, insurance, maintenance) in addition to rent. If they pay one of these it is a single net lease. Two is a net-net lease. Three is a net-net-net or triple net lease.
Who is most likely to pay a net lease?
Commercial owners
What is a percentage lease?
Tenants pay base rent plus an additional monthly rental payment (often found from gross sales)
What is a land lease / ground lease?
Leases unimproved land on a long term basis, and often says that the tenant will construct something on this land and will then own this thing
What is an index lease?
The rent a tenant pays is tied to an index
What is a graduated lease?
Step-by-sep rent increases or decreases paid in installments, often used in a long-term lease
What is an ad valorem tax?
-Taxes based on the assessed value of property
-Real property tax is ad valorem
Why do property taxes exist?
They are easy to administer, predictable, protected in slow economies, miss no one, and are the one identifiable local revenue source for municipalities and schools
What are the exemptions to property taxes?
College, schools, parks, state governments, federal government, religious organizations, hospitals
Who may be granted a partial property tax exemption?
Elderly, disabled, veterans, farmers, Gold Star Parents, STAR Program Homeowners
What is a special assessment district?
Geographic areas designated to pay for infrastructure costs for a specific project

*Likely projects include sidewalks, curbs, driveway approaches, traffic lights, etc.
What are special assessment taxes?
Taxies against real property for improvements
Tax assessor
Local government official who estimates the value of real property within a city, town, or village
Assessing unit
Property within the boundaries of a town, village, etc., assessed by a tax assessor
government's valuation of property for tax purposes
Assessed value
Value placed on land and buildings by a city, town or country assessor for use in levying annual real estate taxes
Can you challenge your taxes?
Yes, but the burden of proof is with you, and you must present your complaint at the board of assessment review
Uniform percentage
The percent that all property in an assessing unit is taxed
Annual reassessment
This is based on changes that have taken place within the specific house.
What happens after assessors gather their information?
They create an assessment roll, which is a public record that has the assessed value of each property. They then file this tentative assessment roll containing the level of assessment and the proposed assessed value for each property. The public then has time for grievance day. After the assessor signs and files a final assessment roll that contains the final assessment, including changes
Is selective reassessment legal?
No - it is a violate of the Equal Protection Clauses
What is a tax levy?
The formal action taken to impose the tax, and thus determines tax rates
What is an appropriation?
It authorizes the expenditure of funds and provides for the source of the money. This happens before a tax levy can be introduced to the community
Homestead vs. Non-homestead Property
Homestead - dwellings of four or fewer units, owner-occupied mobile homes, residential condos, farms, and vacant land suitable for qualified housing

Non-homestead - consist of industrial and commercial parcels and most vacant land
Attempts to measure the relationship of locally assessed value to a fluid real estate market
Challenging an Assessment
-Meet with the assessor to voice concerns
-You may then file a complaint with the Board of Assessment Review, which hears complaints ad can lower or raise assessments based on the evidence.
-If you are still dissatisfied, you can seek a judicial review via a TAX CERTIORARI (legal action challenging an assessment)
Total tax levy / total assessed value =
Tax rate
When do reassessments occur?
Annually, and when new construction, addition, or other improvements, fires, or demolitions occur
in rem
lawsuits or legal actions that are directed toward property, rather than a particular person. Most tax foreclosures are like this
What are the benefits to owning a home?
-Deductible paid property taxes
-Interest paid on mortgage is deductible
-Interest paid on home equity loans is deductible
-IRA funds can be tapped to help purchase a first home without tax consequences
Taxpayer Relief Act of 1997
Gains on the sale of personal residence are taxable, and this act created a provision for this with Section 121 of the IRS. Section 121 provides some relief to taxpayers by exempting some, if not all, of the gain
Section 121 Conditions
-Taxpayer must have owned and used the property as a principal residence for at least two of the last five years prior to the date of sale

-If the place of employment is changed

-Health consideration

-Unforeseen circumstance (death, divorce, disaster, multiple births, etc)
How do you calculate the realized gain?
The exclusion is applied to the realized gain, not the sale price of the property. To calculate the gain, you subtract the adjusted basis, or the original cost plus capital improvement, from the amount realized

Also referred to as sale price minus selling expenses
Home acquisition debt
Mortgage a taxpayer takes out to buy, build, or substantially improve a qualified home
What are points?
Discount points - type of prepaid interest that mortgage borrowers can purchase to lower the amount of interest they will have to pay on subsequent payments. Each discount is 1% of the total loan amount

These may be fully deductible in the year paid if they meet all IRS criteria
Home equity debt
Loans for reasons other than to buy, build or substantially improve a home
What are the three different types of income?
Active income - received form services performed
Portfolio income - interest, dividends, stocks, royalties, etc.
Passive income - anything where the taxpayer does not materially participate (rental property, limited partnership business)
Capital asset
Something owned long-term (land, buildings, machinery, stocks and bonds, real property)
Capital gain vs. capital loss
Profit made from an investment vs. a decrease in the investment value
Long term vs. short term capital gain and loss
Long term - held for more than 12 months
Straight-line depreciation
Assumes an equal amount of an asset's price will be expensed each year of its life. ONLY THE IMPROVEMENTS ON PROPERTY HELD FOR BUSINESS AND INVESTMENT PURPOSES CAN BE DEPRECIATED. Land cannot be depreciated
What is the depreciation rate of residential and non-residential real property?
27.5 years for residential, and 39 years for commerical
Section 1031 of the IRS Code
Allows similar properties to be exchanged without being taxes. This is called a like-kind exchange (livestock of different sexes, personal property for real property)
What is a reverse exchange?
Used when a taxpayer might defer tax because a replacement property is acquired prior to transferring the relinquished property.
When is interest on a home mortgage tax deductible?
When it is below the assessed value
What are condos?
Property developed for co-ownership with each co-owner having a separate interest in an individual unit, combined with an undivided interest in the common areas of the property
The Condominium Act
NY State's law governing the establishment of condos
Maintenance fees
Monthly fees required of each condo or co-op shareholder for such expenses as utilities, management, building maintenance, and upkeep
What is a sponsor?
Person, corporation, or other entity that is part of the sale & development of a condo or co-op property. (Also known as the developer)
The board of managers
Makes decisions on behalf of the owners of the units
Offering plan
Document provided by the sponsor that offers detailed information about the property like special risks, floor plans, price increases, hidden fees, etc.
Eviction plan or non-eviction plan
How you convert a building to a co-op or a condo
What is a letter of intent?
Two or more parties agree to do business together, often used to reserve a particular unit. Most of them are non-binding
Cooperative Policy Statement #1 (CPS-1)
Applicable to co-ops, condos, and homeowners associations and is used to test the market
What is flipping?
Purchasing property and immediately reselling it for profit, usually after fixing it up.
What is another name for flipping?
Assigning a contract - meaning assigning the purchase rights to property or a condo unit to another buyer before that property has closed
Simultaneous closing
Investor or seller creates a private mortgage note and then simultaneously closes with the buyer on the same day
What is a co-op?
Building owned by a corporation where the residents are shareholders. Each shareholder get a proprietary lease on an individual unit and the right to use common areas
How do you usually purchase a co-op?
With a share loan, which is a type of co-op loan signifying a buyer is purchasing shares in a corporation rather than a mortgage for ownership for property
What is a flip tax
Often included in co-ops, this is the fee imposed by the board for the transfer of ownership during the sale of a unit
What are the house rules?
Rules and requirements established for the condo or co-op tenants
Alteration agreement
Written and signed by co-op shareholder-tenants before any renovations, modifications, repairs, or alterations can begin
Board package
Typically includes complete financial disclosure, and is given to the board during the board interview, if you are in a co-op
What is a condop?
A building divided into two parts:

1-the co-op residential units that are considered one condo unit and
2-the professional and commercial units that are the second unit
What is the 80/20 rule?
An IRS rule that states that no more than 20% of the co-op's yearly income can come from non-shareholder sources in order for individual shareholders to continue to be able to write of yearly taxes and mortgage interest
Promissory note
Written promise to pay. The person promising to pay is called the maker of the note
Mortgagee v. mortgagor
lender and borrower (only exception to the "ee" rule)
What is a mortgage?
A type of security instrument in which the mortgagor pledges property to the lender as collateral for the debt
If you miss a payment or two, the lender can come after you to pay off the entire loan
Primary mortgage market
Consists of lenders who make mortgage loans directly to borrowers, often banks and savings & loan associations
Do mortgage brokers lend money?
NO - they bring together borrowers and lenders. Mortgage bankers lend money
Secondary mortgage market
Private investigators and government agencies that buy and sell real estate mortgages
Fannie Mae
Created to provide a place for banks and other lenders to sell FHA-insured loans. It is a private corporation that purchases conventional mortgages as well as FHA and VA loans. Fannie Mae helped standardize mortgage loans
How is Fannie Mae funded?
Securitization, which is the act of pooling mortgages and then selling them as mortgage-backed services. Fannie Mae is the nation's largest investor in residential mortgages
Conforming loan
A loan that meets Fannie Mae and Freddie Mac standards, and can thus be sold on the secondary market
When do lenders like to make conforming loans?
They like the option of being able to liquidate their real estate loans on the secondary market if more funds are needed
Freddie Mac
IT does not guarantee payment of its mortgages, but it helps S&L's acquire additional funds for lending in the mortgage market by purchasing the mortgages they already held
Ginnie Mae
Promote investment by guaranteeing the payment of principal and interest on FHA and VA mortgages through its mortgage backed securities program. This guarantees interest and principal mortgage payments to mortgage holders
Conventional loan
Any loan not insured or guaranteed by a government agency (FHA, VA), but they are secured by Freddie & Fannie
Loan-to-value ratio - the amount of money borrowed compared to the value of the property. They are used to determine how much to loan on a property based on the property's value
What is the standard conventional loan for an LTV
80% (20% down payment)
Private Mortgage Insurance - offered by private companies to insure a lender against a borrower's default. The insurer insures the amount that exceeds the standard 80% LTV.

Both Fannie & Freddie require third-party insurance on home loans with down payments of less than 20%
What is a point / discount point?
1% of the loan amount that is often charged by lenders for making loans (NOT THE SALE AMOUNT - LOAN AMOUNT).
Federal Housing Administration

The FHA's main job is to insure loans, but they DO NOT make them.

They can only insure the first mortgage loan
Lower down-payment, no pre-payment penalties
VA - Guaranteed Loans
The Veterans Administration guarantees repayment of certain residential loans made to eligible veterans (who have completed the minimum number of days of active duty and have not been dishonorably discharged)
USDA Rural Development Housing Programs
For farms
State of NY Mortgage Agency Programs

-The only government program that is a direct lender
-Created in 1970 t reduce funds shortages from private banks in NY
The reduction of the balance of the loan by paying back some of the principal owed on a regular basis
Negative amortization
When a loan balance grows because payments do not cover the interest on the loan
Fully Amortized Loan
Regular payments are applied firs to the interest and then to the principal over a number of years. In the beginning, much more goes to the interest, and then you pay off the principal
Amortization Schedule
A tool used to show exactly how much of each payment of a FAL will be applied to interest versus principal over the life of the loan
Straight loan
regular payments cover only the interest, and at the end of the loan, a lump sum payment of the principal is required
Partially Amortized Loan
Also called a balloon loan

-Periodic payments that don't full pay off loan, therefore the final payment is larger and is known as a balloon payment
One party agrees to take over payments of another party's debt, with the terms staying unchanged
Nonconforming loans
These do not meet Fannie & Freddie standards and can therefore not be sold on the secondary market
Why might loans be classified as nonconforming?
The size of the loan and credit quality of the borrower
Jumbo loans
Exceed the maximum loan amount established by Fannie & Freddie for conforming mortgage loans, and are thus classified as non conforming
Subprime loans
Also called B-C loans, have more risks than are allowed in the conforming loan market
Predatory lending
Loans that take advantage of ill-informed consumers through excessively high fees, misrepresented loan terms, frequent refinancing, etc. It targets people with little knowledge or defense against these practices

-Packing a loan with credit insurance & other extra fees
-Extending credit to people with little or no income who likely cannot repay the loan
-Refinancing the lender's own high-cost loan with another fee-rich loan in less than a year's time
Who is the highest target of extreme lending
Borrowers with extremely high debt, who often put 50% or more of their income into the mortgage payment (should really only do 28%)
Home Ownership and Equity Protection Act

-Prohibits equity stripping whereby a homeowner loses equity in a home due to excessive fees and other abusive lending practices.

-Amended the Truth in Lending Act
Amenity purchaser
An owner/user who is motivated to find a location from which to house and operate a business. This buyer values a property based on its ability to fulfill his specific business needs and may be more concerned about factors such as space, location, potential for expansion
Gross lease / Full service lease
Straightforward exchange of rent for occupancy
What is another name for a triple net lease
Absolute net lease
What is a percentage lease?
Gross or net lease in which the tenant pays a fixed monthly base rent as well as a percentage of gross sales achieved by the tenant over and above a predetermined level of sales known as the breakpoint.

This allows the landlord to share in the tenant's success and may include a clause that allows the owner to reclaim the premises if gross sales fall below a certain point
What type of tenant is most likely to use a percentage lease?
Retail tenant
What are some common lease clauses?
-Use (defines used of leased space)
-Attornment (establishes tenancy with new owner)
-Estoppel (affirms tenant obligations to lease terms)
-Sublease and assignment
-Subordination and non-disturbance
-Electric service
What is rentable square footage / gross footage?
The total floor area of a building, including share common areas. This is what commerical space is calculated on
What is another name for useable square footage?
Net or carpetable square footage
What is the loss factor / load
Ratio of rentable space to useable space.

Eg.- A loss factor of 20% means that for every 100 sq feet on which the tenant pays rent, only 80 square feet is actually their usable space
Building efficiency
Ratio of useable square footage to rentable square footage
Escalation clause
Rent may be adjusted or escalated during the lease term to add value to the property and/or cover increased costs of operating the building
Pro-rata share
Proportional basis, sometimes how the share of common expenses is divided up
Leases that allow landlords to pass along unexpected increased in operating costs to tenants
Expense cap / expense ceiling
A lease clause that limits tenants' expense liabilities
What is leverage?
The effect that borrowed funds (other people's money) have on investment returns
What is liquidity?
The ability to convert an asset into cash quickly without the loss of principal
Cash Flow Model
Used by investors to evaluate the earning potential of a property

Gross Potential Income - Vacancy Loss + Miscellaneous Income = Effective Gross Income - Expenses = Net Operating Income - Annual Debt Service = Cash Flow Before Taxes
Pro forma statements
The cash flow model allows investors to prepare thee, which show the hypothetical projection of income and expenses for the first full year of ownership
Operating statement
Total revenues generated and expenses for a given period as a means of evaluating the property's performance. The investor will adjust that information as necessary to arrive at an estimate of the property's performance
Net Operating Income
- Most important component of cash flow model
-Measure the ability of an investment property to produce an income stream or steady cash flow from its operations
How is capitalization rate method used by investors?
Estimate the present value of future income
IRV Formula
Capitalization calculation
Value = Income / Rate
Cash Flow
Measure of both income and expense items associated with operating a property
Cash-on-cash return
Found by examining cash flow, this is the ratio of income generated by the property to the cash investment in the property.

Divide before tax cash flow by the out-of-pocket cost to purchase the property
Graduated Payment Mortgage

-Allows borrowers to make smaller payments in the beginning of the mortgage to avoid debt, but resulting in negative amortization
Negative amortization
When payments are not sufficient to cover the mortgage, and you therefore would need to start making higher payments later in the mortgage
Straight mortgage / interest-only mortgage
Also called a term

This is when the borrower pays back only the interest over the mortgage and then pays back the principal in a lump sum or balloon payment at the end of the mortgage
Construction mortgage
Temporary loan used to finance construction of buildings on land
Bridge mortgage / swing loan
Covers more than one parcel of land in the gap between selling one property and buying another
Blanket mortgage
Covers more than one parcel of land and is used to finance subdivision developments
Purchase money mortgage
When a seller finances all or part of the sale price for the buyer
Land contracts
The buyer makes payments to the seller in exchange for the right to occupy and use the property, but no deed or title is transferred until all, or a specific portion, has been paid
Seller financing
When the seller extends credit to a buyer to finance the purchase of the property - most sellers don't do this
Annual Interest Formula
Principal x interest rate = annual interest
Fixed rate loan
Interest rates taht remain constant for the term of the loan
How much will you save in a 15 year versus a 30 year mortgage
About 1/3 of the money
Adjustable Rate Mortgage

-Permits a lender to adjust the interest rate periodically so that it reflects fluctuations in the cost of money as indicated by a chosen index

-This is really only done with investment property where you might want it to reflect the market
Statistical report that is a good indicator of the approximate cost of money

Index Value / Margin = Interest Rate
Acceleration clause
Lender can demand the full payment immediately because you didn't make some payments
Due on Sale Clause / Alienation Clause
This limits the debtor's right to transfer the property without the permission of the lender
Prepayment Penalty
Lenders can charge you for paying off the loan early
Subordination Agreement
Gives a mortgage recorded at a later date priority over an earlier one
Judicial foreclosure
Court-ordered sheriff's sale of property to repay deed
Lis pendens
Pending foreclosure
Equitable right of redemption
The owner's right to save his own property by paying it off in full from notice of foreclosure until confirmation of sales
Deficiency judgement
Court order stating that the debtor owes money to the creditor when the collateral property does not bring enough at foreclosure sale
Truth in Lending Act

Enacted to prevent abuse in consumer credit disclosures by requiring lenders to disclose consumer credit costs in a uniform manner to promote informed use of consumer credit

Implemented by Reg. Z
Regulation Z
Controls the disclosure of interest rates and other finance charges imposed by lenders

Also regulates advertising
Annual percentage rate, or the actual interest rate charged, including the loan fees and points

Made in the form of a Truth and Lending Statement, detailing the actual cost of borrowing money at the time of the loan
Triggering terms
Words or phrases that describe a loan -

If you have a triggering term, you must tell the full story
Size of loan borrower may eligible for
Lender determines that you will be approved and exactly what amount it is for
Payment to income ratio
Examines whether a borrower's table monthly income is considered adequate to cover the monthly mortgage payment of PITI (principal, interest, taxes, insurance)

Fannie & Freddie: 23/36
FHA: 31/43
VA: x/41
Debt to income ratio
Back end - all of the debt you owe including car payments, credit card debt, etc.
How long will negative information stay on your credit history?
Seven years
The person who evaluates a loan application and determines its risk for lenders
Can a real estate agent act as a mortgage broker?
Yes, but they must contain consent from both parties and complete the agency disclosure form.
What are the different municipalities?
County - regional form of government
Village - 500 people or less
City - Self governing with taxing jurisdiction, great authority
Town - major division of each city
Who are the administrative bodies for each municipality
Village - Village board of trustees
City - City council
Town - Town board
Real property Tax
Taxed based on the assessed value of real property
Tax levies
These determine property tax rates
How do you calculate the property owner's share of the tax
Multiply the tax rate by the property's assessed value, minus exemptions
What is a property's assessment?
A percentage of its market value
Tax Assessor's Office
The tax assessor's office is mainly responsible fore determining the assessed value of property. They do NOT determine property taxes
Municipal tax assessor office
Monitor improvements on properties for reassessment and keep records of things like:

Location of parcels, tax information, exemptions, property ownership, etc.
Office of the Receiver of Taxes
Responsible for collecting taxes, disbursing funds, keeping tax records, and other accounting functions
What is the head of the office of the receiver of taxes called?
The receiver of taxes
Planning Board
Holds public hearings, makes recommendations, investigates planning solutions. This group makes recommendations to the appropriate legislative authority

This board approves or rejects proposals for subdivisions
Planning department
Office of jurisdiction with employees who carry out administrative functions.

This department can help carry about the approved subdivision plans by the planning board
Zoning borad of appeals
Hears and decides requests for variances and other special permits brought before the board
Conservation Advisory Council
Studies matters pertaining to environment, preservation, development, and use of city's natural features
Historic preservation office
Evaluates preserves, and revitalize the municipality's historical, archaeological, and cultural resources
Landmarks Preservation Committee

-NYC agency responsible for identifying and designing the city's landmarks
-May include buildings brides, parks, etc.
Municipal engineer's office
Can plan, design, and construct NY's public works facilities and projects
What is property insurance?
Coverage that indemnifies a person with an interest in the property for a loss caused to the property by a covered peril