Planned Unit Development PUD
A comprehensive land development plan, used primarily in the planning and construction of residential areas, that provides for shared properties or obligations. Townhouses or subdivisions in unincorporated areas may be developed as PUDs and have homeowners associations to maintain those responsibilities within the project confines, such as snow removal, road repair and greenbelt maintenance. For more information, see the PUDs and Townhouses article in the Real Estate In-Depth section.
Reproduction Cost Approach
A method used in appraising property value that seeks to duplicate the improvements as exactly as originally constructed. No depreciation adjustments for age or condition. The elements of the reproduction approach use one of the following methods to estimate unit costs square foot, cubic foot, unit in place, quantity survey and index. Compare with replacement cost approach. For more information, see the Analyzing Apraisal Reports article in the Loan Process section and the Hazard Insurance...
avoiding them
A review of real estate capital gains taxation can qet complicated because of the many regulations and allowances provided by law. But a good working knowledge of these tax regulations and benefits can often mean the difference between profit and loss for many real estate investors. The stock market has introduced most Americans to the scourge of capital gain taxes. The problem many Americans especially Republicans have with capital gain taxes is that it smacks of unfair double taxation. For...
Recapturing Depreciation
The benefits of depreciation deductions are somewhat offset by the requirement that all deprecation claimed on the property must be recaptured and taxed when the property is sold. Nevertheless, the investor will still come out ahead. When the accrued depreciation is recaptured, it is taxed at 25 , slightly higher than standard capital gains . However, when you claim depreciation deduction, you potentially could use that to lower your taxable income. If you are in the 28 tax bracket, that's a...
Calculating Depreciation
First of all, depreciation is mandatory. You must accept and claim depreciation deductions if your property qualifies for depreciation . You cannot elect out of it. Consequently, real estate investors cannot file 1040EZ short forms. You may wonder why someone would forego depreciation deductions there are investors with sufficient deductions elsewhere and don't need any more deductions. Moreover, depreciation tends to be considered passive activity losses so they cannot be easily deducted...
Rectangular Survey System
Sometimes called the government survey or geodetic survey system, the rectangular survey system is one of the three most common methods for surveying property. The rectangular survey method is often used in combination with either the Metes amp Bounds or Plat of Survey methods. The rectangular survey describes property location as fractions of sections, which are part of townships, and provide distance measurements from principal meridians, base lines and range lines. Because of the curvature...
About the Good Faith Estimate GFE
The good faith estimate GFE is one of several government-required disclosures that you will receive at the time of or within three days after application. It is a legal requirement that all lenders must follow. The GFE provides the borrower with an honest approximation of the closing costs, down payment balances, prepaid expenses and all other charges that the borrower must address at the closing. The borrower should hold the lender to this estimate, with some obvious leeway. The lender must...
Contingent liabilities
Contingent liabilities are any debt obligations that may demand payment at a future date. The most common type of contingent liability is the co-signed loan, in which the applicant is normally not responsible for the monthly payments. However, if the primary borrower defaults, the co-signer will be held responsible for the loan and default. Another type of contingent liability is student loans, which do not require payment until six months after the borrower ceases his or her formal studies....
Marketable Title
The goal of most real estate transactions is to convey a marketable title in exchange for the purchase price. Sometimes called merchantable title, the marketable title is one that the seller or grantor truly owns it must also be free from any encumbrances and defects not permitted. The definition is simple enough, but the truth is that providing a marketable title is actually very challenging. To provide clear title, the seller's attorney or title company must examine the property's past and...
Voluntary Alienation
The three basic methods of voluntary alienation are through a will, gift or sale. For more information about the process of transferring property through a will, please see the Conveying Title Through Wills article. Conveying title to property through a gift or sale is normally accomplished with a deed. However, there are many kinds of deeds for more information about this lengthy topic, see the All About Deeds article. We hope that you've found our Mortgage and Real Estate Resource helpful and...
Interim financing
Short-term financing in anticipation of a long-term loan is often called interim financing. Many construction loans are actually interim loans. Construction loans are typically short-term financing that is paid off as soon as the building is completed. Another form of interim financing may involve obtaining a second mortgage on the applicant's current home in order to cash out sufficient funds for the down payment on another purchase. These interim financing arrangements are normally not...
Prepaid Expenses Not Included
Closing costs are one-time expenses. In addition, the borrowers must be prepared for prepaid expenses at the closing. Prepaid expenses are regular parts of the projected monthly housing payment interest, insurance, taxes amp assessments that must be paid in advance. For example, the borrower may be required to establish an escrow account at the time of the closing. The borrower will normally have to escrow two or three months of insurance and real estate tax payments into the escrow account....
Construction vs ConstructionPermanent
The typical construction loan is normally an interim or short-term financing that provides the borrowers and their contractor with the funds to build a new home. They are short-term loans in that they must be paid off or refinanced immediately after the construction is completed. In some cases, the construction loan will only cover the actual construction of the structure, and not the purchase of the lot on which the structure house will be built. Construction loans are riskier for the lender....
Chain of title
True ownership is primarily supported by a good chain of title. The chain of title provides a list of all conveyances and other documents recorded against the property. The chain of title should indicate that all of the conveyances between buyers and sellers are legitimate and unbroken. For example, Fred sold to Gene, Gene sold to Harriet, Harriet sold to Indira, and Indira sold to Jesse. The chain should be uninterrupted. For example, the chain of title should not indicate that Quentin sold to...
Process
With a purchase option, the buyer pays the seller for an option to buy the property at a certain price within a certain amount of time. This option contract can be arranged to provide a variety of conditions, contingencies and exit strategies. The option contract approach offers key advantages to the buying investor Exercise purchase with refinance loan after 12 months Minimize risk exposure and expenses The basic terms of the contract is that the seller takes the option fee as income. The...
LoantoValue LTV Restrictions
The loan-to-value ratio for single-family construction loans varies from lender to lender. Some banks normally limited the entire construction-permanent loan to 80 of the appraised value of the completed property. Many lenders today, however, treat the construction-permanent LTV similarly to purchase programs, with total LTVs reaching 90 -95 . At 80 LTV, the need for private mortgage insurance PMI is obviously eliminated. In such cases, the purchase of the lot is considered the loan's down...
Eliminating Closing Costs With Seller Subsidy
A final method for lowering closing costs is to negotiate for the seller to pay them. Unfortunately, many home buyers, sellers and first-time real estate agents are also sometimes unaware of this option. Moreover, seller-paid closing costs are often tax-deductible for the buyer that's correct , while reducing the capital gains calculation for the seller. This is often called a seller subsidy or seller closing contribution. Either way, it's additional funds working in the buyer's favor. The...
Example Public Notice
Ellen decides to sell her ranch to Hector. After completing the transaction and conveying the deed, it is left to Hector to record the deed. Unfortunately, Hector fails to record it. A few years later, Ellen dies. Her heirs do not realize that Hector had already bought the property, and they decide to sell her ranch an unwitting Achilles decides to buy it from Ellen's heirs. Achilles promptly records his new deed. When Hector finds out about Achilles' purchase, he tries to assert his ownership...
No Income Verification Loans
One of the most common non-conforming loan programs is the No Income Verification NIV loan. A non-conforming loan refers to any loans that are sold to the secondary mortgage market, but NOT through Fannie Mae, Freddie Mac or Ginnie Mae. Non-conforming loans are sold through more expensive private conduits because they do not satisfy or conform to the guidelines established by Fannie Mae, Freddie Mac and Ginnie Mae. The NIV program allows the borrower to qualify for mortgage financing,...
Lease Requirements and Elements
A lease agreement is both a contract and a real estate conveyance. Because it is a contract, the normal requirements of a contract apply. However, there are additional elements that apply particularly to leases. This discussion seeks to provide a detailed review of the lease agreement and its constituent parts Although you can jump directly to any of the above segments by simply clicking on the appropriate link, we recommend that you review this article in the arranged order. If you have not...
Staggered Disbursements
The loan funds are disbursed, or paid out, in stages. A typical construction loan structures four 4 disbursements, each of which will only come as certain stages are undertaken or completed. With most construction loans, the four disbursements are often divided as follows 2. Under roof and enclosed to weather An inspection by the lender's appraiser or construction administrator is normally performed prior to each draw request. These inspections are meant to ensure that all work required before...
The Recording Process
As mentioned above, recording is typically handled by the county government. The specific official responsible for this duty is usually called the recorder of deeds, registrar of deeds or county recorder. In some locales, this is may be an elected position. When a deed, mortgage, lease or other instrument is to be publicly recorded, these steps are usually followed Acknowledgment. Before filing an instrument, it must be properly signed by at least the grantor and acknowledged. The...
Hold Harmless Letter
Also called an indemnification affidavit, the hold harmless letter is a legal document in which one party assumes from another party all liability for a subject issue. The person or entity issuing the hold harmless letter assumes all obligations for liabilities that may arise from the specific issue. The person or entity receiving the hold harmless guarantee is theoretically freed from all obligations for liabilities arising from the specific issue. In the context of title company closings, a...
Elements of the Option Contract
Options typically contain the following elements Period. The purchase option gives the buyer a limited time period to exercise the option's purchase rights. The period is negotiable and can last from a few hours to a several years. Option fee. To obtain the option, the buyer usually pays a fee. If the buyer does not exercise the purchase option, the seller will keep that fee. The option fee is often applied toward the purchase price if the buyer does decide to exercise the purchase option....
Requirements for a Valid Deed
There are several requirements that must be met to make a deed completely valid. The most basic and overarching of these requirements is that the deed must meet all of the legal requirements of the state in which the subject property is located. If the deed is being used to convey title to property in Alaska, the deed must meet all of Alaska's legal requirements even if the transaction is being closed in an office in Miami. Although each state varies, all states have most of the following...