Real-Estate Market Basics: Concepts, Titles, Tenancy, Measurement, Possession, Deeds, & Mortgages

Real-Estate Market Basics: Concepts, Titles, Tenancy, Measurement, Possession, Deeds, & Mortgages


Welcome! What we will learn today includes the concept of real estate as well as Titles and their attributes; types of tenancy and types of properties; and definition by measurement, using the Township as the standard;
possession of property; Deeds and their conveyance from giver to receiver; restrictions of use imposed both privately and publicly; and, finally, Mortgages, how they’re transferred and how they affect the larger financial
markets. First, we’ll start with the concept of Real Estate. How can we define it? The elemental concept of real estate–the
American tradition of property rights–is largely derived from
the Anglo-Saxon tradition. Actually, the concept of real estate begins with some Nordic cosmology, early informal English tradition, Saxon Common Law, and finally the first written
document (modern law), the Magna Carta. We can visualize property, starting along a shoreline, looking at a point on the
horizon and to the right we see the Sea to the left, the Earth, above the Air, and, then, focusing downward beneath the surface, the Core. Secondly, if we face inland and draw a horizon line, then above the horizon is the Sky that helps us to determine air rights, the height of building, etc., and then the Ground in terms of the use of the surface all the Earth whereas Core defines mineral rights. As we
face away from land out to Sea, again we’ll draw a horizon
line– the Sky above and the Sea below, and generally speaking we can, on a clear day, see about twelve to fifteen miles out to Sea because the curvature of the Earth. This helps us to define the
difference between a sovereign state and international waters. Next we’ll talk about Titles and the attributes of these documents. We’ll start with the Title which is known as a “Fee Simple.” This is the most common one and
generally ownership of residential property is Fee Simple. This reflects a bundle of rights: the right to Dispose of the property,
to use sell or given away, the Use of the
property, (of course a Possession of that
property, which is what the Title’s about), and the ability
to and the right to Exclude others from using
the property. The difference between Real Estate and Real Property. Real Estate plus the Title equals what we call Real Property and Freehold Tenancy. There is an indefinite duration of time. Freehold Estate Tenancy, as it’s called, can go on somewhat perpetually and be passed along
from one party–one generation–to another. The Freehold may be Fee Simple. It could be a Life Estate where someone has the the right to live in a house untill they pass away and then is prearranged to be turned
over to another party. Generally, this
party is called a remainder man, a traditional term. Title is equal to the estate minus the tenancy. So, what we have then
is the Bundle of Rights, the right of Disposition, of Use, Possession, and Exclusion. These abbreviate as D.U.P.E. A Non-Freehold has a limited duration of time to it, of how long a person may hold this. So, it is Non-Freehold. Generally, it’s referred to as a
Leasehold that involves having a lease contract which specifies a duration of time. This lease is similar to the Title
except there’s one of these property rights, Bundle of Rights which is not there. That is the right to Dispose of the property, to sell it or
give it away. Though, there is with the lease the rights to
Use it, to Possess it, and to Exclude others from
using it. Here, we have a comparison chart (and you
may want to pause the video because of the amount of content here). But, the key features here is that a Freehold has an indefinite duration. The Non-Freehold has a limited duration and the Bundle of Rights in a Freehold include all four: Disposition, Use, Possession, and Exclusion, whereas the lease, or Leasehold, excludes the right of Disposition. So, the Estate is equal to the Title is equal to this bundle of four rights to the property. Let’s talk about the types of tenancy and the types of properties. (Again you may want to pause to take a look at this chart.) This tenancy in Severalty, a number people; in common, often times between the married couple and where
there are heirs specified for that tenancy; and in Joint Estate there is
something called Right of Survivors, so anyone surviving has a right to continue
the tenancy and have that Fee Simple. They have that
four-fold Rights of Property. By Entireties, the Right of Survivors and the same rights. In terms of properties, there is
business property– service sector; industrial property, (generally manufacturing), commercial ( both wholesale and retail), residential property; and agricultural property. Residential properties can be defined as four or less units or vacant land that is zoned for
residential use; or it can also be ten or less acres of
agricultural land. When it’s that small it lacks the natural condition for being a good working farm. If we move on to definition by measurement, we’re going to
look at the Township as our basic standard of
measurement. The Township is six miles by six miles square, in other words, 36 square miles encompassing 23,040 acres. To measure this, let’s take an example of
an uncharted island — one of irregular form — and on this we’re going to draw a Baseline and Meridian. We try to center it as close to the
center as possible, whatever is practical, for simplicity’s
sake. In our measurement here, we are going to use the full Township and also carry over onto the water
around this island. So, we measure the island and we’re going to have measurements
down to quarter miles. So, if we measure the entire island, the entire
area, we want to determine how many square miles are on the yellow island as
bordered by the red boundary line. We’re not really
concerned with the water at this time. We can use square
quarter miles to do the estimation and we find that
this island is 368.75 square miles. It’s 23.5 miles long and 23.5 miles wide. Let’s go back to our standard unit of
measurement which is the Township, which is 6 miles by 6 miles, 36 square miles, 23,040 acres. We’re going to look at how we can
further subdivide this. If we subdivide a township, we’re going to have 36 square-mile Sections. So, each Section is one-square mile and includes 640 acres. If we subdivide this into quarter sections, so each section is a quarter of a square mile, there are 160 acres, and the boundaries of this are one-half
mile by one-half mile. If we subdivide further we have land which is one-quarter mile
by one-quarter mile. This is a sixteenth of a Section which is
a sixteenth of a square mile and 40 acres which is traditionally a size of a workable family farm. This forty acres can be further divided as subdivision–residential property. In terms of possession of property, first we can talk about Voluntary Alienation, giving up the right to possess the land voluntarily with an
instrument of conveyance, of transfer of these rights through a Deed or through Will. Involuntary Alienation occurs when a person dies
without a Will and in that case the property goes to the probate court and the court decides. Also, if they die without a Will and without heirs, this is called Escheat and in this case the property is deeded over to
the state government. Involuntary Alienation can include things like Eminent Domain and Condemnation by Eminent Domain in which a government–if they pay a fair
value for the property–can take over that property, regardless
of whether the present owner wants to keep it or not. Usually, this
is for some larger public good (constructing an expressway or other things like this). Adverse
Possession may be hostile or it could be simply
Open Possession without permission and also may include taxation, because if taxes are not paid on
the property the municipality or the county can take
that property over for lack of taxes being paid. Clear Adverse Possession may occur if
there’s a legitimate claim on the Title or simply Flagrant Possession of moving in and occupying the land. Though, it could be if there’s property to which there’s no
apparent claim a person resides on that property for
seven years (is a common-law), then they can claim ownership to what would be an abandoned property. Voluntary Alienation requires an Instrument of Conveyance, a transfer, usually a Deed, but often times a conveyance of a a Title. On this chart here (and when it’s complete
you may want to pause the video and take a look at it), what we have are the instruments which may be transferred. The Giver, and the Receiver–now, the Giver (many different names here for them but
they are all represent the origin and so their
names end with an “OR”), the Receiver (that’s the end-recipient, so that name ends with an “EE,” an easy way to remember this). So, the instrument of a Title
or Deed is given by a Grantor to a Receiver known as the Grantee. Deeds and their conveyance. The Deed is an Instrument of Conveyance, of transfer, that occurs between two parties. One party represents the
Giver, the other party the Receiver. The Giver, who is the Grantor (most likely the
seller), gives the Deed to the Grantee who is the buyer. Now, for an example, it may be a Sale-by-Owner property and in which case that For-Sale-by-Owner gives the Deed or Title (or both) to the borrower who is the Receiver. In different states, there is an
application of a different theory who has the predominant right over
the property– this is Lien Theory versus Title Theory.
Under Lien Theory, the Grantee, the Mortgagor, the buyer of the property has a legal control, whereas as in a Title Theory state, it’s the Mortgagee, the lender, who maintains that control. The Deed is a recorded Constructive Notice. So, a Constructive Notice is something that is going to be in writing and is filed as a public record. An Actual Notice is more traditional. A person would stand in the middle the town, all the neighbors would come about, and he would say “I now own
this piece a property” and describe it to them. This is not written. It’s not filed. It is an informal notice. There are a number different types of Deeds.
Here are some of them that we consider that we see most often: a
Bargain and Sale Deed, or a Quitclaim deed that clarifies what the property is; also, special
Warranty Deeds; and General Warranty Deeds; Free and Clear, or Free of All Encumbrance Deeds. These are what the names suggest. Deed requirements are that there must be a Premise, in
other words, a Grantor and a Grantee. There must be some interchange between them. Also, there is something known as the Habendum Clause or Seisin Clause, which goes back to the Middle Ages. This is to have and to hold the property. There must be Consideration given: money or other valuables, or could be
something which is good and simple as love and affection (and this goes back many centuries when wives were considered chattel property). A valid Deed is one that is signed by the Grantor along with two witnesses and it has to be offered voluntarily by
the Grantor and accepted voluntarily by the Grantee. Encumbrance, or lack thereof. If there is no Encumbrances, then the property, the Deed, is free and clear. There are no Liens on it. In other words, there is no financial obligation that when the property is sold, somebody can claim a portion of the sales price to pay off a Lien. As we said, this Deed is an Instrument of Conveyance between two parties and, as we have seen before, the two parties are the Giver and the Receiver. Now, if we look at the
transaction that occurs between Giver and Receiver (an example here is the Giver is a Grantor, and also the seller, and the Receiver is the Grantee and buyer of the property), the Giver is a Note Giver to the Receiver who is
the Mortgagor, the borrower, and by doing this, there’s an Entitlement of those basic rights which are Disposition, Use, Possession, and Exclusion. There are conditions of a Title that have
to be considered. First is the Chain of the Title,
sometimes going back to some original Land Grant. There has to be
established an uninterrupted chain in the Title being
passed from one party to the next. This is done through a
Title Search and the Title Search is basically
summarized in a document called an Abstract of Title and an Opinion as to the quality of the
search, as to the cleanliness of the Deed, and the passage of Title is given. Also, Title Insurance has an important role in all of this because
it protects both parties. Owners–it protects them
for the purchase price that they’re paying–and protects Lenders– in terms of the loan amount–and protects
both parties from cases of forgeries that may have
happened in the present or in the distant past in respect to the Deed and in respect to the Title. The Restrictions of Use of a property can be either private or public. The private restrictions may be Deed
Restrictions, actually written into the Deed or in some Restrictive Covenant that is added
to that. There may be a Restriction listed in a
Lease as to how many people may live in a property
or whether there can be pets. Liens are an obligation that can’t be collected immediately (and we’ll
talk about Easement in a second). But, what we’re looking for are Deeds that which are essentially as free and clear as possible. Government restrictions involve
something as simple as zoning, how the property is to be used (also the use of Eminent Domain to acquire property and the ability to tax property). This puts a certain restriction because if a
person doesn’t pay the property taxes, they forfeit the property to the
government. Encroachment and Easement. This has to do with adjacent property and the rights of adjacent property owners. Encroachment
is if one person uses somebody else’s property
or moves a fence on to that property without permission. An Easement is the opposite. A
very simple example is a person opens a car door and gets out
on to the lawn which belongs to the house of their neighbor. There’s generally a
one-foot easement. Now, we’ll look at Mortgages in a little bit more depth. A Mortgage tells us that the Mortgagor is the Grantee, giving the Mortgage, is the borrower and is the buyer. So, there are two parties
involved in these transactions. We have, again, the Giver and the Receiver. Now the Giver would be the Mortgagor who is the buyer and is also the Grantee. They’re going to give a Promissory Note and Mortgage to the Mortgagee and lender, which is often a bank. But, that party is the noteholder that
then gives loan money to the notegiver who is the buyer. If we look at a monthly payment for a piece of property, it’s usually a fixed
monthly payment and part of it is Principle, and part of it is Interest. At the beginning of
a Mortgage, most of that monthly payment is Interest. Very little of it is Principle
paying down the balance on the property. But, as time goes on, as we get to the years near the end of the
mortgage, most of that payment becomes Principle paid and very little of it is Interest. A Mortgage is made up of different payments. The Principle and the Interest together are referred to as to as Debt Service. But, there’s also, in most Mortgages, taxes, which are paid and insurance which is paid and those
are paid into and Impounded Fund called an Escrow Account, and they’re included as part of a monthly payment. They’re held in
Escrow and then dispersed. So, we have Debt Service and we have Escrow Impounds, and these two items together make up the total amount which would be paid monthly (and we call that P.i.T.I, pity), and this includes, again, Principal Interest, Taxes, and Insurance. A Promissory Note, an obligation to pay, is signed by the Mortgagor who is borrowing money is
promising to pay it back. The Mortgage is recorded, becomes a security instrument in respect to the property. It’s a Voluntary Lien that the lender will get paid. It’s signed by the Mortgagor and in the
event of non-payment as a document facilitates the act of foreclosure. When Mortgages enter into the financial market in clusters, they often get bundled into other financial instruments. What we’ve
found in the first decade of the 21st century was that lenders were turning (to a very large degree) to issuing
Sub-Prime mortgages, very high-risk mortgages with very little security. Potentially, they can earn a higher amount of interest. But, most of these collapsed and caused the downfall of Lehman Brothers and vast problems for other Wall Street firms. There are also Prime mortgages. This is
the standard, typical low-risk mortgage, liked by lenders because of the low risk. But, it doesn’t carry the highest rate of
interest. So, in terms of the gamble involved its not necessarily the best for the lender. There’s also Alt-A mortgages which are kind of an in-between mortgage. Then, what began to rise in the middle of the first decade of the 21st
century were option A-R-M Mortgages, Adjustable-Rate Mortgages where the Mortgage interest rate goes up or it goes down with the prevailing interest rates set by the London Inter-bank Offer Rate (LIBOR) These have that potential because when houses are below water, where the value the property is decreased to
below what is owed on the property and then interest increases because it’s tied to (pegged to) the general
interest rate, there is a greater tendency for people
to walk away and abandon property. This has carried on into the second decade of the 21st century. In recent decades, the issuing and servicing of Mortgages have moved
away from a single bank issuing a mortgage and an
acting to service that for the lifetime of the Mortgage. The trend has been to issue Mortgages and then step away, sell them off very
quickly to somebody else who will service them. This has been due
largely to a drive in the financial markets to use Mortgages as ingredients for other securities, like hedge funds. The first one that we see on the left, RMBS, a Real Estate Mortgage-Backed
Security is a fairly good one. Most of the Mortgages in there have a AAA rating These are going to be Prime Mortgages and similar Mortgages, but what began to happen in the first decade of the 21st
century is that these Collateralized Debt Obligations collateralized by the
property, began to be filled up with these Sub-Prime
Mortgages and it became for very risky. However, the bond-rating services began to rate them as very good Mortgages, very good securities, even though they
were filled with highly volatile toxic assets. This again is part of what led to the collapse of the
Mortgage-Backed Securities market in 2008. So, what have covered? We’ve covered
the concept of Real Estate and what it is; We’ve looked at Titles and the attributes of these documents and the types of Tenancy and types of Properties; We defined and measured property in terms of the unit of the Township; We discussed possession of property by
different means and looked at Deeds and their conveyance
from giver to receiver; We discussed the Restrictions of Use of property; and, finally, we addressed Mortgages and the role that Mortgages play in the wider
financial market. Thank you for being with us today. Hope that you have learned something from this and we’ll see you soon. Goodbye.

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