35 Key Terms You Should Be Aware Of In A Real Estate Transaction
February 26th, 2015
Are You Ready To Buy Or Sell A Home? Understanding These Key Terms Will Help:
Riparian Rights – The appurtenant rights of an owner of property that borders a body of water. These rights are attached to the land, and cannot exist by themselves. Actual ownership of the body of water depends on a few factors in North Carolina. There are navigable waterways and nonnavigable waterways. If the body of water is navigable the owner owns to the banks of the watercourse, and the state owns the body of water and right to use it. A nonnavigable watercourse is owned by the owner of the land the body of water is on, and owns the right to use it. If there is more than one property owner surrounding a nonnavigable boy of water, ownership extends to the center of the water, unless the deed stated otherwise.
Fixture – A fixture is an item of personal property that is attached to the land or a personal improvement on the land in such a manner that the law deems it to be part of the real property. When contracting in the sale of real property, fixtures can become problematic, that is why it is important for all parties to have a clear understanding of a fixture, and to detail the intentions of the fixture in the offer to purchase and contract. In the event a fixture becomes problematic between the parties, and in the absence of any identification of the fixture in the offer to purchase and contract, the Total Circumstance Test will be applied.
Total Circumstance Test – Four criteria that is used to determine the property of the fixture, when it is absent from the offer to purchase and contract.
- Intention – When determining the ownership of the fixture the first thing the courts will look at is intent.
- Relation to the attacher – An owner typically makes permanent improvements, while a renter typically makes temporary improvements. Once the item becomes real property it’s ownership transfers to the new owner absent an agreement or contract.
- Method – A few things need to be considered here. Will the property be damaged if the item is removed? What does ‘permanently attached’ really mean?
- Adaptation – If the fixture is adapted to the real property it needs to be considered an attachment to that property.
Other types of fixtures include ‘trade fixtures,”agricultural fixtures,‘ and special Uniform Commercial Code fixtures.
Trade Fixtures – Trade fixtures are business items used in the lease of property. If a restaurant is leased, the business items will be considered personal property to the restaurant owner
Agricultural Fixtures – Unlike trade fixtures, agricultural fixtures are considered real property, and attached to the land. If you install fences, or corncribs, they will transfer ownership upon expiration of the rental contract to the property owner.
Uniform Commercial Code Fixtures (UCC) - When the owner of real property finances an item, that items runs with the land and the lender retains a security interest in that personal property until the debt is repaid in full. For example, if a home owner finances a new roof for their home, the roofing company can use the UCC to retain a security interest on the roof until they are paid in full. A security interest exists for the lender, and thus the item is not considered real property until the debt has been satisfied.
Estate – Interest in real property that gives one the right to possession
Allodial System – Form of property ownership used in the United States. Title to property may be held in absolute by individuals. Four important power of the federal and local government.
- Eminent Domain – The right for the government to take your land without contest. The act is ‘condemnation.’ The two rules for eminent domain are 1. It must be for the benefit of the public. 2. The owner of the property must be compensated fairly
- Police Power – Providing for the health, safety, welfare and well being of the public. Property owners are not compensated for the restrictions on their use of property.
- Taxation – Ad Valorem – Taxes are imposed on real property according to value and are the largest source of income for the local governments.
- Escheat – When there is no legal heirs to an estate it becomes property of the state
Freehold Estates – One of the two types of estates is Freehold estate. Freehold estate generally means ownership and identified by an interest in land of at least a lifetime. Freehold estates may be fee simple estates (inheritable) or life estates (typically not inheritable). Freehold estates are divided into two categories, one of inheritance and estates not of inheritance.
Estates of Inheritance – These estates last a lifetime and continue after the death of the titleholder as they are passed on to one’s heirs.
- Fee Simple Absolute
- Fee Simple Determinable
- Fee Simple Conditional
- Estates Pur Autre Vie (Life of another)
Estates Not of Inheritance – These estates are only good for the life of the tenant and do not pass on to heirs but are disposed of by another method.
Same Rights of ownership: Sell, encumber, lease, pay taxes, estover, waste
- Conventional Life Estates(estate for tenant’s own life): A life estate is a noninheritable freehold estate or a traditional estate. When the tenant dies, if there is no remaindermen named by grantor, the grantor has a reversionary interest and it goes back to the grantor or whoever the grantor specified it will go to. After the death of the life tenant the remainderman would hold title in fee simple absolute.
- Marital Life Estates - Marital life estates created in North Carolina by the intestate succession statutes governing the distribution of property of one who dies intestate, meaning death without leaving a valid will. The surviving spouse as an automatic one-third interest in the real property owned in severalty. A will cannot defeat the marital interest of the surviving spouse. Statues do not apply to property owned as tenants by the entirety. A surviving spouse has a choice of either marital life estate or property of the deceased spouse willed to the surviving spouse.
Nonfreehold Estate - Also known as less-than-freehold or leasehold estates, confer a rental interest in real property. Four estates are recognied.
- Estate for years – fixed period of time
- Estate from year to year – periodic tenancy, automatically renews
- Estate at will – both parties may terminate at anytime
- Estate at sufferance – tenant fails to vacate the property
Severalty – Ownership is in the name of only one person
Joint Tenancy – Time, title, interest, and possession are the four unities that make up joint tenancy. Survivorship within joint tenancy, so if a joint tenant dies the survivors receive that tenant’s interest.
Tenancy in Common - Two or more persons holding title to a property at the same time, without a right of survivorship
Tenancy by the Entirety - Ownership by husband and wife, must have legal marriage at the time. Five unities are time, title, interest, possession and marriage. Automatic survivorship.
Condominiums - Individual ownership of the airspace of the individual unit, and co-ownership in the common areas in the form of tenants in common. Seven days to rescind on a condominium contract.
North Carolina Condominium Act of 1986 - Public offering statement, purchaser’s right to cancel within a 7 day period, escrow deposit, escrow of deposit, resale certificates, warranties
Townhouse - Provides ownership of the unit as well as the specific portion of land upon which the unit is located. Different from condominium in the form of ownership of the common areas. The common areas are owned by the HOA. 0 day right to rescind.
Time Share – An interest in real property. The right to occupy a property five or more separated time periods over a span of five or more years. 5 day right to rescind. Purchasers must be given a public offering statement meeting North Carolina Real Estate Commission guidelines before a contract is signed.
Encumbrances to Real Property - Anything that diminishes the bundle of rights of real property. Can have a positive or negative effect on value.
Appurtenance - Something that has been added to something else and as a result becomes an inherent part of that to which it has been added. Easements are appurtenant to the title during conveyance, they remain with the title.
Lien – A lien is a claim against the property that can result from a contractual agreement or from the operation of law. There are two types of liens: Specific Liens which are a claim against the property such as Mortgage, Real Property Tax and Mechanic’s Liens, or General Liens which are claims against all assets of a person: Judgement, Personal Property Tax, Income Tax, Estate and inheritance tax.
Machinery Act – Sets forth the details for property taxation in North Carolina. The assessed value once every 8 years, or a horizontal adjustment at the 4th year interval.
Ad Valorem Tax – According to value. In NC it’s tax rate x per $100 of assessed valuation.
Government Survey System – The land description system used in the United States but not within NC or any of the original 13 colonies.
North Carolina Property Description – known as Metes and Bounds. The original 13 colonies use Metes and Bounds. There is an obvious point of beginning and then there are reference points using metes and bounds. The description must have closure that closes the loop at precisely the same point as the POB.
Adverse Possession – A form of involuntary alienation and method of acquiring Real Property by conforming to the statutory requirement. Must be notorious, hostile, open and uninterrupted for a specific period of time. To obtain marketable title to the property the claimant must satisfy the court requirement of adverse possession by suit to quiet title.
Special Warranty Deed – the warranty is limited to claims against the title arising out of the period of ownership of the grantor. The warranty only goes back to when the owner acquired the title.
Title Insurance Policy – Indemnity contract that protects the purchaser or mortgagee against loss resulting from a defect in title that is covered in the policy and is in existence when the policy is effective.
Variance – A variance is a permitted deviation from specific requirements of the existing zoning ordinance. Variances are permitted if the deviation is not substantial and if strict compliance would impose an undue hardship on the property owner. The hardship must be applicable to one property owner because it’s not a special hardship if all property owners have the same difficulty.
Sub-Division Approval – Public. Local governments, cities, and counties to regulate the creation of subdivisions within their particular jurisdictions.
Enforcement of Subdivision Conveyance – Must obtain approval of the appropriate officials to begin development. In order to convey… A copy of the preliminary map must be attached to the contract and language in the contract must require delivery of the final recorded plat to the buyer before closing and conveyance. Purchaser must be notified; final plat has not yet been recorded, no obligation by any government body to buyer to final plat approval, final recorded plat may differ from preliminary plat, buyer has right to terminate if there is a material difference between preliminary and final recorded plats. The buyer has five days to close after receiving copy of the recorded plat. The buyer has fifteen days days after receiving the final recorded plat to terminate the contract without penalty provided the plats have material differences.
Sub-Division Street Maintenance – Subdivision street disclosure statement must be given to the purchaser and received back with written acknowledgement. The purpose is to disclose to the purchaser if the streets are public, accepted by the division of highways and the board of transportation, or private, maintained by the developer or if the purchaser is responsible. Just because a street is public does not mean it will be publicly maintained.
Misrepresentation – The communication of false or incorrect information. When an agent knowingly communicates information they know to be false it is Willful Misrepresentation. If an agent should know a fact, and doesn’t, failure to exercise reasonable care is negligent misrepresentation.