Word of the Day

Land bordering on the shore of a sea or ocean and thus affected by the tide currents. Littoral land is different from riparian land, which borders on the bank of a watercourse or stream.

A comprehensive plan to guide the long-term physical devel­opment of a particular area.

Valuable additions made to property that amount to more than repairs, costing labor, and capital, intended to enhance the value of the property or extend the useful remaining life. Improvements of land include grading, sidewalks, sewers, streets, utilities, and the like. Improvements to land include buildings, fences, room additions, new roofs, and similar constructions. An improvement could also be an alteration of the land’s surface, such as an irrigation channel. 

Based on modern appraisal methods, the value of an improvement is generally determined by what it adds to the land in terms of production of income or amenities. A reasonable relationship should exist between a site and the character of the improvement placed on it. An over improvement, under improvement, or misplaced improvement detracts from the combined value of a lot and the building on it. 

For income tax purposes, improvements must generally be capitalized, with cost recovery deductions taken over a period of years, whereas maintenance and repairs that do not add to the value of the property can be deducted on income property as business expenses in the year incurred.

Any claim, lien, charge, or liability attached to and binding on real property that may lessen its value or burden, obstruct, or impair the use of a property but not necessarily prevent transfer of title; a right or interest in a property held by one who is not the legal owner of the property. Also spelled incumbrance. 

There are two general classifications of encumbrances: those that affect the title, such as judgments, mortgages, mechanics’ liens, and other liens, which are charges on property used to secure a debt or obligation; and those that affect the physical condition of the property, such as restrictions, encroachments, and easements. 

A covenant against encumbrances guarantees that there are no encumbrances against the property except those specifically disclosed. If no encumbrances are disclosed as exceptions in the contract of sale, the buyer may proceed with the purchase on the assumption that none exist. Encumbrances should be noted on the deed following the property description.

To pledge specific real or personal property as security for an obligation without surrendering possession of it. For example, a long-term tenant could hypothecate the tenant’s leasehold rights as security for a loan. The lender could even use its rights in a receivable mortgage as collateral for some loan to the lender. 

In a typical house purchase, the buyers pay a portion of the purchase price with their own cash and borrow the balance from a lending institution. The lender requires the buyers to hypothecate the property or pledge it as security for repayment of the loan, which repayment is accomplished by use of a mortgage or trust deed. The borrowers retain the rights of possession and control, and the lender secures an underlying equitable right in the pledged property.

A real estate licensee’s term to indicate either a selected geographical area or a group of people from which to solicit real estate business and to which a real estate salesperson devotes special attention and study. A good salesperson learns everything there is to know about a particular geographical area, including all recent comparable sales, and tries to solicit real estate business, especially listings from this community. In a similar manner, licensees seek business from their “people farm.”

A real estate licensee’s term to indicate either a selected geographical area or a group of people from which to solicit real estate business and to which a real estate salesperson devotes special attention and study. A good salesperson learns everything there is to know about a particular geographical area, including all recent comparable sales, and tries to solicit real estate business, especially listings from this community. In a similar manner, licensees seek business from their “people farm.”

The formal decision of a court on the respective rights and claims of the parties to an action or suit. A judgment that has been entered and recorded with the county recorder usually becomes a general lien on the property of the defendant.

A purely statutory general lien on real and personal property belonging to a debtor. Usually the lien covers only property located within the county where the judgment is rendered; notices of the lien must be filed in other counties when the creditor wishes to extend the lien cover¬age. To collect the amount of the judgment, the court is asked to issue a legal document, called a writ of execution, directing the sheriff to seize and sell as much of the debtor’s property as is necessary to pay the debt and the expenses of the sale. A judgment lien differs from a mortgage in that a judgment lien does not have a specific parcel of real estate given as security at the time that the debtor-creditor relationship is created.

The law in the state where the real estate is located determines priority of liens. A judgment takes its priority as a lien on the debtor’s property on one or a combination of the following dates: (1) the date the judgment was entered by the court, (2) the date the judgment was filed for record in the recorder’s office, or (3) the date an execution was issued. Judgments are enforced through the issuance of an execution and the ultimate sale of the debtor’s real or personal property by a sheriff. When the property is sold to satisfy a debt, the debtor should demand a legal document known as a satisfaction judgment, which should be filed with either the clerk of the court or, in some states, with the recorder of deeds so that the record is cleared of the judgment.

A description of a piece of real property that is acceptable by the courts of the state where the property is located for use in real property conveyance documents. The description is usually complete enough so that an independent surveyor can locate and identify that specific parcel of land. Oral testimony is not admissible as a way of describing the property more fully, except in certain cases involving fraud or mistake. Such descriptions are usually based on the field notes of a surveyor or civil engineer. Methods of description are lot, block and subdivision; government survey; and metes and bounds.

Bona fide; an act is done in good faith if it is in fact done honestly, whether negligently or not. The recording laws are designed to protect a good-faith purchaser. Most antidiscrimination laws require a broker to transmit all good-faith offers to lease or buy. Many states add a requirement of good faith for a person to acquire title to someone else’s real property by adverse possession
. 
Sometimes an act done in “bad faith” is punishable as a crime. For instance, if an investor-borrower applies for an owner-occupant loan and lies about his intent to occupy, this type of falsehood is punishable as a misdemeanor under the National Banking Act.

A requirement to reveal fully and accurately all material facts, a requirement based on the theory that no fraud is committed if the purchaser has accurate and full information regarding the property to be purchased. A broker is under a legal obligation to disclose in full to a client all known, relevant facts affecting a proposed transaction. Many state subdivision and condominium laws, as well as the federal Interstate Land Sales Full Disclosure Act (concerning subdivisions), require a developer to disclose fully all material facts of a project to each prospective purchaser or lessee through required distribution of a public report.

Heirs are recipients of an inheritance from a deceased owner, whereas assigns are successors in interest to a property. The words heirs and assigns are customarily inserted in deeds and wills, and are considered to be words of limitation, not words of purchase. Words of limitation in a conveyance indicate what type of estate is created. Words of purchase indicate who takes the estate. For example, in a conveyance “to Harry Howe and his heirs,” the words to Harry Howe are words of purchase. The words and his heirs are words of limitation indicating a fee simple estate; they would not be present in the transfer of a life estate. Heirs and assigns are also generally responsible for the contracts of their predecessors, such as leases, options, mortgages, and contracts for deed. 

A written listing of real property in which the seller agrees to appoint only one broker to sell the property for a specified period of time. The two types of exclusive listings are the exclusive agency and the exclusive right to sell. Generally, exclusive listings must stipulate a definite termination date and may not include a rollover clause. A listing for an indefinite period is frowned on by the courts, is illegal in many states, and is generally poor practice. This is to protect sellers who, unaware that the listing is still in effect after the end of the initial listing period because they failed to give a cancellation notice, may list the property with another broker and thus find themselves liable for the payment of two full commissions.

• Buyer and seller are typically motivated.
• Both parties are well-informed or well-advised, and they are acting in what they con¬sider their own best interest.

An estate or unit of interest in real estate that is owned by two or more natural persons, all owning equal shares with rights of survivorship. The basic idea of a joint tenancy is unity of own¬ership; title is held as though all owners collectively constituted one person, a fictitious entity. The death of one joint tenant does not destroy the owning unit—it only reduces by one the number of persons who jointly own the unit. The remaining joint tenants receive the deceased tenant’s interest by the right of survivorship. Thus, the decedent’s interest cannot be transferred by will or descent. As each successive joint tenant dies, the remaining tenants acquire the interest of the deceased. The last survivor takes title in severalty, fully inheritable at the survivor’s death by heirs and devisees.

Some form of joint tenancy is recognized in most states, although several states have opted to eliminate the right of survivorship as a distinguishing characteristic. Sometimes called the “poor man’s will,” the fact that one holds title to property as a joint tenant is no reason for a person not to make a will. Joint tenancy does avoid a formal probate proceeding, however.

Traditionally, four unities are required to create a joint tenancy: unity of title, unity of time, unity of interest, and unity of possession. All unities must be present when title is acquired by one deed, executed and delivered at one time that conveys equal interests to all the grantees, who hold undivided possession of the property as joint tenants.

A joint tenancy can be created only by grant or purchase (by a deed of conveyance) or by devise (will)—it cannot be created by operation of law. The grantees or devisees must be specifically named as joint tenants. In most states, a deed or will that is unspecific about the grantees’ or devisees’ tenancy will pass title to the parties as tenants in common. Typical wording used to create a joint tenancy may be as follows: “To Morton Charles and Seymour Berkowitz, and to the survivor of them, and his or her heirs and assigns as joint tenants, with rights of survivorship, and not as tenants in common.”

Debtors cannot protect themselves from creditors’ claims by taking title to property in joint tenancy. The creditor has every right to attach the debtor’s interest in jointly held property and force a partition. However, if the joint tenant dies before the creditor seizes that tenant’s interest then the creditor loses his interest because the surviving tenant takes the property free from the claims of the decedent’s creditors. On the other hand, a creditor of the surviving joint tenant has substantially increased his security.

One principal advantage of joint tenancy is avoiding the delay and expense of probate proceed¬ings because the surviving joint tenant immediately becomes the sole owner of the property. The current value of the property is not included in the total value of the estate on which probate fees are assessed. In addition, the survivor holds the property free from the debts of the deceased joint tenant and from heirs against her interest.

Joint tenants give up the right to dispose of their individual interests by will, thus precluding the use of estate planning to minimize the estate taxes. Although not subject to probate proceedings, joint tenancies are subject to gift taxes, income taxes, and inheritance taxes, in addition to federal estate taxes. A purchaser should discuss these tax consequences with experienced tax counsel before deciding whether to hold title to the property in joint tenancy. In addition, joint tenancy or tenancy by the entirety may not be appropriate for people with children from a prior marriage.
 

Covenants are unconditional promises contained in contracts, the breach of which entitles a person to damages. Conditions, on the other hand, are contingencies, qualifications, or occurrences upon which an estate or property right (like a fee simple) would be gained or lost. Covenants are indicated by words such as promise, undertake, agree; conditions are indicated by words such as if, when, unless, and provided. Because both are limitations only and do not create obligations, failure of the condition to occur will not entitle either party to damages against the other party. Covenants are unconditional promises contained in contracts, the breach of which entitles a person to damages. Conditions, on the other hand, are contingencies, qualifications, or occurrences upon which an estate or property right (like a fee simple) would be gained or lost. Covenants are indicated by words such as promise, undertake, agree; conditions are indicated by words such as if, when, unless, and provided. Because both are limitations only and do not create obligations, failure of the condition to occur will not entitle either party to damages against the other party.

Recently sold or leased properties that are similar to a particular property being evaluated and are used to indicate a value for the subject property. “Comps” need not be identical to the subject in physical characteristics or location, but the highest and best use, land-to-building ratio, terms of the sale, and the market conditions should be similar, or relatively easy to adjust for comparison.

    In addition to adjustments for financing, time, and conditions of sale, adjustments may be necessary for differences in location and all features that are recognized by the market as having value.

In general terms, the more recent the sale and the fewer the dissimilarities, the better the comparable. Comps must also fit the definition of value to be applied. Distressed properties are not arm’s length. Sales of distressed properties generally do not fit the definition of market value. The appraiser must carefully select only those comparables that actually fit the definition of value being used.
 

An offer to buy submitted to a seller with the understanding that the seller has already accepted a prior offer; a secondary offer. Sometimes the seller accepts the backup offer contingent on the failure of the sales transaction on the part of the first purchaser within a specified period of time. The seller must be careful in how she proceeds, however, when the time for buyer’s performance under the first contract has expired. Rather than just immediately treat the contract as terminated and arrange to convey the property to the backup buyer, the seller should make sure that the seller has fully performed, or made a full and adequate tender of such performance, to the first purchaser. Otherwise, the seller may be contractually bound to convey the same property to two different buyers. The best practice is to obtain a release from the first purchaser. 

The real estate agent should be cautious about encouraging the seller-client to breach any existing contract in order to accept a better second offer. The agent might be sued by the first buyer for the tort of intentional interference with contract. 

Buyers should consider reserving the right to withdraw from the accepted backup offer at any time prior to notice that the seller has canceled the first contract. This gives the buyer some flexibility in continuing to look for other properties.

An agreement made by a landlord as a concession to a prospective tenant, in which the landlord agrees to take over the tenant’s existing lease in return for the tenant’s agreement to lease space in the landlord’s commercial building (office building, industrial park).

The loss of land as a result of its being washed away by a sudden or violent action of nature. A riparian owner generally does not lose title to land lost by avulsion—the boundary lines stay the same no matter how much soil is lost, and the former owner can reclaim the lost land. In contrast, the riparian owner loses title to land washed away by erosion, which is the gradual and imperceptible washing away of soil.

• In appraisal, the increases or decreases to the sales price of a comparable property to arrive at an indicated value for the property being appraised. Adjustments may be made for several reasons. The first adjustment is for seller concessions or conditions of sale; then for financing terms. Another is for time of sale if there has been a change in market conditions since the comparable sale. Adjustments are then made for location and dissimilarities between the physical characteristics of the subject and the comparable property. The indicated value is increased or decreased for each difference or dissimilarity. 

• In real estate closings, the credits and debits of a settlement statement, such as real property tax, insurance, and rent prorations.

Many legal documents, such as leases and contracts for deed, contain a transfer clause that states in effect that the property may be transferred only with the owner’s consent, “which consent shall not be unreasonably withheld.” There is no acceptable definition of what is unreasonable. For example, it might be reasonable for a lessor to refuse to transfer a lease to a new tenant whose business would directly compete with another tenant in the same shopping center complex (i.e., poor tenant mix).

In a contract for deed situation, it would generally be unreasonable for the vendor to refuse an assignment or to demand a share in the profits where the assignee is as good a credit risk, if not better, as the assignor-vendee.

To avoid lawsuits, it would be best to set forth some criteria for reasonable consent in the transfer clause itself.