Presentation Transcript

1. Chapter 2Legal Foundations to Value

   Real Estate FIN 331 Fall 2013
2. Chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 44 years. More recently, the inflation-adjusted price of the median single-family home has declined and is now testing support of its two-year upward sloping trend channel.
3. The Nature of Property Real Estate as a bundle of rights What do we mean by Rights? How do property rights differ from personal rights? How does personal property differ from real property
4. Real property as a bundle of rights What do we mean by rights? Claims that the government is obligated to enforce Derived from the Constitution & Bill of Rights Different from raw power Nonrevocable and Enduring Can be reduced in the interest of health, safety, and welfare Not limited to the memory of owners or others Cannot be nullified by other persons or by government
5. Real property as a bundle of rights How do personal rights differ from property rights? Personal rights Freedoms guaranteed by Constitution Supreme Court interpretations of Constitution Property rights Exclusive possession Enjoyment of the use or benefit: Use, collect rents, harvest. Freedom to dispose as one pleases (within limits of safety): sell, convert, rebuild, etc.
6. Real property as a bundle of rights How does real property differ from personal property? Real property: Rights in land and its permanent structures (see Exhibit 2-2) Surface of the earth and improvements Air, up to reserved air space or tallest structure Beneath the earth as far as technology allows: Minerals, oil and gas, water Personal property: All other property Personal and household goods Intellectual property Music
7. Real property as a bundle of rights How do we distinguish real from personal property? Fixtures (Real): typically something not readily movable. Examples: custom screens & draperies, kitchen appliances such as radar ranges, garbage disposals (attached to property) Personal: typically something moveable Examples: furniture, pictures, “customary assumptions of the realm”
8. Real property as a bundle of rights Special rule for “Fixtures” The manner of attachment The character of the article and manner of adaptation The intention of the parties Relation of the parties: landlord and tenant relationships Trade fixtures considered personal property Agricultural fixtures at taxes are considered property of the tenant Same rules apply for residential tenants
9. Real Property Bundle of Rights Interest: Any set of rights in real property Estates: A real property interest that includes the right of exclusive possession Non possessory interests: Easements Restrictive covenants Liens
10. Possessory Interests [Estates] Fee Simple Absolute - all possible rights Fee Simple Conditional - all rights, but revocable if specific condition is violated Ordinary Life Estate and Remainder Rights are unbundled Owner retains full rights until death Legal Life Estate; created by act of law
11. Leasehold (Non-ownership or Non-freehold) Estates Leasehold interest are possessory interests and are therefore Estates They are limited time The right of disposition is diminished They are not titled interests Tenancy for years Leasehold interests are for a specific period of time (few days to decades) Must be written if for more than one year Written lease contract governs landlord-tenant relationship Periodic Tenancy No definite length of time Often by oral agreement State law governs notice of termination Minimum time required for notice is usually half of the payment period
12. Leasehold (Non-ownership or Non-freehold) Estates Tenancy at Will continue tenancy after the leases expired Generally an oral agreement between the tenant and the landlord Tenancy at Sufferance When tenant is supposed to vacate but does not This does not constitute trespassing because of the previous leasehold interest
13. Nonpossessory Interests in Land Easements: The right to use land for a specific and limited purpose Affirmative easements: Driveway or access right-of-way Sewer line Drainage Common wall Easements Appurtenant Involves the relationship between 2 adjacent parcels of land The dominant parcel benefits from the easement The servient parcel is constrained or diminished by the easement May be positive (some intrusion) or negative (no intrusions)
14. Nonpossessory Interests in Land Easements in Gross (Commercial Easements): right to use land unrelated to other parcels Extract natural resources, harvest timber/crops Add roadways, ditches, pipeline, etc. May be transferred separately from land title or ownership
15. Nonpossessory Interests Examples: On parcels A and C is a common driveway easement. On parcel C is an implied easement of access in favor of parcel B. Parcel E as an involuntary driveway easement known as an easement by prescription. Parcel F has an implied easement for access to extract oil. The power lines and the roadside electric lines are easements to permit installation and maintenance. The wildlife preserve on parcel G may be protected by a conservation easement.
16. Nonpossessory Interests in Land License An easement is the right to use another’s land for a specific and limited purpose A license is permission to do so and is revocable by the grantor Restrictive Covenants In a deed for a single parcel of land OR an entire subdivision Enforceable in court of law or by “parties at interest” ~ HOA Type of building and materials, minimum square footage, fences, etc. Can only be enforced by those who hold a legal interest in the property Liens: An interest in property as security for an obligation General Liens: Arise from events unrelated to the property Court awarded damages Federal tax liens Specific liens: Arise from ownership and use of the property Mortgage Mechanics’ lien Property tax, assessment or Community Development District (CDD) lien
17. Liens An interest in property that serves as security for an obligation General Liens: Arise from events unrelated to the property Court awarded damages The lien is security for the payment of the judgment Property Tax and Assessment Liens Enjoy top priority among liens Assessment liens can last for several years Community Development District (CDD) lien Specific liens: Arise from ownership and use of the property Mortgage Mechanics’ lien
18. Liens
19. Forms of Co-ownership Indirect: Through business organizations or trusts General Partnerships Limited Partnerships Limited Liability Companies Corporation (Co-op) Trust Entity holds title. Ownership passes through the entity. Interest may not be divided.
20. Forms of Co-ownership Direct: Tenancy in Common; each owner retains full rights All have fee simple interest – can be divided (sell, mortgage) Joint Tenancy with right of survivorship; most common in US Restricts inheritance to heirs of last owner, unlawful in some states Tenancy by the Entirety: similar to 2 above Typ. Husband and wife. Protection against liens & judgments if against one spouse Condominium; single ownership (fee simple) with tenancy in common (of communal elements) Bylaws define owner rights Cooperative; a proprietary corporation – each owner has a proprietary lease (in effect ownership of a specific portion) and can be sold, transferred, or bequeathed.
21. Forms of Co-ownership Ownership interests from marriage Dower/Curtesy: common law granting of one third life estate to survivor in the real property of the decedent Dower covers the widow’s claim, curtesy the widower Life estate is not marketable Elective Share In law, grants the surviving spouse a share of most of the wealth of the decedent Elective share applies to both real and personal property Elective share law may not encompass all of the decedent’s wealth Community Property Gives a spouse a one-half claim at all property acquired “from the fruits of the marriage” Excluded from claims are any property acquired before the marriage (a motive for prenuptial agreements?)
22. Two Main Forms of Marital Property Rights
23. TIMESHARE Multiple individuals having use of property but not simultaneous interests the estate is divided into separate time intervals Timeshare rights any contract that may convey any level of real property interest Buyer often acquires a leasehold interest rate fixed number of years A buyer may also acquire a license for partial use
24. special issues regarding land Rights to Water Who owns the land under a body of water? Who controls use of land under a body of water? Who has the right to use the surface? Who has the right to use the water itself? Who has the right to use groundwater?
25. special issues regarding land Rights to Oil, Gas, and Minerals Rights to the subsurface include rights to minerals Mineral rights can be separated from land ownership In some states, mineral rights imply ownership of the space minerals occupy Oil rights Ownership states: Oil is simply another mineral Traditional “rule of capture” (If you can remove it, it’s yours) is being limited due to extensive secondary recovery methods.
26. homework assignment Key terms: Dominant vs. Servient parcel, Types of Liens, Property rights, Restrictive Covenants, Forms of Tenancy, Fee Simple types, Easements, Mineral Rights – Rule of Capture Study Questions: 1, 3, 5, 7