Author: ft Editorial Staff

Beneficiary statements and payoff demands on closing

This article addresses requests on the holder of a trust deed for either a report on the current status of the secured debt or a payoff demand to satisfy the debt and reconvey the trust deed. Confirming loan conditions A beneficiary statement is a written disclosure from a lender regarding the condition of a loan or other debt secured by real estate. A complete beneficiary statement includes: the amount of the unpaid balance; the interest rate of the loan; the total of all overdue payments of principal and/or interest; the amounts of any periodic payments; the date the loan is due; the date to which real estate taxes and special assessments have been paid, if known; the amount of hazard insurance and its term and premium, if known;any impound balance reserve for payments of taxes and insurance; the amount of any additional charges incurred by the beneficiary which have become part of the trust deed lien; and whether the trust deed debt can be transferred to a new owner. [Calif. Civil Code §2943(a)(2)] On adjustable rate notes (ARMs), the beneficiary statement must list the note rate as variable, and reference and attach a copy of the note containing the rate formula. Since formulas for ARM adjustments vary extensively from note to note, the person intending to rely on the beneficiary statement for an ARM needs greater detail than the...

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May 2006 Legislative Watch

A look at recently enacted legislation affecting real estate. Unless otherwise noted, all legislation will take effect in January 2007. Changes in continuing education requirements for real estate brokers and agents Amended by AB 223: Calif. Business and Professions Code §10170.5 Operative July 1, 2007, a three-hour course in risk management will become part of the 45 hours of continuing education necessary for all real estate brokers and non-first-time sales agents to renew a license that expires on or after July 1, 2007. The course is designed to help licensees avoid any errors and/or omissions in the practice of real estate related activities. Editor’s note — The 3-hour risk management course becomes part of and will not increase the required 45 hours of continuing education needed to renew. On the subsequent renewal of a broker or sales agent license which expires on or after July 1, 2011, the licensee will need an enlarged 8 hours of survey (the condensed version of a 15-hour agency, fair housing, trust funds, ethics and risk management [AFTER] course), unless the licensee has never before renewed using the three-hour version of the risk management course. Editor’s note — The sponsors of this bill failed to amend Calif. Business and Professions Code §10153.4 which deals with the education requirements for sales agents renewing their licenses for the first time. The current code requires sales agents...

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Quiet title to clear title

This article demonstrates the use of the quiet title action by owners to clear title of unenforceable claims against title, and distinguishes claims from liens. Clearing title of adverse claims On receiving the preliminary title report after opening escrow, brokers are occasionally confronted with unexpected title conditions which will interfere with the closing if not removed from title. Also, off-record claims sometimes arise before or after closing when the broker or the buyer is advised of unrecorded documents which affect title, such as trust deeds, easements or license agreements. The claims or conditions are called clouds on title. Since clouds interfere with a transaction, the brokers must consider effective ways to eliminate the claims and close the transaction – the original goal of the buyer and the seller. Presented here, in numerous scenarios, is a common resolution entitled a quiet title action. While the filing of a quiet title action necessarily involves the services of an attorney, the availability of quiet title relief should first be raised by the brokers in an effort to negotiate a resolution for owners confronted with a cloud on title. Quiet title: an overview Quiet title is a judicial procedure employed to establish nonpossessory rights in disputes over title to real estate. [Calif. Code of Civil Procedure §760.020] Title disputes over real estate interests which are resolved by a quiet title action include: a...

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Landlord’s right to enter

This article addresses resolutions to conflicts between a tenant’s right to privacy within his rented space and the landlord’s need to access the space. Conflict with tenant’s right to privacy Unknown to a residential landlord, a tenant changes the locks on the door to his unit. Several months later, the tenant is arrested by law enforcement officers as he steps out of his apartment. The tenant is hastily escorted away. He leaves the light on and his pet inside, but locks the door. The landlord becomes aware of the tenant’s dilemma. Fearful the gas stove was also left on, he attempts, but is unable to enter with his passkey. The landlord calls the police to witness the entry to make sure the apartment is in a safe and secure condition. The landlord then enters the apartment through a window. The police are let in to observe the landlord’s conduct. They proceed to check out the apartment. Unfortunately for the tenant, the police find illegal possessions in plain view casually lying around the apartment. Did the landlord have the right to enter the apartment? And did he have the right to allow the police to come in? Yes to both! The landlord had the right to enter. The landlord reasonably believed the safety of his other tenants and the building might have been in jeopardy. Also, the officer was present...

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Inflation and taxes

This article provides insight into the destruction of a property’s original earning power by the taxation of inflation on its resale. Uncle Sam creates his share An investor decides to sell a parcel of real estate he bought for $440,000 twenty years ago. His broker has located a buyer willing to pay $900,000 for the property. During his ownership of the property, the investor took $100,000 in depreciation deductions. Consequently, the investor’s adjusted basis in the property is $340,000 ($440,000 original cost minus $100,000 depreciation). The investor does not plan to reinvest his net sales proceeds by acquiring replacement property in an Internal Revenue Code (IRC) §1031 reinvestment plan. Consequently, the broker informs the investor the profit on the sale will be $560,000 ($900,000 sales price minus $340,000 adjusted basis). The investor is also informed his profit will be taxed at a 25% rate on the $110,000 in recapture gains for the depreciation he has taken and at a 15% rate on the $450,000 in long-term capital gains which represents the balance of his profit. (Sales costs and the net sales price are not considered here.) However, the investor is not satisfied with the broker’s analysis since the broker did not consider the fact the property’s price increase was solely due to inflation. Thus, the purchasing power of the property’s net operating income has remained unchanged over the 20-year...

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