End of Chapter 7 Questions and Answers
1. Steve and Ruth Marcus have listed their home with Miami Vice Realty. The Marcus's
built the home themselves and included an array of features that make the home
particularly attractive. An agent from Miami Vice has come to the Marcus's and asked
them to list all the items that are NOT included with the home. Here is the Marcus's list.
Which of the following do you think could create issues in the event of a sale, or, in other
words, which do you think would be classified as fixtures without an agreement
otherwise?
a- a Sub-Zero built-in refrigerator that matches the kitchen cabinets
b- equipment used with the central vacuum unit within the house
c- the washer and dryer built into the cabinets of the laundry room
d- the custom-made window shutters
e- the above ground but landscaped and custom cut deck around a 12 person jacuzzi
f- the gazebo in the back yard
g- the swing set in the back yard
h- the ceiling fans in each room
i- the 10 foot TV set that is set into a hole in the wall of the media room
Answer:
a, b, c, d, e & f are customized as per the house to make it more attractive and functional,
moreover removing them will cause damage to the property, hence they are considered
“fixtures without an agreement”.
g, h & i are things that need to be agreed upon. Although they add to the functionality of
the house, they can be easily removed without damage to house.
2. Anastasia Makarenko's great uncle died two weeks ago. She has been invited to the
reading of her great uncle's will. As she listens carefully, the following language is read:
To my niece, Anastasia, who has cared about me and written to me and cheered me on
many occasions, I leave my interest in the building at 2000 N.42nd Street, NY, NY to her
for her life with the remainder to her children. Anastasia is confused -- does she own the
building? What rights does she have in the building? Provide Anastasia with some
advice on what she has actually inherited.
Answer: Yes, Amanda now has “life-estate” form of freehold interests in the building.
She has all the rights of an owner except right of transfer. When she dies the interest will
automatically be transferred to her children. This type of arrangement reduces the tax on
her children when they get the interest in the building.
3. Define the term "freehold." Label the following land interests as freehold or nonfreehold interests.
"To my son for life."
"To my daughter for six months."
"Robert Smith may lease these premises for $550 per month for as long as he desires."
"To my son so long as he does not use the property for gaming purposes."
Answer: Freehold is a type of interest that an individual has on property. Freehold estates
are those types of land interests that are unlimited in their length of duration.
"To my son for life." – Freehold (life estate)
"To my daughter for six months." – Non Freehold
"Robert Smith may lease these premises for $550 per month for as long as he desires." –
Non Freehold (lease)
"To my son so long as he does not use the property for gaming purposes." – Freehold (fee
simple determinable)
4. Grant and Cynthia are neighbors. Grant has highway access along the west side of his
property. Cynthia has access to the same highway if she uses a street along her property,
but she must travel five miles along the street to gain access to the highway. If she could
travel across a road on Grant's property, she would have access to the highway by
traveling only one mile. Is there something Cynthia could do in order to be able to use
Grant's property? What would happen if Cynthia just began using the road on Grant's
property and did so for 22 years?
Answer: By using Grant’s property to access the highway, Cynthia clearly saves travel
time; hence she can claim an “easement appurtment” for her property.
If Cynthia continues to use the path on Grant’s property to access the highway for 22
years, then she has a claim on “easement by prescription” on that path.
5. Alison buys a farm and discovers oil near her border. She sets up a drilling operation
and starts to make a lot of money. Then her neighbor sues her in court for creating a sink
hole on his property. She offers to repair it and he seems to have no interest in drilling,
but wants her to pay several times the repair cost. What should she do?
Answer: As long as Alison has not physically trespassed into her neighbor’s property, the
only liability on her is to get the hole repaired or pay for the repairs. Hence she should
only pay the actual cost of repairing the hole.
6. Describe the three traditional methods of geographically defining a legal real estate
property?
Answer: Metes and bounds with angles and directions and distance, rectangular survey
where every piece of land is part of a larger grid and plat maps where specific
developments are laid out and lots numbered.
7. Where or on what type of property are you most likely to see a metes and bounds
method, a rectangular survey system and a plat map system?
Answer: Older property especially in the oldest American states in the Northeast are
more likely to see metes and bounds, while most property out west in the plains states are
based on rectangular surveys and plat maps are used in most newer suburban areas
throughout the US but especially in the Midwest.
8. What is a latitude and longitude? How could such points be used to define property
ownership on a global basis?
Answer: A longitude measurement is based upon imaginary lines that run north and south
to the poles, parallel as possible to one another at the equator. The prime meridian is the
starting reference point at an observatory in Greenwich, England. That is the zero
measurement and everything from that point is up to 180 degrees plus or minus away. A
latitude is an imaginary line that runs parallel from the equator, so that each parallel line
is further north or south from the equator up to 90 degrees at the poles. All points on
earth can be described by a single latitude and longitude. Each point thus described is a
unique address.
9. What is a GPS system? How does it work?
Answer: GPS stands for global positioning satellite a system that uses signals from
satellites to determine the location on earth. Two or three satellite signals are required for
accurate positioning and then the location can be plotted on maps. GPS systems are
included in many cars and trucks, planes and trains.
10. When do you think that GPS systems will be used in legal descriptions of property?
Answer: As soon as the accuracy is sufficient, perhaps within a few inches instead of
within a few feet.
11. Kevin Hughes is considering purchasing a unit in a 230-unit complex. Kevin
describes what he knows about the unit as follows, "I own the unit, but I don't own any
ground, but they keep calling it a real estate sale. I don't own a piece of the elevators or
stairs, but I own it collectively with everyone else. I can sell my unit and I can mortgage
it. I have to pay quarterly fees so someone manages the complex. What exactly am I
buying?"
Answer: Sounds like a condominium unit that includes shared spaces as well as fee
simple on certain spaces.
12. You are rich prior to marriage owning a lot of real estate. Would you rather be
married in California or Ohio? What are your options to preserve your wealth should you
get divorced after marriage in Ohio?
Answer: California where they use community property rules that applies to all property
acquired after marriage. The property acquired before marriage would not become
jointly owned while in Ohio the poorer spouse would have rights in all property based on
dower or curtesy at 1/3rd the value. A pre-nuptial agreement may help.
13. Compare a condominium to a cooperative?
Answer: A cooperative involves shares of the total property and the right to use a
particular space while a condominium involves ownership of a particular space and
shared ownership of shared common spaces. Cooperatives allow for more control over
the purchase and sale of coop units.
14. What is a landominium?
Answer: The land is owned separately for each specific housing unit as well as jointly
for the shared common space. Many new housing developments could be described as
landominiums in that they include some commonly owned and maintained space.
15. How can a time share property be worth several times the original cost to build a new
building?
Answer: Marketing and convenience explains part of the price. The rest of the price
cannot be explained.
16. What form of business entity is most likely to be used among a group of partners that
want to own and operate real estate in the future? What forms make sense if some
investors are passive while others are active?
Answer: LLC for Limited Liability Corporation. When more than 100 investors are
involved then a private REIT might be used. Limited partnerships make sense for a
combination of active and passive investors but LLCs might also be used.
17. Why did it take so long for REITs to become part of the widespread alternative forms
of real estate investment and ownership?
Answer: REITs played a limited role in real estate investment for more than 30 years.
REITs were constrained because they were permitted only to own real estate, not operate
or manage it. This meant that REITs needed to find third parties, whose economic
interests might diverge from those of the REITs' owners, to operate and manage the
properties. The investment marketplace did not readily accept this arrangement. After the
RTC demonstrated the ability to securitize real estate on a broad scale and REITs were
allowed to manage their own property REITs started growing rapidly in 1992.
18. What are the requirements for becoming a REIT? Who is NAREIT? (Hint: See
wwwNAREIT.org)
Answer: Basic requirements for becoming a REIT:
1) Most of the gross income of the trust must be derived from passive investments
such as rent, interest or dividends.
2) At least 75 percent of the assets must be real estate interests, cash or government
securities or mortgages secured by real property.
3) The trust must be held by 100 or more persons during at least 335 days during the
taxable year.
4) At least 90 percent of the trust taxable income must be distributed each year.
NAREIT: National Association of Real Estate Investment Trusts
Members of NAREIT are real estate investment trusts (REITs) and other businesses that
own, operate and finance income-producing real estate, as well as those firms and
individuals, who advise, study and service these businesses.
NAREIT provides among others:
1) Representation before national and state policymakers affecting the REIT and
publicly traded real estate industry;
2) A voice for the publicly traded real estate industry with the financial media and
the investment marketplace;
3) Numerous opportunities for REITs and publicly traded real estate companies to
network among themselves and with a variety of service providers in the real
estate industry;
19. If you were to buy some real estate with your two best friends and use a general
partnership form of ownership what other agreement would you probably need and what
would be the key elements?
Answer: How we dissolve the partnership? What happens if one person wants to get out?
What happens if someone dies or becomes incapacitated? Who has authority to do what?
How business decisions will be made? How funds will be managed, dispersed? How
much debt might be used and when?
1. What is the difference between tenancy in common, joint tenancy and tenancy by the
entirety?
Answer: Tenants in common hold title together to the same property but each has an
individual interest in the property. Tenants in common may hold equal or unequal
interests in the property. Tenants in common may sell their interests, mortgage their
interests and even convey their interests in their wills separately. A joint tenancy is a
form of co-ownership in which the co-owners satisfy the four requirements: time, title,
interest, and possession. The joint tenants must take title to the property at the same time
and from the same instrument. Unlike a tenancy in common, joint tenants must own equal
shares. A tenancy by the entirety is a joint tenancy between a husband and wife with the
right of survivorship.