(Real Estate Finance and Investments, 17e William Brueggeman, Jeffrey Fisher )
(Solution Manual, For Complete File, Download link at the end of this File)
Solutions to Questions—Chapter 1
An Introduction to Real estate Investment: Legal Concepts
Question 1-1
What is the difference between real property and personal property?
Real property refers to the ownership rights associated with realty. Realty refers to land and all things permanently
attached. Personal property refers to ownership rights associated with personalty. Personalty are all things, tangible,
intangible that are movable. This includes all things that are not realty.
Question 1-2
What is meant by an estate?
Estate is used to denote a possessory or potentially possessory interest in real estate. However, not all interests in
real property are estates. Ownership can be quite different from possession and a variety of legal factors affect the
ownership rights associated with real estate. The economic benefits expected by lenders, investors, and other parties
in a real estate transaction are affected by these legal factors.
Question 1-3
How can a leased fee estate have a value that could be transferred to another party?
The original fee owner can give up some property rights to a lessee. The value of the leased fee estate will depend
on the amount of lease payments expected during the term of the lease plus the value of the property when the lease
terminates, and the original owner receives the reversionary interest.
Question 1-4
What are title records? What is an abstract of title?
Title records (sometimes referred to as deeds and conveyances records and/or real property records) are created and
maintained usually at the county level. These records identify all properties in a county, including location, present
ownership and any liens or encumbrances affecting each property. These records are critical to investors who want
to identify the owner of specific tracts or land, existing buildings, etc. These records are also important because they
contain evidence of encumbrances such as mortgage liens, tax liens (to be covered in later chapters), etc. Example: a
prospective investor sees a vacant tract of land that he is interested in purchasing. Because there is no signage or any
improvements on the land, how can the land owner be identified and contacted? By going to the county records
office (deeds and conveyancers department) the investor can use the address to locate a property (usually in plat
books), then the current owner. These records are used to link a precise property to its owner. At some point, if this
investor continues to be interested in purchasing the land, he will likely retain an attorney or abstractor to do a title
search and abstract of title. The latter is done to not only identify the current owner but to trace all previous owners
with commentary on the likelihood of other parties who may ownership rights and /or interests in the tract of land.
Question 1-5
What is a deed? How is it different from the title?
The deed is a document usually created by the owner of a property containing the property legal I.D. and location in
addition to any improvements that exist on the property. It also describes the extent to which the seller warrants that
he is the owner of the property and has the right to convey ownership. A deed is used to convey the title from one
person (the grantor) to another (the regrantee) by means of a written instrument. The term “title” is an abstract term
frequently used to link an individual or entity who owns property to the property itself. When a person has “title,” he
is said to have all the elements, including the documents, records, and acts, that prove ownership. Title establishes
the quantity of rights in real estate being conveyed from seller to It differs from title because title provides evidence
of ownership based on the collective records that exist pertaining to a property.
Question 1-6
What is meant by a title record? Why are these records so important?
The title record refers to records on file, usually at the county level, that help to specify tracts of real estate and
determine if a seller has the right to convey ownership of such real property. These records are the most important
sources of events affecting real estate ownership over time and are usually reviewed when trying to identify the
“quality” of title that investors will receive if they purchase. After a review of these records (usually by an attorney),
if in his opinion, they are complete, he will indicate that the seller has ownership and title to the property. Most of
the instruments that affect title to real estate are recorded, in accordance with the recording acts of the various states,
at what is typically called the county recorder’s office.
Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill.
1-1
,Question 1-7
What is a future estate? Give an example?
We think of most real estate transactions as acquiring ownership at the present time. However, ownership can also
occur at a later time, say after the current owner dies. The person who becomes the owner at that time is said to be a
“remainder” estate. Future estates include a reversion and remainder. A reversion results in the state reverting back
to the original possessor whereas the remainder results in a third-party obtaining possession at some point in the
future.
Question 1-8
Name the three general methods of title assurance and briefly describe each. Which would you recommend to a
friend purchasing real estate? Why?
General Warranty Deed - the grantor warrants that the title he/she conveys to the property is free and clear of all
encumbrances, other than those that are specifically listed in the deed.
Special Warranty Deed - makes the same warranties as a general warranty deed except that it limits their application
to defects and encumbrances which occurred only while the grantor held title to the property.
Quitclaim Deed - offers the grantee the least protection in that it imply conveys to the grantee whatever rights,,
interests,, and title that the grantor may have in the property. No warranties are made about the nature of these rights
and interests or of the quality of the grantor’s title to the property.
Would recommend the General Warranty Deed, because it offers the most comprehensive warranties about the
quality of the title.
Question 1-9
Would it be legal for you to give a quitclaim deed for the Statue of Liberty to your friend?
Yes, the quitclaim deed simply says that the grantor “quits” whatever claim he has in the property (which may well
be none) in favor of the grantee.
Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill.
1-2
, Solutions to Questions—Chapter 2
Financing: Notes and Mortgages
Question 2-1
Distinguish between a mortgage and a note.
A note admits the debt and generally makes the borrower personally liable for the obligation. A mortgage is usually
a separate document which pledges the designated property as security for the debt.
Question 2-2
What does it mean when a lender accelerates on a note? What is meant by forbearance?
The acceleration clause gives the lender the right or option to demand the loan balance owed if a default occurs.
Forbearance by the lender allows the borrower time to cure a deficiency without the lender giving up the right to
foreclose at a future time.
Question 2-3
Can borrowers pay off, part or all, of loans anytime that they desire?
No. In general, prepayment is a privilege not a right. In cases of residential/consumer loans made by federally
related lenders, this option is usually provided to borrowers. In commercial real estate loans it is not.
Question 2-4
What does non-recourse financing mean?
The borrower is not personally liable on the note. The lender may look only to the property (security) to satisfy the
loan in the event of default.
Question 2-5
What does assignment mean and why would a lender want to assign a mortgage loan?
Assignment gives the lender the right to sell or exchange a mortgage loan to another party without the approval of
the borrower.
Question 2-6
What is meant by a “purchase money“ mortgage loan? When could a loan not be a purchase money mortgage?
Purchase money means funds from the loan will be used to purchase a property. It will not provide funds for other
uses such as could be the case with a refinancing.
Question 2-7
What does default mean? Does it occur only when borrowers fail to make scheduled loan payments?
Default means that the borrower has failed to (1) make scheduled loan payments or (2) violated on a provision in the
note or mortgage.
Question 2-8
When might a borrower want to have another party assume his liability under mortgage loan?
If the loan was made with a favorable interest rate, the seller of the property may want to include this low rate loan
as an additional incentive to sell the property.
Question 2-9
What does deficiency judgment mean?
If default occurs and the property is sold, if the dollars from the sale is not enough to pay off the loan balance, the
borrower is liable for the difference.
Question 2-10
What is a land contract?
An agreement between a buyer and seller to purchase and sell real estate. However, passage of title is usually
deferred until some future date or deferred until some event or condition occurs (e.g., Payment of money, rent, etc.).
Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill.
2-1
, Question 2-11
How can mechanics’ liens achieve priority over first mortgages that were recorded prior to the mechanics’ lien?
Mechanics’ liens are permitted to be recorded after the fact. State laws generally give contractors, laborers, or
suppliers of materials a certain period of time following the completion of work or delivery of materials during
which to file their lien. When the lien is filed it relates back and takes priority over all liens filed after the time
when materials were first delivered or work was first performed on real estate.
Question 2-12
Name possible mortgageable interests in real estate and comment on their risk as collateral to lenders.
Fee simple estates, life estates, estates for years, remainders, reversions, leasehold interests, and options.
Fee Simple estate - represents the most complete form of ownership of real estate. The holder is free to divide, sell,
lease, or borrow against them as he/she wishes. Little risk to lenders because the owner completely owns all rights
to the real estate.
Life estate - is a freehold estate that lasts only as long as the life of the owner of the estate or the life of some other
person. Because of the uncertainty surrounding the duration of the life estate, its marketability and value as
collateral are severely limited.
Remainder - exists when the grantor of a present estate with less ownership rights than his/her own conveys to a
third person the reversionary interest he/she or his/hers heirs would otherwise have in the property upon
termination of the grantee’s estate.
Reversion - exists when the holder of an estate in land (the grantor) conveys to another person (a grantee) a present
estate in the property that has less ownership rights than his/her own estate and retains for himself/herself or
his/her heirs the right to take back, at some time in the future, the full estate which he/she enjoyed before the
conveyance. A reversionary interest can be sold or mortgaged because it is an actual interest in the property.
Question 2-13
What is meant by mortgage foreclosure, and what alternatives are there to such action?
Foreclosure involves the sale of property by the courts to satisfy the unpaid debt.
Alternatives:
1. Restructuring the mortgage loan
2. Transfer of the mortgage to a new owner
3. Voluntary conveyance of the title to the mortgagee
4. A “friendly” foreclosure
5. A prepackaged bankruptcy
Question 2-14
Explain the difference between a buyer assuming the mortgage and taking title “subject to” the mortgage.
If the purchaser acquires the property “subject to” the existing debt, he does not acquire any personal liability for
the debt. When a mortgage is assumed the original borrower may be released from any obligations to the lender.
Question 2-15
What dangers are encountered by mortgagees and unreleased mortgagors when property is sold “subject to” a
mortgage?
The mortgagor will be responsible if the person acquiring the property subject to the mortgage defaults. In turn, if
the original mortgagor then defaults, the bank will have to foreclose on the property which may not be worth what
is left to pay on the mortgage.
Question 2-16
What is the difference between the equity of redemption and statutory redemption?
The equity of redemption is the right of a mortgagor to redeem his/her property from default during the period
from the time of default until foreclosure proceedings are begun.
Statutory redemption is the right to redeem after foreclosure.
Copyright © 2022 McGraw Hill. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill.
2-2
