Class Transcripts

Welcome to Miranda group's pre licensing class for salespersons. This class is designed to get you the information necessary to pass the Massachusetts salespersons examination. Our goal is to pass the exam on the first time, not the second, third, or even fourth, we want you to pass on the first. My name is Paul Lima Miranda, I'm going to be your instructor for today and likely most of this course. Please note we don't administer the exam. The state does that through a company called psi at this time. Now, however, to take the state's exam, you must first complete the class. That's why you're here. Now, the first part of today's class is going to talk a little bit about the licensure process. How to get the license? Where the test is given and what it consists of? So if you want to take a few notes about that, now is probably the time because we really don't go into that too much later. So please look for the attachment or the link regarding the testing information. It should be usually below.

Although this course is designed to be taken on your own time and at your own pace, know that you are not alone. We offer support from our customer cares team five days a week. However, you can reach out to us during those other times. You can contact us by phone, email, or chat through the support link on the course homepage, or through contact page, included here as your resource. Now for content related questions, a support team may put you in touch with an instructor, the curriculum team or other subject matter experts. Typically the instructor most inquiries or questions received outside of standard hours of operation will be responded to within typically less than two business days. A Facebook group where you can interact with other students as well as Marina group staff and instructors. You can apply to just take a moment to join and bookmark the Facebook group included here as a resource. A series of career development focus ebooks will be accessible in the future from this group as well.

Welcome to your course, we're thrilled that you chose us for your real estate education here at Miranda group. Before you dive into your course content, we want to just say hello, and provide you with some information that may be helpful. As to you getting started. Now, your course is designed to meet the education requirements for licensure in the state of Massachusetts specifically, as well as prepare you for your licensing exam. Now, a few things of note before we dig in. Now your course is 100% online. And for the most part, it is self paced. And there is no specific times that you'll be required to be online, you can just hop in and out as you please. Now, with that there will be a requirement of a few hours of course. Typically on the set schedule in the calendar that you can look up. Now, this is mostly as a refresher to speak with the instructor in case you have any questions or a review of any content that may have been confusing to you in the course. Now, you will be required to attend the active class with the instructor via zoom, or Facebook Messenger with the rest of the class during those times that are listed in the calendar. Your course can be accessed at any time from any computer or mobile device. Now we do suggest using Chrome, although the course is compatible with most other browsers, but the best at this time is Chrome. Your course does not require a textbook. And but we do have an online course book per se. It's totally online for you to review. And if you wish to delve deeper, and you can find plenty of content presented in that form of the associated resources, that's presented here. Now like I said again you do not need this course book. However, if there's something that you wish to delve into deeper, go to this course book in her probably give you a better insight and a larger breakdown of any course topics. We do offer free practice tests, which reinforces mastery of the content, helping you to retain information and giving you the best chance of success on your licensing exam. But again, it is not required. Also, completing the online courses does require discipline. So, for many students additional study time outside of the required or suggested minimum course hours is optionable. But it is a better foot in the door in order to pass the actual state exam. However, it is not required for this course. Now in Massachusetts the salespersons course which is the one you're applying now, is a 40 hour pre licensing class and the Commonwealth of Massachusetts require sales persons that are looking to get their license to successfully complete the 40 hours of pre licensing education. A live interaction between instructor and students, again is not required. And this course will provide that online if it is of interest to you. And I been the main instructor will have those hours posted. Now, just the refresher of the purpose of this course. This course is predominantly to prepare you as the student to pass the Massachusetts salespersons examination via the company that provides the testing is called psionline.com you can sign up with the Testing Center at the hyperlink listed below. Now, this is also to help you understand the essentials of real estate practices. It is to educate you a little bit about how to make money in real estate. Now, that section is not required for the testing. However, we think it is an additional benefit to you to understand when you do get into a brokerage because taking the test and the requirements to pass the exam are extremely different than what is needed to focus on when you do get into a brokerage. So as an additional benefit to you, we thought this would be helping you not just pass the test but at least give you a sense of what to look for and what to expect when you do apply for a real estate brokerage.

Hope that helped you get a better sense of the purpose of this course. And we look forward to teaching you more and good luck on your course. Thank you again for taking our salespersons examination course and good luck.

This course provides the 40 hours of instruction that is essential in real estate topics, and that are required of all applicants for a salespersons or broker's license in Massachusetts. The course prepares learners for the Massachusetts licensing exam, and provides the practical business knowledge and foundation necessary to be successful in the real estate practice as a salesperson. Topics do include real estate licensing laws, regulations, ethical standards, basic principles of real estate, real estate agency, and contracts, real estate financing principles and practices and real estate valuation. Note, some sections of this course are offered only when the instructor is available to support students online. Now, that will not always be the case. But there may be times. The form requirements must be bad in audit for the course to be considered complete. First, the course content must be 100% complete, that means you must watch the videos in full without advancing. If you do advance, they may not be registered as a complete video. If the video is not completely watched in full, then you will not obtain your full 40 hours. Also, seat time is not mandated. Luckily, it's an online course. So that is not required. However, we strongly encourage spending at least the recommended amount of time working with the course content prior to attending the final course exam. Now what we mean by final exam is, if you take those practice exams they are not required. So when we say those exams, those final course result exams, again, they are not required. However, we do recommend you do try those out prior. The reason why we say this is these exams we have provided are quite long, and the actual exam is four hours long. Now the likelihood of you taking four hours to complete it is highly unlikely. However, we have made our tests with multiple questions, in order for you to understand the feeling of taking the actual exam. Luckily, you'll be at home doing it. So you can take a break walk away, but it must be completed in that mindset. Now it is not required to be completed. So I continue to emphasize that. Now, state and national practice exams must be passed with a 70% or better. Now what we mean by state and national is that when you take the actual exam, there are actually two parts. One is state and one is National. As you take this course, we will actually get into that, as I've said before.

Now, the good thing about Massachusetts is that you only need a 70% or better, some other states require a higher amount. Also, for our state it's only 40 hours. In New York, it's 75 hours. So count your blessings. Another thing in other states say New Hampshire, you're limited the amount of attempts of taking the actual exam. In our state, it is unlimited. So once you take the test, say you fail a section, or the full test, which we hope you don't but let's say it happens, you can actually apply as soon as you left the exam company, apply for the test again, and go back typically within 24 to 48 hours, depending on the availability of the test and the testing centers. Like I said before, there are two exams, state and national, which will take at the exact same time. When you've completed one section, it'll tell you you've now completed this section, and you're now to progress into the next section. Now the final step in the process is to complete the digital signature process. Now, what we talked about is it's a certificate of completion, and it will not be issued until this is complete. So what will happen is we review everything that you've gone through in the course, we will make sure that you've completed all the topics to show that you've done the 40 hour requirement of taking this course. And then we will have you fill out a document and we will send you a stamped piece of paper, which you will require and need in order to apply to take that exam. Identification may be required to authenticate and provide this certificate. So typically a driver's license just to validate that you are who you are, and that you are the person going to take that exam. The course system will log the time spent and the course progress. Were as required by state rules, as they frequently review our course content, of course will be considered complete, as I said before until the required time is met in completion. A certificate of completion will not be issued until this is complete. I emphasize this.

In this section, we have a calendar, which you can review. Part of this course is to have quote unquote in person meetings with the instructor or to participate in the class. Some people just need that as part of their education process. Since everybody is different in their learning styles, we try to provide those opportunities for different learners. Not everybody wants to just listen, and speed through all the courses, some people wish and need interaction. Also, sometimes all the topics that we have here in the many chapters, I know it looks overwhelming, they just have a certain question that may not be part of this course. So let's say there's a question that's, that doesn't satisfy a topic here. And they wish to ask it off. Well, that's what this what this section is. So there is a calendar section, when you click on the link to the calendar, this should pop up. Now, at the moment, these are what we have listed, it does not mean that these are the only times these will fill up, provided there is more students at the time. This is the beginning of our new curriculum. And these hours will offset the difference for your 40 hours, that's required. Because this course is not completely 40 hours at the moment. And we want to be able to have students ask certain questions that may not be part of this course. Now most of this course is to prepare you for the real estate examination. Unfortunately, even though you pass your licensing requirements to get your agents license, your salespersons license, when you get in the real world, then you feel kind of at a loss. So this is also a time for that as well. Some students may ask what's this brokerage or that brokerage? How the commission's work in full. Because there's more than just a certain percentage, as we've covered in one of the topics here, further down on the chapters. However, there may be further questions. So that would be a perfect time during this calendar to meet with the instructor. Talk about those topics as well. And or if there's something that they want a student's wishes to have further reflection of a certain topic, say for example, you're an investor or you want to be an investor. Clearly this course is not going to get into those questions, just soft coverage. But then at that time you can meet with one of the instructors and hopefully provided they have that background in investing. They can be able to answer those questions for you. So if you have any questions, contact me or speak with any instructors that you may have contacted with. Thank you!

So as I've said before, you will be required to follow and complete all of these chapters. Okay? Now, there is approximately at the current time, 20 hours. So you're probably asking. Okay, how do I complete my additional 20 hours if there's only 20 hours in the recorded section. So this is what you can do. As we said before, there is classes class time that you can meet with the instructor to satisfy a number of hours. Now, each class is probably going to be anywhere from two to four hours depending on the questions and depending on the student's needs. So obviously you can enter in those classes and earn your hours there, the additional 20. However, not everybody wants to be in a zoom call, and everybody learns a little bit different. Now, even though I do advocate for these classes, they may not be your style. So another option is this.

Go to our school, Miranda Group School at the facebook.com, you're going to sign in into this page, obviously, you're going to have a Facebook account. And what we want you to do is this, see where it says message. So part of this other way of adding to your hours is kind of a check-in check-out method. So we will be allowing you to either do re-watching all these again. So, this is about 20 hours course material, which will be recorded. And then you can go back and watch all the videos again, and technically complete your 40 hours. Or come in for the difference, take these zoom calls, and complete the difference in 20 hours. And go to our Facebook page and what you'll do is you'll check-in here and I'll get to this in just a minute. And you can go to our textbook, some people are readers, some people want to go through all the course material. So you go to the resources here. Sorry, wrong section, you go to the online book, you go to this page. And you can take the time to go in more depth into reading these chapters. Now, this is where it comes back to the Facebook page. So what you can do is this, if you wish to be reading all these chapters, because there's a lot of information here that goes into much more details compared to the videos. All you do is this. I've as I said, you already completed the recorded videos here for 20 hours. You got to come to the Facebook group, click a message. Okay and then you're just going to put in your name and say hello. This is whoever you are and send it to us. That's all you have to do. That'll be the log in time. And we will keep record of that. When you're done, usually you'll get a notification. You may not get it right away but and then when you're done, check yourself out. So always write something that says check in and check out. And that way we know we've recorded your hours for the additional 20 hours. And we know that you're studying, hopefully, we're trying to give you the audit method. We're all adults here. So, I hope that helps. So again, those are the three methods, either the check in and do self study with the chapter here. Or take the, again, the additional meetings, the speak with the teach section. Okay. And or re-watch all the videos. And we will have a record of that as well. Through the Facebook page. Just let us know if you're still confused or you're looking for some other opportunity to earn those hours. Speak with us. We'll see if we can make it work.

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Why spend money on practice exams from other companies when you can have them all here for free? Click the links below and try to use one of our practice exams. Please note, we are constantly updating These practice exams. If you have any issues refresh your browser, will come back in an hour. We may be making updates. If issues continue, please let us know. We have here options to click one of these multiple practice exams such as the main one you might want to focus which is a variation of questions is the salespersons examination. The second is a focus on brokerage questions. Next would be Massachusetts regulations and rules. Following would be deeds, then value and appraisal questions. The next would be ownership questions, contracts, then financing law, encumbrances and of course math.

If required, please click on the link below to access the online real estate textbook. However, again for this course it is not required but please refer to this site. For more in depth information on topics discussed within this course and towards questions you may have in the future. This link may open a new window.

So, here's a review of the online course book, just in case you have any questions or you get a little overwhelmed or even though it's not required, as I constantly say, you may want to reference some particular topic for further details. So here's the process, in the section where it says your online course book go to this page there'll be a quick video explaining just this on what to do, basically click on a link. If this link does not work, here's the actual site, you can copy and paste and then put into the browser, if you'd like. To click this, it'll bring a new page. Now, this is the book, we made it so it goes directly to the overview section. However, here's the home in case you do get lost, it is the overview of the course material.

So if you go into the chapters, there's an arrow, here's the overview of the major course content, the bigger topics, you only really need to focus on here. In the zoom meetings, we may go over some course materials. Here are the practice exams, if you wish to access them here, as well, they are the exact same thing as what's offered here in the main course. It's just a different way of accessing them. But in the chapters, each chapter is the header, each chapter will have much more content. So let's say for example, you want to focus on real property. Well, if you're a reader, this is going to be candy to you. It'll go into all the details, the actual words, the descriptions, further overview of certain topics, such as riparian land, littoral land, chattel. If you have any of these questions. Now, here's something that most people overlook. In the top right, is this little magnifying glass, okay? So say for example, instead of trying to go through all of this content, to find a specific topic, let's say, we just said, let's see, riparian, or actually I'll do chattel. So you click on that link, it'll bring a search overview bar, let's type in chattel. And now, it'll show the two chapters that focus on this content, either in the Real Property section, or in regards to mortgages. So, we're not going to be talking about chattel mortgage. However, that is essentially the same as chattel, for fixtures in real property. However, it's a different understanding of the use of the term. If you were looking for that, just click on this it'll bring you to that page. Now, that was a simple version. There's much more as for appraising, encumbrances and at the very end, there are key words and phrases that we have come to understand most of the exams will start to use these as go to words for better understanding of the actual exam provided by the state, contracts, licensing. Now if you do see an error, by all means, let us know.

It was a lot to put together. I hope that helps. Again, any questions contact us if you have any issues with this site loading, you shouldn't. But this should work with all devices.

Before you can take the exam, you must pre register with the state's testing company. There are no walk-ins at the exam centers. Now, that company is psi online. They are a nationally recognized testing company used to administer the exam for this state. It will also be on your education certificate, they accept credit card and debit card for the cost of the examination. This can be all done online. Now, the exam itself will consist of 120 multiple choice questions ABCD. It is all multiple choice. The exam is divided into two distinct parts. The first part consists of about 80 questions designed to test your knowledge about general real estate practices and principles, general concepts in real estate terminology as if you took the exam anywhere in the United States. The second part of the exam is what's known as the state part of the examination, all multiple choice, testing your knowledge about the practice of real estate laws in regards to Massachusetts. Now they don't mix the questions between the parts. So from time to time, as we go through this class, I'll be mentioning this is a Massachusetts law. This is how we do here in Massachusetts, not general topics. Now in both sections, they give you pre test questions to get you comfortable with the system number count towards the exam. Simple questions, like who is the president of the United States of America, or how many states are in the United States. Hopefully you pass those. In order to pass the examination you must get a 70 score on both sections. That means you pass 70% of the examination for either side. You have four hours from the start of the exam to complete it. So don't feel rushed. That's plenty of time. Most people who take the exam tell us they completed within two, two and a half hours.

This document right her, the application for examination, ok? You will be filling out this packet. This packet is required to be filled out, all this good stuff, keep on going down. You fill out the requirements for salesperson right here, do not do a broker, you doing to check off your 40 hours. There's no requirements to work experience unless you are applying for the brokers. If you are doing the outer State, then you would either do the equivalent program. You gonna answer these questions. This goes over to the fees. Now, this is part of the requirement as well. This a CORI background check. CORI is short for Criminal Offender Record Information. Go over this is basically making sure that all the checks ang balances are on the back end. Make sure that you currently don't have any criminal background, okay. Gets into all your information, I know it does delve deep but ah.. So, they're asking for you will have to have this verified by a notary.

This right here is the stamp that we are talking about. So once you complete the 40 hours class, right? This document we will print out and we will stamp here. So we'll put in your name, name of our school Miranda Group, the hours will be obviously 40 hours, the date and we would put in our information, okay? And we will put our stamp. You need this document. You will not be printing this out and you cannot complete this packet without this certificate stamp, which we will provide to you once you completing the required hour and we mailed out to you. This is what we're talking about. Now, once you get this document, you will add that to the rest of the document as your package to submit, okay. You do not need to worry about the employment broker certificate. And you do not need to fill out the broker bond. You will  need not just a notary, three references, that's what this section is. Now it says here, the classmates known to you, only for the real estate course may not sign. So anybody that is taking this course together unfortunately they cannot be party to signing this on your behalf and is it not supposed to be family. It could be a friend, an employer or what have you. But cannot be a family member and cannot be a fellow student of this class unfortunately. So notary is part of this. This is form right here from our school is definitely required. The three references and also the CORI background check. Now,  all of this will be submitted prior to you being able to take the test. So you cannot just finish your 40 hours and go take your test, unfortunately. Once you've completed this package and it can just be a regular printer with a regular paperwork, no card stock or something like that nothing shiny. Just good old-fashioned printed paper. And I would recommend being laser because I have seen people use inkjets and a little bit of water guard on it and the ink bleed through the paper work, It wasn't accepted. I don't know how that happened but it did. Yes. I rejected at least of performers not complete, so if you can try to do like laser printer but inkjets a pretty good these days so I don't think you'll have to worry too much but I have had students ask about the paper type. I don't know why. But good old-fashioned printer paper. It should suffice. 

Now before I forget to mention, the state has recently added an extra process. Requiring a Cori background check, See psi online's information on how to go about submitting your information. You might have heard the exam was given on a small computer like device or a disc sometime by the testing proctor, that was some time ago. In fact, at one time around the 60s or early 80s, the test was given on a card or sheet similar to voting card of a sort. Now, they'll likely ask you to trash all drinks, and give you a bag or a locker to leave all electronic devices out of the testing room. Removal of ties and watches as well and asked to take your photo prior to testing. Now, this photo will likely be on your first license when you pass. When you go in to take your exam you will be seated next to others taking the exam as well or other exams with separators between you. Headphones or earplugs are given, usually to help with distractions if any. Before we had to wait 30 days to find out how we did. When you finish they will tell you immediately if you passed and give you your test results and general overview of the areas you did well or not so well in. Now, when you pass they'll say congratulations you passed, then ask for additional money to print out your card and they give you your license there on the spot unlike before. Now, if you want to retake the exam because you did not pass it, then you have to go back through the psi online process again and pay for a retake fee. But you only have to retake the failed section. So if you passed one section, but not the other, then you only have to retake the section that you did not pass. You do not have to take the whole exam again.

Before I continue, I want to make a side note, when you try to apply for the testing or query they will ask, have you ever had here in Massachusetts a brokers or salespersons license before? Because if you had a salespersons or broker's license before and you let it lapse well then you'd have to reinstate the old license you won't be issued a new one. Second thing, they're checking to see if you ever been convicted of a criminal offense, felony or misdemeanor right through the quarrel. Now, it doesn't mean you're not entitled to a license, okay. But you are going to have to submit additional information to the Board of Registration, also known as the Licensing Division, and then they'll make a decision whether or not they want to issue a license or not. Also, if you are currently on parole or probation than the Massachusetts regulation require that the probation or parole period end before you could be issued a license. So just so everybody's aware of that. So at the end of this class, we will be issuing you a certificate to take the examination. Now, you must submit that education certificate prior to taking the test. Without it! No exam. That's your proof that you were here for the 40 hours mandated by the state. Now that certificate is going to be good for two years from the date of completion, assuming you complete the class, that will be good for two years thereafter. So anytime you want to take the exam within the next two years would entitle you then to use that certificate and take the exam. However, it does expire. So if you don't take the exam within the two year period or pass it, then you would have to repeat the class again. All right. Is that set in stone? At the time of this recording, it is but the licensing division and PSI have that authority changed things. This school or any other does not. They will expect that you'll be ready to pay with a licensing fee at the exam center.

Alright, let's talk about what we're going to need to do in order to prepare for the examination. Now, first of all the textbook is going to be helpful. And there'll be a link will actually be a PDF, or you might have the actual paper version. Now this textbook contains a lot of information about the real estate, most of which is pertinent to your examination, we're not going to have time to go through every chapter, line by line, syllable by syllable. It's just impossible to explain everything about real estate in a 40 hour course. So I'm going to be focusing on the chapters with parts pertinent to your examination. And we will have other classes in the future that focus more on details, say certain topics such as short sales, rent to owns or what have you, but those are not pertinent so much for this class and for your licensing. If you need those details, by all means, you could talk to me later on, such as an email or over the phone. So what I would suggest you do is focus on key terms I will discuss in this course, and highlight or make note in a journal. If you review the package PSI has given you or the version that we gave to you from psi, you will see topics in terms they recommend reviewing they are the testing company, so why not. Regularly review the terms in glossary we have provided or discussed. We will be offering free quizzes to help you prepare for the exam. These are focused solely on Massachusetts. Now, I say that because we have seen many use online practice quizzes from other places that were not Massachusetts focused and students have failed because they can fused with a particular concept or term that was for another state. We won't do that to you. So my suggestion is that when reviewing the material, you do the quizzes and see how you're doing. Review! Also as part of this class, we will be giving you a practice examination, but it is practice.

Let's talk a little about the license. Up until 1960, nobody here in Massachusetts needed a license to practice real estate. It was an unregulated industry. However, many people who were practicing at that time, unfortunately, either were dishonest or incompetent, and they harmed the public while practicing real estate. So the legislature in 1959, passed a law stating that starting in 1960 anybody who wanted to practice real estate would need a license here in Massachusetts. So we want to understand a little about when a real estate license is needed. And when it's not. Let me emphasize this, we need a real estate license when we're employed by somebody else, so somebody else hires you to help them in real estate related transaction. And for that help, we're getting paid a fee to help them which is called the commission, you are employed by another for a fee. So what's considered a real estate related transaction? Well, if I'm helping somebody sell a property that they own or buy one, that's considered a real estate related transaction. Also, if you're helping somebody rent a property, say a landlord and or helping a tenant, helping a tenant find an apartment, or helping that landlord rent one for a fee, you typically need a real estate license. First question on the exam. Ready? Do you need a real estate license to sell your own home? Answer, no! Why not? Because it's your home. But if you asked me to help you to sell it, and you were going to pay me a fee to do that. Well then, of course, I'd need a real estate license. If it's your own property. You can sell or rent your own property without the need for a license because the license is not applicable to you.

Now let's talk a little bit about the various types of licenses. There are the broker's license, and then there is the salespersons license. Now, no one enters into the real estate industry here in Massachusetts as a broker, unless through reciprocity through another state, and or attorneys requesting to be a broker by the state. The entry level license into the real estate business here in Massachusetts is a salespersons license. Now, if you had a broker's license, broker's license entitles you to be self employed in the real estate business. To hire the brokers and sales persons to work for you and open up your own real estate office. Okay, salespersons can do any type of real estate transaction that the broker allows you to do. So, if you want to do commercial real estate, you want to do, let's say residential real estate, rentals, either one doesn't matter anywhere here in Massachusetts, the salesperson can do it. There is not a limitation as to the type of real estate transactions you can do with a salespersons license as well. The only thing you cannot do as a salesperson is you cannot do the transaction on your own. You cannot be self employed as a salesperson. You must work under the supervision of and be employed by a broker in order to practice real estate here in Massachusetts with a salespersons license. So the first thing you're going to need to do once you pass the salespersons examination and they give you your pro salespersons license is to become employed to sign up with by a broker to be employed by a broker and sign up with a broker. You cannot practice real estate here in Massachusetts with a salespersons license unless working under a broker.

In addition, down the road, perhaps some of you might be interested in getting your broker's license. Now remember, the entry level license is a sales person's license, but down the road, should you want to be self employed, you want to open up your own real estate business, you want to hire other brokers or salespersons to work under you, right? Well, then you have to have a broker's license. Now beginning in June of 2011, Massachusetts required that you be a salesperson working in the business of real estate under a broker for a minimum of three years prior to taking the broker's examination. So there is a three year work experience requirement in order to become licensed as a broker. And during that are during those three years, you have to be actively associated with a broker, meaning you just didn't get your license, put it in your pocket for three years. And now you can take the broker's exam. No, the Board of Registration has defined actively associated as 25 hours on average per week, during the three year period. And your broker who you're working under, must certify to that in order to be examined as a broker. And there cannot be a break in there for more than a year between service. So that means you take a little hiatus for six months, you're still in good standing. Nobody keeps a timecard in the real estate business. But they have to certify to the fact that you've been working in the business, the idea that you're not just going to get a salespersons license, like I said before, put in your pocket, never practice and now you're responsible, perhaps for the practice of others that are working under you. You have to have some experience in the business. 

There is a broker's exam and course, similar to this one, different questions. Now here in Massachusetts in order to become a broker, brokers are what we call bonded. They have insurance policy that protects the public in a real estate transaction, because brokers handle money. So if a deposit is given in a real estate transaction, rental deposit or sales deposit, the broker is required and responsible for the money in the transaction. They have responsibilities to keep it in a separate bank account. And it just sits there while the transaction is pending. Can't use it. No commingling of funds, no vacations. Now, as salespeople should you get a deposit in a real estate transaction, your requirement is to give it to your broker, as soon as possible. They have to account for the funds, you however, as a salesperson only have the responsibility to give it. So the broker is the responsible party for the deposit, not you as a salesperson. Or it could also be an attorney. But for this situation, we're focusing the broker. So they have to be bonded because they're handling the money. You as salespersons do not have to be bonded, because you don't handle the money. You give it to the broker as soon as possible. So if you ever see on the examination. A requirement for the salespersons license to become licensed as a salesperson, that you'd be bonded? That would be no! No! That's a requirement of the broker here in Massachusetts.

Chapter one. Now, chapter 1 talks about three topics. Land, real estate and real property. So if I own just a piece of land, nothing on the land. Well, what comes along with the ownership of the land? What do we mean by real estate? If somebody asked me to sell their real estate for them, then what would that seller be selling? If we were buying real estate, what would we expecting to buy? So what do we mean by the concept of Real Estate? And what do we mean by real property and what does consist of?

Let's talk about, first ownership of land. So, somebody came to me and said, Paul I'd like to buy your land. What would I be selling? If it was just a vacant piece of land, maybe I could say to them. Well my land starts here at this point and then it goes 200 feet along this wall to that... that oak tree goes over here to the street and then follows it to the back where it began. So on the surface of the Earth, that's why I own, right? I obviously have the ability to build a building there, may be planted garden, swimming pool. So I certainly have ownership of what we call the surface of the earth. That part of the earth I point out. But does ownership of land consists of merely just the land? Maybe more than just the ability to use the surface of the Earth that I own? Do you own more than just the surface of the Earth? What about above it? Below it? From the heavens above to the hell below. My real estate instructor used to say, the space above that airspace above the surface of the earth also is part of what comes along with the ownership of land. So, if I want to build upwards, I have the ability to use that air space, theoretically. How high? Infinitely high. So I own the airspace to infinity to the heavens and beyond. That which lie on the surface of the Earth, everything from the land above in theory. What else? What's below it? Material, not just dirt. It's in the ground below the surface the Earth that I own. It is everything below to the center of the core of the Earth. Which I also have theoretically. How deep? To where? As I said before to the center of the Earth, theoretically. So if there's anything of value in the earth below the surface of the Earth, oil, gold, diamonds. All of that material that's in the ground is also theoretically mine. 

So, if we notice the split in half the surface of the Earth. So when we're considering ownership of land we consider that which comes with it. Now in theory, we own all of above and below. But in practice how much of it can we really use? What law is probably going to limit your ability to use all of the space above and below you? Zoning law, they restrict the heights of buildings. Okay. So we theoretically have the use of all of that air space. But in practice, we're limited by the government. Also, the government limits your ability to collect tolls from airplanes, that might fly through your air space. Below, even if we tried to drill to the center of the Earth and use all the material. It's physically impossible to do and the government would probably have some concerns particularly towards the health and well-being of the public good. So they limit the practice as well. But in theory, we own all of that.

Now, let's talk about some of the rights that come along with the ownership of land. We've talked about the ownership of land that consists of air space, as well as below it. Along with the physical rights of ownership of the surface of the Earth. Now one of the concepts we want to be aware of is the concept of lateral support with our ownership of land comes a right of what we call lateral support or surface rights. We have the ability to expect support from adjacent property owners, if their land is necessary to support our own. 

So let's suppose now I have this house at the top of the hill and I own approximately half way down the hill. What I own is part of the hill. Now my neighbor, he's down at the bottom of the hill. He owns the rest of the hill and he's in the excavating business. He wants to excavate out from his part of the hill here, the gravel content. That's in the hillside for row developers, it's a valuable commodity. But in doing so it causes my part of the hill to collapse. Well, I could go to the court system if necessary and stop that excavation because it's now harming my property. I have a right of lateral support a right of expectations to support against adjacent properties. 

Another example of a lateral support is found commonly here in Boston. Many times building share common walls. Brownstones what they're called down in the back bay share common walls. That both owners use for structural support. If I owned my half of the wall and you own your half of the wall, you can't do anything to your half because I expect support from your half, so it's the same concept, lateral support. Now as for the developer we also have an expectation to be able to use material in the ground that might not technically be under our property. Let's suppose in a different situation, I happen to have a location that is not on a public water supply. I need to drill into the ground to get water. And in doing so, I tap into this large pool of water, that stretches, from miles under the ground known as an aquifer. When I start, drawing water from this Aquaphor, it actually may draw water that technically might not be under my property, but because this type of material is either in a gaseous or liquid state. It can be captured or siphoned by anybody. We call it the law of capture or siphoning. We also have the ability to use the type of material liquid or gaseous that may not be found on under the property, such as oil, natural gas, and water, which can be captured or siphoned by, like I said, anybody. I'm not just restricted to that type of material that is just under my land. 

Now let's talk a little bit about water. So dealing with water rights, What rights do we have to water that might be on or near my property? Flowing bodies of water, the concept of water rights and the term riparian water rights. So when we're talking about riparian rights, we're talking about flowing bodies of water, creeks, brooks, streams and rivers. Now, first thing we need to understand is in dealing with riparian water rights. Is this flowing body of water navigable? The state has determined, if you can get a boat down to it, it classifies them as rivers. So if it's a navigable flowing body of water, we're talking about a river. If it's not navigable, we're talking about creeks brooks and streams, okay. So is the flowing body of water navigable. 

Let's talk about the non-navigable ones, first, right? Creeks, brooks, streams. So here's my property line and the flowing across it is this non-navigable creek, brook or stream. So, what rights do I as this property owner have to the water that's flowing in this creek, broker or stream? If I'm in the farming business, let's say. Can I use the water to irrigate my crops? Yes. Yes, I can. It's part of what I own. It's the ability to use the water as it flows as well as the land under the water. I can't divert its flow. I can't damn it up, but I can use the water as it flows. If we have two property owners, let's say. Property owner A, property owner B and the deeds of ownership of both property owner say they own to the creek, brook or stream. Then the technical boundary between the two property owners, is where? The middle, the center line of that creek, brook or stream. So, both property owners share in the use of the water and the land under the water to the center line, it's both of what they own. However, a water body flowing water is a river, say, Charles River. Identified as such by the state as a river. Well, if I'm property A, or B and this property is having the river flow by my property. Well, my property line extends to where? To the water's edge. So, as a property owner, bordering a river. My line, my property line extends only to the river's edge. I have no rights to the water or the land under the water in the river. That water and the land under, is controlled by who? The government, could be state government or federal, depending on where the water flows. But again, my line, my property line extends only to the river's edge. So if I'm bordering a river and I have a boat docked in the river, Of course, needing a permit which I was given to by the appropriate governmental agent actually agency. That allows me to do that, otherwise I can't do it without that type of permit. And when selling somebody land again, bordering a river, my property line extends only to the river's edge. Other bodies of water, we call standing bodies of water, littoral property rights. So littoral property rights means standing body of water. Littoral means by the shore. So now we are talking about ponds, lakes and even oceans, even though oceans have tides. And they are constantly moving, they are still considered a standing body of water. So let's talk about them first. 

Let's suppose I have this property that's on the ocean and my deed of ownership says, I own to the Atlantic Ocean. Say I've got a house up at Good Harbor Beach. My deed says I own to the Atlantic Ocean. So what do I actually own? Bear with me. This might take a little bit of time to understand this, but if we have this constantly moving tide, meaning, at 7:00 a.m. the Atlantic Ocean is there but tides coming in at 8 a.m., It's there at 2 p.m. later on, and in the afternoon low tide, it's out there. So, when we have this title flow involved, where my property line keeps on moving back and forth, It's constantly moving as the tide moves. Meaning at 7 a.m. my property line is here. And it's at 8:00 a.m. it's here. And then a 2 p.m. it's here and later on. In the afternoon, it's out there again. It's based upon what we call the average or mean high-water mark. So the average tide or the mean high-water mark, as it might be called establishes the boundary of the property owner. So whenever the average high tide is. Then that is considered the end of my property. So we're only talking about an average here. There could be times when a little bit of my land is underwater for the moment because we have an unusually high tide that day. But when it recedes, when we have a low tide I only own to the average high tide point and who owns the rest. Well the federal government owns the right to the international boundary out to the ocean somewhere. So my land extends along and ocean or a high or tidal flow to where the average high tide would be. Now that's the common practice of real estate. So well, throughout United States that's the common practice. Average high tide along the tidal flow. However here in Massachusetts, we deal differently with that right? Back in the 1700s the legislature here in Massachusetts changed from the common practice of real estate to establish the property owner's boundary extending to the average low tide, which significantly added more property along the coast.

Okay, so let's now talk about ponds. If I have a pond on my property and I owned entirely around the pond, then I own the pond too. Now, I may be regulated by what I can do with the pond because of obviously here in Massachusetts their regulations concerning the conservation of water. So I can't pollute it obviously. And I would hope not, and I can't fill it in, but it's certainly on my property and I can use it. If however, there are multiple owners around the pond. Then the size of the pond will determine the rights of the property owners around it. But,.. get this, if the pond is 10 acres or more in size than it is considered by the state, as a great pond. And in that case, I as a property owner around the pond only own to the pond's edge. So, I own to the pond's edge and the rest of the land and the water in the pond is under the control of the government. In this case, state government as well as probably local governments. If however, again, multiple owners around the pond, but this case smaller than 10 acres, then all of us who own around the pond share equally the ponds use. So, It's like common land, but it's water not based upon our frontage along the ponds to its center, but we all share equally in its use.

Concept of real estate. 

What is real estate consists of? If I'm selling or buying it? What am I expecting to either sell or buy? If you came to me and you said Paul, I'd like to buy your real estate. What would you be expecting to buy and what would I be expecting to sell to you? If I'm selling you my real estate when we say property, what do we mean by that? Is it the land? Now, everything we just talked about in the ownership of land is real estate. But is it just the land that I be selling? If I'm selling you my real estate, there's a structure on the land, perhaps. What makes something on the land real estate? Something permanently attached to the land, now makes this item real estate, natural or man-made. Permanent improvements now become real estate once permanently attached or affixed to the land. So permanent attachment to the land makes this item now real estate. So when we're talking about real estate with the term Realty, we're talking about the land plus all the natural and man-made improvements which become permanently attached or we call affix to the land. So let's talk about natural improvements to the land that have become permanently attached. What do we mean by that, natural permanent improvements, but they are by nature, trees, shrubs, grasses about the man made improvements. Well a house, correct? Permanently attached to the land on a foundation. But what about a mobile home? You could it be classified as real estate? Could it be permanent? If permanently attached to the foundation or a foundation, but if it's on wheels? No it wouldn't be classified as real estate because it's not permanently attached. It could be moved. How about a deck on the back of a house? Would that typically be considered a real estate item. Yes, because typically it's permanently attached generally to the house. The grill on the back of a deck of a house. Would the grill be considered permanently attached? In most cases, no. In some? Yeah. So when we're talking about real estate, we're talking about this item typically permanently attached to the land. 

So, the ownership of real estate includes everything that's permanently attached or a fixed to the land. But when an owner is selling his real estate, must be still everything that's the firmly attached? Meaning can the owner exclude from the sale of his real estate, certain items? Things that are permanently attached when selling. So a seller asks me, Paul, I'd like to put my property on the market for sale. So I want to take a look at it obviously. And when I walk in his property, I noticed now hanging from the dining room ceiling this beautiful chandelier. Now it is permanently attached to the ceiling. So I asked him, I asked my seller, when you're selling your beautiful home, are you planning on leaving behind for the buyer this beautiful chandelier? It probably going to say, Oh no! He says, oh that's an heirloom been in the family for years. I don't have to leave that behind when I sell my real estate. I don't plan to. Do I? Does he? If he wants the dining room chandelier what do we have to do to make sure there's no misunderstanding between him and the buyer. Because the buyers assumes what? If you are the buyer and you see that, you are assuming that it's permanently attached. That it's real estate. So how do we make sure that if the seller wants this item that there's no misunderstanding between buyers and sellers, for showings you could do what? I for one would remove it, even before went on the market. If the buyer sees it, it's expected that the buyer is going to get it, because that's what the buyer believes correct or something has to be written to explain that the buyer is not getting this as part of what he's buying. Now, I'm not just saying something on the listing sheet or something on a napkin or even verbally. Within the sales contract between the buyer and the seller is where it should be. There could be this specific exclusion, now that form Would probably be a purchase and sale agreement. In the typical type of real estate contract used here in Massachusetts between a buyer and seller when selling real estate. Now, if the seller wants the dining room chandelier, then he would insert an exclusion if the seller wants this chandelier. So that there is no misunderstanding between the buyer and selling seller when signing the contract and closing. Otherwise, If not included in the sales contract on the day of the real estate closing, who's entitled to the dining room chandelier? Exactly the buyer. So, this contract is between the seller and the buyer. You're most likely representing the seller in this transaction that we speak of. But you want to make sure that the sellers interest is protected, it's not enough just to mention it. Law of a fixation which says that the ownership of real estate includes everything that's permanently affixed or attached to the land. Unless specifically excluded in the sales contract. So the burden is on the seller and if you are the sellers agent, obviously he's going to rely on you to make sure that, that is included in the sales contract. 

Also, as what's Real Estate is the term fixture. Fixtures have become real estate because at one time they were movable items, they were what we call personal property or sometimes also known as chattel. But now they're real estate because they have become permanently attached to the building. So once permanently attached nail down, screw down, screwed in or so on. They become part of the owner's real estate by their permanent attachment. So when your room if you are the buyer coming into the room, what items in there would be classified as fixtures? A TV? If bolted to the walls. Light bulbs? light fixtures. The heating system, the radiator, ceiling tiles. All permanently attached in some manner. All part of the permanent attachment to the building. So on your examination they might start questioning about an item, a fixture. Would typically be considered permanently attached. 

So there are some legal tests as to what are considered reasons why something might be considered a fixture. You are more likely going to be examined on the first one. The manner of attachment, meaning is this item typically permanently attached. So, the grill on the back of the deck, not something that typically is permanently attached, not considering real estate, excuse me, not considered as real estate. How about the swing set in the backyard? It depends, it can be considered real estate if it was concreted into the ground, but it's just sitting on the ground, typically. How about the bird bath in the backyard? It would, if it was on a say again, a cement setting. Like it was cemented into the ground then, yeah. If not? Then no, all right. We have to be careful about gray area items. Just as a stove. What type of stove do we have? Stoves here in Massachusetts are not considered something required in order to sell real estate. Crazy, I know, but they are not required. So, therefore, how about the stove? Is it built in? Well, if it's built into the wall, then we consider that to be real estate. It's permanently attached, but if it's the one that say like 30 inches wide and just slips into the cabinets and the countertop and there's an electrical plug, it's not considered firmly attached, even the connection is not permanent. So it might customarily be considered part of what the seller is selling. But not necessarily something that's real estate. So we want to cover that item. If we're selling the seller's real estate, does he plan to leave the stove? Ask him if there's a gray area item, we don't want any misunderstanding there, make sure you put it in the contract as excluded. 

Now with every rule their an exception to the rule. So when dealing with fixtures, whether or not something is permanently attached are not, the exception is the issue of a trade fixture. Trade fixtures at one time where items of personal property and now have become permanently attached to a landlord's property by a business tenant. So these trade fixtures are used in business. So let's say we've got a hairdresser who negotiates the lease of space with the landlord. And as part of our business installs countertops in the landlord's property, permanently attaching them. The lease is now before the hairdresser. Now, even though these items, the countertops, the sinks were permanently attached to the landlord's property. They're used in the Tenants business, they are used in her hair salon so she has the ability to move them when vacating, unlike a residential tenant. So a residential tenant renting an apartment from a landlord let's say, installs new countertops, new cabinets in the kitchen and now vacates, can they remove the kitchen countertops and the cabinets? No, the residential tenants when installing those and making any permanent improvements for the landlord's property, that becomes the landlord's property. Once firmly attached without the approval of the landlord. So the residential tenant now improves the landlord's property without compensation. So they become the landlord's property in that case. But with a business tenant, it's different. Business tenants have the ability to remove their trade fixtures on leaving. So even though permanently attached to the landlord's property, they can be removed by the business tenant. If they leave them there and they vacate and just totally forget about them, then ultimately, someone has to own them. So, the court would read if that ever went to court, the court would look at that particular situation say, well after so long, we're going to consider of them to be the landlord's property because they were left behind but every case is different. 

Everything we own. If it's not real estate, it's known as personal property or sometimes also known as chattel. Chattel and personal property mean the same thing. Now, we might consider personal property to be movable items. Not permanently attached to land or a building. So it's something we can move. We might consider it to be anything other than real estate. Now, personal property comes in two forms, personal property that we can touch known as corporeal or tangible, comes from the Latin word Corpus, meaning a body or substance. So, in your room, what items would we consider as corporeal or tangible? The chair you're sitting on. Could it be considered property that you own but not real estate. Now could we be selling a property that we have both types of property? Both real estate and personal property, such as a house? furnished? We have two types of property there. Now, another property that we own, but we cannot touch is known as incorporeal or intangible. So if you wrote a book and let's say, you got a copyrighted or you got a patent. You had invention, well the government gives you a piece of paper indicating that you have ownership in that intellectual thought. Again the difference there the patent or the copyright is an intangible or incorporeal. Own stocks or bonds? Very similar. If you own a business, for example, well, if you own the business, what's the value there? If you want to sell the business? Well, you certainly have the tangible items of property there that go along with the business but what is this some worth? What else is a value there? Your reputation. We can also create personal property out of real estate. The process is known as the severance. So severance is a process that comes something that was once real estate into personal property. So for instance, here's my property and on it I have my inground swimming pool, right? Beautiful pool, now my neighbor, loved my neighbor. Has a tree with a large limb, that hangs over the property line and every fall, it sheds, its leaves into my swimming pool and I'm sick and tired of getting the leaves out of the pool. Trust me. So out of frustration, one night, I get up my chainsaw. And what can I do? Can I go next door and cut down the neighbor's tree? I wish. But no, I don't think so. Could I cut the limb at the tree to cure the problem? No, I couldn't do that either, but what could I do to cure the problem? Well, right where it crosses over the property line. Where it is now trespassing on my airspace, I could cut the limb there and when the limb falls to the ground. It is no longer considered real estate. No longer permanently attached to the land and the tree now becomes personal property. For me to make a nice, pit fire and toast some marshmallows. So the process of severance has now changed something. That was once real estate the tree into firewood, into personal property. And I took care of the leaves problem. Now let's say I took that wood from the tree and planed it down, made it a usable workable piece of wood to make it part of my deck, once attached, It is now again, real property. Okay? So severance is a process that can create personal property out of something that was once real estate. So you own a rug, a car, cell phone. You want to sell them? How do I prove that I actually bought them from you? If somebody ever question me, how did you become the owner of this personal property? What document do we use to prove ownership transfer of something, a bill of sale? A bill of sale is a document in writing that you could use to prove that I sold you this item or that, which is personal property. Much like a receipt when you go shopping. So you know you have ownership of this item described on the bill of sale. You can prove that I sold it to you. But if we have real estate not personal property. How do we prove that somebody actually sold you a piece of real estate? What document do we use when we are transferring the ownership of a real estate? A deed. Now, if I'm selling you a property at 123 Sesame Street, Massachusetts that I own, and I want to prove later, on that I actually sold it to you. Well you bring out this written document called a deed. It has my name on it as seller in your name on it as buyer. And there's probably it's actually most likely a description of the real estate that I sold you, how much you paid me for it and that I've signed it. And I've given it to you. Personal property we use a bill of sale. When it's real estate involved, we use a deed.

Annual crop is another type of personal property that we also own, also known as an emblement. It's an annual crop. Now, what do we mean by an annual crop? It only comes up once a year, so it won't come up next year unless we were planted. So what types of crops would be considered annual crops, wheat? Corn? A type of vegetable crop, right? Certain types of flowers, they don't come up until next year unless we replant them. All right, so I'm selling you my farm right now. On the farm on the day of the real estate closing, is this unripe corn crops still growing at the closing. When the closing is all over, when you now own the farm, who owns the corn crop? The seller of the property still owns the corn crop,. Me. Why is that? Corn is an annual crop. Even though rooted in the ground, it's not permanently rooted in the ground. Because it will not come up next year. So after that real estate closing is over because that crop is not considered permanent, it's personal property. Now typically the buyer doesn't want the seller back on the property at some time in the future. So the value of that crop is determined separately from the value of the real estate and then added it into the sales contract. Perennial crops are the others. Perennials are the ones that come up every year without replanting. So because they are considered coming up every year without replanting. They are considered real estate. Trees, for example, transfer with the ownership of the real estate. So what about those tulip bulbs they come up every year? So if the seller wants the tulip bulbs, what do we have to do? Put it in the sales contract, that the seller has the ability to remove the tulip bulbs. 

Now, let's talk about the concept of real property. Now what makes the real estate valuable? Isn't just the land that makes it valuable, right? Here's a scenario, if I sold you my real estate, I transfer ownership to you, give you this deed to my property that I own at ABC Sesame Street. You now become the owner of that property described on the deed. But if you read the deed that I give you it mentions there that even though you are the owner I specifically did not give you the right ever to use the property, even though you're the owner. So when I sold you the property made you the owner of it. I sold you the property but not the right ever to use it. And that you can't let anybody else ever use it either. Even though you own it, nor did I give the right to develop the property? To mortgage the property? Will the property? Lease it, or even sell it in the future?

Now, how much do you want to pay me for that real estate property that I just sold you? What's it worth to you? Worth very much? So the rights associated with the ownership of real estate is what generally makes the real estate valuable. Included in the ownership of real estate. Typically, is the ability to use the property. So we're talking typically about the rights associated with the ownership of real estate, or what makes real estate valuable and not just the land nor items that make it.

So we're talking about rights associated with the ownership of real estate, they typically come in a bundle when we become the owner and that typically has an owner, we get the right to possess use and occupy the property while we own it. It's a value? Correct. Or even though on owner, maybe I can let you possess, you use or occupy the property while I own it. 

So, who am I under that circumstance? I'm the landlord, right? You're my tenant and in exchange for you to possess the right to use and occupy my property for a while. What do I get from you? Rent, it's a valuable right that can be used. Also in the bundle is the expectation to exclusively have, well some control over the property you own while you own it. As an owner, I expect that I get the ability to use the property without you using it. If you decide to build a shed over my property line, let's say. Well, you don't have any right to be there. You're a trespasser, I could go to the court system if necessary. Have you removed the shed because you have no right to be there, I get the exclusive control over the way the property is used while I own it. I also expect quiet enjoyment of the property without interference from you. So what's quiet enjoyment? Quiet enjoyment not only talks about the noise but that you have no right to be there as a stranger, you're a trespasser. You're interfering with my quiet enjoyment of my property. So one of the property rights I also enjoy while I own real estate is to determine under what conditions, I'll sell it to you and how it can be used to an extent. I don't have to sell it to you. I'm not compelled to sell it to you, but if I want to sell it to you, these are the terms under which I'll sell it to you and sell it. The purchase price other terms and so on that I may choose. You don't have to buy it if you don't want too. But I don't have to sell it to you unless I choose, that is my right. I certainly have the ability to dispose of the property in the will after I pass too. I could determine based upon my property rights, who should own the property in the future. In a will, I can determine that if I want on my passing that dog lovers of America will own this property and they can use it how I see fit. Now, if we start chipping away at those rights, meaning that I'm going to sell you the property but doesn't come with the right to sell it or will it lease it, like explained before? Well then obviously the property is not as valuable 

perhaps to a buyer. 

Now, what does eminent domain talk about? If you own real estate in the government needs it for a public purpose. Such as a park, a school, a highway coming through. If they need it, guess what? It's theirs. They have a right to it. The proceeds your ownership in real estate. If they need it for a public purpose, they have a right to it. Provided just compensation is paid to you, justly. You can't say, I'm not selling, you might disagree with how much they're willing to pay you and disagreeing about the compensation can be the issue. My property is worth. I don't know, a million dollars and they're only offering me 500 Grand. We're going to wind up in court, talking about just compensation, that's condemnation. But once the court determines that, then I must sell that's known as eminent domain. So again, the process of condemnation is based on the right known as eminent domain, condemnation occurs when government seizes private property and compensates the owner. The power of the government to do this is called eminent domain, which essentially means that government takes private property for public use, we have taxation, escheat, eminent domain, and lastly, police power. Police power talks about regulations on use. So, not only are we going about the laws of the community, we all must obey. But we're also talking about regulations that our government can impose upon your ownership of Real Estate, as to how you use it, how you must use it while your own it? So regulations on use are a police power. So from the local government standpoint city or town. What is the way that they regulate? How you can use your land while you own? Zoning law. Zoning laws are typically a local government law that divides the community to its various zoning districts. Where they want specific patterns of land used to occur? So they determine perhaps that over here we want commercial, all we want residential. If you own land in the residential district, how can you use it? Residentially. You want to put a restaurant on the land in the residential district. They're not gonna let you. What are they going to say to you? Well, that's commercial. So you got to use it on the commercial area, the commercial district. So regulations on use, typically happen through their zoning laws other police powers, right of the local government or state, maybe even federal, might deal with building codes. So you want to build on the land. How's the local government going to regulate you? Construction, certain standards of construction. Making sure that it's safe for people to occupy, okay. So you got to get a building permit before you can start building anything. Even if it's your own property, you want to build it yourself is still need a building permit. You have environmentally sensitive land, you have wetlands or plant life, animal life that's in danger, their own environmental laws that deal also, with how we're going to have to deal with those issues. And also regulate us on how we can use the property while we own it. 

Now in addition to the governmental powers that may restrict our rights in real estate, we may also have our own private agreements or contracts that can also limit rights in real estate. Now, one of these issues can affect rights in real estate, is that what we call a lease on real estate, a lease is a contract between two parties. The landlord under lease is known as the lessor and the tenant known in the lease contract as the lessee. I'm giving you as my tenant the lessee use of the property for a separated time, in exchange for you using my property with a definite start date and a definite end date in exchange for what? What is the tenant giving me? Rent. How much rent determined in the contract could change as to how much rent is going to be paid over the lease? How does that affect my ownership rights in the real estate? If I've leased you the property, how does that affect my rights in real estate? It restricts my access to the property. The tenant is entitled to what we call quiet enjoyment as well of the premises, for one. So I just can't come walk on into the property to see how things are, you know. But how about the rental amount? Am I entitled to increase the rent? Can I give you notice that next month your rents going up and to go up another $500 a month. So, when we have a lease contract, what's the essence of the lease contract? That the rent is predetermined over the lease term. Now we could go up but we'd have to agree to that. When, when we enter into that contract, I don't have the ability to change the terms of the contract as long as you're paying the rent on time, I'm stuck with you, until when? Until the end of the lease term what we agreed upon. If I sell the property, I want to exercise my ability now to sell this property at some point in time, and you're still my tenant. Can the new owner terminate your lease or require you to pay more? No, lease is part of what I'm selling you. So until that lease is over, that new owner is stuck with you until the term of the lease. Talking about the OR and the EE words, lessor, lessee, mortgagor or mortgagee, grantor, grantee, the easy way to remember the OR ending is always the person on the giving end. The way I think about it is the giver, the provider. They're always giving something to the person on the other end. The EE word is always the person on the receiving end. The receive is how I think about it. 

When we're talking about a mortgage, the common thought is I go to the bank to get a mortgage and I'm talking about a mortgage specifically because people get confused by this, right? That's one of the things we're going to forget about it in this class, okay? You go to the bank to get what? What do you want from the bank? Loan, money, right? So let's say, I need $100,000 to buy this property. I need a loan from the lender. Now, the lender says to me, Great! Hey Paul, you're approved, we think you're a good risk. Well, we'll give you $100,000 that you want. Would you mind signing this promissory note? The contract for whatever certain time to repay this money, the hundred thousand dollars you're borrowing with interest with so many years and it's probably going to be a monthly payment, okay? So I sign that indicating I'm personally liable for the repayment of the debt under those terms whatever they were. Now, if you are the lender, are you confident enough that my signature on that piece of paper that I will repay you that $100,000 with interest? Will you give me $100,000, just based on my signature on a piece of paper? Hmm. Well, if you would email me, I'd happily give you a number of signatures. I'd love you to do that, but the banker wants a little bit more security collateral for that promise to repay the money. So the next document they put in front of me at a loan closing is the mortgage. By signing that as the property owner. I am giving the lender a real estate interest in my property. Meaning they're like now an owner with me in the ownership of this property that if I don't repay the loan that I said I would under those terms promissory note, what rights have I given the lender under the terms of the mortgage? The right to have a public auction and seize my rights in real estate provide if I don't pay. So a mortgage is given by whom? The mortgage is given by the property owner to the bank as security for the repayment of the loan. So the common thought I go to the bank to get a mortgage? No, that is not correct. People say it all the time. I go to the bank to get a loan. The bank wants to make sure that they're going to repay the loan and it's going to be repaid. So they want the property owner to give them the rights in real estate that I own. So, the mortgagor or the person on the giving end is the property owner. The mortgagee on the receiving end is the bank. They are receiving a mortgage on the property to secure the repayment of the loan, okay? Most people think I go to the bank to get a mortgage. Like I said before, we've got to forget about that. So, in this class, no, you go to the bank to get a loan and on the exam when they say, who's the mortgagor? That is who? You. 

Okay back to restrictions. Now let's talk about another restriction on our rights in real estate and that is an easement. So if I own real estate, how can this type of private agreement restrict my rights in real estate? What generally is the purpose of an easement? Access, so typically one may need an easement over somebody else's property to allow them access. So here's my property, now I'm going to subdivide my land. Meaning I'm going to retain, let's say A, section A, but I sell you section B. Now, how much do you want to pay me for B? What is it worth? Now, let me clarify, there is no access to B. What's the issue here? You want to start thinking about, how am I going to gain access? If there's no way to get there, unless you got say a helicopter? That likelihood is new. You can't get there unless however, when I sell B, I provide access by creating the right to pass and repass over my land without that you have no way to get there. So, when we're talking about an easement, we're typically talking about somebody's right to pass and repass of the land and others for access purposes. Now, theoretically what happens to the value of A, lot A. If I've given you the ability to pass and repass over my lot A, the value goes down traditionally because I don't have exclusive control over the property that I once did. I've given it up. I must allow you the ability to pass and repass over the land, if I'm to sell B and you want to gain access to it and if you sold the property to say section C, would C have the ability to continue to pass and repass over my land? Yeah. So typically these types of easements pass along with the ownership of the property.

In addition other private limitations on our rights of ownership might be through the use of what we call a deed restriction. So remember when I'm selling real estate, I can sell real estate under the terms I choose. So maybe I want to make sure in the future that when I sell you this property, you or anybody else you sell it to, it can never have the ability to say, sell alcoholic beverages, or a hair salon or anything else for that matter. So, when I sell you this property, what do I do? I write language into the deed stating that alcoholic beverages, let's use that one, shall not be sold on the property. So you buy the property under those terms and start selling alcoholic beverages on the property contrary to the deed restriction that I imposed. What can I do about that? I can take you to court and ask the court to uphold the validity of that restriction. As long as it doesn't violate any public law. The court could say, you didn't have to buy the property, live up to the restriction and as a buyer you have to suck it up. Otherwise, if you don't, they have the ability to negate your ownership in the property and deed it back to me. So, a deed restriction can limit what an owner can do about his property because a previous owner wanted to have some control about how the property might be used in the future. But that person will be the only person able to enforce it. So say that person passed away and his heirs carry on in the ownership of the property. The person's heirs would also have the ability to enforce it. The only one who could release the restriction, would be who? The one who opposed it in the original. That restriction carries on in the ownership of the property. As long as it's not a fair housing issue, repeat, as long as it's not a fair housing issue, we cannot restrict the ability of people to rent or own property based on their race, skin color, religion, national origin and various other fair housing issues. 

If I want to preserve my view of the lake or the ocean, I'm going to sell you this piece of land, right? That's in front of me. In front of my property. But before the lake or the ocean, how am I going to make sure that I can preserve my view of the lake? Exactly. You would put restrictions on the new owner, purchasing the property of front, provided it doesn't violate the public law. Now, a license establishes a privilege to come on the property. Not a right? The ability of someone to come on my property. Good examples of licenses are hotel rooms, the movie theater, sporting events, tickets if you have a ticket that is basically a license. They are all examples of licenses. So somebody now is privileged to come onto the property of the property owner for a specific purpose. So, in the case of a hotel room, you could use the room for the evening. But then tomorrow, right? You have to get out or if you are an unruly guest at the hotel. What do they do with you? Just throw you out, right? I don't have to take you to court, you're not a tenant, however, you're only a licensee. 

To recap, examples of private limitations on your rights of ownership exist with leases, easements, deed restrictions, mortgages and licensees which can all restrict our rights in real estate. 

Transferring ownership in real estate. 

Transferring rights in real estate is transferring ownership or what we call title in real estate from one person or an entity to another. Now, I've used the term ownership and title, they mean the same thing. They're a concept in real estate. Now to say to somebody, I own real estate at so-and-so Street means I am claiming title to it. If I said to you, I own or have title to the Prudential building in Boston, you'd likely asked me to prove it to you, wouldn't you? Now how can I prove that I have ownership or title to something in real estate? The Deed. Meaning a document in writing given to me by the previous owner proves that they sold it to me. And that they transferred ownership or title, remember the concept, to me. Showing written proof that transfer took place. Again, the deed is not the title to the property, but rather the proof that the ownership or title of transfer occurred between the seller to a buyer. 

Now here's another way of thinking about it. Knights and samurai's could not earn that title. In order to earn the title of being a samurai or a knight. They usually got it from a king or the Emperor for samurai, I believe it is. A piece of paper that stated their name, and the title earned as a samurai or a knight. Well, the deed is exact same thing. It's that paperwork that shows proof or ownership. 

Well, you might be asking, well, Paul, that's great and all but what is alienation or to alienate a  property? Well, in real estate law it's the complete and voluntary transfer of title to real estate from one person to another. That's it. It's just the complete and voluntary transfer of title of real estate.

So, when we are talking about the deed, when we are intentionally selling or gifting real estate then we use a deed to show voluntary transfer between seller and buyer. With the deed, the party on the deed that is selling the property is known as the grantor. They are giving ownership or title in this property identified on the deed to the buyer, the grantee. The grantor, the seller intentionally transfers the ownership of the property to the buyer, the grantee on the deed. Okay? 

So, we have an intentional sale or a gift of real estate. If we're transferring the ownership of this property between say you and I, typically as private individuals. This is known as a private grant type of transaction. So a deed most likely might be used in this type of circumstance, a private grantor exchange. I'm not saying it's being done out of the public eye, just doing it as private transaction between individuals through a deed. 

What if the government owns real estate perhaps through escheat? When there is no ownership that can be proven no wills or heirs. Say the state government owns property indicating that they are now selling it to you as a private individual or perhaps I owned hundreds of acres of land that I wanted to publicly dedicate to the community as open space or maybe the public dedicated it to turning into private land, they would use a deed.

Now, is the deed the only way we can transfer the ownership and real estate between individuals? Is the deed, the only way you could prove your ownership in real estate? Are there other documents that could be used that would transfer the ownership of real estate legally? You may have heard me say this before but a will. A will is another type of document that can be used to transfer the ownership of real estate. 

One of our basic rights in real estate is to choose who should own real estate upon our passing. So, if I've determined in a will what should happen. Then that's what will happen; and a perfectly valid way to transfer the ownership of real estate other than by deed.

There is terminology associated with the will that I would suggest we'd be aware of. First, the person making out the will is known as the testator. So, if I make out my will I'm the testator, another OR word.  I've determined upon my death I want all real estate property that I own to go to my sister Michelle. I named her in my will. A few years later, my sis and I have a falling out. I want to make sure that she doesn't get a dime. So, I'm going to cut her out of my will and I go change my will through the use of a codicil. A codicil is an amendment to the will changing its terms. So now she doesn't get a dime like I want instead I change my mind to bequeath to my other sister my property. So in real estate unfortunately sometimes we have two words that mean the same thing. And the devise is real estate contained in a will. I also have certain other property, personal property that's value of some sort. Like my coin collection or comic books. I want my sister Sylvia to get them. So in the will, I mentioned her as the owner of these properties so upon my passing that would be a bequeath to her... personal property contained in the will is a bequeath or sometimes known as a legacy. Now the executor is the person named in my will to carry out its terms. So hopefully, they've got a copy and then they carry out the terms according to my final request and requirements of the will.

So we've talked about two documents that can transfer the ownership of real estate, deed and will. Are there other ways that you could prove that you now own real estate other than through the deed or a will? Yes, If  you're an heir, meaning this person died intestate. When somebody dies intestate it means what? No will. So when there's no will but there are heirs left behind the heirs now can step forward and claim a share of this person's estate. Based on the state's laws they may have an interest or a percentage interest in that person's state, depending on the state,  closer the relationship, more of a share, further down the list, well you probably out of luck haha this is the law of inheritance. Sometimes known as the laws of descent and distribution. Meaning I'm an heir and based upon how closely related I am to this individual who's passed, intestate. The state's laws will determine how much of a share I'm entitled. If there is no will, the court appoints what is known as an administrator to settle the estate, they will determine what are the assets of this individual, who the creditors of the individual are and who are the heirs? And present this all to the probate court here in Massachusetts for a final determination of this person's state.

Transfer by accession. Can I own more real estate because of a man-made law or natural occurrence? When we have trade fixtures, there's a business tenant they permanently install business fixtures and then move out. They have the ability to remove the trade fixtures. But what happens if they leave them behind? After a certain period of time they become the landlord's property. If I was the landlord, I own more real estate as a result of these trade fixtures. Other types of natural occurrence can also entitle me to more real estate that I once owned. One of these is known as accretion, which is the slow build-up of land or soil over time. Now, a good example of this is when say a river as it flows down from north and empties into another area further south. So as the river flows from the north and brings it along it in the water, soil that is eroded depositing along the banks of the South. The owner from the south is going to probably say well now I own more land now. But now, because of the gradual buildup of soil over time now the average high tide has changed. So remember generally owners owned up to the River's Edge. Well if it goes further away you own more that deposit just added to the person's land. Some people refer that to as mother's Nature's gift bestowed to landowners. The opposite was true down in Plymouth Massachusetts. You'd see those houses that are right on these Cliffs and they used to be yards and yards of land before the cliff, but the ocean storms wiped away the land and now won't owns less of that land through erosion and avulsion. Reliction is the increase in land caused by the shrinkage of rivers. Avulsion is the decrease in land. When we have say, natural catastrophes, mudslides, earthquakes, hurricanes. Large amounts of soil might shift their location suddenly. And it didn't happen gradually over time. So what was once your land is now on my land, right? But even though on my land It didn't happen gradually It happens suddenly. 

Now, in dealing with ownership transfers, we also could have a transfer ownership in real estate that was not voluntary. Meaning against the owner's wishes. We've already discussed one type of involuntary transfer, which is eminent domain. Where the government needs your land for public purpose. They have a right to provide for just compensation, of course. Now, courts also have the ability to involuntarily transfer the ownership of real estate various court proceedings can result in that happening. Against a known as wishes they may no longer own the property. If I declare myself bankrupt, well then the bankruptcy court has the ability to sell property that I own to settle up with my creditors, against my wishes. I may no longer owned that property, usually through a foreclosure process. If I've given the mortgage to a lender, then the lender has the right to auction my property if I don't repay the loan has agreed, They're going to have to go through a court proceeding first to establish that. Escheat is a core proceeding.

Somebody dies, dies without a will and there's no heir. In the court system gets involved with that. The state will initiate a process in court to determine. Number one that there was no will and then there are no heirs. And then the court would then order that this property now be owned by the state if no one else can claim it, okay?

Here is a new scenario. One snowy Christmas Eve, I invited a Christmas caroler to come on my property to sing Christmas carols under my window. Lovely? Right? Well coming up this walkway that evening. She slipped and fell. Broke a hip now has decided to sue me in court for pain and suffering. Loss of wages, negligence, on my part. And after a trial she wins and the court determines I was negligent and awards two million in damages. I say to the judge., judge I don't have two million, he says, oh but you own real estate. So therefore we're going to order the sale of real estate that you own in order to pay Miss caroler two million dollars. At least up to a certain point, let's say my property is not two million. 

And then there is this unusual concept in real estate that could result ultimately again in an involuntary transfer of ownership of real estate. It is based on the thought that those who are the users of land should be the owners of it. That is the basic concept associated with adverse possession. So, if I owned this property but you have been using it for what we call the prescribed on the law period of time. Each state has determined how much time this is. Here in Massachusetts 20 years, meaning that I've owned the property but yet you have been using it for the prescribed period of time, 20 years. Now, I know you've used it. Never stopped. Allowed the use to continue over the prescribed 20 years. And during that period of time you did something to the land to show me that you had intended to take this ownership of this real estate property away from me. Maybe you built a building, may be a fence, and area paved it over a shed. He did something to the land to show me that you had intended to take the ownership of this property away from me. And I still never stopped you. I allowed your use to continue. Then after the 20 years of this is over you could go to the court here in Massachusetts asking the court to determine that you are now the owner of this property that you've been using. If you can get that type of decision from the court then under the concept of adverse possession you would now be the owner of the property that you've been using. 

He's an example. My next door, neighbor puts a fence over the property line, over my property line. Now, it's only a few feet over the property, it's part of my property. Anyway, it's so close to the line that I don't want to make waves with my neighbor. So I allow the fence to exist. It's now existed for 20 years or longer right. At which time I'd like to sell my property to a buyer. The buyer now realizes by looking over my property that this fence is over the property line. So we go over to my next door neighbor and say, listen your fence, that fence is over the property line. I'd like you to remove it. My neighbor says what? Well I took a real estate course once and I got to talk to my attorney about this, it might be grounds for adverse possession. Great, he's now using the property continuously for the prescribed 20 years period of time and I certainly have the ability now and I knew that I had that opportunity to tell them to stop by and let it continue and he did something to my land to show me that he intended to take ownership. Anyway I still never stop. So mighty have grounds for adverse possession in courts? Sure. But it's up to the court to determine that every case is different. Just because 20 years has come and gone. Doesn't now entitle you to the ownership of land. Provided you do with my neighbor did, this is a general concept of real estate now the time frame may differ in certain States. So if on your exam here Massachusetts, If they focus on a section that asks for 20 years in a question, then you want to ask yourself is this adverse possession? 

So we want to be aware of the concept that adverse possession can establish an involuntary transfer of ownership of real estate. Now there are reasons why adverse possession doesn't happen. One of those is that its government owned property. A specific exception to the adverse possession rule is government owned property registered land. Now here in Massachusetts we have an unusual ownership concept in real estate known as registered land. Sometimes there are disputes about who owns real estate. There's a boundary line dispute or an ownership dispute. And in order to settle the dispute someone went to court over the issue. So perhaps sometime in the ownership of a property. Here we have, A sold to B and B sold to C, then C sold to D. Well, sometime in the ownership of this property history, there was dispute back here about the ownership of the property that when see decided he'd like to buy B's property, it really wasn't clear who owned this property. Or the property that be owned. Correct. So there was a title problem and ownership issue. So, B took this issue to court. The land court here in Massachusetts asking the court to determine who is the rightful owner of this property to settle the title problem. So the land court here in Massachusetts investigates the issue and ultimately comes up with a decision based upon who the rightful owner of this property should be. So they can settle the dispute once and for all. And issues to the owner, what we call a certificate of title indicating in the eyes of Massachusetts we recognize this owner as the rightful owner of the property, no other. So when this property has registered land, meaning a certificate of title was issued. Then every time the ownership of this property transfers, a new certificate of title is issued to the new owner by the commonwealth. Again, indicating in the eyes of the commonwealth they recognize only you as the rightful owner of the property. So since the commonwealth is recognizing only you, then there is no rights of adverse possession here for anybody else. Because they recognized only you as the rightful owner of the property. So if you have that type of ownership of land, registered land then adverse possession doesn't apply to your ownership, Pretty cool, huh? But that only happens about 10% of the ownership of land here in Massachusetts. So but more often, ownership transfers in real estate between A to B, B to C C to D and then an attorney doing the title examination every time the buyer bought this property looks back at that title ownership of the property and said, in my opinion no problem you can sell it tomorrow to anybody, somebody else and in my opinion there's nobody else who's claiming ownership of this property. There's no boundary line dispute to my opinion. There's no ownership issue in my opinion. So in that case we have what we call recorded land. The vast majority of all ownership in real estate here in Massachusetts is of what we call recorded land, A sold to B, B sold to C, C sold to D. So my ownership is based upon all who previously owned it before me. At least the attorney that research the title history of the property said, I have good ownership of the property does it mean that there couldn't be a problem but upon looking at the ownership transfers they didn't find one. Registered land on the other hand, there was a definite problem that a court settled. And from there after whoever owns the property has registered land. The state stands behind the ownership of the property as to who they register. So here in Massachusetts two types, not all states have this, but we do. So if you have registered land and you don't have to worry about adverse possession.

Now when we transfer ownership by deed, if we remember the deed is the written document by which we can prove that this has happened. It doesn't mean that's the only way I can prove that I now own real estate, but it is the more common way that is done by having this written document as proof that the seller sold me this property. So the deed again, written document by which the grantor the seller voluntarily transfers the ownership of the property to the grantee. So grantee now becomes owner of property has title to it by deed.

Here in Massachusetts and in other states, there are various types of deeds that can be used in real estate transactions. They all do the same thing, they all transfer the ownership of real estate from grantor to grantee. However some of them are more commonly used than others. The general warranty deed and the special or limited warranty deed. But there are other types of deeds, the bargain and sale deed might be a type of deed used in a real estate transaction in which the husband and wife are getting a divorce. According to the divorce decree the husband must deed his interest in the property to the wife. A sheriff's deed in which the court orders the sale of my property let's say, so in the case of the Christmas caroler, remember that, my property must be sold to satisfy the claims of creditors. Now, I didn't voluntarily give up my ownership in the property, but the sheriff has the authority under the court to give a sheriff's deed to the highest bidder at the auction. Sometimes fiduciary deeds are used. So that somebody is not capable perhaps of giving a deed themselves. So somebody is authorized to do it on their behalf. For example, in the case of children unfortunately owning real estate through the death of parents. Well, if a child is not of age, meaning having attained the age of 18 or legal independence. The thought is they don't have the requisite mental knowledge to understand what they're doing in order to give a deed. If they gave a deed transfer ownership of the property to somebody else before they turn 18. They would challenge that deed later on in court saying, listen I didn't understand what I was doing judge. And the judge would say, well if you weren't 18 you don't have the legal ability to understand what you're doing and we're going to invalidate that deed. Well if the child needs money in order to live, say for example, and the property they own through the death parents is to be sold. Well, somebody else is going to be appointed to do this, on their behalf. A guardian perhaps is a type of a fiduciary deed. Somebody is institutionalized. They don't have the requisite knowledge, nor the mental capacity or they have a mental disability perhaps to understand not what they're doing. Well, somebody now has to sell a property that they own for would say medical expenses. Well, then again the court could appoint somebody to do this, it's a fiduciary deed. Sometimes known as a conservators deed. 

I own real estate and I have a lot of trees growing on my property. A company that's a lumber company comes to me and says, hey we'd like to buy your trees. We don't want to buy anything else. We don't want to buy your land, we don't want to buy the buildings, we don't want anything else. We want the trees. Well, trees are real estate. They're rooted in the ground. So if I'm going to just transfer the trees, the ownership of the trees to the lumber company, then we would use a timber deed to do that. So they now own them and they can cut them down when they finish, when they wish. But they don't own anything else. Remember perennial crops when the corn crop comes up every year, you own it. Because it was deeded to you. These are various types of deeds that can be used because they all involve real estate. 

Now, let's talk about the two types of deeds and that are more commonly used in real estate transactions throughout the United States. The general warranty deed is probably the most common used deed when transferring ownership in real estate. Now, when we use the term warranty in the deed, what does that mean? Meaning, if you're going to buy a cellphone from a cell company and the cell company is going to give you a warranty on that phone, what does that mean? If it breaks, so if there's a problem you can go back and they'll fix it for you, hopefully. Same thing as here, a seller of a property in selling his property, deeds the property, the ownership of it to the buyer. But in doing so makes also a promise to the buyer about the validity of the seller's ownership in this property. If the buyer buys the property and later discovers a title problem, meaning his ownership in the property is not considered valid, then there's an issue. Maybe the boundary lines, maybe his ownership in the property. He now can go back to the seller who gave them this type of deed and asked that the seller now fix the title problem and the seller is obligated to do it. Because he gave him this type of deed with a warranty now because it's a general warranty deed, the seller makes a promised to the buyer that he'll fix any type of title problem regardless of who created it. The seller during his period of ownership or before all the way back in theory to the king's original grant of ownership to the original colonists. 

So go up to New Hampshire, buy a property in New Hampshire. The most commonly used deed in New Hampshire is a general warranty deed. So the seller in giving you this type of deed is making a promise to you about the validity of his ownership, that if you ever have a problem with your ownership of the property you can go back to the seller and ask him to fix the problem. Now, we're not talking about property related to defects, leaky roofs, water in the basement, only ownership problems. Say when selling the property, somebody doesn't think you have the right to be able to sell it. So, even though the attorney researched the title history of the property, there still may be a question, right? Now, even though the seller is on the hook to fix it you're still going to have to find them. Even though they've moved away, you can have to find him sue them in court. Sometimes, this is a problem, they may be dead. Even though their heirs are still legally responsible, we'd still have to find them and sue them. So many times even though this type of deed it does create the most protection for a buyer against title problems and creates the greatest liability for the seller. Sometimes the issue is so great that a seller is not either financially capable fixing it or legally capable of fixing it. That's where title insurance comes in. 

Other states have another type of warranty deed known as a special or limited warranty deed. In selling a property using a special or limited warranty makes a promise to the buyer, the grantee about the validity of his ownership but only is responsible to fix a title problem. If he created it during his period of ownership. Not before. So for instance buyer here buys piece of land from seller. On the deed seller describes a certain area of land but the seller also owns the adjacent parcel and when he sold it he described on the deed and area. But somehow overlapped the two different buyers for the parcels A and B believe they own a portion of each other's land. So that seller created during his period of ownership of his property. This title problem, he would be on the hook to fix it for those buyers, but not before. Meaning, if this happened and nobody picked it up. Prior to the ownership transfer than the seller is not on the hook to fix it. So seller with the special or limited warranty is only responsible to fix a title problem for the buyers if he created it during his period of ownership, not before. And that's the type of deed we use here in Massachusetts. Even though we call it something else. Here in Massachusetts, we call this type of deed a quick claim deed. Here in Massachusetts, although we call it something else under our laws it means the same thing that the seller is selling his property, giving to the buyer ownership of the property by use of a quitclaim deed. Here Massachusetts is making this promise to the buyer against title problems. That if Mr.Buyer you go to sell this property sometime in the future and it's determined then that you didn't have rightful ownership of the property, you got a title problem. You can come back and ask me as seller to fix the problem. And I'm responsible to fix it, if I created it during my period of ownership, but not before. Under the common practice of real estate a quick claim deed is a type of deed given by a seller to a buyer in which a seller is making no promise to the buyer about the validity of his ownership of property. So if you go up to New Hampshire let's say, buy a property in New Hampshire. And if you get from the seller, a claim deed, well under their laws, then the type of protection you're getting a from the seller is nil against title problems. Because what the seller is essentially telling you is that, it's not my problem. If you buy my property with a title problem, I'm not saying to you that I have rightful ownership of this property, to be able to sell it to you. It's up to you to find out before you buy it from me. Now, because if you find out later on, you have a title problem. You can't come back to me and asked me to fix it for you. So, under the general practice of real estate, that's what a quick claim deed means in general. However, here in Massachusetts under our laws, right? A quickly indeed means something entirely different. It's a special or limited warranty deed so called in other states. So if you are on the general practice part of the examination, common terminology concepts in real estate, common throughout the United States and the question is, does quick claim deed come with a warranty or protection against title defects. When given by seller to a buyer? The answer to that question would be, no, it does not. But if you were on the Massachusetts section of the examination and was given a similar question, does Massachusetts quick claim deed come with a warranty protection against title defects when given by seller to buyer? The answer to that question would be yes it does but only so long as the seller has owned the property, he's making a warranty to the buyer against title defects that he created not before, okay? Major difference between quick redeem here, quick claim deed here is Massachusetts and what it means in the general practice of Real Estate. 

Now in dealing with the deed as a real estate person, if you're asked to sell somebody's property for them, would you like to know if you're going to be selling it? Who owns it? Sure, I think I'd like to know. Is there more than one owner on the property? Because if there is, you're going to have to get all of them to agree to sell. Otherwise, it'll be very difficult to sell that property and that's actually part of your due diligence to know if that person is actually the seller of the property. Because there have been times where people will pretend to be selling a property and agents have been scammed because they did not do their due diligence. Now, would you like to know what is the property that they own? Well, yeah, you're going to need to know that or you should, what are the boundary lines of the property? That might be nice to know. Are there any easements that may affect the owner of the property? You know, can you get access, legally? Are there any restrictions on how the property might be used in the future and written on the deed? So these are issues that one selling real estate. Real estate people like to know, I would hope. Because we might have to understand a little bit about the property and what we're selling, what rights, if you cannot get a copy of the deed from the owner. So where could you get one? If the property owner doesn't have it for some reason at the registry of deeds. Now maybe another source would be the local community. Sometimes they have, you know, some records, it's not so much likely now but the best place would be the registry of deeds here Massachusetts. Most states have some type of public building in which documents can be recorded, a public record that affects the ownership of the real estate. Now here in Massachusetts, every county has a registry of deeds. If I want to make this document to public record, to let people know that I now own this property or anything else that affects the ownership of a some form of real estate. I can record it at the registry of deeds making a public record. So, some counties here in Massachusetts are large enough to have more than one registry but every county has at least one. Most registries now, here in Massachusetts are online. So, over the internet, we can get copies of these documents and print them out. We don't physically have to be there in most cases, except for when we're registering it. It's a wonderful resource to be able to get these documents, I tell you because there was a time where it was not on the internet and you had to go in, go through all these shelves and look through these records. It was fun. But at the same time, there would days when I was just starting this business and everything wasn't online yet. So again it's a wonderful resource to be able to get these documents that pertain to the ownership of a real estate and in particular the deed if we're going to be selling it or if you're an investor buying it. Because I'd like to know is there more than one owner, that's our concerns. I'll have to get all of them to agree to sell, so if is a seller, they says, yeah, I'm the seller of this property but you find out, oh is it heir that's actually the part-owner. Well, guess what? You don't have full rights to sell that property. Is there any restriction about how the property can be used? Are there any easements that might affect how the property can be used? We as real estate people need to be able to understand by reading the deed issues that might come up with the ownership of the property. We don't have to be a title examiner, nor an attorney, but issues relating to how the property can be used will be on the deed. And we would certainly want to disclose those to a buyer. 

So we're going to talk for the next few minutes about the deed itself. Some of the issues that come up with written onto the deed and what to focus on and how it's recorded or I should say what the structure is. See the link or the attachment of a copy in a blank form of the Massachusetts Quitclaim Deed, somewhere below. Now, this deed when we fill it in. Now, take a look at the top of the deed. The deed has the state in which this property is located. So this property is located in Massachusetts, it says  Commonwealth of Massachusetts. Why is the state noted on the deed? Because the quitclaim is from Massachusetts. Totally means something. So this property is located in Massachusetts. I know it seems simple but it's important. It falls under the laws about the practice of real estate here in Massachusetts. So if this property was located in New Hampshire, it would say, of course, New Hampshire. Simple, but important. So in this case, Massachusetts and then under right under this is the type of deed being used in the transaction. In this case, a quick claim deed and we know what that means here in Massachusetts, how it differs, correct? So where the property is located, what state and then what type of deed is used in the transaction noted on the deed. Next on the deed is what we call the parties in the transaction. Who is selling, who is buying, meaning who is giving up ownership, and who is getting ownership in the property. Now, for a little fun, I want you to visit the website masslandrecords.com. This is the public page to access the registry of deeds. Actually, it's not just one registry deeds. It's the site that accesses most of the County deeds within our state, with our own commonwealth. So, go to your county and city and randomly look up a deed on a home, maybe yours. Don't worry it's perfectly safe and legal. It's a public record. I want you to get a sense of how to search and see the differences. Your homework finds a quitclaim deed. Look it over. See it's information vital to the quitclaim deed. Now when reviewing it, what is being granted from one party to another? Covenant, promises, quitclaim promises, the seller is making a promise to the buyer about the validity of their ownership on a property. And here in Massachusetts quitclaim promising validity of ownership and during the period of ownership and not before. Next, comes a description of the land, on it must be properly described in a various legal ways, on the deed does it have to state land and buildings? Meaning if it only said the land and so-and-so city Massachusetts. Does the buyer get only the ownership of the land? No, unless I say the land and the buildings. What are they getting here? Or have they gotten? Everything that's real estate, right? So it doesn't necessarily have to say land and buildings to get the ownership of the buildings as well as long as the buildings are permanently attached to the land. If we just say the land they get the buildings also because it's real estate. So on a deed, we have to adequately describe the real estate we're transferring. So that in the future there is no concern about what it was that this owner transferred to the buyer.

So there are various ways to do this. The first one is known as street address. But what's the problem that could result in the future? If this is the only way to describe the property we're transferring is by the street address. Street names can change, numbers can too, right? So what is Sesame Street today might be route 66 in the future and there could be some confusion then as to what this owner transferred to this buyer? But now comes the description that is more commonly used around these parts known as Metes and Bounds. A description of the property. Based on distances met around the perimeter of the property. So we're going to do is, we're going to start at point A and going along the perimeter so many feet to this point, a boundary Mark. Then we're going to go somebody's feet around here to this boundary and then down there and then back to where it begins. So the description is going to enclose the property along its perimeter started up A point and then come back to the perimeter back again. So, that everything is within that enclosure. And that's what I'm selling. That's known as Metes and Bounds description. So if you get down to the registry of deeds and look at deeds written a hundred or so years ago, they'll still have them. It might say they started looking at that point, one point here and it goes along the rock wall to a pine tree or falls along, a riverbank to a rock wall to an oak tree, and so forth to so many feet then it comes along back. You know, where I'm going with this. That's a Metes and Bound to description but over time, what happened to the rock wall? Probably long gone, right? The tree, maybe somebody cut it down. So today we still use the same concept but a little bit more scientific. A surveyor would use direction on a compass, so many degrees, minutes and seconds, where you going to go so many feet along the direction with a compass to that point. Then the direction of the compass is going to change and when it's so many feet over there to here, and back to where we began. Now, another way that we use metes and bounds is to describe the property by its parameter based upon who owns and the distances along those measurements, okay? So in this case sellers, here's the seller's land. Here's a little compass down here, alright. So we're going to start by describing a property along the northerly boundary. This is the type of metes and bounds measure. How is bounded northerly by 123 street 80 feet? Then easterly part of the property by Sona Sophie, etc, etc. You usually looking for northerly, easterly, southerly, westerly. When this property is sold and resold. As long as the property itself is not changed in its dimensions. This description would carry on in the ownership of the property, so it doesn't necessarily mean that they currently own the land, but when this deed was first written they did. So right in the middle of the deed, it says this premises being the same premises conveyed to me from one party to the next and then recorded in book number and page number at the specific County registry of deeds. That book number is important to know in the future when doing sales. So on each deed, there is a reference to how the seller got his ownership of the property and to be able to convey it to this buyer. They used to be volumes on the shelf like a safe registry but digital is the standard. But they still use the same method, assigning it to a book number, volume number, and within it the page number. So if we want this document, we would go to the volume and look at that page and the book number. So this sets up a way for an attorney and when the buyers are buying the property to research the ownership history of this property, and to determine who's on the deed and every deed refers to the previous deed of reference. If it was a will, it would state the will probate document numbers such as in Probate Court, the will of so-and-so, but it references, how did this particular owner get his property and the ownership thereof?

First of all, a deed has to be in writing. There is no verbal deed. We cannot transfer the ownership of real estate vocally, only written. Also, the grantor, when transferring ownership by deed must consider, or I should say, must be considered legally competent when signing the deed to transfer ownership of the property. If a grantor was not considered legally competent then a court could, and would, view this as never having happened. So what could give rise to somebody being considered by the court later on as legally incompetent? There would have to be some mental defect there. If that could be proven later on, that when they signed this deed, they were legally incompetent to do to some type of mental defect or illness, we would have to be able to understand what we're doing here. Another reason for legal incompetency, drugs or alcohol at the time could have been taken. Somebody could prove that when the court would say, at the time of the signing of the deed, it's not valid, or there was a minor, correct? Not attaining the age of 18. Now, on the deed, when the deed is given to the grantee, we cannot give a deed to somebody and say, "you fill this out in a way you want". No, it's got to have their name on it when it's given to them. Also, on the deed, I mentioned of what we call the consideration. If I haven't, consideration in the real estate transaction, something of value. So if we look back at our deed, right, what was the value that was being transferred between them, in exchange for what? The money? So that's the consideration in the transaction, and must be mentioned on the deed, some value that was being swapped between the parties. Now, in our deed here, we had real estate in exchange for some of money. But it doesn't have to be of equal value. All it has to do is stipulate on the deed as to what it was, meaning I could give a gift to my daughter, some property, right, say for a dollar. All right. As long as it's stated that way, we could have two real estate properties being swapped a property exchange. So properties would mention on the deed as selling or swapping the properties or real estate. A for B. Real estate for money. That's the common. Real estate for what else? What about love and affection? Yep. You heard me, love and affection. Certainly valuable to somebody, correct? As long as what consideration is valuable between the parties? Who's to say how valuable it is right? Certainly transferring the ownership of property to my daughter for her love and affection is some type of value to me. Okay, as long as the consideration is legal, it's considered lawful. 

Now, we cannot validly transfer the ownership of property with unlawful consideration, such as I'm going to transfer you this property in exchange for 40 pounds a weed. Otherwise very valuable, not lawful. Well, at least not at this time. See me in 10 years, I got a property for you. {chuckle} 

Okay. So, there must be also on the deed two words, clearly identifying that this grantor intends to grant ownership to the buyer known as the granting clause, we have to have an adequate legal description of the property. Now, we mentioned the limitations of street that address on a deed. So we usually coupled this with some other way. Now, there could also be, what other ways to legally describe a real estate. Metes and bounds, right? A map block a lot. 

Some type of description that's legal used by the assessor that could be used, what are the way a subdivision plan. Some type of method in that sense, or the unusual one, the rectangular survey system or the US government survey system. So adequate legal description must be on the deed so that in the future, there's no question what this property sold or transferred ownership for, in order to have a valid conveyance of ownership. Meaning, the courts going to uphold that this seller sold it to this buyer, then the grantor must sign the deed. If I give you a deed without my signature on it, what have I given you? Just a piece of paper, but no ownership has transferred until my signature is on it. So anybody who is going to transfer ownership, some type of interest, interest in real estate, must sign the deed in order to be effective against them. So your name is on the deed, but are you the owner yet? No, you become the owner when what happens? When it's given to you, that simple method. So when I deliver the deed to you, now, you become the owner of the property. Meaning, that action of delivery must happen. I must give it to you in some form. So, when does delivery of the, of the day typically happen? That the real estate closing or settlement? When does that usually happen? Usually at the closing table or some at some time, some point in time during the real estate closing, the buyer takes it to the attorney and then there's delivery. And that's the action that must happen, that delivery. 

They must give you the deed in order for you to become the owner and everybody parts their separate way. That action signifies my acceptance or your acceptance of the deed. So in order to have a valid conveyance of deed, the deed must be delivered to the buyer and the buyer must accept it in order to become the owner of the property. Sounds overly simple, okay. If they look over the deed and said, Wait a minute. I'm buying this particular property and you will put a deed restriction here? Wait, an easement here? It states that I can't sell alcoholic beverages on the premises? I intend to open up a restaurant in his property now. And you're telling me I can't sell alcoholic beverages? Crazy! I don't want to buy this property now and they shoved the deed back across the table. They did not accept it. No conveyance by deed has happened. 

Okay. So when we sign, who signs the deed? The deed is signed by the grantor. Only the grantor typically, typically buyers don't sign deeds, but their action of acceptance is necessary in order to create ownership. 

Next, somebody brings the deed down or at least electronically transmits to the registry of deeds. It is recorded. Okay, now, what is the purpose of recording the deed? Is it to make the deed valid, meaning enforceable against the seller that this buyer now owns the property? When does the buyer become the owner of the property? When they accept the deed. When it's delivered to them and they accept it? So they are already the owner of the property. So we don't have to record the deed to make the buyer the owner of the property. They already are the owner. So why recorded it? To make it public knowledge.

Now, other ways that real estate can be described on a deed other than Metes and Bounds. The Metes and Bounds description, which is very commonly used in this part of the United States. Now, another way that could be used is known as the map block and lot system. This type of description of land is common in some estates but not as common in others. If you go up to New Hampshire, what is common up there that they may use is in order to describe the real estate, how the assessor I should say. In that local community describes the property for tax purposes. Those communities may divide their community to tax maps for taxing purposes. That's a map block lots system. We also have a way to describe real estate known as the subdivision plan method. So at some point in time, this property was part of a larger parcel of land that was subdivided, meaning a developer put in a road in subdivided this parcel, that's larger parcel. So, when the property I'm selling you is going to mention that when this property was subdivided a plan was prepared by our surveyor that was approved by the local boards and commissions in that local community. And then what was recorded at the registry of deeds indicating that this larger parcel has now been approved for a subdivision and then these smaller parcels are now going to become part of the individual lots when this plan is recorded. It's given a plan number by the registry of deeds. It's just the next number. So let's suppose this plan is number, I don't know. 1111 at the registry of deeds. So on the deed, it would refer to the a number and then the lot number or letter on the plan. So for a description of the property I'm selling you, we reference to plan number 1111 at the Middlesex County at registry of deeds. This being shown at lot one on that plan and if you went to this plan, look at plan 1111 at the registry of deeds. Then we could see the surveyor's metes and bounds description on the plan. Sometimes you only have one description on the deed but not used around here. Typically used in land annexed by United States back in the 1800. Common in other parts of United States, but not here.  

You're taking a national part of the exam. So that's why I'm referencing these for you. So this can be part of that exam even though we don't practice it here. So we have to know a little bit about it. A land description known as the US government or US rectangular Survey System is a type of legal description of land. It's not used commonly around here but it is very common with this type of legal description. The US government sent out surveyors to this land before people started to settle it and claim ownership. These surveyors divided the land into large tracks, each of them known as a Township. So the major division in the rectangular Survey System is a Township. Each Township is formed on the globe by the imaginary intersection of Meridian and Baseline. Meridians run north and south, baseline lines run east and west, okay? Intersecting at Six Mile intervals, creating a Township or plot of 36. 

Surveyed Monuments Over Time. 

Plat books contain legal descriptions for all parcels of land in a particular county. We look closer into the older scripts. We'll notice this parcel is defined using measurements between natural features and boundaries. This system is known as metes and bounds. Say for example, we use a white pine and an oak. Comparing it to two white oaks, point of rocks, stone planted, pine stump, all described in the old texts as for determining the layout of the land. Now this is originally 1890, It seems pretty simple, right? Well, everyone can see where the trees and rocks are. But then the land changes over time through natural decay or disasters, and of course human error. So how do we determine what the parcel is? Or what it was? The parcel has lost some definition, leaving the boundary unclear based on the old references.

So today, surveyors use permanent manmade monuments such as cap metal markers, and sometimes stone markers. Sometimes you might see something popping out of the ground. That might be an old monument.

The public land survey system, also called the rectangular survey system. Provides a standard set of labels to identify properties within public lands. Much of that public land is now privately owned. But 30 states still use the system to divide land in the townships and describe certain parcels. Here's how it works. There are imaginary boundary lines that divide up the country 37 principal meridian lines run north and south, based lines run east and west. These are the major lines on the grid. Between each principal and meridian and baseline, lies a grid of townships each township is 36 miles square. Now, the lines that make up that grid are called range lines if they run north to south and township lines if they run east to west. Alright, that's pretty high level and vague and doesn't make sense yet I get it. Let's identify a specific property using the system and hopefully it will click. First, we named the state and the principal meridian as the starting point. It's always the starting point. So I'm just going to give you one we're going to start in Nebraska at the sixth principal meridian. Next, we identified the township, we can do that given our starting point. The township highlighted here is called T2S R3W, weird name, we call it that for a reason. From the baseline counting self, it is township number two, remember those township lines run east and west, from the principal meridian, counting West, it is range number three, those range lines run north and south, township two, so range three West is abbreviated T2S R3W. So now we've identified a township, Nebraska six principal meridian Township T2S R3W. Before we move on, can you find another township? I'll give you the name you find it on the map. Nebraska, Sixth Principal Meridian Township, T2S R3E. There it is two township line south, and three range lines to the east. Let's zoom in for a closer look at our earlier Township, T2S R3W. This little chunk of land is 36 miles, which is more land than most folks can afford. We need to identify a much smaller parcel within that Township. Here we're looking at a township. Each township is divided into 36 sections, each section is one square mile. Notice the numbering here, townships are all numbered the same way with section one in the top right corner, then following a zigzag pattern. Traditionally, section 16 was the location of the schoolhouse since it was the center of the township. The property we're looking for lies in one of these sections, section 14. So let's zoom in and take a closer look at section 14. Here's where it gets tricky. Some people own a full square mile of land, but most don't most of that land has been subdivided into smaller pieces. Sometimes it was divided in half. And then those pieces were subdivided, and we end up with a complex landscape. Now suspend your skepticism for a moment while we work through how these smaller parcels are described.

First, we started section 14, let's find the Northwest quarter of Section 14. All right now that little corner was divided into four properties. We're looking for the property in the southeast quarter. So what would you call this little plot of land? Here's the official description. The SouteEast quarter of the Northwest quarter of Section 14, T2S R3W six principal meridian Nebraska, gotta hold that?. Alright, see how the description flipped. We were talking about the state the narrowing into the township the narrowing and further to the section on the quarter of the specific parcel. But the full description goes the other way. It starts with the smallest bit that southeast quarter and progresses outward. I'll say the whole description again. The Southeast quarter of the Northwest quarter of Section 14, T2S R3W  six principal Meridian, Nebraska. So let's see if you can find a parcel that we describe. I'll give you the name. You find it on the map. We're going to start in the same township T2S R3W, we're looking for the South half of the Northeast quarter of Section 14. Can you find it? Remember to work backwards. First, we start with section 14 then, find the Northeast quarter of the township, then find the South half of that chunk. The highlighted section would be described as the South half of the Northeast quarter of Section 14, T2S R3W six principal Meridian, Nebraska. Alright, let's try something else. You give a name to the piece that's highlighted. How would you describe this highlighted piece? This property is the Northeast quarter of the Southwest quarter of Section 14, T2S R3W six principal Meridian, Nebraska. Did you get it? Alright, we're gonna switch gears a little bit. How big is that highlighted piece? We have all the info we need to figure it out. So first, let's logic our way through. How larger townships? Little trivia from the start of the video. Townships are 36 miles. And how about the sections within the townships. Each section is one square mile. We're looking at a single section here, section 14, so one square mile. Now let's chop up that square mile. But we don't usually transfer land by the mile, we buy and sell in acres. Now we could do the conversion from miles to acres. But I find it easier just to memorize this, one section equals 640 acres. First, we divide that into quarters so that the whole Southwest quarter is 160 acres. How did we do that? We start with 640 acres divided by four equals 160 acres (640/4 = 160), then we divided those 160 acres into quarters. So that tiny highlighted parcel is 160 acres divided by four equals 40 acres (160/4 = 40). Well, maybe it's not so tiny. When you consider the price tag attached to a 40-acre property, we'd get a great commission on that scale. Alright, so we can logic our way down to the size. But there is a math trick if you're interested. Take a look at the description again, Northeast quarter of the Southwest quarter of Section 14. Let's rewrite that a little since we know section 14 equals 640 acres, you memorize that right Northeast quarter of the Southwest quarter of 640 acres. And since we're doing math, the north and south directions don't matter. So let's ditch them. One quarter of one quarter of 640 acres. Now multiply all the numbers one quarter times one quarter times 640 equals 40 acres.

Constructive Notice. 

So if I want to make the public aware of the fact that now I own this property, the seller no longer does. I can do so by recording the deed at the registry. By doing so, I'm providing to the world constructive notice of the fact that now I own this property. Actual notice means I actually notified you of something. I sent you a letter and I knocked on your door, I phoned you up text. Now here, I didn't do that. I just recorded the document and then you are assumed to know the public is assumed to know that which is a public record. What benefit does that have to the buyer? It protects the buyer. So suppose now you had a real estate closing, took a couple weeks to get it down to the registry of deeds to record that document, what could happen in the meantime? Could the seller, sell the property again? And if that buyer got down there before you and recorded their deed. What might a court view as to which deed takes precedence? The recorded deed first, perhaps, so certainly I want to record my deed, right? Because if I don't it opens up the possibility that perhaps the seller could sell it again, where is that might be. What else could happen? Maybe creditors of that seller they're owed money. They want to make sure they get paid and a court allowed them to attach against the property of the seller. So that creditor goes down to the registry of deeds looks under the seller's name and notices this property that just got sold to me, but I haven't got it down to the registry of deeds yet to record it. That creditor place has an attachment meaning that, that particular property is now being used for credit purposes to pay off a debt or as leverage. Would that take precedence over my deed because I haven't recorded it yet. Yeah, it would. So it protects the buyer to be recording the deed at the registry of deeds from claims from the seller's creditors, as soon as possible. So until I can provide constructive notice to the world, it's assumed who still owns the property? The seller. The acknowledgment on the deed is done by who? The notary. The acknowledgment is not required in order to have a valid transfer of deed, but it is required if we intend to record the deed. So the registry of deeds requires that for the deed to be recorded the seller's signatures be notarized. So on the exam, when we're talking about the requirements of a valid deed, do we need to record it to create valid transfer by deed? No. Do we need to have it notarized? No, we can still transfer ownership of property without an authorization. The only reason we have it notarized is for what purpose? Recording. Correct. Now I'm not suggesting that you don't record the deed, not by any means, but let's understand what recording does. 

Now, I'm doing what we call a title search or a title examination. This is not a process that we, as agents in salespeople do normally, you know, in our regular professions. They're done by trained, professionals, title examiners, attorneys. If a buyer is thinking about buying a property, we would suggest that a title examination be done by a professional, who knows how to do it. Part of that is to look backwards at all those deeds of transfer typically for a standard of 50 years. To determine in the opinion of the title, examiner, or tourney. If you're buying this property, are you getting what we call good title from the seller? If you wanted to turn around tomorrow and sell it again to somebody else, they would assume that you have good title to the property, if however, the title examiner uncovers a glitch back there. Well, it doesn't go all the way until it's fixed. Meaning a court might have to get involved in fixing the issue here. So even though it happened, way back, it creates an issue for the seller now. If it hasn't been fixed, if you're buying this property. You're getting what we call a cloudy title. A cloudy title means a title problem. That if you bought that property you get the problem too until it's fixed. So most ownership transfers require that there be a good title being transferred. That the buyer does not have to buy the property. Perhaps, you're familiar with the famous case in Dracut Massachusetts. It is a true story. 

This particular town manager at Dracut in Massachusetts, bought a property lived in it for approximately five years. One day, he gets a knock at the door. He opens up the door. There's a gentleman standing there and he says, can I help you? Gentleman standing at the door says, Yeah, I'd like to know why you're living in my house. The town manager says I don't understand why you talking about. At the door he says, well maybe you bought it from Mary Smith but I'm John Smith and you never purchased it from me. What had happened five years earlier is that Mary Smith showed up with her boyfriend, posing as the real John Smith signed all the documents forging the real documents for John Smith signature. Now let's suppose the town manager had purchased the property and you sold it. The new buyer of that property having their attorney research. The title history of that property would assume what? That the real John Smith did sell and did sign those documents. Now, they're not in handwriting expert in most attorneys aren't but they're going to assume that those people who said and sign those documents were those people, but they weren't right. So to protect somebody against those unknowable title problems, such as forgery such as an incompetent grantor. There's insurance available to protect the buyer known as Title Insurance. Title Insurance is an insurance that can be purchased at a real estate closing to protect against those unknowable title issues such as a forgery, such as an incompetent grantor. Now in this case title insurance comes in two forms. Let's suppose we are purchasing a property at a 100,000 and you're getting a loan for 80,000. Well, the lender will require that in order for you to protect them. You as a buyer must purchase a title insurance policy at least in the amount of the loan. That's known as the lender's coverage. So one form of title insurance is the lender's coverage, it's mandatory. You want's the bank's loan? You must agree as part of the closing costs, okay? Additional money that has to be paid in real estate closing to purchase the title insurance. So as long as they have an interest in this property, they're protected under their part of the policy. Now as a buyer you might say, well I'm putting 20,000 of my money down. I want to protect that if there's title problem later on, and if the value of the property should go up in the future, I'll have additional equity in my property, hopefully. So I want to be able to protect that. Okay, so the optional coverage is the second Insurance. Offered a buyer at the closing is known as the owner's coverage, owner's option, lender's mandatory, owner's option. Okay, you want the bank's money they're going to require you purchase the first title type of insurance to protect them. Okay. The second one is the owner's coverage and it's optional so if you don't want it you don't have to purchase it. It's generally not expensive. But, me? I recommend you getting it and that's it. That story is one of the reasons why because we can purchase one policy simultaneously for the full purchase price and get both coverages, it's usually a cheaper price. As long as the buyer remains the owner, his owner's coverage remains in effect. He sells the property, transfers the ownership to somebody else, well then the new buyer must obtain their own coverage. But as long as the buyer remains owner, his owner's coverage remains in effect and luckily the town manager had purchased the owner's coverage that optional coverage when he purchased the property. It's not expensive, but these issues don't come up that often. Now, luckily the town manager had purchased the owner's policy and now the title insurance company has got a problem. They went and found Mary Smith but after five years she had spent most of the money so they had no other option but the pay of the real John Smith. How much do you think that was? What he felt was his current worth was in this property. Not what it was worth five years previously, but its current worth. So they paid him and then he gave his interest in the property to the town manager, clearing up the title, no longer cloudy. But without the coverage, the town manager would have been at risk. Now to the real John Smith for what he felt his ownership interest in the property is worth. Now that was many years ago. So when people went into a real estate closing years ago and you said you are who you are, people thought that you were who you were, but not after this case. 

In this chapter, we are not talking about being a real estate broker. What we are talking about is the concept of putting a buyer and seller or a landlord and a tenant into a real estate contract and having a license and being able to earn a real estate commission through it. So that's really what we're talking about in this particular chapter the concept of being somebody's broker in a real estate transaction. First, we want to understand a little bit about the concept of being somebody's agent while helping them in a real estate transaction. If you're asking me to be your agent in a real estate transaction. What are my responsibilities to you? What are the responsibilities of the one who hires the agent, the principal and agency? So what we're talking about here is the legal relationship. So courts recognize this particular type of relationship that exists when it's created first by the person known as the principal. So the one who initiated the agency relationship, the one who creates it is known as the principal. The one who does the hiring or authorizing somebody else to do the hiring their agent to do something for them on their behalf. So we have these two relationships, the one who does the hiring, authorizing this other person to do the something or other for them on their behalf, as I said, before known as the principal's agent, okay? So the principal authorizes agent to act for them. 

Now, in this agency relationship. If we have a rather broad authority to act on the behalf of someone then we're set to be a general agent to somebody or a general agency has been created. That doesn't happen too often, right? Generally, we consider general agency relationships if somebody is institutionalized perhaps, can't, you know, function or maybe have somebody else be appointed. So we might consider that more often than not as a general agency relationship. In real estate, it might come up when we talk about a property manager, perhaps, or a property owner hires their property manager and wants them to manage their property for them and gives them a rather broad authority to act on behalf of the owner of the property while he's managing it. Now, that might be more or less on the concept of a general agency relationship that has multiple tasks. They can be performed on behalf of the property owner, right? So special agency exists when we have a limited authority, meaning the principal has authorized their agent to do only specific tasks for them. And in real estate that is more of what we are special agents perhaps of the seller who authorizes us perhaps to find a buyer for his property and market it. By putting a sign on the front lawn, giving us the ability to show it. What have you? So, if we have specifically defined tasks, then that's more limited. If it's just say, hey do whatever you want, that's more general, right? Or perhaps a buyer is looking to buy a property and wants us to find a property within the certain price range within their particular characteristics or a location of the property. So special authority to act on behalf of the buyer or the seller certainly we don't have the ability in all cases to act on their behalf of the seller. The seller has more often than not the will and the want to negotiate and sign his or her contract. They don't just say, hey sure put the house on the market, advertise it, and while you sell the sign the contract for me if you think it's a good deal, no! they don't do that, they don't give you that authority to do that on their behalf, it's a not a broad authority. Perhaps somebody that institutionalized, yeah well you're kind of the all being kind of person. They do have the authority to act on behalf of somebody else, right? To sign documents legal documents and what have you typically because they can't care for themselves. 

Now, in real estate we have a principal and agency relationship. The broker and sales agent relationship. And in that relationship, who would be the principal? The broker. The principal, the one who authorizes another to do something on their behalf. So when the broker hires a sales agent, the sales agent is hired on behalf of the broker to do tasks, show the property on thier behalf and what have you. The broker might say to the sales agent, listen, somebody wants this property to be listed. Go there and have them sign all the paperwork and bring it back to me. Well when the broker authorizes you as a salesperson to do that on their behalf, you are acting as an agent of the broker. Now, seller and broker that's another principal and agency relationship as well. So, in that relationship, who's the principal? Seller is, they hire a broker. Obviously to find a buyer to buy their property. The broker may say to the agent, listen, Mrs. Seller called up and she wants to list her house, she's down the street, go take a listing package to him to her and have her sign all the paperwork. So when you as a salesperson take that listing you took the listing on behalf of who, your broker? So the seller here is hiring the broker, even though you may facilitate that relationship, she's hiring the broker. So when you take that listing, you took it on behalf of who? The broker. So for the correct relationship, there is seller to broker, not seller to sales agent as it's often confused. Same thing with the buyer. The buyer is an agency with the broker, not the salesperson, the salesperson is in agency with the broker. We also have in some cases real estate brokers A let's say, may hire a real estate broker B To help them in a real estate transaction. Say if they don't specialize in something so we could have Broker B being the agent of broker A as well. That's also another principal and agency relationship.

Okay, now in dealing with the principal and agent relationship. One of the concepts to remember is the concept of what we call respondent superior. Being responsible for the negligent act of the agent. So as a principal, principal becomes responsible if agent working on their behalf is negligent and causes damage to something. So, you now as my sales agent, take a buyer out to look at a property and there's no one home there that weekend. The owner has given us the key. He's gone away on a little mini vacation. Now, when you get in the property, the buyers love it. They want to go back to your office right away and make a full-price cash offer. No contingencies. So before they change their mind, you rush them out of the house, shove them into your car and take them back to your office as soon as possible, but you forget to lock the seller's door behind you. Now that seller comes home on Monday calls up the broker and says, hey, was anybody from your office showing my house over the weekend? Broker says, oh yeah new agent in our office here. She's got a full-price cash offer for you know contingencies and he says well I'm glad to hear that you got an offer on my property but I think we get a little bit of a problem, just got home from my vacation and my home has been ransacked now obviously is not going to see it as calm as that, but he's probably thinking I think Molly forgot to lock the door behind her. Who's going to pay for the damages to the seller's home? Who's responsible? The brokers. Why? Who's responsible for the negligent acts of their agent? The principal, the one who hired the agent, right? So if I hire you as my agent and you're negligent while working in my behalf within the scope of the authority that I authorized you. And certainly, I gave you the ability to show the property on my behalf, I become responsible for your negligent act. 

Now we want to understand a little about the concept of being a fiduciary. A fiduciary means trusted person. Are you a trusted person? Then you can be my fiduciary, person in a position of trust. First duty of fiduciary is to show reasonable care to preserve and protect the principles property, reasonable care that's the agent. So, let's suppose now seller hires broker. I is a broker send you as my agent out to take a look at this property and show it to these buyers. So when you walk in the home again and the sellers not home but now you hear water running in the upstairs bathroom. Now, you know, no one's home. So what you do is run upstairs, you find out now that a pipe has burst and water is spewing everywhere. What are you going to do? You're going to turn to the buyer and say, "oh I'm sure the owner will be home shortly". Let's continue the showing and do nothing. I would hope not. So what would a reasonable person do under those conditions? Number one, they might what? Try to shut off the water and call the owner, right? But you can't call the owner and he doesn't answer. What would a reasonable person do to try to shut off the water upstairs? Maybe you can't find the water shut off. You can't find the valve anywhere, it's hidden. Who knows? Now. You could call the broker or what? Call a plumber. Come make an emergency repair. Shut off the water perhaps. Now if you hire the plumber since you made the call to him and he comes out, he's going to send you a bill because you hired him, right? Now, what's the expectation here? That you can hand into the seller with the expectation that the seller is going to pay, it's his house, right? But suppose, he says "listen I didn't authorize you. When I hired you as my agent Mr.Broker to hire a repairman. I have no intention of paying that bill. You're stuck with the bill". If you go to court, what would the courts say? I'm stuck with the bill. Do we have authority other than what has been stated in a contract when acting on behalf of a principal? Particularly under emergency situations? My function as a fiduciary is to show reasonable care to protect and preserve that seller's property. So if we go to court, do you think the judge is going to say? Mr.Seller in my opinion, that broker through his agent showed reasonable care to preserve and protect your property. Because if he didn't hire that plumber, well guess what would have happened to that property, even more damage than the cost that plumbers bill. So, in my opinion, the judge says, they did show reasonable care to preserve and protect your property. And since you hired the broker, that's his function. He's your agent. He supposed to do that. In fact, he would have breached his fiduciary responsibility if he hadn't done anything and then he is responsible for the damages. So Mr.Seller pay the bill. So as a fiduciary, we've got to show reasonable care to preserve and protect an owner's property. Otherwise, we could be liable for damages. We, also as a fiduciary must be what we call obedient to the lawful instruction given to us by the principal. So, that's another trusting factor, right? That the principal expects that we're going to be obedient lawfully. We don't have to break the law for somebody just to be somebody's agent. So he says to me, "Paul, I want my property put on the market for $150,000 listing price. If you accept the listing, a buyer asks you "well what do you think I'll take?" What's your response to that? The buyers asking you, what is your seller think he's going to take? If you're representing that seller, you should say, what? So, if seller says I want my property listed at 150,000 and the buyer asks you, what do you think? He'll take you say to the buyer. He'll take a hundred and fifty thousand, right? To say anything less than that. Oh, he'll probably take a hundred and forty. That's not being obedient to the law. So, the seller says, "I want my property shown only on Tuesdays and Thursdays between 2 p.m. and 4 p.m." You take the listing. Is that a lawful instruction or let's say, says. I want the property shown but I wanted shown between Tuesdays and Thursdays between 2 p.m. and 4 p.m. to white citizens only. Lawful instruction. No, that's a violation Mr. Seller of the fair housing laws to show property based on race, correct? I don't have to now break law just because the seller says it, just because you're his agent, it's an unlawful request. You could tell the seller "I can't show that property that way." I mean, you don't want to be rude about it. But if he says, well that's the way I want it shown. Then what would you do? At that point you should be saying, "well maybe you can find somebody else to help you out", respectfully. You're going through the property and seller says, "now listen, my roof on occasion leaks when we have really heavy rain storms. So please don't mention that when you show the property". Lawful instruction, right? Well Mr.Seller here in Massachusetts, Massachusetts consumer protection law Chapter93 a requires that if you tell me something about a defect, about your property that the buyer should know in order to make an informed decision. I have to disclose it. Chapter 93A even if the buyer doesn't ask me about it. So now that you've told me if you give me a listing this listing, this listing I've got to disclose it even though the buyer might not ask again. Again not unlawful instruction by the seller to say, "you listen don't tell a buyer something about my property". That's a defect in might be something serious. Some type of problem that I may have to disclose. You're going to be obedient to lawful instruction not unlawful. We have to be accountable for what we do. Is it in the best interest of the principal? It is. So we always have to put the principles interest first lawfully be loyal to that principle. Above loyalty to anybody else in the real estate transaction including ourselves. Seller asks me to come out list his property of 500 acres of land might want to put it on the market for sale. So we talked about the listing price, 500,000 sounds good and he gives me the listing. Okay, now I get back to my real estate office. I started thinking about this with a or that way how to market will make a wonderful single home subdivision but I don't build roads. I don't build houses. If I could find a real estate developer then it might be a good deal with me. We could make a little bit of money. And I do I find a real estate developer and we formed XYZ Incorporate Real Estate Development and presented an offer to that owner my principle of 450,000, not the full 500 he was asking. Now when I present that offer to the owner. I neglected to tell him one little tidbit of information, which is what? That I'm more than just the trusted advisor in the real estate transaction. He asked me to be. Now, I'm also what? I'm the buyer now because I built a little development cooperation with this other developer. Do you think the seller would like to know that? And you were supposed to represent his interest but you forgot to tell or you failed to tell them that you're actually acting as the buyer. Do you think that would be a conflict of interest? Why is it that? I'm so adamantly trying to get him to accept the 50,000 less than the list price. Because if he did it's going to benefit who? Me if I was that agent.  Now, does it mean that I can't buy my own listings as a real estate agent? No, but I've got to disclose the fact that I'm somebody else now in the transaction other than his trusted advisor. There is another interest of mine now and what I might be saying to the seller might not always be in his best interest. He might want to seek some other advice as to whether or not he might want to accept this offer or if he accepts it that offer I'm entitled to commission, right? I may not be always. Now in this transaction, giving him the best advice for him. So we want to be loyal to the principal above anyone else including ourselves. That again is a responsibility of fiduciary and the other issue is the issue of disclosure and confidentiality. Meaning as somebody's agent when I am responsible to keep confidential information. I am responsible to disclose. If I'm the agent of the seller here, right? Showing his property to a buyer. What am I responsible to disclose to the buyer about the seller's property? Defects about the property, right? That the buyer might if he knew it changes decision may pay less for the property. Might not buy the property at all. So if that affects the buying decision, how valuable is this property in the eyes of the buyer now that they've known it. It's not to disclose any defects that a detrimental to anybody. So if I walk into a seller's property and I obviously see stains on the ceiling. Well, what's that? Probably just a sign of water damage or now that's pretty much it. It's likely a water-damaged issue caused by the roof leak, right? So my job as the real estate agent here is beyond that of the fiduciary chapter 93A requires me as a real estate agent to disclose the property defect. I have a fiduciary duty to the consumer buyer here in Massachusetts. Okay, if I have the ability to know it and it would affect the buying decision Massachusetts has Chapter 93A which is a consumer protection law. Other states may have similar laws that vary from state to state. We'll discuss this a little bit more. Another issue, say for example you're going to be listing a property and next door the house that your listing iss a developer. And they can be cutting down the beautiful view, the trees. Let's say that surround the back of this property your listing. Well, you need to disclose that as well to the buyer that they're going to be cutting that down. If you know that they are and even that there's going to be development behind. That beautiful piece of land which they were probably looking for something nice. And quiet is no longer going to be there. It's not a fair housing issue. You still are required to disclose it. Okay, so there's this other party in a real estate transaction that the broker does not represent but they're known as a broker's customer, right? No agency yet and let's assume that I'm representing the seller in this real estate transaction but the other party in the real estate transaction would be the buyer but the buyer and threw in this transaction is my customer. If I'm the real estate broker it's my responsibility in this transaction. If I'm showing my listing, my principal to represent who in this transaction? I think I kind of just said the seller he's already hired me. He's the one who is my principal, right? So he's expecting that I'm going to be representing him in the transaction and to look out for his interest in the transaction. Now again there is the customer in this country has action my responsibility as a brokers to represent the seller. So I'm taking this buyer, customer out to look at the seller's property and the seller having hired me as the agent. Now it's my job again to represent who? The seller, not the customer here, not the buyer. I have to disclose who I'm representing and I also have to disclose property related defects to the buyer. It's required. Now the buyer says to me "Oh, we love this property. We've been waiting for it or something like it to come on the market for years. We love it. We love it. So much that let's just go back to your office, make a full-price offer and we don't care about contingencies." But now the buyer says then but we'd like to make an offer first. But we'd like to make a lower offer first just to see. We be willing to pay full price. If we had to now that deal gets together after the real estate closing is over the buyer and the seller out in the park shaking hands and what have you, and they're all happy. But the buyer at one point tells the seller "Hey, Mr.Seller" yeah she's just one thing that's been pitching have a curiosity about the real estate transaction. "I could not have I could never understand. What we told your broker that we love this property so much that would be willing to pay full price for it if we had to but we wanted to make an offer first just to see if you take a lower price and we were but we were expecting a counteroffer." Now what do you think the seller is going to say next? What was the broker supposed to have done? Disclose the fact to the seller that this particular customer. This buyer was so motivated. They would have taken full price that the seller was asking. So what we're talking about here, relative disclosure is what we call motivational terms or value statements. MTV for short, no, not the old TV show. These value statements must be disclosed by agents to their principal. I have no responsibility to keep them confidential because I'm representing in this transaction to the seller. This pretty vital information. So if you did not disclose it then you could be responsible for not disclosing it. Now, what if the seller told you prior the he just said, "listen, I'm motivated to sell. Somebody puts an offer. Let's just accept it. I want to get this done. I need the money." Well, then there. You're okay because you knew he's motivated to sell. Now, obviously you want to try to get him the most but he informed you that he was very motivated. So you're still looking for the principal's interest. However, motivational terms of value, those value statements made by the principal must remain confidential. You must not say. Oh, yeah, sure just put in an offer. The seller is ready to accept it. They're motivated. Unless of course the principal the seller said "Sure tell everybody on motivated," then you're still okay. Okay, here's another scenario. So my client comes up to you and says, "hey, Paul I just found this beautiful place over in, let's say, Rockport beautiful place. I love it." Now, the seller of that place in Rockport told me that it's ready to go. That the only way to hold it would put 20,000 down the secure for 30 days to get his stuff in order. So he has to sell his house in order to buy the seller's house in the cape, right? She said "so please Paul help me sell my house". So you get into a listing agreement, you put on the market and now at your at the open house. A customer comes on in during the open house and says, "hey, paul so why is this seller selling?" And then I say, "oh man, well the seller really have to sell this house because he put 20,000 down on this place in the cape. And you know, if he doesn't get it, sold in 30 days. He doesn't get that place in the in the cape and he'll lose his $20,000." What did you just do there? Did you protect your client? Was that beneficial to the principal? If I had done that, I disclosed motivational terms made by the principal to a customer. I do not represent and in doing so harmed the principal so motivational terms of value statements made by the principal must remain confidential, they do not get disclosed. Unless of course, the principle allows you to disclose them. So, in dealing with duties of fiduciary, we have the acronym here. Some refer to it as called, some refer to it as old car, but those words are reasonable care, obedience. A lawful instruction, accountability, a loyalty to the principal as well as our responsibilities of disclosure, and of course confidentiality, but we are required to disclose when necessary.

Now, in dealing with the customer, this other party of transaction. Even though we're not representing them, we have a responsibility to the customer. The one we are not representing the transaction. So even though this customer perhaps, this buyer, I'm representing the seller and the transaction, right? We're not gonna be dishonest with them. And tell them something that's not true, that be dishonest. We still have a responsibility even though not representing somebody, to be honest with them. We have to be fair with them in the real estate transaction. Particularly in the presentation of an offer that they give we're going to state provable facts. We're going to disclose known property-related defects, vital facts about the property, and be accountable for money that was given to us in the real estate transaction. 

Caveat Emptor, in Latin means the buyer beware. That used to be a model the real estate agents here in Massachusetts and elsewhere, it was up to the buyer to find out about the property-related defects. I'm representing the seller, not my responsibility to disclose them. Because in doing so I would harm the seller I represent. They wouldn't get their full price if the buyer knew there was a leaky roof, right? But Chapter 93A in Massachusetts change that, in the mid-1980s, we have a responsibility to disclose known defects about the property even though it may harm the seller's interests, even though it may harm the principal.

There are various ways that we can deal with customers a real estate transactions here in Massachusetts. Now for many years, many buyers dealt with real estate agents in looking at homes. Maybe I took this buyer out to take a look and take a look at several properties. Finally having shown them maybe 10 properties or 20 listed through my office. They were ready to make an offer. Maybe I had told them while I was looking I was going to be the best real estate agent for them that I was going to get them the best price, best possible terms for them in this transaction. And when they found the property,\ they finally wanted to make an offer. They said to me, "Paul we know this property is on the market for $150,000. We'd like to make an offer for a hundred and forty thousand, but we don't want to lose it will pay full price for it if we have to." Now if the buyer said that to me, right. Most cases years ago I was probably representing who in the real estate transaction, buyer agency was not common. In most cases, I was hired by the seller in order to sell this property. So, if a buyer says to me, "I'd like to make an offer but I'll pay full price for it if I have to." My responsibility would be to tell the seller that the buyer would pay full price for the property now, hold on, even though he's making an offer and the buyer wound up paying how much for that property full price, right? Because who found out that they would, the seller, because you told him, right? Youre their agent. Well, the problem is that the buyer was unaware of that, they were unaware of who was being represented. They were unaware that you were representing the seller because they heard from you that you're going to be the best agent for them, many buyers heard that from the real estate person and then they were going to get the best price possible terms. They were going to get the right agent. So if that's what we were telling them, guess what's going to happen? Lawsuit. The buyer is believing, you're looking out for their interest. So the courts are going to say, well, guess what? That's what you were telling them. You're telling them you're going to be their best agent. Is it not reasonable for the buyer to assume that you are their agent? Now in Massachusetts, if we're telling someone we are their agent, we are. There is no requirement to have it on paper. If we're saying we're their agent, verbal is accepted. We do not need a contract to say so. Now, how else can we work with consumers? Well, we could act on their behalf as a buyer's agent. Now, that's the seller agent and we have the buyer agent. What are the other types of agencies? 

Next is a designated agency. We should be aware of this one designated agency, as a result of many dual agencies that were being created, many brokers didn't like the liabilities associated with everybody in the office representing both the buyer and the seller in the same real estate transaction. Okay, even though they weren't the listing agent. Even though you weren't the buyer's agent, you were still a dual agent. So many brokers didn't like that because it creates liabilities that were enormous for everybody in my office to be representing everybody in this transaction. So, the legislature said years later. We're going to allow the ability to offer this other type of representation known as designated agency. So in this case, when Molly takes this listing from the seller, the broker designates Molly as the seller's designated agent with the informed consent of the seller, the seller understands that the seller is going to be represented in the transaction by Molly. And the broker. No one else in the office. Now, let's add to the complexity of things. So I have another designated agent in my office. Remember, I'm the broker and Mr.John is a buyer. And he's working as a designated agent for John, or I should say with John. Now John shows Molly's listing, right? Shows the house that Molly is representing. She's a designated agent for the seller and he's a designated agent for the buyer. They are both agents under me the broker, nobody else. What does the broker become now? A dual agent. So, that's designated agents where the broker with the consent of the consumer understands who in the office is going to be represented by them. Now on the form when the seller and the buyer are asked to sign this form the mandatory disclosure. A choice must be made at this point, right? As to, which type of office we are. So there is a check box there for a traditional agency. Meaning, everybody's going to represent us. And then there's the other one, only this agent, the designated agent. Now, Massachusetts has required and mandates of form commonly referred to as the Massachusetts agency disclosure form on that. On that form when the seller and the buyer are asked to sign it, a choice must be made at that point, which type of office they need to be aware of that our agency is either is a designated agency or to traditional office. Traditional meaning everybody in the office represents the seller, designated agency is they can represent individuals. Individual sellers, individual buyers. So let's suppose for the moment. Again, broker has designated Molly as a designated seller's agent. This buyer walks into the brokers office and have seen Molly's listing, come on in and say, "hey I want to see the property." They look at let's say not Joe this time but they see Harry, Harry was sitting at the desk that day. Say, "hey, we would love to see Molly's listing" and Harry said, "well sure. Let me explain something." I'm going to, I'm going to request that I work with you as a designated buyer's agent and explains all the benefits of being a designated buyer's agent. However, the consumer is not yet ready to commit to this office, this broker's office. Being, they just want to take a look at this property. So have they signed up with the broker yet? No, they have not signed up with the broker yet, but they just want to look at the property. So what's Harry going to do? He's going to say "sorry we can't show you the property because you're not willing to commit to a designated buyer's agency with me or us." That's Harry's responsibility to show the property, right? What's Harry's responsibility to show the property, right? He's a licensee. His responsibility is to bring a buyer and a seller into a real estate contract and having a license earn a commission while doing all that. So Harry's not going to say to the buyer even though you don't want to hire us or me as a designated agent. I'm not going to show you this property, right? He can still take them out and show the property but in what capacity? Is he the seller's agent? No, because he's not the designated agent. Only Molly is right now. Is he a designated agent for anybody? No. The client hasn't accepted him yet as their designated buyer's agent. So this buyer to Harry is a customer. A customer. Okay. He is a customer of the broker. So when he brings this customer out to take a look at the property. He is representing the seller? No Is he representing the buyer? No, he is representing no one at this point. He is what you would call here in Massachusetts a facilitator. A licensee who can put a buyer and a seller into a real estate transaction earn a commission while doing it but is not representing either party. He has no fiduciary responsibility to either party. Now, even though he has no agency with this, this customer. He still is required to be honest, fair, can't misrepresent for the facts, must be accountable for monies, and it's closed known defects. Now, if the consumer buyer says to Harry, "listen, I'll pay full price for this property if I have to." If you're not representing that customer. You don't have or I don't have a responsibility to keep that information confidential. They didn't hire me or should I say they didn't hire Harry, right? So when we check off the form, that mandatory disclosure form, that will get into deeper later, when meeting this customer, when the buyer came into the office at the first meeting but didn't want to, you know be hired by that agent Harry. But yet wants to take a look at the property anything they tell you is not required to be kept confidential. So, if they say, "you know what we buy this at full price, but you know what, we're going to give a little bit less just to test it out." Do you have to withhold that information from anybody? No, because they didn't hire you, your facilitator., you're a non-agent basically that's the term you hold no loyalty to them.

Okay, so you are my agent in our office and I have said to you as my sales staff that I'm going to authorize you to take listings from sellers on my behalf. Molly, one of us here in the office a salesperson lists a seller's property. When Molly took that listing, she took that listing on the behalf of who? Me, the broker. She's working on my behalf, right? In this scenario now, let me add some extra information. The way it works here in our office we are what we call a traditional office. Everybody now becomes a seller's agent representing the seller in the sale of this property. Whether you met the seller or not. Because Molly took that listing on behalf of me and you are all working under me as salespersons. So the fiduciary responsibility of all of us is to represent that seller even though you didn't take the listing, even though you never met that seller since we're a traditional office, everybody represents the seller. So for example if a person walked on in and we're a traditional office, and if we have a listing you never met that seller, you are still required to disclose and you're always supposed to disclose that you are a seller's agent for a property we are listing. 

So if that person walking on in said, "you know what don't even have to show me the property. I'm willing to pay full price for it", who are you required to tell? Well, there are customers still you have a fiduciary responsibility to tell the seller, even though you've never met them, everything that that customer is told you because you're looking out for the benefit of the seller. 

Another scenario. I'm a broker and I'm going to allow all of my sales staff to represent buyers in real estate transactions. Still a traditional office. Should a buyer want representation, right? They come on off the street. See Harry in the office. They don't know what they want to buy yet and they're saying; "hey, do you guys do buyer agency?" and Harry's like; "sure we do." Harry takes them to a conference room and sits down with them, and the buyer now becomes a client (creates an agency). 

So when Harry signed up the buyer, he took the buyer, you know, filled out all the paperwork, what have you, he's now working on behalf of who? The buyer, he's also working on behalf of the broker. But now once Harry did that, Harry's working on behalf of what I told him to do, right? To sign up buyers. So since this is a traditional office, all of us now, all of the agents, not just the broker, but all of us represent that buyer as agents.

Now, we owe that buyer the duties of a fiduciary. Now the same thing we talked about before no problem so far, correct? But one day when Harry was out with the buyer looking at a property the buyer says, "hey, I kind of like that property there. I'd like to take a look at that one." Which one? Molly's listing or any of those listings. Now, what do we have? What's that called? A big conflict? A conflict of interest, right? That's known as dual agency, right? Because we're representing both parties. Not just the broker but the agents as well. Everybody in the office is now a dual agency even though those other agents besides Molly and Harry didn't see the clients. Everybody is now a dual agency. Now what can we do here in Massachusetts? Does it legislature allow us as real estate people to represent both buyer and seller in the same real estate transaction? Yeah, of course, it happens. 

What must we now do once that situation happens because we've created a dual agency even though the legislature has given permission for dual agency we have to do this properly? We have to disclose dual agency to both parties. The buyer and the seller must know that we're representing each other and that we cannot represent just one party or the other in the transaction now and put their interests first. 

Now, why is that required? Because let's say the buyer says; "hey, you're in a dual agency." They make an offer and they say; "Just don't tell the seller that we'd be willing to go up on price another $10,000." Can you now withhold that information from the seller? No, you can't. Because you made a promise to the seller prior that you would have their interests. But you are also required to have the interests of the buyers. So now, once the both parties understand this. Once they understand the situation and they allow both parties to continue on with the transaction in the dual agency as a disclosed dual agent, then everything's okay; but we must get their informed written consent of both parties, mutually agreeing. 

Understanding that there are limitations now to this type of agency relative to fiduciary responsibilities, now, if one agrees and the other one does not agree, then, I cannot proceed in the transaction as a dual agent as the broker. I have to decide which one I'm not going to represent. Will the agent like it? Nope. They could refer it out to let's say another broker so that they're not losing out on some of the potential commission.

Massachusetts and back in the 1980s as a result of many of these cases developed a form that we are required as real estate agents, real estate people to use. So that consumers understand when we first personally meet them how we are going to deal with them in a real estate transaction. Are we going to be their agent? Are we somebody else's agent? Or in certain situations, we may not be anybody's agent? A facilitator perhaps. So, we want to understand a little bit about this form that I referred to before. Now, this form known as the Massachusetts mandatory licensee consumer relationship form. Most of the time we refer to it as the agency disclosure form. This is a required use at the first meeting of anybody you talk with about real estate. Now this is only required for the sales for properties that are being sold. Excuse me, sold not rentals. So when we have a potential seller or buyer we're going to be using this form. The purpose of which is to inform the buyer or seller who you are representing if anybody at all about a certain property that they are talking about or number of properties that they're interested in. Now, let me explain something. The timing of this form is what is important. It's all important but the timing specifically as I said before, you use it when you first meet a potential consumer so that's the first personal meeting. So if it's over the phone or over the internet, you're okay. It's the first personal meeting. The phone and the internet is not considered a personal meeting. Now, if you have the form of front of you you'll see right in the middle, boxes where you check off. It should say which agency that you're going to be representing them or who you are already representing. Now, there's also a section where you need to disclose what type of office you are in? A traditional office or a designated agency office. Now, we have them sign that form. We sign it and then we give them a copy of that form and we are required to keep it for no less than three years in our office. Save for some strange reason the person doesn't want to sign it. But there's a check box at the very bottom there where we just check it off and making maybe a little note, stating the reason why the person doesn't want to sign it. It's not a contract, just a disclosure and we should still give them a copy anyway. Now, the board of registration is allowed to review the office's documents. So they could ask to see those disclosures and that's why we're required to keep it for three years typically.

So he is a scenario. Now, I'm the seller's agent for a seller. I put a sign on the front lawn. A buyer walks on into my real estate office because clearly they saw the sign. He says, "hey I saw the sign, the for sale sign on the property over there." Now remember, this is the first personal meeting with the buyer, correct? at this point you explain to the buyer before you go any further Mr.Buyer I need you to see this disclosure and be aware that I currently have a relationship with the seller. So when you give them that form, you check off what? The seller's agency you must disclose to this buyer, this potential buyer, the consumer. And, ask the buyer to read the form on the back so that he's aware what position and what responsibilities you have to the seller. Because if the buyer tells you "hey, you know what? I don't want to pay full price but you know I really like it and I'm willing to do it." Well, you are required to tell the seller. So the buyer needs to understand that you don't have his best interest in mind. Clearly you're not going to tell them like that but at least you need to disclose on that document your position. Now if the buyers just saying "hey, I'm looking at a list of different potential properties. I don't know anything particular." You don't have to use the form quite yet but you need to disclose your position. But if you specifically talking about one property that form is required, first personal meeting and talking about a specific piece of property. Now, you're probably asking well, what about an open house? Okay. An open house if you are the seller's agent and you're holding that open house. All your marketing at the open house. Must have a disclosure that you are representing the seller. And there should usually be a trifold displaying that you are representing the seller at that open house. Now, you could be saying, "well Paul I'm an agent but I'm not the seller's agent. I want to potentially get some leads from an open house and I have another agent in my office that's allowing me to do an open house for them." Well, then you must disclose what? If you are the agent and you are not the designated agent, let's say it's a designated, it's a designated office. You must disclose that you are not representing the seller. You must have a trifold explaining you are not representing any party at that time and that your marketing material if you use some states that you are not representing the seller.

Broker and Salespersons Relationship

Now before we mentioned, how the salesperson in most cases is the general agent for the broker. Generally having wide authority, even to the extent given the ability to sign on behalf of the broker on a listing contract or a buyer agency contract. We talked about the fiduciary relationship and responsibilities that the salesperson has to the broker, the broker, unfortunately, becomes liable for the negligence of the agent. I'm probably what's most important is this issue that here in Massachusetts are license law requires that any commission earned by the salesperson be paid to them through their broker. So as a salesperson you cannot be receiving commission in or through transactions. Of course, other through the broker the salesperson's broker. So the seller or a buyer cannot be paying the seller's agents directly. The seller or the buyer must pay to the broker. And as I said before, the broker pays the sales agent, also another brokerage can not be paying a salesperson, one brokerage office must pay the other brokerage office, or I should say one broker pays the other broker and that broker will pay the salesperson. Salesperson never gets a commission from anybody else, but their principal broker they've signed under. And then you also have a relationship with your broker to determine how much of that commission you earn. Now, if you are a new agent or you're about to become one in the hopes their of, you should be aware that not everybody in that office makes the same commission split. That is a matter of negotiation between you and your broker. 

We taught her about the relationships that can exist. Seller's agent, buyer's agent, dual agent, designated agent, and facilitator. None of that dealt with the issue of money. You're a focusing predominantly on the structure of agency and relationships that fiduciary responsibility. Now, if I'm going to be somebody's agent and they want me to perform a real estate service. For example, let's say a seller wants me to advertise the property and show the property. Well, I want to be paid the service that I'm providing him if I find him a buyer. So how do we obligate somebody to pay me a fee for a service I'm going to provide? The agency disclosure form that we had talked about does not do that. It only describes what I am to that consumer and in no way does it disgust money. So if I'm going to obligate somebody to pay me money for services provided then we would need a contract. So that's where you present another form and you say listen to the seller "if you want me to do this work. Well, I've got this listing here that I need you to fill out. I need a contract to do the service that you want me to do. And we need to determine how much I'm going to get paid." That's known as a hiring contract. Some also referred to it as a listing contract if we're dealing with the seller but even if we're using a buyer or should I say even if we're looking to represent the buyer, we still want them to promise to pay us a fee for services rendered provided we find them a property. So now let's go over the terms that we might discuss in that hiring contract. Now here in Massachusetts, whether or not we are a buyer's agent or seller's agent. We might want to make sure that we get paid for a service we provide them. Now a Massachusetts, it does not require that we have a written contract. A written hiring contract, not all states think like that. In Massachusetts, they can be verbally done but in practice it should be written but not required. Now, there are certain ways that we can be hired, you could be compensated by doing one thing or not being compensated if you do it another. Now, from the perspective of the seller, seller comes to me and says, "Paul, I've got a property. I'd like you to sell it for me," and I said, "great. How do you want me to sell it? And how do you want me to be hired? Under what conditions will you pay me a fee?" And he says, "well Paul, if you find me a buyer. The Buyer find me and then ultimately goes to contract, right? You find somebody and complete the deal. I'll pay you a real estate fee." Okay, that sounds fair. But then he says "now Paul, I'm a member of a real estate investment group and a few of your competitors are also members of this group and I don't want to offend them by just giving you the listing. So I'm going to give them the same opportunity. But if they find the buyer for me and their buyer enters into a contract ultimately buys my property, they found the buyer so they get the fee. You didn't find the buyer so you don't get the fee." And then he also says, "well, I know a lot of people at work. So, if I find the buyer? No one gets the fee." Now what kind of listing would that be? That is an open listing. Now, brokers often do not like that kind of listing. That's the lowest of the lows for listings. There could be actually lots of liability with that kind of listing as well. Why? Because if I have it open listing with the seller, I get a commission when what happens? Only when my real estate firm finds the buyer and closes the listing, or close the transaction. If another agent comes on in and brings in a buyer and closes the transaction then I get nothing. If the seller finds the buyer himself. Well, no brokers get anything, that's it. Would you want to work hard for that seller? Mmm. Do you want to put a full page posting on Facebook or even advertise it through Google ads? And maybe mark it on a magazine spending a bunch of money with no guarantee. I don't, how about you? But I wouldn't.

 Next is the exclusive agency listing contract and this scenario. The seller says to me, "Paul if you find me a buyer and any other real estate firm that you choose to do business with, that finds a buyer then I'll pay you as my listing broker. You can split it with the other firm if you want, but guess what? I know a lot of people at work. So if I find the buyer on my own, no commission to you." So with an exclusive agency listing, I get the commission as long as I find the buyer or another real estate office finds the buyer. But I don't get the commission if the seller finds a buyer. Still a little bit of a risk but it's definitely better than the open listing. Now the one that we really want, the one that offers the most protection for the broker and being hired this way and earning a commission is what we call the exclusive right to sell listing contract. Because with this type of hiring, it does not matter where the buyer came from under all and any conditions. The listing broker is entitled to the fee. So if I find the buyer let's say I get the fee. If the seller finds the buyer I get the fee. If anybody finds the buyer, guess what? I get the fee. So under all conditions no matter where the buyer came from, I get the fee as agreed upon. No, I don't know about you, but that's a seller. I'm willing to work very hard for. Now we could also turn this all around and use this for a buyer contract as well. So if the buyer comes into my office and says, "well if you find me a seller, I'll pay you a fee. But if I find the property on my own, well, I'm not paying you a fee." That would be what? An open listing. Would you want to work with that buyer? Probably not. Exclusive agency again the buyer says you find the property or any other real estate broker finds me the property and I will pay you a fee. But if I find the property on my own, mmm, no fee. And the other one an exclusive right to represent. Under any and all conditions. It does not matter if that buyer finds a property and they buy it. Well, say they sign the contract. With you and you are do a fee if they went on their own and they found a property, they want to buy it and they found it under another agent let's say, however you are still do a fee. That is the right to represent. Now, of course that falls under the broker as to which conditions he wants you to be hired. He's going to want to determine under which conditions were going to be hired, including how to be compensated. 

Next, let's talk about a net listing. So I go out and talk to a seller and the seller says to me. "I'd like to hire you as my real estate agent now." Now I'm there at the house and I look at everything and I say "Mr.Seller, would you be content if I brought you an offer and we sold it on 200,000?, let's say, would you be happy with that number? Meaning would you be happy with netting $200,000? Any happily well says "yeah, that'd be great." And of course he asks, "well, what's your commission? What would it be? What would you get?" Well, and I would tell them, "it's going to work like this Mr.Seller. My commission would be anything above your net." If I could get that price. Something higher. But as long as your netting, 200,000, I would get the difference. So if I found a buyer, let's say and that buyer was willing to pay $300,000. Well as a commission I would receive $100,000. That would be a pretty good payday, wouldn't it? Now with this type of listing agreement actually, there could not be a listing agreement of this type in Massachusetts. Why? Because they are illegal, this type of agreement is illegal in the state of Massachusetts. It is a violation of our license laws to accept this type of listing contract. It's against what people refer to as the consumer's interest. Now, why is that? Why is this against the consumer's interest to have this type of contract? Well, it's really not in the best interest of the seller is it? It's more of an interest the benefit of the agent or the broker, correct? And the seller may not know what the property is really worth. Even if he's happy with 200,000 he could actually get more perhaps and it is your duty to look out for who? The best interest of your client. Aside from a net listing. How do we get compensated? Provided we used one of the other listing agreements. Well, we could be compensated through percentage of the sale or as a flat fee and or a combination of both.

Okay now, let's review a listing contract. Particularly an exclusive right to sell listing contract. You first need to establish what the listing price is. And this is usually determined by what the seller your client wants to list it. As we can assist them in determining the value, but you cannot determine what the seller wishes to list it for. They choose, not you. Okay, if you're reviewing this agreement, on the listing contract we need to put today's date, the date of the agreement, and the address of the property. Now, look for the word where it says expires. Now when we have a listing contract that typically is a time frame under which the broker has control over the listing. Now, this timeframe is negotiable. We do want to have enough time to find a buyer under certain conditions so that we can earn a commission. Wouldn't want to have too short of a time and then we don't have the opportunity to earn the commission, but that's not set in stone. That's determined by the broker and the seller. So on the contract, let's say we do 90 days. We will put the date and then from the date put in 90 days, the date for 90 days starting from the first date. Okay, so the broker now has 90 days to sell this listing. Now, further on you'll see an area where it says the commission. Now, I'm not telling you that this is what is required to be charged. There is no required charge. This is negotiable between the broker and the seller. It could be anything but for this course right now, let's say they determine a mutual commission structure for a percentage of time those 90 days and the commission structure nothing flat let's say 6%. Now., if you read the contract, it states that you get paid not based on the listing price you get compensated based on the sales price. So let's say it was a hundred thousand you get six percent of a hundred thousand, if it was 200,000 you get 6% of the 200,000 on the contractual sales price. Now, I want you to focus on something. Let's say you find a buyer and you get it under contract but they agreed to close after the 90-day period. Do I get that Commission? I found the buyer when? During the listing contract. It doesn't matter when that buyer buys the property. I'm entitled to that commission. Now, there's another section where it says after the termination of this exclusive right to sell if sold originally by the procuring broker. This is often referred to as the protection clause. You're still able to earn a commission if the house gets sold. So, if you show the buyer during the time of that listing contract but they chose at the time not to make an offer on the property a scenario could happen. Let's say this buyer couple and the husband pauses looks over to his wife and says, "hey, you know what, this property has been on the market for quite some time. Let's just wait and see what happens if the listing maybe the broker will lose the listing and then we go directly to the seller and make an offer." He's thinking if that seller doesn't have to pay a commission. They could probably buy it for less. Nope. Why? Why is that? Because in my listing if I originally found the buyer then the seller is contractually obligated to compensate me. Even though they might enter into their own contract without me not being involved. However, If there was a lawsuit the court might say how long is that protection good for? It doesn't show in the listing contract anywhere ever expiring. It could be totally unreasonable. Let's say, if you showed to those buyers in the seller, sold it in 5 years later on to get a commission. So usually there is a time frame that's usually reasonable after the listing contract expires. 30 days, 60 days, something reasonable that you both agree upon, both the broker and the seller. 

Okay, next it says the brokers allowed to put a for sale sign on the property, advertise the property to show it during reasonable times for appointments, and then you would have them sign the form. And of course, date the time that it was signed. And if you're the selling agent for the broker you would typically put your license number and the name of the brokerage or the broker. Now, here in Massachusetts, if you wish to make the contract enforceable in court and let's say the seller does not want to pay me. If I have either an exclusive agency or exclusive right to sell listing you must have a written contract signed by the seller with a definite termination date. 

Now, when dealing with listings. Listings typically have an expiration date is a timeframe that I usually have control over the listing, after that time frame I don't. What could the seller do? So after the listing agreement, it expires. What could that owner do? Find a new broker? Now, the seller could sell it on his own or he could extend the contract, giving me more time to sell it. Now, the most common way that a listing contract expires, simple the date. Now there are times were both parties or one party or another, besides "hey you know, what? I don't like working with him and he doesn't like work with me. Will you cancel the contract?" It could happen. Another way is the broker didn't do anything. And the seller says, "you know what, I'm taking off the market" that pretty much cancels everything. Another situation could be death or something happen mentally to the seller. He's no longer capable of being able to continue on with any agreements. Unless of course, he have some type of proctor. Then that's a whole lot that situation but I still have to explain that. That's a possibility here. What happens if ownership of the property changes through a foreclosure? Well, then guess what? No more contract because you're no longer representing the interested party, the seller. Somebody else owns the property you can't sell the property right? If they ain't the owner. Now, the one I would be concerned with especially would be when the seller wants to take the property off the market before the contract has expired. I mean, as a broker I would be like, "Why? What changed? What happened?" If I revoke the listing meaning, I let him out of the listing contract. He could go to somebody else or he might have a buyer already and he's no longer obligated to pay me. So it's good to be careful.

Let's talk about earning a commission and when they are earned. Let's talk about what we have to establish to earn one. What do I have to establish in order to earn one? Well first, I have to be hired by somebody who's going to pay me one. So it has to be a hiring of the broker more or less by somebody either the buyer or seller that's going to pay me a fee. Suppose this buyer comes into my office and says, "listen, I'd be interested in buying a property in this town." And I talked to him about what type of property you might be interested in. And I say, "listen, I know this one property coming on the market real soon not on the market yet. But why don't you take a drive down the street there? See if you might like it then get back to me and I'll try to get you in to take a look at it before it goes on the market." So the buyer drives down the street stops out that curb for the property that I talked about. Looking at that property in the seller is out there. Raking the leaves or what have you. Sees the car stops goes over to the car and says, "hey, can I help you?" And the buyer says, "yeah. I heard that your property might be coming on the market for sale." The seller's says, "well, it might be why?" The buyer says, "well, I might be interested in taking a look at it. I'm interested in buying in this area." So the seller takes the buyer in and has them give it a go around and sure enough the seller presents a contract and the buyer signs it to secure the property. I call the buyer back a few days later and say, "hey, did you ever go by that property? I told you about that might be coming on the market?" And he says, "oh yeah, in fact we're under contract to buy it." Does the seller owe me a fee there? No, because the seller did not hire me. Does the buyer owe me a fee? If the buyer had hired me as a buyer's agent then yes but certainly not the seller. You got to be hired by somebody in order for you to earn a commission. So we got to establish that. We also in order to earn a commission have to get the buyer and the seller into a sales contract. So if I got to introduce the buyer to perhaps that property that and then got to negotiate those terms of the sales of the contract and then in doing so the buyer then is considered ready, willing, and able to enter into the contract. Again, ready, willing, and able to enter into the contract with the seller under the seller's terms. So, I got to negotiate a contract, introduce them to the property, be hired by somebody who's willing to pay me a fee. Get the buyer and the seller into a contract and they must be ready, willing, and able. And, that would be the reason that the contract came about. Meaning that I am now considered the procuring cause I am the procuring cause of the sale. The reason that contract came about again I introduced the buyer to the property. I negotiated the terms of the sale of a contract to some extent and I got the ball rolling. I got the buyer and the seller into the sales contract and they were both ready, willing, and able to perform on that contract and the sale. And I was the reason that the contract about I was considered then again the procuring cause of the sale. Now, many states say that's all we have to do. We found the buyer, the buyer now enters into a contract with the seller, and we were the reason that the contract came about. It did not matter whether or not the buyer actually bought the seller's prop. So it didn't matter whether or not the sales contract came through yet in Massachusetts in 1975 the landscape changed, okay. Towards the payment of real estate fees. 

A famous case here in Massachusetts change those terms under which we're entitled to be paid a fee that is called Tristram's Landing versus Wai, W A I T. And for purposes of this exam we have to be aware of this one, specifically because it does affect how we are paid fees in Massachusetts. This is only, Massachusetts, okay? Now this may be for other states as well but I'm talking about for Massachusetts that this is case is very important. So what happened was Mrs.Wait owns a property in Nantucket and she hired a real estate from known as Tristam's Landing to Market her property. Tristam's Landing found a buyer for Mrs.Wait and negotiated a sales contract. And so a few weeks later before the real estate closing was due to occur. The buyer backed out of the deal and decided they just weren't going to buy the property. Mrs.Wait kept the buyer's deposit but Tristam's Landing then said to Mrs.Wait "you know, is it it's not our fault Mrs.Wait that the buyer didn't buy the property." So they were expecting a fee. They said "we did what you hired us to do. We found you a buyer and we had the buyer and to enter into a sales contract. We were the reason that contract came about, we were the procuring cause of that transaction. Therefore pay us a fee Mrs.Wait." So Mrs.Wait refused to pay that Commission. So Tristam's Landing sued Mrs.Wait in court for that commission. And later on or the lower courts, just make sure I don't get confused. The Lower Courts having no precedent said to Mrs.Wait "it wasn't their fault. It was not Tristam's Landing fault Mrs.Wait that the buyer didn't buy. They did what you hired them to do." They found the buyer, right? So they said, Lower Courts said, "pay them a fee Mrs.Wait". But of course, she still refused to pay that and so she appealed those decisions of the Lower Courts all the way up to the Supreme Judicial Court here in Massachusetts, which is 1975. Came down with this unprecedented ruling. Okay, no other court here in Massachusetts had ever ruled this way before. They now said that for a commission to be earned here in Massachusetts it is not necessary for us to just get the buyer into the sales contract with the seller. But that now it's necessary for papers to pass that a closing has to happen. Papers must pass in order for a broker to be entitled to the fee. So here in Massachusetts we can't just get the buyer and the seller into a contract, some states still allow that other than Massachusetts. We here in Massachusetts got to have closing papers, do all that extra stuff, and the papers must pass. Now again, not necessarily in all states but here in Massachusetts it is. The famous case that established that here in Massachusetts for the purposes of the exam is "Tristam's Landing versus Wait."

Now, we obviously must be licensed. Can't be paid a fee if we're not licensed. There is a requirement to be licensed. We also want to understand a little bit about the facts about commission rates as noted earlier. Not regulated by the stat to some extent. I can charge what I want as a broker. I can determine how much I want to be paid for real estate services I provide. Agents work under me as a broker, I may give you the authority to accept listings as long as the seller is willing to pay that rate, of course, otherwise come back and talk to me first but I can determine how much that is. Not you the agent unless I give you that authority. We also talked about the Sherman Antitrust Act earlier. Which is as a real estate service provider in an area. We as those real estate service providers cannot collude amongst ourselves to have some type of scheme in which consumers. Now are going to have to pay the same rate. That's known as price-fixing. So we can't sit down as a real estate service providers as a group or even two people. Also say having a cup of coffee sometime or tea and we all talk about we all can make some commissions, let's say if all of us could agree to charge these consumers, buyers, and sellers the same rate of commission. They'd have to pay for it, for example, because if we all agree all us real estate providers agree to charge the same amount. We could all make money in some way if we make a certain rate. Let's say that everybody has to agree to, that's known as price-fixing. That's a violation of the Sherman Antitrust Act, a federal law that's, that was passed back in the late 1800 primarily to break up the oil monopolies but it applies to any business that is providing some good or service. So again, we cannot sit down with other competitors, let's say those other real estate offices and agree to charge the same amount for the good or service that we're providing again known as price fixing. Now other schemes that also are considered violations of the Sherman Antitrust Act because again they limit competition and that's the concept because that's the key, consumers benefit when there's competition in the business marketplace, right? We do not want to have schemes amongst competitors to limit competition and one of them is to allocate areas of a community. Where I will not compete with you and you will not compete with me and I take over this city and you take over that city or I'll charge this fee over here and you charge that fee over there. So broker A and broker B, a big real estate office in the area. Sit down with each other. Let's say again. I said the coffee shop and say, "guess what? We should agree to do." Let's agree that you won't broker or be competing with me and say, "you're not competing with me in for certain listings in this part of the community." And I'll agree not good not to compete with you in your part of the community. So you can charge your consumers in that area, what you want without fear of competition for me. And I can charge what I want in my area without competition from you. Again, a violation of the Sherman Antitrust Act to be doing that, that's known as allocation where we are allocating certain areas of the communities where I will not compete with you for listings or sales and you will not compete with me. Another one is a group boycott. A group boycott is another one, this real estate office let's say just opened up and they're charging cut re commissions less than what we all charge around the area. So let's agree not to do business with them. So, as a group of service providers in this area. We all say to each other. "Let's put him or her out of business by not allowing them to show our listings. And we're not going to show their listings. And will tell buyers and sellers not to do business with them." A group boycott. So, any service provider? That's a a home inspector. He does a lousy home inspection. He's costing us all lots of deals. Let's all agree, not to use him. So we're going to tell the buyers. He does a lousy job. Now if he does a lousy job as a inspector that's one thing I can say that because he's doing a lousy job. So as a broker in my office we can say that. But as a group of service providers in the area we cannot boycott a service provider. I could say if he's doing a lousy job in my office. That's one thing but we cannot be sitting around at a coffee shop and agree as a group not to use a particular person or provider. So those are ones that we want to remember relative to the Sherman Antitrust Act, price-fixing, allocation, and group boycott. Issues that can present some serious events has violating the Sherman Antitrust Act can include a maximum fine of $100,000 and three years in prison for individuals. If it can be proven that businesses are involved it can get up to a million. So commissions are negotiable. So commissions are negotiable. There is no common fee. We would never want to suggest to anyone that we have sat down and discussed how much consumers should pay for Real Estate Services. It's a violation of the federal law, relative to antitrust laws, remember price-fixing as we called it? My real estate office can charge whatever I want based upon the service I provide, so I could say to a seller or a buyer or a customer, this is what I want to charge based upon the level of service you want. Other firms may charge what they want that is up to them but I'm never going to suggest to a consumer. That, that's what the usual typical going rate is in the area. Mmm, never say that. Because then the consumer might assume that we all sat down with each other and determined how much this consumer was going to pay for a service or a good, correct? That is again, price-fixing. It's a violation of the Sherman Antitrust Act. Huge penalty for that. Now, the state does not impose a limit as to how much we can charge. It's pure negotiation between the seller and broker or the buyer and the broker, or the consumer and the broker and to how much you each feel comfortable with the commission for fee. A broker can charge what they want. A consumer could agree or disagree and use somebody else but it's up to them to agree on a rate. Usually, I'll say this is what I charge because I believe the level of service on providing justifies that whatever it is that I'm doing or being requested to do or negotiate with my potential client based on their needs, but that's between me as a broker and my client or customer, no one else.

Hi, my name is Ralph Holman and I'm Associate General Counsel for NAR. 

Today I'm going to discuss antitrust issues raised by the ways in which real estate professionals, brokers and sales people, but others as well, do business with their clients and customers, or engage in business with other real estate professionals. There's also a variety of difficult antitrust issues involving MLS or association rules and practices. Those are for another day. Today I'm going to focus on what real estate practitioners do. 

This is important, because I found that while many real estate professionals understand antitrust issues and concerns and the need to avoid participating in agreements with other real estate professionals regarding competitive business practices, my real world experience of talking to real estate professionals also suggests that some don't really understand or appreciate the danger of anti-competitive agreements; or may even engage in potentially unlawful behavior without knowing about it. And antitrust compliance is serious business because the penalties are significant. There is both private and government enforcement of antitrust laws. And not one, but two federal agencies are involved in enforcing federal antitrust laws. 

The Department of Justice and the Federal Trade Commission. 

Both of those agencies are keenly aware of and attentive to possible antitrust violations by real estate professionals, because they believe there's particular consumer susceptibility to harm, and both of them are brought and stand ready to bring additional cases against people they think are violating the federal antitrust laws.

And government and anti-trust enforcement can result in serious penalties against injunctions against illegal conduct, fines or even jail as in one notorious case many years ago. And in most circumstances, once a government antitrust matters complete, private plaintiffs lined up to sue for damages, often in large civil class actions. And in addition, civil antitrust damages are troubled meaning the plaintiffs have the opportunity to collect three times the amount of damages that they can prove that they've suffered, as well as having their attorneys fees paid for by the defendants. 

And in addition, every state in the nation has its own antitrust laws and enforced by its own state attorney general. So there's a second layer of antitrust law enforcement to deal with. 

Now, the antitrust law is more simply violated by an agreement among competitors that unreasonably restraints competition. Fundamentally then, what you need is an agreement that limits competition, and absent an actual agreement, there's no violation of the law. But in most cases, there isn't an express or written agreement between two or more competitors to limit competition in some way. Instead, most unlawful antitrust agreements are implicit unwritten ones formed in a meeting or a discussion or pursuant to an understanding a wink or a nod, or some other exchange between competitors that results in the parties to that discussion, doing business in precisely the same way, charging the same commission rate refusing to cooperate with other brokers, listing property on exactly the same terms and conditions, limiting advertising in certain ways or other practices. But both types of agreements, express as well as these unwritten implicit oral agreements are equally illegal. 

Now most brokers and agents understand that price fixing, that is, agreements on the amount of commission they would charge for listing a property or the amount they would charge a buyer for helping him look for a home, are illegal. 

Price fixing is the most egregious violation that often invokes the most serious penalties. Price fixing is also what the antitrust laws referred to as a "per se violation". Which means there are no acceptable defenses. The only issue in a price fixing case is whether the defendants agreed on a price. And if so, it's a violation of law for which they are liable for damages. The defendants don't get the opportunity to offer some justification for their conduct as reasonable under the circumstances. But there are also other sorts of agreements that are also illegal and in some cases, these are illegal on a per se basis as well. 

For example, agreements among brokers about the amount of cooperative compensation they would pay each other through the MLS are illegal. Agreements involving competitive practices other than price are also illegal; such as agreements among competitors to offer certain kinds of listing agreements. Say, only exclusive right to sell agreements or agreements for brokers to offer listing on certain terms of conditions, say for 180 days only, or so called full service agreements rather than MLS only or limited service agreements. All those are illegal as well. 

So called "market allocation agreements" are also illegal. A kind of agreement where one broker might agree to solicit listings on the north side of town and another, to that agreement, might say; "I'm going to focus my efforts on the South side of town."

These days however, it seems the most common context in which antitrust concerns come up are potential group boycotts. That is agreements among competitors in the real estate business to engage with, interact with, or cooperate with, other competitors, on terms that all the participants in that agreement agree to follow. 

So for example, a group of brokers might agree not to cooperate with a particular broker, or agree to cooperate with that broker on specified terms such as offering that other broker a lower cooperative split, or maybe even not to show his listings at all. And these concerns often come up when there's the so called classic new guy in town doing business in a unique or innovative fashion. Some brokers and agents may feel the inclination or the need to talk to others about what they're going to do about the way this new guy is doing business. I'd submit to you that there's only one thing that brokers and agents ought to be doing when a new broker comes to town offering a new business model. And that is thinking about ways how they can operate their own businesses to respond to that competitive challenge represented by that new business, rather than discussing how they might respond with their competitors in a collective fashion. 

Likewise, potential illegal boycott issues also arise when brokers and discuss and agree on how they will do business with suppliers. Agreeing for example, not to advertise in a local newspaper for some reason, or agreeing which printer or web service provider they'll use, rather than each making that Independent business choice for himself. Now, that distinction between collective action and independent contact by conduct by competitors is important. So I want to emphasize that the antitrust laws do not limit the brokers opportunity to determine what terms and conditions he'll do business with other competitors in the real estate business, or vendors or suppliers, or whether to cooperate with other brokers in any way, as long as the broker makes his business decisions about those business practices, especially those that relate to relationships with clients, customers, or other competitors in a completely unilateral and independent way. 

As I mentioned, antitrust laws prohibit only making business practices collectively. That is an agreement with other competitors. Absent an agreement there's no violation. 

So as long as real estate practitioners act independently, unilaterally, there's no violation of the antitrust laws. But in addition to avoiding actually participating in agreements that might restrain competition, it's equally critical that real estate professionals avoid engaging in activities that may look like an agreements being created or formed. Those things, for example, happened in conversations in coffee shops, and golf courses, cocktail parties, association meetings, maybe on phone calls, or other informal gatherings. These can lead to trouble if those involve discussions about, for example, how someone else is doing business. So if someone invites you to a meeting to discuss how the new guy in town is doing business, don't go to that meeting.

And in fact, if that invitations by mail or email, send a response, telling them you're not coming to that meeting, so the records quite clear that you didn't participate. If somebody calls you to talk about that new guy in town business model and his business practices, don't take that call, or get off it as quickly as you can. And if you're at a meeting where these issues come up, talking about how competitors are doing business and what you might do about them, do your best to set that discussion. And if you can't stop it, leave that meeting. And these days, these discussions not only occur in persons in the way I described, but also in cyberspace, and things like Facebook pages, or tweets or texts, or other forms of social media or electronic communication. The guy like me doesn't even understand. But the same approach applies here. Also, if you see a website or a social media site, discussing the new company and how its offering a new business model, or how such that business model is unprofessional and traditional, disrespectful or somehow or otherwise wrong, stop visiting that site and be sure everybody else in your office does the same. If you receive a text or an email or a tweet, or other messages talking about those issues, don't respond except to perhaps disclaimer repudiate any interest in discussing or being involved in discussions about those subjects. Real estate is a very competitive business and the temptation to take shortcuts to overcome your competitors in ways that the antitrust laws prohibit may be strong. But to paraphrase Nike, just don't do it. And be vigilant that you and others in your team don't do anything that may look like you're creating or participating in an anti competitive agreements. And if you encounter invitations or request to engage in those kinds of discussions, distance yourself runaway figuratively at least, and even literally, if you have to. If you have any questions about whether anything you've done may be unlawful or may look like you've participated in unlawful agreement. Be sure to consult with your attorney to do what you can to protect yourself against the claim that you did. That's it. Good luck and thanks for watching.

All right, friends. This has been a wonderful evening; great steaks and even better wine. But now I'd like to get down to a little business. And most of you, I've known a long time. Scott, our kids played ball together. George, we play tennis together. I consider each of you, family... Even you Carol. 

Even though we're competitors, we've been through good and bad times together. Lately, it's been harder to make a profit than any of us have seen in years. I know I could stand to see more cash coming in the front door. So next week, I'm raising my commission rate to 7%. Just wanted you to know. Obviously, what you decide to do is entirely up to you.

Believe it or not, that was based on a true story. In the 1970s, a group of real estate competitors were convicted of fixing prices on their Commission's while they enjoyed dinner at a fancy Country Club. And the convictions were upheld on appeal. Antitrust laws haven't changed much since the 70s. In fact, they haven't changed much in over 100 years, but, the ways that real estate professionals can get into antitrust trouble have changed. 

So, welcome to antitrust 101 for real estate professionals. Let's start at the beginning. 

What is antitrust law? Well, the heart and soul of antitrust law is the Sherman act of 1890. And while antitrust law is commonly associated with the prevention of monopolies, it also applies to individual agreements to restrain trade. In other words, an antitrust violation occurs when there is an agreement and understanding or conspiracy among competitors that unreasonably restraints competition. In real estate, price fixing and group boycotts are the two most common antitrust violations. For instance, our host at the club wasn't just speaking about his own business. He was encouraging his competitors to follow his lead, when he announced that he was raising his commission to 7%. He didn't have to directly say that, although that's what he implied, and his guests didn't have to expressly agree to charge the same commission. But when they did, they had formed an agreement that broke the law. 

Price fixing is always illegal, it's considered a per se offense. And that means there are no exceptions or extenuating circumstances that will excuse an antitrust violation. And the penalties can be stiff, triple damages, even criminal liability to name two but, don't worry, we're going to cover what you need to know to keep yourself from accidentally falling into that trap. 

Generally, price fixing isn't accomplished by a written agreement. Who's naïve enough to write down something that's illegal? Most price fixing violations are unwritten or verbal agreements, and agreements with competitors on other business practices like these are also illegal. Listing properties only on the same terms and conditions, representing a buyer only on the same terms and conditions, offering the same Co-Op compensation through the MLS. Only offering certain types of listing agreements. 

Often discussions on these subjects are implied and take place in the most innocuous circumstances; over coffee, on the golf course, even on vacation at a ballgame. To avoid getting into trouble, remember, appearances count? Make sure that what you say to a competitor is exactly what you mean. Don't make statements that could be considered an invitation to fix prices or engage in other questionable activity. Make your message clear. 

Okay, let's do a quick little self test. You belong to the North Shore Swells Club by invitation only. You all sell million dollar homes; and once a month, you all meet to discuss how to market them better. Can the members of that group agree to offer each other a higher commission split than they offer to other brokers? No, that would be price fixing, consider disbanding or at least dropping out of the group. All right. 

At a meeting you hear two competitors agree to fix commission's. So what plan of action would keep you out of trouble? A) stay quiet and don't contribute to the discussion. B) tell the group that it sounds like a decent idea but don't say anything else. C) make it clear to the group that you don't want to be associated with their plan and then leave the meeting. D) all of the above. The only correct Answer is C., even if you stay silent, you could still be accused of joining the conspiracy. Silence may not be a sufficient defense. And you can avoid unintentionally being part of an illegal conspiracy by openly stating that you refuse to be associated with it. Or even better, be careful to avoid these types of discussions at all.

New scene:

"Nice putt! So, what are people doing about that thing we talked about?" 

"What thing? I mean, the thing on the web ads or that new broker? 

"The thing with the website! They're totally gouging us on those ad rates." 

"Yeah, we won't be using them anymore. Everybody's on board at my firm." 

"Great! Mine too." 

"Yeah. Good luck staying in business without our ad revenue." 

"Exactly. They should be grateful that we even advertise with them at all, but not for long. So what's the deal with this new broker that you mentioned?" 

"They're the new discount brokerage?"

"Yeah, they're offering like next to nothing for Co Op commissions on the MLS. So annoying."

"What do we do? I hate working with them."

"Well, you didn't hear me say this, but it's bull. We're not working with them anymore. You should think about doing the same thing. I mean, just think what would happen if no one did?"

"That's not a bad idea? I'll make sure we're in to." 

"Make sure it stays between us." 

"Relax. I won't let anyone know."

End scene-

These days, the most common potential antitrust violations seem to involve group boycotts. I'm sure you realize if a group of agents or brokers collectively tried to put another agent or broker out of business, that would be considered an illegal restraint of trade. I know you would never do anything like that. But, isn't that what you're doing when you're casually saying to a colleague something like; "I don't think we should work with that new broker." 

Without even thinking, you're now on your way to a group boycott. And this is also true if you agree with other competing firms to do any of the following. Not cooperate with a particular broker, not show a certain brokers listings, not advertise in certain media, and not use particular suppliers or vendors. The targets of these boycotts are often competitors who offer new business models. They could also be vendors or suppliers. And obviously, no one has to work with someone they don't like, as long as that decision is made independently. But encouraging your competitors to go along with your decision to not work with that new guy in town, can get you in trouble. And the same goes for suppliers and vendors you think charge too much or you don't like for other reasons. Don't give them your business. If that's your preference, that's fine. But don't ask or encourage your competitors to do the same. And under no circumstances should you say to your competitors anything like; "let's do something to make these guys lower their prices." 

Okay, time for a couple more quick questions. If a multiple listing service creates its own real estate listing website, newspaper or magazine for its participants to publish their listings, this could be considered an antitrust violation, true or false? False. Offering alternative ways to advertise their listings is a completely appropriate way for an MLS to serve its members. There just can't be an agreement among the participants to advertise only in the MLS paper or on its website and not to advertise elsewhere.

Next, a group boycott is allowed under the following conditions. A) the boycotted firm is not a member of NAR. B) the boycott ad firm advertises its flat rate commission structure. C) everyone agrees the boycotted firm is too aggressive or unprofessional, or D) none of the above? The answer, of course, is D, none of the above. There are no conditions under which a group may agree to not do business with another firm under antitrust law. Don't even think about it.

New scene:

(On phone) Beverly, go to the associations Facebook page, you are not going to believe what's going on. There's a post about that referral company that's trying to join the MLS and people are getting really worked up. Yeah. Max just posted that he is definitely not going to cooperate with them. And he's got 45 likes already. Call me back later. Let's talk about how to handle this. (ends phone call) Great idea, Max. I've been telling clients that it doesn't seem like they actually take any listings So why would someone want to work with them? I don't think they have any idea how to market property. Who knows. But I wouldn't be surprised.

End scene-

There are lots of ways to get in trouble on social media. And there's lots of social media where it can happen. LinkedIn, Facebook, Twitter, blogs, not to mention texting on your smartphone, and answering your email. The possibilities for unintentional antitrust violations go on and on. You don't need illegal intent to say something that's against the law, or something that someone will later claim was against the law. So be careful. Always remember that what you say in cyberspace stays in cyberspace forever. When it comes to avoiding antitrust claims based on your comments about competitors, your mom had some good advice to follow. If you don't have something nice to say, don't say anything at all. 

Here are some more important points. Don't answer email or make comments on websites that disparage other companies or competitors. And don't get into discussions in forums that are disrespectful to other firms or people. Having said that, everyone falls off the wagon from time to time, and maybe you didn't even say something nasty about someone, but you took the easy way out to explain your commission rate to a potential client and said something like it's the rate we all charge. Your statement makes it sound like everyone has agreed to charge that commission rate. And that's not legal. And maybe instead you said something like the association has a rule about our commission rates. The truth is no association with an ounce of sense would adopt a rule like that. But don't panic. Follow up with that potential client to clarify your mistake after you talk to your firm's attorney. 

Okay, one last quick question. 

Private communications between friends can't be antitrust violations because they are difficult to prove true or false. It's definitely false. Even if it is difficult to prove a conversation that results in an agreement to limit competition is always illegal. And what you think might be a private conversation or comments probably isn't as private as you think your best option is just to not make troublesome comments. always assume your words can be heard or read by someone else.

New scene:

Woman: So, while the market is challenging, I'm hoping that we can all have a better quarter coming up. All right, guys? I know we can do it! 

Alright, moving on to the next item on the agenda. Okay. I wanted to say a few words about big city Realty and the change to their pricing structure. Now, speaking strictly for myself, I'm not pleased at all. I mean, it's tough enough in this market trying to make a living without big city. But after speaking with several of you privately, I think we need to go further and really show big city that their structure isn't going to work. And until they make changes to it, they're on their own, completely on their own if you get my drift. Now, obviously, we can be a lot more effective if we can...

Man: Oh, wow, look at the time! Is it 2:18 already? I have an important call scheduled for... now. I'm so sorry, I really need to go! Donna, please make sure you note in the minutes that I left and was not present for this discussion. If it continues after I leave... which it probably shouldn't! That's Tim Evans, E, V, A N S. Don't forget the s! Okay! I'm out of here!

End scene-

Here's a few more thoughts about participating in association meetings with competitors. First, there should always be an agenda for the meeting with specific topics. The invitation should identify the people who have been invited to attend, and that should include everyone in the association who might be interested. Not just the popular kids or some other select group. 

The agenda should be provided ahead of time and spell out exactly what is going to be discussed. And when you get there, be sure someone is taking minutes, and the minutes should be on stationery that has the association's name on it not on someone's business letterhead. And after all that, if it turns out that the group still discusses boycotts, price fixing or other questionable activity, get up and get out of there like our buddy Tim E V A Ns. 

Do not pass go, do not collect $200. And when you leave the meeting, make sure that the person taking minutes, notes, the time you left and the correct spelling of your name, then be sure to tell your bosses what happened. 

Which brings me to my final thoughts for protecting yourself. Be aware, make sure that you and others in your firm don't do anything that seems like an anti competitive agreement. Don't participate in a discussion with competitors that involves how you intend to do business with other competitors, consumers or service providers. If someone invites you to join them in a boycott or price fixing arrangement, walk away, far away, and contact your attorney to find out what to do to protect yourself from any claims that you participated in an unlawful agreement. 

The Sherman Act has been around for over 125 years. But there are always new ways of doing business and new applications of the antitrust law in our constantly changing real estate profession. So stay educated. See you next time.

A estate in land, sometimes known as interests in real estate, estates in land. Now an estate in land or an interest in real estate is based upon rights in real estate. So an estate in land is created based upon a right I may have in real estate. Now I could be created because I own property. I own the property. So when I become the owner I get all of those rights associated with the ownership of the property. Be able to possess use and occupy it even subdivide, sell, mortgage it. All of those rights associated with real estate. So I have several rights associated with ownership of real estate but nonetheless have estate in land but sometimes estates in land are created not based on ownership. But yet by having a right in the real estate or in real estate. So, if I have the right to pass and repass over your land, what's that? I have an easement over your property, right? It's based on a right to pass and repass over the land that was given to me. So I have an estate in your land, even though I don't own it. People who rent, tenants they have the given right or the right that was given to them by the property owner to possess and use and occupy the property for a period of time. Well, they have a right in real estate. They have estate in land. So sometimes we have a estates in land created by the ownership. Other times we may have a estates in land that are not created on the ownership, but yet based on a right in the real estate. So we're going to talk about the degree quantity nature and extent of interest in that somebody may have in real estate, some interest in real estate or estates in land are greater than others based on the rights they may have in that real estate. 

When we are talking about estates in land visualize it as a break from the main idea of ownership of property. Over here we have a estates in land that are known as freehold interest, freehold is based on ownership. So if I have ownership of this property while I own it I have possession of the property that I own. Meaning I have the right to possess, use, and occupy it. Ownership and possession both are which for an indefinite duration, indefinite. So there is no known endpoint to either ownership or possession. Having that I have what we call a freehold interest. So ownership and possession for an indefinite duration creates this freehold interest. 

Anything less than that. Meaning? I don't own the property or I have possession of it but for a definite period of time creates a non-free hold interest. So anything less than freehold is non-freehold and typically talks about tenancies. Meaning somebody that has the right to possess, use, and occupy the property for a period of time but they don't own it. So typically, when we are talking about non-freehold interest in real estate. We're talking about the interest of a tenant. The rights that a tenant may have in real estate. And we're going to put them on the shelf for a moment and come back and talk later about, the later in the class when we're talking about leases and tenancies. So right now we're going to talk about the freehold interests in real estate that somebody may have. 

If somebody owns real estate and has the highest interest in real estate that one can have. Meaning that they own this property and they have all the rights that come along with the ownership of real estate without any limitation or condition imposed upon any one of those rights. Other than the governmental limitations that anyone who owns real estate is limited by those four. Which would be what again, the four that would limit us? Taxation, escheat, police power, and eminent domain.

Other than that, if I own this property and there's no other limitation or condition imposed upon any one of those rights then I have the highest interest in real estate that one can own known as fee simple or a fee simple absolute interest in real estate. It is the highest estate and land that one can own. And by owning that creates the highest value for the property. Because I can transfer you that similar right in real estate with all the rights associated. So highest interest in real estate the one that creates the highest value for the property is a fee simple or a fee simple absolute interest in real estate. Includes all of the rights in the bundle without any limitation or condition other than the governmental limitations we talked about imposed on any one of those rights. Most people who own real estate, owned real estate this way in fee simple, the highest interest that one can own. And again, I have all the rights associated with the ownership of it without limitation. If however, I own this property but there is a limitation or a condition imposed upon a right perhaps a deed restriction, see this word defeat in this word defeasible. Here then a prior owner when selling this particular property restricted how the property could be used in the future by putting language in a deed that states how the property must be used in the future or can't be used in the future. So they have now imposed a limitation or a condition upon the ownership of the property. The owner, who now wants to restrict into the future how this property shall be used. Inserts into the language of the deed a statement that somebody owns the property but subject to the fact that they cannot sell, let's say alcoholic beverages like we said in the past on the property. So if you buy the property under those terms except the deed under those terms you're bound by those terms into the future you sell the property. Can you eliminate the restriction? No, only the one who impose the restriction or their heirs could violate the restriction. You violate the restriction. Say I'm that owner, I could take you to court asked the court to compel you to stop selling alcoholic beverages on the property ideated. Or they'll deed the property back to me, right? Because again, you're violating a term or condition of ownership. That's an interest in real estate known as fee simple defeasible interest. Again, fee simple or fee simple defeasible interest in real estateY your ownership in the property can be defeated by a property owner who has restricted the use of the premises. Remember, I can choose how I want to sell the property. That's a basic property right? I have to determine under what conditions I'll sell you the property. So if you accept the deed under those terms you're bound by and under those terms. 

Another type of fee simple defeasible interest could state also that you now must use the property a certain way that if I use discontinues then I will get the ownership of my property back. Because it's not being used in the way I intended. It creates another type of fee simple defeasible interest. So, where my teacher lives Muthu when he told me around, I think it was the 1900s Muthu needed land in a community for a community hospital to be built. So a woman by the name of Miss Nevins, a very wealthy woman in the community at that particular time donated a piece of land that she owned for that purpose. And specifically stated in the deed transfer of ownership to the town. So long as the hospital use continues on the premises. So the town of Muthu took ownership of the land under those terms. Built the community hospital continued its operations until the mid-1950s if I have that correct. It was in such disrepair that at that particular time was torn down. And then on that land, that same land, the town built what is today called the Quinn Municipal Office Building. It houses the police department and the town manager's office. And I believe it also houses the town accountants office, the building inspectors office, and a couple other town offices. Now, you might say what happened to Mrs. Never's interest in the land. Mrs. Nevins by then has long since passed but her children are still alive. As far as I can tell. Now, why didn't they enforce the restriction? Well, the town is in realizing that, that was the type of interest they owned in the land this fee simple defeasible interest to this day operates a nurse's clinic in the basement of that building. Which in the eyes of the legal scholars does not violate the terms and conditions of convenience. That a hospital use does still continue on the premises. She didn't state all of the premises she said as long as it continues on the premises. So it's open Tuesdays and Thursdays from 2 to 4pm. He still gets his flu shot every winter. So you can see how that effect has this restriction and has on the use of the premises as long as they maintain the clinic. Right? They don't violate the terms and conditions now. So how does this affect our practice of real estate? So why are we given a real estate license? What was the purpose of licensure here in Massachusetts? to protect who? The public, so the public is protected by having you as a licensed real estate person. Before licensure, anybody was doing real estate and the public wasn't protected, right? So our job here with this issue is to make sure that people are aware of this. When? not the real estate closing. Oh, yeah, by the way, then it's this, It's a little late, isn't it? The buyer has spent months and a lot of money to get to this point and is now told by the closing attorney that they have a restriction on the use of the premises a little later that point, right? They're going to be glaring at you as an agent if you didn't do your due diligence. So when is the appropriate time to let the buyer beware of a potential deed restriction? When you're showing the property, right. Or at least definitely before or the closing, you would have at least during the contract is you know, before they get to even that. So usually when I'm showing a piece of property I usually have a copy of the deed so that they can see any restrictions if there are any on it. And anything that shows in the public record that would show some type of restriction. And I would give it to them that buyer and I'd say, listen this is going to affect the ownership of the property. You might want to have a lawyer take it, take a look at this for you and then tell you what it means. Because we're not lawyers, right. We may know what it means, but we're in the real estate business. And it's for their attorney to tell it to them as to what they can do and how it affects them. We are not attorneys, but our job is to disclose it. If we didn't, could we be held liable later for the future to disclose this pertinent fact about property? Absolutely. You certainly don't want to be responsible for damages to a buyer because they spent 1000s of dollars to get to the closing and then doesn't want to buy the property. Because there's a deed restriction.

Let's talk about another interest in real estate. Another one is known as a life estate. Now, life estates are typically created again because somebody wants to have control over how this property is going to be used in this, in the coming future. So, another way of doing this other than through a deed restriction is to create a life estate. So, we have a situation where this father, okay, we'll call him Rich pun intended, okay? He wants now to make sure that all three of his sons have a property that they can use and enjoy in the future. He is pretty wealthy, he owns a few properties. So he's a little bit nervous about one of his sons John, and John's a bit of a gambler. Now, Rich doesn't want to deed to John one of his properties in fee simple is fearful that he might lose the property's ownership at the poker tables at encore in Everett. But he does want to create for John an interest in real estateI in this case known as a life estate. So on the deed, Grantor Rich grants a life estate to his son John, John in this interest is known as the life tenant. So the person who owns a life estate is known as the life tenant. Don't let the word tenant confuse you. They're not paying rent here, okay? They have use and enjoyment of this property as if they owned it. They have all of the associated rights with the ownership of the property as if they owned it. But they have these rights for how long? Their lifetime, so it's limited what they can do with the property in their lifetime. Upon John's death this interest in real estate known as life estate dies too and reverts back to Rich. So while John is alive he will have use and enjoyment of this property as if he owned it but limited to his lifetime, does not have the ability to will it. Rich here has a few sons. He determines through a will that upon his death all rights he owns in real estate should go to his two sons, Charles and Edward. Will Charles and Edward get John's life estate? No. Upon John's death it's been pre-determined what happens to this interest in real estate known as life estate. It reverts back to the Rich. Who now would own the property back in fee simple upon John's death? So, say Rich's passed, could Rich's heirs get the property back? Yes. But in fee simple. The idea here is that John has use and enjoyment of the property as if he owned it, but limited to his lifetime. It's not an inheritable interest in real estate. Rather, it most likely reverts back to Rich. So while John is alive, Rich has what we call a reversionary interest in the property. So it's going to revert back to Rich upon who's passing? John. Remember what we said, John has use and enjoyment of the property as if he owned it. Now, what if John wanted to sell his life estate? Could he sell his life estate? Yes, he could. He has use and enjoyment of the property as if he owned it. Now would you buy it? Would you like to buy his life estate? He could sell it to you. And then you now could use it and enjoy this property. But your use and enjoyment of the property would terminate upon what? Upon your death. So once John dies here, even if he sold his interest sold to somebody else that deed has now gone away. Rich gets the property back in fee simple. So could you sell a life estate? Sure, but who wants to buy it? I don't know about you. But if I'm buying a property, I want it to go to my family. Not back to some else's it's not marketable. Nobody's gonna well, nobody's gonna buy that all not normally. Could John rent it out? John here? Could he lease the property long term? Say a 10 year lease? Let's say Duncans comes along the property is a great commercial location. They find out now you have a life estate on the property you've built here. Are they likely to lease the land long term and build their Duncan's restaurant there? Oh, typically No. Say the duncan's was owned by one person, a sole proprietor, and that person died. What happens to their interest in the property? This long term lease and the restaurant that they just built there? Who owns it? Rich? Yep. Rich. So could a life estate be leased? Sure. But not likely, because of the limitation. We don't know how long somebody is going to be alive. Now, we might find life estates under certain other situations such as elderly parents. So elderly parents now own this property which, which they live in. They don't want to deed it to their children, for some type of estate tax planning purposes. Now the kids own it. But yet when they deed the property to the children in the deed they state their, that they're creating for themselves a life estate in the property. So they have the ability to reside there for their lifetime. Once they're gone, the life estate goes away. And the children own the property again in fee simple. Now, let's go back, which still owns the property? Rich can't afford the property taxes and wants to sell. He can sell what he owns remember that. Rich could sell his reversionary rights in the real estate property. So ultimately somebody else is going to own the property and fee simple. But they have to wait a while. Now, how old Rich? Maybe he's 89? Maybe it's worth something. If he's 29? Hhhmm probably not, not unless Rich wants to surrender the life estate. Now, why might it be created? As I mentioned, elderly parents, that might be a situation Rich wants to know that down the road there John isn't going to sell the property or gamble it away. Because ultimately, upon John's death, Rich is going to own it back. Let's suppose Rich here wants to get a little creative with this creates this life estate for John, who is known as the life tenant. But ultimately wants his granddaughter Patti to become the owner of the property. So simultaneously one creating by deed this interest for John he also creates this other interest for his granddaughter known as a remainder person. So Rich bought and granted to John his son a life estate in the property into his granddaughter, Patty as a remainder person. So that's what the deed would state. So now what do we have? John using the property as if he owned it, right? For how long? Till he dies. And in this case, upon his death, his interest as well as the interest of Rich will then go to? Patty.

So ultimately a remainder person will become owner of the property in fee simple. And when does that happen? When John passes. Not when Rich dies, times to the life of the lifetime. Both interests go to remain the person upon the death of the lifetime. So ultimately if I want that to happen I can create a remainder person. So these two are done simultaneously. We don't add a remainder person in you know, later on it's done by the, done by one document creates the interest of a remainder person in the scheme of things. That's what Rich wanted to have happen. Son John used and enjoyed the property for his lifetime and ultimately Patti owns it in fee simple upon the death of Rich. 

But Patty, the poor thing ran after her cat one day was hit by the passing ice cream truck. Yep. Now pre deceases, Rich, Rich now dies. What happens to Rich's life estate on the property? Well, some might think it goes back to John. But once created it goes to Patty alive or dead. So, Patty's heirs would be entitled to the ownership interest once created. Unless specifically stated to go to John provided Patty's live. In this case, she wasn't, it would go to Patty's heirs Or I've heard some crazy stories where people who love their pets in their wills donate any of their property to a potential animal shelter or when an organization and those organizations may have gotten the land. You never know where this can go. But for this purpose, if Patty doesn't have any heirs, and she had no will, then what would happen to that interest? It would go to the estate. The estate always gets their land back under escheat. But let's hope the heirs will be entitled to Mary's interest under the laws of descent distribution. 

Okay, now for another version. In this case, grantor Rich again creates an interest for John known as life estate. But in this case, John is his son in law. He likes his son in law. Okay. Rich wants to create this life estate for John, but not timed to John's life, but rather by the life of another, guess who? His daughter, Maria. Now, we have what's called a life estate per o-truh vee  or "Pur autre ve", Latin for the life of another. So, in this case, Rich here creates this life estate per o-truh vee  for John based on the life not of John, but the life of Maria. He wants to make sure that John takes good care of Maria, you know, doesn't push her off a cruise ship during vacation. {chuckle} Heaven forbid. Otherwise, what would happen to John's life estate, it would terminate, they would go back to Rich or remained a person if one is named. So when we have a life estate per o-truh vee , the duration of the life estate is determined by somebody else's life. 

Now, let's take a look at a couple situations. Alright, time to use your brain a little bit. Here's a couple of questions. Let's see if you remember what we just learned. So say an owner Lee, transferred a life estate in a home to Leon for the life of Gary. Leon then leased the property to mark under a five year lease. What would happen if Leon dies? So let's take a look at this. So here we have Leon only transferred a life estate in a home to Leon for the life of Gary. So what type of life estate do we have? "Pur autre ve" For the life of another. Okay, now Leon here has use and enjoyment of the property as if he owned it. He leased the property to mark for five years. Can he lease the property? Sure. Now, what would happen if Leon dies? Leon's out of the picture. Here are your possible answers. A) Marks lease would terminate. So if Leon died here, would Mark's lease terminate? That would happen when what happens when Gary died? This interest would go away. Lee would own the property back in fee simple but that didn't happen. But only Leon died so Mark's lease is still going. Okay, B) Title would return to Lee. Meaning if Leon died would Lee now own the property and fee simple? No. That happens when what happens when Gary dies? Okay, C) Gary would obtain ownership or title. Does Gary now own the property? No. Okay. D) Leon's heirs would be entitled to Leon's interest. What's Leon entitled to? he's entitled to the rental income coming from a lease. So who's entitled to that? Leon's heirs provided who's alive. Gary. So, then upon Gary's death so too with this lease die and Lee would own the property in fee simple. He may choose to renegotiate the existing lease with Mark under different rental terms. Okay.

Next question: An owner Paul transferred a life estate in a home to Susan, for the life of Jane. So what type of life estate do we have in this question? "Pur autre ve". Susan then leased the property to Steve under a five year lease. The death of Jane would result in all of the following happen, except which? I recommend you graph this out. So, Paul transferred a life estate to Susan for the life of Jane. Susan then leases the property to Steve. The death of Jane would result in all of the following happening except which one? A) Terminate Steve's lease. So Jane dies is this lease over? Yes. B) termination of Susan's estate. Jane dies. Susan's interest is gone. Yes. C) reversion to Paul. Would Paul now own this property? Yes. on it then in fee simple. Yes. Answer D) Jane's heirs taking Jane's interest in the property. So were Jane's heirs be entitled to the rental income from Steve's lease. Now all she has is the time frame to determine whose interest she has no interest. So we answer D. Okay, I hope that didn't give you a brain cramp. 

So Alright, in dealing also with the issue of other types of interest in real estate, known as dour and curtsy. Some say courtesy, but it's curtsy. Now, for purposes of the exam. All you need to know about these two interests in real estate or that they are interest in real estate created by dour and curtsy. Sound familiar? Like dowry. Yep, marriage. So dowry or dour and curtsy. They are created by marriage. Some states don't worry about the sex of the individuals. When talking about marriage, in other states, they do depends on the estate law. So in those states in which they do care, the dour interest in the wife's estate, in real estate owned by the husband. So dour is the interest of the wife in the property. The real estate property owned by the husband curtsy is the husband's interest in real estate owned by the wife. So if there was a question about same sex marriage, it may be referred to instead as the interest of the other. I don't know if you're going to define it any better than that. At the moment. Some states don't recognize this.

Steep part of the examination is a right in real estate here in Massachusetts known as homestead. So here in Massachusetts, this particular right in real estate was created by statute. So the legislature here in Massachusetts determined that they wanted to create this right in real estate that protects the principal residents of a family, from creditors, seizing and selling the principal residence of a family for debt owed the creditor. So more or less seizing and selling the property of the family for debt owed making them homeless more or less, forcing them off the property that is their primary principle. So Massachusetts created this right in real estate known as again, homestead. Now, this particular write might exist in other states, but the term of it differ. So you will not be questioned about it in the general part of the exam, because states differ. But you might see a question or two about it in the state part of the exam. So again, not the general but in the Massachusetts State part of the exam because it's pertinent to Massachusetts. Now, again, homestead protects the principal residence of a family not investment property, okay. So it's got to be the principal residence of a family here that's protected. Now, automatically here in Massachusetts, the principal residence of a family could be the family of one. As long as it's your principal residence, it's protected automatically against who? Creditors, seizing, and selling this property for debt you owe them. They can put a lien against your property your primary residence from money you owe them, they could get down to the court system, and then have the ability to put an attachment known as a lien against your principal residence, but could not get a court judgment that would allow the sheriff to come out to your property and auction it off, forcing you out of your principal residence. Massachusetts protects the principal residence of a family against a creditor doing this if now this property is no longer the principal residence of the family. So we sell the property it's no longer our principal residence or mother and father are both dead. Children have all attained the age of 18 or move away. Now, this property is no longer the principal residence of the family and a creditor owed money could now force the sale of this residence. But the family is automatically entitled to the first $125,000 of property value by owning a property here in Massachusetts, using it as the principal residence. Okay, the Homestead Act here in Massachusetts protects the principal residence of the family when sold for up to $125,000 of property value. So if the property is sold for 200,000 at auction, the family is entitled to the first 125,000 the creditors then can go after the difference for money owed to them. But the family entitled to the first 125,000 of property value. That's if you do nothing. Okay. That's if you do nothing here in Massachusetts you are automatically entitled to that. If however, you go down to the registry of deeds and record what is known as a declaration of homestead it's a one page document put on record at the registry of deeds, indicating that you are taking advantage of the Massachusetts Homestead Act by recording that homestead declaration at the registry of deeds you automatically get a step up to $500,000 of property value when your principal residence is sold. So in this case, if the property is auctioned off, and the highest bid is 200,000. Well, the owner is entitled to the first 500,000 so in this case the creditor gets zero. If it's sold for more than 500,000 the creditor is entitled to the difference. But I've got to record at the registry of deeds the declaration of homestead indicating that this is my principal residence and I am declaring it protected under the Homestead Act. Now, each owner is entitled to a homestead declaration. So, if the other owner qualifies, so the family is entitled to one homestead declaration. So one $500,000 declaration but if another owner example a husband and a wife, let's say the husband goes down to the registry of deeds, records the homestead declaration protects the principal, the primary principal residence of the family for up to 500,000. But the wife now turns 62 years of age or older, or is, or becomes medically disabled under the IRS regulations, then she can file her own homestead declaration. She's an owner and increases the exclusionary value another $500,000. So the family entitled to one, but another owner might be entitled to their own homestead declaration if they qualify. Again 62 years of age or older or disabled, under the IRS regulations. So in that particular case that I'm explaining a million dollars of value would be protected. So anything sold over a million dollars the creditor or creditors would in that case have the ability to collect on the difference. 

Now, homestead protects against most creditors with the principal residence of the family, but not all. Okay. So there are some specific exceptions to this. First of all, anybody you owe tax money to personal income taxes, real estate taxes, they don't worry about your homestead declaration. This is a specific exemption granted to that creditor to sell even the principal residence of the family for non-payment of tax. So IRS or local tax government, you know, you don't pay real estate taxes they can enforce the sale even though you're even though you've filed the homestead it doesn't matter. It also is not going to affect your ability to get financing to have a homestead declaration declared on your property because the mortgage that you give to the bank to secure the repayment of the debt. That loan is also not covered under the homestead declaration. So the lender doesn't care if you have a homestead declaration because if you don't pay them they can force the sale even a principal residence to collect on that property. It's a specific exemption given to the lender. It won't affect your ability to get financing to have a homestead. 

Now, the Christmas caroler coming up my walkway. Remember that I failed a homestead declaration. She could get this $2 million judgment against me. But guess what? She can't force the sale of that property to collect her debt. She has to wait until it is no longer the principal residence of the family and then she's entitled. Another example, you're in a car accident showing people's houses. They want to sue you for negligence. Do you want your principal residence at risk? Well, this declaration protects its alimony and child support payments are debts that you could occur prior to filing the homestead declaration not protected under the Homestead Act. So specific exemptions in the law for certain creditors, but not all. If you want to go online to the registry online, you could certainly go to@mass.gov and that's the Commonwealth website, just type in Homestead Act and you'll get all the information about it on the website.

Other types of interest in real estate that can occur. One of those might be what we call an easement. Now, when we're talking about interest in real estate, we're talking about rights in real estate. So, in this case, somebody has the right to pass and repass over the land of A for access to Oak Street. So this right given to B, this easement that B has over A's land, creates for B, an interest in A's land, the right to pass and repass over again, they don't own A's land but they do have the right to pass every so often and repass. So, for B, this right in A's land, this easement is for B, but we call an appurtenance it's a right or a privilege included with the ownership of B's land that comes along with the ownership again of B's land, and can be transferred when sold. So an appurtenance is like an add-on. It's part of what I own, that I can transfer to you. So rights that I have in real estate of somebody else for me is an appurtenance. So, when you buy B, your see here, then you can pass and repass over this 25 foot wide strip of land along the northern part of A's property. It comes along with what B owns. So, again, so when you buy B property and your C over the right side, A is to the left, then you can pass and repass over. I put here a 25 foot wide strip of land going across the northerly part of A's property. It comes along with B's property, the right that B has to A's land is an appurtenance. But for A, A no longer has exclusive control over that property any longer. It diminished in value because of it. Because he doesn't have that exclusive control. Must allow B the right to pass and repass over his land. So for A this easement creates on A's ownership, what we call an encumbrance on A's ownership. Not so good.

An encumbrance occurs when we have an interest or claim another land, which burdens or reduces the value of that property. So from A's perspective here, this easement running across his land for the benefit of B here reduces the value of his property because he doesn't have that exclusive control that he wants. So creates for A, what an encumbrance of his ownership. Other examples other than an easement of an encumbrance in real estate would be a lien. Liens typically occur when, what happens? Somebody owes money to somebody and with a court approval has the ability to place on record at the registry of deeds a document indicating they're using this property owners ownership as collateral to pay off the money owed. That ultimately if you don't pay me I might have the ability to do what? So if you don't pay me I can auction your property off by seizure sell it at a public auction. So this could affect the ownership of that property if it isn't paid. So for the moment, it's creating an encumbrance on your ownership. 

And encroachment is the illegal trespass. So we got the structure, the shed, the garage, the fence, after 20 years what might happen? 20 years adverse possession might happen right? So it could affect the ownership. But for the moment it's creating  an encumbrance in your ownership. A deed restriction that restricts what you can do with the property. It creates an encumbrance of your ownership. And the other one is an easement. So all of these are what we call encumbrances on real estate. It's an interest that somebody else has in your property that reduces the value of the property because it reduces what you can do with the property.

Appurtenance on the other hand is an improvement. Permanent improvement, rights or privileges that are included with the ownership of the property. So from the perspective, here of B this easement for B is in appurtenance, it benefits his ownership because otherwise, you wouldn't have any access and can be transferred in ownership. So B sells to C then C now gets the use of he's property under the terms of easement. Rights-of-way also considered to be appurtenances similar to easements, but it might not just be for one user. I own a property by a lake and part of what I own has the ability to walk down this pathway over somebody else's property to get to that Lakefront. But I'm not the only one who can use the pathway. Everybody else along the lake here can walk down that pathway. For us it's a right of way but if I sell my property I sell you my property and you can walk down that pathway. It's something I can transfer to you. That benefits your ownership. It's appurtenance. 

So let's say condominium facilities. So if I owned a condominium unit, the tennis courts, the pools, the weight room, the clubhouse that everybody can use. When you're a unit owner and I sell you my unit now you can use them. They're appurtenances that come along with the ownership of the condominium. So, appurtenances carry on with the ownership of the property and benefit the owner. Encumbrances on the other hand, right? Burden the ownership of the property because somebody else has an interest in the property. Which make the property less valuable. Perhaps restrict, its use somehow burdens the ownership of the property. 

Now, when dealing with easements. This type of easement that we've been talking about here with A and B. B having an easement over the land of A for access to Oak Street is known as an appurtenant easement or an easement appurtenant, meaning the same thing. We've got two property owners, one has an easement over the other for access purposes, so that type of easement is known as an easement appurtenant. Now with an easement appurtenant, one of the property owners is benefiting from the easement. So in my example here is that A or B? B! B is benefiting from the easement over A, so with an easement appurtenant, the property owner who is benefiting from the easement is said to have the dominant interest in easement. So, you may have references that may mention it as a dominant tenement, a dominant tenement. Now, a tenement is based on rights in real estate. So it's a dominant interest. So with an easement appurtenant, one property owner here. One who benefits is said to have a dominant interest in that easement. The property owner whose property is encumbered by the easement. I know I'm using a lot of big words {chuckle}. Now, that's who in my example, here. A, they are said to have a servient interest in the easement their land serves the dominant interest. So B dominant, A servient,  they encumbered by it. A is encumbered by it which reduces the value theoretically because of it. Do they have full use of the land? No, they don't. So when we have an easement appurtenant one benefits, dominant interest. The other owner reduced in value or a servient interest in the easement. Now these particular types of easements generally carry on in the ownership of both property. So when B sells to C, C has to have within their deed of ownership, the right to path continued right to pass and repass over A's property, and when A sells to D, so to A's property subject to the right of B to pass and repass over the land of A. The deed of the ownership of both parties should note the easement on their property and the rights to it. Access ways, common driveways, all examples of easements. 

Another type of easement generally occurs when we have some type of public utility purpose. So we have an underground gas line easement, overhead power line easement, sewer line easement, water line easement. Yep, pretty much those are majority of them. And that's a series of properties that are affected. So across the back of all these properties, I'll use A, B, C and D here is this 100-foot wide high tension power line easement, granted years ago by the Department of Public Utilities here in Massachusetts to let's say the National Grid so that they could string high tension power lines up so that they could now bring electrical power down to this part of the city. And they need an easement to maintain the power lines. So they can you know, usually do repairs and what have you. Occasionally, they may have to get in and then do some type of order or make repairs like I said, so they need the ability to come on these properties these owners properties in order to make those repairs and maintenance. So they have an easement across the back of all these properties. Now, this is an example of easement known as an easement in gross. Typically, for public utility purposes, a series of properties are generally negatively impacted by the existence of this easement. Why is that? Because typically, let's say there's a power line. Well, you can't use that area. So when we have a series of properties that are now going to be negatively impacted by this public utility purpose we get this easement in gross like I said. Now, are there any property owners here ABC or D that are benefiting from this high tension power line? It'd be nice but did not typically. So when we have an easement in gross all property owners are affected and they are negatively impacted and are all servient interest. There is no dominant property owner interest here. All property owners are negatively impacted, and they have servient interests in easement.

Now other examples of easements could be with the existence of what we call a party wall. Sometimes also known as a beam easement. Now here in Boston, good examples of party wall, particularly down in the Back Bay as I mentioned earlier, here we've got these four properties A, B, C, D here with interconnected buildings, sharing a common wall for structural support. So here we've got this wall that sits right on the property line. So property owner A, as I mentioned earlier, owns to the center of that wall it's on his property so he owns only to the center, but property owner B he owns to his center of the wall. So A owns his half B owns his half and each has an easement in the other half under the concept of lateral support, again lateral support. So, you can't do anything to your half without my consent and I can't do anything to my half without your consent because we both need the wall for common structural support. So when we have this common wall an easement known as party wall or as a beam easement it's created automatically. So there's no written document creating it. It just happens because we both need the property the wall for commons support.

If we're going to create an easement how typically are they created? If I'm going to create this right in real estate for you, how typically would I create it? You'd want it probably created how? I want to make sure that it's going to be enforceable against the owner. Then, if you want the ability or need the ability to pass and repass over this land of the other if you're B and you want to make sure that you forever have the right to pass and repass over the land of A. How do you want to make sure that you have that right? in writing, right? Otherwise, if it's verbally done, I mean, who's to say that it was ever done. So the only way we can create this interest in real estate is doing it in writing, signed by the grantor creating this right in real estate for B and typically might be created in a deed. Deed in writing creating specific language giving B here the right to pass and repass over the land of A. So a deed typically creates the easements or language in the deed creates these. Doing so it's in writing now, it's enforceable against the owner if it wasn't in writing meaning a handshake agreement created the easement. Sure, I'll let you pass and repass over my land. Well, as long as nobody objects you keep doing what you're doing no problem. Unless of course, I don't want you to do it any longer then it's not enforceable unless in writing. So unless you are passing and repassing over my land for how long 20 years, right or longer here in Massachusetts, then you might be able to go to court and establish a right on my real estate an easement by what we call a prescription by prescription, meaning using the land of the other for the prescribed amount of time, under the law a period of time. Sounds a lot like what adverse possession time is the same 20 years of continuous use, right. But the result is quite different. With an adverse possession case, 20 years of continuous use openly and hostile creates for the user what? To own the property you've been using, right. So a court would determine that you own the property that you've been using through adverse possession. Here, even though passing the repressing over the land, 20 years of continuous use, open to me, a court would grant you what we've been doing an easement across the property, but not ownership. So I'll say that again, even though passing and repassing over the land 20 years of continuous use and open to me a court would grant you what? You've been doing an easement across the property, an easement but not ownership. 

So what's necessary with adverse possession? That's not here. What do we have to do to create ownership? Remember in the past what I said? Fencing, build a building shed, pave it over, do something to the land to show the owner that you intend to take over, hastily, take this ownership away, and he still never stopped, right? He never stopped you. He just let it happen. One of all circumstances you might now own the property. So here, I've allowed you to continue to pass a repass over the land, but you didn't fence it in. You didn't put a building on it, didn't pave it. You just been passing and repassing over the land. So even though I didn't create it in writing, you could be then granted by a court, an easement by prescription, meaning they will create now the right to pass and repass over the land although never granted to you in writing.

Okay, here's an example. So down in Salisbury beach by the ocean, this utility company owns property, and by the main drag down there, this property that they own, they want to be good neighbors. For the residents down at the beach. They want to provide them access to the ocean front. So they created a walkway on their property that they can walk down over the dunes and get down to the beach. But they don't want ever to create an easement for these residents. So one day out of the year, what do they do? They lock their gate and take a picture of it. What does this do? They're breaking the chain of continuous use. And then what has to start all over again? The 20 years, they can provide that they broke the chain of continuous use through that proof, the whole 20 years has to start again. So they do this once a year. So as never to have the ability of the users ever to claim an easement. Also, other types of easements may be created if they're landlocked parcels involved. So in this case, where we've been talking about A and B, B needing an easement over the land of A, because you can't get there without it. Well, that's an easement also of necessity. It's an easement appurtenant but it's also an easement that's needed, can't landlocked parcels. And the eminent domain taken highway comes through, blocks you out from using your land, because the highways down there, while the government's going to have to provide you other means of access to your property over somebody else's land perhaps, as a means to get there. an easement of necessity has to be created in that particular instance. So how can easements be created? Most likely by deed or a clause on a deed to create that, right? Could be created by continued use? Or perhaps we've got landlocked parcels and an easement is needed in order to get there.

Chapter number five deals with different ways that real estate can be owned. So when we're talking about ownership in real estate, we're talking about those rights in real estate again? How could they be owned? So basically, there are two ways that real estate can be owned, either by myself or simultaneously with others.

So maybe I'm the sole owner of this property. And because I am the sole owner, I have all of the rights associated with the ownership of this property. Or maybe I own this property simultaneously with others. So we share as owners in the rights associated with this property. So, forms of ownership basically break into two either myself or simultaneously with others.

If I own this property and the rights to it by myself, I'm the sole owner. Then the form of ownership I have is known as severalty, again severalty. It actually means severed or to be separate, so it's an individual form of ownership.

So when I own a property by myself, nobody else owns it or has any rights to it other than me. Then I own this property in severalty. 

However, if I choose to own this property simultaneously with others, then we now share in rights associated with the ownership of it. And we own this property concurrently or in a concurrent form of ownership. So severalty by myself concurrently with others concurrent ownership however can take multiple forms. So, there are different ways that we can own property with others. And that which we choose must be done. When we become the owner, which form of concurrent ownership we want is chosen when we become the owner.

The three basic forms of concurrent ownership are these three. And based upon which we choose there are different rights associated with it one of the concurrent forms of ownership is known as joint tenants. Now, again, don't let the word tenants confuse you. They're not paying rent here. It's an oddity again in the language. It's a joint ownership. We also might have tenants in common depending on what we choose when we have a, excuse me, when we become owners. And say if we're married, we could be joint tenants or tenants in common, or we could be tenants by the entirety. But in order to be tenants by the entirety, we must be married. If we are not married, we can be joint tenants or tenants in common, but we must be married to be tenants by the entirety. 

Now, these illegal questions as to which form small might like, right if ever asked, which is better for me? Safer from a client? Then the correct answer as the real estate agent is what? Correct, go see an attorney. Okay, we're not legal experts. We may have a real estate license that allows people to allow us to put people into real estate agreements, but we are not licensed to give legal advice unless you're a law student, you know, you've gone to law school and you have a legal degree, then by all means, go for it. But the majority of us you're not supposed to be giving legal advice. So our answer to that question If ever asked is, go see an attorney. It will explain it to you. 

Let's talk a little bit about the different forms of concurrent ownership. Because on the exam, they do have a few questions about it. Even though we're not going to be giving legal advice to anybody but we are expected to know a little bit about it. Okay, so let's talk about joint tenants first. So here we have three buyers, Abel, Ben, and Charlie. They are thinking about buying this property together. So at the real estate closing, as the deed of ownership is shoved across the table to them. Their attorney grabs it and says Abel, Ben, Charlie, which form of concurrent ownership do you want? They say we want to be joint tenants. So by selecting this form of concurrent ownership, joint tenancy, right? The key feature about it is the right of survivorship. ROS for short, right of survivorship. Meaning Abel, Ben and Charlie owning this property as joint tenants. Let's say Abel dies. Abel's interest in the property goes where? To the surviving owners. Okay, then Ben and Charlie even though Abel had a will which stipulated upon his death, all rights I own in real estate shall go to my sons, Harry and Edward. Do Harry and Edward get interest in this property? No, automatically. Because of the form of ownership they selected. Abel, Ben and Charlie they selected joint tenants. This interest flows to the surviving owners, Ben and Charlie. Okay, let's say Ben dies. Ben's interest in the property goes where? To Charlie. Who now owns the property how? In severalty by himself, it might be a fee simple interest. It could be fee simple defeasible as well. But he owns the property by himself in severalty. And he has what right in this property that neither Abel or Ben have? Or had. What right does Charlie have that Abel and Ben didn't have? I should say, he's the sole owner now. Because Ben and Abel die. So, what right does he have that they didn't have? The right to will it. If he's the sole survivor he now has the right to will it to his kids. He's the sole survivor. I'm repeating that. So now he has the ability to will it. None of them at the time of them both living had the right to will it. If he did, or I should say if he wanted to, do Ben and Abel have the right? No! So whoever was the sole survivor, let's say Charlie died, Ben died and Abel was still alive, or whoever was the surviving right. It's now in severalty. And they now have the ability to will it. So it's already been pre-determined who should own this property upon the death in a joint tenancy, meaning it goes to the surviving owners. Will has no bearing upon it. A will has no bearing upon it. Now, in order to have a joint tenancy key conditions have to exist in order to have a joint tenancy. These are the four unities or conditions that must exist in order to have a joint tenancy. Number one, all joint tenants have to become joint tenants simultaneously by one document, creating the joint tenancy for all so maybe one deed maybe it will was willed to them by their father, one document creating the joint tenancy for all joint tenants simultaneously. We do not add a joint tenant on in later on. The joint tenancy is created for all again, simultaneously. And in doing so all joint tenants have equal shares in the property equal rights, not based on contribution. So in this case, Abel buying this property put up 5000, Ben put up 5000. But of course, Charlie showing off, felt the need to put up 10,000. If they selected joint tenancy as their form of ownership, how much of an interest in this property does Abel own? Does he own more or less? Or perhaps equal? They're equal. So Abel would own 1/3 of the property. And Ben, and even Charlie, even though he put up twice as much, still a 1/3 interest in the property. Joint tenants, equal shares, equal rights. Now, we are not talking about a triple decker in which Abel owns the first floor. Ben owns the second Charlie owns the third. That would be what? A condominium. Okay? Here what we're talking about is a 1/3 interest in the whole property. It's not sectioned off. Alright, Ben, Abel and Charlie own this property as joint tenants, as I've said before. Abel now doesn't want to be an owner with Ben and Charlie any longer. He would like to sell his interest in this property to let's say some random guy called David. He can divide or should I say can he divide the joint tenancy in sell his interest to this property to David? Can you do it? Yes, yes, he can. He could now sell this 1/3 interest that he owns to David. Does he need the consent of Ben and Charlie to do it? No. So therefore any of the joint tenants can buy their own divide the joint tenancy and sell their interest to another. Could have sold it to one or the other. But let's say David was interested. Now however, David now entering into this ownership of the property with Ben and Charlie enters into the ownership after their joint tenancy was created, again after. So what do we say about joint tenancy interests? They have to be created simultaneously for all. So even though we divide or have the ability to divide the interest, David enters into the ownership of this property with Ben and Charlie not as a joint tenant. But as a tenant in common with them. So what does that mean? Ben and Charlie remain as joint tenants with each other. They're still in that whole same section. They were joint tenants originally, they remain as joint tenants. So let's say for example, Ben now dies. Okay, we got David and Charlie left. Ben's interest in the property goes where? To Charlie? Because they were still the two left in the original ownership, that original joint tenancy interest. So now you've got David and Charlie. And because Ben and Charlie, they had what? Right of survivorship. So now, Charlie owns how much of an interest in this property? Two-thirds with David owning a 1/3 interest in the property and as a tenant in common.

So, let's suppose rather than having a joint tenancy, let's suppose Abel, Ben and Charlie this time want to buy another property. And when the deed is shoved across the table to them again, this time they say we want to be tenants in common. So how does this differ from joint tenancy? This form of ownership? Well, first of all, the key feature about it, no ROS no right of survivorship. Meaning each one of these owners can separately will or sell their interest in this property without the consent of the other. So let's say Abel dies. Abel, his will can determine where Abel's interest goes with a tenancy in common. One can determine by will where their share go. I can sell my share based upon how much it's worth even. And in this case fractional interest are possible based upon money put up contributions we call them. So in this case, Abel put up 5000, Ben put up 5000, Charles, or Charlie put up again, 10,000. If we have a tenancy in common, how much of an interest in this property does Abel own? 25%. Ben, how much does he own? 25% and Charlie? That's right, 50% interest in the property. So fractional interest is impossible based on contribution. The deed would state the percentage of interest if other than equal. So when we buy a property as a tenant in common and our shares are not equal it will state what percentage each of us owns. Otherwise, if it just says that Abel, Ben and Charlie has tenancy in common, well then it's assumed 1/3 1/3 1/3. Also, owning property this way allows an owner to force the sale of this property if the others don't want to buy them out. So if I want to sell my interest, I may want to sell it to again, David. But David doesn't want to buy just my interest. Who wants to buy the whole property? The other partners with me, don't want to buy me out. Now that's visioning that I'm Abel, okay. Am I forever stuck with them, or is Abel forever stuck with them? And the ownership of this property because Abel can't sell to David? And they don't want to buy Abel out? No, Abel can sue them in court known as a petition to partition the ownership of a property. Asking the court to determine how much of us each owns and then force the sale of the property at a public auction. So if you don't want to buy me out an option I have is to sue you in court or Abel. Ultimately forcing the sale of a property you may not want us out because you don't want to buy me out. That's a petition partition. It's possible with tenancy in common, not joint tenancy. I can sell my share, but I can't force you to sell yours.

Now let's talk about the last one. The other concurrent interest in property, known as tenants by the entirety. Now tenants by the entirety is a form of ownership that is reserved only to married couples. We used to say, husband and wife we can no longer say that in certain states as long as the marriage is recognized by the state then they can have this form of ownership. But they have to be married. If you're not married, you cannot have this form of ownership. You could be joint tenants or tenants in common but you must be married to have tenants by the entirety. Now, for purposes of illustration I'm going to use husband and wife. But we realize that in certain states including Massachusetts we don't have to be husband or wife to be married. Now with this form of ownership, husband and wife buying property together, owning property this way, as tenants by the entirety, along with it comes the right of survivorship as with joint tenants, so husband and wife own property. Husband dies, husband's interest in the property automatically flows to wife. Wife dies first, wife's interest in the property automatically flows to husband. So there is this right of survivorship feature. Included with tenants by the entirety here in Massachusetts is a little bit of a credit protection for the principal residence of the husband and wife. A married couple that joint tenancy does not offer. So if this is a principal residence of the husband and wife rather than being joint tenants if we're tenants by the tenants by the entirety we can protect our principal residents better by owning, by owning the property this way then with joint tenants. So married couples, my favorite, this one over joint tenants for that reason. However, we've got to be married and continued to be married to have this form of ownership. If we are no longer husband and wife, we get divorced, then automatically, the way we own property together is as a tenant in common. So we don't have to have a new deed. We don't have to create a new ownership interest automatically by law. One owns their share of this property according to their divorce decree. I can sell or will my share, don't need her consent. She can sell or will her share. They don't need my consent. But while we're married, even though we are individuals, illegally we own this property as one we are one entity. So we own the property together on divided I cannot sell my share without her consent she cannot sell or will her share without my consent. We own this property together as one. Now, just as a side note in case you are curious of these that we've discussed one is not better than the other. It just depends on how the owners wish to have various property rights among them. Let's say for business purposes. I don't think most business owners in owning real estate would select joint tenancy. I probably as a business owner would want to have it be able to be willed to my family member, rather than go to the surviving business owner. Right. But that's something they'd have to work out when they become an owner. That's why it's a good idea to speak to an attorney about that and explain the ramifications of owning the property in the various aspects.

Okay, some practice for you. Mark died leaving his real estate to his two sons, John and Paul as joint tenants. John and Paul both married and had children. So after John and Paul died, John's children became the sole owners of the property. Why? So on the exam when you get a question like this always good to graph it out. So Mark died, leaving his property to his two sons, John and Paul. And how did he leave it to them? As joint tenants. Now John and Paul married and both had children. However, after John and Paul both died, John's children became sole owners of the property. Why? What had to happen? For John's children to wind up the sole owners of the property. So how do they own it? Joint tenants, right? So, what had to have happened for John to be able, able to will it to his two sons? Paul had to have died before John. Correct. Because once Paul died Paul's interest in the property goes where? To John, right of survivorship feature here, right in the joint tenants. And now John has what right in real estate that Paul didn't have? What right does John have that Paul didn't have? Repeating myself just so you can make sure you got this? He had the right to will it as the sole owner, I have all rights in real estate. So severalty owner has that right with Paul not, so in this case? Answer is Paul died before John. Okay. I hope that helps. So severalty, owner has that right with Paul, not so in this case, answer is Paul died before John.

There are various other ways that real estate can be owned, particularly for business purposes. Sometimes, businesses choose to have a type of business organization known as a corporation. Sometimes, a preferred business organization rather than other forms of business organizations is the corporate form of ownership. Now, why do businesses possibly like to incorporate? What's the advantage to incorporate? Less liability? Less liability to who? Who owns a corporation? It's stockholders. So my incorporating the business now can sell stock to investors. So if you're an investor/stockholder, you have ownership of the corporation based upon how much stock you have in it. So the stock owners are the owners of the business organization. They elect the board of directors to run the day to day operation of the business. If we don't like what they're doing at an annual meeting, we bought them out. So the board of directors runs the organization, excuse me, the corporation on behalf of the stockholders, and we share in the profits. So if there's profit leftover, it gets divided amongst the stockholders. Now, businesses that are incorporated can own real estate. But the real estate is owned by who? Do you, as a stockholder the owner of this corporation now own the real estate of the corporation? No, the corporate entity does. This fictitious business organization, a corporation owns the real estate. If the corporation goes out of business, owing people money, the creditors can go after the business assets of the corporation, but not your personal assets as an owner. So your personal residence isn't at risk in being a stockholder, say at Amazon Corporation. Should they ever go out of business, they're not going to come after you to pay the debts of the corporation. So incorporating sets up the wall of separation between the business creditor and the owner of the corporation, the stockholder, there's an advantage there. The disadvantage, though slight is that most corporations divide their profits after the federal and state government get their share of the profits, and then you, as the stockholder, have to pay a tax on what you get. So the actual money that you actually benefit from, from this corporation is doubly taxed. Other forms of business organizations that can also own real estate is what's known as a partnership. So how do partnerships differ from corporations? Who owns the partnership? Themselves, so they contribute money and become partners to people perhaps, and based upon how much, let's say I'm the partner, or one of them, how much I contribute? I might have more of a share in the partnership then let's say you're my partner, I'll have more of a share than you. And we divide the profits according to our partnership agreement. And we are taxed separately, personally on the profits. If the partnership goes out of business owing people money, who now is at risk. The partners, personally, you and I. So there's not that wall of separation like the corporation. But partnerships can own real estate. So the business organization can own real estate, but again, I'm personally liable if I'm a partner.

Trusts can also own real estate. So another form of ownership is a trust. Many people like trust for some type of business or a state tax planning purpose. We could be here for the next three weeks talking about trusts, you don't need to know that much about them. But it is another way that real estate can be owned, which is in a trust. Now, with a trust there is the triangle will refer to it, three parts of the trust. The one who creates the trust is known as the trustor, that's or at the end. So if I now want to create a trust, let's suppose I want to now deed property I own into this trust. So no longer am I going to own them that property. This trust is going to own them. So I as trustor create this trust, we'll call it real estate and trust. And deed properties I own maybe with my wife as tenants, by the entirety into the trust. So now, who owns the trust? This fictitious entity known as real estate trusts owns these properties. But that's a fictitious entity. People have to be responsible for the documentation of the trust to manage the trust. So the trustor in creating this trust names individuals who are going to be responsible to manage the trust, known as the trustees of the trust. So trustor creates the trust then determines the trustees, and also names who is going to benefit from the trust income. So trustor creates trust determines trustees and also names who is going to benefit from the trust income, known as the beneficiaries of the trust. So maybe I want to set up this trust for the benefit of my daughter's college fund. So we'll call it real estate trust for the moment college funds. So I deed these properties that I own that are rental properties into the trust, the trust name, myself and my wife as trustees, and my daughter is the beneficiary of the trust for her college purposes. So, again, trustor, trustee manages trust, beneficiary benefits from the trust income. But who owns property in a trust? The trust! The real estate trust, this fictitious entity, the trustee doesn't own the trust, they no longer have any association in that way nor did the trustor. Other forms of business organization that might be involved in real estate is a syndicate. So what we have is a pool of investment capital similar to a mutual fund in which real estate properties are purchased with this pool of money. So it's a syndication, in which now you get based upon how much you've invested or return on your investment depending on how well these properties are doing. So you invest your money and others invest it for you in the syndication. Now, the most common form of syndication is known as a REIT, a  Real Estate Investment Trust. So with a REIT, R, E, I, T, you get certificates of participation based upon how much you've invested, you have so much of an interest in the RIET itself. And again, it's like a pool of capital. Now, one of the little questions that comes up every once in a while on the exam relative to our REIT here is that the federal government requires that a minimum of 100 investors invest before the REIT can be created, that's 100. So they're spreading out the risk over at least 100 investors. So we want to remember the minimum number of investors to create and have a REIT.

Around here particularly in Boston, there are a lot of condominiums. So when we have a condo, condominium form of ownership. This form of ownership can be traced back all the way to believe it or not Aztec Indians. So it's been around for a long period of time. And around here, there are various types of condominiums for various purposes. Residential, could be office space in a condominium form of ownership, could be retail, could be a dock-aminium, boats, all in a condominium form of ownership. But regardless of how the condominium is used, residential, retail wise or so on, each condominium has two key points about it that is common in each condominium. That each condominium has within it separate units of ownership. In that, I own my unit in this condominium separate and apart from your unit in the condominium. So each unit owner in this condominium owns their unit separate and apart from each other in the condominium. Yet at the same time, all of us who are unit owners in this condominium share in the ownership of what we call the common land of the condominium. So what we own as a unit owner in a condominium is the unit. Separate and apart from other units and a share of the common land of the condominium all of us own as unit owners. Now here in Massachusetts to create a condominium, every condominium regardless of how used residentially, retailed doesn't matter, every condominium has recorded or has to be recorded at the registry of deeds. A document establishing this form of ownership, condominium. It is known as the master deed of the condo or the condominium. I'm gonna just gonna say condo. So one record at the registry of deeds is this document. Identifies within the document, what is, the what are the units in this particular condo. How many are there and where they're located. What are the boundary lines of the unit as well as defining what other is owned. Meaning what is the common land of the condos or the condominium. So the master deed declares the property as a condominium and then identifies what is unit and what is the common area or the common land of the condominium. So if we have a three-decker it's going to go condo. Three units first floor, second floor, third floor, right? And then common areas. On record at the registry of deeds would be plans. Typically some form of architectural drawing identifying what are the units the individual units that are here. Obviously, first floor unit, second floor unit, third floor units, if it's as it's. If those are the units, what is the common land? Okay, the land of the condominium itself, the land it's on, right? See like the parking area outside and the land underneath it of the building, right? That's commonly land. And what else? The hallways of the building, the basement, they are used by everybody. So therefore they are common land. So the unit might be within the interior surfaces of the walls, ceilings, floors. So everything else other than that, that is unit is common land or common areas most referred to the basement hallways, the exterior of the building, of the roof, right common areas or common land, all share in the ownership. In addition to the master deed, there also is on record what is called the bylaws or trust documents of the condominium. Indicating within them the responsibilities of the homeowner's association. Now, who makes up membership in the homeowner's association of the condominium? The unit owners themselves. So by owning a unit here in the condominium in this condo association, I get membership in the homeowner's association and have a say in the running of the condominium. Probably requires us to have an annual meeting where we discuss things of importance. And the chief responsibility of the homeowners association is to do what? Take care of it and maintain it for the benefit of everybody. So our function as unit owners is to prepare a budget that's going to maintain and keep up the condominium that each of us as unit owners are going to have to pay our share of the budget expenses, typically assessed annually but paid monthly to the homeowners association to pay bills. So in preparing that budget, what items typically are in a condominium budget? Snow removal. What else? Maintenance. The general upkeep of the building common interiors for the general repairs and maintenance of the condominium. What else? Water and sewer bills, if they're not separately metered. If there's only one heating system let's say sometimes older buildings only have one heating system, we have to factor that in. What else? landscaping. And what's the most important one? Insurance! Insurance on the building, right? We have to maintain what we call master insurance on the condominium. That would include circumstances that would be not to our liking, something calamitous. If we have a fire or personal liability, somebody slips and falls on the property. We have to have insurance to protect ourselves and the people we are sharing this condominium with, to rebuild if necessary. So the master insurance covers the condominium as well, the interiors of the units. But not the interior fixtures, remember that. So the cabinets, sinks, the countertops, generally not included. And sometimes, perhaps depending on the record of the association, the plumbing. Now, most condominium unit owners would have separate insurance to protect that. Each of us has a responsibility to pay our share, of course. Another expense that might go in there is to allow for things that might happen in the future, kind of touched on that prior. But we know the roof was just replaced, let's say, okay, but we're going to have to replace it in 20 years from now perhaps based on the type of roofing you installed. So we start putting what we call reserves for replacements into the budget and we have money to fix things along the way. There also might be as part of the documentation here rules and regulations of the condominium that are established by vote, perhaps of the residents as to how we're going to live with each other. Maybe noise perhaps no laundry, hanging over the balconies. Perhaps go let's say no grills on the decks, perhaps no pets. So therefore rules and regulations we have to abide by. And as part of the buying process we typically as real estate agents give to the potential buyer of the unit here. The condominium documents as we call it for review. So that they understand by owning this unit they're going to be subject to the master deed the by laws and rules and regulations, right? So they have a chance to review those prior to actually formally buying the property and getting an acceptance.

As a unit owner you become a unit owner when you purchase a unit and we use a unit deed in order to do that. So with a condominium the type of deed used to transfer the ownership interest of the unit is a unit deed. Identifying what unit is this condominium we're actually buying. Now, when you own a unit in this condominium, can you sell it when you want? Yes. Could you finance the purchase of it? Yeah. Could you lease it? Could you will it? So what type of interest in real estate do you own? When you own the condominium unit that is in fee simple, you are, it's the highest interest in real estate, all have those rights. So because all of these rights in real estate are separate to each unit owner, each unit, this unit owner owns a fee simple interest in this unit. This unit owner owns a fee simple interest again in their unit. Because of that each unit is separately taxed by the local assessor. Each unit is separately owned in fee simple, therefore being taxed separately. So with say, let's say 100 units in the condominium association or in the condominium, how many real estate tax bills come up? 100 not one on one for the common land. The value of the common land is included within the assessment of each unit owner. Okay, so 100 units, 100 real estate tax bills. So the real estate taxes with a condominium are the responsibility to be paid by each unit owner separately. Now, if my next door neighbor doesn't pay his real estate taxes, and ultimately the local government forecloses on him, does it affect my ownership interest in my unit? I own mine separate from him. If he has his unit foreclosed on because he didn't pay his principal and interest on time, his mortgage, the bank forecloses and then sells at a public auction? Does that affect my ownership interest in mine? No, because he owns his separate from me, fee simple. Now, other things about it condominiums, other things with condominiums. Say we may have good condominium management who put money aside and for the eventual things we expect to wear out such as the roof, decks have to be replaced every once in a while. We got a repaint the siding every once in a while, right. So we put money aside to do that. But we never expected our septic system to fail, provided you have one. It was supposed to last forever but it failed. And now we have to replace it. And we don't have the money to do it. So if now we have to raise money in order to pay for some unexpected expense, well then the condominium has the ability to specially assess all condominium unit owners their share of this unexpected expense that is known as a special assessment. So depending on how much is owed, might be that bill, owed, to pay it over, say in installments, and if they can't pay it up front, maybe it's one time charge sometimes it depends on how much is owed. But as a unit owner, if we vote on it at the meeting, then if it's me I have the special responsibility to pay my share. Even though I may not have wanted to pay it. As a unit owner, I have the responsibility to pay.

Now, when we sell a condominium unit here in Massachusetts, one of the documents that the seller is required to bring into the real estate closing as a sale, or the potential sale is known as a 6D certificate. Now that's D as in dog, which refers to a section in our condominium Law Section 6D. It requires the seller to get this statement, a 6D certificate from the homeowners association indicating the status of payment. With the condos fees are the up to date. So that at the real estate closing, if money is owed to the condominium association, then out of the seller's proceeds for sale will be deducted what's owed to the condominium. So, the buyer starts fresh with the homeowners association at the real estate closing. Required documents at the real estate closing remember this, a 6D certificate, the seller obtains it from the homeowners association. No one else.

Since we're talking about a condo, it might be worthwhile to understand a little bit about here in Massachusetts the requirements when converting a building into a condominium. So there are some regulations here in Massachusetts designed to protect tenants involved with the condominium conversion. So this particular law here in Massachusetts applies to buildings containing four or more rental units. So if the building is less than four units this does not apply. It only applies to buildings containing four or more rental units that are being converted into a condominium. And it is applicable to any one of these units in which a tenant has resided in this as their principal residence for a year or longer prior to the conversion of the condominium by recording of the master deed. So once we record the master deed at the registry of deeds, and declare this as a condominium, look back a year. So it was good to check. Is there anybody who's residing in one of those, or I should say these units? A tenant in there longer than a year? One year at least, if so? Well, what we're going to be talking about now is applicable to them, less than a year it's not, year or longer. So if now I want to sell this condominium unit, right? But I have a tenant who's been residing there a year or longer, I have to give them a written notice of their rights associated with the condominium conversion. A written notice not just going to be telling them about you know, just tell about it, you know, it's got to be written down, okay, you can't just say hey, by the way, none of that. Number one, that they have to vacate, written down. Even though this is now a condominium. You don't have to get out right now. You're telling them this, or I should say you're writing this down and letting them know this. So the minimum time to vacate would be a year or until their lease ends, whichever is longer. So if the lease is for two years, then they'd have two years, two years as a minimum, if this person happens to be elderly, 62 years of age or older, handicapped or have low or moderate income. Now, here's something else. On top of that, plus two additional years of beyond what would be required if they can't find suitable housing. So if they're elderly handicapped or low to moderate income, it could be as much as four years. They also must be notified of their right to purchase the unit within 90 days, from the time they would have to vacate. So figure out when they would have to vacate at 90 days to that. That would be the timeframe to purchase at a price similar or better than what is being offered to the general public. So we're not going to be making it so high that they couldn't purchase the property if they choose to. But if they choose not to buy, they're going to move out, then they must be given a moving expense. Yep. They must be given a moving expense, a minimum of $750 within 10 days of vacating and also possibly $1,000 if they happen to be elderly handicapped or low to moderate income. And as the converter of this condominium, I must give them assistance such as additional properties they may be interested in if they choose to move. Sometimes tenants are even given additional financial assistance beyond what is offered here in order to move quicker. FYI, they don't have to accept it. And they, if they choose to accept it, that's up to them and move out early, but it's not easily done. Let's understand that the tenants have rights.

Let's talk about a co-op. Co-ops or cooperatives, as we might call them are not as common around here. In some other areas of the country, they are more common than condominiums. Go down to, let's say New York City you probably find more cooperatives than condos. But around here, not so much. Now, with a cooperative, the key part of the cooperative is who owns what? So here, we have this land. Here, we have this building on the land, I should say, and units within the cooperative. All of this, the land, the buildings, and everything within the units of the building are owned by one entity, a cooperation. So let's call it XYZ Incorporated, owns the cooperative, you want to reside in the cooperative in a particular unit of the co-op, you purchase stock in XYZ cooperative. The owner of this cooperative is XYZ Incorporated. And in doing so you get the right to reside in the unit that that stock certificate refers to. So long as you own the stock associated with that unit, you have the right to reside there. You get from the cooperative the corporation a proprietary lease, it's a lease without and that entitles you to live in this unit of the cooperative provided you are living up to the lease agreement with the co-op. And that you're going to be paying your expenses associated with the running of the cooperative. So each one of these residents in the cooperative is a stockholder in the corporation that owns the cooperative.

So it's stock ownership that establishes ownership, not a deed. It's not real estate that I'm purchasing. I'm purchasing stock, personal property. With a condo I own real estate, right? I own a unit. Here, I don't own the unit and they maintain it for me. So if I have a leaky sink I call up the management company and they send somebody to fix it. This is included in the cooperatives fees. So we also like a condo have a budget.

As stockholders, we elect a board of directors and they present a budget to us for our approval. And each one of us has a responsibility to pay our share of the budget. So what's included in the cooperative budget? Repairs? Maintenance perhaps? Such as let's say also snow removal, landscaping, heating costs, of course, water and sewer, and gotta love insurance! But yes, insurance on the cooperative building, the until, the interiors of the units because they own it. And what else? How about real estate taxes? How many owners do we have? One owner of a corporation. So one real estate tax bill comes out here. In a condominium, we all pay separate bills. We own the units in fee simple. Here, that doesn't happen. One real estate tax bill becomes part of the budget. Maybe in creating this cooperative XYZ here had to get a loan to build the building. So they have a mortgage on the property. You as a unit owner and resident here included in the budget is your share of the principal and interest owed on the loan. One owner, one loan on the co-op and we have to pay our share. How do we determine the value of the stock? Could units be different? Yeah, absolutely. Could I improve my unit? Because I'm gonna live there. Could I put things in there that I'm willing to use while I live there? Could I have better faucets than you? Could I have a better carpeting than you? Yeah, of course. So, my unit might be in better condition than yours. Might be bigger than yours. We couldn't assume that all of the units are exactly the same, right? So, therefore the value of the stock when sold between buyer and seller is valued based upon the value of the unit. So we value the stock based upon the market and what the market will bear based upon how this unit compares to that. You, so, the value of the stock can differ based upon the relative difference between the units. So, you want to buy into the corporation, this co-op, you're going to buy my stock in that unit. Now, so the interest here is in the stock, as I said, and the value of the stock can go up and down, just like any stock. So, it could be based upon, obviously, how many of these are available for the sale. So, how valuable the unit, it, itself based upon size, condition features, etc., right?  We determined in our negotiations as to how valuable that stock is. Now, when owning the stock of this co-op many times cooperatives want to know who is going to be owning the stocks. Uniquely different from the usual stock market, let's say, because remember real estate taxes, principal and interest on the cooperatives loan is shared expense. So, if this one didn't pay, and that one didn't pay, and this one didn't pay their monthly obligation, well then there might not be enough money to pay the real estate tax bill. Then ultimately what might happen? XYZ is forced upon foreclosure. Right? So, if no one's paying, well, XYZ is going to be foreclosed in the cooperative fails. So from a financial standpoint the cooperative, the board of directors might want to know who you want to transfer this stock certificate to? They want to make sure that every stock owner is financially sound. You know, do they have the financial ability to make the monthly cooperative fees. So they could reject your stock, transfer request based upon the financial issue. They also could reject it based upon perhaps your occupation.

Now, let's say even in a different sense. You're a rock star, you know, Britney Spears or the Kardashian or something like that something on New York occupation, where we don't want you living here causes too much commotion. So, therefore we're not allowing or not we're not going to allow the stock transfer to them. That depends on the stock owner's preferences. Now, we cannot be based on fair housing issues such as one's race, skin color, religion, or natural origin. That type of decision is a violation of the federal and state laws, right? But for occupational purposes, income purposes, which are not financial housing, excuse me are not fair housing protected, right? Cooperative could deny the request to transfer. So there is little limitation there when selling as to getting their requirements met.

Let's talk about timeshares. Timeshares typically flourish with resort areas. People want to use these vacation properties. So when I purchase it to a timeshare community it's essentially a condominium, but owned as a timeshare. So with the timeshare as with a condominium we have the units and we have the common land of the condominium. But what I own here is not the unit but rather the right to use the unit for an interval of time that I purchased. So the developer here has the ability typically, to sell each unit 52 times that typical interval being one week. Okay, so therefore if I'm buying in here, I'm purchasing the ability to use the condominium, the timeshare community for that interval of time that I purchased, typically. But I don't own the unit, but I do own the right to use it for that interval of time that I purchased. And typically each year so it carries on might be for a set number of years depending on when I purchase or it might be forever depending upon the time the timeshares community itself. But regardless, I'm using that particular facility for the interval of time I purchased and the value of the interval is generally determined by market factors. So, how many of these are available in this area? The time of the year that I'm purchasing? Although some facilities might be in a resort area that are valuable year. But if you get down to the cape, let's see there's a timeshare in the cape. Obviously, July and August are the high value weeks, so it could be more valuable during that time. Also, the amenities and where it's located also may come into play as to how valuable the interval is. But as a condominium, I have the responsibility to pay my share of the budget. So therefore, associated with each timeshare interval ownership is the responsibility to pay an annual fee for the upkeep and maintenance of the timeshare community. So many of the condominium expenses we saw in that budget would also be included in the timeshare budget. But many of these timeshares are actually almost run like hotels. So there's front desk, staff concierge, sometimes there's also repairs and replacements to interior furnishings. Because we, when I go on vacation, if I was the timeshare holder, I want everything furnished almost down to the dishes, you know what I mean? So therefore there has to be real allowance for break rid, for breakage and replacement of those as well. And maintenance housekeeping staff, what have you. So all are included within the budget and depending upon the assessment against each unit. If this unit was particularly assists let's say for $3,000, then I would pay 150 seconds of that as my annual timeshare fee paid annually. Now that could change dramatically depending on the timeshare and where it's located and all its variables. But that's just one example. And then I get to use my interval for that particular year. Many timeshares belong to trading organizations. So if you don't want to go to this timeshare facility every year, then the developer says you don't have to worry about that. And let's say they'll say that they belong to a timeshare trading group. Perhaps RCI Resorts Condominium International, being one of the large ones, and international being another, in, in which I can bank my week with them. So just imagine going anywhere in the world. You're part of a timeshare resort condominium organization and you're not just held to one building but abroad. So if I don't want to go to my facility, I allowing to sell that particular week to somebody else. And out of their bank, I select somewhere else to go for somewhere else's bank. So there is a trading feature associated with timeshares that for a nominal fee, we can bank our weekend go elsewhere, and ability to swap the week is typically an attractive feature for many timeshares. 

Now, in dealing with timeshares, there are some things we want to be aware of here in Massachusetts relates to the practice of real estate in timeshares. Now a couple of things to remember about timeshares. First, of all timeshares here in Massachusetts are considered real estate properties. Okay? So if you're involved in the sale or rental of somebody's timeshare and you're going to receive a fee for doing it, well, then you have to have a real estate license to earn the fee. Correct? Yes. So another thing Massachusetts requires is that in a contract for sale of the timeshare whether it be from the developer directly, or perhaps a resale of the timeshare that it includes in the sales contract is the ability of the buyer to back out of the deal within three business days. Yes, this is very unique to the timeshares but they have the right to back out within three business days. And that's known as a right of rescission. That is applicable to timeshares sale contracts not necessarily all sales contracts, right? But it is applicable to timeshare sales contracts. So if the timeshare is located here in Massachusetts, somebody is buying a timeshare in that community, whether it be a resale basis or bought directly from the developer, then that timeshare contract requires a three day right of rescission. The ability of the buyer to get out of that sales contract within three business days of signing. That's a protected buyer who may have been pressured in a sales presentation to purchase into that timeshare community. You know, like, if you've ever gone to one of these things, they'll say, you know, come on down. Our sales presentation only lasts 45 minutes. And we'll give you a free TV for coming down. They'll offer sometimes they'll offer various incentives to go to the sales presentation. And you know I remember the last one I went to was the first and last in the, it was a 45 minute presentation which turned into a three hour presentation. I didn't know it at first I was very young and then I realized later on and the stories later on everybody tells me that's the technique. So I'll sign anything just to go home at that point. And maybe when I get home I find out this really isn't for me three business days, you know into it. I have to write a letter in writing to the seller indicating I don't want to purchase this timeshare any longer, and I must be let out of the contract. Get my deposit money back within at least three days.

Okay, chapter number 6 deals with the term a lien. So what's the purpose of a lien? Generally it involves money, somebody is owed money and they want to make sure they get repaid the money that you owed them. So how can they do that? Well, sometimes with a court approval, sometimes not. The state may allow a lien to be placed on the property. So somebody has gone down to the registry of deeds and recorded a document indicating they're owed money and they're using this property that this person owns that owes them the money as collateral security for the eventual repayment of the debt. So, on record at the registry of deeds is this document indicating that this property is being used as security or collateral for some reason, it's owed money. Now, if you don't pay that person the money that owed them, what could they do? They could with a court order seize the property and sell it at public auction. Take that ownership interest away in order to pay the debt. That's the ultimate penalty. By the lien while it's on record at the registry of deeds tells the world that this property is being used as collateral because somebody else is owed money.

So that's what a lien is. It also forms what we call an encumbrance on the ownership of the property. So, if we remember the term and encumbrance and encumbrance is an interest or claim in another's land, which burdens or diminishes the value of the property somehow because of it. A lien is an encumbrance on a real estate once it's recorded at the registry of deeds and still has some effect upon the property. Other examples of encumbrances would be an easement. Meaning, if somebody has the right to pass and repass over my property, well that's an encumbrance on my ownership because now I have to allow you onto my property. You're not a trespasser you have the legal right to pass and repass over my property but it diminishes the value of my property. Because I can't use the property solely for myself. 

Another example of an encumbrance is an encroachment, encroachment. So imagine my property and somebody built a fence or maybe a garage or something that's over the property line. It shouldn't be there. But it is. And while it is, it's burdening the value of my property. I mean, would you like to buy my property with the neighbor's garage over the property line? I don't think so. You want to have it moved. Obviously, after 20 years of this happening, what could happen? We've talked about this before adverse possession, when 20 years comes up start thinking that's what they lead into. Or they could try adverse possession at least here in Massachusetts. Deed restrictions, somebody has ownership of real estate that's restricted. Somebody else who owned this property wanted to take wanting to make sure in the future how the property should be used. So they put into the ownership of the property, a restriction on how the property could be used. So if I own this property, and I violate that restriction, ultimately, what could happen? Right, somebody could go to court and enforce the restriction, right? Meaning, if I'm a person that doesn't drink alcohol, and I sold you the property saying you can't sell alcoholic beverages on the property, but you own the property now that way, and start selling alcoholic beverages on the property. What could I do? Go to court, ask the court to enforce the restriction. If you don't, then the court would have the ability to invalidate your ownership of the property. So that's also an encumbrance on real estate. You buy the property it doesn't go away, right? And a lien is another form of an encumbrance on real estate. It burdens the ownership of the property. Because again, if you bought the property, does the lien go away? No, it stays on the ownership of the property until what happens? Until you pay it off or someone does and get a release of that lien that we call a discharge.

So a lien is a charge or claim against the property. Because somebody is owed money, security for the eventual repayment of a debt. He remains in effect until it is discharged. Discharged generally happens when, what happens? When you pay off the debt. So the creditor then issues to the debtor, the one who owes the money, a discharge a document indicating that they paid the debt it gets recorded at the registry of deeds indicating that even though there's a lien on record it no longer affects the ownership of this property. So liens, what we say run with the land not the debtor. So if I hold this property and there are liens associated with it because I owe money. If I sell the property I don't take the liens with me. They don't go to the next property I own they remain on this property until they are discharged, Okay? So they affect the property until the debt is paid. So it certainly could affect the ownership of the property. Now, if I don't pay the debt, I am the debtor, then the creditor might have the ability to go to court and get some type of relief from the court to sell that particular property. This certainly could affect the saleability of the property particularly if more is owed than the value of the property itself. Sometimes we call that an upside down situation where we have more owed on the property than the value of the property itself. In that case, short selling would come into play, but that's a different topic. Now, which could affect the saleability of the property. But one thing we want to remember is a lien does not prevent the sale of the property we could sell the property subject to the liens that are in effect but if you bought my property under those terms well then you'd have the responsibility to deal with my creditor and paying off those liens. So generally it doesn't happen but doesn't prevent the sale having a lien on the property. So here's an example. So if I sell my property, you bought it. Previously, I hired a contractor, let's say a roofer. They came out put a roof on my house. I didn't pay them. They place what we call a mechanic's lien. You bought my property. Does that lien go away? If you bought my property? No, you now have to deal with my contractor. Generally, that doesn't happen. But most sale contracts have within that the seller will be responsible to pay off all the liens associated with the property when we transfer the ownership unless we agree otherwise. So it doesn't prevent the sale having a lien on the property. But it makes it more difficult generally paid out at the sale proceeds.

There are various types of liens various situations that could cause a lien. The most common form of lien found on real estate is a mortgage. So, I bought this property I needed money from a bank in order to buy it. So when I went down to the bank apply for the loan the bank gave me the loan but wants to make sure I repay them. So at the real estate closing they had me sign a mortgage indicating that I am giving to this bank rights in my property. If I don't repay them, the rights to do what? What right does the bank have, if I don't pay? They can take the ownership of the property and sell it at auction. Try to get their money back that way. So when recorded at the registry of deeds a mortgage also creates a lien on real estate. So it not only has given rights on the property to the lender but when recorded at the registry of deeds creates a lien on the property until I repay. So the most common form of a lien on real estate is a mortgage. And it is a voluntary lien. If I want the bank's money I must allow the bank to have this interest in my property until I repay them. 

There are other types that are not voluntary. In fact, as a property owner I probably wouldn't want them on my ownership history, they are involuntary liens. Now, in most cases these types of liens do require a court approval first in order to have some effect against the property. You can imagine if anybody just went down to the registry of deeds and recorded a document indicating they are owed money, you know, everybody's property ownership could be affected, correct? Somebody could be sued for doing that affecting that ownership. So in most cases courts have to approve a lien in order to have some effect on the ownership of the property. But in some cases the state's laws allow a creditor even without court approval to place a lien on real estate because money is owed to them. They are what we call statutory liens by operation of law. And the most common form of these is a lien given to a tax collector in a community. Because you haven't paid the community the real estate taxes owed on the property, such as water, water sewer bills, etc. After a statutory timeframe for payment is up the tax collector in the community can just go down to the registry of deeds and record a tax lien against the property for non-payment of real estate taxes, water, sewer, etc. Again, the tax collector waits a statutory timeframe and then just records the lien at the registry. Also, anybody who's done work about the property and landscaper, in ground pool, installer, plumber, anybody who's done work about the property in order to improve it does have the ability without court approval to place a as we spoke before, mechanic's lien on the property owners history if not paid. So if I don't pay you, you are my contractor. You can go to the registry of deeds file a one page efit, one-page affidavit indicating that there was a contract doesn't have to be written actually saying the work has been completed according to the terms of the contract and you have not been paid yet. And that creates a mechanic's lien on the property. Now again, the owner is not going to hire a contractor improve the property, improve its value and then sell the property without having to deal with the contractor, typically. That's an issue that is going to be settled just in case that property should be sold in the meantime. Okay? 

Other types of liens are what we call equitable liens and generally do involve court approval first. Generally, because somebody is suing somebody for damages and they want to make sure they get paid. So, here we've got this isn't as an example, the Christmas caroller that I've asked to come and sing some Christmas carols under my window. One snowy Christmas Eve, coming up the walkway she slips and falls breaks hip decides now to sue me for pain and suffering, loss of wages, negligence on my property. And after a trial, she wins. In the meantime, she wants to make sure that she's going to be paid. This trial could take two years or more, it comes to trial. Right? Now I realize I could be negligent here, I probably, probably was, if I didn't salt and shovel, I didn't sand or salt the walkway, so she could win when her trial comes up. So in the meantime, I've decided to sell off, you know, all these real estate properties that I own, so that when she wins, I'll have nothing that I own that she could go after for payment of that judgment. But her attorney is sharp, as sharp as they can be. What's help on her half, not mine. But the day after she slips and falls on my property, what do they do? She goes down to the registry of deeds it looks under my name looking for any property that I own, any property. So that they could place what we call an attachment against them. It's a form of a lien, indicating that this person may be owed money. And they're using this property that I own, just in case she wins in court. So for the meantime, this attachment tells the world that this property is being used for collateral in case she wins in court, freezing my assets for a while until that court case comes to trial. Now, if she wins, then there will be a judgment issued by the court, which she could have then placed on record at the registry of deeds indicating that she's owed money. And then using these properties. And if I don't pay her then with court approval she could sell off those properties. Yep, she has the right or she could have the right to sell off those properties. If you're familiar with the Homestead Act, though, if you're ever concerned about something like that and you own a piece of property. The Homestead Act here in Massachusetts does protect one's personal primary residence. So their principal residence while you live here in Massachusetts it is your principal residence and can only be your principal residence. In the case of this Christmas caroler for example, if she placed an attachment against your property and one, well your principal residence would be protected while it is your principal residence. If not, she could get a judgment from the court and that would then allow her to sell the property. However, while it is your principal residence once it is no longer your principal residence then assuming you file the homestead declaration the first 500,000 property value is protected. So if the value is above the 500,000 then she can go after that difference.

Okay now, liens are kind of classified based on what they are being either a general lien or a special lien. General liens mean more than one property of a debtor can be affected. Special liens mean they can affect only one property or a particular property.

So in the case of the federal government, if you owe them money for income taxes let's say, what rights does the federal government the IRS have in collecting that money? If you owe them money you own multiple properties, let's say. They could place a lien on property you own anywhere in the United States. So, this type of lien owed to the federal government is a general lien. They can go and pick and choose what property they want to place the lien on. The Department of Revenue here in Massachusetts personal income taxes, they can go after any property for payment of that debt anywhere in Massachusetts. That's the jurisdiction. So, in Massachusetts, it is a general lien but within their jurisdiction. 

Other types of liens are what we call special liens meaning they affect only a particular property. So in the case of real estate taxes, I own two properties in say Cambridge. Let's say, 10 Mass Ave and 12 Mass Ave. Now I pay the real estate taxes. I own 10 but not 12. Well, the real estate tax collector in Cambridge can place a tax lien on what property? Only 12, even though I own multiple properties in the community, it only affects that property. Mechanic's liens only where the contractor has done the work doesn't mean you can put a lien on any property only where he's done the work. So it's a special lien in that case particular and particular to that property.

When dealing with creditors ones who could have liens on real estate that generally break down into three basic types. We have what we call private creditors, we have municipalities meaning cities or towns and then we have state and federal governments which also can place liens on real estate. 

When dealing with private creditors. What types of liens can you as a private creditor have on someone's real estate? Well, it could be a mortgage. Using this person's real estate as collateral for eventual repayment of a debt. That's a voluntary lien, right? Would we consider that to be a special or general? Special. In attachment voluntary lien or involuntary lien? Involuntary lien. Would we consider that to be special or general? Hhhhmmm...This might help you answer. So remember that Christmas caroler she slipped and fell on a property? Her attorney thinks the way they've been settling these types of cases? You know? They've been great! So she could probably be entitled to two million dollars in a judgment once a court case comes to trial. So do you think he's gonna stop when he just finds the property that I own where she fell? No, he's gonna go around and search for any property I own. Where? Anywhere in the United States, right? Because once she gets a court judgment here in Massachusetts other states will recognize that judgment as well and allow a lien to be placed on property in other states as well. So an attachment is a general lien. 

In deal with municipal liens. Municipalities, cities or towns they also have the ability to place liens on real estate. Non-payment to real estate taxes, water and sewer bills. Sometimes some municipalities have utility companies such as electric companies as well any money owed to a community to the town or I should say your town communities tax collector does have the ability under the state's laws to place a lien on real estate granted to them statutorily. They do not have to get court approval first. So it's in involuntary lien. Its statutory meaning allowed. They don't have to get court approval, okay. They just wait out the timeframe for payment. But it is special only to where the property is. So even though I may have multiple properties in that community the real estate taxes affect only that one property. It's special and could be for non-payment, real estate taxes, water and sewer bills, or this other one known as a betterment. 

So the term betterment, betterment is something that the community does that better property or betters that community. And it makes it more valuable. So the community has an expense and expenditure that they've made which ultimately benefits the property. And the community can charge you for what it costs them to do it. So most common example of a betterment is what? A sewer line perhaps. So the community says to these people these property owners along the street here, we want to extend the sewer line coming up the street here. And in doing so it's going to better your property and perhaps the community. You don't have to worry about septic systems anymore, right? We're gonna have a sewer system. But the community has as a whole says, Well, why should we pay a community for the cost of the sewer line? Why should we as a community pay the cost for a sewer line? When it's going to just benefit these property owners? Let them pay. So they figure out how much it's going to cost to extend the sewer line? Maybe it's going to be, I don't know, $100 per linear foot? Yeah, let's use that as a number. So based on the amount of frontage along the street that these lots have let's suppose that 100, a 100 feet of frontage, let's say, right? Well, at 100 per linear foot. The community then says to the property owners A here you owe us $10,000, for your share of our cost in improving the community. And you have 30 days to pay us. Now we recognize that you may not have the $10,000 sitting around. So we'll let you pay it off over time. So when you get a real estate tax bill quarterly a share of this we might allow 5, 10, or 15 year payments a share of this will be also on your tax bill with interest. However, to make sure we ultimately get paid what's owed us we're going to go down to the registry of deeds and record a betterment lien indicating to the world if anybody wishes to search it that you do owe us money. So when you sell the property in the meantime perhaps this lien on record now you're going to have to deal with the full payment. This is actually very common to do that. So as a real estate person that's a question we may ask. Any betterments you know of, liens on your property? All right now, in order to determine what's owed to the community had a real estate closing because as a buyer you want to start fresh with community, right? You don't want to be owed things to community that were unexpected. So Massachusetts allows the buyer attorney upon payment of a fee to be issued what is called a municipal lien certificate. MLC sometimes called Certificate of Liens indicating what's owed to the community up to that point in time that the certificate is issued. So it protects the buyer. Has the seller paid all their taxes back yet? Or the water bill or sewers? Have they been paid? Are there any betterments still owed on this property? Because at the real estate closing these will be accounted for. Sellers are going to have to pay or is an agreement between the seller and buyer on how the payment would be structured if the buyer so sees fit. So, the municipal lien certificate issued by the tax collector in this community to the buyer's attorney indicating what's owed and recorded at the registry of deeds to protect the buyer in the future that the community can't come back at the buyer later on saying, Oh, yeah, no, we forgot about the 2010 real estate taxes. By the way once the lien certificate is issued that's what's owed it's a protection. Now, if the community has put a lien on the property for money owed them then ultimately under the state's laws the community does have a statutory timeframe for payment to sell that property. This type of transaction is known as a tax title sale here in Massachusetts. Now, this is a legal process that allows the community the ability to sell a property because money is owed, that could be a water bill or what have you. So pay your water bills. Now, with that particular type of process there is a public auction of the property. However, the community cannot profit from the process. So the property is auctioned only for what is owed them. So the process stops once that's reached. The property in most cases most real estate properties are generally worth more than what's owed them in most cases. Now, a side note here, just in case, this might have happened to you or someone you know it has happened to. Sometimes, the seller may not know there was residual cash leftover from this process. And they are legally allowed to collect that. And sometimes it goes to certain collection offices and or recorded with the Massachusetts apartments you can find that information at mass.gov. if you're curious sometimes people are not aware that money is owed to them. And there are even companies that will find this and try to resell it or sell that information to the public that we're not aware that they could collect this and try to collect up to 50% of that it is totally not required to pay these people to find this information. It is public mass.gov. That happens also with bank accounts what have you. Just a side note. So whoever buys that property at this type of auction does buy the property with this right of redemption. Meaning if the old owner can come up with the money owed within the six months of the auction then they have the ability to get their ownership back. Yes, they can get it back even at the after the auction. So most buyers at this type of auction probably would not be making significant improvements to the property in that time. If the old owner is still occupying the property, let's say, he's allowed to live there for the first six months period of time provided of course he cannot make the payment afterwards and cannot redeem that. If you were the successful high bidder. Well, then you get your money back from the community with interest. But you would have to give up your ownership of the property. It's what we call a statutory right of redemption. It's allowed under the law the ability to get that ownership back with this type of auction. Not all auctions but this one.

Talk a little bit about how municipal taxes are determined as a real estate person. One of the major expenses an owner has is what? Real estate taxes, right? So if a buyer said to me as a real estate person, if I bought this property, what would my real estate taxes be? Do you think you might be able to calculate it for them? Do you think you might need to know how to do that for the exam? Yeah, question on how to compute real estate taxes on property, okay? Sure, we should know how to do it. It is a major expense of owning real estate. So it's something we should have an idea of how to do and it's not that hard, believe it or not. Now, real estate taxes unlike personal income taxes are not computed the same way. Personal income taxes, the more we earn the more we pay, right? Real estate taxes are not figured that way. They're based on what we call ad valorem in Latin means at value taxation, meaning you're going to pay a tax based upon the value of the property being taxed not on your ability to pay the tax. So if you're unemployed this year but you own real estate. Tax collectors still expect the real estate taxes to be paid, right? You own the real estate you got to pay the tax, okay. So we're dealing with the value of the real estate in determining how much tax is paid. Now, what value are we talking about when we are talking about ad valorem taxation, land and building is being taxed. And taxed on what value what you could sell the property for today? No. Assessed value is what we need to know in order to determine the taxes owed on this product. Assessed value, not market value, assessed value. So who determines the assessed value of the property? The city or the town assessor, right? A local official whose job it is to, you know, for tax purposes to determine the value of each property in this community or such each property the land and buildings. Now, would you like to sell me your property for this current assessed value? If you do, please call me. And I'll write a check for you on the spot. I mean seriously. Why am I confident in doing that? Because it's generally lower than the market value of the property. So if you'd like to sell me your property at assessed value call me up I'll make an offer. But this means that a typical seller might sell it for and what a buyer might buy it for. That's market value, the market value of the property is typically what most houses are sold at, not assessed values, assessed values are not updated frequently. Assessed values again are determined by the assessor's office for whatever community they're based on the history in the past. And they're not always updated. So the assessor doesn't have the time or whatever or the money to keep updating all these properties consistently. So it's based on the past but quite often trailing what could be the market value. So try not to confuse those two on value. So we could never want to sorry, we would never want to tell a seller when listing this property that I think you should sell it at assessed assessed value. I have had some agents that were very new that have recommended that to their clients. Now, if the property's upside down that's a different story, but it's very rare for the assessed value to be higher than the market value. Well, most communities update the assessed values once a year, give or take, sometimes by law every three years but most communities every once a year. So you can see the swings in the market could have drastic effects on what the assessed values are. And generally, the assessed value even though established once a year is based on previous years. So they can be way off as to the data that they're using. So that's why we would never want to encourage the seller to list a property for the assessment or the assessed value. But we do need to know in order to compute the tax, so where would we find the assessed value? At the city records in the assessor's office most assessors offices now are online. So it's pretty simple. And for the most part, it's public record. So assessed value. So you take the assessed value and you multiply that by the community's tax rate every community has their own tax rate and is going to give up this annual tax owed on the property. Now, tax rate depends on the community every community has their own tax rate, as I've just said, but we need to know that in order to complete the tax, so here's, here's an example. 

Okay, say the local tax rate on real estate is $22.50 per 1000 per 1000. Next year, that rate will be raised to 25. What will be the dollar increase in taxes if the assessed value of the property is 96,000? Now, how are we going to solve this problem? It's a two step problem. Using our formula, the formula, we'll get into that just a bit. So first year, what's the assessed value of the property? 96,000. First year, what is the tax rate in this community? 22.50 or 22.50 cents, right? But it's expressed in 1000s. So this is what can chop people up. Real estate taxes or real estate tax rates typically expressed per 1000 of assessed value or sometimes referred to in Mills, m i l l s means the same thing. Mills per 1000. Or you could see the term mill rate, or Mills 22.50. Mills, means the same thing per 1000 of assessed value. So what they're saying is here, they're charging you 22.50 cents per 1000 or per every $1,000 of assessed value. Meaning if we divide this by 1000 then we would have how many 1000? 96. So the easiest thing to do is just draw a box around the number of 1000s. Because we're dividing by 1000. So 96x22.50, $22.50 would mean that in year, that property owner paid how much in tax 2160. And I'm going slow intentionally just so you can follow us. You know, in case you were writing down the notes. Next year, year two, what happens? The assessed value is what? Still 96,000 it didn't change. But the tax rate now is what? 25 per 1000. So again, 96 the number of 1000 multiplied by 25 means the tax now is 2400. Or an increase of how much 240. Okay, hope I didn't lose you on that. 

Here's another one. Okay, so say the real estate, say the real property tax rate for Lynn let's use was 135 per 1000. Last year, because of a change in state law. A home which was assessed for 28,000 is now assessed at 140,000. And the new tax rate is 25 per 1000. So, how are we going to solve this one? What do we have to do? First year is what? The assessed value first year is 28,000. And tax rate first year is 135 per 1000. So, number of 1000 28 multiplied by 135 would give us a tax that year of how much? 3780. Next year, what happened? The assessed value did what?It went up. They went through reevaluation or revaluation in that community. So it's now assessed for 140,000. But the tax rate now is what? 25 per 1000. So again, 140x25 would give us a tax that year of 3500. So, real estate taxes in that community on that property went down 280. Alright, just remember the term Mills there. Okay, meaning per 1000. All right, take a break on that one. 

Next abatement. What does that generally mean an abatement? It generally results in you getting a tax reduction. So why would I be entitled to an abatement? I have to request number one, all right. They're not just going to give it to you. You have to request one, what your reason is for whatever it is perhaps I might be entitled to an abatement, maybe not. It may not be equitable, right? Meaning based upon other properties like mine, my assessment is different. Real estate taxes should be equitable, basically equal. Everybody should pay their fair share based upon the value of their property. So if my neighbor has a house like me, and he's assessed 120, but I'm assessed 140, well, maybe there's a reason for an abatement there. There's something different about how I was assessed. It's not equitable, not just because the market value is different. Everybody is in the same boat, right? For the most part. Maybe I once had a garage, I tore it down. But they never caught up with that. But I'm still being assessed for a garage. Well, that's not equity. So therefore, I might have reason for an abatement there. I got to prove to the assessor that my calculations on how I would assess the property are legit. Or I could hire someone to help me do this. So I would have to file for an abatement with the assessor or the assessor's office. And generally, there's a timeframe to do that during the year. So I got to get my application in time, they look it over, determine what they want to do. And if I'm happy with the result and the story, for not happy, I can appeal the assessor's decision. And on the exam, every once in a while you might see this question, Where does someone go to appeal the decision of an assessor regarding an abatement here in Massachusetts? It is the Appelet Tax Bureau or Appellate Tax Bureau, the ATB, the Appellate Tax Bureau. It's a state agency part of the Department of Revenue. So rather than go to court and sue, they've set up this agency to hear these cases. So that's where the first appeal would go to the Appellate Tax Bureau in Boston. So I go in with my facts and figures the assessor shows up with their facts and figures. And this hearing officer then determines what should happen. They make a decision on what the correction, the correct assessment should be. And if I'm not happy with that, then I can go to court, but the first appeal would go to the Appellate Tax Bureau. Now there are some property owners who are entitled to a reduction, a reduction in their taxes based upon state law. So if you're a senior citizen, disabled veteran, some communities have their own type of exemptions, such as in Boston, in Chelsea, I believe you can still apply for an exemption if you are a widow. If you reside in the property you live in you can get a sizable reduction in your real estate taxes known as the residential exemption but you have to apply for it to be qualified under all of these types of exemptions. But there are certainly ways in which you could reduce the tax.

Federal and state government also completes liens on real estate. So, federal government, state government they could also place liens on real estate generally for non-payment for income taxes. Could be for employer payroll deductions that were taken out of an employee's wages, but never sent on to the appropriate governmental agency so that employer could have this real estate attached. If somebody dies, the estate may be tax based on the value of the estate. So there could be a lien placed on the real estate for that purpose as well. So there are various governmental liens that could be either special or general depending upon the circumstance that the federal government or state government could place on real estate.

One of the concepts with liens is the issue of priority. If there are liens multiple liens that are on record at the registry of deeds. So multiple creditors are owed money the property is being sold. What's a forced sale? Such as an auction or property or otherwise, then which creditors get paid? And in what order are they paid? So if there are multiple liens on real estate, who gets paid? And in what order? Who determines that? Who gets paid? If there are multiple creditors? And in what order are they paid? Meaning if you're a creditor and there are multiple creditors and the property is being sold, you'd want to be the where? You'd want to be the top of the list, right? Because maybe there's not enough money to pay you if I get paid first, right? So the priority of liens sets up the pecking order more or less of who of those creditors gets paid before others. Now, rule of thumb when we're talking about priorities of liens here is the order of record. Meaning who got to the registry first? When we're talking about priority of liens here is this order, and then order of recordation, record, recording, meaning who got to the registry first. So if I get to the registry of deeds first before you then my lien takes priority over yours. So it's a race to the registry whoever gets there first. Puts their lien on record first in that order that's the rule of thumb. However, certain creditors by law don't follow this rule. They are allowed a priority over other creditors simply because of the type of lien that they are. Now the one that takes precedence over all other creditors, as I said before, and it doesn't matter when the lien was recorded, his taxes typically, it doesn't matter when they always get first pay. And that is the local government, the municipality, city or town, IRS. So the local municipality needs their money, because they pay for the you know, health and welfare of the society. They pay for the police department, the fire department, the water, the all the power cords, the public roadways, the teachers, public works, and all the employees etc. So they've got to be paid first before any creditor. So I give a mortgage on real estate I own when I bought this property 10 years ago. And that bank went to the registry of deeds and recorded that mortgage creating the lien 10 years ago. I'm selling the property today. But yesterday, the community went down and filed a municipal tax for non payment of real estate taxes. Who gets paid first, the bank or the municipality? The municipality, highest priority goes to the municipality. It could be federal or state. It doesn't matter when the lien was recorded after them would come the government. So it's the local government then the federal government and then everybody thereafter. So if the federal government has filed a tax lien on the property then they would get paid next not ahead of the municipality. They are next, then would come the state government here in Massachusetts, a condominium association is allowed a priority. So if the federal government has filed a tax lien on the property then they would be paid after the municipality. Anything after can be a creditor who is in first of the line. Now, here in Massachusetts, a condominium association is allowed a priority. Yep. A condominium. That recent law in Massachusetts back in the 1990s I think, when we went through a previous real estate crisis, yes, another one. Many condominiums almost went out of business because people were not paying their condo fees. And there was no way for the condominium association to recoup the money that wasn't needed wasn't able to recoup the money paid to them. So, Massachusetts allows a condominium association to record a lien get a priority over most creditors not all, and have up to six months of their back condo fee. So at least they can get some of the money that's owed them. They don't have precedence over the state federal or the municipality but they're up there. Mechanic's liens also get a priority over other creditors. So contractors again have a priority and then would come all the creditors. So again, just for reference municipality, federal and state, condos and mechanic's liens, and everybody thereafter.

Now, when we have liens buying a property generally as a buyer, I'm not buying the property subject to your liens on your property. So in most cases, when we have a real estate closing out of the sales proceeds that the seller is going to get. The closing settlement agent has contacted both the creditor based upon the liens that are on record. They contacted creditors saying listen, you have a lien on the record or a lien on the record, excuse me. We're selling this particular property. How much is owed you? So the creditor gives the buyer's attorney and amount of money that will be owed them. So, out of the seller's proceeds of sale at the closing money is deducted. Check is made payable by the settlement agent to that creditor and then the creditor would issue a discharge a document indicating that they receive the money that's owed them and the lien is not discharged when that document gets recorded at the registry of deeds. So the lien would still be on the record but then the discharge. So when a title examination is being done as part of the buying process the buyer generally hires an attorney who then hires a title examiner to go to the registry of deeds and look at the title history of this property backward and they are looking not only at the deeds of transfer. Where they were, you know, where they done properly? But they're also looking to see up there are their liens that are up to date and that have been put on record that have not been discharged. They want to make sure everything is clear. Because again if there is a lien on record but no discharge then the assumption is what? That it's still owed, right? And if you bought the property then you become the responsible party to the creditor. You don't want to be that buyer, not typically. Well that's why you hire a title examiner, right? As part of the buying process, you hire an attorney and they hire a title examiner at least in this state. 

And then the attorney at the real estate closing will give you a certificate or an affidavit indicating that they've done that examination. And in their opinion, that's the opinion that everything looks good. They didn't find anything. Any liens that affect your ownership. So good idea to do that as part of the buying process and typically it's done with most people not have being aware of it. Certainly, the bank who gives you any money is going to require that their attorneys do this. So discharge of liens generally happens when the debt is paid. So there are, there was a debt owed to somebody they place the lien on real estate now it's been paid, right? There are other reasons why our discharge could be issued but for purposes of the exam, that's the one we want to remember, that liens a typically discharged when the debts are paid. 

In real estate, we like to hear the word contract. Why? Generally, it's how we get paid, right? In the real estate business we get paid based upon the number of contracts we're involved in. And typically at the conclusion of a contract when we have a real estate closing or tenant occupies a property, let me get paid. Because it generally means that we're entitled to some money eventually. So let's talk a little bit about the contract itself. What is it that we need to have in order to have a contract? Meaning something that's going to now bind people together and obligate them to do something? Let's say, Mr.Buyer, would you like to enter into a contract to buy this particular property? I can show you how to do that. We'll take this form, we'll fill it out together, you sign it right here, please. I'll take it over there to the seller. Hopefully, he or she will agree, right? They'll sign there. And then you too can have a contract. Many you can buy and they can sell, right? Why do they go through this? We'll fill this out together, you sign here, I'll bring it over to the other party. And if I can get him or to him or her to agree and sign, you too can have a contract. Why do we do that? Well, so that everybody understands what they're agreeing to. We put it in writing. But this contract does what? So what is the essence of a contract? Why do we do this? binding them together? Yes. So what do we mean by that? What if the buyer doesn't do what he said he would do on the contract? Once the buyer signs, he just changes his mind and decides I'm not going to buy your property, Mr.Seller, what could happen? I could take you to court, or the seller could take you to court and ask the court to enforce the terms of the contract, compel you to live up to the terms of the contract or start paying me damages if you don't, if I was the seller. So we do this to make sure that the contract if necessary could be enforced in court that if the buyer doesn't do what they say they're going to do or the seller doesn't do what they say they're going to do then could sue. We generally don't want to go to court. But the fact that we could compels people to do what they say they're going to do in a contract. So as a real real estate person what do we need to do to have this contract be enforceable in court? That's what we need to understand here. What are the necessary elements in the contract for real estate to be enforced in court? There are certain basic elements that are necessary to be enforced.

So let's define first what a contract is. A contract is a legally enforceable agreement. Legally enforceable by who? Who enforces contracts? Court systems do, correct? Meaning if you don't do what you say or I don't do what I say either of us could sue in court. So the court can enforce a contract provided it meets the test of a contract. The necessary legal aspects that need to be present. Could be either written or oral, yes, or oral. So contracts entered into by parties could be either written or oral, and courts will enforce either one. However, the big butt in real estate Is that for real estate, a real estate contract, for the sale or lease of real estate to be enforced and enforceable in court it must be written it has to be written contract for the sale or lease of real estate in order for the courts to enforce it. Handshake agreements can exist in real estate but are not enforceable in court and have the written contract for the reasons we just described okay. Meaning, what did you agree to? Alright, so that you know, who's not living up to it? We have to know what that is. Real estate contracts are held to a higher standard than other contracts for other goods and services. Because we're dealing with real estate property rights we're dealing with real estate property. They're held to a higher standard than other goods and services. You could be sued in court based on an oral contract. But for real estate, we have to have a written contract. Gotta understand what did you agree to between the two competent parties. So to be considered in a contract you have to be competent to understand, first what you're doing otherwise it can't be enforceable against you or the other party if you're not competent. Now, what are some reasons when entering into contract that somebody in the future might not be considered to be competent? That they are incompetent? What are the difference between competent and incompetent? What reason would we need such an idea? Well, for what reason, perhaps a mental defect? Someone who's elderly and senile, they're not remembering everything they did. Alright, so they have to have that that's the first of many things, you know, the knowledge and the understanding of what they're doing? Are they mentally deficient? Are they a minor? Here in Massachusetts you have to be 18 in order to be able to legally sign a contract. Under that age even if they may be competent they are not allowed to and they're not seen as having the ability to sign a contract under the age of 18 for real estate. Now, children not considered competent unfortunately through the death of parents could own real estate. Now, if a child is under the age of 18 signed a deed the deed could not be considered enforceable against them because again they're not competent under the eyes of the law. Other reasons for incompetence under the law under the influence of drugs or alcohol at the time could also be seen as incompetent at the time of signing. So if a person was drinking and signed a contract that contract would be void. Because the person may not be seen as competent using some type of substance that could negate their ability to comprehend what they're signing. That is of course provided they can prove that. the same thing goes with leases. So if a person is not competent, let's say they were a minor, then they would not be able to sign a contract and have it enforceable legally. Now, on a side note, there are exceptions to the rule. For the case of this exam, that is what you need to remember. Also, all contracts must be legal.

I mean, At one time, I mean, gambling is now legal in the state of Massachusetts. But let's say someone did want to do gambling prior to it being legal, it was illegal to do gambling and someone wanted to use a space for that. You could not legally have a contract, because they were going to do something that was not legal. So that's the second thing versus competence. The second is the legality of its use for a contract. Another thing of value, what is the consideration? What is the exchange? Typically money, I guess you could say? What is it the exchange for the use of this property? Or the purchase of this property either lease or purchase that can be expressed in this contract, without consideration there's no contract? Correct. There's nothing of value that's being exchanged here. So we have to have those essential elements present in order to have a contract.

Now in dealing with what we call the valid contract, meaning courts are going to uphold this we have to have a contract and agreement a legally enforceable agreement. So how do we establish the first that we have this agreement? How do we do this? Well, we have to have a meeting of the minds lets say, we've got to agree on things, right? Terms of the contract. So how do we establish the fact that we have this agreement that we have this meeting of the minds? Well, we start with somebody who is making an offer will be calling offer an intention to enter into contract with someone else. So who makes the offer is known as the offer, or the offeror they're making the offer. So consider yourself to be the buyer. You want to buy the seller's property. So you make an offer you are the offeror. So the person making the offer would be the offeror and the person receiving the offer would be the offeree. Remember that? EE, OR? Now what's the difference between an offer and a contract. So let's say you're the real estate person and your buyer wants to make an offer to a seller  and they go back and forth or are they I should say, your buyer if you're representing them tells you to write up a contract and write a number of requests. I want to buy the house for $100,000, yada, yada, yada. And then they want you to submit that to the seller. Okay. There's no contract yet even though they wrote it down it's basically an offer. They haven't accepted anything yet. Now, they could keep on going back and forth. All the terms, right? The seller says, You know what I need to change it I need to be out by a certain date, are you okay with that? Where are we still? You're still in the offer phase? There's no contract quite yet. And then say, you know, you know what because the buyer wants to close faster but the seller needs a little bit more time. You know maybe the seller will say you, know what just to make things a little bit sweeter I'll throw in the lawnmower, snowblower, what have you just to appease the buyer to say, Sure, I'm willing to sell it but I need some time. Now they both sign it. Now, that is a contract a legally binding contract. The offer has been accepted but is now in the contract stage. They both accepted this. Now it has to be in order to be enforceable in writing, remember, no changes we can't change this. They both have to accept both terms. Or I should say all the terms. And there are no changes. Unless of course it's stipulated in this contract that there'll be another contract. So in Massachusetts we have the offer and then it proceeds to a purchase and sale agreement. They're both legally binding, signatures and everything. Now, also you have to remember that it's not just what a person wants it but we also have to have which is very valuable, consideration okay? Consideration is anything of value as I said previously that both parties agree to this could be monetary, this could be anything, it could be even doing something or even not doing something in order to satisfy the consideration of the contract. Now, let's say there was money that was used as a deposit to bind the contract. Is that deposit consideration? No, the deposit is not consideration. So if it's not consideration meaning the purchase price, let's say right? What purpose does it have this deposit? So the buyer saying he's willing to place, let's say $5,000 on deposit for this contract. When making this offer and the seller agrees to the terms of the offer. So we have a contract. The buyer then changes his mind doesn't decide he wishes to now proceed he's not going to buy the seller's property just change it back for no good reason just decided I'm gonna, you know typically what happens in the case of the buyers deposit. What, what happens that deposit? It's not consideration. What happens if he negates on the contract they both agreed to? He could lose it, right? He could forfeit to the seller because he didn't complete the contract correctly. So the deposit is not the consideration in the contract but does show the seller with the intent of the buyer to do what? Purchased the property that he'll enter into the contract with the seller and complete the contract according to its terms. Otherwise, what could happen is he could lose the deposit which shows the seller how sincere his buyer is in making the offer, right? How earnest he is. So sometimes this is known as the earnest money deposit which shows the seller how sincere the buyer is in making that offer. If I had to, let's say, a million dollar property you came to me and you said, Hey, Paul, well whoever is the name is, I'll pay you full price million dollars, cash, no contingencies to buy your property. But we're unwilling to make any type of deposit when making that offer. How sincere do you think that person is? They want to buy a full cash but not willing to put anything down. About you, but that was seller I'd say, yeah, you can go take a hike. You can walk away tomorrow without any penalty, right? There's no contingencies. Okay, that's tempting, no contingencies but you didn't put anything down. I don't know if you're gonna back away is nothing to stop you from pulling away. And then you're binding me into this contract. And I have to, for whatever reason, let's say there's a timeline, I got to hold on to this for let's say, 30 days, they will close, no contingencies, but nothing down. No. on the seller side, I would say no, that that's not not acceptable. However, there are times where a seller may do that. So, therefore the deposit shows the seller how sincere this buyer is. The amount of it doesn't really matter. It could be anything, as long as you're showing sincerity. It indicates how sincere that they are making the offer and willing to complete this contract. Now, of course, the more a buyer puts down it's more unlikely that the buyer is going to walk away, correct? Sure, sure. Do we have to have a deposit to make a contract? No, we don't. It's not an essential element in order to have a contract. But we typically do in real estate for the reasons we just discussed. Okay, so the seller wants to know how sincere you are. So, therefore we don't have to have one but typically we do if, if you're a real estate agent, and my seller says agent, you know, what do you think? Well, you're going to inform them that it's usually better practice to have that deposit. The more the merrier. But it is not yet considered the consideration in full. Now, if you're the buyer's agent, you might think differently and that's all good and dandy. Now, we'll be getting into statute of frauds later on. But remember there are minimums it need to be signed. It needs to be written on a contract to be enforceable. It needs some type of consideration. And I would recommend a date and the name of the parties and the property a description of the property that the contract and the offer, I should say, the offer on the contract to be presented to the seller and both parties being competent in that contract.

I want to make you aware also of the federal electronic signatures act. It is a part of the examination. So you might want to take a notation about the federal electronic signatures act, FSA. Massachusetts calls it the uniform electronic transaction act, kind of similar. Messages is signed on with the federal law. What this talks about is how it is applicable to what we practice that real estate contracts can be entered into other than the paper document. We don't use or we don't have to use the paper forms any longer. We can have a contract entered into electronically so that we don't have to have the original signatures anymore. Under the federal law and Massachusetts law it allows real estate contracts to be considered valid enforceable in court when signed and agreed to by other media such as by fax, perhaps by email correspondence. We want to be aware that real estate contracts can be entered into by other means other than with original signatures. No person is compelled to transact business this way. If they want the original signature on the contract then by all means they still get. But you didn't want to put that in a contract the contract will only be valid against them as long as they have the original signature on it. And that's the way it's transcribed. But we could use a fact signature we just have to make note of it and discuss and disclose it we could use an email correspondence assuming we have all the terms that have been agreed upon without change. The best practice is to include some statement in the offer or the purchase and sale agreement that gives consent or not consent. Now a side note, a court judge in Massachusetts has applied the Massachusetts law uniform electronic transactions act to email correspondence. So yes, contract could be implied via email, so be cautious about your emails just with a subject line in there that indicates that the parties here or we're into a contract based upon a broker's representation your representation stating that they were the parties or entering a contract and that the offer was accepted. So therefore that's a lower court. The Supreme Judicial Court here in Massachusetts has not signed on to that yet that I'm aware of. So we'll just see how that works out. But you can see the trend in the business. So what we want to remember is the Federal electronic signature Act does allow for other than original signatures to bind parties in the contract. Now, let me be clear about something. This does not mean one party can electronically sign a contract and then an agent can print it out and have the seller sign the paper or vice versa. By doing this it's creating two contracts. Both parties must sign the originals whatever that media is for it to be enforceable. So both sign paper and or both sign electronically unless otherwise stipulated.

Now assuming we have all of that. What we call the valid contract containing all of the essential elements enforced by either party and court assuming the other is not living up to what they say they're doing one could take the other to court. So naturally, that's the type of contract the real estate person wants in a transaction. We want the parties to be compelled to live up to it. If we don't have that then the courts are going to view this contract as a void contract. So void contract means it never existed in the eyes of the court and not legally enforceable against either party. So we certainly don't want that. We want to bind the parties together and be able to earn a commission. So we want to have all of the elements that are necessity in a contract. We don't want something that's void. So an example of that might be again, there would be contract for an unlawful purpose without consideration or any one of those missing elements. Now, here in Massachusetts when we talk about void contracts we also have an issue relative to commercial property that meaning other than residential. They are held to a little bit of a different standard. And it also applies to what we call a Sunday or holiday contract. This comes out of the old blue laws we used to have a Massachusetts here relative to business on Sundays and holidays. The legislature here in Massachusetts years ago decided they did not want any business occurring on Sundays or holidays. A peaceful day, not a bad idea in some respects. But over the years a lot of these have been chipped away. So we, you know, can transact business on a Sunday. For many years real estate could not transact contracts on Sundays. So many real estate offices didn't open up because there was no way to enforce contracts when entered in on Sunday. But the legislature in the 1970s exempted residential property from this restriction, residential only. However, commercial properties still held to that standard here in Massachusetts, that if a contract for commercial real estate is entered into on a Sunday or a legal holiday then that contract is considered by the court to be void doesn't exist. So if you're involved with commercial real estate, commercial leases, commercial anything to that matter. We want to make sure that the contracts between the buyers and sellers are not entered into on a Sunday or legal holiday because one of the parties could back out.

Voidable contract versus unenforceable contract. Valid is the term we want, void that's not so good. We have this other status known as voidable. Voidable contracts are contracts that have been entered into in which one of the parties is not competent. The issue with a voidable contract is a competency issue exists. One of the parties is not competent considered by the court not being competent of course. Now, in this situation the incompetent party if they choose can go ahead with the contract. It's enforceable against the party with competency. But if they don't choose to go ahead with contract they are incompetent. The court is not going to enforce it against them. 

For instance, a minor goes to a car dealer and wants to purchase a car. The minor enters into a contract with the car dealer to purchase a car. The minor comes back the next day let's say with the rest of the money to purchase the car according to the terms of the contract.And the car dealer tells the minor, sorry after you left yesterday somebody else came along and wanted to pay more money for the car so we sold it to them. Could the minor take his contract to buy that car to the court and ask the courts here in Massachusetts to enforce it against the car dealer? Who is competent here?  A car dealer. So the court would say Mr.Car Dealer you knew what you were doing when entering into that contract. If the incompetent or the minor wants to proceed it's enforceable against you. However, if the minor comes back the next day to the car dealer and says, listen I changed my mind last night now I don't want to buy that car and I'd like my deposit back and get out of that contract. Can the car dealer take the minor to court and ask the courts here in Massachusetts to enforce a contract against the minor? What is the court going to say? No, of course not we can't enforce a contract against the minor they're incompetent according to the laws, so it is not enforceable against the minor therefore voidable contracts. Are contracts in which one of the parties is not competent and can't be enforced against them. 

Here's another example.  A real estate agent calls up a seller let's say you, Mr.Seller I have an offer on your property. Seller says. I just sat down to eat, come over around seven o'clock. We'll talk about it then. You arrive and appears to you that the seller has had a few too many beers this afternoon. Are you going to present that offer to him and ask him to sign it? No. You would not. Why not? Now you can present the offer but you wouldn't want him to sign it. It could be an issue later on with competency. Yeah, it might be a little bit difficult to prove. Okay, we, we could say that, but again there are and there is some type of issue here. It couldn't be held enforceable towards them if, If he could prove he was incompetent. So the last status is what we call an unenforceable contract. Again when we're talking about statuses of contracts we have valid, void, voidable and unenforceable. Unenforceable is essentially a void contract because it can't be enforced in court. We want the court to be able to enforce it. To compel people to do what they are saying they're going to do, on a forcible contracts can exist they just can't be enforced in court. In real estate perhaps now we have buyer and seller, let's say the situation. They have entered into this contract based upon a handshake agreement, okay. This the scenario. One says, would you like to buy my property? Tell you what. You meet me here tomorrow morning at 10, a.m. with 500,000 I'll have the deed ready and they shake on it. The buyer shows up the next day with 500,000 is agreed. And the seller shows up and says, sorry I changed my mind last night. I'm not going to sell you the product.  Could the buyer take the handshake agreement to court and asked the courts to enforce it in against the seller? No, what is the court going to say? A handshake agreement? The real estate contract statute of frauds requires written agreements signed by both parties. We cannot enforce it but suppose now when they both show up at 10 a.m. the seller takes that money from the buyer and gives the deed of ownership to the property. They both part ways. A few hours later the seller has a change of heart. The seller finds the buyer and says, listen I changed my mind. My wife's gonna kill me. Here's your money back. Give me the deed back, please. Is the buyer give the deed back? No. If the seller took the buyer to court would the court say that you did what you contracted to do? Consideration was exchanged for the deed then they separated way. So even though there's no written agreement there. They did what they contracted to do. So, do we need a written contract to sell or buy real estate? No, we do not. Why then do we have the written contract? To make it enforceable in court. But what we want to remember here. Okay? Is we don't have to have a written agreement to both buy and sell real estate but we typically do to make it enforceable against the parties if necessary in court and that you're not going to just change your minds and walk away. It's a legal way to compel someone to buy or sell a property.

Now assuming we have all of the necessary elements there in writing and express what we we've agreed upon this is known as an expressed contract. So expressed contracts are contracts in writing that outline what it is that we've agreed upon. We typically deal with these types of written agreements you'll see a form contract known as an offer to purchase agreement in your materials. And then there are purchase and sales agreements these types of contracts when filled out signed by both parties are known as expressed contracts. Because again, they express what it is that we've agreed to in writing. Now, I'm responsible to do what I said and I was going to do in the contract nothing more or I should say we both were responsible to do what was in the contract nothing more. If we want to make somebody responsible to do what they said they're going to do then how do we achieve that? We put it in the contract have them sign it we both sign it. The buyer has entered into a contract with the seller to buy a property. Now, the seller in negotiating the deal wanted to be able to stay in the property a couple of weeks after the real estate closing. Because his new home was not yet ready. If the buyer is going to agree to that. How do we get the buyer to agree to that? We put in the contract, right? Have it become part of the contract have the buyer sign it. So that's what we call an expressed contract. The buyer and the seller responsible for what they've agreed upon in the contract. Now, in contract law there is also the concept of what we call an implied contract, implied. People can enter into contracts based upon their actions rather than expressed words. Now, this is now going to be applicable to real estate contracts, correct. It's not. Real estate contracts need to be in writing need to be agreed upon by the parties and signed, but just for your own knowledge we could for other goods and services entered into a contract based upon actions not written words necessarily. So for instance an example, you're coming home from work one day walk up the driveway and then you get to the top of the driveway you happen to notice these painters, ladders are leaning against the house painting your house now you immediately recognize that that they must be painting the wrong house because you've never agreed for them to paint yours. But you kind of like the color. So what do you do? You wave to the painters say. Hey, how you doing? You go into your front door, have your dinner, two hours later, come out. And they're done. You come out the front door. And as the painters are done they're taking down the ladders. Now the head painter comes to you and says, How do you like the paint job giving you the bill? You then say to the head painter. Oh man, I love that paint job. I'm going to tell all my friends about how good a job you've done. I'm going to recommend you guys highly but I have no intention to pay your bill because you painted the wrong house. Because I've never contracted with you to paint my house. So it's likely that the painter is going to be a little bit upset. And so he goes to his attorney explains what happened. Now the attorney says I think we have grounds to sue this owner you in court for the cost of the paint.

So when dealing with contracts we also could understand the terms bilateral and unilateral. Now, this refers to the parties in the contract. Are both parties in the contract responsible to complete its terms? Meaning could you sue me or I sue you if we don't do what we said we're going to do? Well, then that's known as a bilateral contract. The prefix by means what? Two sided contract or two, bilateral, two sided. If I don't do what I said I was going to do you can sue me. If you don't do what I said you're going to do I can sue you. If I don't do what I said I was going to do you can sue me. If you don't do what you said you're going to do I can sue you. Now there are other types of contracts in real estate are what we call unilateral contracts. Prefix. Uni means one. This is a one-sided contract. So that could be only one of us has to do what we said we're going to do to compel the other to do what they said they're going to do. And probably the best example in real estate of a unilateral contract is a listing agreement between a seller and a real estate broker. So, seller comes to me and says, Joe you're in real estate business? I say, Yes, I am. He says, well listen I've got a real estate property I own, i'd like you to sell it. I say, wonderful what's the terms? He says, if you find a buyer the buyers you find enter into contract with me to buy my property and complete the deal. Buying the property, I'll pay you your real estate fee. I say that sounds pretty good sign right here. So we enter into this listing agreement, I find a buyer for the seller the buyer enters into a contract to buy the seller's property and buys this property. At the real estate closing the seller turns to me and says You've done a wonderful job. I'm going to recommend you highly to all my friends but I have no intention of paying your real estate fee. Now, could I take my real estate agreement that I have with the seller to court and ask the courts to enforce it against the seller? What would they say? He did Mr.Seller? What he said he was going to do? Now you do what you said you were going to do? Pay the fee. But if I don't find him the buyer can the seller sue me for not finding him the buyer, thank God. But if I find him the buyer and the buyer buys must he pay me my fee? Yes, that is a uni-lateral contract.

Now for the purposes of the exam, we also have to know these two words for the exam, executory contract and an executed contract. Now, buyer and seller enter into a contract between themselves to both buy and sell property today. Now in real estate when we enter into the contract to buy the seller's property and agrees to sell it, typically, when is that contract completed? When is the seller actually going to sell the property to the buyer at the real estate closing, when is that? Even though we signed the contract today, when does the real estate closing typically happen? Not today, the buyer has to get financing the seller may have to find another house to move to so there is generally a time lag between entering into the contract today and its completion, the closing. So, what we call an executed contract is a contract that is completed, past tense, executed and that occurs when? At the closing. So a contract that is executed is a completed contract meaning both buyer and seller did what they said they were going to do in the real estate contract. So what happens, so that happens at the closing. Up until that time the buyer and seller have entered into that contract. It's pending, but we don't have a closing yet. Now we have an executory contract until the closing. So executory, we signed it but it is not yet completed. Once it's completed, we have a closing then it becomes executed. So many people think, oh executed mean signed. No. For purposes of the exam, executed means completed contract. Completed means buyer bought seller sold at the closing. Executory contract, we've signed it but we have not yet completed.

Unfortunately, we have to talk about an unpalatable word. We don't like to hear this word as real estate professionals. Because when we hear it, it means that this, or that contract that we were involved in with is no longer enforceable against the buyer or seller, meaning the buyer and the seller have agreed and to no longer be in this contract. So that mutual agreement is broken. Either party no longer needs to or wants to be part of it. And when this happens we don't get paid, rescission. So when a contract is rescinded it no longer is binding upon either party. Both parties get their money, if there was any, and walk away. So buyers get the deposit back no obligation to buy seller doesn't have to sell this property to the buyer. They're out of contract it is rescinded. Now, there are various reasons why this could happen. It's what we call a contingency. 

What is a contingency? Why would we have a contingency in the contract? What is it? If you want to buy this property. Maybe there's something that has to happen in order for you to complete the deal, like what? Maybe you have to get financing, right. Now, would you want to be obligated to buy this property, if you had to get a loan? I mean, forced to buy the property but you couldn't get the money? No, because if you can't get the loan you would not want to buy the property and lose your deposit. So unless, of course, you wrote that in the contract I'll complete the deal provided I get the financing, I need in order to buy it. If I don't have the money, the cash, then obviously I don't want to be bound to it. I can rescind the contract. Get my deposit back and walk away. What other types of contingencies could be in a contract? Now this is something mutually agreed upon. When we enter into the contract both buyer and seller agree to this. Home sale contingency.? So on the part of the buyer, I've got this other property I've got to sell. So if I don't sell this one Mr.Seller, I don't have to buy yours. Another is in an inspection contingency. Buyer sells, buyer says to seller, listen I'd like to buy your property. But I want to make sure that it's okay. I'm not going to have any major expenses once I move in something I just don't want to worry about. So I want a home inspector or some third party to come on out and determine whether or not there's some major problem. As long as it turns out, okay, let's move forward and go with the deal. But if it's not, I have the ability to back out. The seller may also have some kidney disease also that they may want to throw into that contract. These are all negotiable. Now the home buying contingency as we may call it. So as long as I find one within the next 30 days that I want to buy, I sell you this, these are all negotiable. Contingencies are like hurdles in a race. If we don't get over the hurdles we don't complete the race. So we typically have to satisfy all the contingencies in order to complete the contract. Otherwise, one of the parties can rescind the contract. Now, other reasons, not as likely but could happen, misrepresentation of the property. Misrepresentation means what? What does that mean? It's not necessarily a lie. A lie would mean an intentional deception stating something that was found later not to be true, right? Doesn't necessarily mean I lied about it. If I had said something I just stated something that was not true. Maybe the lot size I said, well, 10,000 square feet. Well, where did you get that? Is that written in the deed? But if a surveyor found later on out that it was 500 square feet less than applied? Well then if a buyer asks Is this property hooked up to the public sewer? And the seller says, Yeah, it is. But it's found later not to be instead it's on a septic system. Well, is that a misrepresentation of the property? Absolutely. A buyer finding out about that again could determine he doesn't want to buy the property and now have grounds to get out of the contract. Rescinded. Misrepresentation.

I would like to also mention the issue of death. Now a point to consider here, if a buyer and seller have entered into a contract and one of them dies before completion of the contract, is the contract over? Real estate sales contracts typically deal with this issue. That if one of the parties died before completion, is the contract still held to be valid against the person who died even though they're no longer with us? So, typically the answer would be, Yes. So even though they're no longer with us the contract is still binding on them. Naturally, you are state. So the seller dies before completion of the contract. If a buyer wants to buy a property the seller still needs to sell. So, within the contract the heirs of the respective parties are responsible to complete the contract. So we should not assume the death terminates a contract unless specifically stated otherwise in the contract it is binding upon the heirs of that contract. 

Default as noted earlier is somebody's not living up to the terms of the contract, they're in default. So if I've agreed as the buyer when making this offer I'm gonna be giving you $1,000, as a deposit thousand bucks. And if you accept the offer I'll give you another 5,000 as a deposit. Let's say, as an example. All right, I gave an initial 5000. But when he accepts the offer I didn't come up with the other deposit money, I'm in default. I'm not doing something I said, I would do in the contract, which places me in default. So there's no legal reason for me, not to do that. You know, what I said I was going to do, then when I'm in default the other party could cancel the contract or it could also do what? Sue me. They could take me to court because I'm not living up to the terms of the contract. 

Here's a scenario. Let's suppose the buyer and seller have entered into this contract but the seller defaults. Just decides not going to sell you the property I mean, this contract just changed. It just changed your mind. So the seller is in default, what remedies do the buyer have if the seller is in default? Well, could say, well, when looking at the whole scheme of things, just give me my deposit back we'll rescind the contract that we have. And we'll both parties are separate ways. That is the remedy that could happen. If the seller doesn't want to sell, I'm going to go or I should say, I'm not going to force them to sell it's just going to take too much time effort money in trying to enforce the contract just give me my deposit back, let's move on. That's a remedy that the buyer has, right? They might also try to sue for monetary damages, meaning out of pocket money that it costs me to try to buy this property we're going to try to sue in court for that. It cost me to have a home inspection done. It could have had lead detection done I had to pay a lender to have an appraiser come out. So I'm going to try to recoup that money, I could sue for damages. That's another possibility. Or maybe I believe I want to sue to compel the seller in this case to sell the property. So I'm going to sue in court asking the court for a judgment of a specific performance, remember that? Now we have to have, we have to remember that these two words mean specific performance. This is an outcome hopefully of the trial. So I got to attach the property, have a trial, and it could take a while. I have to hire an attorney. I have to hire an attorney effort, money, time, it all adds up. There's no guarantee here I'm going to win. If I get this type of decision from the court after the trial then the court could compel the seller to sell me the property under the terms we've agreed upon. But there's no guarantee that's going to happen but it is possible as an outcome, specific performance.

I want to make you aware also of the Federal Electronic Signatures Act. It is a part of the examination. So you might want to take a notation about the Federal Electronic Signatures Act, FSA. Massachusetts calls it the uniform electronic transaction act kind of similar messages is signed on with the federal law. What this talks about is how it is applicable to what we practice that real estate contracts can be entered into other than the paper document. We don't use or we don't have to use the paper forms any longer. We can have a contract entered into electronically so that we don't have to have the original signatures anymore. Under the federal law and Massachusetts law it allows real estate contracts to be considered valid enforceable in court when signed and agreed to by other media such as by fax, perhaps by email correspondence. We want to be aware that real estate contracts can be entered into by other means other than with original signatures. No person is compelled to transact business this way. If they want the original signature on the contract then by all means they still get. But you didn't want to put that in a contract. The contract will only be valid against them as long as they have the original signature on it. And that's the way it's transcribed. But we could use a fact signature we just have to make note of it and discuss and disclose it. We could use an email correspondence assuming we have all the terms that have been agreed upon without change. The best practice is to include some statement in the offer or the purchase and sale agreement that gives consent or not consent. Now a side note, a court judge in Massachusetts has applied the Massachusetts law uniform electronic transactions act to email correspondence. So yes, contract could be implied via email. So be cautious about your emails, just with a subject line in there that indicates that the parties here or we're into a contract based upon a broker's representation. Your representation stating that they were the parties or entering a contract and that the offer was accepted. So therefore, that's a lower court. 

The Supreme Judicial Court here in Massachusetts has not signed on to that yet, that I'm aware of. So we'll just see how that works out. But you can see the trend in the business. So what we want to remember is the Federal electronic signature Act does allow for other than original signatures to bind parties in the contract. 

Now, let me be clear about something. This does not mean one party can electronically sign a contract and then an agent can print it out and have the seller sign the paper or vice versa. By doing this it's creating two contracts. Both parties must sign the originals whatever that media is for it to be enforceable. So both sign paper and or both sign electronically, unless otherwise stipulated.

Now, we want to remember that we have a requirement under our license law. That once somebody has signed a contract, a sales contract, and it doesn't mention what type of sales contract it has to be and it doesn't mention what type of sales contract. It only says sales contract in the license law. This is a sales contract even though we call it an offer in a purchase sale. We have to give a copy to the buyer and seller once it's signed. So when they sign it, we give a copy. When the other party signs it we give them another copy indicating that the other party has signed it. So each party has a copy of the signed copy, that's a requirement. 

We talked about changes in terms so if anything changes along the way a date perhaps we have that agreed upon by both parties in writing. The earnest money deposit reflects the sincerity of the buyer and that's a negotiable term of the sale as to how much it should be and who should hold the deposit noted in the contract, and that is negotiable. And for our purposes as a salesperson, getting a deposit, a real estate contract, you have to be a broker. So as an agent give it to your broker as soon as possible this deposit. 

Let's talk about the term of a counter offer. Many times when we make an offer the seller looking over the offer like certain things about an offer but maybe not everything. So imagine we just made an offer of a let's say, $200,000. But maybe the seller has this property on the market for 250,000. The seller likes the terms of the offer but not the price. So if the seller says I agree to sell you the property but not for the $200,000, and then says to the buyer I'll do 220. Do we have a contract? No, not yet. Because now we have to have the buyer agree to it and have it in writing. That's a counteroffer. Now, let's suppose in this case a buyer offers $100,000. And the seller here has the property listed for 150. The seller says I don't want to sell you my property for 100,000. But let's say I'll sell it for 140. The seller agrees on all the other terms except for the purchase price. When the buyer gets this counteroffer from the seller, what are the buyer's options? What could he do? It's got three options that are available, one accept that change a another option might be to reject. And the other it might be to make a counteroffer. Now, we present the counteroffer to the buyer and the buyer says nope not gonna do it. I don't want to buy the seller's property for 140. And I don't want to make them a counteroffer either. So essentially it's rejecting the sellers counteroffer. So we go back to the seller with the bad news and explaining he's decided that he doesn't want to buy the property at the counteroffer price and has not yet made a counteroffer. And the seller at this time says, well I'm desperate. Go tell him I'll accept his original $100,000. Now, in this situation do we have a deal? What's the issue here? Now the seller rejected it. They came back, right? And the seller said no, and then went back countered offered to the buyer. And the buyer said, No. Now, what effect does a counter a counteroffer have on all offers, on all those previous offers? It's a rejection of all previous offers. So once a counteroffer is made once the seller here made a counteroffer all offers are off the table now. He can't go back to them. So even though the seller would now be willing to accept what the buyer previously offered it's off the table by that counteroffer. We'd have to go back to the buyer again and get them agree to the $100,000. But at this point the buyer might say what? Nope. Go tell the seller I reject his offer. He didn't like my first offer. Well, now I'm going to give him 90,000. Okay, this happens every day. So we want to understand the effect that a counteroffer has on all previous offers. In essence, a rejection of all offers are off the table. So a buyer even though offered that price at one time or the seller is not under obligation to pay the original offer any longer. That's the most important thing no longer under obligation to pay the original offer. So the seller takes a risk in making a counteroffer that the buyer could just walk away even though the seller may at some point in time want to accept the buyer's purchase.

Now, another type of real estate contract is what we call an options contracts. Option contracts are typically found under developmental situations we might have a piece of land that somebody is going to buy and perhaps develop it for a single family subdivision. We might have a building that some developer is going to buy and change its use into some other form. So these types of contracts generally are found within situations again known as options contracts. So in this case, let's suppose we've got 100 acres of land that a farmer owns. This real estate developer comes to the farmer directly and says, listen I'd like to buy your 100 acres of land for the purpose of developing a single-family home subdivision. And I'd be willing to pay you 500,000 for the land. But I'm not really sure yet whether it's worth 500,000. And because I haven't had any engineering studies done to determine how much of this land is usable I don't know how many lots this community is going to allow me to subdivide the land into. But if it's worth it after finding all that out I'll pay you 500,000. Just give me two years to figure this all out. So if the buyer and the seller willing and they enter into this type of contract known as an option contract. So the buyer says to the seller, Mr.Seller provided everything works out here I'll buy your property for 500,000. Here is 50,000. Now, and that's if I don't exercise my option to buy your property in the next two years for the 500,000 you can keep my 50,000 as deposit. So they enter into this type of contract known as an option contract. Now, the owner of the property the one that's going to option to purchase the property, excuse me, the one that's giving an option to purchase the property is known as the optionor in this type of contract. So that's the seller the optionor, gives an option to the optionee of the buyer. Now, the developer does engineering studies and then determines it's worth it gets the approvals from the local boards and commissions. And within the two year period of time he calls up the seller and says, Mr.Seller I'm willing now to exercise my option under the terms of our contract to buy your property for the agreed upon purchase price of 500,000. I'll have the rest of the purchase price 450. Ready this week please have the deed ready. Now, the optionor the seller at this time says to the buyer the optionee, I change my mind not gonna sell you my property any longer. Can the optionee buyer take this contract that he has this option contract to the court and ask the court to enforce it against the seller? Yes, absolutely. If he wants to buy the seller must sell. However, maybe the option he does his engineering studies and determines they can't get enough lots out of this to make it work. And that numbers just don't add up. It's not worth 500,000. Can the seller optionor take this option contract to the court and ask the courts to enforce it against the buyer? If the buyer's sees that he wants to back out of this deal because it's just not worth it? No, he cannot. But if the buyer wants to buy must the seller sell? Yes. But if the buyer doesn't want to buy can the seller sue him for performance on the contract? No. So what type of contract is this? Option contract. It's a unilateral contract. One way one-sided buyer wants to buy. Seller must sell buyer doesn't want to buy seller can keep the deposit or can't force the completion of the contract. 

Okay, so let's say the real estate developer that buyer he never has any intention to build houses or roads on this land. And all he wanted to do was to get the local boards commission's to approve the subdivision plan not to build and just get all the the hard stuff out of the way really, that the approval of the subdivision. So maybe he got that approval which now allows a sub-divider of the land some developer to put 100 houses on this 100 acres of land with that type of approval from the local Commission's that that land becomes more valuable now because of that approval and the ability to build, because now, what we've got is one house on 100 acres with the potential now to put 100 homes on the 100 acres the land is now more valuable. So maybe, let's say the land with that approval is now worth 700,000, let's say, this buyer never had any intention of developing this land. All he wants to do was to get the approvals and in doing so increases the value of the land. So let's say another buyer goes to buyer number one another developer says, I understand that you have that seller's property down there on the road this 100 acres of land with the approval from the local boards and commissions for a subdivision. Would you be willing to sell me your rights in your contract with that seller? Let's say they agree to enter into this contract meaning buyer number one enters into a bilateral contract with a buyer number two in which buyer number two will pay 150,000 to buyer number one, in exchange for what? What are they exchanging? What does, what does the buyer number one have here that buyer number two once. The option to buy the seller's property for 500,000. Now, this contract this second contract here is known as an assignment contract, an assignment. I'm giving up my rights in another contract for consideration. Very common with this type of real estate contract although any contract could be assigned. So now, buyer number one has the rights and that buyer one has in his contract the ability to assign his position for the full purchase price with the original seller. So there are other contracts that could exist. And what we call our installment or land contract, land sale contracts but these are not as frequent. But for purposes of the exam let's understand them a little bit. If anybody's ever bought anything with periodic payments frigerator car, a traditional loan, you buying anything more or less. Same thing here with real estate it's not common but it can happen. So here we have this property the buyer says to the seller, listen Mr.Seller I'd like to buy your property but I can't get traditional financing, no mortgages. The seller likes the buyer and he says, listen I got away that we could make this work out I'll tell you what, we'll agree that you purchase my property for 100,000. And you'll make periodic payments on this purchase price. So we enter into the contract that says that every year you'll make whatever the amount is for the next 10 years. So the buyer is making payments against the purchase price. The seller gives the deed of ownership to the property when, what happens? When it's paid off right, when the full purchase price is paid. So, once the buyer completes the purchase price by completing the installment payments then and only, and only then does the buyer get ownership of the property. Now that is not very typical way. But it is it is possible. And usually it does happen with say family situations. One family member sells it to another family. You just pay off those over time. Now, it's a little risky on the part of the buyer also because if the buyer doesn't complete the contract let's say midway through doesn't get any money back either and forfeits any payments that were made along the way. So it's not the most typical type of real estate contract. Now these are known as installment contracts, sometimes land contract, also known as contract for deed. So any of those could be the three terminologies. Now, let's talk about those five letter words. Time is of the essence. As we talked about in the previous offers a contract time is of the essence. If you take a look at the purchase sale agreement and an offer typically it should say there. And it says, it is agreed that time is of the essence of this agreement. So why are those five little words typically real estate contracts? What does that mean in a contract? Dates in the contract are important. So let's suppose the buyer and the seller agree on the closing date. The seller a week before the scheduled closing calls up the buyer says, listen I can't possibly get my junk out of the property. Don't have enough time. I'm going to need another couple of weeks to get it all out. What's the buyer gonna say? What could he say? What? Couple weeks. I can't move in. I've already told my landlord I'm moving. He's already rented my place. I'm homeless. If you want this extra time you're going to put me up at a hotel you're going to pay the cost of the hotel pay the cost of the story in the furniture? Sure. I'll give you extension. Otherwise what? Time is of the essence? We've agreed on a date, okay? Let's say buyer calls up the seller week before the closing says, listen I need another week I can't possibly get my money out of the stocks in time I need another week. It's the flip side the seller might say what another week I'm already on the contract to buy another property I expected to get that money out of this sale or I'm going to lose my deposit on the other one. I'll sue you if you don't close on time. Time is of the essence. So when those five little words are put in a contract it makes the dates very important. So as real estate people we, we've got to make sure that buyers and sellers understand the importance of these dates on the contract particularly when it says time is of the essence. The damages can result if we don't live up to these dates. Now, does that mean that we can't change the date? No. But how do we change? Or how do we have to change it? In writing agreed by both parties. So we want to make sure they get enough time to get financing. So we don't have to seek an extension later on and that they've got enough time to get out. Find another property or what have you. Otherwise, damages can result. If those five little words were not in agreement, courts have interpreted the intentions of the parties that as long as we get around to it within a reasonable period of time then no damages can result. But when those five little words appear now dates become important and things could get tricky.

In dealing with offers, not a contract, an offer There are some ways under which an offer can be terminated. Now, under what conditions can an offer be terminated? One of those is the withdrawal of the offer by the offeree prior to acceptance. Now, when making this offer the buyer agrees to give the seller, let's say three days to think about the offer, it could be anything but let's say three days in this situation,after that period of time if not accepting it not obligated to buy. They're not. So Mr.Seller has been thinking about the offer. Still within the three day period of time, however the buyer looked in the newspaper and saw an open house ad went to the property and liked that other property better. Calls you up as the real estate agent with this offer and says, Listen I don't want to buy that property anymore. Is he obligated to buy the property that he made an offer on originally? Even though within the three day period of time he gave that window? The seller says, hey he gave me three days to think about it, and now he wants out? I'm gonna keep the deposit. Is the seller entitled to it? No. Even though the buyer has given the seller three days to think about it, if he decides not to buy he's not required to purchase it. Now one reason why we encourage the sellers to make a decision pretty quick. Because the buyers even if there was a deposit offered and even if the other side was holding on to it. It's an offer. It was not yet agreed upon in writing. 

Okay, so rejection of the offer. If the seller decides not to go through with it a lapse of time. The three days comes and goes and doesn't do anything. That's the other one. And another one is ditch destruction of the premises. You know if it burns down, obviously, no one's gonna buy it. Those are the three ways of terminating the offer.

Mortgage. Now, a mortgage is not what most people think meaning I'm going to the bank to get a mortgage. That's not what it is. You're going to the bank to get what? What do you want from the bank? Money right? Alone? So when we go to the bank we want a loan to buy a real estate property. So our real estate loan closing when they're going to give you the money, they're going to ask you to sign this document indicating you intend to repay the bank the money back that you're borrowing and that you're gonna repay you whatever the amount is on the for the loan and we're going to give you or I should say the bank is going to give you that loan with interest for so many years in monthly payments. That document is a promissory note not a mortgage at least not yet. So at the closing, the loan closing the first document to put in front of the buyer is typically the promissory note explaining the terms which you're borrowing the money and it's going to be repaid. But the bank doesn't just accept your signature on the promissory note. They want collateral, security for the eventual repayment of the promise that note, they want additional security that if they don't, already, I should say we don't repay them as agreed they can go after the property that you're potentially purchasing. And that comes to them under the terms of the mortgage which the second document a separate document at the loan closing in which when I or you sign it we are giving to the bank ownership of the property for a while, a right in real estate. And we're giving them this ownership or the right till you pay that debt. So there are a partner with you in the ownership of this property. And until I repay them or we then they will continue to be apart ownership in the right also given to them that we are allowing if we do not pay them back as agreed under the terms of the mortgage. So I'm giving them the right to sell this property at a public auction if I fail to repay them and that's known as a foreclosure. So when you say you're getting a mortgage you're actually getting a loan backed by security of a piece of property. If not that then some other form of security. It could also be another property.

So we want to understand the purpose and intent of a mortgage. It's not the money when a mortgage is given on real estate we are conditionally conveying to the lender ownership rights in real estate to the lender to secure the repayment of a debt. So it does that, sometimes the mortgage is also called the mortgage deed. Because many parts of the mortgage look like a deed. And in fact, that's what we're doing. We are conveying a right in real estate to the lender but it's conditional because obviously when we pay the debt we have a right to get our ownership interest perfected back from the bank and they give a discharge of that particular mortgage. Also, the mortgage gets recorded at the registry of deeds and in doing so creates a lien on our property. So the mortgage here in Massachusetts does two things. It conveys ownership to the bank conditionally for a while repaying the debts and when reported at the registry of deeds it's a lien on the property as an encumbrance and so the world knows that this particular property is being used as collateral eventually would be discharged when the loan is repaid. 

So again, the mortgage is not the money we do not go to the bank to get a mortgage. Although most people think of it that way. We go to the bank for a loan and the bank wants security interest in a property to repay that debt. Now, some key terms to remember here in regards to a mortgage, on the mortgage the one giving a mortgage on the property the borrower the property owner is known as the mortgagor so the mortgagor gives a mortgage on his property to the lender the lender on the mortgage is known as the mortgagee. So in real estate we have a lot of words that end in a EE or O R. The O R ending word is always the person on the giving end they are giving something to the other. So the mortgagor is giving a property right in real estate to the lender. The one on the receiving end is always the E ending the mortgagee. So we have a also was like grantor giving ownership of the property to the grantee when receiving the ownership. And we have the optionor giving an option on a property. Leasor giving possession of the property to. The leasee the tenant. Easy way to remember how and who were receiving or giving, it's O R E E. O R is like the providor and the E E is to receive. So the promissory note on the loan document. That's the written contract between the borrower and the bank, O R and E E. This is outlining the terms of the lending and how it's going to be repaid and does not get recorded at the registry of deeds. The mortgage does not the promissory note. The mortgage evidence of the fact that this property is being used as collateral for the repayment of a loan. The loan document itself the promissory note is not recorded. Okay, equity, equity. What does that mean? How do we determine one's equity in real estate? So, market value of the property? What you sell it for? If a real estate appraiser said today you could get 200,000 for your property and you owe 100,000, then the difference between the two numbers would be considered your equity. So equity is what our interest is in the property after we deduct what's owed from the market. Now at time of purchase if I'm purchasing this property for 200,000, and the bank is going to give me a loan for 100,000. What's this, under 100,000 called? Is your equity at time of purchase. But it also goes under another name at the time of purchase, downpayment. So the downpayment at the time of purchase is the difference between the purchase price and how much I'm going to get for a loan.

Now as a mortgagor, a property owner under the terms of the mortgage, what are you agreeing to do? So not to be in default. Under the terms of your contract with the bank, what are the five standard promises that anybody who mortgages a property agrees to do? Number one promise, you're going to repay your principal and interest timely repay the loan as agreed, right. If we don't do that the bank could initiate a process to protect their interest in this property and start a foreclosure process. Second we have to take care of it, we cannot let the property run to ruin. So we're going to have to prevent waste on the property. We also have to keep the property adequately insured to protect against loss. So the lender is going to want to make sure that there's enough insurance on the property should there be a calamity that they could get paid back their money out of the insurance proceeds. So we've got to have at least enough insurance to cover them they're going to require that and that we keep it up. Most banks today do not allow the property owner to pay the insurance premiums on their own they want to make sure that they are kept up and that the policy doesn't lapse. So included with the monthly payment in principal and interest will also be 1/12 of the annual renewal premium for the house insurance. The bank takes it, keeps it in a separate account and when the bill comes they pay on behalf of the owner or the borrower I should say. We also agree under the terms of the mortgage not to remove significant improvements from the property without their consent. So structures that are on the property a part of the property's value. They're not making a loan on them. So we cannot remove them from the land more or less lay wasted land and leave them with an empty lot without their approval. Trust me, people have done that. We also agree to pay taxes and assessments when do, so under the terms of the mortgage we have responsibility to pay the real estate taxes, condo fees, perhaps in a timely fashion. Now, why would the bank be a bit concerned if you didn't pay your real estate taxes or condo fees? Well, the municipal lien or condo assessments take precedence over them. So they want to make sure that those are paid. So real estate taxes also are what we call escrow to the bank with a monthly payment. So in addition to the insurance proceeds most often they take that money 1/12 of the annual taxes as a payment each month to make sure that they are paid on time.

Even though we have a mortgage we still have rights in a property. We could sell it, we could will it, we could lease it. So the bank just has a collateral interest in this property to secure the repayment of a loan as long as we are doing that. Well then generally we don't have a problem with the bank. I can possess use and occupy the property until we are not doing one of those things. We certainly have the right to get a release of the mortgage known as a discharge once repay them. Recording that at the registry of deeds indicating that lien that they had is no longer effective against the property. And up until the bank decides to foreclose on us because we are not doing one of those things. If we could pay up what's owed plus the cost incurred pp until the auction of my property I can redeem my ownership from them. But once the bank holds the auction of my property goes through with the foreclosure process sells my property to the highest bidder at the public auction. At that point, I lose my rights to the property. No longer do I have any rights in the property that I can redeem. Unlike the tax title sale, when the municipality auctions off the property for not paying them I get six months here in Massachusetts to come up with what's owed with that. Not so with a bank's foreclosure process. Once the bank auctioneer sells that property to the highest bidder at the auction all rights of my property ownership cease at that auction. Even if I hit the mass millions a month later it ceases at the auction.

The bank itself the mortgagee has rights in the property, they can certainly go after the borrower for the money owed them. So one should not assume that if the bank forecloses on us and doesn't get back at the auction what owe to them that we're off the hook. For what the remaining money is they could still go after and sue me personally or us personally under the promissory note. So it is a possibility that under what we call a deficiency sale I would still owe them money unless they agreed to now let me off the hook. They certainly have the ability to sell the property of public auction, right? That's under the terms of the mortgage and many times the banks include under the terms of the promissory note. And the mortgage the ability to sell their note and mortgage to another bank or lender. So you may receive as a borrower a note in the mail now making your note available to another company and your payment whatever the monthly amount is to a new mortgage company a certain Corporation or Bank in whatever other state. So one bank can sell that note to another the terms of the lending don't change, it's just who you make the payment to that might change quite common in the real estate financing industry. They certainly have the right to do that.

Now in a mortgage, there are clauses that we should have a bit of knowledge on.

First is the acceleration clause. So within the mortgage itself, part of it talks about if the borrower is in default, so they're not doing something that they said that they would do under the terms of the promissory note.

Probably not paying their principal and interest payments on time. 

Then the bank does have the ability to what they call to accelerate the loan payments to call the loan due perhaps; the money owed.

The remaining principal balance now becomes due within the next 30 days. It is typically the first step in the foreclosure process. So they invoke the acceleration clause. Now they're going to call the loan that is called again, the acceleration clause.

Alienation, referred to as the due on sale clause. Most types of financing today include this in the mortgage as a requirement.

A due on sale clause means when you sell the property, you need to pay off the remaining balance of the loan. You could not sell the property and have the new buyer step in for the repayment of your loan right where you left off. That's known as an assumption clause. So again, an assumption clause, assume. That's the key word; to assume.

We've talked about default under the terms of a contract. I'm not living up to what I said I was willing to do. So again, with a mortgage and promissory note if I'm not living up to those promises well then I'm in default. Could it be that I'm not making the principal interest payments? It could but it could be any of the other four as well. A foreclosure is a legal process that the bank would go through to terminate your right to redeem ownership of the property. So the default causes the foreclosure and the foreclosure process ultimately when they sell your property at public auction terminates your right to the property forever as the term foreclosure. And just remember that a deficiency sale as I mentioned earlier, so as the auction if they don't get back what's owed to them. So the highest bidder didn't quite pay off enough of the repayment of the debt well then they could go after the borrower for deficiency sometimes difficult to do. But nevertheless they have the right to try and if not they could probably send you a bill and offset it through taxes. So you might get a piece of paper from the IRS saying that well you owe the difference in taxes. 

Mortgage, these all involve loans but sometimes in the mortgage secures a particular type of lending. So sometimes the mortgage has another name attached with it because of the type of the lending involved. But they are all more or less an investment and interest in real estate given by the property owner to secure the repayment of a debt. Now, the first one we kind of want to take a look at is known as a second mortgage. Now, when we use that term a second mortgage, it implies what? That there's a first and then there's two loans in total here, a first and a second and each is secured by a mortgage. So under what circumstance might there be two mortgages to loans? Well, maybe a buyer wants to buy the seller's property for a hundred thousand. 

So they agree to buy with the seller and the buyer can get $80,000 loan, let's say from ABC Bank. Now, ABC Bank wants a mortgage on the property to secure that 80,000 Dollar Loan. Which means that the buyer is going to have to come up with 20,000 as the down payment. But he doesn't have 20,000, he has 10,000. So in order to complete the transaction he finds another lender who's willing to loan him that other 10,000. So we find another lender, call it XYZ Bank, who's willing also to give him a loan for an additional 10,000. They want a mortgage to secure their interest in the property their 10,000 and the buyer in this case would come up with the 10,000 of down payment. Now, if your ABC Bank, what position do you want to be as a lender? Clearly, as we've spoken with and talked with about before. You want to get to the registry and record your mortgage first? Why is that? Because you're owed more than the second, and mortgages are paid off in what order? First and date of recording. So being the first and the first recorded you take priority. So at the registry of deeds you'd want yours recorded first because it takes priority over the second. Or the second person who gave you money. Now, sometimes the second person that gave you money might have recorded it first. So then they technically become the first mortgage. So that's something to be aware of if you're ever to lend money on a person's house but I'm sure most of us here will likely not do that. At least not in the beginning until you become a savvy investor. So in this case the smaller loan there would be to secure and be secured by the second mortgage. If this property is sold while then ABC is entitled to 80,000 and XYZ is entitled to their 10,000 to repay back. Sometimes the seller might be enticed to give the buyer a $10,000 loan or any loan for that matter. So it doesn't have to be a traditional lender it could be anybody. Like I said before, it could be you as an investor may be in times where it's tough to find buyers because there's a lot of property on the market for sale then the seller sometimes in order to make this sale attractive might offer attractive terms. Maybe they don't need all the equity at the moment. So they're willing to take a chance on the buyer of paying them back. 

Let's say in this situation 10,000. So, out of the proceeds the sales proceeds they give the buyer a loan. So the seller in this case is giving the buyer a loan for 10,000 and secures the promise to repay that loan with a mortgage. So he's helping the buyer out here by giving him seller financing. In the term of the second mortgage. Okay, imagine you go to a lender and say, listen I've got 20 grand of equity in my property. I want to travel the world. They say, great how much of a loan do you need from us? 10,000 you say, so the bank says, okay we'll give you a $10,000 loan. Give us a mortgage on the property. So another purpose of the second mortgage might be for an equity loan or someone call it an equity line of credit. Based on the amount of equity that you have in your property. So, you can do whatever you want with it. But again the bank wants to make sure they get repaid. So they give a mortgage. And like I said often called a home equity line of credit. So, various purposes for that second mortgage but it involves another loan and the first mortgage generated takes priority over the second. A purchase money mortgage. Again, we're dealing with seller finance in which the seller acts as the bank. So sometimes sellers own property outright. They have no loan and when selling the property they would get the entire purchase price and sometimes getting a big chunk of money in one year ups their tax bracket meaning they're going to have to pay a large income tax that year. So many times sellers don't want that if they don't need all the money. So, maybe they might be enticed to act as the bank, meaning this buyer wants to buy your property. Mr.Seller he'll give you 20,000 in cash as a down payment. How about you act is the bank meaning you give him 80,000 out of your equity and secure it with a mortgage on your property that you just sold. So you make a little bit of interest on the money that you're borrowing. It's an investment in the borrower. From an income tax standpoint the income that I would generate on the loan is considered income but may not boost me into the tax bracket that entire hundreds of thousand dollars might. So, it's an income taxed at a lower tax rate. Some sellers may not be able to do that because they need the money but that's another way to finance the purchase known as a purchase money mortgage when the seller does that. 

We've talked a little bit about equity loans and the ability to use the equity in your property for various purposes again a second mortgage or secured by a mortgage. Sometimes people may through the mail or over the phone ask you would you like a line of credit based upon your equity in the property. Would you like a line of credit meaning a sum of money that will allow you to use but not necessarily all of it. You can use all of it. You just have to pay it down over so often and you can borrow it back up to the limit again kind of like a credit card but secured by the property.

A package mortgage involves another loan in which collateral is both real estate and personal property of the borrower. So when we're using real estate and personal property as collateral for a loan, now we have a package mortgage. Package mortgages might be involved with restaurants. So a borrower goes to a bank and says, listen I'd like to buy this restaurant property and open up a restaurant there. So I want to buy the building and the real estate land. But also need money to open up this restaurant. So they say, okay we can do both things but what an interest in both of those things? The interest in the real estate as well as the interest in the restaurant meaning everything in the restaurant is under the terms of the mortgage. So all that restaurant equipment falls all under the terms of the mortgage and if this restaurant doesn't operate, goes under let's say the bank can put another restaurant operator in this building with a turnkey operation. It's all under the terms of the mortgage your personal brand. When apartment buildings are financed, well the refrigerators, stoves personal property and the apartment building the washers and dryers well they're making a loan on those as well but their personal property so they get included also under the terms of the mortgage under what we call a package mortgage. So the owner can't sell those and cannot take them away. That's part of the mortgage premises. If anything happens it belongs to the lender and last an interesting kind of mortgage a reverse annuity mortgage. Now, you probably often see this on TV radio ads offering senior citizens 62 years of age or older. The ability to use the equipment that they have built up in their primary residence perhaps for income purposes. So many times seniors have lived in a property for years and had built up a sizable amount of equity in that property and they may need an income to live on. Perhaps they've retired in their social security payments aren't enough to keep them afloat. So they want to tap into that equity that's in their primary residence here. So one of the ways they could do that traditionally was to take a loan out based on the amount of equity they have the bank would give them a percentage of the loan amount. Typically the remaining equity which they could put in a bank and use it to live on but the bank is expecting monthly principal and interest payments. So not only are they withdrawing money to live on but they are also making a return payment in principle and interest to the bank which often depletes that loan very quickly. And it's not only a long-term solution at least not really. So that really wasn't there usually isn't a favorable situation and most cases but it is a good tool to use if and when needed. The other one is to get all of the equity out of the property by selling it. So, the senior would sell their principal residence. Take all of their equity and move perhaps to a rental property put the money in the bank and live off of it. But they don't want to move let's say they don't want to leave their principal residence. But without selling the property it is it's difficult to get out the equity. So this type of financing known as a reverse annuity mortgage allows the senior to use their principal residence not for investment properties. Now let me just emphasize that this is not for investment properties only a primary residence. and the equity in it for purposes of income if they need it. So the senior would negotiate with the lender a loan amount based on the amount of equity and let's suppose in this case is a hundred thousand dollar loan amount. So every month the senior would get from the lender a payment that they could use to live on. So every month let's say they're getting a thousand dollars the bank does not exactly expect a monthly repayment of the principal with interest but it is getting accumulated interest in the seniors property equivalent to the principal and interest on the money used. So, the amount of the loan is consistently going up as a senior uses it. When the senior is no longer with us unfortunately these state pays off the loan balance at that time. So the senior gets to use the money the equity in their home for living expenses without having to make a return payment monthly in principle and interest. On the rare chance that the senior exceeds the repayment period meaning they've used all the hundred thousands of what have you of interest and they can't refinance to do it again because the value of the property didn't go up it might have dropped. Well then the federal government would step in and pay off the difference if the senior didn't. So they're insured by the federal government in this type of financing.

Most often loans given on real estate are secured by the use of a mortgage. Meaning the bank is a partner with me in the ownership of this property. While I'm repaying the debt. They have a legal right given to them under the terms of the mortgage until I repay them. Some states however do not use a mortgage and allow other ways to secure the repayment of a loan with real estate. Other than through the use of a mortgage. This one is not as common but on the exam again we do have to understand a little bit about what it is. First of all, this is not something that is found here in Massachusetts we make sure you understand that. This would be probably in the general portion of the exam but other states may use it and it's known as a trust deed or deed of trust. This is another way that real estate can be used to secure the repayment of a loan other than through the use of mortgage through a trust deed or a deed of trust. Now, with a trust there are three points to the trust. Now first off, we have a lender who gives a loan to a borrower and the barrower is expected to repay that loan with principal and interest. Now, how is the lender going to feel comfortable with making this loan to the borrower? Well typically as we've discussed they asked the barrower to give a mortgage and then they could step in and take it over if they weren't repaid. But in this case we're going to use a deed or a trust to do that. So the borrower here is getting the money from the bank. It is known as a trustor he gives a trust deed, meaning deeds his property to an intermediary, middle person comes. This trustee as we call them is to hold on to this deed for awhile while repaying the debt. So ownership of the property given to the trustee with the instructions that when the loan is repaid and you were told by the lender that it has been paid then you will use what we call a reconveyance deed and deed the property back. So as long as that happens the borrower gets the ownership of the property back. If the borrower defaults doesn't repay as agreed. The instructions are given to the trustee in that this trustee that intermediary would immediately transfer the ownership of the property to the beneficiary of this arrangement and that is the lender. So the lender becomes the owner of the property of this happens. If the borrower doesn't repay and doesn't need to foreclose it doesn't need that process like we have here. This happens automatically so many states don't use it because they don't feel it's adequately protects the borrower but it is another way that in those states allow it. Real estate loans could happen through the use of trusts as we, as I just said. So we want to remember these three prongs trustee is the borrower, trustor is the borrower trustee holds on to the deed while the loan is being repaid. The beneficiary would be the lender and would become owner of the property upon default from that borrowing and we also use and we also could use an installment land contract to also secure the promise to repay a loan. So remember what the installment contract, I'm paying off the property value through periodic installment payments. Now if I complete these installment payments then only then do I get ownership of the property. So the seller of that product can have this type of loan agreement to secure the promise to repay the loan. Because if I don't repay the loan as agreed I don't get any of the payments back and I never get the ownership of the property either. Because I didn't pay so again, type of loan repayment is not that popular but also could be one way that we could secure the repayment of a loan on real estate through the use of installment land contract. This is not in Massachusetts trust deed or deed of trust.

Financing. Now financing is an important aspect in our business. Most buyers do not buy real estate with cash. So they need the help of somebody else to do this. Now, we're not the lender but we do assist in somebody getting financing from a lender. So we're involved in the process because unless the buyer gets financing in most cases they cannot complete the contract to buy the property. So we're going to be assisting the buyer here in arranging for financing. That is our role in this process at least part of it. And we are not expected for the purposes of the exam to understand all of the intricacies of every financial program as possibly out there they're are just too many. But we are expected to know some of the basic essential concepts associated with financing. So we're going to be going over those as well as some of the basic programs associated with financing such as a conventional loan such as a loan that requires private mortgage insurance and the benefits of it to both buyer in the bank, governmental programs, VA and FHA. And some of those aspects of those. We are also expected to know some of the governmental laws associated with financing such as the truth and lending laws and the equal credit opportunity act and how to compute a loan payment. If a buyer says to me, Paul if I was going to borrow 100,000 at a current interest rate and I want to repay it in 30 years, how much would my monthly payment in principal and interest be? We should be able to compute that and I'm going to show you how to do that. You may get that on the exam.

Steps in the financial process. Now, before we start talking about the actual steps I just want to make an overview of the financial process. And that is the issue of the borrower who wants to buy real estate but doesn't know if they can really do it because they haven't been to the bank to determine if they can get a loan. So the problem for us is that do we know that this person can even get a loan? Do I want to spend a lot of time spinning my wheels with a particular buyer if he or she can't get financing? We don't have the ability to do credit investigations sufficient enough to determine us whether or not there's buyer can get a loan and we're not familiar enough with all the programs. So the seller depends on us to find a qualified buyer. Many sellers don't want to enter into real estate contracts with the buyers unless they know that there's some assurance that they can get the financing. So if the buyer hasn't been to the bank yet we're taking a risk by putting that buyer into a contract with the seller depending on financing to know if they can even get a loan. So mean, why would we do that? So before we do that it might be a good idea in general to ask the borrower to become pre-approved. First, meaning go to the bank go through the process of being approved as if we had found a property for you to get the credit issue out of the way first and to find out are you financeable. We can have the lender then tell us what price range we should be looking based upon what they can afford, then I can tell the seller, yes qualified buyer. Now, particularly banks do not want to deal with borrowers to buy properties that they foreclosed on unless there is a pre-approval letter attached with the offer. Many sellers today are consoled by the real estate agents. If they don't submit a pre-qualification or pre-approval letter with the offer we don't know if they're really financeable and many sellers don't want to enter in contracts unless they have some degree of assurance like I said before that the buyer can get into this. So we could step in the process initially is to sent to the borrower to the lender seeking pre-approval. Have the lender go through the process of determining their financing ability and like I said before the credit score also employment history and the money in the bank that they have in order to you know depending on the program how much to put down. Have them tell you whether or not they're financing obviously or if they're paying cash. The benefit to the borrower is that the seller is likely to more likely accept the offer. Otherwise, it's going to be difficult to prove now we are working toward what we call a letter of commitment. So a letter of commitment it's a letter from the lender to the borrower indicating that they are going to give them the loan and the terms in order to buy the property. Now is part of that this letter of commitment will be that the lender will require the buyer to pay for the cost of an appraisal to be done on the property. So an appraisal is needed to determine the value of the property for lending purposes, so how much of the loan will the bank on this property. Well, maybe we have a contractual sales price of 200,000. So the bank says, well how do we know this property is really worth 200,000. I mean the buyer and seller negotiated that price, right? But we don't really know yet whether or not it's worth 200,000 to us so in order to make this loan to you. So we're going to send out this appraiser. In fact with sending out this appraiser but you Mr.Buyer you're going to have to pay for that cost of it because it's associated with your finance and they're going to determine for us what they believe the value of the property is for lending purposes. So the appraiser is typically somebody who is not associated with the bank. It's not somebody associated with the transaction and not associated with you, the buyer and to give an independent analysis of the property value for the lending purposes. Now if the appraisal is done and the appraiser goes and the appraiser does agree that the value of the property is 200,000. Well, then the bank is going to make a loan decision based upon that info. However, suppose the bank appraiser comes in at a lower number and does not believe it's worth 200,000. He believes it's worth 190,000. Then the bank is going to make a loan on what number? The 190,000. Now if the appraiser believes they got a good deal thinks is worth more than the purchase and sale price then the bank is going to make a loan on what number? On the 200,000. They're not going to give you more not typically. So it's always the lower of the appraised value or contractual sales price. 

Now in the letter of commitment this letter from the bank indicating you've got the loan, if you are the borrower what might you like to know in your letter of commitment from the bank? Your terms the interest rate. So what rate of interest are they going to charge you on the money that your borrowing? And what else is interesting about this? What do we need to know? Is it a fixed interest rate? Is it an interest rate that will not change? Is an adjustable? Even if interest rates go up this one won't. If it goes down this one won't go down, either. It stays the same. So fixed rates will not change or like I said before is it an adjustable rate mortgage interest rates that adjust accordingly up or down? How long also do you have to repay the loan? The term of the loan could be 15 years, 20 years, 30 years. There actually some that go as high as 40, 50 and so on or less we have 7, 5 and 3s but the standard is 15, 20 and 30. As we increase the term of the loan the monthly payment in principle and interest decreases. So sometimes that's the way we can make payment more affordable for the borrower to increase the loan term. What are the costs are going to be associated with the loan? A buyer intends to get a 180 thousand dollar loan. So he's got to come up with a $20,000 down payment. But in addition to that they're also going to need additional money to pay for what? Closing costs. That's right on addition to the mortgage. There's a thing called closing costs. So there's additional money that has to be paid for these that will never be recouped, once paid they're gone but we still need in order for the process to be completed in this loan process. So the commitment letter outlines the terms of the lending, how much of a loan I can get? The terms under which I have to repay? Now I received a pre-approval letter from the bank indicating that I could get a $200,000 loan. So based upon my creditworthiness they believe I can afford to buy a property and get a loan at that amount. Could I buy a property for 200,000 and get a $200,000 loan, meaning get 100% financing no money down? Most often banks would say even though you're qualified for more. They won't loan you all of the purchase price. You can have to contribute something into the mix here. That's traditional but not always. So the bank's loan to value ratio as we call it is a further constraint on the lending process. The loan you a percentage of the value of the property. Even though you might be able to afford more. They can't loan you more based on the loan to value ratio of that lender or they don't want to. In this case if the bank said, you want to buy that property for 200,000, and our loan-to-value ratio maximum is 80%, then the maximum loan we can get from them would be 160, 80% of that 200,000. What we do is we multiply your percentage by the purchase price to determine the loan amount but it's not that complicated. You just determine 80% out of a hundred and there you go. So I'm going to have to come up with this 40,000 to offset the difference to meet that 200 as a down payment even though I might be able to afford more because they're not going to loan 100% for a standard conventional loan. Some lenders might have higher loan-to-value ratios. In fact, when dealing with the FHA they may go up to 96.5. That's right, three and a half percent down. So various programs might have different requirements, again the borrower is going to have to be financially qualified to afford them. But the loan-to-value ratio establishes how much of a loan I can get from the lender on that property. So if we see an example on the exam the borrower was getting an 80% loan based on a purchase price of 200,000. They're talking about the loan-to-value ratio. So I buy the property for 200,000. The bank is going to give me 80% loan so we know that's 160 or a 160,000. The borrower needs on in the commitment letter and says that the interest rate is going to be 5% per year and it's going to be a fixed rate over 30 years of repayment. Meaning it's not going to change over those 30 years. Then the buyer reads on and it says in order to get this interest rate under these terms the buyer, borrower at the end at the real estate closing has to pay two points to get those long term. Whoa, so the buyer calls you up as the real estate agent. You sent me to this bank I got this I don't understand what points are, more money to pay. The buyer says they're telling me that I have to pay additional money to the lender to get these loan terms. You would probably say? Yeah, that's right. And then they say well how much money is that going to be? One point is equivalent to what? Let's say it's one point, 1%. One percent of what? The loan amount. Always based on the amount borrowed. When is it paid in the beginning upfront at the closing? One time and once it paid gone even if you refinance the loan with another lender tomorrow you're not entitled to a refund of any points. It is a cost associated with borrowing the money paid by the borrower or others and could be the seller who agrees to pay it. The real estate broker maybe want to credit their client. It could be paid by anyone. So in this case, two points 3,200 paid by the buyer upfront at closing as additional money is needed in order to get this financing. So in addition to the down payment the buyer says, that's crazy. I'm going to call that bank back right now. I'm not going to get that loan from them. The loan originator at the bank says that's okay. You don't have to pay points if you don't want to but guess what? The interest rate is going to be a little bit different. With two points five percent interest rate. You don't want to pay points. No problem, five and a half percent. No points. What do they just do there? I want to lower my interest rate the borrower says, no problem. the bank says four and a half percent for points. So points do what to the interest rate? It's kind of a seesaw effect, right? The more points I pay the lower the interest rates. A few of the points I pay the higher the interest rate. So it offsets the interest rate. As it cost to the borrower. Then the borrower reads on and says, in addition to the points the bank wants me to pay 1% origination fee. Well, what's that he says? That's another cost involved. When's that one paid? At closing? How much is that? Same way 1% origination fee, which is one percent of the loan amount. The buyer says, I thought this was points. Well, yeah, but this is for something else. He says, well I get a lower interest rate, right? No. Then what's the purpose of it? What's the purpose of the origination fee? Is to offset the lenders costs of making that loan. It is pure income to the lender. It offsets the cost of the secretary, the heat, the copy machine, it offsets the cost of making the loan. If I want a lower interest rate I pay more points origination fees are the offset to making the loan to the lender. So we may have origination fees and points computed the same way, but for very different purposes.

Where could a borrower go to get financing? 

So, if a borrower came to you and said, listen I'm going to need a loan to get financing, where gonna go? 

Well, anywhere a borrower would go directly to a lender is known as a Member of the Primary Mortgage Market. Commercial Bank Savings and Loan Institutions, Credit Unions, Cooperative Banks. All our members of the Primary Mortgage Bankers and Brokers. They don't necessarily loan a borrower directly the money but arranged for the financing with others. So, a mortgage broker may have arrangements with several lenders or more, and places the loan packet paperwork with an appropriate lender based upon the borrower's circumstances, and then they're paid a fee to do that. 

A private individual can give us a loan. A pension, a retirement fund, and insurance companies all loan money on real estate. And if that's where I could get a loan they would also be considered a member of the primary mortgage. So, anywhere the borrower would go directly to get a loan we would consider a member; again, of the Primary Mortgage, that network per se. 

Now, where do members of the Primary Mortgage Market get their money to loan to you for real estate. Way to Banks Savings and Loan institutions, Credit Unions, where do they get the money? Where did they get that money to loan to you? Do you know? It used to be through depositors in Banks, savings accounts, long-term certificates of deposit also known as CDs. They would use the money in those accounts to loan on real estate but unfortunately the demand for real estate loans exceeded the ability of the banks to continue to make these loans based on their deposits. There are too many people that wanted real estate loans and the value of the real estate kept climbing far in excess of these accounts. So many banks back in the late 1970s had to actually shut down. They couldn't make any loans until more deposits came in. And when there's no credit available for real estate we've seen what happens to value of the real estate. So the banks have to find another way to finance real estate loans other than through deposits in their banks and this spawned the creation of the secondary mortgage market. 

Many lenders do not want to make a loan at a fixed rate for next 30 years. Why is that? 

If you were the lender sitting behind your desk and the borrower came in and said; "I want a fixed-rate loan, what are the going rates? And you say five percent. How long will I have to repay?" You say 30 years and you made that loan at what rate of interest will the bank be repaid their money over the next 30 years, 5%. What's the risk to them? Interest rates could go up, right? They're not going to be making as much of a profit but they're only being paid back five percent. They wouldn't be profitable. So lenders don't want to make long-term commitments to borrowers at a fixed interest rate, but borrowers want that type of security when making that loan. They wanted to know what the monthly payments was going to be. I mean, I would to something at least stable. In my mind. To make it more affordable also for them. But bank said, wait a minute we don't want to make those types of long-term commitments. So maybe there's another way that we can finance this purchase by selling this loan to someone else and in return will get money back to loan out again; perhaps at a higher interest rate. So we'll be more profitable provided interest rates go up. 

So part of the lending process today many lenders participate in selling their loans to secondary market participants. Another entity who will purchase the loan and then give back to the lender money that they can use to lend out again. And in the secondary market. They are typically considered government-sponsored entities. They come under the Federal Financial Finance Housing Association. Fannie Mae, Freddie, Mac. Ginnie Mae. 

Unfortunately, many of the loans that were sold to Fannie Mae Freddie, Mac and Ginnie Mae didn't perform too well based upon the loan programs and they lost a lot of money and the public had to reinvest in these government entities. So they are still around and they still offer the ability of the lender to make a loan term commitment on a loan and a way to sell the loan. 

Fannie Mae, Freddie Mac, and Ginnie Mae are still the big three. Fannie Mae is the Federal National Mortgage Association. We want to make note that they are the largest purchaser of loans in the secondary market. Fannie Mae (FNMA for short) they purchase as noted their conventional loans. They also purchase FHA loans as well. So they purchase a variety of loans typically on owner-occupied, 1 to 4 family loans. 

Freddie Mac, the Federal Home Loan Mortgage Corporation, they are very similar to Fannie Mae but not as big. They purchase primarily from Savings and Loan institutions, conventional FHA, and VA loans. 

Jeannie Mae, the Government National Mortgage Association typically purchases loans made on properties in rural communities backed by the US Department of Agriculture as well as purchasing VA and FHA loan. They purchase government-backed loans primarily. 

Now because Fannie Mae, Freddie Mac, and Ginnie Mae purchase a big share of these loans they have guidelines under which lenders who want to sell these loans to them must follow. Otherwise, they won't purchase them. So in the case of Fannie Mae and Freddie Mac owner-occupied 1 to 4 family properties they set limits as to how much of a loan they will purchase; they impose guidelines. Creditworthiness of the borrower as well as appraisal guidelines to appraisers who are appraising the properties at which they are appraising, in which the loan may be sold to them. They impose guidelines, such as creditworthiness of the borrower, as well as appraisal guidelines to appraisers who are praising property in which the loan may be sold to them. The lender again participating in the secondary market has to satisfy the lending guidelines of the secondary market to be able to sell the loan. 

Now, some loans known as jumbo loans are loans that exceed the Fannie Mae and Freddie Mac limit for 1 to 3 family homes. So the lender is really forced with finding another purchaser of the jumbo loan if they can't sell it to Fannie Mae or Freddie Mac or Ginnie Mae. So the terms of the lending might be different because another purchaser in the secondary market might consider this to be more risky loan. And therefore, the interest rate might be higher, the points might be higher. So, therefore there is financing available, but again, the terms of the lending might be different. 

Now, as I mentioned earlier we are not going to be concerned with all aspects of finance but we should be a little bit familiar with the big three, these major types. So, the three main types of loans again a mortgage secures the repayment of a loan. So when dealing with financing, what are the three major types? We have conventional loans because of a high loan to value ratio we might need private mortgage insurance sometimes also known as PMI and  we'll talk about the benefits of that and under what conditions they may be needed. And then we'll talk a little bit about the government backed financing such as V A or Veterans Administration and the FHA the Fair Housing Administration and some of the aspects of those financing.

Conventional loans. What we want to remember about conventional loans is that conventional loans come without any governmental backing to them. So there's no government agency like a VA or FHA that is backing up the borrower if the loan is made. So in dealing with this particular type of finance or financing, the bank is at risk when they loan conventionally, thats right the bank takes a risk. Banks don't generally like to take a lot of risk. They want to make sure that if they make this loan there's a likelihood it's going to be repaid. Conventional lenders typically make up their own loan terms to reduce this risk. So conventional lenders might say well we're going to limit the property types that we're going to loan on. Maybe we don't want a loan on all property types maybe owner-occupied one and two family properties where there is less risk involved not saying everyone does that but some do, some might say if we're going to loan to you since you're a conventional buyer we're going to require that you perhaps pay us more as a down payment, therefore. Typically the threshold at which a conventional lender says we can't loan you any more is that 80% loan to value ratio meaning if you want us to loan to you you'll have to put down 20% of your own money and then will loan you the difference. If we're buying a $200,000 property and the bank says the maximum we're going to go to is 80% here well then that's 160,000, you need to come up with the additional 40,000, right? With that amount invested by the buyer we feel our 160 is pretty safe, that 160,000 is pretty safe. The property value would have to go considerably down before our money would be at risk. The majority of real estate loans are financed with conventional loans but many buyers have difficulty in reaching twenty percent down especially with the prices of homes these days. Lenders have to come up with a different way to finance higher loan-to-value ratio loans. And they did that through the establishment of the private mortgage insurance program or PMI for sure. 

Private mortgage insurance. PMI for short, allows the lender the ability to make a loan to a borrower that has less of a down payment then the 20% required under conventional loan.

 Statistics have proven that the lower the down payment the more likely it is for the borrower to default, unfortunately. So the lender is a little bit nervous when the down payment gets less than 80% because the borrower is more risky. So to make them a little bit less nervous, they developed the private mortgage industry. Meaning that there would be an insurance company that would bear the risk on higher loan-to-value loans at around eighty percent. 

So what this allows the lender to do is by getting an insurance company to take the risk of this higher than 80 percent loan to value ratio away from the bank. So they are a partner with the bank more or less in risk here. Now, what the private mortgage insurance company does (for a fee) the borrower pays typically monthly. They write an insurance policy on the loan, that if the loan does sour and the borrower doesn't repay the loan as agreed, then the insurance company will bear the risk of the default. They can either purchase the property or pay to the bank a portion of the loss. 

So banks having this type of insurance on the loan are more willing to take a risk with a higher percentage loan-to-value ratio than otherwise. Otherwise, they say to the borrower, listen we can't make the loan because your just too risky for us. But with this private mortgage insurance, this PMI involved, we can. So the biggest ensure... not something that you as a borrower would go out to find yourself of course... so don't shop around for this and don't tell your client if you have one that's looking to buy to shop around. The bank has an insurance company and it's part of the process of making a loan that will be insured by it. So if the bank wants to make the loan and doesn't want to take more risk because of the higher loan-to-value ratio, then by getting this type of insurance policy they can make the loan known that if there is a default and they potentially could lose then they are backed by this insurance company and it's going to step in and bear some of the costs. The upshot is that the banks can make higher loan-to-value ratio loans and borrowers can borrow with lower down payments. The cost to the borrower is a monthly fee. 

So typically when I'm making a payment to the bank I'm going to pay principal and interest on the loan that I borrow. I'm going to have to Escrow my real estate taxes and insurance on the house. 1/12th of each of those monthly, then I have to pay my PMI. So Pi principal and interest, TI taxes and insurance, and PMI private mortgage insurance. It's paid monthly and remains as a monthly payment until a couple of things could happen. Perhaps I get to a point where the value of the property and the amount of the loan, the loan balance, has now separated so that there is 80 percent loan to value ratio or 20% equity in the property. So the value of the property could go up. The payment of the loan balance goes down. Once we reach 80% I could ask the bank to send out an appraiser to my property and determine that. And then if we reach 80%... away goes the PMI. Provided I've been a good payer they must take it off at 78%. 

So hopefully you are able to buy a property and the value goes up and then you don't have to bear that cost. If you are the buyer. 

Sometimes you can pay a sizable amount of the PMI upfront and you don't have to pay it monthly.

One of the other ways that we can finance real estate are the government-backed programs, There are two that we should know of the major parts of the programs. And those are the fha-insured loans as well as the VA guaranteed loan program. VA stands for Veterans Administration's Guaranteed Loan Program. I love how these things are so long but-- but let's talk first about the FHA Loan program. FHA stands for another long one, Federal Housing Administration they are currently a part of the Department of Housing and Urban Development. They've been around for quite a while since the 1930s. So, the federal government believes that there is a social benefit to having more people own properties. They're living in rather than renting. So as a social benefit to having people have a stake of some sort. They want to encourage through the use of these programs homeownership. So that's the mission of FHA to encourage the various loan programs, homeownership. So the various types of programs that do this, the FHA insures loans made by approved lenders. Now, that is an important concept to understand,.  The FHA the Federal Housing Administration does not directly loan money to a borrower. Again does not directly loan money to a borrower if I wanted to get a loan under this program I go to a local lender. So let's say my local bank who participates in this program if I make an application for a loan with them they do a credit worthiness investigation then they hire an appraiser to go out to appraise the property and then make a determination of whether or not they want to give me a loan. They then send the paperwork on to the FHA or if they're an approved lender themselves. They have the ability to approve the loan but there has to be an approval process to get the insurance on the loan that FHA provides. So FHA insures the loan much like a PMI company does. But FHA has been doing it for a lot longer, it's 1930s they don't make the law but they ensure the loan that the lender makes. 

And under the program a borrower could get up to almost 97 percent financing by putting three and a half percent down, that's right Only 3% down. Now the lender looking at that one says again, that's kind of risky for us, you're only putting three and a half percent down. But the FHA says we want to encourage homeownership. So will ensure this loan that you make Mr.lender against loss. So we'll insure this loan that you make Mr.Lender against loss. Acting like a PMI company. There are standards in which the borrower has to meet in order to get this type of financing. Now, let's understand what types of property are available for FHA insurance. Although, there are several types of insured loans. The most popular program is the Title 2 Section 303B, yes I know this is not required to remember the exam. Okay, it insures loans for the purchase or refinances on 1 to 4 family owner-occupied residences and condominium units.

Now, let's understand a little bit about some of the program requirements. First off, many people have the impression that this type of program is a first-time buyer only program and that is not true. Anybody is eligible as long as they are creditworthy under the program to get an FHA loan and the property type qualifies. So anyone eligible doesn't have to be a first-time buyer, doesn't even have to be a US citizen as long as you have a Social Security Number and are otherwise qualified. Also, it is not a below-market interest rate program. So the interest rates typically are what interest rates are in the area for other types of financing that are similar. So the interest rates are not below market or set by the Department of Housing and Urban Development but rather their market-riven. And if I want a lower interest rate I would negotiate that with the lender who's giving me the money. If I wanted to pay more points I can get a lower interest rate. The FHA does not regulate that I have to however state that the intention of the loan is for owner occupancy. I have to sign a statement when I apply for the loan. And again at the closing my intention in receiving this loan is to occupy the property. It's not for investment purposes. Now, does that mean forever that I have to live in this property as my primary residence? No, but we do have to sign a statement that we are intending to occupy the property and be a truthful statement. There is a minimum down payment, three and a half percent currently, o prepayment penalties can be charged. So if we want to pay off early or refinance with another lender, we could. So there's no prepayment penalties. That can be charged under the loan, which is a nice thing. How much of a loan we can get depends upon regulations set by Congress? So, Congress periodically reviews the maximum loan limits and then they want to ensure based upon the medium price of property in an area. We get the highest allowed by Congress thankfully but if you go out and say let's say you go to Springfield Massachusetts, which isn't a lower value range. Well, then the maximum allowed for 1 to 4 family properties is obviously lower than say Cambridge. So, if you want to see what the maximum loan limits are for areas that you live in, you can go to hud.gov. I think it's www.hud.gov. In the search put in maximum FHA loan limits and put in a zip code. They'll tell you the maximum loan amounts in that area.

FHA does require that property itself meet certain minimum habitable standards and that is determined by the appraiser who goes out to the property. There is a checklist they follow in order to make sure the property is structurally sound. They're not doing a home inspection. They are checking on certain things that other types of financing appraisers may not. To check for roof leaks looking for cracks in the basement and so forth and make sure the heating system operates, the plumbing is not leaking etc. But they want to make sure of is that the buyer is contributing a minimum amount as a down payment as well and isn't going to buy this property and them discover that there are a lot of problems with it and then not have the money to fix any of those issues and hopefully not default. Part of the process to determine if this property meets certain minimum standards, they're not overly burdensome. A dilapidated property is definitely not going to be fitting with the FHA. Certain things would have to be fixed before the loan. The loan is assumable. So we want to remember that a part of the FHA financing package is that in the future should another buyer come along and want to buy this property. They could step right in where the existing loan borrower left off. Same interest rate, same terms provided the borrower was credited. So the new buyer has to approach the bank on the loan of the creditworthy process. Providing they meet those standards within the loan. It could be assumed at a very minimal cost rather than getting traditional financing discount points and origination fees are as we mentioned are at the discretion of the lender and the borrower. So they would negotiate those as part of the lending package. The cost involved in the FHA loan program is in the form of two fees. They are insurances, but they are fees. Now one of the fees is paid once upfront and the other one is paid monthly. The upfront fee is a mortgage insurance premium, that is an upfront cost. The amount of the MIP does vary from time to time. The FHA will establish different upfront costs. So we can't with certainty say it's always going to be the same. 

Let's assume for the moment that it's one and a half percent. It may not be that for the future. This cost base on lets say a $200,000 loan would be one and a half percent of that 3,000 paid upfront. So the borrower can come up with an additional 3,000 and cash as closing costs or can add it to the amount financed. So they would be financing 203,000. That's the MIP fee, the Upfront cost. Then a recurring monthly one known as mortgage monthly mortgage insurance, MMI. This one is very similar to PMI monthly cost but just a different term. The amount of that will vary based upon the amount of the loan, the down payment being made and the creditworthiness of the borrower.  So we can't really calculate that, that's a lending issue. But there is a monthly cost and this monthly cost does pay on the loan until it is totally repaid. So unlike the other one where it goes way at 80% this one does not it stays on the loan until it was totally repaid. Either paid off or refinanced.

A governmental program known as the VA program the Veterans Administration it’s a guaranteed loan program. The Veterans Administration established a benefit program to returning veterans after World War Two and part of that was the ability for veterans to purchase real estate. They've been away at war for a few years let's say and really hadn't built up any savings but yet they needed housing. And under this program they can purchase real estate assuming that they're qualified with no money down 100% financing. They have to be creditworthy and afford the payment however. But there is the possibility of getting 100% financing in order to be eligible under the program. The veteran must get a certificate of eligibility from the Veterans Administration.

Now, there are numerous purposes for the VA loan as we'll see. The Veterans Administration is not the lender like FHA. Local banks loan the money and determine the creditworthiness of the borrower and then they send out the appraiser and then ship the paperwork for approval to the VA. So they look at all of it and then determine whether or not they're going to guarantee the loan. The Veterans Administration guarantees a veteran's loan for the purchase, refinance, and or construction of a home. So we can use a VA loan to build or construct, FHA does not. The VA also guarantees loans for the repair or alteration of a home, a home improvement loan. Also, the purchase of a farm, condominium, or a mobile home and a lot to place it. So there are numerous purposes. But the VA does not make the loan, remember that. It guarantees the loan to the lender who makes it. FHA insures VA guarantees a loan, kind of similar to what they do but a little difference in effect. The loan terms can be as much as 30 years and must be owner-occupied.

There is the ability in this program as well to assume the loan. The loan could be assumed by anyone after that. Assuming they are creditworthy. They have to make application to the lender who has the loan and be credible but it doesn't have to be another veteran. No repayment penalties under this program and points are not regulated. If a veteran wants to pay more points to get a lower interest rate the Veterans Administration does not regulate that practice. However, they do regulate the origination fee. The Veterans Administration wants to make sure that the veteran is not paying unusual charges. So they have a set schedule of what they will allow the veteran to pay at the loan. Closing and one of the other particular ones that they do not exceed is the 1% origination fee, I think it's 1% still. Now, what is the difference between points and origination fees? Points, do what? They offset the interest rate. So they're not going to regulate that. They're going to regulate the origination fee. The purpose of the origination fee is to do what? It pays the overhead in making the loan. So they'll allow the veteran to pay one percent of the loan amount for that purpose but no more than that. If more origination fees are charged somebody else has to pay but not the veteran. It could be the seller, heaven forbid the real estate agent. So, one percent maximum origination. Now, the cost to the veteran is in the form of a one-time fee paid at closing not recurring monthly. One time a closing, known as the, known as the funding fee. So a veteran is buying a property for 200,000. The VA says in order to make this guarantee we have to charge the veteran a cost known as the funding fee. Paid one time upfront, this cost varies set by Congress. Let's suppose we're at 3%, so there's one time upfront cost, in this case, 6000 or can be added again to the amount financed. This fee can vary based upon the level of down payment. So if I'm getting 100% financing I'm paying the max, right? As the down payment increases the amount of the funding decreases. But it is paid one time on a sliding scale. The VA does not have a set amount like the FHA does for a loan amount. It tells the lender if they want to make a loan to a veteran we will guarantee a portion of the loan typically 25% but they don't set a maximum loan amount. So as long as a veteran is creditworthy and can make the monthly payment based upon the amount that they're borrowing. Then the VA will make the guarantee, there is no set amount. Now veterans sometimes are under the misconception that this is a One-Shot deal that once I use this program once, I'm not eligible any longer. This is not true. So if you ever come across anybody that is in a veteran or in the military and they're able to take advantage of this program let them know that it's not a one-time deal. They can use the benefit over and over again, it's a beautiful thing. But there is some limits, number one they cannot have more than one VA loan out at one time because again it's got to be owner-occupied. That is the benefit of this loan. On a VA loan in selling your primary residence they are now eligible to use the VA benefit again.

Amortization. Concept of amortization. Amortization is repaying a loan with periodic payments. You ever look at one of those books that call itself on the front and amortization book. It's basically a calculator for mortgages and a breakdown of what you would pay monthly and so on. There are various methods that we can use to amortize alone. It depends on the loan program. One of the ways that we can amortize alone is through the use of an interest only loan. Sometimes known as a straight loan, coupled with a balloon payment. A straight loan sometimes known as an interest only loan as I said during the term of repayment, what am I paying back to the bank? Just interest none of the principle is being repaid. To amortize a loan I must repay the bank the principal. Principal is what? It's the amount borrowed plus interest. What is interest to the bank? Their interest is what they earn on money borrowed. So how do we compute interest? If this is an interest only loan, what do we have to know in order to compute the amount of interest paid? We have to know the amount of the loan. The principal and the interest rate. If we multiply the principal times the interest rate it will equal the annual amount of interest paid. 

So, here's an example, if I'm borrowing $100,000. The interest rate is 5% per year. So how do we compute the annual amount of Interest?  Well, we have $100,000 the interest rate is 5% annually, we are to pay the bank $5,000. Now, why is this an annual amount of interest that we've just computed for the year? This interest rate is quoted as an annual rate. It's 5% per year. When we compute interest this way. We've just computed the annual amount of Interest the borrower would pay to the lender. If on the exam they ask you, how much would the first month's interest payment be? How would you then compute it? Divide by 12 months it will give us the first month's rent. Now, imagine we have an interest only loan. One hundred thousand, five percent per year in the interest rate. So in the first year, how much will this borrower pay the bank in interest? 5000. And at the end of that first year, how much will that borrower owe the bank in principle? Still 100,000? Because all I paid to the bank the first year is the interest they're owed on the money borrowed next year. How much am I going to pay the bank in interest? Another 5,000. And at the end of that second year, I would owe the bank how much in principle? Still 100,000. Nothing towards repaying the principal. So at the end of this loan repayment period for years down the road let's say, how much will I owe the bank in principle? Still 100,000. Now they want their principal repaid, obviously. You're not just going to keep on pushing that amount every year over and over. To amortize this loan we have to repay back all of the principal with interest. Now, they want all of their principal paid in one payment. That one payment in this case for 100,000 that's paid at the end of the repayment period. That one payment is known as a balloon payment. We have to come up at the end of the loan repayment period with $100,000 payable to the bank in one payment, how might we come up with 100,000? So, the property, right? Hopefully, it's gone up in value enough so that I can get a 100 thousand dollars out of it and then pay off the loan and maybe pocket some profit. It's okay as long as the value of the property went up. Maybe we can refinance it at 100,000 and then pay them off again getting another loan and then paying the original lenders off but unfortunately, we're just putting ourselves in the same spot by getting a new loan of the same type of terms. There are various ways it's not the most common form of financing real estate. But again, there are various ways. It's not the most common form of financing real estate. But again, not uncommon either to pay interest only or a straight loan couple with a balloon payment. 

More commonly with real estate loans. We are repaying the loan with a concept known as direct reduction. Now, with direct reduction we are borrowing a sum of money and we are making a monthly payment that includes both principal and interest. This is what most of us are familiar with. The payment amounts are interest and principle that does not vary promote the month, the payment amount even though the same from month to month. More of that payment is going to principal less of it going to interest overtime. At the end of the repayment period the entire principal balance has been repaid as well as all the interest that the bank is entitled to earn at the interest rate. There is no balloon payment. So that is the concept of direct reduction. What payment would I have to make in principle and interest only? 

Perhaps in the exam you might get a question. What payment would you have to make in principle and interest monthly so that the end of the repayment period all of the principal and interest would be paid? If you get a question like that on the exam and you cannot bring a financial calculator into the exam with you, which is typically unlikely, then they're going to have to have an amortization chart or a table of some sort to help you calculate that type of monthly payment. We don't have to worry about how we're to figure it out. We just have to know how to use the chart in order to calculate the payment. Now, this chart and numbers on it are based upon borrowing $1000. That's the principal amount and repaying it back with monthly payments. At an interest rate for so many years. So if you are borrowing $1000 the interest rate the bank is going to charge you with 7%, let's say per year and you have 30 years to repay that thousand dollars, go down, the seven percent column, go under the 30-year column. What number would you see? 6.66. If you paid the bank six dollars and sixty six cents monthly for the next 360 months. Thirty years, 12 payments then at the end of the three hundred and sixtieth payment you will have repaid back to the bank. The principal you borrowed plus all the interest that the bank is entitled to earn. That's the payment you have to make six dollars and sixty-six cents monthly. If you paid less than six dollars and sixty six cents, I paid $6 then at the end of the payments you would still owe the bank principle. Because the payment you were making was not enough to repay back all the principal with interest. We also have adjustable-rate loans mortgages. Now adjustable-rate loan programs have the ability of the lender at periodic intervals to charge the interest rate based upon the course of interest rates. If interest rates go up they have the ability to adjust your interest rate. They recalculate based upon the newer interest rate and how many years you have left to repay what the monthly payment would have to be. Assuming that rate doesn't change over the remaining years. For example, if one year adjustable-rate loan program is fixed interest rate for one year. So this adjustable-rate mortgage program, this loan program I should say is fixed for the first year, so it's not moving. But then the next year it could be different. And the following year it could be different again, but it's fixed for those first 12 months. A three-year adjustable-rate program fixed for 36 months. So adjustable means the rate can fluctuate. A standard mortgage It's a fixed program. A standard loan It's a fixed rate. It's a fixed program. Any loan that's called adjustable means that the rate can change.  Almost like a credit card, then they look at it again and could adjust it. But whatever they adjusted it for it's fixed for those 36 months provided, the agreement was based on that. So, three-year segments on a three-year adjustable. Five years the same way they have the ability to adjust the interest. 

We're not going to worry about graduated payments. Those under the new regulations have been discontinued. We don't have to worry about what those are. Now, there are types of financing programs that are creative in nature that we should know a little bit about. One is a bridge loan, bridge loans as the name applies bridge the gap in time between buy one property and selling another unfortunately in times where it takes longer to sell real estate and there are not many buyers in the marketplace, perhaps as an example, a seller has already purchased a property and is under contract for 300,000. He intends to put 100,000 as a down payment and get a two hundred thousand dollar loan. So under contract 300, puts down 100, gets a loan for 200. Now where is he going to get the hundred thousand dollars? Out of the sale of his existing home. Which you have on the market for 200,000, he owes 100,000 and has 100,000 and equity. Which he intends to use as the down payment when buying he's under obligation to buy the property on October 1st. You bring him a full-price offer for his current house at $200,000 to buy the new property here but the buyer wants to close on November first. What's the problem, obviously the dates don't add up, right? The seller of the first property says he's going to need the money on October 1st. See if this buyer can close any earlier we go back and talk to our client who's the buyer but also selling his property to get the money to buy the other person's house and he says, can't do it the buyer of the property can't close any earlier the person that's trying to buy his house. So we go back to the original seller, right? And the seller says, well find me another buyer. Well we tell the seller, Mr.Seller in today's market is difficult to find one buyer rather than two. You might want to think about getting a bridge loan. A bridge loan? Bridges the gap between the buying of one property before selling the other. Now, most lenders who would loan money for a bridge loan will want to see a contract on the property because it does get costly but it may be necessary in order to complete a purchase in times that are a little bit sluggish in the marketplace, buying one pursuing another. We talked about various ways to creatively finance property as well. Particularly, if we have FHA or VA financing that being the mortgage assumption clause.

Borrowing money can be a daunting process. A first time applicant for a loan or line of credit may not fully understand what he's signing up for and may be confused as to whether he's signing up for the best possible deal. It appears easy to just fill out a form but a consumer may have a difficult time understanding how a credit transaction works and all of the terms associated with it. The 1968 Truth in Lending Act obligates lenders to make loan disclosures so that consumers could compare credit costs and become fully aware of the costs of credit offered by a financial institution. This act has changed federal policy from a philosophy of let the buyer beware to one of let the seller disclose over the last 50 years. This federal act preempts any state laws that are inconsistent with its disclosure provisions. The mandates and the Truth in Lending Act are implemented by regulations commonly known as regulation Z. Prior to the enactment of the Truth in Lending Act and Regulation Z, it was difficult for consumers to compare loans because there was no consistent format for the presentation of rates and terms. Under the Act lenders must disclose information in standardized ways are required to use the same credit terminology and must express interest rates in a standard format so that consumers have the best chance to understand all the terms to which they are agreeing. Truth in Lending Act Disclosures include terms such as the number of payments, the monthly payments, late fees, and whether a loan can be prepaid without a penalty. Furthermore, the following items must be disclosed to the consumer. The annual percentage rate or the APR is the cost of credit expressed as a yearly rate in a percentage format, the amount financed. This is the dollar amount of the credit provided to the applicant and the total number of payments, which also includes the sum of all payments that the applicant will have made by the end of the loan, including repayment of the principal plus to finance charges. In addition to providing a uniform system for disclosures. The Act protects consumers against inaccurate and unfair credit billing and credit card practices provides rites of rescission provides rate caps and minimum standards on certain loans secured by the consumers dwelling. Imposes limitations on home equity lines of credit and prohibits unfair or deceptive mortgage lending practices. Regulation Z applies to individuals and businesses that offer or extend credit when all of the following conditions are met. The credit must be extended to a natural person for personal, family or household use by a creditor who offers or extends credit regularly and the credit is subject to a finance charge or is payable by written agreement in more than four installments to the original creditor. The finance charge is the measure in dollars of the cost of the consumer credit and includes any charges, fees and interest payable by the consumer in exchange for the extension of credit. For example, finance charges may include interest, points, transaction fees, and services. It does not include charges that are also payable in a cash transaction such as taxes or title or license fees. The rules a creditor must follow may differ depending on whether the creditor is offering open-ended credit such as credit cards or home equity lines or closed-ended credit such as car loans or mortgages. Some disclosures and rules are the same for both types of transactions. For example, the disclosures of the finance charge and the annual percentage rate are essential to the purpose of the Truth in Lending Act and such disclosures must be made for applications for open-ended credit and closed-ended credit. Because not all charges must be disclosed to the borrower and because the Truth in Lending Act has been amended many times since its inception in the 1960s. This complex set of laws and regulations continues to present a challenge for lenders and industry experts to comply with.

The Truth in Lending Act, the first major mortgage consumer protection law. The Truth in Lending Act or TILA was passed in 1968 as part of the consumer credit Protection Act. Now TILA is implemented by the Consumer Financial Protection Bureau through an administrative law commonly known as Regulation Z. TILA and Regulation Z together have established a national framework for consumer protection in mortgage transactions then subsequent laws and amendments have continued to build upon. TILA and Regulation Z offer several consumer protection guarantees to mortgage borrowers by ensuring that lenders engage in responsible business practices. 

For example, Regulation Z prohibits mortgage lenders and brokers from engaging in certain unfair practices regarding the compensation they received for arranging alone. The rule prohibits a lender from paying a mortgage broker based on the agreements Terms and Conditions beyond the amount of extended credit. In other words the mortgage broker cannot accept higher compensation if he negotiates a mortgage with higher interest rates or fees. This is meant to prevent brokers from steering customers to mortgages offering less favorable terms. The rule also requires all lenders to document and verify a potential borrower's ability to repay the loan thus minimizing the foreclosure risk. 

TILA and Regulation Z also provide important substantive rights to mortgage borrowers. The law prohibits certain contractual terms like mandatory arbitration and waivers of consumer protection rights in any lending agreement where it welling is used as a security. Also, the act requires lenders to give home loan borrowers at least three days after closing to rescind the transaction. This extra time helps ensure that the borrower has had an opportunity to fully understand the details of the transaction and all the legal and financial liabilities that it raises. Beyond these general requirements TILA and Regulation Z impose different obligations on lenders depending on whether the mortgage is open ended as in the case of a home equity line of credit or closed ended. The disclosures and statements lenders must issue for open ended mortgages are more extensive than for closed ended mortgages such as 30 year fixed mortgages. 

Lenders who offer open ended mortgages must disclose all relevant financial information at the opening of the account and provide periodic statements and additional disclosures as needed to keep the borrower up to date. Disclosure rules for closed end mortgages require lenders to provide clear information on obligations between the parties at or before closing but to not contain the continuing notification obligations. In 1994, Congress passed the home ownership and equity Protection Act which amended TILA to add even more disclosure requirements to the existing law. It addressed some consumer protection issues pertaining to closed end mortgages that charged high interest rates or fees. 

Now certain higher priced mortgages may be rescindable for up to three years after closing. The Real Estate Settlement Procedures Act, Congress passed the real estate settlement Procedures Act or RESPA in 1974 as a follow up to the initial Truth in Lending Act Legislation. RESPA was passed to strengthen and standardize the disclosures required for real estate closure and settlement process. Specifically, the law requires mortgage lenders, brokers and services to provide information about the extent and cost of the real estate settlement process. Like the Truth in Lending Act, RESPA is also administered by the Consumer Financial Protection Bureau through an implementing regulation known as Regulation X. RESPA, and Regulation Acts serve two foundational consumer protection functions. First, they ensure a fair and standardized process for real estate closing. For example, the laws create a national standard for escrow accounting and prescribed rules for initial and annual escrow account disclosures. RESPA also requires mandatory disclosures in the closing documents discussed in module two. 

Second RESPA and Regulation X prohibits certain practices that tend to inflate real estate costs. This prohibition extends to kickbacks or fees for certain referrals as well as any charges for preparing mandatory disclosures. Together the Truth in Lending Act and RESPA create a system of consumer protection based on ensuring transparency and mortgage transactions while signing the extensive disclosure documents and standardized forms at closing sometimes seems inconvenient. They also provide mortgage borrowers with accurate and timely information regarding mortgage loans. These laws also limit lenders from engaging in certain unethical business practices like offering kickbacks to brokers for negotiating high interest loans.

Congress passed the Fair Housing Act as part of the civil rights legislation of the 1960s. It prohibits discrimination based on race, color, religion, gender, familial status, national origin, or disability in any residential real estate transactions including mortgage loans, constructions, improvement or maintenance of a dwelling. People may complain to the Department of Housing and Urban Development if they believe a mortgage lender has discriminated. The department investigates the complaint and attempts to resolve it between the parties. If the department determines that the law has been violated the agency can sue the lender in federal court or bring it before an administrative law judge. The Department of Justice can also file a Fair Housing Act enforcement action in federal court against any lender who has engaged in a pattern or practice of prohibited discrimination which means a general policy of discriminating rather than a specific instance of discrimination. The equal credit Opportunity Act requires mortgage lenders to make credit available to all creditworthy customers on an equal basis without consideration of race, color, national origin, age, sex, or marital status. The law also prevents lenders from denying a borrower loan because some or all of his income comes in the form of public assistance and prevents retaliation in the form of adverse lending decisions against anyone who has exercised her rights under the consumer credit Protection Act. Like under the Fair Housing Act, anyone who believes that they have been discriminated against in violation of the Act may file a complaint with the Department of Housing and Urban Development or may file suit independently in federal court. Both the Fair Housing Act and Equal Credit Opportunity Act defined discrimination in one of two ways disparate treatment or disparate impact. Disparate treatment takes the form of overt discrimination such as when a lender offers better mortgage terms to married couples than to single people who have the same creditworthiness even when the lender does not show over to disparate treatment. However, discrimination may exist when a lender expresses comparative preference for some borrowers over others based on race, gender, marital status, national origin, or disability, even when the preferences unstated. These are generally shown through patterns of activity and decisions rather than through stated policies. mortgagees are also prohibited from applying otherwise neutral lending policies in a discriminatory manner discriminatory intent is not necessary. Rather, discrimination exists by nature of the disproportional impact a policy has on a protected class with borrowers when there is insufficient justification for the policy. For example, a facially neutral policy may restrict loans in certain areas of town. If that policy has a disparate impact on racial minorities it may be considered discriminatory. Together these laws create a holistic framework for non-discrimination and equal opportunity in mortgage lending. However discriminatory housing had already damaged communities for decades by the time these laws were passed. So in 1977, Congress passed the Community Reinvestment Act to remedy some of the impacts that unequal lending practices had on some communities. The law encourages banks and mortgage lenders to increase access to financial services in their communities. The Equal Opportunity measures included in the Community Reinvestment Act were targeted at eliminating the practice of redlining, which occurs when lenders offer more home loans in neighborhoods that are characterized by certain income, racial or ethnic demographics.

So we're going to go quickly over a Truth in Lending Disclosure statement. Usually, this is something if you haven't purchased a property yourself or been at a closing already likely you will see something kind of like this. Now, in previous recordings if you haven't already heard you should have already reviewed the Regulation Z and the Truth and Lending Laws. Now, in regards to that you'll see in this document the Federal Truth in Lending Disclosure Statement this is the document that most people will receive when they are purchasing a property. Typically, it is from the buyer side and it goes through what they will be financing. As you can see it'll talk about the annual percentage rate, the finance charge, and what have you, and the total payments, the total cost. When you now, you will not normally go through this document as an agent per se. But if your client does ask you to review it you are not a professional this however you are human and over time you will be familiar with this. So it is good to help the client if they ask for a second look. Now, don't put yourself at a certain liability situation but if you see that there is an error in some shape, if you wish, then definitely take a look at this. There are more pages but in a sense, it's typically these two that go over the cost for the mortgage or the type of financing that they're going to be purchasing. And then the second page is what's called as a good faith estimate. So sometimes, I have seen clients not have certain fees show up on the original good faith estimate. And then they'll get a second copy later on. Or if there's some type of change in the financing. And there'll be certain things. Now of course, depending on where they go they might see certain credits or say if they use a credit union, they might have a certain discount, or what have you. Or even the title company may give a certain administrative fee. Not a gift per se but definitely a credit because they use them for the service. So just wanted you guys to review this just to get a sense of this and to expect it because I know a lot of new agents when they have tried to help a client. And especially it's their first client they'll be so new to this and they may not see this. And I know some other schools may not show this ut I think if you get out in the field, even though this is not required as the exam, the exam will never asked you what this looks like or what have you. But they will ask about what is the Truth in Lending Act and the laws. But it's very different from passing a test and then going out in the field and not knowing what something really is, just knowing about something and then you're actually now seeing the actual evidence of how those laws apply. And that's why I wanted you guys to see this and be familiar with the forms. Because most people even though they pass the test they totally blundering over and overwhelmed by the number of forms and what's this or what that so it's good to review this just to get a sense of things. I hope that helps.

Other aspects of Regulation Z is the ability for a borrower to change their mind about the loan contract. So when we have refinancing loans involved we must be given the ability when refinancing a loan on real estate to change our mind on the financial terms up to three days. From the time we sign on the dotted line for the loan, it must come along with what is called a three-day right of rescission. Consumers have the right to rescind certain credit transactions. This applies to credit transactions. This applies to transactions involving the establishment of a security interest in their principal residence, such as Home equity lines, Home Improvement Loans, Refinances, Home equity lines of credit. This right of rescission does not apply to the following: Purchase Loans, Construction Loans, Commercial Loans, Loans on vacation or second homes, Refinancing or Consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling though exceptions do apply and transactions in which a state agency is a creditor.

Advertising disclosures. Anyone who places advertising referencing consumer credit must follow the advertising provisions of the TILA Act, that's T I L Act and specific loan terms shown in the ad must be available. If an advertisement contains any one of the triggering terms about the loan the advertisement must include required disclosures. Examples could be and, or should include the amount of the down payment, amount of any payment, number of payments, period of repayment, amount of any finance charge, required advertising disclosures. If any triggering terms are used in an ad all these disclosures must be made amount of the percentage of down payment, term of repayment, annual percentage rate using that term spelled out in full or APR. Examples of terms not triggering required disclosures include 5% annual percentage rate loan available here, a easy monthly payments, FHA financing available or 100% VA financing available, and terms to fit your budget.

The federal government enacted reforms to address these problems. The Dodd-Frank Act directed the Consumer Financial Protection Bureau to integrate mortgage loan disclosures under both major consumer protection laws. In late 2013 after consumer and industry input. The agency issued a final rule which integrated both laws and is known as the Truth in Lending Act Real Estate Settlement Procedures Final Rule, the rule included model forms, samples illustrating the use of those forms for different types of loans, and extensive official statutory interpretations to provide guidance. The final rule led to the creation of two forms containing all necessary disclosures, a loan estimate disclosure and a closing disclosure. With this integration the agencies sought to accomplish three objectives, one comprehension, the disclosure should enable consumers to understand the basic terms of the loan and its costs both immediate and over time, two comparison, the disclosure should enable consumers to compare one loan estimate to another and identify the differences. The disclosure should also enable consumers to compare the loan estimate to the closing disclosure to identify differences between the two and understand the reasons for those differences and three choice, both comprehension and comparison should enable consumers to make informed decisions. For the loan estimate consumers should be able to decide the best loan for their personal situations. For the closing disclosure they should be able to decide whether to close on the loan after reviewing the final terms and costs. The loan estimate is a standardized three-page form disclosing in table format key features of the costs and risks of the mortgage creditors must provide them to borrowers no later than three business days after they apply for the mortgage loans. Page one summarizes the key loan terms and costs, principal and interest payments, and cash required to close. Page two itemizes loan and real estate transaction costs and describes adjustable rates if applicable. Page three provides information to compare loan offers including interest rates and finance charges and the annual percentage rate. Consumers received the loan estimate in lieu of the good faith estimate truth in lending statement disclosure and other disclosures initially required under the equal credit Opportunity Act and RESPA. The lender must provide the Closing Disclosure to borrowers at least three business days before closing. The three-day window gives consumers the opportunity to compare final terms and costs to the loan estimate and to ask questions of their lenders. The five-page Closing Disclosure uses the same design principles structure and tabular format as the loan estimate for ease of comparison. Page one mirrors the loan estimates first page and each of the following pages contains closing costs and real estate transaction details. On the last page is a chart of loan-specific calculations with disclosures such as total payments, finance charges, amount financed, APR and total interest percentage. The rule also benefits lenders by rendering the process of lending less complicated. If it uses the model forms provided a court will deem it in compliance with federal laws. In one recent lawsuit filed against Wells Fargo, the borrower claimed that disclosure of the finance charge did not comply with the federal disclosure requirements. The court rejected the claim stating that the disclosure followed sample forms published by the Consumer Financial Protection Bureau the use of which suffices to satisfy disclosure requirements.

Prior to 1974, it was common practice to discount a married woman's income especially if she was of childbearing age. On the theory that she was more likely to decrease or cease working to raise children. In response to this practice, Congress passed the equal credit Opportunity Act of 1974. To ensure that banks and other lenders such as small loan and finance companies, retail and department stores and credit unions would make available credit without regard to the applicant's sex or marital status. Two years later, Congress amended the act to include prohibitions on discrimination against race, color, national origin, age, receipt of public assistance, and the exercise in good faith of rights guaranteed under the Consumer Credit Protection Act. The Equal Credit Opportunity Act primary regulation is known as Regulation B. The Act applies to all creditors and Regulation B's prohibitions apply to every aspect of an applicant's dealing with a creditor regarding an application for credit or an existing extension of credit. This includes information requirements, investigation procedures, standards of creditworthiness, terms of credit furnishing of credit information revocation, alteration, or termination of credit and collection procedures. Regulation B prohibits a creditor from requesting information about the applicant's spouse or former spouse unless the spouse will be liable for or have access to the account or unless the applicant is relying on the spouse's income. For example, if the applicant is relying on alimony, child support or separate maintenance from the former spouse as a basis for obtaining credit, then the creditor can request this information. A creditor also may not require the signature of the applicant's spouse if the applicant is able to meet the standards of creditworthiness on her own. This rule was implemented to enforce the ban on marital status discrimination. The Consumer Financial Protection Bureau provides creditors with model application forms to demonstrate how one can comply with Regulation B. It's not mandatory to use these forums but if they are used the creditor is deemed to be following Regulation B's application requirements. If the creditor chooses to deny an application for credit it must provide a written notice to the applicant called an adverse action notice. It requires that within 30 days of the adverse action the creditor must give the applicant a statement of the specific reasons for the denial of credit. Forcing the creditor to articulate legitimate reasons for denial of credit is meant to prevent discriminatory actions in the credit decision that fails to comply with the Equal Credit Opportunity Act or Regulation B is subject to civil liability for actual and punitive damages or can be subject to class action lawsuits. In the case of an individual plaintiffs, punitive damages are available but limited to $10,000. In the case of a class action damages are limited to the lesser of $500,000 or 1% of the creditors net worth. Administrative enforcement of both acts is delegated to several federal administrative agencies depending on the type of credit involved. Overall enforcement authority is provided to the Federal Trade Commission and the Consumer Financial Protection Bureau. Through its enforcement authority the Consumer Financial Protection Bureau may join forces with the United States Department of Justice to pursue violations of The Equal Credit Opportunity Act. This often results in a consent order agreed to by the lender to settle the action which may include payment of damages to consumers who were harmed as well as an agreement to change policies and practices. An example of such enforcement by the Consumer Financial Protection Bureau and Justice Department involved a complaint against provident funding associates for discrimination in mortgage pricing. Providence originates mortgage loans through a nationwide network of brokers. Between 2006 and 2011 provident made over 450,000 mortgage loans through this broker network. During this time providence at risk based interest rates which means that they offer different consumers different interest rates or other varying loan terms based on the estimated risk that the consumers will fail to pay back their loans. They also allow brokers to charge higher fees to consumers of higher-risk loans. The Bureau and Department of Justice claimed that Providence discretionary broker compensation policies resulted in unlawful discrimination. They alleged that providence charged 1000s of African American and Hispanic borrowers higher total broker fees than white borrowers not based on their creditworthiness or other objective criteria related to borrower risk and loan characteristics but because of their race and national origin. As a result, approximately 14,000 African American and Hispanic borrowers paid higher total broker fees. The consent order that the parties reached required providence to pay $9 million to a settlement fund for the harmed African American and Hispanic borrowers who are victimized by the practice. Furthermore provident was required to engage a policy which did not allow him to visual brokers to charge or collect different fees for different loans based on interest rates or risk criteria. Finally, the consent order required a fair lending training program and a broker monitoring program.

The interest of a tenant real estate, when we're dealing with tenancies we're dealing with others who have rights in real estate. As an owner I have certain rights, I own this property, but I've given a right to my tenant. The right being the right to reside there. We share now in the rights associated with this real estate. The rights we're going to now talk about are the non-freehold interest in real estate. Remember we talked earlier about the freehold ownership possession for an unlimited duration, known as fee simple. Fee simple, defeasible, life's estate, dower and curtsy, homestead, all of those were freehold interests. Again, all of those were freehold interests, fee simple, defeasible, life estates, dower and curtsy, and homestead. Now we're talking about something that is not based on ownership and is for a limited duration. Limited perhaps by the term of the lease or limited perhaps by a month-to-month arrangement in which we're renting this property. So we're talking about a tenancy for a limited duration. Non-free hold interest in real estate. 

What is a lease? A lease is a contract for a definite duration of time. The landlord the owner of the property gives up possession of the property for a definite duration, a definite start, a definite end in the exchange for money, or a form of consideration. When we have a lease defined as a real estate contract, sometimes known as a demise, an old term. But does appear in the exam from time to time. Be aware of that. If we've leased the premises we've demised it. It means that the same thing. In which the lessor the owner of the property gives up possession of the property for a portion of it to a lessee for a definite period of time. Established in the contract how long the tenant has the right to use and occupy the property during which time the lessee will pay a definite amount of rent, fixed according to the contract of course. Leases has to be enforced in court have to meet the statute of frauds in writing signed by both parties to be enforceable in court. One way we could rent property use with a lease and establish a tenancy that way or perhaps I rent you the property. And as long as you continue to pay me the rent, when do you get the use of the premises for the next rental period. If we're establishing the fact that you are going to rent this property by the month, and you pay me rent on the first of the month, you get the use of the premises for the month that includes as long as you pay me the rent, of course, that type of tenancy is known as a tenancy at will we don't have a written contract for those. Some people do but typically a tenancy at will has no contract. The tenancy period self extends itself as long as the tenant continues to pay the rent when do. Now, how does one terminate a tenancy at will? We give a notice one to the other. That is if the tenant does not want to reside there anymore or be responsible to pay rent. They provide notice typically in writing given to the other party upon notice that tenancy will end upon the next rental period start, of course. If a landlord doesn't want that tenant anymore. He gives them notice that tenants notice and at the start of the next rental period they must vacate. If the landlord wants to increase the rent, change the rental amount notice is given to the tenant. If I have a lease, however, I want you out. Can I just terminate your lease on written notice? No. You have the right to occupy the property if you have a lease until the termination of the lease period. If I sell the property, can the new buyer terminate your lease? No. They are stuck with you until the end of the lease term provided you're living up to the lease's terms. You have the right to occupy the property until the end of your agreement.

For the life of me, I don't know why landlords make it so hard to have assistance animals like my dog, Alex. 

My last apartment, the building manager was a real problem. 

When you have access to so much information, you have the responsibility to be very careful how you use the information and share that information with clients in the MLS.

Hello, I'm Sandra Ortiz. Welcome to this edition of housing point. Today we'll be discussing the Fair Housing Act. In honor of its 50th anniversary in 2018. President Lyndon B Johnson signed the Fair Housing Act on April 11 1968. Just days after Martin Luther King Jr. was assassinated. Dr. King was the country's most notable proponent of fair housing, marching in the streets of Chicago in 1966. To end the years of housing discrimination experienced in communities across the country. The Act currently prohibits discrimination concerning the sale, rental and financing of housing based on race, color, religion, sex, disability, familial status and national origin. In honor of the 50 year milestone, we'll address ways that the Fair Housing Act protects real estate professionals and your customers and to help you navigate your responsibilities under the act. We'll also look at how the Fair Housing Act addresses harassment and retaliation in the housing context. Finally, we'll review the best practices for criminal background checks of housing applicants. Our first story profiles a veteran who has an emotional disability and wants his assistance animal to live with Him. Many landlords still aren't familiar with the Fair Housing Act's requirement that housing providers accommodate tenants who require assistance animals. Horace Miller reports from Chicago.

Philip a Marine veteran is joining me today along with his assistance animal Alex, Phillip and Alex have been a team for six years after serving tours in Iraq and Afghanistan. Philip was wounded and developed post traumatic stress. Now Alex helps him get through some very difficult days and nights. Alex is a part of it. I really can't imagine life without him. Somehow, he always knows when I'm having a bad time. Like last night, he woke me up so I didn't start having a nightmare. Before Alex, I will wake up thinking I was in the middle of a firefight. Not anymore. He's one thing that keeps me calm. And your doctor suggested you benefit from an assistance animal like Alex. Correct. My VA doctors have eliminated most of the medications I used to take since I started using an assistance animal. One of my doctors even said, my dog is the best medicine for me. But try telling that to some of these landlords. 

Landlords and building management need to be aware of the law. They are required to accommodate people with physical or mental disabilities and permit them to have an assistance animal. Even when a building has a no pets rule. If a tenant with a disability makes a request, for an exception to the rule, Building Management must accommodate them. Unless there is a threat to the health and safety of others. The housing providers should consider and grant the request. Any animal that provides a disability related service to the disabled can be considered an assistance animal, even monkeys, birds or reptiles. Your building has a no pets rule. So what did you do to support your request for an exception?

Well, since my disability is post traumatic stress, which isn't something you can see, I provide a management with a letter from my VA doctor. Now that letter explains that I have a disability. And then Alex provides me with disability related assistance. Well, that should be all you need to have your animals live with you right?

You would think so. But then the landlord wants to know what my disability was, what medication I was taking and some other health related information, which I didn't think was any of their business.

According to the Fair Housing Act, housing providers and real estate professionals are not allowed to ask for information regarding medications, copies of medical records, or any details about the nature or severity of a person's disability. A letter from a doctor detailing the patient's need for an assistance animal should be all it takes to allow for an exception to any no pets rule. Of course, there are some people who try to exploit this right and fake documents can be obtained from uncredible sources. If you suspect that documents are not credible.

Make a read, record and advise the property owner of your concerns, then have them advise you regarding next steps.

For more information about the accommodation for assistance animals visit Fair Housing dot realtor.

Our next story concerns a mom who not only had to deal with harassment and retaliation from her landlord, but also another problem, discrimination against families with children, a protected class under the Fair Housing Act.

And as a divorced mother living with her nine year old daughter Casey, she thought she had found a perfect apartment for the two of them. But soon after moving in, the landlord began to harass her. When she reported his inappropriate behavior, he retaliated by shutting off her water.

At first, he seemed really friendly, going out of his way to see if I needed anything.

But then I became uncomfortable, and I complained. The next day I went to give my daughter a bath and the water had been shut off. And when I called my landlord about the problem, he wouldn't return my calls.

Under the Fair Housing Act, just a single incident of harassment, such as a demand for sexual favors, may be enough evidence to constitute a hostile living environment. The Fair Housing Act also prohibits retaliation against anyone who reports a discriminatory housing practice. Now, Ann wants to find a different one bedroom apartment for herself and her daughter. But she's running into something else. landlords who don't want to rent to her because she has a child living with her. First, I had to deal with management companies that don't want to rent to families who have kids, is it against the law for them, they even ask if you have children, and they have ways of finding out social media, for instance. And usually they'll ask the ages of everyone in the family on those applications that you have to fill out. Or they will ask you So how old are your kids out of the blue and then before you know what you're answering without even thinking and then suddenly, they don't have any apartments available to rent right now or ever. So that's why I only give our names.

And sometimes landlords will actually say in their ads that they're renting to adults only or they will imply that they don't want kids. 

Familiar status is a protected class under the Fair Housing Act, making it unlawful for housing providers to deny housing outright because of family has children living with them under the age of 18. The same protections apply to families who are expecting or adopting children. Additionally, housing providers may not restrict families with children to live in certain areas of the building complex or refuse to let them use certain facilities. There are exceptions including certain types of housing designed just for people 55 years or older. But for the majority of people looking for a place to live the ages of their family members should have no bearing on their ability to find a home. 

My families just my daughter me, so I want to rent a one bedroom because I'm on a limited budget.

Even though there are buildings that allow kids I was told that I have to rent a two bedroom because there are two people in my family, but I'm sure they must allow people who are roommates get a one bedroom. And what about people who are married exactly what my broker said. Amazing how easy it was to get a one bedroom when she brought that up and made it clear that we need the law.

To learn more about the Fair Housing Act's protections against harassment, retaliation, and discrimination against families with children. Visit Fair Housing dot realtor

When we have a tenancy, no longer does the owner of the property have a fee simple interest in the property. Remember, fee simple includes all rights of ownership without limitation, including the right of possession. So once we create a tenancy on the property, no longer does the owner have that type of interest in real estate, because the tenant has rights here, the right to possess us and occupy the property.

The landlord however, still has rights in the property, he could sell it, he can will it, get a mortgage. He just doesn't have the right to possess use or occupy that portion of the property that he's given to the tenant. The landlord's interest in the property, while the tenant occupies, a tendency exists known as leased fee. The tenant’s interest in the property is known as leasehold interest.

When the landlord collects rent, and later gets the property back in fee simple once the tenant moves out, but for the moment, while the tenants there, his interest is in leased fee. The tenants rights include the right to possess, use and occupy the property until the tenancy is over, and enjoy it quietly without interference from others.

So the landlord can't just walk in the property and say I want to look around. Has to give them notice.

As we've said before, these the type of leasehold estates. Leasehold estates are a number of variations. The first of which would be a state for years or also known as a tenancy for years. So, a leasehold estate is for any specified period of time, and estate for years does not automatically renew. Another variation would be a periodic tenancy also known as an estate from year to year. It's a lease that automatically renews for successive periods unless terminated by either party. Next is an estate at will, and a state at will does not have a set term period, it is open-ended. And another is a state at sufferance also known as a tenancy at sufferance. And estate arising when the tenant wrongfully holds over after the expiration of the lease term. So say for example a tenant does not pay well then they are now in sufferance. There are now after the expiration of the agreed-upon lease term.

We did talk about this other type of possessory interest, not a right in real estate but rather a privilege. We want to remember that a license does grant somebody the ability to come on the property of another without being a trespasser. We have a license agreement to be here. Good examples of a license agreement in real estate are rooming house occupants, hotel room occupants, a theater, and sporting event ticket holders. So they have a license agreement to occupy this property or be there. Rooming house occupants, hotel room occupants that are long term, here in Massachusetts this means three or more consecutive months. If we want to get them out then we do have to give them a 30-day notice. A requirement here in Massachusetts for long-term licenses. And yes people reside in hotels for three months or longer. Here in Boston at the Ritz Carlton the hotel would move long term guests of the hotel around from room to room in order to avoid establishing the 30 day notice to vacate. That's how they would get around that.

There are some aspects of leases that we want to be aware of. When we are talking about a lease, generally the lease talks about how long the period of possession is. It might be one year, it might be multiple years, particularly for commercial lease. The term of the lease is the duration of this, one year term, three-year term, whatever the duration of the lease. First type of lease, a straight lease rent will not increase over the term. If for example, we have a four-year lease starting at a 1000 month, It will end at 1000 a month. That's a straight lease, doesn't change over the length of the agreement. Then there is a step up or a graduated lease, within the lease it allows a landlord to increase the rent. So, rent will change at specific intervals. The $1,000 monthly rent starting at year two will increase to 1100, in year two 1200 a year later, and maybe three years later 1300 dollars per month. You see where I'm going with this, so on and so on.

Also in the lease, there'll be a paragraph explaining who is going to be responsible to pay for building-related expenses. Who's gonna be responsible to pay for the heat? Who's gonna be responsible to pay for the water and sewer? Who's gonna be responsible to pay for the snowplowing? If we have a lease in which that tenant only pays rent and all building-related expenses are paid by the landlord, then we have what we call a gross lease. Gross means the tenant only pays rent and the landlord is responsible to pay all building-related expenses. A net lease is where building-related expenses are to be paid by the tenant. Rent plus heat, rent plus heat and electricity, rent plus heat and electricity and their proportionate share of the real estate taxes, let's say. These are all net leases. Now, unfortunately in some areas net means something else depending upon the location. In some locations, net lease means rent plus heat only. In other locations, it is more common that a net lease is rent plus heat and electricity. Or in some locations that might be a net, net lease. It depends on the location as to what net includes. So we may have terms such as net, net, net, or triple net leases. We really don't know what that means until we read the lease as to what it includes. The tenant could be responsible for these expenses the landlord is responsible for other expenses. But we can be sure of one thing the more nets we here the more the tenant is paying for those building-related expenses.

Now one of the more common nets is a triple net lease. Most often found with some type of commercial leases. So here we have this building in which there's four rental spaces let's call them storefronts or rental space storefronts. Each measures let's say a thousand square feet in area. And you as a prospective tenant come to me and says, "Listen, I'd like to rent that vacant storefront there, how much will you charge me to rent that?" And I say;" I can charge you $10 a square foot for that space if you want?." Now commercial leases typically express the rent on a per square foot basis as the rental rate. So if that is the rental rate, how much are you going to pay me in rent for this rental space? How do we determine this? So $10 a square foot multiplied by the amount of space occupied equals rent over what time period? 1 year typically it's 1 year. This rental rate is an annual rental rate, $10 per square foot per year. We multiply the rate times the square footage giving us 10,000 per year. But it's not expected that you make one rental payment for the year it's just an average rather we divide that by 12 to get the monthly rate but over the year the owner would get $10,000. Ok, I say $10 a square foot but then I tell you this is a net, net net rental, triple net. You say what is that? Well, in addition to this rent you have a responsibility as a tenant to reimburse me your share of all of my building-related expenses proportionate to the amount of space you occupy in that building. I started adding up my building expenses let's say my real estate taxes, my insurances, repairs, and maintenance, utilities, snow plowing, landscaping. Maybe it comes to $12,000 for the year. If those are my building-related expenses and you are reimbursing me your share of that, how much are the triple net charges? How do you determine that? $12,000 a year and I occupy one-fourth of the building, remember?  Four slots in the building or store. Therefore, I owe one-fourth of the expenses.

So, on the exam when they ask you how much rent is going to be paid? Under this circumstance, the correct number is $13,000, ok?

Let's talk now about a percentage lease. Very common in retail shopping malls, restaurants as well. So here we have sat a target over here and here we have Walmart here in the shopping mall. And we have the little stores in the middle. You come to me and you say, "I'd like to rent that space, what are the rental terms?" and I say, "Well, I can rent you that thousand square feet at $10 a square foot". So we know that's going to be $10,000 annually. Let's assume for the moment this rental rate is a triple net rental rate and $3,000 is due for that. But then I tell you this is a percentage lease, then what you're going to say? You can say, "what is that?". So in addition to this, what else do you owe? Percentage lease... Yep you guessed it! A percentage of your sales. So based upon your sales income, I'm entitled to a percentage of that too. A percentage lease is based on the sales of your business. That was a landlord. I like that lease if that was the renter. Oh, not gonna happen.

Okay, let's take a look at this question. 

A store in a shopping center under a percentage lease pays a monthly rent of $600 plus 4% of the gross sales over 150,000. If the annual gross sales were 250,000 what is the total rent received annually by the landlord? Now there are two types of rent being paid there, base rent and percentage rent. Take a moment to through go over that question again. 

Alright, let's work this out. So like I said before. There are two types of rent being paid here we've got, one that's the base rent. Now, forgive me, I'm using a dollar. Pencil here from the dollar store, my "ipencils" not working properly. And then we've got, two the other type of rent that is the percentage rent, I'll use the percentage. Okay. So first, let's start with the base. We have $600, right? And that is at what? 12 months? Now, what would that equal? Pretty simple, right? 7200. Okay, but we don't stop there. The answer is incomplete. Because the landlord is entitled to additional rental income based upon the sales here, right? So now that we work on two, so he's getting what? 4%, right? 4% of what? The difference, right? So The percentage of the rent, right. So we've got the base and now we're going to do the percentage. So what's that? That's 4%. Now first we have to calculate what? First, we need to do between the total sales, which is 2500. I'm going to use K as the triple zeros, okay? And we also have to subtract the 150,000, right? That would give us. 100,000. Forgive my chicken scratch. Can't wait to use my ipencil again. Okay. Now, that we have that, w that's the next step? We want to take this 4% times. The $100,000, right? Which gives us 4,000. This is atrocious. So we have 7200 and the 4,000, so we're doing a plus, right? Which will equal 11,200, so we did the base, right of 7200 and the percentage of 4000 added them together. To get 11,200. That's the percentage on top of it. This is sometimes an example of what you might get on the State exam.

Essentials of a valid lease. We've already talked about a contract and some of the essentials to have a contract that can be enforced in court. A lease is another type of real estate contract and basically has many of the same essentials. So we're not going to need to reiterate that. However, I would like to make one little point about a lease. All leases must be in writing and signed to be enforceable in court. Remember that all leases must be in writing and signed to be enforceable in court. 

The statute of frauds requires that, remember, statute of frauds. If we're going to enforce this lease against somebody in court they must have signed it. Now, there is no requirement to record the lease. We don't have to go down to the registry of deeds and record it to make it a valid lease. However, in the case of a property in which there is a long-term lease of seven years or longer and the property is sold without the knowledge of the lease. The new buyer could terminate the lease under those terms. So, a long-term lease, seven years or longer generally, the buyer would want to record that lease to protect their interest in the property should the property be sold.

So written and signed are important and then recorded at the registry of deeds. Would be a good idea, too many people do that? Not always, because again if the property was sold and the new buyer was not made aware of the lease. It would not be enforceable against the new buyer. Typically leases are but if it's longer than seven years and the buyer was unaware of that. Well then well, we bought the property then it could be terminated just reinforcing that point. So a tenant to protect their interest in the property, generally with the 7-year or longer at least, what did I say? We want to record that at the registry of deeds if we're in that situation and if we have a client in that situation. It's good to help them understand that. Now, when a buyer buys a property they generally get a title examination but let's say it's a tenant. So, to protect the interest of the tenant with a long-term lease seven years or longer than they should record the lease if the lease is less than seven years it's binding on the buyer.

A 99-year lease is simply a long-term lease, that's it. The way it works depends on the terms of the particular lease. Lease terms vary depending on whether a lease is residential or commercial. Even so, almost all leases include terms addressing the length of the tenancy, the amount of rent and deposits the tenant must pay whether the tenant may sublet or assign the property and landlord access to the property. Commercial leases tend to grant more of the rights and responsibilities that the ownership even in relatively short-term leases of five or ten years. They usually include detailed terms about legal rights and making improvements to the property. For a lease term there is nothing special about a 99-year lease rather the term of the years is intended to convey the idea that the lease runs for the life of the tenant as most individuals don't live longer than 99 years typically. Other common terms of duration for long-term leases are 50 years, 80 years and there's even some that as far as a hundred and seventy-five years. Why would someone want to enter into such a long-term lease? A person enters into a long-term lease to acquire the security of property ownership which is theoretically indefinite without actually having to purchase the property. There can be many reasons to lease rather than purchase real property. But the most common reason to avoid an outright sale is because it's forbidden. For example, some countries only permit citizens to own land. So non-citizens who wish to reside in those countries typically enter into a long-term lease. Also, long-term leases have the benefit of locking in a particular, hopefully low lease payment. Whereas a mortgage payment or a short-term lease will fluctuate with interest rates, varying, and depending on the real estate market. Long-term leases are sometimes used to make gifts of real property or as tax and estate planning devices. Though the 99-year lease term may be derived from the individual lifespan. This type of lease is not restricted to use by individuals indeed such long-term leases are usually used in the commercial context for business rather than in the individual residential context. Private companies often enter into long-term leases for use of federal land. For example, most ports are run by private companies. Yep, most of those ports that you see by the ocean are run by private companies.  But the ports themselves are not government property in order to house the employees and business infrastructure. A company might lease a building on the port for a term of 99 years as well. Restaurants bars other location sensitive businesses may enter into long-term lease because the success of the business depends on staying in that particular location.

This is Hong Kong, 177 years ago as the conclusion of the First Opium War, the United Kingdom, and China signed a treaty that red his majesty. The Emperor of China Seas to her majesty, the queen of Great Britain Etc. The island of Hong Kong to be possessed in perpetuity by her Britannic Majesty, her heirs, and successors. And to be governed by such laws and regulations as her majesty, the queen of Great Britain Etc. Shall see fit to direct.

With that, the British Empire got just a little bit bigger. The population of the island in that year was reported as 7450 (population).

Nobody would have imagined what this island dotted only by a few fishing villages would become.

Fast forward 18 years. Another Opium War, another treaty. It has now been agreed between the governments of Great Britain and China that the limits of British territory shall be enlarged under lease. 

Fast-forward, 38 years, the third and final agreement. It is now been agreed between the governments of Great Britain and China that the limits of British territory shall be enlarged under lease to the extent indicated generally on the annexed map. 

The term of this lease shall be 99 years. Ninety nine years as good as forever to the signers of this agreement. This forever though had an end and that end was 1997. That didn't matter at first though, Hong Kong, grew and grew and grew and grew into one of the richest, most powerful and most developed cities in the world. It became the business center of Asia. It thrived under a strong capitalistic economic model. But then, as forever, Drew nearer, a question loomed over the city. Was it really going back to China? 

That's the question British prime minister Margaret Thatcher had for Xi Jinping China's Paramount leader. When she visited Beijing in 1982. The answer was effectively YES.

In China's eyes, Hong Kong would return in 1997. Now it's important to note that it is only the lease of this portion. The new territories that expired in 1997, Kowloon and Hong Kong Island were seated in perpetuity, which meant that according to the terms of the agreements Britain could have kept these areas. 

Hong Kong as a whole though, is small enough already and the city had very much grown into the new territories. So it was decided early on that these negotiations were effectively over on what would happen to Hong Kong as a whole. It would be too impractical to divide up the quite integrated city in two different parts. 

Eventually after years of back and forth, a decision was reached in the last days of 1984. Hong Kong, would go back to China in 1997. But the Hong Kong way of life with a capitalistic system in democratic government would remain untouched for 50 years after the Handover, until 2047. Hong Kong would become a semi-autonomous region of China.

With that, a clock started ticking. There were 12 years, six months ,and 12 days left until Hong Kong would change from British to Chinese. In those 12 and 1/2 years an enormous amount of planning and preparation was conducted in order to carry out one of the only modern instances of each change in sovereignty of a city as large and influential as Hong Kong between two countries so different. In fact, this was the first time a capitalistic territory had been handed over to a communist state. Conducting such a Monumental shift was no easy feat. 

As such a significant business Hub, Hong Kong-based companies were some of the first to make their hand over plans. There was at the time, a lot of uncertainty about what would happen to the territory post hand over, so many companies restructure to be legally registered, elsewhere. 

Jardine Matheson, for example, one of the most prominent Hong Kong companies, moved their legal headquarters to Bermuda, and their stock listing to Singapore, even if their de facto headquarters remained in Hong Kong. HSBC, which stands for the Hong Kong, and Shanghai banking corporation legally transfered many of their assets to their London office as well. Companies, typically didn't leave Hong Kong, but rather set themselves up to be able to, in case, their hand over went badly. 

In addition to companies, individual people made their hand over plans as well. Now opinions were mixed on this Grand change. There was no one resounding view on whether the change in sovereignty was good or bad for Hong Kong. When surveyed in 1991, for example, about 57 percent of respondents were confident in Hong Kong's future, while 35% were not.

Of those 35 percent, who were not, many chose to move elsewhere, and there began a period of mass migration away from Hong Kong. A staggering 800 thousand people left in the twelve and a half years leading up to the Handover; according to estimates.

Overwhelmingly, Hong Kongers settled, in Australia, or Canada likely because they were commonwealth countries, and the US.

Over 110,000 Hong Kong, are settled in Vancouver alone. A city still shaped by this wave of mass migration. Many though, we're just migrating temporarily for a few years to gain Canadian citizenship. 

With this, like companies, they would have a way to get out of Hong Kong, if things went wrong.

Hong Kongers could also get a special type of passport that was first introduced in 1985 in the lead-up to the Handover. It was called the British national overseas passport and it works differently to a British passport. It gives a Visa free access to a hundred eighteen countries fewer than a full British passport and noticeably does not give the right for someone to live and work in the UK. 

Holders can only stay in the UK for up to six months and are not considered European Union Citizens. These passports are still valid today and can be renewed for anyone born in Hong Kong prior to

the hand over. 

There was a huge and increasing rush of people at registration for these passports in the years leading up to the Handover with millions overall being issued. 

Well, today's Hong Kong special administrative region passport is more powerful in terms of Visa free access to countries. 

Holders of British national overseas passports as British Nationals. Get the same Consular assistance and protection as a full British citizen in case a holder runs into trouble outside the UK; at least on paper. 

For this reason, hundreds of thousands still renew these passports to this day despite the Redundancy. 

As the date of the Handover drew nearer though, the government started focusing on the changes they needed to make. 

Of course there were enormous changes to the entire structure of government, the laws, the legal system, and more, but there were also small changes to be made. Plenty of which were visual; for example, they needed a new flag. 

The previous flag, which included the British Union Jack certainly wouldn't work under Chinese rule. 

A contest was held with seven, thousand submissions, but all were rejected. In the end, one of the contest Judges architect, Tao Ho, came up with this design. 

In which was eventually approved to be the new flag in April 1990, but there were plenty of other signs of britishness in Hong Kong. The emblem of the police force included, a crown and the word Royal. So that had to be changed to the eventually came up with a new design that swapped out the British symbols and replace the uniforms at a cost of 2.8 million. U.s. Dollars. 

The word Royal, in fact was removed from basically, every institution from the Royal Hong Kong Jockey Club, to the Royal Hong Kong Golf Club. They just became the Hong Kong Jockey Club, and the Hong Kong Golf Club. It was just plenty of sign changing citywide.

Hong Kong's, post boxes, were another symbol that needed altering. Most at the time were imported from Britain and therefore were the iconic red pillar box style, featuring a crown. Most of these were progressively removed with all being painted green to distinguish them from the UK's. As the days of British rule dwindled, focus shifted towards planning the actual event of the Handover. Now, this event was of enormous significance to Hong Kong, China, Britain, and the world. The BBC described it as the biggest planned event ever covered. 

What was known was that the event would be centered around midnight on the night of July 30th 1997, the exact moment of the reversion to Chinese rule. 

As you can imagine, the two governments, Britain and China, each crucially desiring the best possible optics for their side, negotiated relentlessly on the details of the event. For example, there was a long dispute on which flanked would raise and lower in which order. Britain wanted the British Hong Kong flag, lowered, first followed by the Union Jack to signify a dignified Retreat from The Colony. China wanted the Chinese flag to be raised at the same time as the British flag was lowered to signify an instantaneous resumption in sovereignty. China. Also, wanted the new Hong Kong flag to replace the British Hong Kong flag on the same flag. Pole in the end. A compromise was reached to lower the Union Jack and the British Hong Kong flags at the same time. Then raise the Chinese, the new Hong Kong flags at the same time. 

There were other subtle negotiated details, such as the convention center where the event was held, was designed to have chairs facing south towards the stage. 

For this event though, a stage was on the north side so the attendees would look North, possibly for the symbolism of looking towards China. Eventually though, the meticulously negotiated invites went out to thousands of dignitaries and VIPs. 

One week before the Handover, the Royal yacht, Britannia sailed into Victoria Harbor and moored to the pier. It would serve as home to Prince Charles who would represent the United Kingdom during the Handover. Over the next week, the majority of the handovers VIPs including Prince Charles, then British Prime Minister Tony Blair, former British prime minister Margaret Thatcher, American Secretary of State Madeleine Albright, and plenty more arrived in the city. 

That week was a week of lasts. The last meeting of the Hong Kong executive Council, the last Changing of the Guard to the British Garrison and then it was just the last day of Britain in Hong Kong Monday, June 30th, 1997. The process kicked off with a 4 p.m. Ceremony at government house marking the final departure of Chris Patten. The last Governor of Hong Kong from which had been his official residence for the previous five years. At 4:30. The first of his goodbyes was completed and was driven to the Royal yacht Britannia to join the rest of the Chinese delegation. 

Then at 7:11 p.m. The sun set on British Hong Kong for the final time. Minutes later the 4,000 lucky individuals invited to the Handover ceremony gathered at the convention center for a cocktail reception. At 8:00 p.m. An enormous fireworks display started in Victoria Harbour and then at nine, the Hanover guest sat down for their banquet dinner at the convention center. Simultaneously around 500, Chinese people's Liberation Army troops were allowed over the border to move into position and Ensure that there would never be a lapse in the defense of Hong Kong. At 30 minutes to midnight dinner was over and the ceremony began.

 Prince Charles gave remarks bidding the territory Goodbye on behalf of the quee. Then about a minute to midnight, "God, Save the Queen" was played and the British and British Hong Kong flags were slowly and simultaneously lowered, just as negotiated, then in an instant, when the Clock Struck midnight, Hong Kong was Chinese again, just like that.

Okay, so you might have just watched the video regarding China and Great Britain. Now, what does that have to do with anything about the 99-year lease regarding Massachusetts? Well, here is something that I want to point on because this does still happen here even in our state. So here is a scenario and this is actually current events for 2021. Here is the Massachusetts statehouse. Now, there is a situation where if you can see on the map, I had this so that you can have a reference point, but if you look deeper, Okay, over here. See if I can give a satellite view. Here we go. So, if you are standing in the front of the Capitol building. To this left area and actually over to these areas as well. We're going to focus on Beacon Street. Right here is a statue. Now, this right here used to be part of a church and they sold it. Now, when they were doing the renovations of the West Ring, the West Wing, excuse me, of the statehouse right here. Okay, they're doing this renovation. And what happened was somehow, the somebody messed up on who owns what. So this is they were actually residences here and there's a statue here of the man who originally had his house there. Can't think of his name right now, but he had his house here among other and they expanded over it became part of the statehouse. The thing that happened was this church area. It's no longer church. It's actually residences in the something worth like 11 million because the renovations well, what happened was this imagine that shaded area, believe it or not. This shaded area is not owned by the state or it is now, but it was actually owned by the church and during renovations they somehow messed up on this area as to who owns what. So, there's a sliver of this section right here, right? That is technically owned by this residence, but is now recorded as state land. Now, in order for, so imagine this right here. This part of this building is actually on the property of the state. But in order for them to have the use of this and to be able to do maintenance to this building, they did a 99-year lease for the high price of get this one dollar. Now. You're probably going to say, what the heck are you talking about? So what happened is this. So the state messed up and whoever the survey is were whatever, this land right here. I don't know exactly how much is owned by this, but it's not, it's owned by this. I'm just reiterating. And in order to use this again. They made a lease for 99 years, for the use of this area. So essentially the state gave back the rights of use but not the ownership of this land area for $1 for 99 years. Now as of this year that 99-year lease has run its course. And now there is litigation and a number of issues that you're they're trying to determine as to. Okay, what do we do with this? Now, this land here, it's not just this. It's over here and so on. So the decision is now if you are a real estate agent and using it, you needed to sell this land or this property I should say, you've got to deal with this issue, unfortunately. Now, you don't have to get the think of it, such as attorneys would have you. But you do have to understand as to what is own, what isn't? And then you need to disclose it during your sale. So if you were to sell this 11.5 million or whatever it is now building. If I can bring it down so you at least you can have a view of what it looks like. If you owned this, right? So they're right there. Is this the famous statue. And this right here is supposed to be the state-building, but this property right here. They did a facade. So technically all this that's hanging over is actually over the state property. So in order to do maintenance here would have you, they need, they need it, may need it either an easement. So the decision is to make this an easement for them to use. Or they are extending the lease for another 99 years. You probably saying whoa. This is just crazy. Makes no sense. Well, there are many hands in the cookie jar. I should say and there are many people, some people talk, some people sit on the historical department and they do not want this to be modified. So they're offering different scenarios. Now, clearly, this building would probably want the easement in order to waive that headache over time. Now and then other people are probably saying, well no what we want is to have this, this is officially the state whether or not there was an issue or not. And we want to capitalize on this because they do know that this building and of course, Beacon Street is highly valuable back in the time. Maybe it wasn't as valuable, but it is now. So clearly they're not going to just give up an easement for anybody able to use because if they're doing work on this area on this build. Well clearly, they need to gain access to the state building and work on the land. So now there is discussion, okay. Well, if they can't have an easement then they'll have the right-of-way of use. Now, how would you set that up? Would you give an easement for these people to use it and disturb the property of the state, you know, construction workers or would have you're trying to get in here? Or would you give the right of way in order for a lease of sort the no ownership but an actual right and permission of use. And there's actually another thing where they're saying. Well, you know there's not going to be an easement and there's not going to be a right away but they'll be a temporary charge for each person that needs to gain access whenever they are doing work. So it's even a smaller level of use, but they essentially don't want. A number of people in the state, they don't want this company or this building ownership to think that they have rights of use and to disturb this at anytime they want whenever they feel like having a contractor's do work or maintenance. So, those are the three options. One is an easement so they can do work anytime. There is the releasing a 99-year lease. Or they're going to be setting it so that anybody that needs to do work over here. They need to go over here, send their contractors to be charged for the temporary use to build to do work on here. Now, this law and the reason why if you did watch the video about China and Britain is because many of our laws come from Europe and predominantly Britain, England. So that is one of the reasons why we have 99-year lease even though a lot of places don't and it is the thought process was as number a number of reasons for the thought process but the main thought process was. So imagine if you come back to here, right? If we go back to this. So I think about this, over time many people in the back of the day. They said well, let's play this time card if we're not going to get and we can't afford to purchase the property or whatever the land is, imagine this is all residents. Well, maybe if we have the right of use over time, may be either one we're going to play the odds that the value of the land may go down and as long as we got the use then we really didn't have to spend all that money or they would think okay well we've got the right of use and maybe this land over land owner will change their mind and eventually maybe go into a hardship or whatever and sell this land to us. So there is not so much for this situation was that mentality, but at other other times people will use the 99-year lease for those, those challenges and those mindsets in order to try to capitalize on the use of the land. I hope that helps clears things up. So even though people think that the 99-year lease is kind of passe and it's really not being used anymore, in a sense it is but we still have old situations that we will still need this law and it will come about even though it's not a popular thing especially in our profession when it comes to selling, it is something you need to be aware of when selling.

Option to purchase. If that provision is in the lease an option to purchase the property, who gets the option here? The tenant has the ability to purchase the property at some time during the term of the lease. Must they purchase the property? No, a tenant has a choice. How does that differ from a lease purchase agreement? A lease purchase agreement is when leasing a property at the end of the lease, we must do what? Buy the property. There's two contracts here, a lease contract and a purchase agreement. If we don't buy the property at the end of the lease then the seller can sue. Assignment or subleasing? What is an assignment? We talked a little bit about an assignment earlier when we're talking about an option contract. Assignment also can happen with lease contracts. If we have this space we are renting from a landlord say, 5,000 square feet. And we rented it for five years at ten dollars a square foot per lease and ten at ten dollars a square foot per year. 10 dollars, a square foot is the rental rate. It's a straight lease for five years. So each year for the next five years. How much am I going to be paying for the lessor in rent? 50,000 each year. We are on the hook for the next five years at 50,000 a year. We are in the middle of this lease and need to move our business to California. We don't need this space anymore. We don't want to continue to pay 50,000 for space, not needed. But we are on the hook to pay it based on the terms of the lease, let's say. What could we do? We could default just move out and have them sue us or find somebody else who might want to step in where we left off in this contract. Find some other lessee. Let's say, we are the lessee now, number one and enter into our own contract, the lessee number 2, in which for consideration we paid dollars, say we paid some money and we give up our rights in this contract. So again, we are the lessee. We were the person renting and then we had this contract that we entered into and now we're assigning it to another renter, we're moving ourselves out of the position of the tenant and a new tenant is coming in. So, lessee number two will continue in the lease contract with the lessor the landlord for the remainder of the lease term under the existing terms of that contract that I originally entered into. This one is known as, as I said before an assignment or It's technically an assignment contract, we are stepping out of the contract someone else is stepping in where we left off in the lease. But the landlord might say, well I want to know if this new lessee has credit. I may want to investigate his credit, work history, etc. Also, this new tenant might have some type of business that may compete with an existing renter in the building. We've already got a bookstore here, let's say. I don't need another bookstore. They want to have some say in who you might assign this lease to but not going to be unreasonable with, with that typically. How does that differ from subleasing the premises? With an assignment. If the new lessee, the number two, doesn't continue with the rental payments and defaults. Can the lessor come after me or the original lessee, not with an assignment, the landlord agrees to, I'm off the hook so just to reiterate. If there's a landlord, the lessor And I get into a contract as a tenant, the lessee, there is a clause in the contract or it's called an assignment contract where I move my position out If I don't want to be there anymore and someone takes my position and continues on with my original agreement but I, my hands are clean. I'm off the hook. Once the landlord agrees to this assignment. I'm off the hook as the original tenant even if the new tenant defaults he can't come after me for the rental owed. Now, let's talk about subleasing. Subleasing is little broader, so here we have a lessor, the lessee and we'll use the same rental terms 50,000 a year can don't need the space. So another option we might have would be to sublease the premises. Now, imagine rental rates have skyrocketed. Now for a similar space, $15 per square foot is the typical going rate, let's say, or I think I used originally ten but will say 15 for now. Maybe I entered into my own contract with this sublessee, in which the sublessee pays rent to the lessee if $15 a square foot for 5,000 square feet means at 75,000 going annually from sublessee to lessee.The lessee then under his terms of the contract with the lessor pays 50,000 and keeps the difference. Did I confuse you? All right, remember these words understand the difference between lessor and lessee and sublessee. So I'll picture is this, the lessor was the landlord got into a contract with the tenant, lessee. And now that tenant, the lessee is now subletting to another lessee. So essentially, the tenant has moved himself out of the position but he's essentially profiting from this situation. It's not an assignment. He's still in the middle. He is the original tenant, but he had permission to rent out this place. I hope that clears things up a little bit. Remember, for purposes of the exam and in the real world when it comes to contracts knowing who the lessor and leassee or a lessee know the differences. Let's go back to the story. So suddenly the value of rental rates have gone up. Subleasing is known as a sandwich lease that I just described where the lessee is in the sandwich position, that landlord, tenant and tenant A , tenant B, the person in the middle the original tenant is in the sandwich position. This is what makes it different from assignment. An assignment they would move themselves out of the contract and no longer be in this situation. 

Subleasing, the original tenant that made the agreement with the landlord. Remember the lessor and the lessee. Well now that tenant is still there but his allow somebody else to rent the space and that original tenant is getting a nice little difference. Now, most people are understanding this or you might have heard this as kind of called Airbnb, airbnb's little bit different. Airbnb is not technically a legal term. That's a whole other level, but actually, on the contract side that's what people do or Airbnb's, who are have a business of doing this. They call a landlord wants to rent it out. They get into a contract with them and then they never live there, but they're renting out the place that's subletting or a subleasing to somebody else. But then they do more than just that there you have it there hosting and cleaning the apartment and all that kind of stuff. So that depends on the agreement with the seller? Okay, so he's like the meat between the two loaves of bread remember sandwich weeks and if rental rates have gone up then he could substantially make a profit on this. That's why so many people talk about Airbnb businesses. Again is it in the lease? Do we have the ability to sublease the premises? That's negotiated as part of the original lease term between the landlord, the lessor, and the tenant the lessee. This is often done, like I said before with Airbnb's, this concept has been around much longer though however than the coined term Airbnb's.

Right of first refusal. When discussing real estate the term right of first refusal refers to a clause in a lease or other contract that gives an interested buyer. The contractual right to be the first party to put an offer on a property when a seller lists it on the market. If another party expresses interest in the property the right's holder has the option to either purchase the property over the other potential buyer or decline the opportunity and permit the seller to freely consider other offers. But they have that first right of refusal can't sell it directly to somebody else before offering it to them under the same terms. It also might involve leasing the property again if they have a first right of refusal or in a condo complex in there by law, where they have the right to purchase an available condo in the complex first before the public offering. So, just to clarify that part, let's say you are a condo owner. Let's say it's just a two-family or three. If the other units are condos. Typically they would be. Well, if someone else is selling their condo. Well, if the bylaws in that Condo Association says that there's a right of first refusal. Well, then the current condo owners have the right first to purchase that property that other condo in the condo association for it is made public to the market. Now the tax escalation clause. Written into the lease if real estate taxes go up it's added to overall cost of rent. We're just going to add that into your payment of rent. Security deposit, when renting property you are leasing it whether it be commercial or residential one of the requirements might be, the tenant put up money for security deposit. Now, what are the purposes of a security deposit? Why might the lessor or landlord want a security deposit from the tenant to take care of the bill? All security deposits would protect the seller or the landlord against damages done to the property above, reasonable wear and tear. Another reason for the security deposit is if we or you move out owing me or the landlord rent let's say I can use your security deposit when you move out to compensate me for unpaid rent. Also, if you move out owing me money under a tax escalation clause. If that's written into the lease. I can charge you for the tax escalation clause. You've given me a security deposit. You didn't pay me the difference. When you move out, I can use the security deposit as compensation. So those are the three purposes of a security deposit. Again, damage is done to the premises above reasonable wear and tear when you move out, unpaid rent when you move out, and tax escalation clause are not paid. Typical those of the three. Now, everything we're going to talk about relative to the security deposit from this point on is going to concern a residential property in Massachusetts. Commercial properties can have security deposits. Security deposits taken in residential transactions are highly regulated, highly. And we have to understand the regulations associated with the handling of a security deposit in a residential transaction. 

Now handling of security deposits and rent deposits. If we're going to be involved in residential rentals. We need to be aware of the security deposit law. If we have residential property, let's say a single family home or an apartment complex a condominium, it's residential. We are renting it and the lessor landlord wants a security deposit right now. How much of a security deposit can they take? Well, this is regulated here in Massachusetts. It is limited to one month's rent at the beginning of the tenancy. Whenever the tenancy starts, look at the first month's rent, the security deposit cannot exceed that. It could be less than that but it cannot exceed the cost of the first month's rent. If a security deposit is taken, what must happen to it? Do you know? If you're going to be the holder of the security deposit during the term of the tenancy, let's say you are a property manager who deals with security deposits for owners or you're the real estate agent who's going to be dealing with this during the term of the tenant's tenancy. What are you going to do with it?  Well, you are required to put it in a separate bank account, separate and apart from your own personal or business money. So it can't go into your personal checking account or savings account. Please don't ever do that. It's got to be in a separate account. Just for this purpose. It's the tenant's money and the account must be in a bank here in Massachusetts, nowhere else. A written notice must be given to the tenant within 30 days of receiving the money, stating the name of the bank where it's located, the bank account number, how much was deposited and when. Also, once the tenant has moved in they must sign a statement with the landlord indicating the condition of the property when they moved in. That if I'm going to take and use their security deposit later on because I feel they've damaged the premises then we have to establish upfront with the condition of the property was. So there's no confusion as to who did the damage that it wasn't pre-existing, a statement signed by both landlord and tenant as to the condition of property within 30 days of moving. Once the tenant moves in and we have the security deposit. If the tenancy extends for one year longer there is a requirement also that interest be paid on the security deposit. But only if the tenancy extends for one year or longer. It's got to go into a separate account but no interest required if less than a year. How much interest maximum of five percent or whatever the bank is paying, whichever is less. Landlord must pay interest and the interest must be paid annually. If they're staying on annually we must give them their interest. It doesn't stay in the account or we can say it generated this amount of interest, deduct that from your next month's rent but it's got to be given to the tenants somehow annually. Within 30 days of vacating the tenant must be refunded their security deposit with interest if their tenancy extended from one year or longer or a written statement to given to the tenant as to why they're not entitled to a refund of the security deposit. Typically due to damages unpaid rent and of course, like I said, before the tax escalation clause was not paid. Something to be aware of, Massachusetts allows a tenant to recover up to three times the amount of their security deposit by suing a landlord in court or the holder of their security deposit for failure to do anyone of these three things. Three times the amount of their damages is referred to as treble damages or triple. In this case, the tenant could recover three times the amount of the security deposit in court for failure to do any one of these three things. Failure by the landlord to deposit the security deposit in an escrow account. Failure by the landlord to transfer the security deposit to a new building owner if there is a transition of ownership so when I sell the property if they are security deposits those have to go to the new building owner and then they have to take on that responsibility for the tenant. It's the tent's money not the landlord. Failure by the landlord to return the security deposit with interest. 

Now, what other monies can be collected through the rental property? Well, starting a tenancy the landlord can collect from the tenant the first month's rent. The last month's rent. As I said before a security deposit no greater than the first month's rent, as well as the cost to change the locks. That's right. To change the locks. They can charge. No extra charges. Such as a pet fee, a cleaning fee and no other monies upfront here in Massachusetts. It's considered in a legal fee to charge a tenant for those. So, be aware of this. There are some brokerages that actually charge this and it is illegal but for your sake remember this. No extra charges. Such as a pet fee, a cleaning fee and no other money is upfront here in Massachusetts. It's considered an illegal fee to charge a tenant for those. Now in dealing with late fees, Massachusetts regulates that too. So if we want to charge the tenant a late fee for paying rent late, Massachusetts says we can do it but only after 30 days late. So, if there is a late fee that's going to be paid charged not until the late payment is late, more than 30 days, anything earlier than that is illegal to charge.

Now, not that we have to remember all of the issues relative to the state's sanitary code. However, we should be aware of the fact that the tenants do have an expectation that the property is going to be in a safe and habitable condition. That's the responsibility of the landlord. Provide heat, hot water, bathroom facilities, cooking facilities, etc. That's part of the state sanitary code, so if you questioned on the exam about the ability to rent a place and it questions sufficient heat, plumbing facilities, etc. to satisfy this, then it's talking about the state's sanitary code relative to the rental of property. Remember that.

Apartment rentals or houses for rent. Massachusetts has a regulation that if we are involved as a licensee in renting apartments or houses for rent that we provide to the prospective tenant upfront. One first, personally meeting them that a written statement about the possibility of them having to pay a fee. That's right, the first personal meeting and for helping them to find an apartment or a house for rent. So if you're going to collect a fee we are required first personal meeting to present to them that there is a possible fee. Okay, that is only for renting. So the regulation is that the licensee provide this rental notice to the prospective tenant about the payment of a fee, if there will be one charge. It doesn't require them to pay the fee. It's not a contract but it is a notice about the potential to pay a fee. The timing of this is what's important, first personal meeting with a potential tenant. Is there a fee that we are going to charge for helping to find that apartment? In Revere, let's say the area is more likely that the landlord pays the rental fee to the broker. But that depends on where you are. In Boston like next to the University's, it's very common for the tenant to pay the agent or broker of fee. It all goes through the broker anyway but you know what I mean. but regardless if renting an apartment over there, we still have to provide this notice to the tenant that you're not going to be required to pay a fee and that the landlord is going to pay. But regardless, if renting an apartment over there  we still have to provide this notice to the tenant say to Revere even though you're not going to be charging them the landlord is going to pay that fee, you must give them that notice. Around Boston, like I said, it's very typical that the tenant pays a fee to the broker who finds an apartment or a house for rent. We've got to state that there is a likelihood that in dealing with you as the professional the agent the broker and helping them find that apartment or house to rent that you're going to have to pay a fee that this tenant may potentially have to pay a fee. How much is that fee going to be? It should be listed on the statement. When is it going to be paid? Perhaps upfront only if they find an apartment, maybe maybe not. Massachusetts does not allow a fee to be paid unless the tenant agrees to it upfront. So if the tenant agrees to pay a fee even if they don't get the apartment all then they pay that fee. What tenant would want to do that? I don't know. So if they agree to this such as a retainer fee even if we don't find them an apartment it needs to be disclosed on the statement. We asked the tenant to sign the statement. After we fill it out sign it and date it ask them to acknowledge it if they do not want to sign this form believing that it's some type of contract. When it isn't, it's only a disclosure about a potential fee. Then we give them one and keep a record. Typically, the unsigned copy indicating that they didn't want to sign, believing it to be a contract, we should make a note. But we have a responsibility to keep either a signed or unsigned copy in our files for a minimum of three years, subject to the board of registrations inspection. So those three years go the same for either sales or rentals. 

Now the board of registration has not come up with a specific form to satisfy the regulation. They leave it to the individual brokers or trade organizations such as the Greater Boston Real Estate Board or the Massachusetts Association of Realtors to develop a form that will satisfy the regulation. Typically you'll get that from your broker. But if you are involved in renting apartments or houses for rent, remember you're responsible to get the proper form into the hands of the prospective tenant, at the first person will meeting, what his first personal meeting mean? If you see them that's the first time. If you had a conversation with them a week prior. That's not a first personal meeting so face-to-face.

Disclosure of issues relative to property. A real estate broker or salesperson must disclose to the buyer in real estate transactions about the property they may buy. There are certain things that are expected of us as a real estate agent and a broker. One of those is called defects of the property. We're going to talk about things that a real estate agent may know about a property that if a buyer knew would alter their buying decision. Maybe they would have chosen not to buy this property. Maybe they would have paid less for it. That's the issue we must disclose if we have the ability to know as a real estate person. We are expected to have a certain level of knowledge about property a typical real estate person would have but not that of an electrician or a plumber or a home inspector. Things that are beyond the scope of what a typical real estate person would have, and the ability to know that we are not going to be held to that standard. But expected to understand and know certain things about the property that may be visible or disclosed to us. Perhaps have the ability to know there could be a problem, and then have the responsibility to disclose that information to a buyer. If we don't disclose those to the buyer, then there can be some ramifications.

Material defect about the property. A material defect is a defect about a real estate property that the real estate agent would have the ability to know within the scope of their knowledge. And if the buyer knew it they may have altered their buying decision. Perhaps chosen, not to buy the property or perhaps paid less for it. If I came in and saw stains on the ceiling, well a typical real estate agent may say there is a leaking roof and point out to the buyer that there are stains on the ceiling and indicate that they it might be a leaky roof, expressing to check it out. Now. The seller may have told us he has a leaky roof or leaked. A few years ago and fix the roof but never got around to painting the ceiling.  When we show the property to that buyer, what are we going to say to the buyer? The same thing. Before we disclose, defects we know about a property. If we go down into the basement and we happen to see a little chalk line along the basement wall. What might that indicate? Well, if you're new to the business, you would probably not no but after a while, you'd probably know after being in the business for a while that it's perhaps water in the basement or there was an issue that had water in the basement due to calcium buildup from the water. Water the mineral content in the water gets absorbed by concrete up to the level of the water or where it arose if we see a little chalk line along the wall, let's say 6 inches up well that's how high the water rose, we'd be expected to know what the assignment. It's visible to us but we are not supposed to be probative. We need not go out to probe the walls to determine if there are termites, let's say. It's not within the realm of our knowledge, recommend a home inspector or other professional in the area of expertise.  A wall could be riddled with termites but there's no evidence of the termite damage. That's beyond our scope. We don't have the responsibility to discover beyond the scope of our knowledge or beyond what we could visibly see. That would be considered a latent defect about the property. A latent defect is a defect about a property we would not have the ability to know, but we are supposed to disclose material defects about the property and here in Massachusetts o even if not asked about it. Our responsibility is not to the seller here. Our responsibility is to the consumer the buyer in this real estate transaction to let them know that there could be an issue about the property and may want to have it looked at.

Now, failure to disclose, these issues can have problems for us. The buyer could sue us for misrepresenting the property. Misrepresentation is a misstatement of the property. If we don't disclose the buyer could try to get out of the real estate contract. The buyer may not want to buy a particular property because there are issues that should've been disclosed to them. If the board of registration believes that you knowingly made a misrepresentation about a property that is considered a violation of our license laws. They could take action against our license. We could be sued for negligence. Perhaps the seller told us that he had a leaky roof and we didn't disclose it to the buyer. The buyer found out about it and it cost him or her. Well, he could turn around and sue you for negligence as his agent. But more likely their issues could result in what we call a violation of the Massachusetts Consumer Protection Law which is called Chapter 93A here in Massachusetts. Remember Chapter 93A here in Massachusetts.

Chapter 93A is the Massachusetts consumer protection law. Now, this law has been on the books for quite a while. We should have a pretty good knowledge about it because it is particularly important for us. That this particular law provides a remedy in court for consumers who have alleged a type of deceptive or unfair act practiced against them by a business person. Now, we're in the business of real estate we are selling a good or a product or service before this law applies to us, as it were to any business person selling a service or a product we sell real estate. It does not apply to the seller of the property themselves because they are not typically in the business of the real estate. They don't fall under the same requirements of disclosure about a property that they own. As long as they're not in the business of real estate and not a trader in real estate. But if the seller is not doing this as a typical business then they're not under the same responsibilities of disclosing. What we must disclose about their property. They don't have to disclose the leaky roof, doesn't have to disclose the water in the basement. Unless asked, if not asked, they have no requirements and no responsibilities to disclose it. If you however happened to be selling your own home and have a license, you now come under the law for a consumer to take advantage of this law. The consumer must prove in court that they lost money in the transaction, for instance. A buyer believes that you should have been more aware. There was a leaky roof and it cost him after buying the property. Let's say five thousand dollars to fix the roof. He could perhaps take advantage of the Consumer Protection Law and seek damages in court before the cost of a leaky roof that should have been disclosed. The penalty if found could be as much as three times the amount of the consumer's damages, that's right triple damages. Often referred to as treble or triple, typically treble damages three times the amount of the damages. If the roof cost 5000 to repair then the maximum penalty under the law could be as much as $15,000. Now, nobody wants this but we have to understand the environment that we work under here in Massachusetts when selling real estate. There could be a penalty if we fail to disclose known defects about a property. So if you're aware of something, disclose it. But if you're not familiar with it, can you, it's not within your license. If you are, if you see a plumbing issue, but you're not sure about it. That's not your requirement. And if anything, disclose a concern but it is not within your realm of, say electrical work, plumbing work, and what have you. And if you're not sure speak with your broker and get your disclosures in order just to cover yourself.

How is chapter 93A applicable to the practice of real estate? The consumer is alleging that we have some unfair or deceptive business practice, practice against them. What is considered in real estate to be unfair or deceptive business practice? What would it be? Any attempt by the real estate person to conceal a defect about the property, a failure to disclose it or misrepresent a vital fact which head the consumer noted it. Might have altered their buying decision. Concealment. Remember that concealment. If before we put a property on the market for sale, buy a gallon of gray paint then go down into the basement paint all the walls and the attempt to hide water marks on the wall. That would be fraud, that's an attempt to conceal. You don't want to be involved in a failure to disclose a defect about the property. If we ask the seller whether the property is connected to the public sewer and sa yes when it's not, we'd have the ability to know through the appropriate agencies typically available for knowledge at the town offices whether there's a building for the water or the sewer. Buyers can be given what is called a condition of the property by the agent filled out by a seller. Which has various questions about the seller's property, we may ask the seller to fill this form out, but it's not required in the state of Massachusetts. We may not live in the area, so pertinent knowledge may be needed to inform the prospective buyer. A betterment, remember, a betterment placed on the house let's say hazards, etc a series of questions that we ask on this form, the seller fills. We have them sign it indicating a truthful representation. Then we give it to the buyer of that particular property. However, we can't hide behind the form. We need to tell the buyer that even though the seller has said this or that about the property. We'd like to point out that there could be an issue here or there. Remember our responsibilities under Chapter 93A is to who? The buyer goes beyond our relationship with the seller.

We can protect ourselves as real estate agents by suggesting to the buyer that as part of the buying process they may want to consider doing a home inspection on the property. Not only are we looking out for the buyer but we are also adding a layer of preventative protection to ourselves, our seller, and our broker from the possibility to sue. Here in Massachusetts, a home inspection is not mandatory. The state does not mandate this. Generally, most buyers have a contingency in their sales contract that allows for a home inspection. Neighboring states like Connecticut it's different. Let's understand what the expression "as is" means, what does that mean? As is to you as the real estate agent? Here in Massachusetts, as is means you're purchasing the way it is because the seller won't fix anything. But if you see an issue as an agent you still must disclose issues to the buyer. The buyer might be buying it "as is" but still has to be aware of the issues involved with the property. "As is" doesn't take us off the hook according to Chapter 93A. So, if you are a buyer's agent representing the interests of the buyer and buying this property it's good to suggest to the buyer you represent but they have a home inspection done on the property.

A little bit about the legislature here in Massachusetts relative to the Home Inspection process. The home inspector law here in Massachusetts, okay so up until 2001, anybody in Massachusetts could do a home inspection for a fee without the need for a license it was an unregulated industry. Many people who are doing home inspections up until that time may have been either incompetent or unreliable and many buyers who hired home inspectors, unfortunately, did not have very good results. So they complained to the legislature here in Massachusetts which passed the law in 1999 stating that starting in May of 2001. First, to conduct a home inspection here in Massachusetts you'd have to have a license and that there would be a licensing process. One would have to go through before conducting a home inspection. If you wanted to conduct a home inspection here in Massachusetts you have to have a license and be licensed by the state. Second, another issue that came out of the legislation was the law requiring as a real estate people to give to the buyer as part of their buying process a brochure known as the consumer fact sheet, outlining the benefits of doing a home inspection. So every time you deal with a client you are required under Massachusetts legislation to provide a consumer fact sheet, outlining the benefits of Home Inspection. That's right, every time. It has been prepared by the Department of Consumer Affairs here in Massachusetts as a real estate licensee we are responsible to get into the hands of the buyer, this fact sheet outlining the benefits of doing a home inspection. The fact sheet itself can be found on the Commonwealth of Massachusetts main page. We should make a copy and give it to the buyer, the timing of this is important. The home inspector law requires real estate licensees to get this fact sheet into the hands of the buyer before they're obligated to buy the seller's property under the terms of a first contract. Another aspect of the home inspector law cleared up confusion about who should recommend the home inspector to the buyer. In any capacity other than a buyer's agent, if you are a buyer's agent representing the buyer, you can make recommendations. The buyer is relying on you but in any other capacity seller's agent, dual agent, facilitator, other than just a buyer's agent if the buyer should ask for a home inspector then all we can do under the situation is to suggest to the buyer that they go to the commonwealth website where they can get a complete list of all licensed home inspectors. We cannot make a recommendation nor can we give a partial list. Again a partial list. So if they do ask for a list, we are required to give the full list and it's long so it's best to recommend that they go to the website in order to get the full list. We can only have them go to get the complete list. And again, the only time you are allowed to suggest or recommend a home inspector is when you are a buyer's agent no other.

An issue, very important relative to residential property is the issue of lead paint and the lead paint law. The lead paint law both federal and state is designed to protect everyone, possibly ingesting lead. It's been proven that there are severe health risks involved with high concentrations of lead in our bodies. Adults have the ability to filter out more or less faster than children. However, children are more at risk when poisoned by lead particularly in developmental stages. Many of the laws are poised to protect children her merely those children under the age of 6 from dangerous levels of lead in their homes where they could become an affected. Let's understand our responsibilities under the lead law both federal and state. Massachusetts was the leader in much of the lead paint legislation. Massachusetts lead paint law proceeded even the federal legislation. Massachusetts is we are federal law copied much legislation. Now to understand the federal and state law we have to understand what type of property this law applies to. It does not apply to every property but only is applicable to pre-1978 property, meaning property built before 1978, which falls under the regulations that we will be discussing. So remember this date, the cutoff date is 1978. If the property was built in 1978 or after then what we are going to discuss does not apply to these properties. In your transactions, you should document that somehow, you could get an assessor's record card, or you can get a building permit as to when the property was built, if it was built before 1978 we have to get disclosure about the issue. We want to remember that cutoff date, okay? The Housing and Urban Development enforces the regulations related to the lead paint law. They have find real estate people who are applying these regulations to property built in 1978 or after. We only want to do what is needed for pre-1978 property, no others it is only applicable to pre-1978 property. Now, what has to be done here? To comply with the regulations, there is a form that the federal government and state governments have approved to disclose issues when buying and renting property to both sellers, buyers, landlords, and tenants. We become part of the process I if we're involved in that transaction. We have to make sure the parties fill out and sign the appropriate forms. If we have a pre-1978 property in the transaction whether it be for sale or rent. This falls under all residential property. The timing of this form is what's important, parties must complete the form in its entirety before entering the first contract. So, before entering the first contract, not during not after, if the first contract for sale is an offer to purchase contract, well then before signing that the form should be filled out in its entirety. The lead form explains the proces, and there is both the seller's disclosure part of the form and there's the buyers disclosure part of the form. Now, what is the seller here being asked to disclose about lead paint on this property? Well, if you have the form in front of you or you later look it up. If we're putting this form in front of the seller, what is the seller being asked on the form to disclose to the buyer? If you have been from you take a look at the form under A. When presenting this form we would ask, seller do you know anything about lead paint or lead-based hazards in regards to your property? Do you know anything about lead paint? Either they don't or they do, how would a seller know when they bought it? They might have been involved in a sale in which they did a lead paint inspection. They might know about it that way or suppose the sellers on the property for 40 years and never had it. How would they know? They may not. The only way we know for sure is if lead paint might be in a property as if it's tested, even though an older property it doesn't necessarily mean that it contains lead paint because there may be paints used years ago that never contained lead. We don't know unless tested.Iif never tested the appropriate response is probably going to be, I don't know. An appropriate response if they don't know as long as it's truthful. Next, the seller disclosure. If you have any records and reports available is usually what you would ask, do you? Have you ever had lead paint test done? If so, then they would have a copy of that, typically. Have you ever had an inspector come out to determine that you comply with Massachusetts or federal regulations? You would have a certificate of compliance or other documents about that. Well, if they do have records or reports, a testing result let's say, an inspection result. Then you must provide copies of those reports because as we have to show those to any intended buyer. As you continue filling out this form, beware the Department of Housing and Urban Development is picky about how the form is filled out. The seller checks one or two then we would ask the seller down the bottom where it says under certificate, a certification of accuracy to sign his or her name indicating that the statement made was truthful and they sign the form indicating it was signed and they understand their part of responsibilities in the transaction. Make sure to initial where it says initial and check where it says check. To do otherwise can create liability and potentially be sued. That's right. If you put a check where it says initial, that's a violation of the form. If it says, initial and you put a check a violation. And the fines can be up to treble damages. We have to have them fill this before entering into a contract with the buyer. Before any offer maybe we list the property as part of the listing package, let's say. The buyer has to acknowledge certain information. The seller has given about lead paint in that property. The Department of Housing and Urban Development suggests that we have this seller fill it out first. The buyer is then asked to initial not check either C or D, received copies of all documents, then you circle about. You must now put those in front of the buyer to review before making an offer. Section E of the form the property transfer lead paint notification. This notification is part of the certification we are discussing and must be given as a whole. Yes, all the pages at the time of this recording, all 11 pages can be found on the Commonwealth website to download. The certification form is the last page of it. The other 10 talk about if the buyer becomes the owner of this property making them aware that if a child under six resides in this property their principal residence then they have the responsibility as owner now to bring this property into compliance with the Massachusetts lead paint law within 90 days, 90 days of purchasing the property. They are shielded from damages of lead poisoning to that child for the first 90 days of ownership. After that they are responsible for health risks that could involve lead poisoning a very severe penalty. Then in F as part of this form, we asked the buyer, would you like as part of the buying process to have a lead paint inspection done on the property? If the buyer doesn't want to do it then they could initial either F I or II, not a check, initial, make sure you read the form carefully and follow the directions. Do they want to have the opportunity to do that or do they want to waive the opportunity to do the lead paint inspection? 

Next under the agent's acknowledgments, we initial G or H if we're the agent that saw the seller, buyer, tenant, or landlord sign this form. Indicating that they complied with the requirements on the law to fill out the form. If we're not an agent working with the buyer or tenant we still have the responsibility under H, your Massachusetts to verbally and inform and confirm the understand the responsibility upon taking ownership concerning the lead laws. The federal law does not have the requirement. They require disclosure about the issue but do not require to fix it. Under the federal law and state law relative to lead paint as well as the fair housing laws statewide, a prohibited practice would be to say to somebody. You have a child under the age of 6. Therefore, I won't rent to you that's prohibited. Through the lead paint law that's a violation. Suppose you have people renting, you buy this property and the is a child under six. That's already living there. Well, the old owner he's off the hook. Once you become the owner after 90 days. Now, you've got to deal with that child and the unit that they're in if there's lead paint there. You're going to have to take steps to perhaps relocate that family depending on what has to be done and until the property is brought into compliance. Now, I say you not use the agent but the new owner or previous owner during this timeframe. A buyer has to inspect the property if they choose and probably would want to take the responsibility to bring the property into compliance within 90 days to buy the property. This form under federal law is attached as part of the sales contract. Now, why do we do this? Well, the federal law and the state law require that we do it. But what benefit does it have in filling out the correct way. Can you imagine a few years after you've sold a multi-family property, the buyer calls and say, hey remember me. I bought this multifamily property from you. Guess what? I got a letter from one of my tenants attorneys. They've decided to sue me because their child is lead poisoned. I think I'm going to sue you for failure to disclose the lead paint to me. Our response to that would be, if we didn't do our due diligence, we did. Our response to that would be, oh no we did. We filled out the form as was required. So I disclose it to you Mr. Landlord. He really can't sue me. We need to protect ourselves as agents and brokers. Now for clarity, if you buy a house you have 90 days. If you sell it before that, the new buyer then has 90 days. For tenants before the tenant occupies the property or enters into a first contract such as a lease, fill out the form appropriately. There is also another form for short-term vacation rentals, 31 days or less, as long as it's not chipping or peeling.  If it's longer than 31 day's then we're in a normal rental situation. Bringing property into compliance with the Massachusetts lead law, lead paint law. 

Compliance. Does it mean the lead in the property needs to be rid of all the lead paint? No, it doesn't. If we have intact services that are flat such as ceilings and walls as long as they're not chipping or peeling, they comply. However, certain flat areas may have rounded corners or square corners that a child could chew on. Even though intact, they could chew these areas and become lead poisoned by chewing those areas. Areas up to five feet from the floor would have to be dealt with. Corners round doors on the floorboard, trim and what have you. Either we get rid of that would we make it inaccessible up to five feet from the floor? Windows create an issue because fractionalized surfaces with lead paint create microscopic dust that contains lead unfortunately, these dust particles floating around the air eventually go to the ground or on children's toys. The dust is digested through the mouth. If the buyer hires an inspector they will tell the buyer and seller what has been done to bring this property into compliance, once it is done. Then they will issue a certificate of compliance. Until that time the state does allow owners to agree with the state to bring their property into compliance with the law eventually, but for the moment they can comply with the law by getting a letter of interim control, interim control within one year it can be renewed for another. They will take care of the immediate risks primarily the chipping and peeling paint. The other less serious risks can be delayed for up to two years. They've got to do it within two years, and then they would be in full compliance. Now usually the certificate of compliance issued to that seller does not mean the property remains in compliance after the day it was given. That certificate of compliance is valid only one day, the day it was issued. It does not mean that the property is still in compliance. It protects no one, the owner still has the responsibility to make sure that children aren't going to be at risk and paint can still chip thereafter. Now, one last point about the lead paint law, if we don't fill out the form correctly like I said before, the exam sometimes wants you to know the penalties of not filing out correctly this form. Under the law the federal government can find you $10,000 per offense, 10,000 per offense. Then Massachusetts also has a fine of 1,000 per offense. So you're looking at 11,000 per offense for not putting your initials where they belong or checks where they belong, etc. Make sure we fill it out correctly. 

Radon, it's a gas that's produced by the decay of rock in the ground. These little radioactive isotopes caused by the decay of rock in the ground, bond with air as it comes up through the ground and it forms a gas. No, it's not going to explode but in concentrated levels, radon has been proven to be the second leading cause of lung cancer in humans after smoking. The Environmental Protection Agency has a level of 4 picocuries per liter of air as a threshold. This stat is not required for the exam. If we have a test done to determine if radon is present and the amount exceeds the threshold and the Environmental Protection Agency suggests that something should be done to lower the level various test can be done. The most common one is a little canister having charcoal particles in it when exposed to air traps the molecules on radon. The canister is sent for analysis to a lab determining how much radon is present. There are machines, technicians bring to a house collecting air samples and sent it to a lab. Massachusetts is in an area that has a lot of rock in the ground and radon is prevalent. Unfortunately, it's tasteless, odorless, colorless gas, so good circulation of air through the house is vital in helping limit the exposure. However, it also can be found in drinking water particularly well water. Radon can attach to the water molecules. If there is a high level try to seal it out from entering the home, it's suggested to seal cracks in the basement walls, floors, where drains may come up through the concrete in the basement. If it is still high it is suggested that a remediation system be installed in which a vacuum tube is placed into the ground in the basement. It goes through the basement floor and into the ground and vacuums up the radon before it enters into the house and then expels it with a blower system outside.

My home office is down here in the basement. The other day I was reading an article about radon and wondering if I might be at risk. So just what is radon? Radon is a colorless, odorless gas that's created by the decomposition of radium. Radium is a naturally occurring element found in all rock and soil to one degree or another. So whether or not a home has radon problem. Depends upon how much radium is present in the soil that their structures built upon. Testing is the only way you're going to know whether or not you have a problem. Where's the highest concentration of radon like you to be? Honest with finished basements are more susceptible to elevated exposures. So by all means whenever testing you test the lowest lived in level the home so a family room in the basement constitutes that. There are do-it-yourself radon testing kits available that are easy to use. Set the united place, leave it undisturbed for the prescribed amount of time then send the device to a testing lab for results. I've decided to have the test professionally done. Another online search leads me to home spec, a local home inspection company specializing in radon. The next day Ross prophet comes by the house and sets up an electronic radon detection and measurement monitor in the finished portion of the basement. Two days later, he returns and downloads the test data. The results show that the amount of radon in my basement is 50% higher. Then Environmental Protection agency's action level of 4.0 picocuries per liter. Based on this EPA standard I'm substantially above the level at which action should be taken to reduce radon concentrations. But just what kind of a health risk does radon pose? Based upon extended exposure there's an increased risk of lung cancer rate is thought to be the number one leading cause of lung cancer in non-smokers and the second leading cause of lung, lung cancer in the general population after smoking. 

I know I've got elevated radon levels and I also know that that can be a serious health hazard. So I'm going to have to do something about it. I'm going to go online here and look under radon midigation, a search revealed several local companies and I decided to contact this one, Connecticut Basement Systems Radon. After an initial consultation, I like you to have them do the work. A few days later Rafael and Javier arrived to install the system. A radon mitigation system draws air from beneath the basement slab through a whole board into the floor, a pipe or duct is inserted into the hole and run outside where an inline fan expels the air and radon gas above the roofline. But how does radon get into the home in the first place? Radon enters the home via many different entry points through the porosity the concrete itself, through openings in the floor, whether it be through floor cracks, openings in the perimeter, floor drains and some poles, dirt crawl spaces, anywhere where there's any kind of permeability and there's a source underneath the home right on will find a way in. Before the actual installation begins, the technicians bore two test holes on opposite sides of the basement floor. They apply suction to one of the holes. And use a vacuum meter on the other. This test will verify that air beneath the slab can in fact be evacuated. With the test complete a three-inch hole is bored through the basement floor. A section of PVC pipe is inserted into the hole and the gap around the pipe is sealed. Three-inch PVC is now run across the basement. The joints are cemented and pipe itself is hung from the joist with j-hook pipe hangers. The pipe run is then connected to the vertical section coming up from the floor. Once it's determined where the pipe will exit the basement a smaller locator whole is bored through the rim joist. Then a 3 inch hole saw bores a hole large enough for the pipe. A section of PVC is inserted through the hole and connected to the pipe run inside. Next, a radon mitigation fan engineered to run 24 hours a day, 7 days a week is attached to the 3 inch PVC and connected to a power supply. Although the fan will be running continuously a weather resistant switches installed so the system can be shut off manually if needed. The PVC pipe is run horizontally to a location near the downspout then upward in around the eve. The final section of pipe extends the run well above the roofline. This device installed inside continuously monitors the system and visually verify that everything is functioning properly. 

So to recap that fan outside is creating negative pressure or vacuum in this pipe which is drawing out air and radon gas that's trapped beneath the basement floor right here. I know the fan is working because of this monitor. So the air and radon gas is traveling up here across the basement and then outside where it's exhausted above the roofline. If you're buying a home here's one final bit of advice from the experts. We recommend that every person who is interested in purchasing a property have a radon test performed prior to purchasing at home. So they know what they're getting into. Some homes will test out higher in the wintertime versus the summertime. And so therefore, a person buying a home in the summertime who did a test found a low reading they never test again and think that they're protected but that same house in the wintertime can have a much higher rate on concentration.

Asbestos is a fibrous mineral that's resistant to chemicals and heat and very tough. It was also added to the building materials of many older homes. As a worker or homeowner, the hazard exists when undertaking a renovation or demolition. The danger is releasing the asbestos fibers into the air. When a worker breathes, asbestos fibers enter the mouth and nose and flow down the air passages deep into the lungs. The fibers lodged in the delicate lung tissue where oxygen is absorbed into the blood. Immune system cells try and break down the as best as fibers and become damaged and die. Scar tissue forms around the dead cells and spreads as more fibers embed in the lungs. Asbestos fibers can remain in the lungs for long periods and the scar tissue that results continues to develop for many years after exposure. Eventually, so much scar tissue develops but the lungs stopped working. Since the year 2000, more workers have died from asbestos disease in BC than any other workplace injury.

My name is Mark with Breathe Easy Eco Solutions, we specialize in mold and asbestos abatement. Now, common question I'm asked is, is there asbestos in my home? And where can I find it? So this house is slated for demolition and what needs to happen prior to getting the approvals and permits all in place is we need to find out is there asbestos in this house? The way we do that is I come in and I look at asbestos suspect material. Now, what is suspect material? Suspect material is material that was installed during either a build, a new home build, or during renovations at some point between the 1920s up until 1990 things that we want to look at is drywall. So the drywall joint compound commonly has asbestos fibers. Now, this house is all drywall. I've done kind of a pre-inspection before starting, and we'll do a walk-through and have a look at that. Now if there was plaster in this house the skim coat on the plaster is another area that can contain asbestos fibers. Flooring - cheap flooring and floor tiles. Now in the attic, we want to look for what's called for vermiculite insulation. Vermiculite is a material that kind of looks like gravel. It a shiny type of gravel material and often contains asbestos fibers and other areas we want to look at is, does this house have a boiler? Or does it have a furnace? Even has a boiler, we want to look at boiler installation or parching material on the outside of the boiler. We want to look at insulation on the boiler pipes themselves. And of course, there's also areas inside the boiler or older furnace that can contain asbestos things like the gasket on a door that might be on the boiler. It can also be on ducting, so it's a fiber ducting tape that is quite often put normally on joints but it can be found across the entire main or ducting in the basement. Now can also be found on a vent where the ducting then comes through and makes contact with the building materials the wood materials or the plaster or the drywall. So what we're going to do is we're going to head downstairs where to start down there and just do a walk-through and I'll point out all of the areas that I look for and suspect materials.

And you can see here, here is the furnace, this is a high-efficiency furnace and you can tell by the two pipes that come up here. Now areas that we want to look at is the ducting itself. So we can see here that there is aluminum duct tape on the plenum and if we kind of walk along we want to take a look at areas like joins like this here and this here, so I'm currently not seeing any asbestos or suspect asbestos tape on the ducting. We've got some more aluminum tape up here. So now that we've determined that there's no asbestos or suspect asbestos material on the ducting of the furnace, we can move on to the next step, so that be wall covering and insulation. So down here we can see behind the furnace. We have plywood and we have some fiberglass insulation that's coming out the bottom. Over here we have some wood paneling. And again, you can see the fiberglass insulation there. So when walking around the entire basement we can see that it's all wood products. We don't see any suspect-type compounds in this area. So wood product and paneling and fiberglass insulation is fine and is not suspect material. So before we head upstairs there is one area that I'd like to check that commonly has asbestos-containing material and that is actually above the furnace. It resembles a piece of drywall essentially made out of concrete and it's called transite. And now I'm not seeing any on this side here and I'm not seeing any on this side here. 

Generally, it would be in the other side. And it may be mounted to the bottom of this floor joists between that and the furnace and what that was used for was a, a heat shield. So, now that we've determined that there's no concerns down in the basement. We want to look on the main floor. So we'll start off by looking at the flooring itself. Carpeting is generally not a concern but the mastic or the glue that is keeping it down if it is glued down can be a concern. So we can see here in the closet. It doesn't appear to be glued down and there's tack strips in the corner here and you have hardwood flooring underneath that. And now we're up on the second floor and have carpeting and then we have 9inch floor tiles. So these are the older floor tiles that are definitely suspect material. And these tiles are quite common when people think of asbestos-containing material they think of these type of tiles. Now, we're looking further around. We can see that we have wood flooring in the closet. So that is not suspect and then we have some carpeting in here. So we want to make sure that we take a look underneath the carpeting and this carpeting as well to make sure that these tiles or a different type of tiles aren't underneath this carpeting. So when looking at these floor tiles we can see that they are brown in color with a design. Now, we want to look for similar tiles and if there are any that are different or non-homogeneous, we want to make sure we take samples of those. So those can be tiles that maybe are different size or a different color. Something that doesn't look the same sample should be taken of each one. There are common areas where you'll find a checkerboard tight pattern or some kind of pattern made up of multiple different colors of tiles. You should test every different color to confirm that none of them contain asbestos. 

So we know that drywall is installed sheets and there are screws put in at the stud points. So when taking a sample a good area is along a corner in here where there's going to be taped that extends out where they might add it. So, by taking a sample of this area is going to be a good assessment of whether it contains asbestos or not. Exterior corners are probably the best location or inside closets just because those areas usually aren't renovated. So, here's an area inside of a closet that I may take a sample on and what we want to do is we want to take three samples in here. So I would probably take a sample in there. I would take a sample in the back room and probably on the second floor. Now, that's the same with drywall or plaster. We want to get three different samples and make sure that they're all negative. If one of them is positive, then it's likely that there is this asbestos throughout and we can't determine exactly where the new stuff is and where the old stuff is. So we have to remove it all as asbestos-containing material. Now, if the basement had been drywalled and finished we would want to take three samples upstairs and three samples downstairs just because when houses are built they usually built and sold with an unfinished basement, and then years later months later that basement starts to get finished. But if done at a different time, so looking back at homogenous wall materials or building materials. It would not be homogeneous with the upstairs because it was done at a different time. Other areas that we want to look at is up. So the ceiling? So what is on the ceiling? Quite often there is stipple on ceiling, on walls, you can find wall texturing. So those are compounds and again if they were installed between the 1920s and 1990 that is suspect material. Other areas on the ceiling are ceiling tiles. So if you have older ceiling tiles you definitely want to get them tested before disturbing them. Now, moving on to other areas. We want to look at bathroom or kitchen tile grout. Now we didn't see any tile in this house. We've seen some wallboard that appears to look like tile but that grout itself is a compound and can contain asbestos, there's also no fireplace in here quite often brick masonry work the mortar can contain asbestos fibers. And then inside of the fireplace itself, you may see some kind of heat shielding similar to what I discussed earlier that is above the furnace platinum or the ducting that acts as a heat shield. You can find a translate-type panel inside the wall behind the fireplace itself or up in that cavity. 

So, now that we've looked at the inside of the house, what suspect materials can be found on the exterior of the house? starting with the roof we asphalt shingles themselves can contain asbestos. So if you look at those shingles and you can determine that they are older maybe there's two layers of asphalt shingles, the bottom layer could potentially contain asbestos fibers. So, another area on the roof is underneath shingles themselves. Quite often under cedar shakes, you'll find a fiber or fabric underlayment. That's something that is another area that can contain asbestos and should be tested. On the exterior of the house underneath siding you'll find that similar type of under alignment in that area as well. So if you can determine that the exterior siding or material on the outside of the house was installed prior to 1990, you want to look at that. Stucco siding on the exterior of a house is another common area that you can find asbestos along with the "parging" that runs along the exterior foundation. Transite panels that we discussed earlier is quite often found on siding, it's a concrete type material that is on the exterior of the house and it's usually overlapped. Now, these areas here if you're planning on disturbing any of this material it's always a good idea to have it tested to confirm that it does or does not contain asbestos. Of course, if it does contain asbestos you want to definitely contact a company, someone who's reputable to remove that product safely for you.

Underground fuel storage tanks are another issue of disclosure.

They leak eventually. If we have a little bit of oil in an underground water supply, we can have a very damaging situation.

If a tank is in the ground it could be leaking creating an environmental situation.

Unfortunately, many tanks never required permits to be installed and many still don't have to be.

If a home is heated by oil and the tank is not visible in the basement or garage, it's likely in the ground.

For buyers, we should suggest they have a test done to determine the condition of the tank. It is known as a sniff test. Because if the buyer buys a property, and it's leaking, they're going to be responsible to fix the leaking tank and problems that may have occurred to the underground water supply.

The buyer hires a contractor to come out and excavate where the tank is. Then the fire department comes out and sniffs the ground to determine whether or not there's a petroleum spill. Hence sniff test.

If they do smell petroleum, it's required to take the tank out of the ground, and excavate the ground to a level where there is no contamination. It's quite expensive.

The agent should disclose the existence of the tank and suggest the buyer conduct a test to determine its soundness.

Now, for purposes of the exam, the federal government gets involved through the Superfund law, known as CERCLA. The comprehensive environmental response compensation and Liability Act.

Anybody who has participated in bringing contaminants to that site could potentially be liable to the federal government to compensate the fund. And the government has the ability to put a super lien on people's property, their residential property, or other property that they may have in order to compensate.

And those who are in the chain of ownership could potentially be liable for that. Massachusetts has a law known as 21 E, which is similar to the federal Superfund law. It's known as the Massachusetts oil and hazardous material release prevention and response act.

There is an innocent landowner defense. To say they did the test. If they didn't do the test when buying the property and have a leaking tank, the buyer doesn't have the innocent defense of saying that they had a test.

Hi, for those are interested in how well things are moving on property. The first thing is to contact one of the licensed companies. And they'll then reach out to utility companies. Here we got a yellow flag and a blue flag. 

So these are Mark outs, the kind for utility companies to come out and first mark out where the lines are coming from. We see the gas line is coming from here and the water from over there.  Just as important as because for this property, the old tank is underground show where the oil tank is. Actually the other side of house.

So this is the exhaust, for an underground oil tank. Which means that the old tank is somewhere underneath here. They have a metal detector, specialized metal detector that can penetrate pretty far down and tell you whether or not there's an oil tank here. Roughly the size of it based on the dimensions. Because this next, I have a fence here, the company will likely need to remove part of this fence in order to get their equipment in here. Now in New Jersey, this costs anywhere from $1300 and up. The reason why I say "and up" is because it's not a flat rate. If they dig in and see a leak, then there'll be additional fees the EPA we need to be involved for cleanup.

shovel ready I didn't want to tell you this was that I don't know if either side of the bed would be over here in the Philippines decided now to follow up was made.

time 8:35 : They're able to pull the tank out. For now, I just need to fill in the gap, with cement and dirt. And luckily the tank did not leak. 

So the local inspection stopped by, inspected it, gave us the certificate approval.

If it leaked it would have cost us significantly more money. 

Now there was some oil left in the tank. I still need to get a final estimate on how much it would cost to dispose that piece.

time 9:35 : Everything is done. The fence place back. There. That wasn't original over here. They shoved that dirt under the walkway. They went out and got another truck load of dirt which is what we see on top over here. The exhaust that was sticking out of the walkway over there that's been removed. And even though the initial cost is $1300, it will be a little bit more for me because there was some oil left in tank and they're going to dispose it and charge me for it. Once I get the final price, I'll place it, I'll place the information to this video. After they pull the tank out, they actually cut it cut the exhaust pipe just so they can drag the tank out. And the inspector came so that everything was okay, there's no contamination. If there was contamination, the price would have easily been $12,000 to $55,000 more. So I got lucky there. didn't even know this house had a oil tank. Basically just pays to have an inspector come. The inspection costs about 200 dollars. So the removal was $1300 and up. The whole process went from about 9:30am to roughly 3pm or so. That's including the time it took for them to go out and get more dirt. Alright, well hope you guys found this video useful. If you guys have any questions, comments, suggestions, feel free to contact me.

If there's not an old oil tank corroding beneath your backyard, chances are good. There's one in your neighborhood and insurance won't necessarily cover the astronomical cost of removing it. Tonight the second installment of our three part investigation into a danger beneath the soil. It's a collaboration with a dozen content partners, public radio stations and private news organizations, both Rutgers and Montclair State University facilitated by the Center for Investigative Reporting. Brenda Flanagan investigates toxic New Jersey

it's caked in clay but look solid enough as the backhoe gently hoist john Fitzgerald's 500 gallon fuel oil tank out of the ground and into the air and deposits it on her front lawn and Clifton. But back in the excavated hole, dark residue stains the dirt and the odor of petroleum is heavy above the pit. Right smell it and you can actually even see it if you look far down there. Environmental consultant Steve rich chops at the clay underneath holes appear in the 66 year old steel daylight shines through some that are biggest dimes. Those are big holes.

Yeah, it was. I think, unfortunately quite a bit of oil which might have come out.

I don't know if I could talk to you right now. Really, I'm upset. I've been upset all week. And now this this puts the icing on the cake.

Jones tank is only one of an estimated 100,000 fuel oil storage tanks buried underground across New Jersey ranging in size from a couple 100 gallons to monsters holding 1000s of gallons. How often do you see something like this?

Quite a bit, maybe 50% of the old tanks. They do have holes they do leak. They've been in the ground a long time. That's why serious cases were plumes of contamination ride groundwater channels far beyond the tank pits require extreme excavation. It was pretty bad. As you could see the house had to be put on piles and beams to remediate the soil.

He figures cleanup will run couple $100,000 insurance might cover half the DPS notified whenever a critical level of contamination is detected and gets a technical report when it's remediated. Homeowners then get a letter certifying cleanups complete and they can't sell the property without it. He says because banks won't offer mortgages on homes with underground oil tanks. The grant money New Jersey set aside to help compensate homeowners for fuel oil tank removal can't keep up with demand with a waiting list 1700 names and four years long. 

So some are waiting it out and some are walking away from their homes. Walking away? They walk away from their homes. They just don't have the equity in the property to ultimately pay for remediation and get it cleaned up.

And they're really like the Wild West. You know you just have these tanks out there that invariably at some point in time to get a leak. Environmental attorney Stu Lieberman points to New Jersey's 2005 fuel oil tank exclusion policy. It lets insurers opt out of paying for damages from tank removal unless homeowners can prove that oil leaked before 2005. It's a sin. It's it's really a crime. That division of banking and insurance allowed the insurance companies in New Jersey to stop covering the stakes. The upshot is that there are many homeowners that don't have coverage and don't know that they don't have coverage. New Jersey's fuel Merchants Association questions whether lack of DDP oversight on oil tank removals is driving up costs, especially if an insurer is picking up part of the bill to fix those oil leaks that occurred more than a decade ago.

The costs just seem to be a lot more in the insurance world than they then they might otherwise need to be. The costs that they sometimes incur for these remediations. It's really a market driven process. And that's why the costs becomes so extensive in some cases.

The DEP says regulations permit industrial cleanups to leave behind small amounts of contaminants in the soil. But for homesites banks and buyers demand much more stringent remediation standards,

There's no ability to obtain a permit to leave any contamination behind

To help save cleanup costs the DPW is now considering a controversial fix to relax some cleanup regulations for homeowner tanks of less than 2000 gallons. Meanwhile, Senator Jennifer Beck sponsoring legislation that would require insurance companies to start offering fuel oil tank liability policies to homeowners again.

If they don't want it, they have to sign and certify a letter back to the ensure that they don't want it otherwise the homeowners insurance company must provide it automatically. Homeowners insurance was intended to be there for with the structure and for your belongings inside, it wasn't there to be a hazardous waste plan.

The insurance lobby says those policy changes and oil tank exclusions were very clear and insurers do not want to walk it all back a decade later. 

At the heart of this. It's an environmental issue. It's an issue of maintenance. It's an issue of warranty, and it's an issue of making sure that you've replaced these tanks.

Back in Clifton john Fitzgerald just heard cleanup will cost 75 grand to remove 125 tons of contaminated dirt. But she says she unwittingly made a mistake by converting to natural gas heat before she removed the oil tank and that voided her insurance policy.

Do you think State Farm is going to help pay for it? No. Why not? Because I just don't I just don't think they will. Yeah,

State Farm told NJtv news that it's actively working with Ms. Fitzgerald about her claim. Now across New Jersey, underground storage tanks and contaminated soils from old gas stations and dry cleaners lurk underground. You might be living right next to one and not even know it. We'll talk more about that tomorrow. In the newsroom. I'm Brenda Flanagan Njtv News.

Hello, I'm Kenneth Lucas, a project manager for EPA Superfund program. years ago, people didn't understand how certain chemical waste would affect people's health and the environment. many wastes were dumped on the ground, into rivers, or left out in the open. As a result 1000s of abandoned hazardous waste sites were created. If there's a Superfund site in your neighborhood, you're probably wondering what will happen? How will it be cleaned up, who will pay for the cleanup, and what you can do to keep your family and community safe. We produce this video to help you understand the Superfund process, from discovery of a site through cleanup, and to tell you what you can do to become involved. There are several steps to the Superfund process, site discovery, site assessment, early action, and long term action. All of these steps work toward one goal, and that is the cleanup sites quickly and safely. The number one goal of the Superfund program is to protect human health and environment, its mandate is addressed to abandoned and uncontrolled hazardous waste sites. So how we accomplish that is to first identify these sites come up with a plan to remediate them, and then go in and actually as we say, turn dirt. Get in, get the chemicals out and leave it in a condition that is safe for the surrounding community for the future. Throughout the process, we involve the community and enforce the law by making the ones responsible for creating Superfund sites paid to clean them up.

The Superfund process begins with site discovery. Potential hazardous waste sites come to EPAs attention to a variety of sources. Sometimes we receive reports from local and state agencies, businesses, the US Coast Guard, and many sites are reported by people like you. In fact, EPA encourages public participation in the Superfund process from the very beginning.

I would say community involvement is essential to the Superfund cleanup process. Without an informed community.

I don't believe that we can have an effective cleanup at a Superfund site. The National Response Center has a 24 hour hotline, where you can call to report a hazardous waste incident or site. Many of the calls that come into the hotline are emergencies and require immediate action.

Everyone can relate to an emergency action, you're going to have an explosion threat, there could be a fire, there could be a lagoon full of contaminants that because of heavy rains is about to overflow into a pristine River.

If there is an emergency, Superfund will immediately respond to eliminate any risks to the community, and to ensure that people and the environment are safe. 

Whether or not it begins as an emergency, every site that is reported to EPA must undergo a site assessment to evaluate the possible hazards posed by the site. And to determine whether any additional cleanup actions necessary.

site assessment allows us to screen a large number of sites and to prioritize our work so that those sites that pose the worst threat to human health and to the environment, are the ones that get cleaned up.

It's at this point in the process, we've identified a potential problem, and the state and EPA will begin working together to further characterize the problem. We'll send technical experts to the site to test the soil water in the air to get a better idea of the hazardous waste that are present at the site.

Sometimes they will interview nearby residents to compile a history of the site. They use this information to determine how serious the risk may be. If EPA determines that the site may be a threat to the community or the environment in the near future, the agency will perform what is called an early action at the site.

Early action really addresses imminent threats such as surface soil that children could eat. What we would do is go in and remove the source of contamination, get in there quickly and get the risk reduction.

Typically, early actions are taken to prevent direct contact with contaminants. Remove hazardous materials for contaminants from spreading, provide drinking water temporarily or permanently evacuated or relocate affected residents. Whatever it takes to shorten the time people are exposed to contamination, and to decrease the negative effects of the contaminants to people and the environment. While EPA is working to remove threats posed by the site and assess the site, the agency is also seeking out the individuals or companies responsible, known as potentially responsible parties,

what we do is identify the companies or the people responsible for the contamination, then we tried to reach an agreement to get them to pay for their fair share of the cleanup work at the site. Right now, the majority of the cleanup work going on at Superfund sites is either being performed or being paid for by the responsible parties.

If EPA cannot find the responsible parties, or can't force them to pay for the cleanup, the agency will pay for the work.

Some sites have extensive contamination problems caused by years of pollution and neglect. They may take several years even decades to clean up. These sites require what are called long term actions.

A long term action is more than just a surface problem, we may get in and find hundreds of leaking drums buried beneath the surface, or we may find that the groundwater supplies been contaminated. At other sites, we may need to restore the wetlands or other natural resources. But as the name suggests, we're going to be there working for some time to

correct the problem. to gauge the extent of the contamination at a site. EPA uses a hazard ranking system. If the site scores high enough, is placed on the national priorities list, which is a published list of hazardous waste sites that are eligible for long term cleanup action under the Superfund program. Once the site has been placed on the national priorities list, EPA will perform detailed studies to determine the best option to clean up the contamination.

Our goal is to take these formerly contaminated properties, and not only make them environmentally safe and safe for the community, but to make the land usable again. In doing this, we work closely with the community and the states to come up with an agreed upon use for the property and then design a cleanup that will meet this use.

EPA then uses this information to develop and present a proposed plan for long term cleanup, which describes the various cleanup options being considered and identifies the option EPA believes will work best. Next, this plan is presented to the community and to local and state officials for comments. This information can be highly technical, so EPA provides assistance to communities through the technical assistance grant program to help them understand the complex information relating to Superfund cleanup.

The technical assistance grant program allows this community groups to hire their own independent technical advisor who takes this technical information and interprets it into a form that community members can understand.

EPA also takes into account the needs of minority and low income citizens to make sure that the site and these communities receive equal attention and protection.

We're taking a look at the way that we do business at EPA to make sure that we are making fair decisions, especially in low income and minority communities that are around Superfund sites. We are reaching out to these various communities and empowering them so they can get involved in the cleanup process.

Once the public's concerns are addressed, EPA publishes a record of decision which describes how the agency plans to clean up the site. EPA will then inform the community about the action that will take place at the site. Now the EPA is ready to begin the actual cleanup of the

site. The length of time that it takes to clean up a Superfund site depends a lot on the complexity of the site and the nature of the contaminants that are there. With more complex sites, we may have to do several activities over a period of five or more years. And in some of those particularly where we're cleaning up groundwater, we may be there for 20 or 30 years.

To make sure that sites remain safe. EPA routinely monitors sites. If there's any indication of a problem that threatens people or the environment, EPA will take an early action to immediately eliminate the threat and make the site safe again. Everyone wants a clean environment, a safe place to work and to raise our families. EPA understands this. And through the Superfund program. We're working to clean up hazardous waste sites and to make the environment safe now and in the future.

Before the advent of environmental regulations, industry used chemicals haphazardly, although, under current environmental laws, chemicals are tightly regulated, and some are illegal to produce due to their toxicity. In the past, they were not seen as harmful to human health or the environment. In New England, where the American Industrial Revolution was born, legacy sites or chemicals were manufactured, used and dumped dot the landscape. What prompted everybody attention towards the Fletcher paint site was the keye's municipal. Well, through routine environmental sampling by the State of New Hampshire and others, they found volatile organic contaminants and then municipal well, which caused a lot of problem because it provided drinking water for many residents in the town of Milford. We started to look for the contaminaters. And guess what, Fletchers paint was very close to that well, and that brought in the whole study to it. This site is unique. It had been an industrial site since the 1800s. And there was a town dump buried underneath it. The Fletcher paint company had some side chemical businesses, they made pesticides, they made perfumes and they made asphalt and roofing materials. EPA had to identify why there were so many PCBs associated with the paint facility. Because it wasn't typical. It was discovered, the three companies were supplying a material called scrap piramal, which is essentially a PCB material that comes out of capacitors or transformers. General Electric was Fletcher's largest supplier of this material, Fletcher's paint was bringing the scrap pyron all in and shipping it out in products for asphalt and roofing companies. Unfortunately, they had about 800 drums of hazardous substances placed on the parking lot which was soil based parking lot. The owners did not really know what the material was, and the drums were slowly rotting and the materials were leaking out very close to the river so that was a threat to the river.

threat to the ground and the general area. This site is located in your businesses, residences and an elementary school. The local boys and girls club is just across the river.

Once it was understood that fudges paint was a source of contamination of the keys municipal well, EPA began work to remove the leaking drums and conducted preliminary soil sampling. EPA did this work in 1988 via removal actions. Removal actions are typically short term actions about six months to a year and duration to mitigate a more immediate threat. Removal activity in 1991 9395 and 2000 also allowed EPA to address risks and manage building demolitions, fence installations, and contaminated soil removal from residences near the site. And it's one thing if you stay on your site, but if you have to come into their space, they're very brave. We took a lot of time to work through that those fears. One resident, he not only lived next to the property had contamination in his property in his house, he worked at the site, so he actually had his blood tested, and had seen low levels in his blood. 

Fletcher's paint was listed on the national priorities list, or NPL in 1989. The NPL is another name for the Superfund program. Only the worst sites of pollution in America are ranked on the NPL and funds are available through Congress to clean up these sites. There's a number of entities that must come together and agreement to list the site for NPL. In a lot of cases, a state discovers the site and assesses the magnitude of the problem. And if deemed necessary, the state will refer the site to EPA and request the site be ranked for the national priorities list. In order for a site to be listed, it must meet certain hazardous ranking criteria. There are many factors involved in this decision, including the types and levels of contamination and their potential impacts. Ideally, the proposed NPL listing is supported by the governor of the state, the municipality the site is located in, and the community members there. 

Once the site is listed. The typical Superfund process will involve a lot of field work to sample for the contaminants that may have been disposed of there. Surface water and sediment sampling, soil sampling, air sampling. That information is used to compile a document we call a remedial investigation which summarizes the contamination. As part of that remedial investigation, we do a risk assessment.

In the original scoping, you try to figure out what "receptors" they're call, what people or animals will be exposed to the chemicals. We're concerned about cancer and noncancer effects of the PCBs and some solvents as well. Whether there were long term chronic effects of these chemicals in trespassers, Residents, Adult residents, ah, construction workers.

The ecological receptors were primarily fish in the river. So, we looked at the affects on the animals themselves in the rivers and on wildlife on humans who might eat the fish. And so that scopes out the risk assessment.

So when they went out of business in 1991 they left behind a large building full of hundreds and hundreds of drums and these miscellaneous materials. Full of lead or antimonia or chromium in one area of the site. You might have pesticides in an other side of the business. We never knew what the sample would show us. Because we never knew what might have been disposed of in a different area.

Remedial investigation obtains the data. The risk assessor uses the data to calculate the risks. Then the engineers get involved in how much soil to take out. What is the method to remediate. 

The remedial investigation serves as the basis for the feasibility study. Feasibility Study will evaluate the various options that are potentially viable for cleaning up the site, whether it's soil or groundwater or sediment. That feasibility study then provides us the basis to propose a cleanup strategy, that public comment on typically 30 days, and then we write our cleanup decision or record a decision that documents how to clean up the site. As the cleanup process progresses. EPA is tasked with other functions that move in concert to the cleanup part of EPA his job on Superfund sites is to ensure that polluters pay for the remediation of the site, which is done through EPA enforcement. EPA identifies the parties that are considered responsible for the contamination under the law, and asks those parties to perform the cleanup. At the Fletcher's paid Superfund site, EPA identified General Electric as the potentially responsible party, but GE contested. After the United States filed a lawsuit against GE, the company was found by the court to be a liable party. The second phase of the investigation is to pre design investigations. That's pretty discreet. Instead of taking a few samples that shows high levels of contamination, you're taking 3800 samples to look at very discreet depths of contamination. Where is it pulling up, you're looking for how the data would respond to the cleanup. Basically, we try to do pre design work to design the remedy that was selected and ultimately clean it up and perform the cleanup. The site is composed of two two areas the Mill Street site and the Elm Street site. The both sites are an active remedial action currently for the removal of contaminated soils contaminated with PCBs being transported off site. Some areas are going all the way to bedrock and other areas are shallower the site is evaluated on an ongoing basis for remedy protectiveness, to make sure it still protects public health and the environment. During the early stages of the soil excavation. We were detecting very high levels of PCBs in the air much higher than the project action levels that were established. So we worked with the PRP, General Electric and their contractor to figure out ways we could adjust the way we were managing the site. Finally wound up with developing a new plan. Part of that plan required additional engineering controls. Some of those controls included spraying vapor suppressing foam on the site. We also increased the amount of air monitoring that we're doing in the amount of air monitoring stations that were needed on the project. The community is encouraged to participate in the cleanup process and engaging the community is a focus of the cleanup team. 

We're going to start off tonight with a quick introduction. My name is Cheryl Sprague. I work with the Environmental Protection Agency. I am the remedial project manager for the Fletcher Payne Superfund site. With me tonight is my boss, chief for The New Hampshire Rhode Island Superfund section, Mike Divinsky. 

The work really couldn't be done without interacting with the community. And on this particular site, we were literally within six inches of people's front front doors, front steps, and that's where the excavation was happening. I think the Community Involvement Coordinator besides dealing with the community is also intensely dealing with the team. We had our project manager we met regularly and one of the standing agenda items one of the most important ones is what are we telling people how are we interacting with them she understood that he was not going to be able to to do his job without essentially talking to people almost every day as the site gets clean. The view of keys Park and this how he can river has the town looking at the space differently. And the town who had always had an interest in passive recreational use but nothing fancy has now become the very energized and figuring out how to really reuse the site in a way that benefits the community and reconnects a portion of the community to the to the sow, he can River

 And I know the city of Milford had been upset and impatient, understandably, over the years and now is very happy with the work that's being done. It was since our enforcement efforts were successful. GE has been doing a great job in cleaning up the site and doing it fairly quickly. It's amazing to visit the site and see all the work that's going on.

Right now, we're digging up 1000s of cubic yards of PCB contaminated material to Fletcher's and eventually the site will finally get cleaned up. That's why I joined EPA. I felt like I could contribute to the New England by going through this process to get a site investigated, studied, cleaned up and put back into use somehow.

The former Fletcher's paint Superfund site has become a public park for the citizens of Milford, New Hampshire.

Title 5. Title 5 refers to the Massachusetts environmental laws at particular septic systems. If a property is not connected to a public sewer system they have a septic system. They're not on a public sewer system. Properties of these types come under the requirements of Title 5 which requires these properties if they have a transfer of ownership under other than between direct family members let's say, a test is required by licensed Title 5 inspectors. They must be licensed by the state. They determine if a septic system complies with the Massachusetts regulations under Title 5 in order to transfer the ownership of property. A settlement agent cannot have a real estate closing if not done, so that's right. If you're doing a deal and it hasn't been done and the property has a septic system. They're not going to close and you're not going to get paid. The only exception is directly between family members. The test is valid for a period of two years, three years if we can prove annual maintenance of the system. If we resell the property within a two or three year period we are not required to have another test. But after that period of time we would be required. Transfer of ownership triggers testing requirements. If a Title 5 inspector comes out determines that this particular septic system is functioning property, on the title five form they give a copy to the seller, the property owner and a copy to the local public health department which monitors compliance on the law. As a real estate agent, we encourage the seller when selling this property to have it done, not done no sale. Let's suppose the tester comes out and the property's septic system does not pass according to Title 5. One sign a septic system probably is not functioning properly is it's well, it's smell. It's not supposed to smell. Another sign, the ground is mushy where the septic system is. It's not supposed to be. Moss is growing above the septic system area that is not a good sign. Or in the middle of summer, we haven't had rain in weeks and all the grass is brown except where the septic system is, looks like a mini-golf course. Then again, maybe your buyer wants a mini-golf course. No seriously, we've got a problem. The inspector is going to come out to determine if it's functioning properly. However, under the Massachusetts regulations septic systems can still technically fail even though they are functioning properly because they may have been installed at a time dependent upon where somebody's well is. Today, you have to have every component within a hundred feet. No closer than a hundred feet of somebody's well. But years ago that may have not have been the case. So, we technically fail today even though they're properly functioning. We may be located too close to a little stream or a brook that flows into the public water supply, which fails under those conditions. There could be reasons why even though the septic system is functioning fine it still technically fails. A report is sent to the local Board of Health which now starts a countdown on the septic system. That septic system has to be brought into compliance with the Massachusetts Title 5 regulations within two years of the test unless it is an imminent threat to Public Health. then done immediately. 

Can we sell a property with a failed system? Can we transfer the ownership of property with a failed system? Yes, we can even with a failed system we can transfer the ownership of it. But if the buyer is going to be the owner at the end of those two years, they are responsible to fix it. We certainly have to tell the buyer that the septic system Title 5 inspections were done and failed and responsible if they become owners in two years to bring it into compliance. However, if using lender financing it's unlikely that they would finance that property under those conditions. The repair renovation and updating. If necessary could be put off because of weather conditions, such as winter where the ground is frozen. So clearly, you're not going to work on it during winter time. 

Septic systems are designed based upon the number of people expected to live on the property and the number of people associated with the number of bedrooms. If we are increasing the size of the home and adding a bedroom that may trigger the need to have a new test done to determine if this septic system is capable of handling the additional people, potentially living in that property. Changing a single family home into a laundromat. Now that could trigger the need for change. Now one other point, if the seller is unsure of whether or not the septic system would comply and not really sure if they really want to sell this home if it didn't, the seller could ask the Title 5 inspectors for what's called an evaluation. The inspector will come out as if doing a Title 5 inspection but it only reports to the owner. A record would not go to the Board of Health as long as it's not imminently a threat to local public health. Evaluation, not an inspection.

One other issue we want to keep in mind when dealing with disclosure of property-related defects is the issue of stigmatized properties, stigmatized properties. For many years in Massachusetts and some other states, if we were involved in selling a property we would have the responsibility as a real estate licensee to ask the seller about a possible felony, murder, suicide, or supernatural occurrences that might have occurred on the property. It was viewed negatively even a loss of value to a property, as a leaking roof let's say. We would have to ask the seller if they were aware of felony murder, suicide, or supernatural occurrences upon the property. It was considered under Chapter 93A to be a material defect on the property. If so, we had a responsibility to ask that. Later, in 1988 the legislature here in Massachusetts took these four issues out of the defective column per se. Real estate licensees no longer had to ask the seller about nor disclose those events. Unless however the buyer directly asks us then we have to answer that question truthfully. But if the buyer never asks me about it or you even though I may be aware of the fact. Never asks, then we don't have the responsibility to disclose it. It's no longer considered like a leaky roof having to disclose such issues. Remember, we don't have to inquire about it. We do not have to disclose such history even though we know it unless the buyer asks about it.