SOLUTION MANUAL FOR
Real Estate Finance And Investments 17th International Edition Jeffrey Fisher
William B. Brueggeman
Solutions to Questions—Chapter 1
An Introduction to Real estate Investment: Legal Concepts
Question 1-1
What is the difference between real property and personal property?
Real property refers to the ownership rights associated with realty. Realty refers to land and all
things permanently attached. Personal property refers to ownership rights associated with
personalty. Personalty are all things, tangible, intangible that are movable. This includes all
things that are not realty.
Question 1-2
What is meant by an estate?
Estate is used to denote a possessory or potentially possessory interest in real estate. However,
not all interests in real property are estates. Ownership can be quite different from possession and
a variety of legal factors affect the ownership rights associated with real estate. The economic
benefits expected by lenders, investors, and other parties in a real estate transaction are affected
by these legal factors.
Question 1-3
How can a leased fee estate have a value that could be transferred to another party?
The original fee owner can give up some property rights to a lessee. The value of the leased fee
estate will depend on the amount of lease payments expected during the term of the lease plus
the value of the property when the lease terminates, and the original owner receives the
reversionary interest.
Question 1-4
What are title records? What is an abstract of title?
Title records (sometimes referred to as deeds and conveyances records and/or real property
records) are created and maintained usually at the county level. These records identify all
properties in a county, including location, present ownership and any liens or encumbrances
affecting each property. These records are critical to investors who want to identify the owner of
specific tracts or land, existing buildings, etc. These records are also important because they
contain evidence of encumbrances such as mortgage liens, tax liens (to be covered in later
chapters), etc. Example: a prospective investor sees a vacant tract of land that he is interested in
purchasing. Because there is no signage or any improvements on the land, how can the land
owner be identified and contacted? By going to the county records office (deeds and
conveyancers department) the investor can use the address to locate a property (usually in plat
books), then the current owner. These records are used to link a precise property to its owner. At
some point, if this investor continues to be interested in purchasing the land, he will likely retain
an attorney or abstractor to do a title search and abstract of title. The latter is done to not only
.
18-1
, identify the current owner but to trace all previous owners with commentary on the likelihood of
other parties who may ownership rights and /or interests in the tract of land.
Question 1-5
What is a deed? How is it different from the title?
The deed is a document usually created by the owner of a property containing the property legal
I.D. and location in addition to any improvements that exist on the property. It also describes the
extent to which the seller warrants that he is the owner of the property and has the right to
convey ownership. A deed is used to convey the title from one person (the grantor) to another
(the regrantee) by means of a written instrument. The term ―title‖ is an abstract term frequently
used to link an individual or entity who owns property to the property itself. When a person has
―title,‖ he is said to have all the elements, including the documents, records, and acts, that prove
ownership. Title establishes the quantity of rights in real estate being conveyed from seller to It
differs from title because title provides evidence of ownership based on the collective records
that exist pertaining to a property.
Question 1-6
What is meant by a title record? Why are these records so important?
The title record refers to records on file, usually at the county level, that help to specify tracts of
real estate and determine if a seller has the right to convey ownership of such real property.
These records are the most important sources of events affecting real estate ownership over time
and are usually reviewed when trying to identify the ―quality‖ of title that investors will receive
if they purchase. After a review of these records (usually by an attorney), if in his opinion, they
are complete, he will indicate that the seller has ownership and title to the property. Most of the
instruments that affect title to real estate are recorded, in accordance with the recording acts of
the various states, at what is typically called the county recorder’s office.
Question 1-7
What is a future estate? Give an example?
We think of most real estate transactions as acquiring ownership at the present time. However,
ownership can also occur at a later time, say after the current owner dies. The person who
becomes the owner at that time is said to be a ―remainder‖ estate. Future estates include a
reversion and remainder. A reversion results in the state reverting back to the original possessor
whereas the remainder results in a third-party obtaining possession at some point in the future.
Question 1-8
Name the three general methods of title assurance and briefly describe each. Which would you
recommend to a friend purchasing real estate? Why?
General Warranty Deed - the grantor warrants that the title he/she conveys to the property is free
and clear of all encumbrances, other than those that are specifically listed in the deed.
Special Warranty Deed - makes the same warranties as a general warranty deed except that it
limits their application to defects and encumbrances which occurred only while the grantor held
title to the property.
Quitclaim Deed - offers the grantee the least protection in that it imply conveys to the grantee
whatever rights,, interests,, and title that the grantor may have in the property. No warranties are
made about the nature of these rights and interests or of the quality of the grantor’s title to the
property.
.
18-2
, Would recommend the General Warranty Deed, because it offers the most comprehensive
warranties about the quality of the title.
Question 1-9
Would it be legal for you to give a quitclaim deed for the Statue of Liberty to your friend?
Yes, the quitclaim deed simply says that the grantor ―quits‖ whatever claim he has in the
property (which may well be none) in favor of the grantee.
Solutions to Questions—Chapter 2
Financing: Notes and Mortgages
Question 2-1
Distinguish between a mortgage and a note.
A note admits the debt and generally makes the borrower personally liable for the obligation. A
mortgage is usually a separate document which pledges the designated property as security for
the debt.
Question 2-2
What does it mean when a lender accelerates on a note? What is meant by forbearance?
The acceleration clause gives the lender the right or option to demand the loan balance owed if a
default occurs. Forbearance by the lender allows the borrower time to cure a deficiency without
the lender giving up the right to foreclose at a future time.
Question 2-3
Can borrowers pay off, part or all, of loans anytime that they desire?
No. In general, prepayment is a privilege not a right. In cases of residential/consumer loans made
by federally related lenders, this option is usually provided to borrowers. In commercial real
estate loans it is not.
Question 2-4
What does non-recourse financing mean?
The borrower is not personally liable on the note. The lender may look only to the property
(security) to satisfy the loan in the event of default.
Question 2-5
What does assignment mean and why would a lender want to assign a mortgage loan?
Assignment gives the lender the right to sell or exchange a mortgage loan to another party
without the approval of the borrower.
Question 2-6
What is meant by a “purchase money“ mortgage loan? When could a loan not be a purchase
money mortgage?
Purchase money means funds from the loan will be used to purchase a property. It will not
provide funds for other uses such as could be the case with a refinancing.
.
18-3
, Question 2-7
What does default mean? Does it occur only when borrowers fail to make scheduled loan
payments?
Default means that the borrower has failed to (1) make scheduled loan payments or (2) violated
on a provision in the note or mortgage.
Question 2-8
When might a borrower want to have another party assume his liability under mortgage loan?
If the loan was made with a favorable interest rate, the seller of the property may want to include
this low rate loan as an additional incentive to sell the property.
Question 2-9
What does deficiency judgment mean?
If default occurs and the property is sold, if the dollars from the sale is not enough to pay off the
loan balance, the borrower is liable for the difference.
Question 2-10
What is a land contract?
An agreement between a buyer and seller to purchase and sell real estate. However, passage of
title is usually deferred until some future date or deferred until some event or condition occurs
(e.g., Payment of money, rent, etc.).
.
18-4
Real Estate Finance And Investments 17th International Edition Jeffrey Fisher
William B. Brueggeman
Solutions to Questions—Chapter 1
An Introduction to Real estate Investment: Legal Concepts
Question 1-1
What is the difference between real property and personal property?
Real property refers to the ownership rights associated with realty. Realty refers to land and all
things permanently attached. Personal property refers to ownership rights associated with
personalty. Personalty are all things, tangible, intangible that are movable. This includes all
things that are not realty.
Question 1-2
What is meant by an estate?
Estate is used to denote a possessory or potentially possessory interest in real estate. However,
not all interests in real property are estates. Ownership can be quite different from possession and
a variety of legal factors affect the ownership rights associated with real estate. The economic
benefits expected by lenders, investors, and other parties in a real estate transaction are affected
by these legal factors.
Question 1-3
How can a leased fee estate have a value that could be transferred to another party?
The original fee owner can give up some property rights to a lessee. The value of the leased fee
estate will depend on the amount of lease payments expected during the term of the lease plus
the value of the property when the lease terminates, and the original owner receives the
reversionary interest.
Question 1-4
What are title records? What is an abstract of title?
Title records (sometimes referred to as deeds and conveyances records and/or real property
records) are created and maintained usually at the county level. These records identify all
properties in a county, including location, present ownership and any liens or encumbrances
affecting each property. These records are critical to investors who want to identify the owner of
specific tracts or land, existing buildings, etc. These records are also important because they
contain evidence of encumbrances such as mortgage liens, tax liens (to be covered in later
chapters), etc. Example: a prospective investor sees a vacant tract of land that he is interested in
purchasing. Because there is no signage or any improvements on the land, how can the land
owner be identified and contacted? By going to the county records office (deeds and
conveyancers department) the investor can use the address to locate a property (usually in plat
books), then the current owner. These records are used to link a precise property to its owner. At
some point, if this investor continues to be interested in purchasing the land, he will likely retain
an attorney or abstractor to do a title search and abstract of title. The latter is done to not only
.
18-1
, identify the current owner but to trace all previous owners with commentary on the likelihood of
other parties who may ownership rights and /or interests in the tract of land.
Question 1-5
What is a deed? How is it different from the title?
The deed is a document usually created by the owner of a property containing the property legal
I.D. and location in addition to any improvements that exist on the property. It also describes the
extent to which the seller warrants that he is the owner of the property and has the right to
convey ownership. A deed is used to convey the title from one person (the grantor) to another
(the regrantee) by means of a written instrument. The term ―title‖ is an abstract term frequently
used to link an individual or entity who owns property to the property itself. When a person has
―title,‖ he is said to have all the elements, including the documents, records, and acts, that prove
ownership. Title establishes the quantity of rights in real estate being conveyed from seller to It
differs from title because title provides evidence of ownership based on the collective records
that exist pertaining to a property.
Question 1-6
What is meant by a title record? Why are these records so important?
The title record refers to records on file, usually at the county level, that help to specify tracts of
real estate and determine if a seller has the right to convey ownership of such real property.
These records are the most important sources of events affecting real estate ownership over time
and are usually reviewed when trying to identify the ―quality‖ of title that investors will receive
if they purchase. After a review of these records (usually by an attorney), if in his opinion, they
are complete, he will indicate that the seller has ownership and title to the property. Most of the
instruments that affect title to real estate are recorded, in accordance with the recording acts of
the various states, at what is typically called the county recorder’s office.
Question 1-7
What is a future estate? Give an example?
We think of most real estate transactions as acquiring ownership at the present time. However,
ownership can also occur at a later time, say after the current owner dies. The person who
becomes the owner at that time is said to be a ―remainder‖ estate. Future estates include a
reversion and remainder. A reversion results in the state reverting back to the original possessor
whereas the remainder results in a third-party obtaining possession at some point in the future.
Question 1-8
Name the three general methods of title assurance and briefly describe each. Which would you
recommend to a friend purchasing real estate? Why?
General Warranty Deed - the grantor warrants that the title he/she conveys to the property is free
and clear of all encumbrances, other than those that are specifically listed in the deed.
Special Warranty Deed - makes the same warranties as a general warranty deed except that it
limits their application to defects and encumbrances which occurred only while the grantor held
title to the property.
Quitclaim Deed - offers the grantee the least protection in that it imply conveys to the grantee
whatever rights,, interests,, and title that the grantor may have in the property. No warranties are
made about the nature of these rights and interests or of the quality of the grantor’s title to the
property.
.
18-2
, Would recommend the General Warranty Deed, because it offers the most comprehensive
warranties about the quality of the title.
Question 1-9
Would it be legal for you to give a quitclaim deed for the Statue of Liberty to your friend?
Yes, the quitclaim deed simply says that the grantor ―quits‖ whatever claim he has in the
property (which may well be none) in favor of the grantee.
Solutions to Questions—Chapter 2
Financing: Notes and Mortgages
Question 2-1
Distinguish between a mortgage and a note.
A note admits the debt and generally makes the borrower personally liable for the obligation. A
mortgage is usually a separate document which pledges the designated property as security for
the debt.
Question 2-2
What does it mean when a lender accelerates on a note? What is meant by forbearance?
The acceleration clause gives the lender the right or option to demand the loan balance owed if a
default occurs. Forbearance by the lender allows the borrower time to cure a deficiency without
the lender giving up the right to foreclose at a future time.
Question 2-3
Can borrowers pay off, part or all, of loans anytime that they desire?
No. In general, prepayment is a privilege not a right. In cases of residential/consumer loans made
by federally related lenders, this option is usually provided to borrowers. In commercial real
estate loans it is not.
Question 2-4
What does non-recourse financing mean?
The borrower is not personally liable on the note. The lender may look only to the property
(security) to satisfy the loan in the event of default.
Question 2-5
What does assignment mean and why would a lender want to assign a mortgage loan?
Assignment gives the lender the right to sell or exchange a mortgage loan to another party
without the approval of the borrower.
Question 2-6
What is meant by a “purchase money“ mortgage loan? When could a loan not be a purchase
money mortgage?
Purchase money means funds from the loan will be used to purchase a property. It will not
provide funds for other uses such as could be the case with a refinancing.
.
18-3
, Question 2-7
What does default mean? Does it occur only when borrowers fail to make scheduled loan
payments?
Default means that the borrower has failed to (1) make scheduled loan payments or (2) violated
on a provision in the note or mortgage.
Question 2-8
When might a borrower want to have another party assume his liability under mortgage loan?
If the loan was made with a favorable interest rate, the seller of the property may want to include
this low rate loan as an additional incentive to sell the property.
Question 2-9
What does deficiency judgment mean?
If default occurs and the property is sold, if the dollars from the sale is not enough to pay off the
loan balance, the borrower is liable for the difference.
Question 2-10
What is a land contract?
An agreement between a buyer and seller to purchase and sell real estate. However, passage of
title is usually deferred until some future date or deferred until some event or condition occurs
(e.g., Payment of money, rent, etc.).
.
18-4
