Avery Yarbrough & Associates Real Estate License Cram Course Review Thursday & Friday 9 till 4 with an hour for

1. Avery Yarbrough & Associates Real Estate License Cram Course Review Thursday & Friday 9 till 4 with an hour for lunch

2. House Keeping Rules • Cell Phones -Off • Computers - Off • Breaks – each hour -Be back at 10 minutes • Restrooms are in break room • No smoking at front door – go to end of building • Mindful of your classmates • We have a lot of material to cover • Hold questions till breaks

3. Welcome • Everyone, classroom students, online, other schools • Materials • Green Book • Law Booklet & Law Test • Handout Packet • Handouts • We need your contact information • Fill out at break

4. Lots of different material to cover in 2 days • Acres to Zoning • Need to know about acres and zoning to pass test • 140 questions – can miss 42 and still pass • 100 general & 40 Alabama Law • More than one answer may look right • Test taking anxiety • Think long, think wrong • Analytical personalities think too hard • Don’t read anything into question • Any test you don’t study for will be hard

5. 6 sections 100 Questions & 40 on Alabama law • 1 Listing Property 31% of general knowledge test • 2 Selling Property 21% • 3 Property Management 14% • 4 Settlement/ Transfer of Ownership 14% • 5 Financing 10% • 6 Professional Responsibilities 10% • Law is 28% of total test • We will have lecture then short test • Do better with this method

6. 65% to &70% pass test on first try • Only about 60% online pass on first try • About 80% of our students pass on first try • Second test try – pass rates drop • And drops even more on third try, only 20% pass • Test should be difficult • Dealing with important subjects • Do it right the first time • $71 per test • It is important that you take this seriously

7. Look at the packet on the right • Outline of class • Words – Know vocabulary • Nerd Words on test • Obscure words Reliction, Riparian, Reentry, Remainderman, Recording, Range, Reconciliation, Rectangular System, Redlining, Regression • The way we studied as children is the way to learn • Read, Study, Test • Our other classes • Post License, Broker, CE

8. Test taking tips • 80% of those that fail get between 65 to 69 • Only 1 point between success and failure • Listen to lecture • Make notes

9. Schedule a morning test • Anxiety is less in AM – no time to worry • Brain sharper in AM • Review night before • Eat fruit night before – brain food - 12 hours • Don’t study past 9PM • Go to sleep early and let your brain rest

10. On the day of test • Get up early and be relaxed , not rushed • Don’t read paper or listen to news • Eat a good breakfast • No more studying • Get to test site early – • 15 minutes late and you can’t take test

11. At test site • Have photo ID and 1 more with signature • Do practice questions on computer • Maintain pace throughout exam • Don’t wrestle with a question • Read question twice • Read answers twice • You will know answer in your brain • If you don’t know, then bookmark and move on • Bookmark math and skip -- work them last • DO NOT GO BACK AND CHANGE AN ANSWER • Will usually get it wrong

12. Finance has 10 questions • Most students have trouble with real estate math • We go over math, but don’t teach math • We will help as much as you need • Having Trouble? • Call us for extra help – this is what we do • No extra charge for this • We want you to do well on the test

13. Power Point Handout is your Outline • Take notes on handout • Study them later • More important to listen to lecture • Story about Finance • Elementary concept

14. 1934 Mortgage industry began under FDR • Horrible economy – end of Depression • Housing - the way to make economy grow • 50% down payment at that time • FHA created 3% down payment • More likely to default • Walk away if times get tough • Insures lender

15. FHA insures loans – • Does not loan money or build homes • FHA mortgage defaults - FHA pays • FHA set maximum loan amounts • People started buying homes • Economy began to recover • Lenders ran out of money • What could they do?

16. Secondary market created to buy mortgages • Primary lenders sold pools of mortgages • Fanny Mae bought these mortgages • Primary lenders collected payments • Escrow for taxes and insurance • Service loan for a fee • Lenders also charged closing cost to make money • Origination, Discount, Service fee • Fanny Mae sold mortgage backed securities to investors

17. I950’s more buyers wanted a piece of the pie • Private Mortgage Insurance – PMI • 5% down payment on larger loans • Saving & Loan Banks needed secondary source • Freddie Mac created • Today they both buy the same loans • 1960’s government realized it was in trouble • Turned into private companies • Didn’t want risky mortgages • Ginnie Mae came about to buy risky loans • Government owned • Guarantees loans

18. 3 Financial Intermediaries • Primary Lenders • Institutional Retail Banker • Loan their own money - Fiduciary • Non- Institutional Wholesale Broker • Loan money that is not their own • Insurance companies and pension plans • Have lots of money to invest • Alabama retirement fund

19. Mortgage Brokers • Not their money • Get it from non - institutional source • They know someone who has money • Insurers • FHA , VA, PMI • Secondary Market • FAMA, FRMAC, GNMA

20. Loan products • Blanket Mortgage – think of a quilt with patches • Developer buys land, puts lien on entire development • When house is built on one parcel and sold • Partial release clause – releases lien on that parcel (patch) • Package Mortgage – Real and Personal property • Includes Appliances, Furniture • Popular at beach (condo and furniture) • Farm Equipment

21. Open end mortgage – Like credit card • Leave mortgage open to add to in future • Graduated payment mortgage (FHA245) • Goes up about 5% each year for 5 years • Negative Amortization • Adds to principle – will owe more than borrowed for years • Reverse Annuity Mortgage • Senior Citizen gets check for part of equity each month • Upon death, home is sold by family and debt paid

22. Adjustable Rate Mortgage • Protects lender from interest rate changes • Changes Each year (up or down) • Principle • Plus • Margin – profit to lender - Fixed during life of loan • Plus • Index- measure of change such as Consumer Price Index • Cap per year/life 2/6

23. Amortized Loan –Equal payments until note dies • Also called - direct reduction loan - Includes: • Principle – the amount borrowed • Interest - Rate remains constant through life of loan • Mortgage payment also will include: • Escrow for Taxes & Insurance • PITI Principle, Interest, Taxes, Insurance • Interest is paid in arrears – ( at end of period when ) • Straight loan – pay (interest only) each year (rare) • Loan would renew each year • Pay off principle later • Balloon – Amortized over 30 years, but • Balance is paid off with a big lump payment at 5 years • * Most owner financing is Balloon

24. Acceleration Clause (like accelerator petal on car) • Miss 3 payments and lender speeds up loan • Foreclosure starts and borrower (mortgagor) has: • Equitable Right of Redemption • Pay off loan before foreclosure sale • Statutory Right of Redemption • Pay back loan plus cost of sale within one year • Don’t ignore lender- work with them • They don’t want the house • Short Sale – Bank agrees to take less than owed

25. Defeasance Clause • Clause says lender must record satisfaction of mortgage • Alienation Clause • Clause says mortgage must be paid off at time of sale • Acknowledgement = Notarize • Necessary for recording • Record in county where property located

26. OR • Gives • EE • Gets • Confusing --- Mortgagor & Mortgagee • Mortgage is a promise backed by security instrument • Mortgagor (Borrower) gives promise to pay • Mortgagee (Lender) gets promise

27. Title Theory - Alabama • Lender has legal title • Borrower has equitable title • Lien Theory • Lender has equitable title • Borrower has legal title • Title record shows evidence of ownership • Not a piece of paper

28. Mortgages -- local Alabama custom • Negotiable Instrument – will be sold • Two parties • Lender and borrower • Trust Deed • Three parties • Trustor – Lender • Trustee – Holds title • Beneficiary -- Borrower • Usury Law – Limits the amount of interest charged

29. Priority of liens first to record, first to collect • Constructive notice (recorded) • Actual notice (actual knowledge) • Primary – gets first money from foreclosure • Secondary – may not get any money • Subordinate or junior • Prefix sub- means beneath • Alabama is a deficiency state • Lender will get judgment claim against borrower • Property taxes always have first priority

30. Title • Chain of ownership on property • Marketable Title – 40 years – no challenges • Seller makes promise to deliver marketable title • Cloud on Title • Break in chain of title • Forgery • Title Insurance – insures chain against defects • Will have exclusions not covered – easements • ALTA – unrecorded liens – materialman

31. Points - 1 point is 1 % of loan • Origination – Bank commission for selling loan • Discount - % of upfront $ paid to reduce rate on loan • Builder buy down for a couple of years • Permanent buy-down for length of loan • 1 point increases yield to bank about 1/8% • Assumptions of Mortgage • Rules vary by loan type • Assume – Seller still responsible for debt • Subject to – Seller not responsible for debt • Novation – new note

32. Owner Finance • Purchase Money Mortgage 2nd Mortgage • Purchaser has title • Owner Finance • Seller keeps legal title until paid off • Bond for title • Land sale contract • Contract of deed • Installment Contract

33. FHA insures (% upfront + % each month) • Ends when principle < 80% of original appraisal • VA guarantees (government) • CRV Certificate of reasonable value • Same as appraisal • Veteran must qualify & property must qualify • Can substitute another’s guarantee • Conventional – PMI (private mortgage insurance) • On amount more than 80% of appraisal value

34. Sale- Lease Back • Owner needs money to expand operations • Will sell building to investor and lease back • Owner Finance • Vendor - Seller (retains title) • Vendee – Purchaser (gets equitable title)

35. Test on page 146 • About an hour • You must be comfortable with the way test is worded • In front of green book are pages with confusing words • Except, Not, Least, Best, Difference, Most Likely, ect. • Put exam answers on separate page • Later highlight correct answers to use as review

36. Alabama License Law • 40 of the 140 -- 29% of test • Know the violations! Page 16 – 18 • AREC can suspend or revoke license • Fines $100 to $2500 • Straight forward information – memorize • Concepts of common law • Know fees

37. RECAD Real Estate Consumer Agency Disclosure • 4 ways to have relationship with consumer • Written disclosure to consumer to alleviate distrust • Single Agent -- Agency with one party work For - Advise • Limited Consensual Dual Agent -- • Agency for both Seller & Buyer • Transaction Broker -- Non Agency work With - Assist • Sub-Agent -- Pre-RECAD way things worked • All agents worked for the seller • All relationships start as Transaction Broker • Until: • A written agreement is signed with consumer

38. RECAD • Must be presented at first contact with consumer, before any confidential information is disclosed to another • Must be signed by agent and kept in file for 3 years • Consumer not required to sign • Keep all real estate contracts, listings, ect. for 3 Years

39. Consumers are either: • Customer NON-client / NON-Agent • No advice • Working With • Transaction Broker • Client - Agency Relationship • Give Advice • Working For • Fiduciary

40. Agency Duties - Fiduciary • Drive clients in OLD CAR • Obedience - Obey lawful commands • Loyalty - Put clients interest above your own • Disclosure – Everything you know about transaction • Confidentiality - Keep confidential information confidential • Accounting – Account for all funds • Reasonable Care – Use reasonable care

41. Customers – Non Agency – No fiduciary Must answer their HARD? • Honesty • Accountable • Reasonable Care • Disclosure • ? Questions must be answered truthfully

42. Law Test • Go over even # questions • Answer on separate paper then later: • Highlight correct answers to use as study guide

43. Lunch 1 Hour – Please be back on time • Nearby Restaurants • Mexican – at end of this building • Green Valley Drug Store – On down hill from here • Subway - In parking lot across from Outback • Salvador's - Next to Subway • Golden Rule - Across Highway form Salvador’s • McAlister’s - On Hwy on right ½ mile to the left • McDonald’s - Just past McAlister’s • Burger King Just before McAlister’s • Chinese - Shopping center across from McAlister’s • Krystal – Across from Burger King

44. Review Alabama Law Test • Know the violations!

45. Easements • Right of one person to use the property of another • Necessity – was necessary to get to property • Appurtenant – legally attached – runs with the land - deeded • Commercial easements in gross • Utility easements look “gross” • Prescription used for a length of time – 20 years • Adverse Possession • Servient tenement– Serves another property • Dominant tenement – Property that benefits from easement • Ingress & Egress from landlocked property • Personal easement terminates upon death of either party • Encroachment – Illegal extension on another’s property

46. Life Estate – use for the life of a person • Reversion – goes back to original grantor • Remainderman – goes to another at termination • In either case • Can not waste property • Can do anything else in bundle of rights UPEED • All rights under life estate are limited by someone’s life • Pur Autre Vie – Based on the life of another

47. Deed – To transfer title • Must have: • In writing • Identify parties and property • Conveyance language • Consideration – something for something • Amount not necessary to state • Grantor’s signature • Grantee (buyer) signature not needed • Must be delivered during grantor’s lifetime

48. Condominium • Fee simple (absolutely best ownership – all rights) • Own interior of unit fee simple • Own common area as tenants in common • Swimming in the condo pool with the common people • Developer must record condominium declaration • Includes: • Legal Description • Bylaws • Covenants & Restrictions and bylaws • Survey

49. Co-operative • Apartment converted to ownership • Building owned as a corporation • Own stock in corporation • May get loan to buy this stock, secured by lease • Proprietary lease on apartment

50. Co- ownership • Joint Tenancy (Husband and wife joined together at the arm PITT) • Usually family • Right of survivorship – • At death interest goes to other party • PITTPossession, Interest, Time, Title • If ownership changes, • PITT doesn’t change – new owner is a tenant in common • Tenants in Common(In the condo pool with the common people) • Usually investment • Interest % may be different • If ownership changes nothing else changes • At death of owner, their ownership goes to heirs