Principles and Practices Archives - Demetree School of Real Estate

What You Need To Know For The Florida Real Estate Exam – Blanket Mortgage and Partial Release Clause

Let’s say a developer buys some acreage and develops it into 50 lots. Mr. Developer has a mortgage for the entire property. You come along and buy lot 36. You are making your mortgage payments to your bank. But unfortunately, Mr. Developer can’t afford his mortgage. His bank forecloses on the entire acreage because that what was put up as collateral. That mortgage blankets the entire development. You’re out – now the bank owns your property. Wow – that would be a bad day.

Once that happened a few times, buyers started to say, “Wait a minute. This isn’t fair. I don’t want your mortgage to cover my property.” So we came up with a new system. Now, when the buyer buys lot 36, Mr. Developer takes that money and uses it to payoff enough of the mortgage so that lot 36 can be released from the mortgage. The buyer of lot 36 might have his own mortgage but lot 36 is no longer encumbered by the larger mortgage. The clause that allows that to happen is called the partial release clause.

When Mr. Developer gets his mortgage, there is a partial release clause in the mortgage that says when he sells the lots, those lots will be released from the mortgage.

There are a few questions about blanket mortgage and partial release clause on the Florida real estate state exam. Be sure you understand these concepts. If you need more help preparing for the Florida real estate exam, join me for a class.

By Karen Climer|2021-08-23T10:59:41-04:00January 1st, 2020|

Purchase Money Mortgage on the Florida Real Estate State Exam

Who takes back mortgage in a purchase money mortgage (PMM)?

Seller
Buyer
FHA
Fannie Mae

A few weeks ago, a student told me this was on the Florida real estate sales associate state exam. A purchase money mortgage is when the seller holds the mortgage, or when the seller takes back the mortgage, so the answer is A.

This concept is pretty foreign to a lot of people. Back in the good old days, this was how people always bought property. It still happens today, but it’s not as common.

Let’s say you own a house free and clear. I come along and want to buy it for $100,000. I don’t have that much money, but I do have $30,000. I ask you to hold the mortgage. You deed the property to me, so I now own the property. But you are holding the mortgage. You are acting as the bank. I send you a payment every month. If I don’t make the payments, you can have the house foreclosed on. You do everything the bank would do. That’s called a purchase money mortgage – when the vendor is the lender.

Real life application: Let’s say your buyer finds the home of her dreams for $150,000. The bank is going to give her $100,000. She has $30,000 cash. So she’s $20,000 short. Ask the seller to hold a $20,000 purchase money mortgage.

By Karen Climer|2019-09-06T14:25:07-04:00September 6th, 2019|

What’s the Difference Between Fannie Mae, Freddie Mac, and Ginnie Mae?

Let’s talk about Fannie Mae, Freddie Mac, and Ginnie Mae. What are they and what’s the difference between them?

The secondary mortgage market helps provide a constant source of cash to lenders.

First, the similarities – all three of them deal with the secondary mortgage market. What does that mean? Well, let’s say you go into the Tiny National Bank and get a loan for $1 million. This is a tiny bank, so that was all the money that bank had to lend out. Tiny National Bank takes that I.O.U. you gave them and sells it to an investor on the secondary market. Now, an investor has the I.O.U. piece of paper, and the bank has another million dollars in cash they can lend out. This ensures that there is constant flow of cash that the bank can lend out. That’s an oversimplification, but that’s the gist of it.

So what’s the difference between Fannie Mae, Freddie Mac, and Ginnie Mae?

First off, Fannie Mae and Freddie Mac are private enterprise – they are in the business of making money. These two entities are heavily regulated by the government, but they are not the government. Ginnie Mae, on the other hand, is the government. Ginnie Mae is part of the Department of Housing and Urban Development (HUD). You can remember that Ginnie and government both start with G.

As I said, Fannie Mae and Freddie Mac are both private enterprise, but they each have their focus. Fannie Mae sells loans that originate with large commercial banks. Freddie Mac deals with the smaller savings associations and credit unions. Both of them deal with conventional mortgages.

Ginnie Mae serves the same function but focuses on government-backed loans, such as FHA and VA.

Why are the names so weird?

The names are derived from initials because there is one thing our government loves and that is initials. (Even our country is called USA!) The Federal National Mortgage Association or FNMA became Fannie Mae. The Federal Home Loan Mortgage Corporation or FHLMC became Freddie Mac. And the Government National Mortgage Association became Ginnie Mae.

Be sure you know this for the Florida real estate sales associate exam. I hear people say, “There was a question about Freddie, but not Fannie or Ginnie.”

Then another person say, “I was asked about Fannie, but not Freddie and Ginnie.”

You get the idea – different people get different test versions with different questions. But the one commonality is that you need to know what these three entities are if you want to do well on the Florida real estate state exam.

Please note that I, Karen Climer, have no affiliation with Climer School of Real Estate. My father, Ron Climer, sold that school in 2014. Since that time, I have had no affiliation with that school. If you are looking for me, you will find me at Demetree School of Real Estate.

By Karen Climer|2021-08-24T15:06:14-04:00July 18th, 2019|

Florida State Exam Practice Question – What’s the Difference Between Joint Property and Separate Property?

This is a question that is something you might see on the Florida real estate state sales associate exam. Not this exact question, of course – I made this one up. But be sure you know this concept. Here we go…

Ethel’s uncle dies and leaves all of his property to Ethel. Ethel is married to Wilbur. This property is considered:

chattel
joint property
separate property
homestead property

Read the question and pick an answer before you read my answer.

Chattel is personal property, so that is definitely not it. There is also nothing that indicates it is homestead property. For all we know, this is a $10 million shopping mall. So, D is out. That leaves B and C.

Separate property is property that is acquired before the marriage or property that is acquired during the marriage through inheritance or gift. So, if one of them owned this property before the marriage, it would be separate. If they bought it during the marriage, it would be joint because it was acquired during the marriage. Since they didn’t buy this property, Ethel inherited the property, it is separate even though they are married. So the correct answer is C.

If you didn’t know the answer to this, you might want to take a weekend state exam review class at Demetree School of Real Estate. If that’s you, check out the calendar and give me a call.

Please note that I, Karen Climer, have no affiliation with Climer School of Real Estate. My father, Ron Climer, sold that school in 2014. Since that time, I have had no affiliation with that school. If you are looking for me, you will find me at Demetree School of Real Estate.

By Karen Climer|2021-08-24T15:12:16-04:00July 13th, 2019|

What Is An Option Contract? (Part 2)

In my last post, I described what an option contract is. I promised that I would have more about what we need to know specifically for the Florida sales associate state exam in this post.

You are likely to see questions about option contract on the Florida real estate state exam.

First, an option contract is unilateral contract binding upon the optionor. The optionor is the seller. Using the story from my previous post, Demetree is the optionor because he gave the option to Disney, who is the optionee. The contract is unilateral because Disney doesn’t have to buy. However, if Disney wants to buy, Demetree has to sell.

We also need to know that an option contract requires consideration. Token consideration doesn’t count. In the previous post, Disney paid $25,000 for the option to purchase the property. That’s a decent amount of money. If Disney had paid $50, the contract would not have been enforceable because that is considered token consideration. Additionally, if the $25,000 had been refundable if Disney decided not to buy, then it is not consideration.

Lastly, real estate licensees are allowed to buy options on contracts but they must divest themselves of their role as licensees. In other words, the licensee needs to disclose that she is a licensee, but that is not acting as a licensee in this transaction. If they don’t divest themselves, and they don’t pay consideration, then it is basically a listing agreement. In this case, they would be entitled to a commission.

If you have any questions about option contracts or anything else on the Florida real estate state exam, give me a call. I’m happy to help. By the way, I answer my own phone. If you call 407-493-3974, you will reach me.

Please note that neither I, nor anyone in the Climer family, have any affiliation with Climer School of Real Estate. My father, Ron Climer, sold Climer School of Real Estate in 2014. You can find me at Demetree School of Real Estate.

By Karen Climer|2021-08-25T14:18:59-04:00March 2nd, 2019|