VOCABULARY WEEK: WORDS ARE IMPORTANT

Three Words

Randy Turnquist, our outstanding, long-time, instructor from beautiful downtown Santa Cruz, mentioned three words that he believes are important for anyone working in real estate, going to be working in real estate, owners, renters, but most importantly anyone thinking of passing the State Exam for Broker or Salesperson. The three words are confusing. Subornation, subrogation, and subordination.

So I am going to do Vocabulary Week presenting several important words and their definition as they pertain to real estate. It might be helpful in your future real estate activities to understand them. Let’s begin with Randy’s three words.

Subornation: 

“Bribing or inducing someone unlawfully or secretly to perform some misdeed.”  If you ever want to see this in action, go to any small claims court. The majority of the cases in these courts concern the return of security deposits, and the stories can get wild and different.

Years ago I was visiting many courts from Kern County to Santa Barbara to Orange. I was being assigned court receiverships for properties in foreclosure. When we were “trailing” (a word I learned to hate), I would visit a small claims court nearby. Today, the courts have ruined that past time, because the judges do not give a decision at the conclusion of the testimonies. Their decision is taken under advisement so you never know the outcome.

Subrogation: 

This definition is from the trusty Department of Real Estate Glossary which is in their reference book. “Replacing one person with another in regard to a legal right or obligation.” A person could be substituted for a creditor on a loan. BTW, do not buy a copy of the Reference Book at this time. It is dated 2010, and the page # references in the index for a topic do not match where the content is in the book. Very difficult to research any topic. Been waiting 9 years for them to correct this situation. So use Google and read the Glossary online. www.dre.ca.gov  put this link in your favorites.

Subordination:  

Back to the DRE Glossary. “An agreement by the holder of an encumbrance against real property to permit that claim to take an inferior position to other encumbrance against the property.” This word made me a lot of money.

In the late 60’s, builders would go to long time owners of property zoned for apartments that were being used as their home. They would give a small down payment and give the owner a seller carryback subordinated loan. The banks would give them a construction loan that would take first position. The builders would build an inferior building and take funds out of the loan for their personal use.

There were so many buildings being completed that many of them went into foreclosure. The naïve owners who had counted on the property for their retirement learned another term, non-recourse. Enter Duane Gomer, who would operate the building during the foreclosure period.  Then, the builder would go onto a different building with a new corporate name. Sad. 

We would hand the property over to the Bank’s REO Department when the trustee sale was complete. There was negative value as the inferior building was not worth the amount of the first lien. Did I mention that the loan was non-recourse? A loan made to complete a real estate transaction.