Regulation of Real Property Interests

Although the Constitution guarantees private ownership of the real estate, laws and regulations at every level of government qualify and limit individual real property ownership and the bundle of rights associated with it.

Area of regulation

Government entities regulate the following aspects of real property interests:

•  the bundle of rights: possession, usage, transfer, encumbering, and exclusion
•  legal descriptions
•  financing
•  insurance
•  inheritance
•  taxation

Regulation takes the form of federal and state laws and regulations; county and local ordinances and codes; and court decisions in the judicial system.

Federal regulation

In regulating real property rights, the federal government is primarily concerned with broad standards of real property usage, natural disaster, land description, and discrimination.

Federal agencies such as the Federal Housing Administration promote and regulate homeownership. The Environmental Protection Agency establishes protective usage restrictions and guidelines for dealing with hazardous materials and other environmental concerns. Federal flood insurance legislation requires certain homeowners to obtain flood insurance policies. Federal laws such as the Federal Fair Housing Act of 1968 prohibit discrimination in housing based on race, religion, color, or national origin. Such laws as the Americans with Disabilities Act prescribe design and accessibility standards.

The federal government does not levy real estate taxes.

State regulation

State governments are the primary regulatory entities of the real estate business. State governments establish real estate license laws and qualifications. In addition, state governments have established real estate boards (or commissions) to administer license laws and oversee activities of licensees. For Illinois, the Illinois Real Estate Board, which is part of the Illinois Department of Financial and Professional Regulation (IDFPR) oversees the Illinois real estate industry, and it may take disciplinary action against a person’s real estate license for multiple different reasons.

State governments also exert regional influence in the usage and environmental control of real estate within the state. Relevant state laws might include laws relating to flood zones, waste disposal, drainage control, shore preservation, and pollution standards.

States also play a role in defining how real property may be owned, transferred, encumbered, and inherited. For example, in some states, a mortgaged property becomes the legal property of the lender until the mortgage loan is paid.

States have the power to levy real estate taxes but generally pass this power to local government.

Local regulation

County and local government regulation focus on land use control, control of improvements, and taxation. Land use regulations and ordinances control how all property within the jurisdiction may be developed, improved, demolished, and managed. County and local governments have the power to zone land, take over land for the public good, issue building permits, and establish the rules for all development projects.

County and local governments, along with school districts and other local jurisdictions have the power to levy real estate taxes.

Judicial regulation

The judicial system exerts an influence on real estate ownership and uses it through decisions based on case law and common law, as distinguished from statutory law. Case law consists of decisions based on judicial precedent. Common law is the collective body of law deriving from custom and generally accepted practice in society.

Regulation of Real Property Interests:

1.) Federal

a.) Constitution

– Establishes absolute right of private ownership of the real estate
– Prohibits the federal government from levying real property taxes

b.) Laws

– Create, regulate real estate-related agencies
– Prohibit discrimination
– Create standards for legal descriptions of real estate
– Establish environmental standards for all property
– Establish standards for protecting the interests of handicapped people

c.) Agencies

– Establish mortgage lending standards
– Establish housing construction standards
– Establish environmental standards

2.) State

a.) Constitution – May establish the right to levy tax; or may delegate right to counties and municipalities
b.) Laws

– Regulate real estate licensing
– Establish broad usage standards
– Define, qualify ownership rights

c.) Agencies – Regulate practitioners, administer real estate license laws

3.) Laws

a.) Create and enforce real estate taxation
b.) Control land usage-specific parcels of land

4.) Courts

a.) Common law – Regulates real estate ownership and usage according to customary and accepted practices
b.) Case law – Regulates real estate ownership and usage according to prior court decisions