Law of Contracts Unit Quiz Questions

Harvey is an investor who found and closed on investment property, then decided to sell property other than the one originally marked for the exchange. What is this an example of?

A reverse tax-deferred exchange

With which type of mortgage does the interest rate vary according to a specified index?

Adjustable rate

If either party to a sales contract fails to perform or comply with any of the contract's terms and conditions, the party is in ________________.

Default

Theo is a buyer who's contemplating a land contract. Why might he choose this route over traditional financing?

He doesn't qualify for traditional financing.

Which Texas laws protect the homeowner from general creditors?

Homestead laws

How does earnest money encourage the buyer not to breach the agreement of sale?

If the buyer breaches the contract, the seller may remedy the breach by keeping the earnest money, as well as the property.

The term "right of survivorship" is closely linked with ______.

Joint tenancy

Per TAR's Residential Real Estate Listing Agreement Exclusive Right to Sell contract, what does the broker have the authority to do?

Market the seller's property in an effort to secure a buyer and negotiate a sale.

A Texas homeowner may be forced to sell a homestead property for failure to pay their ______.

Mortgage

A ______ is the term used for an estate that conveys possession and control, but not title.

Nonfreehold estate

Charles runs a small vacuum cleaner repair business. His commercial property ____________ lease agreement has him paying a base rent plus an allocated amount of gross sales above a certain threshold.

Percentage

Jeb's lease renewed every six months. If he decided to leave, he was required to give his landlord two months' notice. What type of tenancy does Jeb have?

Periodic estate or tenancy at will

Government agencies usually become involved during which phase of an environmental assessment?

Phase III: Clean-Up

Which section of TREC's residential resale contract identifies who's responsible for paying legal fees when a legal action has been brought against one or more parties to a sales transaction?

The Attorney's Fees section

What does it mean when a Texas buyer accepts a property "as is"?

The buyer is accepting the property in its current condition with any and all defects and without warranty.

What is statutory right of redemption?

The curing of the default even after the foreclosure sale Statutory right of redemption is allowed in many states, even up to a year after the sale.

Tim, an attorney for the buyer, was extremely satisfied with the sales contract his client was planning to sign. The contract contained all the essential elements. What type of contract is this?

Valid

In Texas, in a suit for possession breach of lease remedy, what is the document called that the court issues to the landlord, giving the landlord the right to repossess the property?

Writ of possession

Lacey is preparing an offer for her buyer clients, and it's time to enter the amount of earnest money they're going to offer. Which of the following statements is true regarding what earnest money the buyers should offer?

Lacey should allow her clients to determine the amount of the earnest money offered.

Which of the following involves permission to do something on another's land without actually possessing any interest or ownership in the land?

License

A buyer is purchasing a home appraised at $480,000. The buyer is obtaining a 90% loan, and the lender will charge an origination fee of 1% at closing. How much will the loan origination fee be?

$4,320 $480,000 x .9 = $432,000 (loan amount), and 1% of $432,000 = $4,320

Although Bill's inspection turned up dry rot which Jill promised to have fixed (and didn't), Bill agreed to close anyway. This is an example of ________.

Accepting partial performance

What is the unauthorized practice of law in Texas?

Acting outside the scope of one's license; offering legal advice or drafting legal forms

The Federal Reserve System is made up of 12 Federal Reserve districts. Which of the following statements about the Fed is true

All national banks must be part of the Fed.

What is the difference, if any, between a TREC-approved form and a TREC-promulgated form?

An approved form is optional; a promulgated form is required.

Which option best describes a computerized loan origination system (CLO) system?

An automated system that allows borrowers to compare loan products electronically, and even apply for a loan

Contracts between a seller and a brokerage for the purpose of selling real estate are in the form of ______.

An express contract

Bruno, a tenant, and Becka, the landlord, have entered into a nine-month lease agreement. Per their agreement, Bruno will pay Becka a monthly amount in exchange for using the property. What type of contract is this?

An express contract is one in which the terms of the agreement and the consideration to be exchanged are defined in words, whether verbally or in writing.

Which of the following is an example of a reverse exchange?

An investor finds and closes on an investment property and then decides to immediately sell another investment property.

Which of the following statements is correct?

An unenforceable contract is a valid contract, but it will not be enforced by the courts.

At what point in the sales transaction process should an attorney review the contract?

Before the attorney's clients sign the contract

A contract in which the parties trade a promise for a promise is ______.

Bilateral

Which of the following documents is an example of a promissory note?

Borrower Keesha just signed a document that states that she pledges to pay back her mortgage loan of $310,000.

The purpose of the Equal Credit Opportunity Act (ECOA) is to prevent ______ in lending.

Discrimination

In contract law, partial performance occurs when a party ______.

Does some, but not all, of what the party has agreed to do

What is the term used to describe the payments made to the contractor during the construction phase?

Draw Draws are taken against the total financing at various phases of construction.

What do buyers provide to the seller as an indication that they are serious and intend to go through with the purchase?

Earnest money deposit

Which government power is used upon the death of a property owner when no will, heirs, or creditors can be found?

Escheat

Sam is taking out a home loan, which states the offered price and includes other important information, like the payments, the loan term, and Sam's signature. What type of contract is this?

Express

Calista is in the process of evicting one of her tenants. As part of the actual eviction process, she must file a suit for possession in the local justice of peace court. What is another name for this type of suit?

Forcible detainer suit

There are a few exceptions to the Texas rule requiring sellers to complete a seller property condition disclosure. Which of the options below is an example of such an exception?

Foreclosure properties

In Texas, all completed real estate forms must be kept on file with the broker for a minimum of ______________.

Four years

A ______ is an estate that conveys possession, control, and title (ownership).

Freehold estate

Barry owns a property, and holds all rights associated with ownership. His interest in his property is a ______.

Freehold estate

Mike and his buddy Daryl own a business together. They are jointly and separately liable for any debts the business may incur. What type of partnership do Mike and Daryl have?

General partnership

Mark, the landlord, has a commercial property______________ lease agreement with his tenants. Mark pays all expenses related to the property and passes the costs on to the tenants in their rent payments.

Gross

Ralph is a borrower obtaining an FHA loan from Happy Bank. The loan is secured by a mortgage. Who or what entity is the mortgagee in this scenario?

Happy Bank

Under the rules relating to contract forms of TRELA, what must a listing agent do?

Inform the parties of a real estate transaction that commissions are negotiable.

When Marcy toured her new client's house, she noticed paint peeling off of the shutters. When she asked the seller if the house was painted with lead-based paint, he replied, "I'm not sure ... I inherited the house from my dad, who built it in the '50s." What is Marcy required to do?

Inform the seller that he needs to complete the lead-based paint disclosure form and provide potential buyers with the EPA pamphlet regarding lead hazards.

Per TAR's Residential Real Estate Listing Agreement Exclusive Right to Sell contract, for which of the following is a broker liable?

Injury to persons or property as a result of broker negligence

What makes urea formaldehyde foam insulation a health hazard?

It contains formaldehyde.

Atticus is considering using utilities interruption as a means of collecting rent. Which of the following statements is true about what Atticus is planning to do?

It's illegal.

A contract is executed in Texas on June 1. What is the effective date on which all contingency deadlines will be based?

June 2

Which of the following is a mortgagor's responsibility?

Keep the property in good repair.

Rhonda, a small business owner and lessee, has a commercial property _________________ lease agreement with her landlord. Rhonda pays the rent and some expenses related to the property, such as maintenance and insurance, separately.

Net

Nick, a Texas license holder, is helping his son, Peter, locate a home he can afford to buy and is acting as Peter's agent. Peter has found a property that he wants to make an offer on. Which of the following statements regarding this situation is true?

Nick is required to disclose his relationship to the seller in writing prior to the parties entering into the contract.

Blane is assuming Carla's loan. Which of the following may be used to ensure Carla is no longer responsible for the loan?

Novation

What is the key difference between assignment and novation of a contract?

Novation releases the original party from all obligations, while assignment does not.

When does partial performance of a contract occur?

One or both parties have completed only a portion of the terms agreed to in the contract.

You have a net listing with your seller client. With what other type of listing (or listings) may the net listing be used?

Open, exclusive agency, or exclusive right to sell

Rescission, suit for specific performance, liquidated damages, and acceptance of partial performance are all _______.

Options a wronged party has to remedy a breach of contract

Ezekiel owns a commercial building that he wants to keep, but he needs capital. He has a plan to recoup 100% of the current equity in the building without having to move business locations by entering into a lease agreement with an investor. What type of commercial lease can Ezekiel use to achieve his goals?

Sale and leaseback

What's it called when a property is sold for less than the amount owed?

Short sale

After Chester moved into the old house on the hill, he found that it was infested with termites—something his inspector missed, and the seller failed to disclose. He pursued his monetary remedy in court. This is an example of ________.

Suing for monetary damages

Sheila's financing calls for the use of a promissory note. What's a promissory note?

The borrower's promise to repay a certain sum of money to another party (the lender or holder of the note) under specified terms

The term of Carl's buyer agency agreement with his client has expired, and they have still not located a property that the buyer is interested in making an offer on. Given the situation, which of the following statements is true?

The buyer agency agreement is automatically terminated because the term of the agreement has expired.

In situations where taxes aren't paid at or prior to closing, who pays for the current year's taxes in accordance with the TREC residential One to Four Family (resale) contract?

The buyer pays them.

Leo would like to sell his membership share in a cooperative to Mariah. Which of the following statements is true?

The cooperative board must approve Mariah's application before Leo can sell his membership share to her.

Per TREC's residential One to Four Family (resale) contract, who is responsible for completing the option fee receipt if the buyer decides to go with the termination option?

The seller or the seller's agent

Which of the following documents insures the buyer against loss because of title issues and must be furnished by the seller to the buyer?

The title insurance owner's policy

You're meeting with prospective clients for the first time. What does Texas law require you to explain to them?

The types of agency relationships they may have with a real estate professional

What is the purpose of the Texas Real Estate License Act (TRELA)?

To protect the public

In Texas, how long does a homeowner have to pay off outstanding liens against their property to prevent a foreclosure sale?

Until the foreclosure sale is held

There are several criteria that Fannie Mae and Freddie Mac use as guidelines when determining if a loan is conforming. What are these criteria?

Total debt to income, loan amount, LTVR

Which of the following criteria may be used by lenders when evaluating a loan application?

Income, net worth, job stability, and credit rating

Which of the following provides funds for lenders to keep making mortgage loans to the public?

Secondary market

In the case of a "subject to" loan, who or what is the responsible party if the property is foreclosed on?

Seller

Toni works for the listing agent but is representing the buyer in a sales transaction. Which of the following representation options will she check as part of the Broker Information section in TREC's residential One to Four Family (resale) contract?

Seller as listing broker's sub-agent

The secondary mortgage market serves a very important role in real estate finance. Which of these statements best describes that role?

The secondary market purchases loans from primary lenders and helps keep credit available to loan originators.

Shelley is the seller and is in mediation with her buyer over a dispute with the sales contract. Who's responsible for paying for the cost of the mediation?

The seller and buyer share the cost of the mediation

In Texas, the property title remains in trust until payment in full occurs for the underlying loan. which means it's a _______ state.

Title theory

What's the purpose of a sales contract?

To document the agreement between a buyer and seller in a real estate sales transaction

A contract that's binding for one party, but gives the other party the choice to terminate is ____________.

Voidable

Legally speaking, at what point is a sales contract executed?

When all the terms have been met

Two buyers are buying their first home together. At their final walk-through before closing they notice that nothing has been done to fix the electrical issues that the sellers agreed to fix. And the sellers removed the beautiful chandelier that was supposed to stay, per the contract. Can the buyers walk away from the deal at this point?

Yes, the sellers have breached the contract, so the buyers have the option of unilateral rescission.

Which of the following is a triggering term when used in advertising financing?

"10% down" Triggering terms include a specific payment, rate, or down payment amount that's used in advertising, which prompts the requirement for full disclosure of all the terms of a loan.

What happens if a tenant under a lease stays beyond the lease's terms, and the landlord continues to accept rent from that tenant?

A month-to-month tenancy is automatically created.

If you had to explain to your Texas client what a contract for deed is, which of the following descriptions would you use?

A legally binding, written contract between a buyer of property and the seller that allows the buyer to pay for the property in installments

Sondra, a buyer, signs all the required mortgage documentation, promising to make all payments to her lender. Unfortunately, Sondra falls on hard times and misses multiple payments, and the bank indicates that it's going to foreclose on her. The foreclosure proceedings are more difficult for the lender because Sondra holds the title to the land. What kind of state does Sondra live in?

A lien theory state In a lien theory state, the mortgage becomes a lien on the property, but title remains with the buyer. Foreclosure proceedings in a lien theory state may be more difficult for the lender.

A legal notice that a lawsuit is pending that affects the title of a property is called _______.

A lis pendens

The Crows gave their son, Gibson, the family property, so long as he doesn't join his friend's rock band. If he joins the band, the property goes back to them. What type of estate is this?

Fee simple determinable

The right to access navigable ponds, lakes, and other stationary bodies of water is called _________ rights.

Littoral

Lucas, Ivan, Chad, and Trace own a property as joint tenants. After a few years, Ivan sells his interest to Tom (with permission from Lucas, Chad, and Trace). Chad dies intestate but is survived by a wife, Amy. Trace also then passes away but wills his property to Monique. Who owns the property after Trace's death?

Lucas and Tom

Which of the following is true about volatile organic compounds?

Paint, air fresheners, and cleaners are primary sources.

The buyers don't have enough money to make the full 20% down payment their lender requires. To close the sale, the seller is willing to finance a loan for the gap between the home's list price and the amount the institutional lender is willing to loan. What's this type of financing called

Purchase money mortgage A purchase money mortgage is a term for seller financing typically used to bridge the gap between the home's list price and the institutional loan, though it can also be used to finance the entire purchase price.

Deed restrictions imposed by a developer who wants to maintain specific standards in a subdivision under development are often called _______.

Restrictive covenants

Which of the following recommendations may a Texas real estate licensee make and still be acting within the scope of her expertise?

Recommend that buyers obtain professional home inspections. Never recommend a specific professional.

Texas licensee Melinda has thoroughly reviewed the sales contract with her clients, the Arnolds, and has ensured that they understand all of the terms, provisions and that it is legally binding. What should Melinda do before her clients sign the contract?

Recommend that the Arnolds review the sales contract with an attorney before signing it.

Which of these property owners is eligible to take advantage of a 1031 tax-deferred exchange?

Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city.

You're representing a tenant client in a lease transaction. Which of the following duties do you owe your client?

Represent the client's interest in all negotiations and transactions regarding the lease of the propert