Real Estate V

Texas' promulgated One to Four Family Residential Contract (Resale) §23:

Allows the buyer a grace period in which they can cancel the deal without risking their escrow deposit.

When a buyer makes a "backup offer" on a pending property, they must submit:

An option fee

Which of these IS NOT a potential reason for terminating a contract?

Specific performance

An attachment added to the end of a contract and incorporated in the contract terms is called an:

Addendum

Which of these addenda was NOT examined in detail as part of this lesson?

Addendum for Sale of Other Property by Buyer.

The TREC 1-4 states that Broker's Fees:

Are handled in a separate agreement

Option fees and earnest money:

Are very different

Executed and Executory contracts are differentiated by:

Their stages of fulfillment

Unless otherwise agreed, the Option Fee must be delivered to the seller by:

Third day after the sales contract was executed.

What is/are the seller's options when receiving an offer?

- Accept - Counter - Reject

These are listed as a potential damages item for wrongfully failing or refusing to sign a release acceptable to the escrow agent within 7 days of receipt of the request

- All costs of suit - Reasonable attorney's fees - The earnest money

VA will not restore Seller's VA entitlement except under which of these conditions?

- Buyer is otherwise qualified. - Buyer is a veteran - Buyer has sufficient unused VA entitlement remaining.

these are an addendum listed in TREC 1-4 §22 Agreement of Parties?

- Buyer's Temporary Residential Lease - Environmental Assessment, Threatened or Endangered Species and Wetlands Addendum Addendum for Property Subject to Mandatory Membership in a Property Owners Association

The Environmental Assessment & Threatened or Endangered Species & Wetlands Addendum provides assessment opportunities for:

- Endangered species - Wetlands - Environmental Hazards

Texas' promulgated One to Four Family Residential Contract (Resale) §__ allows the buyer a grace period in which they can cancel the deal without risking their escrow deposit.

23

The Sellers and Buyers Temporary Leases can be used for leasing up to:

90 days.

What are the two major forms of modifying a contract discussed above?

Addendum and amendments

Mutual Mistake

Another instance where a contract may be voidable, and then validated or voided, is in a matter of mutual mistake. To be considered for this, the mistake must be material, i.e., critical to the value of the agreement, and the same mistake must have been by both parties. The parties can then choose to correct the error and validate the contract, or decide to just let it go.

The Notice to Prospective Buyers protects licensees by:

Advising buyers to have title documents reviewed by an attorney

Assignment

An assignment of rights is a transfer of rights or duties under a contract from a current party to a contract to another party. Assignment of an interest to another party generally is allowed in a contract unless prohibited by statute (in some cases) or written agreement of the parties (which often is the case, or, at least, any assignment may require approval of the other party).

Which of these IS NOT listed as a potential damages item for wrongfully failing or refusing to sign a release acceptable to the escrow agent within 7 days of receipt of the request?

Broker's fees

Novation - Example 1

Buyer Rosencranz signed a contract with Guildenstern Developers for a specific new home in their 100-unit housing development. An issue arises in the timing of the chosen home, but another home of identical value and completely acceptable to Rosencrantz is available. The contract is written in all of the same terms, except that a different home is substituted for the original.

According to TREC a "reasonable time" within which to deposit the escrow check is:

By the end of the second business day following formation of the contract.

Voidable Contracts

Even if a contract is made for a legal purpose, some contracts may be subject to cancellation. The outcome ultimately may come down to a choice by one or both of parties to continue the agreement. In other words, a voidable contract can be converted into a valid contract per the example above with Abraham who was temporarily under the supervision of a guardian, ergo, lacking legal capacity.

A contract for deed is a classic example of a(n):

Executory contract

The use of paragraph 11 (Special Provisions) of the One to Four Family Residential Contract is restricted to:

Factual statements and business details applicable to the sale

§11 Special Provisions of the TREC 1-4 can be used only for:

Factual statements and business details applicable to the sale.

In Texas, the statute of limitations on filing a lawsuit on.a written contract is:

Four years

Identification of the buyer and seller must include:

Full name and marital status of all parties.

In the TREC 1-4 sales form, identification of the buyer and seller must include

Full name and martial status of all parties

The unauthorized practice of law would include all of these actions by a licensee, except:

Inserting minor handwritten notes on the contract initialed by all parties.

When a temporary lease is used between seller and buyer, one item that is particularly important to be communicated is:

Insurance on the property

The offer becomes a sales contract when:

It is accepted, signed by the seller, and acceptance communicated to the buyer or buyer's agent.

How much earnest money does Texas state law require to validate a real estate sale contract?

No earnest money is required.

One to Four Family Residential Contract (Resale), Pt. II - §10 - Possession

Options for transfer of possession, along with a caveat to consult your insurance provider if one party is going to be owning while the other is possessing, and restrictions on leasing matters are covered by this section. Leases may not exceed 90 days.

Paragraph 10 on the TREC 1-4 covers what subject?

Possession

Advantages and Disadvantages of Promulgated Contracts

Promulgated contracts can be modified. An attorney or a licensee is permitted to make changes directly on the form—striking or inserting an item. However, any changes made must be initialed in ink by the appropriate parties. This is legally valid and not considered to be an unauthorized practice of law.

Real Estate Settlement Procedures Act (RESPA)

Real Estate Settlement Procedures Act (RESPA), which covers one-to four-family residential transactions that have federal government related financing, prohibits the seller from requiring the buyer to use the services of a particular title provider.

Which of these is generally considered to be a "seller's cost"?

Releases of existing liens, including prepayment penalties and recording fees

Which form of financing does the "Third Party Financing Addendum NOT cover?

Seller financing

If one or the other of the parties to a transaction defaults, the other party may:

Sue for specific performance

When a licensee receives a verbal offer on a property:

They should present it to the owner as quickly as possible

An option is a form of which kind of contract?

Unilateral

The "Seller Financing Addendum" covers all of these EXCEPT:

Use of the property

A contract for non-life necessities with a person lacking legal capacity is:

Voidable

Earnest Money

When an offer to purchase a home in Texas has been accepted and all parties have signed, an escrow account is opened, usually with a title company, a neutral third party. The escrow account will remain active until the contract is completed or otherwise terminated.

Title Policy

Which party pays does not automatically dictate who makes a particular choice in a real estate transaction. For example, the buyer usually pays for an appraisal when seeking a home loan, but it is the lender who picks the appraiser and is considered to be the client of the appraiser.

According to the One to Four Family Residential Contract, who pays for the title policy?

Whoever is specified

A title endorsement:

is an addition or limitation of coverage that is attached to a title insurance policy

Earnest money (blank) to make a valid offer in Texas

is not required

Executed and Executory contracts are differentiated by:

their stages of fulfillment.

Which Paragraph of the TREC 1-4 contract lists the different addenda that are available?

§22

Residential service companies offer home warranty contracts for maintenance, repair, or replacement of all or any part of these, except for:

Furniture

One to Four Family Residential Contract (Resale), Pt. II - §21 - Notices

"Notices" here refers to some specific types of information that is required to be transmitted between parties, and most required notices are "time is of the essence" matters. This means that the party receiving the notice may be (and often is) required to respond in some manner in a finite period of time. It is important for each party to have the appropriate contact information here, otherwise the party risks missing critical deadlines.

The Promissory Note section of the Seller's Financing Addendum includes:

- 5% penalty on installment payments paid more than 10 days past their due date. - 1.5% per month or highest lawful rate, whichever is lower, for mature unpaid amounts. - Prepayment without penalty.

Counteroffer and Other Options

Counteroffer and Other Options

The current One to Four Family Residential Contract (Resale) is form number:

20-14

Which of these is a potential remedy for a Casualty Loss under §14 of the TREC 1-4?

- Extension of the closing date of up to 15 for seller to fix the damage - Acceptance of the property "as is," with an agreement to receive proceeds of any insurance coverage allowable, with other compensation from seller, e.g., reduced price, or, with no compensation and buyer absorbs any costs - Termination of the contract with earnest money returned to the buyer

These are a subject of the Paragraph 6E Title Notices?

- If the property is located within a Public Improvement District - If the property is subject to transfer fees - Notice that the property is or is not subject to HOA or other mandatory ownership fees

The Real Estate License Act was created to:

- Maintain high standards in the real estate profession. - Protect the public interests from dishonest or incompetent brokers or salespersons. - Protect licensed brokers and salespersons from unfair or improper competition.

TREC 1-4 Paragraph 6C lists what options for providing the survey to buyer within a number of days after the effective date of this contract set by the parties' agreement?

- Seller, at Seller's expense, shall furnish a new survey to Buyer. - Seller furnishes to Buyer and Title Company Seller's existing survey of the Property and a Residential Real Property Affidavit promulgated by the Texas Department of Insurance (T-47 Affidavit) - Buyer shall obtain a new survey at Buyer's expense.

An amendment to a contract must always include:

- The parties involved - The date of ratification - Reference to the original contract

These are included in the Seller's Disclosure

- Violations of deed restrictions on the property - Deferred maintenance or other repairs that may be necessary - Any defects or malfunctions in critical systems known to the seller

Statute of Limitations

A Statute of Limitations (SOL) is a specific timeframe set by law in which one has to take a certain action. In criminal law, it means that someone must be charged with a particular crime within a certain time of the crime occurring or no charges can be brought. In contract law, it generally refers to a specific amount of time that one has to file a lawsuit after the event in question has taken place. In Texas, the statute of limitations for filing a legal suit on a written contract is four years.

Which of these is an exemption to the "legal capacity" requirement to form a contract?

A contract for a life necessity.

According to TREC 1-4 §10.(A), any possession by Buyer prior to closing or by Seller after closing which is not authorized by a written lease will establish:

A tenancy at sufferance relationship between the parties.

§6 - Title Policy and Survey B. Commitment

A title insurance "commitment" provides a buyer with the terms and conditions under which the title company will be issuing the title insurance policy. A Title Company has 20 days once it receives a contract to produce the title commitment, with an automatic 15-day extension available if necessary. The title commitment provides the status of title, as well as issues or defects such as liens. These "clouds" on the title include past due taxes, judgments, lawsuits and other such encumbrances that need to be resolved or otherwise addressed prior to closing.

An assignment of rights is:

A transfer of rights or duties under a contract from a current party to a contract to another party.

Missing a Deadline

Clients are sometimes surprised to find that missing a deadline in a contract does not necessarily amount to a material breach. In many types of contracts - including real estate sales - courts may consider that timing is not of the essence and that minor deviations from a contract's schedule aren't sufficient to warrant damages or termination. For that reason, lawyers began to include "time is of the essence" provisions in contracts. When a party wants to be certain that an agreement is clear that timing is, indeed, critical, the contract should state words to the general effect of: "Time is of the essence with respect to all aspects under this Agreement." Many of the promulgated contracts do employ similar language. When in doubt that your contract is saying exactly what you need it to, consult an attorney

The Broker-Lawyer Committee:

Develops forms for TREC to adopt and promulgate at their discretion.

Option Fee Requirement

Discussed in the previous lesson, §23 of the TREC 1-4 contract allows "for nominal consideration" that a buyer can purchase an option to terminate the agreement without penalty (except for losing the option fee) for a period to be determined by the parties. For example, the buyer has 10 days in which to exercise the option. A blank has been left in the contract form for the parties to insert their own time period in terms of number of days.

Is Earnest Money Required?

Earnest money is not required to make an acceptance of an offer into a valid contract in Texas. Earnest money is a post-acceptance obligation of the buyer as a show of faith and sincerity, which is deposited after a contract agreement is fully executed. A contract does not require earnest money if the parties so stipulate in the agreement. It is customary for buyers to offer earnest money, and it has come to be expected by many sellers because it's seen as a show of faith and a buyer's serious intent to carry out the terms of the contract. One incentive for an earnest money deposit is that it might make an offer more attractive to a seller, e.g., if offers are otherwise identical, but one buyer offers no earnest money and another offers 3% of the purchase price.

Earnest Money

Earnest money payments, as discussed immediately above, are larger deposits than an option fee that are generally held in escrow until closing. Generally speaking, the earnest money deposit will exceed the value of the parcel's option fee by a significant amount (generally thousands). Most earnest money payments are refunded after closing, but not all, depending on the original agreement.

Seller's Temporary Lease Form

If not prepared to move by the closing date, and needing up to 90 days beyond closing, sellers can arrange to lease their home back from the new buyers after closing. The Seller's Temporary Residential Lease is a simple two-page form listed along with other addenda in TREC 1-4 §22 Agreement of Parties. Checking this box and using the form can simplify matters for both parties.

Default

If one party defaults under the contract and the other party elects to sue for specific performance and/or damages, the lawsuit must be filed within the four-year statute of limitations time period (see §15 in the TREC 1-4). If the non-breaching party accepts the earnest money as liquidated damages, all parties are released from the contract and no further action can be taken.

TREC allows the use of forms that are not promulgated:

If they are prepared by the owner, or by an attorney and required by the property owner

Performance of a Contract

In a contract, the contracting parties have agreed to certain rights and obligations. This usually includes the timing of or deadlines for the obligations, and may even be subject to "time is of the essence" conditions (see above). Where this designation has been invoked, or for other reasons, timing can be seen as material to the contract. Consequently, failure to perform within the given timeframes may be considered a material breach of the contract, granting the non-violating party the right to seek performance or restitution.

Using a Daily Rate

Keeping it at a daily rate allows for flexibility between the parties in the event the need runs longer or shorter than expected. If it runs longer than 90 days, consultation with a real estate attorney is advised. Through this device, once the closing is completed, the buyer becomes the owner and landlord, while the seller becomes the renter. Keys are to be delivered to the owner at this point to allow access to their property as necessary. However, the new owner must follow customary landlord procedures to exercise their right to enter the property. This and other standard landlord/tenant relationship rules apply.

Mutual Mistake Example 1

T-shirt Tara's agreed with Sports Store Steve's to lease a section of Steve's retail building to work together to produce T-shirts with the name of a new sports franchise moving into town. Tara made a down payment of $500 on the space and Steve hired a couple temps to help prepare the unit. Then the franchise announces they have chosen a different name and mascot, and will only allow licensed parties to use either. Steve's and Tara's agree to void the contract because it was formed on the same misconception/mistake.

A buyer who indicates that they will "accept the property in it's present condition (as is) is agreeing:

That they are not asking for any repairs at this point, leaving future repair requests open

If the timing of an agreement being executed is crucial to the agreement, the contract should state:

That time is of the essence

Buyer's Temporary Residential Lease

The Buyer's Temporary Residential Lease form is used when a buyer takes possession of the purchased property within 90 days prior to closing. Upon commencement of the lease, the tenant has to pay the full amount of the rental for the anticipated term of the lease. If the actual term of the lease differs from the anticipated term, any additional rent or reimbursement will be paid at closing.

The Broker-Lawyer Committee was established by:

The Real Estate License Act

Novation

The replacement of an existing contract with a new contract is known as a novation. The new contract must reference the contract that is being replaced. There can also be a novation of the parties. A novation releases all of the terms and obligations of the original agreement.

Assignor and Assignee

The assignor (the party transferring rights) conveys their rights to the assignee who then takes on all of the rights and obligations of the contract formerly owed or owned by the assignor. However, this does not automatically release the assignor from all obligations. For example, a lender may approve the assignment without necessarily discharging the assignor of their obligations. The lender approval must specifically release the assignor, otherwise the assignor may still be liable in the event of default by the assignee.

One to Four Family Residential Contract (Resale), Pt. II - §23 - Termination Option

The buyer is given the option to pay a fee to be able to terminate the contract with no penalty beyond the fee paid. The fee generally is nominal, and has been known to range from $1 to .1% of the offer price. The fee is not refundable, but the earnest money is. Buyer has three days after signing of the contract to request the option. Because this is an option period, there is a blank in the form to allow for inserting the length of time, in terms of number of days, for which the option is good. This section is a "time is of the essence" controlled section.

One to Four Family Residential Contract (Resale), Pt. II- §9 - Closing

The closing section outlines the timing and duties of the parties at closing, including payment of funds, conveying deed, and other essentials to transfer of ownership. The Closing Date should be thought of as the closing deadline. The closing should take place on or before this date.

If a contracted buyer and seller cannot agree to a resolution on repair costs:

The contract will terminate

For how many days is a Paragraph 23 option valid?

The length of the option period is set by the contracting parties

For how many days is a Paragraph 23 option valid?

The length of the option period is set by the contracting parties.

Option Fee

The option fee's purpose is to provide buyers enough time to arrange any desired property inspections, along with the right to cancel the pending transaction, generally within a 10-day window. As stated previously, unless otherwise agreed upon, the option fee is rarely, if ever refunded.

For items for which a promulgated addendum is provided the proper way to include the item is:

Through use of the addendum.

Valid Executed Date

To have a valid executed date, there first must be: - A written agreement signed by all parties. - Initials by both parties on any and all changes. - Clear and unambiguous language forming the agreement. Acknowledgment that the contract has been accepted and communicated to the other party or their agent.

S7 Property Conditions (D)(2) of the TREC 1-4 contract should be used:

To identify specific repairs evident to buyer that buyer requires as a condition to purchase

§7 Property Conditions (D)(2) of the TREC 1-4 contract should be used:

To identify specific repairs evident to buyer that buyer requires as a condition to purchase.

What is "Promulgated"?

To promulgate means to officially announce, publish, make known to the public; or to formally announce a statute or a decision by a court. When a law is proposed, it is debated in the legislature, amended if the legislative body so chooses, voted on, and eventually signed by the governor. Once a law has the governor's signature, it becomes official. The act of making it official is called "promulgating."

An oral contract for the lease of a property for one year or less has a statute of limitation of

Two Years

Managing Multiple Offers

Ultimately, it is exclusively the seller's decision whether to accept or reject an offer. The seller has no legal duty to respond to any offer or to respond to the offers in any particular order. As noted above, it is a good idea to respond in some manner, even if the offer is lacking. Countering or inviting them to try again at least keeps the channels open. If both are so low as to put off the seller, which can happen, encourage the seller to at least extend the rejected offerors the invitation to try again.