Texas Real Estate- Law of Contracts

Explain the Statute of Frauds.

Many states have a statute of frauds that protects consumers who enter into the types of contracts in which fraud is most likely to occur. Real estate and other contracts that fall under the statute must be in writing and they must be signed to be enforceable.

Which of the following is commonly used type of legal property description?

Metes and bounds

Name the two commonly used types of legal description in a real estate contract.

Metes and bounds Reference to a platted subdivision (lot, block, section, and subdivision name)

What are the two commonly used legal descriptions in a contract?

Metes and bounds Reference to a platted subdivision (lot, block, section, and subdivision name)

Name three rights appointed to a landowner in the State of Texas.

1. Water rights 2. Mineral rights 3. Homestead rights

In Texas, how many days must a homestead owner live on a property to use the homestead exemption against bankruptcy?

1215 days

In most states a person must be how old to hold a real estate license?

18

In what year did the Texas legislature passed the Real Estate Dealer's License Act?

1939

When did the Texas Real Estate Commission assume the administrative responsibilities associated with real estate agents' licenses?

1949

When was the amendment to the state constitution called a community property right of survivorship created?

1987

How long do all licensees have to study and become familiar with new or revised forms that TREC promulgates?

2 to 3 months

Rural Homesteads in Texas for a family may not be more than how many acres?

200

How many members are in the Texas Real Estate Broker-Lawyer Committee?

3

How many members of the Texas Real Estate Broker-Lawyer Committee are appointed by the commission?

6

Under DTPA, the plaintiff must give the potential defendant how much notice about the intention to file?

60 days

If an owner of a property has been missing, what is the time period before the land will escheat to the state?

7 years

How many members are on the commission?

9

What is a "taking?"

A "taking" refers to the "taking clause" of the Fifth Amendment which says, in part, that private property cannot be taken for public use without just compensation.

Explain Bilateral Contract.

A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.

Define bilateral and unilateral contracts.

A bilateral contract is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party. In a unilateral contract, only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.

Define Breach of Contract.

A breach of contract is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.

What form of ownership is a condominium?

A condominium is a hybrid form of ownership which combines ownership of a fee simple interest in the airspace within a unit with ownership of an undivided share, as a tenant in common, of the entire property's common elements.

Define contract.

A contract is an agreement between two or more parties who, in a "meeting of the minds," have pledged to perform or refrain from performing some act. A valid contract is one that is legally enforceable by virtue of meeting certain requirements of contract law.

What is the highest form of ownership interest one can acquire in real estate?

A fee simple freehold estate

What are the four legal features of a lien?

A lien does not convey ownership, with one exception A lien attaches to the property A property may be subject to multiple liens A lien terminates on payment of the debt and recording of documents

What is the holder of a life estate called?

A life tenant

What is a fee simple absolute estate?

A perpetual estate that is not conditioned by stipulated or restricted uses

What is the definition of a fixture?

A personal property item that has been converted to real property by attachment to real estate.

What is a license?

A personal right that a property owner grants to another to use the property for a specific purpose

What is a contingency?

A provision in a real estate contract that specifies the contract would cease to exist upon the occurrence of a certain event.

Explain Assignment of a Contract.

A real estate contract that is not a personal contract for services can be assigned to another party unless the terms of the agreement specifically prohibit assignment. Sales contracts are assignable because they involve the purchase of real property rather than a personal service.

Give one example of an unlawful term that would make a real estate contract or lease void.

A residential lease cannot be in violation of Fair Housing Laws. For instance, a lease stating that no children violates the familial status portion of federal fair housing by discriminating against families with children. A real estate listing agreement cannot specify no showings to minorities, as this is discrimination and an illegal act. This would immediately void the agreement. An apartment manager may not lease an efficiency apartment to a single mother with six children. This would violate health and safety occupancy limits.

What is an easement?

A right to cross or otherwise use someone else's land for a specified purpose.

A negligent or wrongful act concerning a breach of duty rising out of law defines what?

A tort

How is a trade fixture different from a fixture?

A trade fixture has been temporarily affixed to a landlord's real property in order to conduct business and may be detached and removed before, or upon surrender, of the leased premises.

What would a lender use to require a borrower to repay all or part of an outstanding loan on a given date.?

Acceleration clause

Words and conduct of the parties may create what type of relationship?

Agency relationship

What does a living trust do?

Allows the trustor, during his or her lifetime, to convey title to a trustee for the benefit of a third party

Which addendum creates a contingency contract based on the sale of the buyer's current house?

An Addendum For Sale of Other Property by Buyer

Define fraud.

An act of deception which was done deliberately by someone to get an unfair advantage over someone else

In its simplest terms, unilateral contracts involve what?

An action undertaken by one person or group alone

What is the difference between an addendum and an amendment?

An addendum is a document attached to and made a part of the original contract. An amendment is a document that makes a change to the ratified sales contract.

What is an easement appurtenant?

An easement that gives a property owner a right of usage to portions of an adjoining property owned by another party

If a private interest holder does not have the right to possess, what is the interest called?

An encumbrance

If an interest holder enjoys the right of possession, what is her or she considered to have?

An estate in land

When all of the requirements of an executory contract have taken place, the contract becomes what?

An executed contract

Define executed contract.

An executed contract is one that has been fully performed and fulfilled: neither party bears any further obligation.

Explain executory contract and give one example.

An executory contract is one in which performance is yet to be completed. A sales contract prior to closing is an example of an executory contract.

Define express and implied contracts.

An express contract is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing. An implied contract is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.

Define counteroffer.

An offer made in response to a previous offer by the other party during negotiations for a final contract

What is undivided interest?

An owner's interest in a property in which two or more parties share ownership

The contract forms adopted by the Texas Real Estate Commission are available to whom?

Any Person

What do building codes address?

Architectural and engineering standards Construction materials standards Building support systems such as life safety, electrical, mechanical, and utility systems

A limited partnership must have how many general partners with unlimited liability?

At least one

Any improvements or fixtures placed on a property during a Buyer's Temporary Residential Lease

Becomes part of the property

What committee operates today according to the Texas Real Estate License Act and under the jurisdiction of the Texas Real Estate Commission?

Broker-Lawyer Committee

What are the main areas of real property regulation?

Bundle of Rights Legal Description Financing Insurance Inheritance Taxation

How are air rights delineated?

By imaginary vertical lines extended to infinity

How do closely held corporations avoid considerable corporate taxation?

By not showing a profit.

Carbon monoxide (CO) is a deadly, colorless, odorless, poisonous gas. How is it produced?

By the incomplete burning of various fuels, including coal, wood, charcoal, oil, kerosene, propane, and natural gas

A trust can be created in all of the following ways except?

By verbal understanding

The health effects of CO depend on the

CO concentration and length of exposure.

A voidable contract is one which initially appears to be valid, but is subject to what?

Cancellation by a party to the contract who is believed to have acted under some kind of disability

Unlike surface water, groundwater is the property of the landowner, which allows a landowner the right to do what?

Capture the water beneath his or her property, and sell, lease, and move the water pumped from his or her property to a neighbor, corporation, or city

What is a deadly, colorless, odorless, poisonous gas?

Carbon monoxide

An amendment to a contract is specifically drafted to reflect what?

Changes negotiated AFTER the original contract has been signed

List the six elements required of a valid contract.

Competent parties, consideration, mutual agreement, lawful objective, in writing and signed by the parties, contain a legal description

What is a CLO?

Computer Loan Origination

Real estate contracts aren't enforceable unless the parties have exchanged something of value. This value is called what?

Consideration

Define contractual consideration.

Consideration is the exchange of promises offered by one party to another to do or not do something. Consideration separates contractual obligations from a gift. It is usually something of value being exchanged by one party to receive something of value from the other party.

The Third Party Financing Addendum for Credit Approval addresses which types of loans?

Conventional, Texas Veterans, FHA insured, VA guaranteed financing, and USDA Guaranteed Financing

What entity holds the real property interest in a cooperative?

Corporate Entity

What did TRELA establish the Texas Real Estate Broker-Lawyer Committee to do?

Draft and revise the standard contracts that licensees use

What actions if done to a contract by a licensee would be construed as the licensee acting as an attorney?

Drawing lines through words or adding words, phrases, or sentences to the contract

How should last minute changes to a contract be handled?

Each change should be initialed by the parties or an amendment should be completed, signed by all parties, and made part of the original contract.

What does eminent domain allow a government to do?

Eminent domain allows a government entity to purchase a fee, leasehold, or easement interest in privately owned real property for the public good and for public use, regardless of the owner's desire to sell or otherwise transfer any interest. In exchange for the interest, the government must pay the owner "just compensation."

What is it called when a land interest holder does not have the right to possess?

Encumbrance

What is it called when an owner dies and there is no heir to will the property to?

Escheat

Which type of listing provides the most incentive for a broker to market a property?

Exclusive Right to Sell

What is a contract called prior to closing?

Executory

Name three places human exposure to asbestos may occur.

Exposure may come by air, wind, and water erosion from naturally-occurring deposits as well as by the mining, manufacture and use of some asbestos-containing products

All the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing. Which contract does this define?

Express Contract

What type of regulations does the federal government control?

Federal government regulations control the broad standards of real property usage, natural disaster, land description, and discrimination.

The "taking clause" which says, in part, that private property cannot be taken for public use without just compensation, belongs to which Amendment?

Fifth Amendment

Jim Jones sold his home but did not tell the agent or the buyer that the air conditioner has not worked for three years. What is this an example of?

Fraud

What type of estate allows ownership for an undefined length of time?

Freehold estate

What happens to community property upon the death of a spouse?

Half of the deceased's community property passes to the surviving spouse, and the other half passes to the decedent's heirs.

Which of these forms were not promulgated by TREC for use by licensees?

Historical home contract

What are the major forms of a legal life estate?

Homestead, dower and curtesy, and elective share

How can an encroachment become an easement?

If the burdened party fails to take effective remedial action within a period prescribed by law, the encroacher may obtain a court order creating an easement by prescription

What are the three physical characteristics of real property?

Immobility Indestructibility Heterogeneity

When was the law passed stating that all streams, rivers, lake, canyon, watershed, or ravine was the property of the State of Texas?

In 1895

In children, lead-based paint can cause what to happen?

In children, studies have shown that lead alters the development of growing brain cells

What are the three main forms of ownership?

In severalty - Held by only one owner In co-ownership - Held by two or more people In trust - Held by a third party for the benefit of someone else

The Statute of Frauds in Texas requires that all contracts affecting title to or interest in real estate be what?

In writing and signed by the parties. An oral agreement of sale is void and therefore unenforceable.

In a unilateral contract, there is only one promise. Where is this promise?

It is contained in the offer. The offer is accepted by performance of whatever is called for in the offer.

How does judicial regulation differ from federal, state, and local regulations?

Judicial regulations use case and common law rulings to influence regulations. On the other hand, federal, state, and local regulations are created through statutory law.

A license holder may help a party read the documents but must not offer what?

Legal advice or opinions

In commercial real estate sales and leases, what is customary for both buyers and sellers and tenants and landlords to have?

Legal counsel throughout the transaction

TREC forms are intended for use by whom?

Licensed real estate brokers or salespersons

During the time a new form is being introduced by TREC, which forms should licensees use?

Licensees can use either the old form or the new one.

Which of the following is a TRUE statement?

Licenses are not transferable and do not attach to the land. FALSE STATEMENTS: -A license is not revocable at any time. -A license transfers with the sale of the property. -Most license agreements are noted in a deed.

TREC does not promulgate which forms and agreements?

Listing or buyer representation agreements, property management contracts, forms for commercial property, or residential leases (other than temporary residential leases used in connection with a sale)

What types of regulations do local governments mainly address?

Local government regulations focus on land use control, control of improvements, and taxation. Notably, county and local governments are responsible for levying real property taxes.

Define misrepresentation.

Misrepresentation is created when a licensee made a misleading statement or a false statement that was accepted as fact from a customer or client and the person was damaged by relying on that information.

Mutual assent is also referred to as what?

Mutual Agreement

Parties to a contract can agree to terminate, or renounce, the contract. What is the term for this action?

Mutual Agreement

Under DTPA, what compensation may the plaintiff receive for mental damage if the act was performed knowingly and/or intentionally?

No more than three times the economic damages

If deliberate deception, fraud, or false information is present, the agreement is what?

Not enforceable

Implied contracts consist of what?

Obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words

A contract terminates when fully executed by the parties. This is called what?

Performance

Explain performance and forbearance in contracts.

Performance and Forbearance In contract language, "performance" means to do what one agreed to do. Some contracts require a party to refrain from doing something and that is called "forbearance". Contracts may include both performance and forbearance requirements.

What are the two general types of characteristics for real property?

Physical and Economic

What are the two general characteristics of real property?

Physical and economic characteristics

Growing plants may be either real or personal property. How are they differentiated?

Plants and crops that grow naturally, without requiring anyone's labor or machinery, are considered real property. Plants and crops requiring human intervention and labor are called emblements which, despite their attachment to land, are considered personal property

Electromagnetic fields can be caused by what?

Power lines, electrical wiring and appliances, which produce electric and magnetic fields

The purpose of TRELA and the rules of TREC are to what?

Protect the Public

Name the locations radon can enter a home.

Radon can enter the house through: Cavities in walls Joints in construction materials Gaps in suspended floors Gaps around utility pipes and wires Crawl spaces that open directly into the building Openings around pipes or sump pumps Cracks in concrete floors or foundation

Describe the two classifications of property.

Real property is ownership of real estate and the bundle of rights associated with owning the real estate. Personal property is ownership of anything that is not real estate, and the rights associated with owning the personal property item.

What does permanence of investment mean?

Resources and capital used to build an improvement represent a large, fixed capital investment that is typically gives stable returns.

What are the five important rights associated with owning a parcel of real estate?

Right to possession Right to use Right to transfer Right to encumber Right to exclude

In what two ways can a bundle of rights be held?

Rights in the bundle may be held by one party or separated and held by different parties.

In Texas, land owners along rivers or streams are granted which type of rights?

Riparian Rights

Concerning mineral rights, the landowner or lessor retains 1/8 interest free and clear of all costs. This is referred to as what?

Royalty

What concept refers to the idea that the total amount of land is fixed?

Scarcity

What are four economic characteristics of real property?

Scarcity Improvements Permanence of investment Area preference

If an heir-less owner of a property has been missing and cannot be located, after which period of time the land escheats to the state?

Seven years

High level carbon monoxide poisoning results in progressively severe symptoms. Name three.

Sever carbon monoxide poisoning can create symptoms of mental confusion, vomiting, loss of muscular coordination, loss of consciousness, and death

Cutting down a tree, detaching a door from a shed, or removing an antenna from a roof are examples of which process?

Severance

List the six essential elements of a valid contract.

Six Elements of a Valid Real Estate Contract include: Competent parties Consideration Mutual Agreement Lawful Objective In Writing and Signed by the Parties Contain a Legal Description

How long is the term of service of Texas Real Estate Broker-Lawyer Committee members?

Six years with two lawyer and two broker terms expiring every two years

What are the ways that a business can be organized?

Sole proprietorship Partnership Joint venture Corporation Limited Liability company Syndicate Real estate investment trust

What is another term for consideration?

Something of value

What does mold produce in order to reproduce?

Spores

Which rights applies to any attempt by the government or a private entity to take your property?

State of Texas Landowner's Bill of Rights

Which property right includes water rights?

Surface rights

Land can be laterally divided into what classifications of rights?

Surface rights Subsurface rights Air rights

If a licensee participates in the unauthorized practice of law, what may happen to him or her?

Suspension or revocation of the licensee's license

What are both leasehold and freehold estates referred to?

Tenancies

What three types of co-ownership does Texas recognize?

Tenancy in common Joint tenancy Community property

Management of escheated property falls on the

Texas General Land Office.

Explain what the Broker-Lawyer Committee does.

The Committee is an advisory body which drafts and recommends certain contract forms to TREC for use by license holders. The TREC directors review the Committee's recommendations and then approve and promulgate the forms.

A condominium resale certificate must be solely prepared by whom?

The Condominium Association

In Paragraph 2 of the Residential Condominium Contract, the Property paragraph addresses what other topics besides Unit and Building type legal description, itemization of improvements and accessories?

The Condominium Declaration, Bylaws, Rules of the Association, and the Resale Certificate

Which addendum means that a buyer agrees to purchase the property subject to the current indebtedness and continue making the payments?

The Loan Assumption Addendum

Which document determines, defines, and apportions the rights of LLC members?

The Operating Agreement of an LLC

What does the term proration mean?

The amount of or the act of determining a portion or share of a cost or benefit to be allocated between two parties

In the Buyer's Temporary Residential Lease, name 3 items the buyer/tenant may NOT do.

The buyer/tenant is not allowed to: Make any holes or drive nails into the woodwork, floors, walls or ceilings Alter, paint or decorate the property Install improvements or fixtures without the prior written consent of landlord/seller

The same criteria need to be proven to enforce a bilateral or unilateral contract in court. The four criteria needed are what?

The contract existed The contract was broken A loss was suffered The person challenged was responsible

Which of the following statements best defines air rights?

The empty space above a property

In the One to Four Family Residential Contract, what does the financing paragraph identify? Which form will be completed in addition to the residential contract for financing?

The financing paragraph identifies the type of financing the buyer intends to secure. The details of the financing are specified in one of the financing addendums available.

Under the DTPA, the plaintiff must give the potential defendant 60 days warning about what?

The intention to file and an outline of the complaint and damages

List items addressed in the Seller's Financing Addendum.

The items addressed in the addendum are: Credit worthiness of the buyer Credit approval The Promissory Note Deed of Trust and if it is assumable Tax and Insurance Escrows

What is meant by the term involuntary alienation?

The loss of property due to an adverse action such as a foreclosure or tax sale.

In a co-op, how is the value of a unit identified?

The number of shares purchased reflects the value of the apartment unit in relation to the property's total value.

Which contract for the sale of goods must be written to be legally enforceable?

The one that exceeds $500.00

Real Estate License Act states that "A person may not maintain an action in this state to recover a commission for the sale or purchase of real estate unless what?

The promise or agreement on which the action is based, or a memorandum, is in writing and signed by the party against whom the action is brought or by a person authorized by that party to sign the document

What rule allows a property owner to pump as much water as he or she wishes, even to the point of depleting the water supply?

The rule of capture

Property acquired under dower laws is owned by whom and for how long?

The surviving spouse for the duration of his or her lifetime

Explain the term "friable".

The term friable refers to any asbestos-containing material that, when dry, can be easily crumbled or turned to powder by hand

How many commission members are there and how many must have at least five years of service as brokers before being appointed to the commission?

There are nine members. Six of the members must have been active as real estate brokers for at least five years prior to their appointment.

Water rights are for what purpose?

They address the rights to own and use water found in lakes, streams, rivers, and the ocean

What is the liability for limited partners?

They are liable only to the extent of their investment.

The Farm and Ranch Contract is designed for what types of properties? Name three specific buildings to ask about.

This form is designed to be used for anything from the country getaway place or the small farm to the large working farm or ranch. It covers barns, outbuildings, and farm homes.

How many commission members have no financial interest in the real estate business?

Three members

The contingencies in the Notice of Buyer's Termination of Contract are for what reason?

To protect buyers from contractual obligations they cannot fulfill

What is the purpose of the Deceptive Trade Practices Consumer Protection Act?

To protect the public from deceptive, false, or misleading business practices

What is the purpose of TRELA?

To safeguard the public interest and protect consumers of real estate services

Who are the essential parties involved in an estate in trust?

Trustor, trustee, and beneficiary.

Options are always unilateral or bilateral contracts?

Unilateral

What are the four unities needed to create a joint tenancy?

Unity of time Unity of title Unity of interest Unity of possession

In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways. What are the four ways?

Valid Valid but unenforceable Void Voidable

What are the four types of legal contracts?

Valid, valid but unenforceable, void and voidable

In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways. What are the four?

Valid, valid but unenforceable, void, voidable

Which of the following classifications is NOT used by a court to describe the status of a contract?

Void but enforceable

What is the main component of mold growth?

When excessive moisture or water accumulates indoors, mold growth will occur

What does TRELA Section 537.11 use of Standard Contract Forms state?

When negotiating contracts binding the sale, exchange, option, lease or rental of any interest in real property, a real estate licensee shall use only those contract forms promulgated by the Texas Real Estate Commission for that kind of transaction.

When is mediation used?

When resolving conflicts between a buyer and seller in which a mediator listens to each side and helps make a mutually agreeable decision

What is eminent domain?

When the power of the government or a public utility takes private property for public use

What are some examples of the exercise of police power?

Zoning ordinances Building codes Subdivision regulations Eminent domain Environmental restrictions

Air rights apply to the space above the surface boundaries of the parcel

as delineated by imaginary vertical lines extended to infinity.

A breached contract is the same as a

broken contract.

Items of personal property are also called

chattels or personalty.

A personal property item that has been converted to real property by attachment to real estate is called a(n)

fixture.

An executed contract is a contract that

has been fully performed by both parties.

The New Home Contract is intended for

houses that are to be built from the ground up.

Encumbrances and police powers are

interests that do not include possession.

Bilateral contracts

need at least two parties.

A cooperative is a

non-profit corporation.

Under a Buyer's Temporary Residential Lease a buyer/tenant is allowed to

occupy the property for no more than 90 days.

All LLCs must have at least

one member

The contract that licensees will most often use is

the one-to-four family residential contract.

What does the legal concept of land encompass?

the surface area of the earth everything beneath the surface of the earth extending downward to its center all natural things permanently attached to the earth the air above the surface of the earth extending outward to infinity

Tangible aspects of a property include all except

zoning considerations.