Law of Contracts Study Questions

MOST states require that listing agreements contain...

A definite contract termination date

Texas Property Code 5.008 does NOT require a property disclosure statement for...

A duplex

The Addendum for Property in a Propane Gas System Service Area is...

a required disclosure to give information to any buyer that is considering buying a property serviced by a propane distribution system.

A seller accepted money from a buyer for his unrestricted right to cancel the purchase transaction (option to terminate) within ten days of the executed date of the sales contract. This agreement is...

a unilateral contract.

If a buyer receives TREC OP-H, and the Seller's Disclosure of Property Condition after the sales contract has been signed by all parties, how many days does the buyer have to terminate the contract?

7

A trade fixture is transferred by...

A bill of sale

A property owner has a fence that mistakenly extends one foot over the lot line onto a neighbor's property. The fence is an example of...

an encroachment.

Once a sales contract is completed with all parties fulfilling their promises, the ownership changing hands, and the seller receiving the sales price amount, the sales contract is...

an executed contract.

Where could a face-to-face closing be held?

any of these. Face-to-face closings may be held at the office of the title company, the lending institution, an attorney for one of the parties, the broker, the county recorder, or the escrow company.

Which of the following items typically is NOT leased?

attached garage. Attached garages are always real property and part of the original construction. Any leased equipment to be transferred to the new owner needs to be identified (i.e., security system, cable service, water softener system).

What is the maximum urban homestead for a family in Texas?

10 acres

How many members are on the Broker-Lawyer Committee?

13 members; 6 are lawyers, 6 are brokers, 1 is a public member

What does PMI protect?

25-30% of the top portion of a loan

A mortgage reduction certificate is executed by?

A lending institution

Under the DTPA, which statement is FALSE?

A real estate agent may be sued under the DTPA for giving bad advice related to a real estate transaction. A real estate agent may not be sued under the DTPA for giving bad advice related to a real estate transaction, but the agent can be liable for fraud, misrepresentation, or failing to disclose factual information.

Which clause would give a lender the right to have all future installments become due upon default?

Acceleration

A potential buyer offers to purchase the sellers' real property for $10,000 less than the listed price on a TREC-promulgated One to Four Residential Contract. The seller responds by signing the contract and transmitting it to the buyer's agent. What is the seller's response called?

Acceptance

An offer is not considered accepted until the person making the offer has been notified of the other party's...

Acceptance

Paragraph 2 of the TREC Amendment to Contract addresses which of the following issues?

Additional repairs not listed in the contract

Which of the following would cause a cloud on title?

All of these: A recorded lien that was paid off but not released Missing the name of the grantor Gap in the chain of title

A contract is said to be bilateral if...

All parties to the contract exchange binding promises

A contract for deed for a period of two years is considered...

An executory contract

A tenant signs a lease that allows the stated rent to be increased or decreased every year based on the percentage increase or decrease in the consumer price index (CPI) for that period. This is called...

An index lease (or variable lease)

A buyer obtains possession of a property under a contract, and the seller is not obligated to execute and deliver a deed to the buyer until the terms of the contract have been satisfied. This is...

An installment contract

Real estate generally includes all of the following EXCEPT..

Annual crops

Under the Truth in Lending Act, which of the following is NOT a trigger term?

Annual percentage rate

A contingency that might result in the seller lowering the sales price is a...

Appraisal contingency

Which of the following is NOT a document that the seller usually deposits with the title company for closing?

Birth certificate as proof of U.S. citizenship

In a real estate transaction, who must consent to using electronic signatures in the transaction?

Both the buyer and the seller

Which of the following is a legal entity that exists independently of its members?

Business organizations, such as limited liability companies, partnerships, and corporations, are legal entities that exist independently of their members

Time frames in a property sale contingency mostly affect the...

Buyer

A buyer's agent may be compensated in which of the following ways?

Buyer's agents may be compensated in the form of a flat fee for services, an hourly rate, a percentage of the purchase price, or by sharing the commission paid by the seller to the listing broker. The agent may require a retainer fee at the time the agreement is signed to cover initial expenses to be applied as a credit toward any fees due at the closing.

According to some states, any real property that either spouse of a married couple owns at the time of the marriage remains separate property. Further, any real property acquired by either spouse during the marriage (except by gift or inheritance) belongs to both of them equally. What is this form of ownership?

Community property

Which of the following is NOT a government power?

Condemnation. Government powers are those of police power, escheat, eminent domain, and taxation. Condemnation is the process by which the government exercises the right of eminent domain, by either judicial or administrative proceedings.

A man owns one of 20 units in fee simple, along with a 5% ownership share in the parking facilities, recreation center, and grounds. What kind of property does he own?

Condominium

Properly recording documents in the public record provides what type of notice to the world of an individual's rights or interest?

Constructive

Which entity implemented the Know Before You Own document?

Consumer Financial Protection Bureau

A buyer makes an offer. The seller wants to accept the offer if the buyer will agree to a change in price. In these circumstances, the seller will give the buyer a...

Counteroffer

Which of the following deeds may NOT be exempt from tax?

Deed made in connection with a sale

Which of the following is a three-party instrument?

Deed of trust

When an owner of real estate sells the property to someone else, which of the sticks in the bundle of legal right is the owner, as a seller, using?

Disposition

Which of the following is considered part of the financing matters of a contract?

Earnest money The purchase price and how the purchaser intends to pay for the property, including earnest money deposits, additional cash from the purchaser, and the conditions of any mortgage financing are all important elements of the financing portion of a contract.

Which of the following is NOT a legal life estate?

Fee simple. A legal life estate is a form of life estate established by state law. It becomes effective automatically when certain events occur. Dower, curtesy, and homestead are the legal life estates currently used in some states. Community property states (like Texas) do not use dower and curtesy.

During the period after a real estate sales contract is signed, but before title actually passes, the status of the contract is...

Executory

The Texas Deceptive Trade Practices Act (DTPA) is a consumer protection law which protects the public from...

False or misleading acts, deceptive acts, unconscionable acts

The highest interest a person may have in real estate is...

Fee Simple Absolute

A property owner decided to give his property to the city with the condition that no alcohol consumption is allowed on the premises. The city developed the property as a golf course and made substantial investment in the development of the property. Over the years, to make up for a drop in revenue, the city allowed the club house to sell beer and wine to their customers. Which type of estate does the city have and what rights does the original owner have?

Fee simple subject to a condition subsequent; this estate allows the original owner to reacquire the property but would need to go to court to assert this right.

Which act stipulates that if the seller is a foreign person, the buyer must withhold 15% of the sales proceeds and pay that amount to the IRS?

Foreign Investment in Real Property Tax Act (FIRPTA)

Of the choices below, which one requires a Short-Sale Addendum?

Freddie Mac

A deed contains a promise that the title conveyed is good and that the grantor will obtain and deliver any documents necessary to ensure good title. This promise is an example of which covenant?

Further assurance

A deed states that the grantors are conveying all their rights and interests to have and to hold to the grantees. This is communicated in the...

Habendum clause.

In a standard sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to...

Have both parties initial or sign in the margin near each other

The two most common inspections for a homebuyer are...

Home inspection and termite

When is the owner required to provide a disclosure regarding a death?

If a previous occupant died falling down a broken staircase. As is stated in Section 5.008 of the Texas Property Code, "A seller or seller's agent shall have no duty to make a disclosure or release information related to whether a death by natural causes, suicide, or accident unrelated to the condition of the property occurred on the property."

Under the statute of frauds, all contracts for the sale of real estate must be...

In writing to be enforceable

Which of the following is an economic indicator?

Index

For non-exempt closings, the sales price, property tax reimbursed to the seller, and the seller's Social Security number must be reported to the...

Internal Revenue Service

Which of the following is NOT a type of lien given to a lender by a borrower as security for a real estate loan?

Involuntary lien. A mortgage lien or deed of trust lien in some states is a voluntary/specific lien given to a lender by a borrower as security for a real estate loan. Lenders generally require that the mortgage lien take first priority.

A home inspector is considered a generalist. This means that the home inspector...

Is knowledgeable about most home systems and construction but is not an expert

Why are accurate dates in notes essential?

It is important to establish priority rights.

Which of the following is TRUE about the Special Provisions paragraph in the TREC-promulgated contract?

It is where factual statements that clarify the parties' intentions are added.

A property sells for $25,000, and the dwelling built thereon is only valued at $2,500. What does Section 5.008 of the Texas Property Code say about this situation?

It requires the seller to provide a written notice of the property's condition. The notice is not required for transactions of real property where the value of any dwelling does not exceed 5% of the value of the property.

The contingency most often used for the buyer's protection is the...

Loan contingency

Which type of legal description starts at a designated place on the parcel called the point of beginning?

Metes-and-Bounds

Which of the following is generally a concern for someone with allergies?

Mold

Section 5.008 of the Texas Property Code requires...

Most sellers of residential property to provide the buyer with a written notice of the property's condition

Which of the following groups of real estate professionals subscribes to a code of ethics?

National Association of REALTORS®

Which of the following is the correct composition of the Texas Real Estate Commission?

Nine members appointed by the governor for six-year terms. 6 are brokers and 3 are public members

Which characteristic of a fixed-rate home loan that is amortized to the original payment schedule is true?

The amount of interest to be paid is predetermined

A real estate listing agent receives an offer on one of his listings; the seller agrees to the offer and signs the sales contract. The contract is...

Not enforceable. An acceptance is a promise by the offeree to be bound by the exact terms proposed by the offeror. The acceptance, however, must be communicated to the offeror before it becomes a valid enforceable contract.

Substitution of a new contract for an existing contract is called...

Novation

To which of the following do RESPA regulations apply?

One-to-four-family purchases

What items should NOT be deposited with the escrow officer?

Personal items

Which of the following would be regarded as personal property?

Portable barbeque

The purpose of TRELA is to...

Protect the public

What is one of the purposes of the Texas Real Estate License Act?

Regulation of licensed real estate inspectors Regulation of residential service companies Regulation of licensed real estate brokerage practitioners

Which document is available to the borrower when the loan secured by a deed of trust is completely repaid?

Release deed

What type of interest goes back to the original owner upon the end of a life estate?

Reversionary interest

What type of valuation method is typically used to appraise residential property?

Sales comparison approach

Which of the following is most likely evidence of ownership in a cooperative?

Shareholder's stock

The Uniform Electronic Transactions Act (UETA) provides that..

Signatures by electronic means are as binding as handwritten ones

A buyer purchased a parcel of land and immediately sold the mineral rights to an oil company. The buyer gave up which of the following?

Subsurface rights

A married couple co-owns a farm and has right of survivorship. This arrangement is MOST likely...

Tenancy by the entirety

What required disclosure information provides the borrower with general information about settlement costs?

The CFPB's Loan Estimate form

Which of the following real estate-related entities has rule-making authority in the state of Texas?

The Commission (or TREC)

If a seller gave a letter to the listing agent with instructions not to deliver any offers for less than $250,000, and the listing agent receives an offer for $249,500, should he deliver it?

The TREC allows the listing agent to reject this offer because the seller has given written approval.

The law that provides the seller bear any loss due to destruction of the property before settlement is called...

The Uniform Vendor and Purchaser Risk Act

What is a Closing Disclosure?

The accounting of the parties' debits and credits

Which of the following statements about filling the "Parties" blanks in the TREC-promulgated contracts is TRUE?

The agent should use the full legal names of the parties.

A buyer and seller have a contract. The buyer is self-employed and takes the maximum amount of deductions possible. The buyer has plenty of money, but her tax return indicates not enough income, so her loan was denied. The lender says that the buyer could re-file her tax return and claim less reductions, but she refuses to do so. What could happen because of the buyer's loan denial?

The buyer could terminate the agreement and receive her earnest money back.

In which if the following situations is a license holder NOT required to use a contract promulgated by the Texas Real Estate Commission?

The buyer's attorney has drafted a contract that the buyer insists on using

Which of the following items should NOT be in the special provisions paragraph of the TREC-promulgated contracts?

The contract is contingent upon the buyers selling their current house. Anything that has an addendum essentially

For which of the following actions may the Texas Real Estate Commission NOT suspend a license holder?

The license holder explains to the principals the meaning of the factual statements or business details contained in the contracts. License holders are free to explain to principals the meaning of factual statements or business details contained in contracts as long as no legal advice is offered or given.

The possession of property by an adverse possession claimant must be...

The possession by the claimant must be open (obvious to anyone who looks), notorious (known by others), continuous (uninterrupted), hostile (without the true owner's consent), and adverse (to the true owner's possession).

A buyer and seller enter a contract for the sale of a three-bedroom residential property. Shortly after the contract is in place, the buyer has an inspection done. As a result of the inspection, the buyer wants the seller to fix the fence and replace the garage door opener. The seller refuses. How should the parties proceed?

The repairs do not become part of the sales agreement.

Who is usually responsible for providing marketable title to the property?

The seller

When prorating taxes, which of the following is used if the current real estate tax cannot be determined definitely?

The taxes will be based on the last obtainable tax bill.

Which of the following statements is FALSE concerning the rights granted to owners of properties along the course of a river or stream?

They include the unrestricted right to use the water. The rights granted to the property owners have some limitations, such as not to interrupt or alter the flow or contaminate it in any way.

Which of the following must be done by the buyer before closing?

Transferring utilities to the buyer's name

The Texas DTPA has two features that are designed to deter wrongdoers. These two features are...

Treble damages and mental anguish award

Which law requires that all advertising that references mortgage financing terms contain certain disclosures?

Truth in Lending Act (Regulation Z)

A person approaches an owner and says, "I'd like to buy your house." The owner says, "sure," and they agree on a price. What type of contract is this?

Unenforceable

What should a license holder do in transactions for which there is no TREC promulgated contract?

Use a form prepared by the Broker-Lawyer Committee and made available for trial use by license holders with the consent of TREC

The buyer and the seller have an executory contract for sale of a property. The seller has assured the buyer that the property can be used as a home daycare center. The buyer checked zoning and discovered that the special use is no longer lawful in the neighborhood. The this case, the contract is...

Void

In Texas, which does a purchaser receive at the foreclosure sale?

Whatever title the borrower had

A title that has no defects that could carry over as a problem for the next property owners is called...

a marketable title.

An addendum is...

additional information given in the offer.

A contract is said to be implied if the...

agreement of the parties is demonstrated by their acts and conduct.

Which of the following should happen when an agent writes in special provisions?

all of these should happen. TREC rules prohibit license holders from adding factual statements or business details for which a contract addendum, lease, or other form has been promulgated by TREC for mandatory use.

Which of the following personal property items could be agreed to be left with a property after a sale?

all of these. Any items could be negotiated to be left with a property. A sales contract can include a list of any personal property that is to be left on the premises, such as appliances, lawn and garden equipment, and window treatments.

Unless there is some legal excuse, the non-breaching party can usually seek...

all of these. Unless there is some legal excuse, the non-breaching party can usually seek rescission of the contract, suit for money damages, or suit for specific performance.

By executing a listing or buyer agency agreement with a client, a real estate broker becomes...

an agent of the client.

The type of easement that is a right-of-way for utility company's power lines is...

an easement in gross

All of the following are written agreements used by license holders EXCEPT...

business opportunity contracts.

The primary activity of Freddie Mac is to...

buy and pool blocks of conventional mortgages

Matters regarding personal property in a real estate transaction...

can lead to problems with the transaction and possibly even litigation if not handled correctly.

Extended coverage in an owner's title insurance policy would NOT cover...

changes in land use brought about by zoning ordinances.

Which of the following is FALSE about a broker entering into a listing agreement with the executor of an estate in probate?

commission cannot exceed 6% of the sale price, according to Texas probate law. A broker entering into a listing agreement with the executor or administrator of an estate in probate should be aware that the amount of commission is approved by the court and that the commission is payable only from the proceeds of the sale. The broker will not be able to collect a commission unless the court approves the sale.

A broker uses earnest money placed in the company trust account to pay for the rent owed on the broker's office, Using escrow funds for this purpose is...

conversion of funds and is illegal.

A land contract provides for the...

conveyance of legal title at a future date.

A couple just built a 3,000 square foot home in a brand new subdivision. They have recently found out that a toxic waste dump is being built half a mile away. Typically this will...

decrease their home's value.

Standard title insurance protects the buyer from...

defects found in public records.

A contract must meet certain minimum requirements to be considered legally valid. All of the following are essential elements of a valid contract EXCEPT...

earnest money. The essential elements of a valid contract are offer and acceptance, consideration, legally competent parties, mutual agreement, and legal purpose. Earnest money is not required for a valid contract.

When an individual dies and leaves no will, any real property will transfer to the state through a process called...

escheat.

One of the rights in the bundle of legal rights is the right of...

exclusion. The five rights include disposition, exclusion, enjoyment, possession, and control.

The process of probate is...

formal judicial process. Probate is a legal procedure for verifying the validity of a will and accounting for the decedent's assets. The process can take several months to complete.

The commitment to issue a title policy includes all of the following EXCEPT...

full sale price of the property. The commitment to issue a title policy includes the name of the insured party, legal description of the real estate, estate or interest covered, conditions and stipulations under which the policy is issued, and a schedule of all exceptions, including encumbrances and defects found in the public records and any known unrecorded defects. It does not include the full sale price of the property.

Which of the following items would be prorated at closing?

furnace fuel bills. Most closings involve the division of financial responsibility between the buyer and the seller for such items as loan interest, taxes, rents, fuel, and condominium or homeowners association fees.

Personal property that is not addressed in the contract will...

generally not convey with the property.

Under a land contract, the seller can be...

in a secondary position.

An amendment...

is a change to the original agreement.

A type of foreclosure that allows the property to be sold by court order is...

judicial foreclosure.

All of the following are requirements of a valid lease EXCEPT...

legal conjecture. The requirements of a valid lease are capacity to contract, offer and acceptance, legal objective, and consideration. Many states require no special wording to establish the landlord-tenant relationship.

If the earnest money is established as the limit of the buyer's liability in case of default, this sum of money is called...

liquidated damages.

The rights granted to property owners whose land borders commercially navigable lakes, seas, and oceans are called...

littoral rights.

Mortgage banking companies originate...

loans.

In the offer negotiations, the buyer asks the seller to help pay for new carpet in all the bedrooms and a new water heater because the existing one is outdated and inefficient and the inspector recommended replacing it. What options does the seller have? The seller...

may counter with a dollar amount towards the buyer's request.

A contract that complies with all the basic requirements may still be voidable. To be valid, the contract must have...

mutual agreement.

All of the following information is needed for a listing agreement EXCEPT..

names and addresses of the previous owners.

The statute of frauds requires which of the following?

none of these are required. The statute of frauds does not require all contracts to be in writing, including leases. It requires all contracts for the sale of real property or leases for more than a year to be in writing to be enforceable. Fraud has multiple violations, but the statute of frauds does not address it.

One of the most common types of foreclosure that expedites the process is...

nonjudicial.

Constructive notice is...

properly recording documents in the public record.

Which of the five rights to real property does the landlord sell to the tenant in a lease?

possession. The landlord sells (rents) the right of possession to the tenant. The tenant now has rights that the landlord cannot violate. The landlord still holds the rest of the rights to the property. The tenant does not have the right to sell it (disposition), but the landlord still does.

Air and solar rights are regulated by...

state and local laws and ordinances.

Following a foreclosure for the non-payment of taxes, the state of Texas allows...

statutory right of redemption.

The LEAST specific method for identifying real property is...

street address

A seller has listed her home at $250,000. A couple has made an offer to purchase the property for $230,000, including the seller's washer and dryer. The seller counters with a sales price of $240,000 without the washer and dryer. The buyers counter again with a sales price of $234,000, including the washer and dryer. The seller makes no response for five days and the buyers find another property. The buyers should...

tell their agent to withdraw their offer and have the agent put in an offer on the new property.

If the parties change their original promises on an amendment and decide they want to make a change to the closing date...

they can do so as long as both parties agree to the changes.

A consumer who wishes to file a DTPA lawsuit must do so within...

two years after the consumer discovered the deceptive act.

When a contract appears to be valid on the surface, but neither party can sue the other to force performance, it is...

unenforceable.

A contract may be discharged for any of the following reasons EXCEPT...

unilateral decision by either party to terminate the contract. A unilateral decision to terminate by one party without the right to terminate would cause the terminating party to be in breach.

Which of the following is NOT covered by a standard title insurance policy?

unrecorded rights of parties. Unrecorded rights of parties in possession are covered by an extended coverage policy.

Including a contingency in a sale contract makes the contract...

voidable

A contract with a person under duress is...

voidable.