National Test Chapter 4 - Real Estate Law
A person with a mental impairment would like to enter into a contract for the purchase of a piece of real estate. Which of the following statements would be true?
A person appointed by the court as a guardian can sign the contract on behalf of the mentally impaired person
Which of the following would NOT be a protected class under the federal fair housing laws?
A person currently using illegal substances
Civil Rights Act of 1866
"All CITIZENS of the United States shall have the same right in every state and territory as is enjoyed by White citizens thereof, to inherit, purchase, lease, sell, hold, and convey REAL and PERSONAL property" (race based only) when people of color were granted equal rights in real estate
Who can prepare legal documents?
* Brokers CANNOT draft legal documents, only fill in blank spaces on ATTORNEY approved forms * CANNOT charge extra for this work * CANNOT give legal advice always consult attorney for legal advice
Which of the following would be correct concerning the validity of a contract?
Earnest money is not required (NOT legal description required (only needs to be adequate), earnest money of at least $1 required, or verbal contract is enforceable in court)
How are contracts created?
Expressed or Implied
Square Footage
Length x Width
What if the buyer rejects the counter-offer?
No deal, walk away
Jones vs. Mayer (1968)
No entity can ever exempt based on race EVER
A person invested $5,000 in a limited partnership. One of his concerns was the amount of his liability. Since he is one of the limited partners, can he be held liable for more than his initial investment?
No, because he is only liable for his initial investment
Community Reinvestment Act (CRA)
Required banks to make loans available in low income, minority communities
A buyer made an offer with earnest money to a seller on a listed property. The offer contained a clause saying the offer was only good for 24 hours. While the seller was considering the offer within the 24-hour time frame, the buyer changed his mind and called his buyer's agent to rescind the offer. The buyer's agent notified the listing agent of the recission of the offer. In this case, the earnest money:
Should be returned to the buyer immediately
Real estate sales contracts must be in writing to be enforceable under which body of law?
Statute of Frauds
What has to do with validity in contracts?
Statute of Frauds
A broker has been accused of steering. Which of he following would HUD LEAST consider?
That the broker thought he was doing what was in the buyer's best interest
Assignment
The act of transferring to another all or part of one's rights arising under a contract, transfer rights in a contract to a new buyer, so long as the new buyer can fulfill the same terms (unless clause in contract exists stating it is not allowed)
Non-Recourse Agreement
document signed so investors/stock holders are not held liable
How is it determined when the promises have been completed?
executory vs executed
Under the federal fair housing laws, which of the following advertisements would be allowed?
Wheelchair accessible (NOT adult building, no children, or down the road from church)
When does a sales contract become legally binding for the buyer?
When the seller's acceptance is communicated back to the buyer
HUD's enforcement of the Fair Housing Act entails:
Who may file: the person who has been discriminated against Time limits: ONE year from when the discrimination took place Investigations: STATE laws apply if stricter and similar to federal *1st offense = $75,000 fine
Can an offer be withdrawn?
Yes, up until the time of acceptance However, no right of rescission (backing out) once offer accepted
Contingency Clause
a clause in a real estate sales contract that makes the agreement conditional on such factors as the availability of financing, property inspections, or obtaining expert advice, etc. some sales contracts contain contingency clauses maybe buy "if"
Limited Liability Company (LLC)
a form of business ownership that offers both limited liability to its owners and flexible tax treatment. Gives small business owner some level of protection and combines benefits of corporation with benefits of being private individual or partnership profits and loses flow through individual members
A contract would be considered executed when:
all contract terms have been satisfied
Escrow money can:
bare interest and ALL parties have to agree who gets it
What promises do people make in various contracts?
bi-lateral vs uni-lateral
An exercised option contract is:
bilateral, both parties have agreed to promise
A broker has sold several homes in the same area to buyers having small children. The broker then advertises to other property owners in the areas that they should sell now so they can move to a quieter neighborhood. This is an example of:
blockbusting
Sole Proprietorship
business owned and operated by one person, that ONE person starts a company and has no liability protection and carries ALL the risk
The Americans with Disabilities Act (ADA) would NOT apply to a:
church (bc is private not public)
Time is of the essence in a contract means that the:
contract terms should be performed punctually
Option Contract
possibility contract - RIGHT to buy at a later date. An option would require all essential elements of a contract to be valid, including consideration. The price is set, and in a certain timeframe given to purchase at a later date Must Have: * Definite time period * definite sale price
A licensee, in showing a property to a buyer, told the buyer that property had the most beautiful view in the neighborhood. This would be an example of:
puffing
An agent is working with buyers wishing to purchase an older home in a deteriorating neighborhood. Both of the buyers have good incomes and are well qualified. The buyers have been turned down by three lenders for a loan on the property. The lenders may be guilty of:
redlining
What are ways organizations can take title to property?
syndication, severalty, limited liability, etc.
Who could void a contract?
the injured party (minor, under duress, misrepresented, intoxicated)
breach of contract
the nonperformance of a contractual duty, one or both parties don't perform as supposed to
How do corporations take title?
in SEVERALTY (one person owns/on deed)
A person who wanted to invest in real estate but did not want to worry about management responsibilities would want to be a:
limited partner
What if there are multiple offers on a property?
listing agent is responsible for presenting ALL offers, best to present all at once if several offers made close together
A violation of the federal fair housing laws:
may be a criminal act
Rules for properties regarding handicap:
* cannot change terms * Handicapped persons, at their expense, can modify (put in ramps, etc.) but HAVE to change back when they leave * Multi-family (4 or more) after MARCH 13, 1991, must be ACCESSIBLE - elevator for all units - if NO elevator can be ground floor only
How ling does a person have who has been discriminated against to file a complaint with the Department of Housing and Urban Development (HUD)?
1 year
Four different ways to change a contract are:
1. Breach (diff choices for if buyer defaults vs seller defaults) 2. Assignment 3. Novation 4. Addendum/Amendment
What are the three main housing laws that pertain to real estate?
1. Civil Rights Act of 1866 2. Civil Rights Act of 1968 (Title VIII) 3. Fair Housing Amendments Act of 1988
What are the essential elements of a contract?
1. Competent Parties - of legal age and sound mind, and alive at time of acceptance 2. Offer and Acceptance - Mutual Assent, "meeting of the minds" ,exact terms needed 3. Consideration - Something of value, promise to pay is sufficient, earnest money is not required but helps 4. Legal Object - lawful purpose 5. Writing - must be in writing, an oral contract cannot be enforced in court (Statute of Frauds) 6. Signed - contract must be signed by both parties 7. Description - should contain legal description, must accurately describe the land
Three Types of Voidable Contracts:
1. Contract signed by a MINOR - but if guardian signs on their behalf not voidable 2. Contract signed under DURESS - signed under extreme pressure 3. Contract signed due to MISREPRESENTATION - lied about property in some way, making a FALSE statement about a MATERIAL FACT (if person intoxicated at time of signing could also void contract)
Four ways to Syndicate:
1. Corporation 2. Partnership 3. Real Estate Investment Trust (REIT) 4. Limited Liability Company (LLC)
Four choices for seller if buyer defaults:
1. Declare contract forfeited - release the buyer and keep earnest money if involved Could have a LIQUIDATED DAMAGE CLAUSE: buyer is to pay certain amount if they back out, and amount is decided beforehand 2. Specific Performance Suit - court action 3. Rescind - take back agreement and go back to status quo 4. Sue for damages - sue for any out of pocket expenses
Advertising of properties must be:
1. Inclusionary - such as "wheelchair accessible" exclusionary advertising is NOT allowed such as "no children" unless it was retirement community Note: Advertising in newspapers should be down in newspapers of GENERAL CIRCULATION 2. Advertising for roommates can be based on sex, such as female seeking female roomate 3. Advertsing containing pictures should represent diverse people groups
What are the different types of legal property descriptions?
1. Metes and Bounds 2. Rectangular (Government) Survey System 3. Lot and Block System *Address is NOT a legal description
Three choices for buyer if seller defaults:
1. Specific Performance Suit - court action (is the BEST remedy) 2. Rescind - take back agreement, and go back to status quo 3. Sue for Damages - sue for any out of pocket expenses as result of default (ex. traveling across the country to move)
Corporation
A business owned by stockholders who share in its profits but are not personally responsible for its debts. C-Corp: makes money, ends up in profit, pay tax and individuals, individuals also pay taxes (doubly taxed) S-Corp: can only have 100 shareholders or less, money flows directly to shareholders (only taxed once)
Sales Contract
A contract for the sale of goods under which the ownership of goods is transferred from a seller to a buyer for a price. (offer to purchase contract) is bilateral as soon as accepted! Note: Death would NOT terminate the contract. Seller's estate would have to complete the contract buy selling the property to the buyer. Likewise, buyer's estate would have to complete the contract by buying the property. (heirs must honor the contract)
Implied Contract
A contract that comes about simply from actions of the parties, nothing signed
executed contract
A contract that has been completely performed by both parties, all promises have been completed contract closed
executory contract
A contract that has not yet been fully performed, promises made but not yet completed contract pending
Expressed Contract
A contract that is established through verbal or written words, clearly stated intentions and signed documents
Tenants-In-Common
A form of ownership by two or more persons each having an equal or unequal interest and passing the interest to heirs, not to surviving tenants. two owners - both the corporation and individual share possession/title
What is the purpose of earnest money being part of a real estate contract?
It establishes the intent of the buyer to carry out the contract
Mortgage (Financing) Contingency Clause
Loan contingency, if buyer dies the deal is off "I'll only buy IF I qualify for a loan!" - if buyer not approved they typically get earnest money back if any involved makes contract voidable if contingency not met
Parties involved in Option contract and their rules:
Optionor = Seller * must sell if option exercised * can't force optionee to buy * keeps option money paid for option Optionee = possible buyer * doesn't have to buy, but loses option money * doesn't have estate in property * CAN sell or assign option
What is an example of an executor unilateral contract?
An unexercised option on a property in which a sum of money had been paid for the option
A broker has a property listed for $110,00. A buyer tells the listing broker she would like to make an offer of $90,000. What should the listing broker do?
Tell the buyer that the broker will present the offer to the seller
Securities and Exchange Commission (SEC)
The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies. the Sale of Securities are governed by the SEC, and they set rules and regulations for the sales
An offer to purchase contract has been presented to a seller. Which of the following statements is true regarding the contract negotiation?
The offer could be withdrawn any time prior to conveyance of an acceptance or rejection (NOT any counteroffer must be close to terms of original offer, any counteroffer must be in writing, or buyer would have three day right of recission after acceptance by seller)
When a change is needed in a contract, the best way to accomplish this would be with an:
amendment
Escrow Account
an account where money is held in trust until it can be delivered to a designated party - also called Trust account -every brokerage HAS to have an escrow account and it is regularly audited -is a holding account for buyers' money
Real Estate Investment Trust (REIT)
an organization that purchases, owns, and manages real estate for its investors big mutual funds for real estate investors each must have AT LEAST 100 investors
A buyer writes a contract with a contingency that says if a certain thing does NOT happen, the buyer does NOT have to purchase the property. The contract does not close due to this contingency. Normally, any earnest money should be given to the:
buyer
A property has had termite problems in the past. A broker tells a buyer that the termite problems have been taken care of knowing that the problem actually still exists. The broker is guilty of:
deceptive and fraudulent conduct
What must a salesperson do after receiving an offer with earnest money?
deliver it to their broker IMMEDIATELY after broker receives the check goes directly to the title company to be held until closing
A broker listed a home for sale. The broker noticed that a lot of Russians were moving into the neighborhood because of a local Russian grocery store in the area. The broker decided to cancel advertising for that listing in the general newspaper and instead advertised the listed property on Russian websites only. This would be:
illegal as this would be discriminatory
Illegal Acts through Title VIII (8):
illegal to do to protected classes: * refusing to sell, rent or negotiate * changing terms or conditions * state property is restricted * tell persons property is not for sale when it is * Inducing owners to sell by telling them persons of a protected class are moving into the neighborhood (BLOCKBUSTING) * giving different terms for loans * denying membership in any multiple listing service (MLS)
What is true when a counteroffer is made?
it voids the previous offer
A seller's agent has a property listed. A buyer would like to make an offer on the property but wants to include an inspection contingency. In order to protect the seller, the listing agent should:
make the inspection contingency for the shortest time frame possible
A legal description included Range 2 East and Tier 1 North of a principal meridian. This is an example of a:
rectangular survey system description
An agent brought an offer to a seller with the seller counter offering back to the buyer. In the meantime, another offer was brought to the seller with terms more favorable to the seller. The seller's best option would be to:
rescind the first counteroffer before acceptance and then accept the better offer
Right of First Refusal
right of a party to meet the terms of a proposed contract before it is executed. "If you ever decide to sell your place, give me first dibs!" - formal document signed to allow certain party gets 1st shot at purchasing once put up for sale, this person: * has first opportunity to buy if offered for sale or lease * person has NO right to buy until offered for sale * person can buy by matching any other offer * There is NO definite sales price * All contract laws apply (DIFFERENT FROM OPTION CONTRACT)
An agent is working with a married couple in the purchase of a home. The couple asks the agent how they should take title to the property. The agent should say:
see an attorney !
What is the difference between a home warranty plan and a construction warranty?
sellers usually sell a home with a HOME warranty to fix or replace appliances if needed a builder usually offers a CONSTRUCTION warranty to cover any structural issues that may arise
Exception to Fair Housing Act Familial Status:
senior communities where everyone is 62 or over OR 80% are 55 or over Note: senior communities are allowed to be advertised as such
Arbitration
the process or act of resolving a dispute, LEGALLY BINDING
Real estate contracts are governed by:
the state
Brokers can keep how much of escrow money to cover bank fees/service charges?
up to $1,000 max
Conversion
using other people's money for your own use
Counter-Offer
voids first offer and creates new offer, involves two steps: 1. rejecting offer 2. making new offer
Syndication
when a bunch of investors get together to RAISE MONEY and SPREAD RISK among others
Americans with Disabilities Act (ADA)
Comprehensive legislation that is designed to protect individuals with disabilities against discrimination. Places of public accommodation MUST be accessible to persons with disabilities (hotels, shopping malls, offices, restaurants, etc.)
One acre is equal to:
43,560 square feet
A listing agent has received several offers on a listed property all at the same time. The listing agent should:
present all offers together at the same time
Bi-lateral Contract
promise for a promise ex. buyer promises to buy and seller promises to sell
Uni-lateral Contract
promise for an action ex. seller promises to sell and buyer maybe will buy
Statute of Frauds
A state statute under which certain types of contracts must be in writing to be enforceable. an oral contract cannot be enforced, it must be in writing could also be emails, text messages, letters *applies to real estate contracts, leases over ONE year, and deeds
What if an offer made is ridiculous?
The broker still has to present it
Who makes the offer first?
The buyer
What type of contract is used to transfer real estate?
offer to purchase contract/sales contract
Securities License
required when selling an investment contract, sale of INVESTMENT items to the public (limited partnerships, REITs, Mortgage Securities)
Under to federal fair housing laws, which of the following would NOT be discriminatory?
requiring a tenant to remove a ramp from the deck of an apartment at the end of their lease
Partnership
two types: General and Limited General Partnership = unlimited liability, sharing all liabilities (run company) Limited Partnership = limited liability shared (only invest) general partners run the company and limited partners just financially back the company and have no management responsibilities, only investor
An unexercised option contract is:
unilateral, only one party has agreed
Four Different Ways to Legally Classify Contracts:
1. Valid and Enforceable - has all essential elements, signed by all parties, legal age + sound mind, legal description of land, lawful purpose, etc. 2. Void - No contract at all 3. Voidable - Able to be voided, by one or both parties based on circumstances *there are 3 types of voidable contracts 4. Unenforceable - Oral agreement (statute of frauds must be in writing to be enforceable in court)
An owner of an 8-plex wants to advertise for seniors only. The building does not have any special facilities for older persons. In order for the owner to do this, at least 80% of the units must be occupied by a person who is at least:
55 years old
Which of the following would be a good example of a person being protected under the federal fair housing laws?
A blind person with a seeing eye dog being able to rent an apartment that has a no pets policy (service animals are okay)
Which of the following would be considered commingling?
A broker depositing a client's earnest money check into the broker's personal account
Metes and Bounds
A method of land description which involves identifying distances and directions and makes use of both the physical boundaries and measurements of the land. (physical lend description) good way to define irregular shapes Metes = the length bounds = the markers *must ALWAYS begin and end at point of beginning (like a treasure map) Note: if broker suspects errors, a surveyor or title attorney should be consulted - survey ALWAYS prevails over deed
Redlining
A process by which banks draw lines on a map and refuse to lend money to purchase or improve property within the boundaries. mapping out areas where banks won't lend money NO LONGER ALLOWED under title 8 and CRA
Which of the following would be an example of an impossibility of performance regarding a sales contract?
A seller had signed the contract without the consent and knowledge of the other owners who were joint tenants (NOT buyer not qualifying for loan, seller dies after signing contract but before closing, the property was destroyed by fire after signing contract but before closing)
Earnest Money
A sum of money given to bind an offer or agreement, called "good faith" money
Rectangular (Government) Survey System
A survey system that describes land in reference to principal meridians and baselines, where legal descriptions come from. Use range and tire lines to describe property tire lines = east to west range lines = north to south Township = 36 square miles (6x6) Section = 1 square mile (1x1) **one section = 640 acres **one acre = 43,560 square feet
Anytime money come out of escrow:
ALL parties have to agree
Addendum or Amendment to Contract
Addendum - ADDS something to the original contract Amendment - CHANGES something in the original contract
Steering
Channeling prospective buyers or tenants to particular neighborhoods based upon their race, religion, national origin, or ancestry. based on their protected class illegal!! under title 8
Puffing
Exaggerated or superlative comments or opinions, embellishing the truth, misleading, subjective opinion not illegal so does not make contract voidable but still frowned upon
Fair Housing Amendments Act of 1988
Expansion of the Fair Housing Act to include families with children and those with physical or mental disabilities. Two additional Protected Classes: 1. Handicap - having physical or mental impairment/disability, HIV and AIDS included note: being addicted to illegal drugs not a handicap 2. Familial Status - applies to families with children under 18, pregnant women, and couples undergoing adoption
A seller and buyer have agreed to a sales contract. The buyer backs out of the agreement. Which of the following could the seller NOT do?
File for a writ of execution (sheriff eviction) (but could sue for specific performance, rescind the agreement, or sue for compensatory damages)
Blockbusting
Illegal practice of inducing homeowners to sell their properties by telling them that a certain people of a certain race, national origin or religion are moving into the area illegal!! under title 8
Commingling
Illegally mixing deposits or monies, collected from a client, with one's personal or business account. Taking money out too soon or putting it into escrow too late (10 banking days). mixing personal money and business funds with escrow money - is ILLEGAL
A seller and buyer agree on an option contract. Which of the following statements would be true?
It must be in writing to be enforceable (NOT non-binding on seller, binding on buyer, or option money paid if option not exercised)
Four Exemptions for Title 8 rules:
Note: race discrimination never acceptable 4 exemptions - 1. An owner selling or renting a single-family home if owner: - does NOT own more than three homes at once - does NOT use a broker or agent (must be FSBO) - does NOT discriminate in advertising 2. Owner occupied 2-4 plex in renting 3. Religious organization discrimination on religion - NOT commercial 4. Private club - NOT commercial (club members only)
What kind of contract cannot be assigned?
Personal services ex. cannot assign a listing agreement because it is a personal service to an individual selling property
Lot and Block System
Subdivision system; method of legal description of land using parcel maps identified by tract, block, and lot numbers (no zip code) PLAT map - must be approved by city used for new subdivisions description lists: Lot #, Block #, Subdivision name, County, and State uses setback lines, front footage, and square footage
Novation
Substituting a new obligation for an old one or substituting new parties to an existing obligation. Nova=new new replaces the old
A buyer and seller negated a sale whereby the seller was to include all the kitchen appliances. Upon moving in, the buyer discovered that the seller had taken all the kitchen appliances. What would be the buyer's best remedy?
Sue the seller for specific performance
Setback Lines
The amount of space required by zoning restrictions between the lot line and any improvements on the lot. How far the property has to be from the road, other properties, etc.
What happens when an offer is accepted?
The buyer receives equitable title to the property, giving the buyer the right to sue if the seller backs out because the buyer is said to have "legal interest" in the title
A sixteen-year old purchased a property. Two weeks later the seller found out that the buyer was a minor. Which of the following statements is true?
The sixteen-year old, as the injured party, may void the deal
Front Footage
The width of a property along the street, lot line to lot line linear footage
What can you put in a contract to ensure timely completion?
Time is of the Essence
Civil Rights Act of 1968 (Title VIII)
Title 8 in regards to residential property only, the following protected classes can not be discriminated against: *race *color *religion *national orgin *sex (two additional protected classes added in Fair Housing Amendment Act of 1988 - Handicap and Familial Status)
A contract that begins as unilateral but could end up being bilateral is an:
option contract
A right to buy a property for a definite sale price with a definite time period is referred to as an:
option contract