Texas Law of Contracts
In a loan that requires periodic payments that do not fully amortize the loan balance by the final payment, what term BEST describes the final payment? A) Variable B) Acceleration C) Balloon D) Adjustment
C) Balloon The answer is balloon. A balloon note, also called a partially amortized note, calls for monthly payments that are not sufficient to pay off the loan. At the end of the specified term of the loan, the final payment will be large as it is for the remainder of the loan. A balloon note may call for partially amortized payments, or may be for interest only.
In any township, the number of the section designated as the school section is
16
Contingencies that often appear as part of a standard sales contract include all of these EXCEPT A) title contingency. B) financing contingency. C) appraisal contingency. D) hazardous material inspection contingency.
hazardous material inspection contingency. The answer is hazardous material inspection contingency. Financing, appraisal, and title contingencies are common in standard sales contract forms; a contingency for the presence of any type of hazardous material would only occur if a particular buyer had some concerns.
Broker Lawyer committee
the BLC drafts and revises contract forms for use by real estate licensees, expedites real estate transactions, and reduces controversies while protecting the interests of the parties involved.
The law that provides that the seller bear any loss due to destruction of the property before settlement is called
the Uniform Vendor and Purchaser Risk Act. In many states, the buyer assumes the risk of any damage to the property during the time between contract and closing; other states jave determined that the risk should remain with the seller and have incorporated portions of the Uniform Vendor and Purchaser Risk to protect the buyer.
equitable title
the interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name.
sales comparison approach
the process of estimation the value of a property by examining and comparing actual sales of comparable properties
The DTPA has 2 features that are designed to deter wrongdoers. These 2 features are
treble damages and a mental anguish award
Which action might leave a licensee open to a charge of practicing law without a license?
Licensee advises both the seller and the buyer that, in his opinion title to the subject property is encumbered.
TRELA
Texas Real Estate License Act - protect the public
DTPA
The Texas Deceptive Trade Practices Act - consumer protection law which protects the public from false, misleading, deceptive, unconscionable acts.
Which of the following is NOT part of the secondary mortgage market? A) Freddie Mac (FHLMC) B) Federal Housing Administration (FHA) C) Ginnie Mae (GNMA) D) Fannie Mae (FNMA)
The answer is Federal Housing Administration (FHA). Freddie Mac, Fannie Mae, and Ginnie Mae are part of the second mortgage market. The FHA is a primary market lender.
All of these are examples of a legal description to property EXCEPT A) a property address. B) measuring from an oak tree to 500 feet southwest to the cottonwood tree. C) using tier and range lines. D) a developer's plat map.
The answer is a property address. Legal description of property can be described by using a government survey, metes and bounds, or the developer's plat map; the property's physical address may never be used as a legal description.
An appraisal to determine the market value of a residential property is primarily based on A) a gross rent multiplier. B) a sales comparison approach. C) an income approach. D) a cost approach.
The answer is a sales comparison approach. In a sales comparison approach, the subject property is evaluated in comparison with other similar recently sold properties in the same locale. Adjustments are made to reflect what those properties would have sold for if they exactly matched the subject property.
Under a typical land contract, when does the vendor give the deed to the vendee? A) At the closing B) After the first year's real estate taxes are paid C) When the contract is fulfilled and the final payment is made D) When the contract for deed is approved by the parties
The answer is ad valorem taxes. Ad valorem is Latin for according to value; government agencies and municipalities charge real estate taxes based on an assessment of the value of the property.
A written summary of the history of all conveyances and legal proceedings affecting a specific parcel of real estate is called A) an abstract of title. B) a certificate of title. C) a title insurance policy. D) an affidavit of title.
The answer is an abstract of title. The written summary of all documents pertaining to a property is called an abstract of title.
An owner has a fence on his property. By mistake, the fence extends one foot over the lot line onto a neighbor's property. The fence is an example of A) a license. B) an encroachment. C) an easement by prescription. D) an easement by necessity.
The answer is an encroachment. Whenever a fence, garage, or driveway extends over the property line, this encumbrance refers to as an encroachment.
An option to purchase binds which of the following parties? A) Both buyer and seller B) Neither buyer nor seller C) Seller only D) Buyer only
The answer is seller only. An option to purchase is binding to the owner (seller) if the buyer decides to exercise the option of buying or leasing the property for a set price within a certain period.
A married couple and a cousin have decided to invest in real estate. They ask their real estate agent how they should take title. The agent recommends that they speak to an attorney. The attorney will MOST likely suggest which form of ownership? A) Tenancy by the entirety with shares based upon the amount invested B) Community property for the married couple with joint tenancy for the cousin C) Tenants in common with shares based on the amount invested D) Joint tenancy with no rights of survivorship for all three
The answer is tenants in common with shares based on the amount invested. Community property is used in Texas for married couples. Tenancy by the entirety is not recognized as a way for individuals to take title in Texas. Joint tenancy without rights of survivorship does not exist.
The typer of easement that is a right of way for a utility company's power lines
an easement in gross - gives an individual or a company the rights to an easement across a number of properties; a commercial easement in gross may be assigned, conveyed, or inherited. A personal easement in gross usually terminates on the death of the easement owner.
A contract for deed for a period of 2 years is considered
an executory contract - a contract for deed for a period of 2 years is an executory contract.
Texas Real Estate Commission TREC
approves and promulgates forms
What should a licensee do in a transaction for which there is no TREC promulgated contract?
Use a form prepared by the Broker-Lawyer Committee and made available for trial use by licensees with the consent of TREC
a phase I environmental site assessment is generally associated with
a commercial property purchase.
tenancy in common
a form of co-ownership by which each owner holds an undivided interest in real property. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.
certificate of title
a statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.
Ad Valorem tax
a tax levied according to value, generally used to refer to real estate tax; also called the general tax
affidavit of title
a written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which grantors 1. identify themselves and indicate marital status, 2. certify that since the examination of the title, no defects have occured, and certify that they are in possession of the property.
abstract of title
summary report of what the title search found in the public record..all public records and summary of various events and proceeding that affect title throughout history.
A married couple co owns a farm and has right of survivorship. This arrangement is MOST likely
tennancy by the entirety, in states that allow for tenancy by the entirety the couple is considered to tbe one unit and have rights of survivorship if one party dies.
An encumbrance is NOT a A) claim or burden to ownership of real and personal property. B) claim on personal property only. C) claim or burden on real property only. D) lien on real or personal property.
C) claim or burden on real property only. The answer is claim or burden on real property only. An encumbrance is a claim, charge, or liability that attaches to real or personal property.
A person lives in an apartment building. The land and structures are owned by a corporation with one mortgage loan securing the entire property. Like the other residents, this person owns stock in the corporation and has a lease to the apartment. This type of ownership is called
Cooperative, the owner has a proprietary right to occupy a unit and own shares in the corporation.
Which of the following is a factual statement that is acceptable to provide in the Special Provisions paragraph of the sales contract? A) Buyer to withdraw offer if seller does not respond by 11:00 am on October 28, 2012. B) Buyer's offer contingent upon satisfactory inspections of the property. C) Buyer is related to seller's broker. D) Buyer to move into the house one week before closing and funding.
The answer is buyer is related to seller's broker. This is a factual detail that must be disclosed to all the parties. A TREC form is available to address the buyer moving into the house before possession, so that should not be addressed in the Special Provisions paragraph. The other statements are legal rights or remedies, and the licensee must never write these in the contractual agreement. To do so would constitute practicing law.
The costs involved in having a radon inspection are usually borne by the A) inspector. B) seller. C) buyer. D) listing agent.
The answer is buyer. The cost of any inspection requested by the buyer should be paid by the buyer. In some states, an inspection for termites or other wood-boring insects is mandated by state law. In this case, the seller is responsible for payment and making any necessary repairs.
The Broker-Lawyer Committee A) promulgates forms. B) drafts and revises forms. C) approves forms. D) approves and promulgates forms.
The answer is drafts and revises forms. The Broker-Lawyer Committee drafts and revises contract forms for use by real estate licensees, and the Texas Real Estate Commission (TREC) approves and promulgates them.
When all parties to the transaction have signed the contract, it is the broker's duty to A) sign the contract electronically in accordance with the Uniform Electronic Transactions Act (UETA). B) advise both parties to seek legal counsel before closing. C) have the contract notarized. D) enter the effective date of the contract.
The answer is enter the effective date of the contract. TREC contract forms prompt the broker to do this.
A buyer makes an offer on a seller's house and the seller accepts. Both parties sign the sales contract. At this point, the buyer has what type of title to the property? A) Voidable B) Escrow C) Contract D) Equitable
The answer is equitable. Actual title does not change until the property is conveyed at settlement; from contract ratification until closing, the purchaser has an equitable (future) interest. Previous
A person has a one-year leasehold interest in a house. The interest automatically renews at the end of each year. The person's interest is called a tenancy A) for years. B) from period to period. C) at will. D) at sufferance.
The answer is from period to period. A tenancy from period to period does not have an expiration date but continues under the original terms until notice of termination is given. The form and timing of notice varies by state. Previous
Personal property to be conveyed in the contract will need to be A) paid for outside of closing. B) listed first in the MLS and listing contract. C) included in the purchase contract. D) itemized in the contract and then on the deed.
The answer is included in the purchase contract. Personal property is conveyed by a bill of sale and must be included in the contact to convey.
If the earnest money is established as the limit of the buyer's liability in case of default, this sum of money is called A) specific performance. B) liquidated damages. C) breach of contract. D) parole evidence.
The answer is liquidated damages. In order to avoid being sued for the full sales price in case of default, most buyers prefer to limit their liability to the amount of the earnest money deposit. A larger earnest money deposit provides more assurance to a seller that the buyers fully intend to go through with the contract.
A seller listed her residence with a broker. The broker brought an offer at full price and terms of the listing from buyers who were ready, willing, and able to pay cash for the property. However, the seller rejected the buyers' offer. In this situation, the broker A) is liable to the buyers for specific performance. B) is liable to the buyers for compensatory damages. C) may be entitled to a commission. D) must sell her property.
The answer is may be entitled to a commission. The broker's promise to the seller is to bring a ready, willing, and able buyer with an offer of the sales price and other terms stated in the listing agreement. Rejecting this offer puts the seller in a breach of contract, and the broker is owed a commission.
Under federal law, lenders are required to give certain disclosure documents when lending on residential property. These disclosures are to protect the interests of the A) mortgagor. B) trustee. C) beneficiary. D) mortgagee.
The answer is mortgagor. The mortgagor or borrower is given the disclosures to better understand the obligations he is agreeing to in the loan documents. The trustee lender (who holds the deed of trust), mortgagee, and beneficiary do not receive disclosures.
A title insurance policy is a guarantee that the A) loan company will be reimbursed for potential losses in the event of mortgage foreclosure. B) ownership of the property will always have marketable title if a title defect is later discovered. C) owner's title will be marketable. D) owner will be reimbursed for any losses sustained as a result of defects in the title.
The answer is owner will be reimbursed for any losses sustained as a result of defects in the title. Title insurance will compensate or reimburse the insured against any losses sustained as a result of defects in title; however, it does not guarantee continued ownership. Texas title insurance companies insure good and indefeasible title rather than marketable title.
The date and time a document was recorded helps to establish A) subrogation. B) priority. C) abstract of title. D) marketable title.
The answer is priority. The priority of when a document is recorded can be critical. For example, a deed of conveyance of title to a property must be filed before a deed of trust establishing collateral for a loan can be filed on the same property. The priority of liens also establishes the order in which funds are paid after a foreclosure sale.
A hazardous substance produced by the decay of radioactive materials is A) radon. B) carbon monoxide. C) lead. D) asbestos.
The answer is radon. The decay of radioactive materials produces radon, which is found in varying amounts throughout the country. Concerns about cancer cause some buyers to require an inspection for radon. If found, the resolution is relatively simple—adequate ventilation of the gases.
Which of the following is TRUE regarding the seller disclosure required by Section 5.008 of the Texas Property Code? A) The disclosure includes issues like the presence of termites and the existence of lead-based paint in the home. B) Sellers of new single-family residences that have not been previously occupied have to provide the disclosure. C) Issues with the property that have been repaired or replaced do not need to be included in the disclosure. D) The buyer must receive the disclosure before signing the contract.
The answer is the disclosure includes issues like the presence of termites and the existence of lead-based paint in the home. The buyer can receive the disclosure after signing the contract, but if the form is presented after the agreement is signed, the buyer may terminate the contract within seven days after receipt of the disclosure. Issues that have been repaired or replaced still need to be disclosed to the buyer.
Under the new Mortgage Disclosure Improvement Act (MDIA), a lender must extend the closing how many days if the annual percentage rate (APR) is increased before closing? A) Five days B) Three days C) Two days D) Four days
The answer is three days. As further protection for the borrower, the MDIA requires that any change greater than 0.25% in the APR will result in a three-day waiting period before closing.
An ownership interest that is based on annual occupancy intervals is a A) time-share. B) leasehold. C) cooperative. D) condominium.
The answer is time-share. The owner of a time-share either has a fee simple interest for a given period during the years or a time-share use that allows for occupancy for a certain period.
A 15-year-old boy recently inherited many parcels of real estate from his late father and has decided to sell one of them. If the boy entered into a deed conveying his interest in the property to a purchaser, such a conveyance is A) void. B) invalid. C) voidable. D) valid.
The answer is voidable. A conveyance of title can be made by a minor, but the contract could be rescinded by the minor seller before or after the minor reaches legal age (18, in most cases). This makes the contract voidable.
Which of the following is NOT an exception to the rules requiring that promulgated forms be used and completed by the licensee? A) When the contract form has been prepared by the seller's attorney and is required by the seller B) When the licensee is functioning solely as a principal C) When an agency of the U.S. government requires a different form D) When the contract form has been prepared by the buyer's agent
The answer is when the contract form has been prepared by the buyer's agent. The exceptions are covered in the TREC Rules. The other exception is transactions for which no standard contract form has been promulgated by the commission, and the licensee uses a form prepared by an attorney-at-law licensed by this state and approved by the attorney for the particular kind of transactions involved, or prepared by the Texas Real Estate Broker-Lawyer Committee and made available for trial use by licensees with the consent of the commission.
Title insurance
contract under which the policy holder is protected from losses arising from defects in the title. Unlike other insurance policies that insure against future losses, title insurance protects the insured from an event that occured before the policy was issued. Title insurance is considered the best defense of title: title insurance company will defend any lawsuit based on an insurable defect and pay claims if the title proves to be defective.
Mortgage Disclosure Improvement Act
intent is to prevent consumers from receiving an enticing low rate at the initial application and then learning at settlement that the lender is charging more in fees. Remember 3,7,3 3 bus. days from application to provide the TILA and GFE 7 bus days before the signing of loan documents, after the borrower receives the final TILA and GFE 3 bus days to wait for closing if the APR has changed more than 0.125% from the origianl or most recent TIL and GFE
The main difference between an amendment and an addendum is that the amendment
is a change to existing content in the contract. The use of an amendment form are often confused. An amendment is a change to what it is in the original contract; an addendum is new material being added to the contrract. IN either case, the other party must sign off on the change or addition for the contract to remain in full force.
Section 5.008 of the Texas Property Code requires
most sellers of residental property to provide the buyer with a written notice of the property condition.
Governmental powers are
police power, escheat, eminent domain and taxation