TREC- Promulgated Contracts
Not Regulated
TREC does NOT regulate or accept complaints against: Real Estate Developers Home Builders Appraisers (see the Texas Appraiser Licensing & Certification Board) Mortgage Brokers and Loan Officers (see the Texas Dept. of Savings & Mortgage Lending) Property Tax Consultants (see the Property Tax Consultant Board of the Texas Dept. of Licensing and Regulation) Title Insurance Companies (see the Texas Dept. of Insurance) Auctioneers (see the Texas Dept. of Licensing and Regulation) Manufactured Housing (see the Texas Department of Housing and Community Affairs) Wood Destroying Insect Inspectors (see the Texas Department of Agriculture)
mutual assent
All parties in a contract can express mutual assent through their actions and words. Therefore, mutual assent can be expressed or implied through actions. For a contract to exist, there must be some form of mutual assent, either through a written agreement or actions. And if the contract is for real estate in Texas, it must always be written.
Addendum for Property Subject to Mandatory Membership - Paragraph A: Subdivision Information
The buyer may also elect to terminate the contract under the language in Paragraph A of the Addendum for Property Subject to Mandatory Membership in an Owner's Association. A buyer will check off only one of the options concerning subdivision information. A buyer who receives a Subdivision Information form might have the right to terminate the contract if they don't want to deal with all the owners' association baggage that comes with the property. Subdivision information refers to the current copy of the restrictions applying to the subdivision, the bylaws, the rules of the Association, and a resale certificate.
Paragraph 6D: Title Policy and Survey
The buyer may elect to terminate under Paragraph 6D (Objections), located in the One to Four Family Residential Contract.
Paragraph 7B: Seller's Disclosure Notice
The buyer may elect to terminate under Paragraph 7B(2) of the One to Four Family Residential Contract regarding the Seller's Disclosure Notice. One of these boxes needs to be checked. Options B1 and B3 do NOT provide for an option to terminate.
Back-Up Addendum
creates an agreement to allow the second buyer to put up their earnest and option money. The effective date of a back-up contract is amended to the date the buyer receives notice from the first seller that the contract has fallen through. Then the back-up contract becomes the primary contract.
A license holder should
disclose all material facts to the client
Majority laws
protect minors from entering into agreements that they may not have the experience or knowledge to understand. This means that if anyone under the age of 18 enters into a contract, the contract is considered voidable. Once the minor reaches the age of majority, all contracts entered into with a minor as one of the parties may be either ratified or voided.
Five Elements of a Valid Contract
the five essential elements of a legally valid contract are: Legally competent parties: legal age (usually 18+) and mentally capable to understand 👵 Consent: free and voluntary act of both parties Legal purpose: nuttin' illegal 🚓 Consideration: something of legal value is being offered 💰 Adherence to the statute of frauds (in writing if law requires)
Choose Your Words Carefully
To protect themselves from the charge of the unauthorized practice of law, license holders have to be cautious of the exact words they speak to their clients. For example, as we know, license holders are obligated to explain the contract forms that their clients are signing. But, it's one thing to simply read the form with the client to help them understand the meaning. It's another thing when the client does not understand or begins to ask the license holder what they should do. That's when the real problems can occur.
Void Contract:
Agreement that lacks one or more of the essential elements of a contract; never was a legal contract.
Scenario 4: Sam Sam is a listing agent. Another agent in his office showed him a contract form that was written by an attorney who was licensed in Florida. It is a very simple form and, hey, Sam just likes it better than the TREC form. So Sam decides to order some copies from the attorney and begins using that form anytime he writes any offers. Is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents?
Answer: Yes. Texas Real Estate agents must use the promulgated forms approved by TREC. Even if TREC had no form that fits the situation, the agent cannot use a form written by an attorney that is licensed out of state, unless it is required by the seller.
Property Management Trust Accounts
Brokers who practice property management or allow their agents to practice property management will need to establish a trust account. This is usually a non-interest bearing account in which the broker will hold security deposits received from tenants. If the broker chooses to, they could also keep earnest money in the account, but from a liability standpoint it is easier to have the title company hold the funds. The broker is NOT allowed to place any of their own funds into this account. That would be considered commingling, and is a violation of TREC rules.
Voidable Contract
Has all the essential elements to a contract but one of the parties may rescind the contract because they signed a contract as a minor, were a victim of fraud or misrepresentation, or were subject to duress.
Review: Amendment vs. Addendum
You should be aware of the difference between an addendum and an amendment. The promulgated TREC Amendment is for the use of the buyers and sellers after they have fully signed and accepted a contract and then later discover a change that needs to be made to one of the terms. It could be the closing date, the price, or some new repair the seller has agreed to. Addenda are attached to the original document before it is signed. Once signed, the original document itself should never be changed. The contract and all amendments each have their own effective dates providing a history of the original agreement, the changes the parties have agreed to, and the date the change happened.
Obligations often times must be completed within a certain number of days of
the effective date
TRELA Section 1101.155
ection 1101.155 of the Texas Real Estate License Act reads as follows: RULES RELATING TO CONTRACT FORMS (a) The commission may adopt rules in the public's best interest that require license holders to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by the commission. (b) The commission may not prohibit a license holder from using for the sale, exchange, option, or lease of an interest in real property a contract form that is: (1) prepared by the property owner; or (2) prepared by an attorney and required by the property owner.
TREC Rules Section 537.11
(f) When filling in a form authorized for use by this section, the license holder may only fill in the blanks provided and may not add to or strike matter from such forms, except that a license holder shall add factual statements and business details by the principals and shall strike only such matter as is desired by the principals and as is necessary to conform the instrument to the intent of the parties.
Bilateral Contract
A contract in which one party must promise to do something for another party and that party must promise to do something for the first party
. Lawful Objective: Legal Purpose
A legally valid contract adheres to all federal and state laws. For example, if a seller wishes to sell property that has been declared hazardous by the EPA due to a leaking underground storage tank, the property cannot be sold until the seller mitigates the hazardous condition. If a buyer buys the property and learns of the condition, it would be found out that the contract was void from the beginning.
Scenario 6: Wanda Wanda's client told her that he was a little worried about signing a contract because he was in the process of getting a divorce, and therefore, was not sure what his attorney would advise. Wanda suggested they write in that the offer was contingent upon approval by his attorney. Is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents?
Answer: Yes. The Rules of the Commission say that where there are unusual conditions, the client must be advised to consult with their attorney before signing an offer.
Amendment to Contract
Anything that changes after a contract has been fully signed and agreed upon by both parties must be changed by use of the TREC promulgated Amendment to Contract. Again, amendments are put in place after a contract has been signed and agreed upon.
Amendment
Items that are attached to the original document and should never be changed after the document has been signed and accepted
Implied contracts
Situations where the existence of a contract (and the nature of its terms) is simply inferred from the conduct of either or both parties.
In which situation would an amendment go into effect?
the parties sign the amendment
TREC Rules Section 537.11 (cont.)
(A) The computer file or program containing the form text must not allow the end user direct access to the text of the form and may only permit the user to insert language in blanks in the forms. Blanks may be scalable to accommodate the inserted language. The Commission may approve the use of a computer file or program that permits a principal of a license holder to strike through language of the form text. The program must be: (i) limited to use only by a principal of a transaction; and (ii) in a format and authenticated in manner acceptable to the Commission.
TRELA Section 1101.155 (cont.)
(c) A listing contract form adopted by the commission that relates to the contractual obligations between a seller of real estate and a license holder acting as an agent for the seller must include: (1) a provision informing the parties to the contract that real estate commissions are negotiable; and (2) a provision explaining the availability of Texas coastal natural hazards information important to coastal residents, if that information is appropriate.
TREC Rules Section 537.11 (cont.)
(m) A license holder may not employ, directly or indirectly, a lawyer nor pay for the services of a lawyer to represent any principal to a real estate transaction in which the license holder is acting as an agent. The license holder may employ and pay for the services of a lawyer to represent only the license holder in a real estate transaction, including preparation of the contract, agreement, or other legal instruments to be executed by the principals to the transactions. Say What?: The sales agent should NOT pay for a principle's lawyer. That action is prohibited by this rule.
Unilateral Contract
A contract made between two or more parties in which only one of those parties makes a promise or otherwise accepts an obligation
Misrepresentation:
A false statement of fact made by one party to another party to induce that party into a contract. If the other party depends on misrepresented information and then experiences a loss, the party that committed the misrepresentation is guilty.
Statute of Limitations
A law establishing a time limit for civil suits
Fraud:
A situation where the misrepresentation is intentional in order to influence someone to enter into a contract
Consideration
A valuable item that each party exchanges in order to demonstrate that they agree to the contract terms
Q: When a contract falls through, can part of the earnest money be held to pay the commission fee for the other real estate license holder?
A: No, unless the parties agree in writing otherwise.
Gotta Include It!
All agreements must be included in the contract to survive closing. In addition to attaching the addendum, it has to be listed in Paragraph 22 of the One to Four Family Residential Contract to make sure it's part of the initial agreement.
Q: After my buyer completed his inspection, he sent the seller an amendment to ask for several repairs. The seller responded with his own amendment that stated he would complete one of the requested repairs and that the contract would terminate if the buyer didn't sign the amendment within 24 hours. Can the seller terminate the contract if the buyer doesn't accept the amendment? (Updated Jan. 12, 2016)
A: No. Even though a buyer or seller can propose an amendment to the contract at any time, merely proposing an amendment to a contract-or refusing to accept a proposed amendment-does not give either party a unilateral right to terminate an existing contract. The contract is only changed after the parties sign the amendment signifying their agreement. Without a fully executed amendment, the original contract remains in effect as written. Keep in mind that if the buyer purchased a termination option that had not yet expired, the buyer could terminate the contract for any reason.
Q: We tried to buy a house but our loan application was not approved. Our $500 earnest money had been deposited with a title company and they said they wouldn't return it without a release signed by the seller, which the seller won't sign. What can you do to help us?
A: The Commission does not have jurisdiction over title companies. While a license holder is encouraged to assist the parties in the exchange of the necessary earnest money release and need to sign the release as appropriate, there is nothing in TRELA or the Rules to determine who is entitled to the earnest money. You will need to consult a private attorney.
TREC Promulgated Addenda (cont.)
Addendum Concerning Right to Terminate Due to Lender's Appraisal Addendum for Sale of Other Property by the Buyer Addendum for Back-Up Contract Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement Seller Financing Addendum Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum
Time-Based Addenda
Addendum for Sale of Other Property by Buyer: This addendum is used when the buyer making the offer has a property they are trying to sell and wants the offer they are making to be contingent upon their current property selling.
Paragraph 15: Default
Also located in the One to Four Family Residential Contract, Paragraph 15 states that either party may elect to terminate if the other party is in default. Either party may terminate if an expense for which they have agreed upon a specific amount exceeds that amount and the other party refuses to pay the excess.
Novation
An alternative to assignment is novation, which is the substitution of a new contract for an existing contract. Once the substitution has been made, the parties bound by the contract can cancel the old contract. The new contract is subject to the same standards as the old contract. This means that it must meet the minimum requirements in order for the substitution to be valid. A novation relieves the original party of liability.
Scenario 3: Jordan In an offer, Jordan wrote, "This contract is contingent upon the seller replacing the broken window in the bedroom before closing" in Paragraph 11, Special Provisions. Is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents?
Answer: Yes. Agents can never legally make a contract "contingent" on anything. That changes the parties' legal rights under the contract. Instead, Paragraph 7(D) has the perfect solution to this problem.
Scenario 7: Jim Jim's seller must close on his old house before he can close on his new house. Jim attached the Sale of Other Property Addendum to his offer and wrote in Special Provisions that the new offer was contingent upon the successful closing of the other property. Is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents?
Answer: Yes. Jim should never rewrite what it says in an addendum approved by TREC.
Scenario 8: Jayson Jayson wrote an offer on Monday and it was accepted the same day. On Tuesday, Jayson delivered the contract, the earnest money check, and the option money check to the title company. Is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents?
Answer: Yes. Paragraph 23 says that the option money must be delivered to the seller or the seller's agent. Delivering it to the title company may cause the buyer to not have an option to terminate.
Scenario 5: Maribel Maribel took her buyer to look at new homes. The builder is using their own contract to write an offer for the buyer. Maribel did not give the title notice, but the contract says the buyer is getting a title policy. Is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents?
Answer: Yes. Texas real estate agents must give the written title notice in every transaction, even when the buyer is getting a title policy.
Unauthorized Practice of Law: Examples
Anything that changes the legal rights of the buyer or the seller is the unauthorized practice of law. That means that unauthorized practice of law includes things like: Agents writing that the contract is contingent upon inspections, appraisals, etc. Agent writing something into the contract instead of using an addendum promulgated by the Texas Real Estate Commission Agents adding or striking things from the preprinted portion of the contract (unless it is specifically requested by the parties) Agents using an out-of-date TREC form An agent advising a seller to put the home back on the market the day after the closing date in the contract, when the buyer was unable to close on time An agent writing "time is of the essence" into a contract form Writing into a contract that anything will cause the contract to terminate Telling a client what the attorney at the TAR Legal Hotline told them Hiring an attorney for a client
EPA Real Estate Partnership v. Hee Duk Kang
As an example of how parole evidence rule is viewed by the court, we will look at the case of EPA Real Estate Partnership v. Hee Duk Kang. EPA Real Estate Partnership was the owner of an apartment complex. EPA signed a listing agreement with commercial broker Feher Young to market the property. The listing agreement had a clause which entitled Young to a commission if EPA agreed to sell the property during the listing period. Shortly before the listing period was over, Kang went directly to EPA and made an offer in writing to buy the complex from EPA. But EPA told Kang that they could not accept the offer because of their obligation to pay a commission to Young. Kang agreed to change his offer to include a promise to hold EPA harmless if Young sued EPA for his commission. But it wasn't until after the listing agreement expired that Kang and EPA signed an agreement for Kang to buy the property. However, this agreement did not contain the "hold harmless" section (known as an indemnity provision). Kang did buy the complex from EPA, and EPA did not pay a commission to Young. Young sued EPA and received almost $300,000. EPA turned around and sued Kang because of the hold harmless clause that was in the first offer to buy. The trial court rejected EPA's claims and made a judgment in favor of Kang. EPA appealed and affirmed the decision of the lower court, citing the parol evidence rule that the "hold harmless" clause was not in the second offer made to purchase the property, which was the agreement that transferred the ownership of the property. So, EPA lost the case and the appeal simply because the clause wasn't integrated into the second agreement for Kang to purchase the apartment complex. Important information should always be included in the written contract.
Five Elements of a Valid Contract
Competent Parties Mutual Agreement Lawful Objective Consideration In Writing
Third Party Financing Addendum: Paragraph B1 (cont.)
Concerning the approval of financing, Paragraph B1 of the Third Party Financing Addendum states: Approval for the financing described above will be deemed to have been obtained when Buyer Approval and Property Approval are obtained. Buyer Approval: This contract is subject to Buyer obtaining Buyer Approval. If Buyer cannot obtain Buyer Approval, Buyer may give written notice to Seller within _ days after the effective date of this contract and this contract will terminate and the earnest money will be refunded to Buyer.
Consideration
Consideration is something valuable that each party exchanges in order to demonstrate that they agree to the contract's terms. It can be a promise, money, property, forbearance, or services. In most real estate transactions, consideration is met in the form of a promise for a promise. However, most people consider money to be the most popular form of consideration.
Scenario 2: Cynthia
Cynthia is getting ready to write an offer. The buyer told Cynthia she is a little short on cash until payday and is worried about the earnest money check clearing. Cynthia told her not to worry because she would not take the check to the ABC Title Company until payday, which is five days away. The title company is located at 1234 Home St, Carrollton, TX. Is this an example of unlawful practice of law and/or a violation of the Rules or the License Act by the agents? Answer: Sort of. Earnest money must be deposited with the escrow agent by the end of business on the second working day. Cynthia could have solved the problem by using the second blank in Paragraph 5. If the parties agree to -0- earnest money for 5 days, it is a valid contract.
If one of the parties defaults and the non-defaulting party accepts the earnest money as damages, they may also:
Do nothing more, as the contract is terminated
TREC promulgated addenda are added to the contract AFTER it has been sigend
FALSE
Withdraw Without Termination (cont.)
For example, a buyer agrees to purchase a home already under an existing loan. This is often referred to as an agreement to take on payments or assume the loan. The person who originated the loan contract transfers the loan responsibilities to the new buyer. However, the person who initially took on the loan remains as a party to the agreement in case the new buyer defaults on the loan. An assignment transfers rights and responsibilities but does not relieve the original borrower from liability.
Reasons for Termination
Here are some common ways that a buyer can terminate their contract: Any reason within defined timeframe if buyer purchased option to terminate (Paragraph 23) Financing not approved within proper timeframe (Third Party Financing Addendum Finding out the property is in a homeowners association (Addendum for Property Subject to Mandatory Membership in an Owner's Association) Didn't receive Seller's Disclosure Notice in time (Paragraph 7B) Objections to title commitment report (Paragraph 6D) Parties defaulting (Paragraph 15)
TRELA Section 1101.652
Here are some relevant provisions from Section 1101.652 of the Texas Real Estate License Act: GROUNDS FOR SUSPENSION OR REVOCATION OF LICENSE. (a) The commission may suspend or revoke a license issued under this chapter or Chapter 1102 or take other disciplinary action authorized by this chapter or Chapter 1102 if the license holder: (3) fails to use a contract form required by the commission under Section 1101.155 (12) fails to specify a definite termination date that is not subject to prior notice in a contract, other than a contract to perform property management services, in which the license holder agrees to perform services for which a license is required under this chapter, (21) induces or attempts to induce a party to a contract of sale or lease to break the contract for the purpose of substituting a new contract; (22) negotiates or attempts to negotiate the sale, exchange, or lease of real property with an owner, landlord, buyer, or tenant with knowledge that the person is a party to an outstanding written contract that grants exclusive agency to another broker in connection with the transaction; (29) fails to advise a buyer in writing before the closing of a real estate transaction that the buyer should: (A) have the abstract covering the real estate that is the subject of the contract examined by an attorney chosen by the buyer; or (B) be provided with or obtain a title insurance policy;
Foundation Situation
Here's an example: A buyer is told that the home they are interested in purchasing has no foundation problems. They purchase the home, then they start noticing some serious issues. The date a foundation expert is brought out to see what the problem is would be the date to begin the statute of limitations. If the expert tells the buyer that, "Hey, I told the previous owners they had this problem years ago," then that could be grounds for a misrepresentation or fraud suit against the sellers and possibly the real estate license holders.
Consideration
If there is no consideration, then the contract is not legally binding. The legal philosophy is that a person cannot do something of value without receiving something in turn. This basically means that each individual (or party) must suffer a detriment in order to gain a benefit. In a real estate contract, the exchange of promises acts as consideration. The buyer promises to pay a monetary amount for the property and the seller promises to give a deed. Earnest money given at the beginning of a transaction is not the consideration. The promise of the entire sum is the consideration.
Other Unilateral Contracts (cont.)
In a buyer's representation agreement, the buyer promises that the broker will receive a commission only if the broker locates a home that the buyer purchases. Although the commission usually comes from the seller through the listing company, the agreement in the buyer's representation agreement is that if the seller or listing broker will not pay the commission to the buyer's agent, then the buyer will. The most telling word in these contracts is if. A unilateral contract is always a promise from one of the parties and only a potential action by the other party. The promising party is not obligated to act, but may do so in order to gain the benefit of the promise from the other party.
Mutual agreement!
In order for a contract to be legally enforceable, there must be mutual assent (that is, agreement) among the parties in the contract. If either party disagrees to any terms or provisions within the contract, there is no contract. Typically, prior to the creation of a contract, there must be a meeting of the minds — this means that all parties that are to be bound by the contract must meet and come to mutually acceptable terms.
Scenario 1: Kevin
Kevin is writing an offer for a buyer. The buyer is really concerned about the transaction closing on time because his children will be starting school a week later. To reassure the client, Kevin wrote in the Special Provisions section of the contract that "time is of the essence." The questions is, is this unlawful practice of law and/or a violation of the Rules or the License Act by the agents? Answer: Yes. Never write in that time is of the essence. It changes peoples' legal rights under the contract. ⏲
Valid Contract
Legal agreement that has all the essential elements of a contract.
Example of Statute of Limitations
Let's say client Alicia wanted to sue her lawyer, Ronald, for legal malpractice because he failed to appear at her court date. In Texas, the statute of limitations for legal malpractice is two years. So, Alicia would have two years from the time Ronald failed to appear at court to file suit. If she files the suit after two years, it will most likely be dismissed.
Use of Standard Contract Forms
Let's take a closer look at the contract form rules: The license holder has an obligation to submit all offers. The license holder must convey all known information that will affect the principal's decision to make, accept or reject offers. The license holder must deal fairly with all parties but owes a duty of fidelity to their principal. The license holder has an affirmative duty to keep the principal informed, at all times, of significant information applicable to the transaction. If the broker receives a deposit or earnest money, the broker must deposit the money by the close of business, on the second working day, after the execution of the contract. If the broker finds the deposit or earnest money check has been dishonored by the bank, the broker shall immediately notify the parties.
Don't Rush it!
License holders should never take initiative and write "time is of the essence" in their contracts. If your client wants to add the language, you need to tell them that they should consult an attorney first. Those words are not just a gentle push for expediency, they change legal rights under the contract in a very real way.
Assignment
Many contracts specify that the duties under the contract may not be assigned. If the contract is silent regarding assignment, then the parties have the right to assign. However, the court will look at the nature of the duties and if they are personal, and having to do with the particular talents of the parties, the court will not allow delegation. For example: If Mary chooses Elite Tailors because of the quality of their work, Elite Tailors cannot send some other company to do their work. However, if the duties are strictly payment of monies, this can almost always be delegated. An assignment usually does not relieve the original party of liability.
Addenda
Materials added to and included in the initial contract that provide more information on the transaction
Don't Cross The Line
One sticky legal area is when license holders add content to the Special Provisions section of the sales contract. (Paragraph 11 of the One to Four Family Residential Contract). License holders must take care that they do not cross the line and input anything that changes parties' legal rights. For example, saying, "This contract is contingent upon a satisfactory appraisal or satisfactory inspection," changes the buyer's rights under the contract and may be viewed as the unauthorized practice of law. That's a no-no.
Statutes of Limitations in Texas (cont.)
One-Year Limitation Period: Malicious prosecution, libel, slander, or breach of promise of marriage not later than one year after the day the cause of action accrues Two-Year Limitation Period: Trespass for injury to the estate or to the property of another, conversion of personal property, taking or detaining the personal property of another, personal injury, forcible entry and detainer, and forcible detainer not later than two years after the day the cause of action accrues Four-Year Limitation Period: Specific performance of a contract for the conveyance of real property, penalty or damages on the penal clause of a bond to convey real property, debt, fraud, or breach of fiduciary duty
Express contracts
Oral and written contracts where parties explicitly state or "express" their intentions and their expectations regarding the contract and the exchange of promises.
Examples of Unilateral Contracts
Party A makes a commitment and Party B accepts this commitment. This contract is completed or fulfilled when Party A has carried out the commitment. There is nothing Party B must do to execute such a contract. Party A does not have to agree to the contract openly or explicitly. Instead, Party A agrees to the contract by carrying out the action specified in the contract.
Obligations and Rights
Performance has to do with the parties' ability to carry out their obligations and rights. Both the buyer and the seller have obligations and rights under the contract. A lot of the obligations must be accomplished within a certain time frame, often within a certain number of days after the effective date of the contract. It is important that license holders keep their clients informed as to what their obligations are as well as attempt to prevent the client from being in default of the contract.
My Advice? Don't Advise
Remember that the client must make the decisions. Agents can give their options but can never tell a client what to do. Agents provide information while clients make decisions
TREC Rules Section 537.11
So many legal mistakes can be made when dealing with contracts. So, let's go over Section 537.11 of the Texas Real Estate Commission's Rules. This section is titled Use of Standard Contract Forms and will outline how a license holder is allowed to use contracts. (a) 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 (the Commission) for that kind of transaction with the following exceptions: Promulgated form exceptions: 1. transactions in which the license holder is functioning solely as a principal, not as an agent; 2. transactions in which an agency of the United States government requires a different form to be used; 3. transactions for which a contract form has been prepared by a principal to the transaction or prepared by an attorney and required by a principal to the transaction; or 4. transactions for which no standard contract form has been promulgated by the Commission, and the license holder 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 (the committee) and made available for trial use by license holders with the consent of the Commission.
Withdraw Without Termination
Sometimes, one or more of the parties involved in a contract want to withdraw from it without actually terminating the contract. In cases like these, the contracting parties have the option of transferring their rights and duties to a third party. The transfer of rights to a third party is known as assignment. The transfer of duties to a third party is known as delegation.
What Does E-Sign Mean For the Statute of Frauds?
The Electronic Signatures in Global and National Commerce Act (ESIGN) was signed by Congress in 2000 to regulate e-signatures in interstate and foreign transactions. And while this particular law is at the federal level, every state has at least one state law dealing with e-signatures. ESIGN states that: (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.
How long does an agent have to deposit the earnest money once a binding contract has been negotiated?
The earnest money must be deposited by the close of business on the second working day after execution of the contract by the principals, unless a different time is agreed upon in writing by the principals to the transaction. [Rule 535.146(b)(3)]
Parol Evidence Rule
The parol evidence rule prevents a party to a written contract from presenting additional evidence that adds to the written terms of the contract. The contracting parties have made their agreement to a single and final writing, and evidence of past agreements or terms should not be considered when interpreting that writing, as the parties ultimately decided to leave them out of the contract. In other words, you can't use evidence made prior to or after the written contract to contradict the writing. Whatever is in writing is what will be accepted in court.
Validity of a Title to Real Estate
The phrase "validity of a title to real estate" may not be familiar to everyone. Allow me to explain. In Texas, each time ownership is changed from one person to the next, documents are placed in the county records to indicate the previous owner and the current owner. This is done to prevent someone from selling a property that they don't own. License holders need to always recommend that buyers get an abstract of title and title insurance policy before purchasing the property. It's all the more important if the license holder suspects that the seller is trying to sell something that they do not own.
Performance:
The responsibility of all the parties to carry out their part of a contract
Statute of Frauds
The statute of frauds requires that: Specific contracts be in writing Signed by all of the parties who are bound by contract This includes sales contracts, commission agreements, listing agreements, buyer's rep agreements, property management agreements, etc. The purpose of the statute of frauds is to ensure that all of the parties have the terms of their agreement readily in hand. By having a copy of their agreement, any disputes that arise can be easily resolved.
Novation
The substitution of a new contract for an existing contract, relieves the original party of liability
When Does an Offer Become a Contract?
There are four conditions that need to be met for the offer to become a valid contract: It must be in writing. It must be signed by all parties. All changes (if any) must be initialed by all parties. The agent obtaining the final initials (approval) must communicate (preferably in writing) the fact that they have written acceptance. Once all of those conditions have been met, the offer then changes into an executory contract. And the date this happens is the effective date in the contract.
Owner-Provided Contract Forms
There is, however, one exception to this rule. When it comes to contracts for property sales or leases, license holders must use the appropriate TREC-promulgated form UNLESS another contract form has been prepared by, and is REQUIRED by, the property owner. It's important to note that in this instance, the property owner must require the use of their own contract form (or a contract prepared by their attorney) in order for a license holder to be excused from using the appropriate TREC-promulgated form. If a property owner does NOT require their own contract form (or a contract from their attorney), then the license holder is still bound to use all TREC-promulgated forms required by the transaction.
Elements of mutual agreement:
There must be an offer and acceptance There can be an offer and a counteroffer The contract must not contain any form of fraud, misrepresentation, or duress There cannot be mistakes in the terms and conditions of the contract
Short Sale Addendum
This addendum creates an agreement to allow a purchaser to put up their earnest money and option money and then wait for the sellers' lender to approve the short sale prior to proceeding with further performance. The effective date of the contract is amended to the date the buyer receives notice from the seller that the lender has approved the short sale.
Addendum for Back-Up Contract
This addendum is used when the seller's property is already under a valid contract, but the seller wants to negotiate a "back-up" contract with another buyer in case the first one does not close.
Third Party Financing Addendum
This common addendum creates a financing contingency for the purchaser on the contract for a limited period of time.
lawful objective
This means that the contract cannot call for any illegal activities. When a contract contains lawful objectives, it takes all necessary laws and statutes into consideration.
TREC Rules Section 537.11 (cont.)
To add factual statements or business details, the real estate commission has included the paragraph called "Special Provisions," which is a nice blank area to put information that is not covered somewhere else. However, even in this area, the license holder should only put what the principal directs them to do. And even then, the language should be created by an attorney.
Quitclaim Deed
Transfers ownership of whatever the grantor owns but make no guarantee of ownership and no promise to defend
Duress
When a party is acting while under threat or in some manner is being forced into the contract
Withdraw Without Termination (cont.)
When these duties and rights are transferred (or assigned) to another party, the party who originally assumed the contractual obligations usually remains secondarily liable for the terms in the contract, unless the original party is expressly released from those duties. This means, if the individual to whom the rights and obligations are transferred fails to fulfill those obligations, then the other parties to the contract can demand performance from the original party.
Quitclaim Scenario
When would a quitclaim deed be needed? A quitclaim deed transfers ownership of whatever the grantor owns, making no guarantee of ownership and no promise to defend. Some of the most common scenarios in which a quitclaim deed is needed is when a title search shows that an ex-spouse needs to sign away any claim to a property. Another common scenario is when the property was inherited by the current owner, but other members of the family might have claim to the property. The title company would have each one of those relatives sign a quitclaim deed to "quit any claim" they might have to the property. The title company will not issue a title insurance policy until this is done and the lender will not offer a mortgage until there is a title insurance policy in place.
The Doctrine of Laches
While the Statute of Limitations is codified in the books and can vary by state, the Doctrine of Laches is based on legal common law. This pretty much means that it's up to the discretion of the judge whether or not the plaintiff provided an "undue delay in seeking relief." The Doctrine of Laches is based on the idea that the courts should NOT help people who take an inordinate amount of time to raise their claims, whether that time is specified in codified law or not.
Addenda
are materials added to and included in the initial contract that provide more information on the transaction. It is important to include any information regarding the transaction in the contract. When a dispute goes to court, the court is bound by the Parol Evidence Rule. This rule prevents a party to a written contract from presenting additional evidence that adds to the written terms of the contract. The court can only consider what is inside the contract from the beginning to end of the contract. Legally, it does not matter what sellers said they would leave or what they said they would fix. If it is not in the contract, it cannot be considered. License holders must make certain any verbal agreements between the parties are also in the contract.
Unenforceable Contract
as all the essential elements to a contract, but cannot be enforced by court due to a technicality of law (such as statute of limitations).
To transfer contract obligations without necessarily relieving the original party from obligations, you need a(n)
assignment
voidable
contract has all of the essential elements of a legally enforceable contract, but one or more of the parties has the authority to rescind the contract. Usually, in a voidable contract, one party is either mentally incompetent, or a minor, or the contract involves fraud or duress.
void
contract means that the contract has no legal effect. In essence, it cannot be enforced or carried out because the terms of the contract do not create legal rights or the terms call for illegal acts.
