LAW OF CONTRACTS EXAM
WHAT must be delivered to the seller or the seller's agent within three days after the effective date of the contract?
A check for the Option fee
If the buyer wants to make the contract contingent upon their ability to have environmental inspections of the property, the correct way to do that is:
Attach the Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum to the offer.
Which of the following represents a contract that would be considered both executory and voidable?
Al and Sue entered into a contract when Sue was intoxicated. The contract will close in two weeks. An executory contract is a contract which has NOT been completely executed or performed. Any contract made with a party who is NOT mentally competent is voidable.
Which of the following statements is TRUE regarding encumbrances?
All liens are encumbrances.
All of the following statements apply to express offer and acceptance EXCEPT:
Both parties agree to the offer but there will always be more price negotiations before the sale officially closes. When a party explicitly states that they accept an offer, this is known as express acceptance.
Kirpa and Tim are a married couple. Tim separately owns a property that both him and Kirpa live on for many years. Who will likely need to sign the deed at closing to sever homestead rights?
Both. When a married couple occupies a separate property (owned by just one of them), the non-owner acquires homestead rights. If the couple sells the home, the non-owner will also likely be required to sign the deed at closing to sever their homestead rights.
Brigit is an agent showing a house to Molly. Brigit knows the property's material facts have been disclosed, so she attempts to sell the property by drawing attention to the spacious family room and nice backyard view. Which of the following statements is TRUE?
Brigit can talk up the good qualities of the property (a little puffing is okay) as long as all the material disclosures have been made.
The buyer and seller closed on a property on June 17th. The tax bills will not come in until November. Who will receive and pay the taxes when the tax bill arrives?
Buyer
If a license holder put the client's earnest money into his/her own personal checking account he or she is guilty of:
Commingling
According to the TREC contracts, the title company (on behalf of the seller) will send what to the buyer within 20 days after they receive the signed contract?
Commitment for title insurance
WHAT loan programs are great for first-time homebuyers because they offer loan programs that focus on low down payments?
FHA & VA loans
Real estate sales agents may:
Fill in promulgated forms Use fill-in-blank forms
Aviv and Gregory are friends who are also parties to a real estate sale. They agree over a sale price verbally because they trust each other. As per the Statute of Frauds, which of the following is TRUE regarding the enforceability of their contract?
For their contract to be enforceable, it must be in writing AND signed by the party being charged. Contracts must be in writing and signed by the party to be charged to be enforceable.
Which instrument of conveyance provides the owner with the greatest protection?
General warranty deed
TREC is the governing body for all of the following real estate professionals in the state of Texas EXCEPT:
Mortgage Insurance Brokers
Which of the following would not normally appear on the closing disclosure?
Moving costs Moving costs are considered to be outside the real estate transaction, and will not be a consideration at closing unless negotiated into the transaction for some reason.
Commercial properties most commonly utilize which type of lease?
Net Lease
Which type of power of attorney is used for specific transactions?
Nondurable
The person proposing the contract is known as the:
Offeror
Fannie Mae and Freddie Mac participate in which of the following?
Secondary Mortgage Market (government-sponsored enterprises (GSEs) that participate in the secondary mortgage market)
WHAT specifies that the buyer will make payments to the seller and defines the terms of the property's seller becoming the lender?
Seller financing addendum
A seller stays in a property a few days after closing. They become the tenant and the buyer becomes the landlord. To put this in writing, utilize the:
Seller's Temporary Residential Lease
What allows the courts to identify a property with reasonable certainty?
The legal property description from the deed
During a contract for deed:
The seller hold the legal title to the property and the buyer is entitled to possession and equitable title to the property
What does it mean when a contract has lawful objective?
The subject of the contract adheres to all the necessary laws and regulations.
What is one limiting factor put on urban homesteads and rural homesteads?
There are limitations on size. (There are limitations on a homestead's size: urban homesteads have a 10 acre maximum; rural homesteads have a 200 acre maximum per family and 100 acre maximum per single person)
Eduardo made several changes to his contract. WHAT are these changes called and WHO must receive a copy of them?
These changes are amendments // the title company must receive a copy of them.
What does the title company do with the earnest money check?
They deposit it into an escrow account
A license holder can have their license suspended or revoked if:
They fail to use a contract form required by TREC
When a breach of contract occurs, the injured party has the right to force performance or sue for monetary damages, which include all of the following EXCEPT ______.
Transitional
An offer that does not describe the method and terms of financing but does state the price is:
Valid
In which type of lease does the base rent change?
Variable
To be enforceable in court, a sales contract must have:
competent parties
A buyer's offer is returned with two changes made. The proposed contract is now a(n):
counteroffer
What is novation?
creating a new contract to replace an old contract and relieve the original party from liability (Novation is an alternative to assignment.)
Lynn leases an apartment. She invites her mother and her friend, Gaby, over for dinner. Of the parties present, Lynn is responsible for:
damages caused by all parties present (Lynn, Lynn's mother, and Gaby)
With net leases, each added "net" requires a tenant to pay for an additional expense that may have otherwise fallen on the landlord. All of the following are expenses that could be paid under a net lease EXCEPT:
debt interest (Any lease that requires a tenant to pay rent, property taxes, insurance, and maintenance expenses is a triple-net lease.)
An unenforceable contract is one that has (or had) the potential of being a valid contract, but its enforcement is (or was) barred by some attribute of the contract or a technicality of law. Which of the following is NOT a law that could make a contract unenforceable?
doctrine of ratification (on the contrary: Some common causes for a valid contract being unenforceable are if a contract violates the statute of frauds, statute of limitations, or doctrine of laches)
If a buyer wants to show good faith, they can do it through presenting the seller with:
earnest money An earnest money deposit shows the seller good faith.
Yamina is taking out a VA loan. She will NOT be permitted to pay:
escrow fees In a VA loan, the buyer is NOT permitted to pay any escrow fees.
In Texas, a contract for deed, land sales contract, lease with option to buy, and lease purchase are all considered:
executory contracts
It is possible for two people to accidentally create a contract by their actions. What kind of contract is this?
implied contract
What does the Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum do?
it makes the contract contingent on the buyer obtaining certain acceptable environment inspections
Four investors agree to co-ownership of an investment property. They have arranged the ownership structure so that if one of them dies, the decedent's ownership stake passes to the remaining investors. What form of co-ownership do the investors have?
joint tenacy
Which of the following about the unauthorized practice of law and real estate contracts is TRUE?
license holders are able to complete (fill in the blanks of) real estate contracts promulgated by TREC but should NOT create their own contracts
When there is a breach of contract, the non-breaching party has the right to do all of the following EXCEPT:
nothing. B/C ***the non-breaching party can forfeit, rescind, sue for specific performance, or sue for compensatory damages.
Jasper and Aziz are engaging a real estate transaction. They want to make sure the interest being conveyed is officially and accurately recorded. What would they use to do that?
one of the sales contracts promulgated by TREC The six TREC-promulgated sales contracts describe the conveyance that the buyer and seller are agreeing upon.
License suspension or revocation, fines, and further education requirements are all:
possible penalties TREC may impose for violating the License Act
Savings and loan associations, commercial banks, and savings banks are all:
primary lenders (When a homebuyer goes to a lender to make a loan, the consumer is doing business with a primary lender.)
An example of voluntary alienation is:
property passing to a party according to a will A valid will is an instrument for voluntary alienation.
The Non-Realty Items Addendum is used to provide the parties to a contract a place to negotiate and agree to non-real estate items that may be:
purchased separately from the property The Non-Realty Items Addendum is used to provide the parties to a contract a place to negotiate and agree to non-real estate items that may be purchased separately from the property.
An orange tree (which is not moveable and is something growing on the land in question) would be considered:
real property Real Property is the land plus improvements on the land (including what's growing on the land).
Real estate loans are bought and sold on the:
secondary mortgage market
`The statute of frauds is a state law that requires certain types of contracts to be:
set out in writing and signed by all the parties bound by the contract
The One to Four Contract would be used in the sale of a:
single family home The One to Four Family Residential Contract (Resale) is the contract used for resale homes.
Emanuel is selling his home. When his listing agent presents offers to him, Emanuel cannot:
sue the agent if the offer is far below the asking price The seller is free to accept the offer as it is written, reject the contract altogether, or make a counteroffer to the buyer (which is considered a rejection of the original offer).
Sellers utilizing the Seller Financing Addendum and acting as a lender should:
take the precautions a lender does when an institutional loan is made, such as asking for a buyer's credit report Just like any other lender, a seller providing seller financing has the right to check a buyer's creditworthiness.
Which of the following about tax lien priority is TRUE?
tax liens take priority over non-tax liens Taxing entities take priority over those that are in the public records. The IRS gets their money first, then real estate tax liens are settled, and then (if any) the mechanic's tax lien is settled.
A breach of contract occurs when:
terms or conditions of a contract are violated and a party does not perform
Sharkari owes $23,000 on a first lien mortgage and $13,000 on a second lien recorded just a few weeks ago. Her property goes into foreclosure. Which sum will be paid off first?
the $23,000 because it was recorded first In general, liens are prioritized by the date that they are recorded.
A promissory note is:
the borrower's personal promise to repay the loan to the lender
Leases for a period of longer than one year must be in writing to be enforceable. A financing contingency clause requires that:
the buyer get approved for a loan before being able to complete the purchase of a home (A financing contingency clause, also called a mortgage contingency, requires that the buyer get approved for a loan before being able to complete the purchase of a home.)
What is eminent domain?
the power of the state to seize a citizen's private property or rights in a property WITH compensation but without the consent of the owner (prop taken for gov. use
After a tenants moves out of their unit, the landlord has HOW MANY days to mail them their security deposit as per WHAT code?
30 days as per the Texas Property Code Landlords must mail a tenant's security deposit within 30 days of the tenant moving out of the residence.
A seller's homeowner's insurance policy is cancelled at the time of closing. They will receive WHAT after closing for the part of their premium that was paid in advance?
A refund check
A buyer decides to terminate the contract during his option period. He will submit the Termination of Contract notice to the seller and will be entitled to:
A refund of the earnest money
What makes a contract legally binding, is defined as "something of value exchanged by the parties as evidence of agreement to the terms of a contract," and applies the legal philosophy that a person CANNOT do something of value without receiving something in turn?
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.)
Jackie is a license holder who creates her own real estate contracts because she wishes to save herself (and her brokerage) time and money. Jackie has good intentions; what is true of her (and other license holders like her who create their own contracts)?
Creating and drawing up contracts that transfer real property ownership is prohibited as it is an unauthorized practice of law.
Condominium owners:
DO own the interior of a residential unit
Money the buyer offers to deposit towards the purchase price of a property in order to show their serious intentions to the seller is known as:
Earnest Money
Geri is about to sign a buyer/tenant representation agreement with a client. Which of the following is FALSE about Geri and Geri's agreement?
Geri's client can be a party to as many buyer/tenant representation agreements as they like. Agents CANNOT enter into a buyer/tenant representation agreement with a client until they terminate their agreement with their current agent. These agreements should also be limited to a specific time period.
The leasing of bare, undeveloped land is carried out through a:
Ground Lease
Helder is a buyer who wants to breach his contract and back out of his sale contract. But he also doesn't want to lose money. Which of the following is most TRUE of Helder's situation?
Helder will forfeit his earnest money if he backs out. If the prospective buyer backs out of the contract for reasons not stipulated or allowed in the contract, they have breached the contract and thereby forfeit their earnest money.
Joe is a real estate agent assisting a client with a promulgated form. The client does not agree with a few phrases in the form, so Joe strikes those phrases out. Which of the following is TRUE?
Joe should NOT have done that as agents may only fill in the appropriate blanks in a form or add their business details. In completing those forms, the agent may only fill in the appropriate blanks in the form or add their business details.
The statute of frauds states some leases must be in writing while others do not need to be in writing. Which of the following is TRUE?
Leases lasting for a term of longer than one year must be in writing.
ONLY a broker can enter into an agency relationship with a(n):
Principal (ONLY a broker can enter into an agency relationship with a principal (who may be a seller, buyer, landlord, or tenant).
A seller knows they need to correct a title defect when they convey their property. They will likely utilize a:
Quitclaim deed
What does RESPA stand for?
Real Estate Settlement Procedures Act
Land and everything growing on it or attached to it including, sheds, buildings, trees, and crops are identified as:
Real Estate and Real Property
Which of the following regarding personal and real property is TRUE?
Real property is land plus improvements on the land, so a house is an example of real property.
Which legal concept places a limit on the amount of time that an individual has to take legal action against another individual in order to recover any losses or damages?
Statute of Limitations
The requirement for certain contracts be in writing and signed by all of the parties to the contract is included in the:
Statute of frauds
The legislation code that governs real estate licensing today and the activities of licensed agents in Texas is the:
TRELA
Which of the following pieces of legislation do NOT affect the mortgage lending business?
TRELA
Which entity drafts and edits contract forms?
The Broker-Lawyer Committee
Who is responsible for writing commission checks to the brokers?
Title Company
What is an executed contract?
a contract in which all terms have been fulfilled by all parties
What is a statutory law?
a law formally created by legislatures
What is an estate for years?
a leased possession of property for a certain, specific period of time
A sale contract must include the minimum requirements for a valid contract as well as:
a legal property description
Who is allowed to require that a promulgated form is used?
a property owner OR a government agency A government agency can require the use of their own form instead of the TREC promulgated form. A property owner (principal) can also request a promulgated form be used.
What is the statute of frauds?
a state law that requires certain types of contracts to be set out in writing and signed by all the parties bound by the contract The statute of frauds is a state law that requires all contracts involving the transfer of real estate to be in writing, not ALL contracts.
A sale and leaseback agreement is:
a way for landowners to free up capital while maintaining the same overhead expenses
Though a title is not an actual document, it still signifies the:
actual ownership of a property
For an amendment to a contract to be valid, who must sign the amendment?
all parties involved
A seller should counter, accept, and respond to offers on their property:
as they see fit because they are not required to respond Offers on a property can be countered or accepted in any order by the seller.
Deeds, marriages and divorces, liens, and owners of record are a few of the things an examiner at a title company will look at to issue a:
title commitment An examiner at a title company will collect information to issue a title commitment.
What is implied agency?
when a party assumes consent to the relationship based solely upon inferences formed by the actions, conduct, and words of either or both parties.
Adverse possession is:
when a person develops legitimate ownership interests in another person's property through an openly hostile and continuous occupation of the land