Section 7: Duties and Disclosures to Third Parties in Texas

A party who is involved in a transaction, but who is not your client, is ______.

A third party

Which of the following provides a summary of the title history?

Abstract of title

You are the listing agent for Daryl and Sandy Jordan, who are selling their three-bedroom ranch. Sandy has accepted a new job in another state, they have already purchased a home there, and they are anxious to sell their Texas home. You are hosting an open house, when Katie, a potential buyer, approaches you. After introducing yourself and indicating that you are an agent for the sellers, Katie says "Love, love, love this house. It's a little pricey for me though - about $20,000 over my budget. How motivated are the sellers?" Elbowing you in jest she adds "Think you can get me a deal?" You imagine how happy the Jordans will be when you tell them you finally have a buyer. What is the best way to respond?

"As the seller's agent, I am not free to disclose that information, but I will submit all offers to them, and we can take it from there."

Jason is selling his home and has enlisted Rebecca as his listing agent. He's giving Rebecca a tour of the house and pointing out all the features, even the spot in the attic where a previous owner's ghost likes to come back and visit. Jason asks Rebecca what buyers should be told about this. Which response is best?

"Hauntings are considered a material fact in the state of Texas and must be disclosed. "

While conducting the open house for the Schwartz family, another potential buyer approaches you and says "I heard that the guy next door died of AIDS. Is that true?" How should you respond?

"I'm sorry, as a real estate professional, fair housing laws prohibit me from answering questions of that nature."

Initiate a quiet title suit

-A cloud has appeared on the title and, as the owner, you want to remove it. -A cloud has appeared on the title to the property you own and want to sell. You need to locate a person who may have some claim on the title and obtain a document from that person to prove that a debt, for instance, has been paid or corrected.

Disclose with Seller Permission

-Accident -Death/suicide

Purchase title insurance

-As the buyer, you want to protect yourself before the sale. -As the buyer, you want to be reimbursed after the sale if a title issue does arise.

When Is a Disclosure Not Required?

-By a mortgagee or beneficiary under a deed of trust -In a bankruptcy -Between spouses under a divorce or legal separation -Under a court order or foreclosure -From one co-owner to another co-owner or co-owners

Schedule of Exceptions

-Claims made known on the public record -Claims made by persons granted ownership on an unrecorded deed

Physically Stigmatized Properties

-Environmental hazards can cause a physical stigma. -Lead-based paint, radon, and EMFs are examples of conditions which can result in physical stigmas.

Do not disclose

-HIV or AIDS-related illness

So now you know why you are required to disclose material facts, but how can you actively gather information about a property's material facts without acting outside of the scope of your expertise?

-Have the seller complete disclosure/disclaimer forms -Gather listing information -Review the property's survey data to verify its accuracy -Verify the seller's information by checking public records

What Things Need to Be Disclosed

-Hazards on the property, such as asbestos, radon gas, lead-based paint, etc. -The property's type of water supply -Defects or malfunctions in the basement, foundation, or other structural components -Zoning violations, non-conforming uses, or violations of building restrictions that might affect the property

Identifying Third Parties

-If you're the seller's agent, the buyer and the buyer's agent are your customers and third parties. -If you're the buyer's agent, the seller and the seller's agent are your customers and third parties. -Unrepresented buyers are customers and third parties, too. -Lenders, appraisers, and other service providers are not customers, but they are third parties.

Mitigating the Effects of Title Issues

-Initiate an action to quiet title -Purchase title insurance

The TAR Seller's Disclosure Notice concludes with several notices to the buyer. Review each item and identify whether it is part of the additional notices to the buyer.

-List of providers that currently provide service to the property -Information about property located in a coastal area that is seaward of the Gulf Intracoastal Waterway -Link to a database that contains information about the location of registered sex offenders -Encouragement to the buyer to have a property inspection done

Suppose you are an agent representing the seller. Which of the following duties are owed to other parties in the transaction?

-Make clear whom you represent -Disclose all material facts -Advise buyers to have title abstract examined -Behave honestly and fairly -Provide signed copies of documents

Disclose

-Murder -Haunting -Burglaries, drive-by shootings

Which two forms of title evidence are used in Texas?

-Owner's title insurance policy -Abstract of title with attorney's opinion

Information That Must Be Disclosed

-Previous roof repairs or replacement -Previous foundation repairs -Past or current pest damage

The Texas Seller's Disclosure of Property Condition Law requires certain actions of sellers. Which of these does the law require?

-Sellers must disclose any known material defects about the property to a prospective buyer. -The seller must deliver the disclosure notice to the purchaser on or before the effective date of a sales contract for the property. -Sellers of single-family residential properties must complete a property condition disclosure.

Types of Title Insurance Policy Coverage in Texas

-Standard coverage is the most common level of coverage, but the other is endorsements, which are modifications to the standard coverage policy. -Standard coverage insures the buyer against defects that may exist, but may or may not have been discovered or disclosed when the title is transferred to the buyer. -Standard coverage does cover encumbrances or liens that were attached, created, or filed before the deed was recorded. -Lenders can require buyers to obtain more coverage than what is provided under a standard coverage policy. -Endorsements cover additional risks (exceptions) that may only be discovered through inspecting the property, asking questions of the person in actual possession of the property, or examining an accurate survey.

Bottom line, the seller must be honest. What if the seller did, in fact, know the roof was damaged, but she stated it wasn't? Which of these options

-Terminate the agreement and ask for a refund of earnest money. -Ask the seller to make necessary repairs and/or provide a credit to the buyer. -If the transaction has already closed, sue the seller for breach of contract or fraud.

Stigmatized Property

-The presence of ghosts must be disclosed to third parties. -Sellers must disclose whether the property was the site of a homicide. -Disclosing that a previous owner or resident had HIV or AIDS is a fair housing violation.

A Closer Look at the Title Search Documents

-The purpose of the title search is to collect evidence that the title is a marketable title, meaning it's clear and free of encumbrances. -Normally, the seller's attorney prepares a new deed for closing, based on the seller's old deed. -For a title to be clear, the chain of title must be unbroken. -The policy only protects the insured against title defects existing at the time the title is transferred. -Prior to closing, an attorney should update the abstract of title, if one is used, and provide a written certificate of title opinion that the title is clear, only after reviewing the title records thoroughly and verifying there are no title defects.

When the seller and buyer sign and date the disclosure notice, what are they acknowledging?

-The seller is acknowledging that the statements made on the form are true to the best of the seller's knowledge. -The buyer is acknowledging receipt of the statement. -The seller is acknowledging that no one, including the broker(s), has told the seller to provide inaccurate information, or to omit anything.

Title Commitment in Texas

-The title commitment is an agreement by a title insurer to issue the final title insurance policy on a specific piece of property once the final settlement on the property has occurred. -The title commitment process begins as soon as the property goes under contract, when the real estate agent delivers a copy of the sales contract to a title company to begin the title search. -The seller has 20 days to deliver a "commitment for title insurance" to the buyer. -The delivery date is automatically extended up to a maximum of 15 days. -The commitment that the title company issues is a statement of the terms and conditions under which the title insurance underwriter is willing to issue the title policy and not the actual title insurance policy.

Title Issue Problems

-Title issues put ownership in question. -Title issues can cause financing difficulties for a prospective buyer. -Title issues can make it difficult to resell a property later.

In addition to disclosing specific information about the condition of the property and its systems, the TAR Seller's Disclosure Notice also asks the seller to provide additional information. Review each item below and identify whether it is information the seller is asked to provide.

-Written inspection reports by licensed professionals over the past four years -Any claims filed against the property -Survey of the property -Proceeds received from a claim that were not used to repair the property damage -Tax exemptions that are currently being claimed for the property

Why Bother About Material Facts?

-You are required to disclose all known material facts. -Licensees are required to gather material facts, but not perform inspections. -It is against the law to hide a material fact from a buyer, even if your seller client asks you to.

How many days does the Texas seller have to deliver a "commitment for title insurance" to the buyer under the terms of the TREC One To Four Family Residential Contract (Resale)?

20

Which of the following may be considered a stigmatized property?

A home where a homicide, suicide, or haunting occurred

Good and Indefeasible vs. Marketable

A marketable title is free from any claims, but a good and indefeasible title insures that if there is a superior claim against the title, that claim can be defeated, voided, or otherwise set aside.

Which of the following statements correctly identifies what the seller must include in the disclosure notice per Texas law?

Any actual knowledge of latent defects

What Is a Material Fact?

Any fact that would influence the buyer's decision to purchase the property, purchase it at a certain price, or with certain conditions

Leasehold

Assures a lessee (tenant) that their lease is valid.

Owner's policy

Assures the buyer that the title is as stated and provides for reimbursement up to the purchase price.

Can You Answer These Questions?

Did that other couple that was here make an offer?

Monica is a listing agent who is in the process of gathering material facts about her client's property. She has had the seller complete the disclosure/disclaimer form, she has checked the public records to verifying the seller's information, and she has reviewed the survey data. What else should Monica do?

Disclose any material facts she discovers when gathering listing information.

Chip is a residential and commercial agent. His friend asks him to list his cattle ranch for sale, but Chip's never listed an agricultural property before. How should Chip handle this listing so he can still work for his friend but also not work outside his area of expertise?

Disclose to his friend that he's not an agricultural expert and ask his friend's permission to work with an agricultural expert in his firm.

Glenda's lender is requesting __________________ to the standard coverage on her title insurance policy to cover any additional risks that may appear down the road.

Endorsements

Certificate of sale

Ensures the purchaser's interest in a property sold under a court order.

Chain of title

Establishes path and proof of ownership

Let's assume a buyer in a full disclosure state received the disclosure form from the seller, who reported she wasn't aware of any material defects with the property. However, an inspection uncovered some hail damage to the roof. The seller was unaware of this defect. What's true about this situation?

Even though the property's already under contract, the buyer can ask the seller to make necessary repairs and/or provide the buyer with a credit to cover the cost of repairing the roof.

Licensees can gather material facts by having the seller complete the TAR Seller's Disclosure Notice, verifying seller information by checking public records, ___________________, and reviewing survey data.

Gathering listing information

Which of the following would cause a property to be psychologically stigmatized?

Ghosts or paranormal activity

Although the information provided in the TAR Seller's Disclosure Notice is believed to be true and correct, buyers are encouraged to ______.

Have an inspector of their choice inspect the property

When a property has been the site of a meth lab, which of the following is true?

Hazardous chemicals can remain in the home.

Lisa purchased an older home with a large backyard that's perfect for her pack of collies to romp in. Six months after she bought the property, a total stranger knocked on her door and told her he's the true property owner. After investigating, it turns out the person who sold Lisa the property had forged the deed without the true owner's knowledge. What's true about Lisa's situation?

Her title insurance policy may protect her from loss.

Not wanting to cause the sellers or mortgage lenders unnecessary concern, Gwen, the buyer's agent, wasn't exactly forthcoming about a slight change in her client's financial status that her client had shared with her in confidence. Which duty to the customer is Gwen violating?

Honesty and fair dealing

Which of the following duties are owed to customers and other parties to a real estate transaction?

Honesty and fairness

You are the listing broker for the Schwartz family. There is a sign over the door with the family's last name, and their family crest is displayed in the living room. Numerous conversations with the sellers have revealed to you their pride in their German heritage. At the open house, a potential buyer approaches you and says, "Schwartz. That's a German name, isn't it? Are the people selling this home from Germany?" How should you respond?

I'm sorry, as a real estate professional, fair housing laws prohibit me from answering questions of that nature.

Sam has had bad luck with his rental property. The first tenant never paid the rent and Sam had to evict them. The second tenant was discovered to have been operating a meth lab in the home. Which of the following is true?

If Sam resells the home, he is required to disclose this information.

Which of the following is true of a material fact?

If known to the buyer or seller, it would likely influence the buyer or seller's decision.

Title insurance policy

Insures the policy owner against financial loss if the title to the real estate has defects

As a seller's agent, which of the following would you be prohibited from answering?

Is this a family neighborhood?

Tom and Rosanne are interested in a property, but before making an offer, they want to make sure there aren't any registered sex offenders living in the neighborhood. Which statement is most accurate?

It's up to the buyer to perform due diligence and research whether sex offenders live in the area. Licensees can direct clients to the state's registry.

An inspection of the house did not mention the roof leak that your seller client told you about. What do you do?

Make sure the roof leak is disclosed to all parties.

Kathy is a buyer's agent. Which of the following would be a prohibited disclosure to a third party?

My client is willing to pay top dollar for the ideal home.

Jamie is a listing agent. Which of the following statements would constitute a prohibited disclosure to a third party?

My seller is willing to go as low as $300,000.

Who is responsible for disclosing the location of registered sex offenders?

Neither the seller, listing agent, nor the broker

As we know, nothing in life is free, and that includes title insurance. How often is the policy owner required to pay for title insurance?

Once

Pat is the listing agent for a home next door to the home of a registered sex offender. Which of the following is a true statement?

Pat can disclose this information, but is not required to do so.

Which of the following items is mentioned in the disclosure notice as a requirement of Chapter 766 of the Health and Safety Code?

Properly installed working smoke detectors

Sandra has a listing which is physically stigmatized. Physical stigmas can impact marketability and ________________.

Property values

Survey

Proves that no encroachments exist with the property

Abstract of title

Provides a summary of the title history

Janice has hired you as her listing agent to help her sell her "old, creepy, haunted" Victorian, as it is known in the neighborhood. In fact, the house is haunted. Janice herself swears she has encountered ghosts on many occasions, but it's never bothered her. She's not so sure there is anyone else in the world who will feel the same way. Which of the following is true?

Psychological stigmas can either negatively or positively affect a property.

What can buyers do to protect themselves from title issues when purchasing property?

Purchase title insurance

A Story with a Title

Rebecca is purchasing a house from the Smiths. She has obtained financing, and her lender requires her to have title insurance. The company she selects conducts a title search to ensure that the title to her new home is marketable. Rebecca is extremely relieved when the title company provides a commitment, indicating the title insurance underwriter is willing to issue the title policy.

As a licensee, you're helping a couple buy a new home when you come across issues that could mean there's a cloud on the title. What should you do?

Recommend the couple find another property to purchase, or ask the seller to settle the title through a quiet title action to clear any cloud before moving forward with the sale.

Margaret is meeting with James and Cindy, potential buyers of a property listed by one of Margaret's colleagues. They're in Margaret's office preparing their offer when James says, "The only thing that bothers me are those black spots on the bathroom ceiling. Do you think that could be the bad kind of mold? It's not dangerous, is it?" What should Margaret do?

Refer James and Cindy to a qualified mold professional

As a licensee, when questions arise that are outside of your scope of expertise, what should you do?

Refer clients and customers to a competent professional in that field.

Jim is meeting with a client at a listing. There are wood shavings outside the basement window. The client asks Jim if they mean there are termites in the home. What would be an appropriate response?

Refer the client to a qualified pest professional.

Mortgagee's policy

Reimburses the lender from any loss that might occur due to problems with the title up to the current outstanding loan balance.

What is a Psychological Stigma?

Relate to events which have occurred or are believed to have occurred on a property, but have no physical impact on the property or its occupants. Deaths, accidents, murders, and alleged hauntings are all examples of events that can cause a property to be psychologically stigmatized.

Susie is a licensee accompanying her buyer client, Jeff, to an open house. The seller's agent approaches her and introduces herself. "Hi, I'm Helen, the listing broker, representing Elite Realty." Susie shakes her hand and says, "Hello there. I'm Susie. Great house! I was just talking to Jeff here about all that great closet space. And that backyard is to die for! Jeff has three dogs, so he's very excited about that." What, if anything, has Susie done wrong?

She has not identified herself as the buyer's agent.

What is the process an insurance company uses to "go after" the responsible party on a claim it paid, and seek reimbursement on that claim from that responsible party?

Subrogation

A buyer who discovers after closing that a seller wasn't honest about the property condition on the required disclosures can _____.

Sue the seller

If there are any concerns about a seller's honesty, or if a buyer wishes to have a more objective perspective on various physical condition issues, the buyer may want to ask the seller to obtain a CLUE report for the buyer's review before making an offer. What's the purpose of a CLUE report?

Summarize all insurance claims filed relative to the property within the last seven years

Marla's excited about closing on a cute lakefront cottage. But when she reads the report from the home inspection, she learns that the chimney leaks and that there is water damage in several places. This wasn't on any of the seller's disclosures. Which of these is the best option for Marla?

Terminate the agreement and ask for a refund of her earnest money.

Which of the following requires that sellers disclose material defects related to the condition of their property?

Texas Property Code

Which of the following is an example of a physical stigma?

The home has high levels of radon.

Hank has a new listing in a very chic downtown neighborhood. Which of the following would constitute a prohibited disclosure to a third party?

The house was owned by a single mom

A prospective buyer is curious why a previous owner is selling such a perfect home. The licensee knows that the previous owner recently died due to complications from AIDS. How should the licensee respond to the prospective buyer's inquiry?

The licensee can't disclose that a previous owner had HIV or AIDS.

When a property is physical stigmatized, what usually happens?

The marketability and value of the property are affected.

A physical stigma occurs when a condition exists which may physically affect ___________.

The occupants

Pam's property has been physically stigmatized based on a factual condition. This means a condition exists which could negatively impact ____________________.

The physical health of the occupants

Which of the following is an example of a material fact?

The seller would not have accepted an offer had the fact been known.

Paula is bidding on a property that's being sold at a foreclosure auction. She's excited about the great deal she's getting on the property after she finds out she submitted the winning bid. What could cause Paula's great deal to turn into a nightmare?

The title to the property may have hidden issues that could cost her a lot of money to clear.

Which of the following is true regarding physical stigmas?

They occur when a condition is believed to exist which may physically affect the occupants.

Your client, Ray, is worried about title issues that may arise after closing. Remind Ray of his secret protection: ______.

Title insurance

In a real estate transaction in which you represent the seller, your duty to other parties is to ______.

Treat them honestly and fairly

Cindy has gotten title insurance for the home she just purchased. She was able to put a small down payment on the home. What amount will the title insurance reimburse?

Up to the full amount of the purchase price

Deed

Used to establish proof of ownership and transfer title

As a licensee, which of the following questions from a potential buyer could you answer while staying within your scope of expertise?

What are the property taxes for this property?

Two days ago, Candice fell head over heels in love with a property she had just been shown and even though the seller's disclosure was not available for her to review, she placed an offer on the house, which the seller accepted. On a second viewing of the home, she noticed that the roof needed repair, and there were several sizable cracks in the foundation. She was having second thoughts, and when she finally received the seller's disclosure two days after making her offer, her worst fears were confirmed. Does the fact that Candice did not have visibility to the property disclosure prior to making her offer make any difference?

Yes. Candice has seven days from the time she receives the disclosure notice to terminate the contract for any reason.