Texas Real Estate Promulgated Contracts

Alienation Clause

A contract clause that gives the lender certain stated rights when there's a transfer of ownership in property. Full repayment of property when sold/transferred. (Often called a due-on-sale clause.)

Void Contract

A contract having no legal force or binding effect. Void translates to "absence of". Not legally enforceable at any point.

Unenforceable Contract

A contract in which the essential elements to create a valid contract are met but there is some legal defense to the enforcement of the contract. One that the courts will not enforce. Also unenforceable when it goes against statue of frauds.

Valid Contract

A contract is valid when all are met. Written agreement is legal, every item is completely agreed to, buyers and sellers are of correct legal age, nothing illegal or against public policy, all essential elements to a contract are included: Agreement, Consideration, Competent Parties, Legal Objective

Executory Contract

A contract that has not yet been fully performed. Contracts defers material action by either party into the future Any contract for deed, lease option or purchase option longer than 180 days is defined by the TX property code as an executory contract.

Voidable Contract

A contract that may be legally avoided at the option of one or both of the parties for different reasons.

Unilateral Contract

A contract that results when an offer can be accepted only by the offeree's performance. One side has all the rights but no obligations, while the other side has no rights but all obligations.

Misrepresentation

A false statement or lie that can render the contract void. An error.

Statue of Limitations

A law which states the length of time a person is allowed to bring a civil lawsuit or how long the state has to prosecute someone for a crime. If a person does not bring the lawsuit within the set time period, they may lose their right to do so forever. In Texas, written contracts have a statue of limitations of 4 years. Period begins from the day the contract was breached.

Lease option

A lease under which the tenant has the right to purchase the property either during the lease term or at its end. The buyer has the right to purchase but not the obligation.

Mediation

A method of settling disputes outside of court by using the services of a neutral third party, called a mediator. The mediator acts as a communicating agent between the parties and suggests ways in which the parties can resolve their dispute. Court action can still take place with this option.

Mutual Assent

Agreement to all terms of the contract by all parties to the contract

Elements of a Contract

Agreement, Consideration, Competent Parties, Legal Objective. Must meet all four elements to be valid and enforceable. All contracts are not required to be in writing but a contract for the purpose of real estate, must be in writing to be enforceable.

Environmental assessment, threatened or endangered species and wetlands addendum 28-2

Buyer, at Buyer's expense, may obtain an environmental assessment report prepared by an environmental specialist.

Litigation

An actual law suit. The process of taking legal action. Going to court, usually involves attorneys and research, most costly and time consuming option.

Specific Performance

An equitable doctrine that compels a party to execute the agreement according to its terms where monetary damages would be inadequate compensation for the breach of an agreement. Also an equitable remedy in which the court orders the contract to be performed as agreed to by the parties.

Implied Contract

An implied contract is an agreement created by actions of the parties involved, but it is not written or spoken. An implied contract is a legal substitute for a contract that is assumed to have been drawn.

Broker-Lawyer Committee

Formed by TREC. 6 attorneys appointed by the president of the State Bar, 6 brokers appointed by TREC and 1 public member appointed by the Governor- they write the Texas contract forms. Their purpose is to draft and revise contracts and forms for use by licensees.

Competent Parties

Must be 18, mentally competent, can not be temporarily incompetent.

Disclosure of Relationship with Residential Service Company

Not only with this service but any other that may be provided by the broker or a company that he or she may have a business relationship with, the broker must inform the buyers and sellers of any additional funds that the licensees will receive.

Forbearance

Not to do a certain act for consideration. Not performing.

Which docs are used to create seller financing?

Note and deed of trust.

Title Commitment Schedule A

Schedule A sets out the effective date of the commitment, the names of the insured's, the sale price, loan amount, the estate or interest in the land (fee simple, easement estate, leasehold estate, etc.), the name of the person/s in title at the date of the commitment and the legal description of the property under consideration

Title Commitment Schedule B

Schedule B informs the insured's of everything of record that affects the property such as restrictions, liens, oil and gas reservations, easements and so on, guarantees and ad valorem taxes are paid current through a designated year and in general, limits the liability of the policy to be issued

Title Commitment Schedule C

Schedule C informs the insured's of any requirement that must be met before a policy will be issued

Title Commitment Schedule D

Schedule D, according the State Rules and Regulation, is a disclosure of the officers of the Title Company and Underwriter and also discloses the premiums to be charged for the policy and the beneficiary of such premiums.

Open Discussion

Should be the first avenue taken in all disagreements. It usually involves both parties and the broker discussing the situation. Licensees should not try to settle a situation without the broker. A broker usually has training in dispute resolution If it doesn't work, mediation should be next.

forbearance

Special agreement between lender and borrower to delay a foreclosure. To avoid foreclosure. 2. Or not to do a certain act for consideration.

TREC

The Texas Real Estate Commission- 6 broker members and 3 public members- created to administer the provisions of the license act- they promulgate contract forms for licensees

Who passes and changes all laws concerning real estate in Tx?

The Texas legislature. TREC is in charge of regulating those laws in order to protect the public.

Reasonable Time

The amount of time which is fairly necessary, conveniently, to do what the contract requires to be done, as soon as circumstances permit. Is considered when in the absence of an expressed time established by the parties to an agreement of contract, anytime which is not completely unreasonable under the current circumstances. For ex: if a contract does not require a specific time for performance, the courts will determine a reasonable time for such performance. The reasonableness and unreasonableness of time used or taken by the party can only be determined by a court of law.

Metes and Bounds Survey

The metes and bounds survey measures the perimeter of a piece of land. The property is determined relative to a monument. (A monument is defined as a landmark that is used for a point of reference) A monument is any prominent existing object such as: a large rock, an old tree, a fork in a creek or the intersection of two roads. Metes

Point of beginning (POB)

The starting (and ending) place in a land survey using the metes-and-bounds method of property description.

Novation

The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated. So many changes were made that a new contract had to be made to replace old one. Still keep old one in file.

Discharge of Contract

The termination of a contractual obligation on court orders (via an order of discharge) or mutual agreement (see Accord And Satisfaction), or caused by breach of contract, frustration of contract, performance of contract.

Where does the property address go on the forms?

The top of each form except the first page of one to four family.

Under the Influence

Use of power.

Two types of consideration

Valuable consideration - something of value Good consideration - "Love and affection"

Liquidated Damages

damages that parties to a contract agree in advance should be paid if the contract is breached

OP-C Notice to Prospective Buyer

his notice acknowledges that the buyer has been advised by a license holder to have the abstract covering the property examined by an attorney or to obtain a title insurance policy. It also gives information regarding statutory notices that are required if the property is in a Utility District.

Contract

is a voluntary binding agreement between legally competent parties to perform or refrain from performing some legal act, supported by legal consideration.

Executed Contract

is one that has been fully performed and not other obligations remain. For Ex: closing day, all docs signed and buyer pays for property and seller delivers deed. Also, could be when a party signs and initials last counteroffer during negotiations and every term in contract is agreed to.

Performance

is the fulfillment or accomplishment of a promise, contract or obligation to its terms.

A mortgagee policy of title insurance

issued to the LENDER on real property insuring that the title is "good and marketable". The insurance will protect the lender from any defects to that title that were not disclosed on the title commitment.

Owners Policy of Title Insurance

issued to the buyer and protects the buyer

Legal Objective

lawful intent - the objective of a contract must not be illegal or against public policy

Free and Clear Title

means that the property can be sold and there are no encumbrances on the property. The problem with this is that almost every property sold has a utility easement. The easement creates an encumbrance. It is normal in the real estate industry to use the term "free and clear". We mean that the property owner has no liens on the property. If you were to tell a buyer (now owner) that the property is "free and clear" and it was not because of an easement you would be liable for clearing off the problem or compensating for the difference, neither are good options.

Arbitration

settling a dispute by agreeing to accept the decision of an impartial outsider. Arbitrator listens to both parties of situation, make a decision. This is binding and court action can not be pursued.

Consideration

something of value exchanged for something else of value.

Duress

the use of force or threats to compel someone to act in a certain manner; coercion

TRELA (Texas Real Estate License Act)

In 1939 the legislature passed the Real Estate Dealer's License Act, which required real estate agents to obtain licenses. This act was administered by the secretary of state until 1949, when the Texas Real Estate Commission assumed the administrative. Changed then to TRELA. License holders are governed by TRELA. The main purpose is to protect the public from unscrupulous licensees.

Title Officer

In Texas, this is the person who typically conducts the closing. The title officer is a neutral third party who ensures that all conditions of a real estate transaction are met. These people handle all of the paperwork involved in the closing of the transaction. These people handle the figuring and transferring of funds.

Parol Evidence Rule

Is a common law (passed down from judges to juries in the past) that prevents a party to a written contract from presenting oral evidence that contradicts or adds to the written terms of the contract that appears to be whole. Can't use verbal statements, it must be in writing.

Express Contract

Is a legally binding agreement. The terms for which are all clearly stated either orally or in writing.

Equitable Title

Is an interest that the buyer receives when the seller and buyer agree to a contract. Seller retains legal title until closing but the buyer has an equitable interest.

The T-47

Is the disclosure statement by the seller that states no changes have been made on the property that could affect the survey.

Option

Is when the buyer and seller agree that the buyer would have a time period after the contract is accepted by both parties that would allow the buyer to terminate the contract without recourse. The buyer pays a fee for this and must be delivered within in 3 days after the effective date of contract. Paragraph 23 of one to four family contract resale.

Title Commitment

Issued prior to closing to describe the items on the title policy which will be issued after closing. A title commitment is a commitment by the title insurance company to issue a title insurance policy upon satisfaction of the conditions set forth in the commitment. A title insurance policy insures a lender or a property owner against defects in title and/or challenges to their interest in the property.

Who pays for title insurance?

It's negotiable.

Good And Marketable Title

Means the property can be sold, it's salable.

Bilateral Contract

"Bi" means two, must have two parties, both parties have rights and obligations. Most real estate contracts are bilateral.

When offer is made, owner has 4 choices, what are they?

1. Accept the offer, which would then make offer a contract. 2. Offer could be rejected 3. Counteroffer 4. Fail to act (as long as buyer knows it). Buyers have the right to withdraw their offer any time prior to seller's acceptance.

Seller's Disclosure Notice

A notice required of most sellers of real property, required by Section 5.008 of the Texas Property Code, to disclose the condition of their property prior to the execution of a contract for the sale of the property. It is not a promulgated form but it does meet the legal requirements. TREC has a 3 page form and TAR has a 5 page form. Disclosure of any negative items about the real estate and improvements that may cause the buyer some concern. Owner has further obligation to disclose any environmental hazard. Other disclosures include: Asbestos, carbon monoxide, electromagnetic fields, groundwater contamination, lead-based paint, Mold, PCB's, radon gas, underground storage tanks, urea formaldehyde, waste disposal sites and presence of endangered species of animals and plants.

Time is of the Essence

A phrase in a contract that requires the performance of a certain act within a stated period of time. General rule is that time is not of the essence unless contract expressly so provides. TREC believes a contract should use reasonable time and NOT time is of the essence.

Plat

A plat is a subdivision map filed with the county recorder's office that shows the location and boundaries (lot and block number) of individual parcels of land. Lots and blocks are assigned numbers or letters. A plat is a survey of property that describes the dimensions and location of the property, street right-of-way, and easements. A plat also establishes the lot, block, and subdivision name used in real estate transactions. Plats must be prepared and sealed by a Registered Professional Land Surveyor. Once recorded the description in the subdivision plat will prevail over a competing metes and bounds description in the event of a conflict.

Rescission

A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made. In the termination of a real estate sales contract that includes earnest money and returns the contract's parties to their original position before the contract (status quo), including return of the earnest money.

Township

A square normally 6 miles on a side. Six miles square and contain 36 square miles. The Land Ordinance of 1785 divided much of the United States into a series of townships.

Survey

A survey is a professional analysis of a property and its location relative to other property. A survey includes the total area of the land showing all boundaries and elevations. Surveyors complete the surveys in accordance to specific procedures

Rectangular Survey System

A system used to divide public domain lands in the United States in which land is divided into 6-mile square townships and subdivided into sections, portions of sections, or irregular lots. Also referred to as Public Land Survey System.

Allocation of customers

A violation of the Sherman Anti-trust Act and TRELA. Is the division of customers based on location, income or any other factor that limits the ability to compete for customer interest. For EX: when 2 brokers in a small town or service area agreeing that any buyer or seller on one side of the "tracks" is exclusively one brokers clients and the other broker refuses to compete for that business.

Boycotting

A violation of the Sherman Anti-trust Act and TRELA. It is the active elimination of a third person or group from participating in free commerce. For EX: it would be when two or more real estate companies, refuse as a group, to show and sell another real estate company's listings.

Price Fixing

A violation of the Sherman Anti-trust Act and TRELA. It is when 2 or more brokers work together to conspire to charge a higher and the same commission in order to make more money. This would hinder any competition which is against public policy in a free capitalistic society.

Private Transfer Fee

Disclosure of transfer fee is required for sale In paragraph 6.E.8 of One to Four Family Residential Contract (Resale). Created by a group of developers to charge a fee every time the property would change hands forever. A private transfer fee created after June 17, 2011 is not binding or enforceable. If before this date, the developers must file a "Notice of Private Transfer Fee Obligation" to continue collecting the fee every 3 years. Fee is to be paid to original creator of covenant or contractual agreement.

Sections

Each Township is divided into 36 squares, which are called Sections. These Sections are intended to be one mile square and contain 640 acres of land

Endorsement

Endorsements are a clause in an insurance policy detailing an exemption from or a change in coverage. Each endorsement will add costs to the title insurance policy coverage. The cost of each endorsement is set by the Texas Department of Insurance. Some lenders will require that certain endorsements are necessary to fund a transaction.

Part Performance

Entails the completion of some portion of what either party to a contract has agreed to do.

TX Real Estate License Act

Licensees may fill in forms which have been approved and promulgated by TREC, may not add to or strike matter to these forms, except that the licensee should add only factual statements and business details desired by the principles and shall only strike matter as is desired by the principals and as is necessary to conform the instrument to the intent of the parties. Licensees are allowed to strike through info from the form only at the direction of the principal. The licensee may do so because she is being instructed to do so.

Title Insurance

Protects the title to the real estate that the buyer is about to purchase. Title search uncovers unpaid taxes or mortgages, judgments against previous owners, easements, and other court actions or recorded documents which can affect title to real estate.

Recording Acts

Require that any claims, interest or ownership in real estate be placed in the public records in the county where the property is located. This is so parties involved in purchasing, leasing or providing a mortgage on real estate, will be aware of any other claims.

Breach of Contract Remedies

Specific performance - when judge requires one of the parties to a contract to fulfill the terms of the contract as agreed. Specific damages - the expenses that the seller incurred b/c the buyer did not do what agreed to do. If seller is in breach, buyer has same right to sue. Termination - seller could terminate the contract. This option would require that the earnest money be released either to buyer or seller. The release of earnest money terminates contract.

TX Statue of Frauds

Statue requires that all documents pertaining to the transfer of real estate from one person to another be in writing to be enforceable. This includes mortgages. Leases for more than 1 year must be in writing. The statue of frauds does not prohibit verbal contracts, it just requires some of them unenforceable.

What will happen if a licensee uses the forms incorrectly?

TREC may suspend or revoke the license. The licensee should check the TREC website if the buyer or seller wants to conduct a real estate transaction outside the normal parameters. If forms does not exist, check with broker. Still if not, suggest to the principal that they hire an attorney to draw up a form.

T OR F TREC has not created some forms commonly used by licensees such as listing agreements and buyer representation agreements that create relationships between clients and brokers because these type of contracts are between the clients (first party) and broker (part of second party) and TREC does not regulate these situations.

TRUE

T or F Commissions are always negotiable under the Sherman Anti-Trust Act.

TRUE

T or F TREC may not prohibit a licensee from using for the sale, exchange, option or lease of an interest in real property a contract form that is prepared by the owner or prepared by an attorney and required by the owner.

TRUE

The law that is most often referred to that allows salespeople to practice in Tx is called what?

Texas Real Estate License Act

OP-H Seller's Disclosure of Property Condition Form

This form is used to help the seller meet the Texas statute concerning the property condition and the seller's requirement to disclose all he/she knows about the property condition. The seller is not required to fill this specific form out but they are required to provide written disclosure to the buyers so this is the form that is typically used.

Release of Liability on Assumed Loan 12-3

This form is used to make sure the seller, who allows someone else to assume the loan, is released from further obligation on the loan in the event that the person who assumed the loan goes into default.

Loan Assumption Addendum 41-2

This form is used when lender allows the loan to be assumed by someone else, as long as the original borrower remains responsible for the loan if new buyer defaults.

Seller's Financing Addendum 26-7

This form is used when seller carries a note for a buyer for all or a portion of sales price.

OP-L Lead Based Paint Addendum

This is the form that should be filled out to inform the buyer that the house probably has lead-based paint on the walls. The licensee's obligation is to tell the buyer of the possible presence of lead in any improvement built prior to 1978 and then the buyer can decide whether he or she wants to live with the potential danger.

Menace

Threat of violence.

Title Attorney

Title attorneys are the ones that put together all the legal papers to transfer title from one person to another. Most of the papers to be used at closing need an attorney involved. These attorneys do not represent either party they just make the transaction work.

Assignment

Transfer of rights from one party to another, usually for compensation. One of the parties to a contract may choose to assign the contract to a third individual.

When does an offer become a contract?

When both parties have signed and initialed the offer agreeing all details to the offers and counteroffers, and all parties have been notified, it is now an executed contract. Notification of acceptance should be communicated ASAP! Once the other licensee has been notified that the acceptance has occurred, the effective date of the contract will be written into the blank by one of the licensees and process for preparing for closing begins.

Four Corners Doctrine

When there is a dispute in a written contract, the judge will use what is called "four corners doctrine" the interpretation of any disputed clause will be influenced by the document as a whole. No phrase will be lifted out of the document to determine the meaning but will be looked at completely in its context.

Lot and Block System

a property is described using the registered lot and then block on the plat or survey. The description must include a reference to the registered plat. In Texas, the Texas Board of Professional Land Surveying regulates surveyors. One of the easiest and most widely used methods of land description is the lot and block.

A Residential Service Contract

these are the companies to whom the seller would pay a fee at closing for a home warranty on the appliances, heating and air conditioning, ducts, swimming pool, spa, etc. in the home. This warranty would cover the first year after the purchase so that all the Residential Service Contract buyer would have to do is make a phone call and pay a service call fee and the repair would be taken care of by the company regardless of the cost of parts and labor.

An Offer Becomes a Contract when

when the acceptance of the offer is communicated to the offeror

Fraud

wrongful or criminal deception intended to result in financial or personal gain