Law of Contracts
Paragraph 11 - legal vs illegal entries
In all states, license holders are barred from the unlawful practice of law. Therefore, license holders should ensure that any special provisions added to a contract are factual statements that do not change the legal effect of the contract.
Requirements of acceptance
In determining whether or not there was an effective acceptance of the contract, the points generally considered are those of intent, the manner of acceptance, the timeliness of the acceptance, and whether or not that acceptance was unconditional.
Statute of Frauds & leases
In many states, lease agreements for one year or less are the exception to the Statute of Frauds Listing Agreements • Management Agreements • Buyer Representation Agreements • Lease and Lease Purchase Agreements • Options • Right of First Refusal • Cancellation and Rescission Agreements
Five elements of a valid and enforceable contract
1. Competent parties 2. Offer and acceptance (mutual agreement) 3. Legal purpose 4. In writing (when required by law) 5. Consideration
Contract definition
A contract is an agreement between two or more parties to do something or to refrain from doing something.
Types of easements & when/how they might occur
1. An easement in gross belongs to a person or corporation and does not belong to the land. The most common example of this is a utility easement. 2. An easement appurtenant is a right for the benefit of a piece of land. It runs with the land and passes to new owners when the land is sold. The most common use of this easement is for ingress and egress (entering and exiting one's property). This easement may have come into existence in one of several ways. Easements may be created by: • Grant - the easement is given specifically by one party to the other. "A" sold lot "B" and granted the easement in the deed. • Reservation - the seller, in granting property to a buyer, reserves an easement in the deed. "B" sold lot "A" and reserved the right to cross over "A" in the deed. • Implied grant - in selling lot "B," "A" did not actually grant the easement in writing but implied in word or action that access to property "B" would be by easement. • Prescription - continuous use of the land over time without the permission of the owner establishes the right to use the land. (An encroachment is the unauthorized intrusion of another's property onto an adjoining property. An encroachment that is allowed to remain can eventually acquire the right to be there.) Prescription may also be called limitation.
Requirements of a valid contract
1. Competent parties 2. Offer and acceptance (mutual agreement) 3. Legal purpose 4. In writing (when required by law) 5. Consideration
Contract terms
1. sale of other property contingency. In this case, the seller and buyer agree that the purchase of the property is contingent on the sale and closing of the buyer's existing property. 2. Appraisal contingencies are related to financing contingencies because lenders use appraisals to determine the amount of money they will lend on a property. This maximum loan amount is a percentage of the lesser of the sale price or appraised value. 3. inspection contingency
Limits on title - claims, liens, charges
A claim, lien, charge, or liability attached to and binding real property is an encumbrance. Encumbrances place limitations on property owners. Some common examples of encumbrances are liens, easements, encroachments, restrictions, and leases. The property rights of an owner are diminished by an encumbrance. Some encumbrances are desirable because they afford the services people need (i.e., utility easements). In contrast, others are negative because they limit the ability to freely use property, for example, easements for ingress and egress onto another property. Some are freely given, such as mortgage liens, and some are taken, or come with the property, such as deed restrictions. In any case, almost all properties have some encumbrances against them. The legal method of removing an encumbrance is to obtain a release. LIENS A lien is a right given by law to certain creditors to have debts paid out of the property of a default defaulting debtor, usually through a court sale. A lienholder does not own the property that is encumbered. Instead, the holder has an interest that, in the foreclosure of the property. A voluntary lien is one that is freely given, usually as collateral for a loan. A mortgage lien is a common example of a voluntary lien. An involuntary lien is one that is placed on the property against the wishes of the property owner. Common examples of involuntary liens include judgment and tax liens. Because it is created by law, a tax lien would also be categorized as a statutory lien. Equitable liens arise out of common law. A judgment for unpaid debts would be an example of an involuntary equitable lien against real estate.
A required act or event in a contract
A contingency is a provision in a contract that requires that a specific act or event happens for the contract to be binding on the party. A contingency must be specific as to what action needs to take place, who must complete the action, and when it will be completed. Perhaps the most common contingency found in residential real estate contracts is the financing contingency.
Causes for contract termination
A contract is considered discharged when all parties have performed. In real estate sales, performance (full execution) is most often achieved at the closing of the transaction. A contract may also be discharged due to: • A change in the law that makes performance illegal. For example, if a buyer is purchasing or leasing a property contingent on operating a retail store, the contract could be discharged if a zoning change made that activity illegal. • The destruction of property. Examples include fires, earthquakes, acts of war, or hurricanes. Note that, if the seller intentionally destroys the property, he or she is not discharged, and is liable for damages. The death of a party does not necessarily discharge a contract. In many cases, if the seller is deceased, the sale can be completed by the estate. On the other hand, a buyer who dies will likely be discharged from the contract. The impossibility of performance may be a cause for the discharge of a contract.
Offers, counteroffers, rejections, acceptance
A counteroffer is made when a party changes an offer in some way and communicates that change to the other party. The counteroffer is actually a two-step process: the rejection of the original offer coupled with a new offer. A counteroffer communicated to the other party becomes a new offer. Rejection of the original offer. In most cases, a counteroffer is a rejection of the original offer. Acceptance of an offer means that the accepting party does so with no change to the contract whatsoever. Any change, no matter how trivial, turns the offer into a counteroffer.
Lease clauses and provisions
A lease option allows a tenant to buy the property at a preset price and terms for a given period. This can also be called a lease with an option to buy. At the time the lease is negotiated, a purchase price is also negotiated. The tenant has the right to purchase the property at the preset price during the term of the lease. While the tenant is not obligated to buy, the landlord is obligated to sell A lease-purchase agreement is a contract used in real estate that combines some of the elements of a sale with a lease. A tenant makes regular lease payments to the landlord, just as in a standard lease. In a lease-purchase, the tenant agrees to purchase the property at some agreed-to time and terms. The obligation of the tenant to purchase the property makes this type of transaction completely different from a lease option agreement. In a lease option agreement, the buyer has the option to buy but is not obligated to do so.
Escrow & trust accounts, how they are used and who administers them
A mortgage banker uses money or a line of credit to fund loans when the final closing conditions have been satisfied.
Types of businesses
A sole proprietorship is a venture that is owned by one individual. A partnership is more easily created than a corporation and can be created with a simple written or oral agreement. A partnership must have one or more general partners. A general partner may take part in the day-to day management of the business and has full personal liability for partnership-related issues, including everything from financial obligations to personal injury lawsuits. The unlimited liability of the general partnership is a serious concern for anybody who might want to invest in a real estate venture. The limited partnership addresses that concern. A limited partnership includes two distinct classes of partners: • General Partner - The general partner is responsible for the day-to-day operations of the business and has full liability. At least one general partner is required in a limited partnership. The general partner is most often the "promoter" who brought the limited partners into the venture. • Limited Partners - The limited partner's liability is limited to the amount he or she invested in the partnership. The limited partner has no involvement in the day-to-day operation of the business. The limited partners are the investors in the venture. CORPORATE OWNERSHIP The corporate entity is comprised of three components: • shareholders (stockholders) who are the owners of the corporation • a board of directors elected by the shareholders who represent the interests of the shareholders • corporate officers who are responsible for the overall management of the operation of the business A corporation is regarded under the law as a distinct legal entity with the right to own real estate and other assets.
The mortgage, or deed of trust vs the note
A standard mortgage is a contract between two parties: • The borrower (the mortgagor) and • The lender (the mortgagee). If the borrower fails to repay the note, the mortgage allows the lender to foreclose the property. three-party mortgage known as a deed of trust is used. The parties to a deed of trust include: • The borrower (the mortgagor) • The lender (the mortgagee) • The trustee When this form is used, the borrower signs a promissory note payable to the lender. A deed of trust is signed, conveying the property in trust to the trustee. The duty of the trustee is to release the mortgage when the note has been repaid and to foreclose the property in the event of default. Foreclosure is generally faster and easier in areas that are financed using a deed of trust. In many cases, a deed of trust provides for non-judicial foreclosure, which means that a lender has the ability to foreclose a property without the authorization of the court.
Fair housing advertisements & protected categories
Advertising that indicates a limitation or preference based on race, color, national origin, religion, sex, familial status, or handicap is prohibited.
Statute of frauds - rules & exceptions
Five essential elements must exist for a contract to be considered valid and enforceable. They are: Competent parties Offer and acceptance (mutual agreement) Legal purpose In writing (when required by law) Consideration
Responsibility of agents when receiving an offer
All offers must be presented! The communication or submission of an offer should be done promptly because the license holder's duty is to keep the principal or client informed at all times of material information.
Title policy, abstracts, commitments, opinion of title
An abstract of title is a complete history of the title of a piece of property that includes deeds, easements, liens, foreclosures, wills, marriages, deaths, life estates, fee simple estates, and anything else that may have ever been recorded about a property. This abstract was then given to an attorney. The attorney would read it and write up an attorney's opinion of title, which is an opinion regarding the state of the title and its ability to be transferred. title commitment, which is a statement of the condition of title at a moment of time. It obligates the title company to issue a policy of insurance after any curative requirements have been met. Title insurance is an insurance policy that protects the insured against a loss resulting from defects of title to a specifically described parcel of real property.
Contract terms including addendum, amendment, contingency, waiver
An addendum to a contract is an attachment that adds or further describes the rights and duties of the parties. As a transaction progresses, amendments to the original contract may be needed. Common amendments include: • Changes to the closing date • Changes to the sales price, down payment and/or amount financed • Repairs that the seller agrees to perform • Removal or waiver of contingencies A contingency is a provision in a contract that requires that a specific act or event happens for the contract to be binding on the party. A contingency must be specific as to what action needs to take place, who must complete the action, and when it will be completed. A waiver is the voluntary relinquishment or surrender of some known right or privilege
Executed vs executory contracts
An executory contract is defined as a contract that is binding on the parties, with one or more of the parties having contractual duties that have not yet been performed. The effective date is the date that acceptance was communicated to the offering party. From the effective date to closing, a contract is an executory contract. When the sale is closed, the contract has been fully executed. However, according to the TREC-promulgated contract forms, all representations made by seller and buyer "survive closing," which means that both parties remain liable beyond closing for their representations made in the contract.All oral negotiations are voluntary and do not become binding until committed to writing.
Option contracts
An option is an agreement between a buyer and seller or landlord and tenant. A seller, in exchange for some form of consideration (an option fee), gives the buyer the right to purchase the property at some preset price and terms for a period.The buyer has the option but is under no obligation to purchase. However, under an option, the seller must sell if the buyer must sell if the buyer chooses to buy. The contract is said to be a unilateral contract because only one party is obligated to perform.
Wills & the inheritance terminology
Any property, whether real or personal, that is capable of being inherited, is called a hereditament. A hereditament should be handled or disposed of by will. An individual who receives property in this manner is said to have acquired the property by descent. Because the distribution is prescribed by law, intestate succession is considered to be a category of involuntary alienation. An individual who inherits property by intestate succession acquires title by descent and is known as a descendant. If a person who dies intestate does not leave a spouse, the estate to which the person had title descends to his or her heirs as follows: The person's estate descends and passes to the person's children and the children's descendants. If no child or child's descendant survives the person, the person's estate descends and passes in equal portions to the person's father and mother. If only the person's father or mother survives the person, the person's estate shall be divided into two equal portions, with: • One portion passing to the surviving parent; and • One portion passing to the person's siblings and the siblings' descendants; or Be inherited entirely by the surviving parent if there is no sibling of the person or siblings' descendants. Note that additional provisions apply if none of the above survive the deceased
Prorations and prorated items at closing
At closing, prorations for property taxes and property owner association fees will be calculated. Taxes for the year that have not been paid will be deducted from the seller's proceeds, usually through the day of closing. Prepaid items such as property owner association fees will be collected from the buyer from closing to the end of the year.
Default of contracts & types of damages
BUYER DEFAULT: In the event of default by the buyer, the seller may have several options Liquidated damages Monetary damages Specific performance Punitive and compensatory damages must be pursued in court. Punitive damages punish the defaulting party, and compensatory damages are set to cover the actual injury or economic loss. SELLER DEFAULT: In the event of default by the seller, the buyer becomes the injured party. The buyer may have the following options: • Specific performance (see above) • Monetary damages (see above) • Refund of earnest money
FHA loans - insurance premiums associated w/them
Because the FHA is a mortgage insurance program, premiums are paid into a pool of funds, out of which claims are paid when a borrower defaults on a loan. The cost of the mortgage insurance is passed along to the borrower in the form of a mortgage insurance premium (MIP). The borrower pays two premiums, an up-front premium at closing, and an annual premium. Up-Front Mortgage Insurance Premium (UFMIP): When a loan is funded, the FHA charges an Up-Front Mortgage Insurance Premium. The UFMIP can be paid at closing or added to the loan at funding. The UFMIP can be added to the loan even if it causes the loan to exceed the appraised value of the property.
Seller's Disclosure Notice rules & the buyer's rights
Buyer has not received the Notice. Within days after the Effective Date of this contract, Seller shall deliver the Notice to Buyer. If Buyer does not receive the Notice, Buyer may terminate this contract at any time prior to the closing and the earnest money will be refunded to Buyer. If Seller delivers the Notice, Buyer may terminate this contract for any reason within 7 days after Buyer receives the Notice or prior to the closing, whichever first occurs, and the earnest money will be refunded to Buyer.
TREC Temporary lease agreements & features
Buyer's Temporary Residential Lease - for use when the buyer occupies the property for no more than 90 days prior to closing. Seller's Temporary Residential Lease - for use when the seller occupies the property for no more than 90 days after closing.
Common law vs statutory law
Common law is a body of law developed in England and based upon "common sense" and local custom. Common law expanded over the years as a result of prior court decisions. Under common law, a court looks to the findings of prior courts when rendering a decision. The concept of common law was brought to the American colonies by English settlers. Statutory law is the body of laws and regulations enacted by federal and state legislatures. Much of what was once embodied in common law is now codified in statutes passed at the state and federal level.
Consideration in a valid contract
Consideration is defined as something given in exchange for a promise. There is no requirement that the consideration be in the form of money. Consideration in a contract could be nothing more than a promise made by one party in exchange for a promise made by the other. In the typical real estate contract, the seller agrees to convey the property to the buyer, and the buyer agrees to pay the negotiated sales price. Therefore, the purchase or sales price of the property is the consideration for the contract. As a rule, an earnest money deposit will be collected from the buyer when entering into a contract. The earnest money should not be confused with consideration.
Depositing Earnest Money
Earnest money is not a requirement of a valid contract. Earnest money is a payment that is placed into escrow to show that the buyer is serious (earnest) in his or her intent to purchase the property. Earnest money serves as a source for the payment of liquidated damages to the seller in the event of default by the buyer. While there is no set requirement for the amount of earnest money to be paid, depending on the market, it ranges from a low of about one percent to as much as ten percent of the sales price. A buyer who wishes to purchase a property with a small deposit (or none at all) would be a source of concern to the seller. Time is of the essence when dealing with earnest money. If the buyer fails to deliver the amount of earnest money within the time required in the contract, the seller can terminate the contract or seek other remedies as outlined in the contract. Earnest money is deposited in an escrow account when the contract is signed by all parties, and acceptance is communicated.
DTPA coverage categories
Goods — are defined as tangible chattels (real property is tangible when purchased or leased. Under DTPA, the sale of a house is considered a good). • Services — means work, labor, or repair of goods. Brokerage is a service. • Consumer — an individual, corporation, partnership, or government source who seeks to acquire or purchase the goods or services. Any consumer can bring an action against a provider of services when the consumer can prove that the servicer was the producing cause of any of the following: • use or employment by any person of a false, misleading, or deceptive act or practice that is specifically identified in the act. • breach of an express or implied warranty. • any unconscionable action or course of action by any person. • the use or employment by any person of an act or practice in violation of the Texas Insurance Code. Producing cause requires proof that the act or omission was a significant factor in bringing about injury.
Methods of creating easements - reservation, prescription, necessity, grant, agreement, condemnation
Grant - the easement is given specifically by one party to the other. "A" sold lot "B" and granted the easement in the deed. • Reservation - the seller, in granting property to a buyer, reserves an easement in the deed. "B" sold lot "A" and reserved the right to cross over "A" in the deed. • Implied grant - in selling lot "B," "A" did not actually grant the easement in writing but implied in word or action that access to property "B" would be by easement. • Prescription - continuous use of the land over time without the permission of the owner establishes the right to use the land. (An encroachment is the unauthorized intrusion of another's property onto an adjoining property. An encroachment that is allowed to remain can eventually acquire the right to be there.) Prescription may also be called limitation Necessity - the courts may award an easement to a property owner who has no legal access to his or her land. (Usually in the case of "landlocked" property.) • Condemnation - The government, under its power of eminent domain, takes an easement
Types of leases
Gross Lease - The gross lease is perhaps the simplest of all leases. In a gross lease, the landlord pays costs regularly incurred in ownership, such as taxes, insurance, utilities, and maintenance. The tenant pays only rent. This type of lease is riskier for the landlord because of the possibility of rising costs during the lease term. • Net Lease - A net lease is one in which, in addition to rent, the tenant pays expenses such as taxes, insurance, and maintenance. A net lease shifts the risk of cost increases from the landlord to the tenant. Net leases are often characterized as net (N), double net (NN), and triple net (NNN). • The single net lease (N) is a lease in which the tenant pays rent and property taxes. The landlord is responsible for all other costs associated with the property. • The double net lease (NN) is a lease in which the tenant pays rent, property taxes, and property insurance. The landlord is responsible for repairs and maintenance of the building. • A triple net lease (NNN) is a lease in which the tenant is responsible for rent and all fixed and variable expenses related to a property (property taxes, property insurance, maintenance In most cases, the landlord is still responsible for structural repairs. The advantage of a triple net lease to a tenant is that the rent is usually lower than it would be under a gross, single net or double net lease. The primary disadvantage to the tenant is that expenses are more variable and harder to anticipate and control. • Percentage Lease - In the retail environment, a percentage lease obligates the tenant to pay a base rent and a percentage of the gross sales. The percentage may vary, depending on the level of sales, and will be calculated based on breakpoints in the lease. The percentage rent provides an incentive to the landlord to build foot traffic in the center with promotions, events, and superior maintenance.
Lender requirements for properties w/potential hazardous materials on site
If a buyer has concerns about possible contamination of a potential property, the buyer or the lender may opt to have an Environmental Site Assessment (ESA) performed on the property to determine if it is environmentally challenged. An ESA is an assessment that is carried out by a qualified environmental professional to determine whether or not a property has been contaminated by any previous or current activities that occur(red) on or near the property.
Economic & physical characteristics of land
Land has three physical characteristics: Indestructibility or durability refers to the fact that land cannot be destroyed. It remains, no matter what happens to it. It may go underwater, become a crater, or be added to. In any case, the land will still be there; it is permanent. Immobility refers to the fact that land cannot be moved. When personal property is purchased, the buyer can move it to a new location. When land or rights in land are purchased, the owner must go to the land. Nonhomogeneity refers to the fact that no two parcels of land are the same. Even two identical-looking lots in a subdivision at least differ in their position on the earth. Each parcel of land is unique. ECONOMIC CHARACTERISTICS OF LAND There are four economic characteristics of land: Scarcity comes from the theory of supply and demand. When there is a shortage of something that individuals want, the price goes up. For example, in a new golf course community, only a limited number of lots can be "on" the golf course. The scarcity will increase the value of these lots. Another example is property in cities. Because of the higher demand for this land, it will be more valuable than land in suburban or rural areas. 2. Modification refers to the fact that value is affected by man-made changes to the land. These changes can be on the land itself or off-site. Examples of modification include improved transportation, which makes land more accessible, such as the railroads crossing the United States, or airports. When freeways are extended or widened, land in previously undeveloped areas becomes attractive for new residential and retail development. The most well-known case is probably that of the agricultural land in the Orlando, Florida area that experienced an enormous increase in value after the construction of Disney World®. 3. Fixity refers to the fact that land, and additions to the land, such as buildings, take long periods to pay for themselves. It may take twenty years for the owner of a new office building to recover the cost of the acquisition of the land, construction, and the cost of financing. Because of this, investors must analyze the long-term nature of owning an investment property. Fixity is also used to refer to the fact that land cannot be moved, but is fixed in location. 4. Situs refers to the location of the property or land from an economic, not a geographic viewpoint. The familiar phrase, "location, location, location" is based on the preferences people have for specific characteristics in property, and the fact that location dominates those preferences. Both natural and man-made factors will have an impact on preferences. Climate, views, access to natural recreation, as well as schools, job opportunities, and transportation, will all be important. Situs may change over time as society changes and different lifestyles prevail.
Default remedies and their results
Liquidated damages. The seller can choose to accept the buyer's earnest money as liquidated damages, releasing all parties from any further obligation under the contract. Liquidated damages are damages that are established in the contract. • Monetary damages. In addition to specific performance, the injured party may "seek such other relief as may be provided by law." This would be an award of monetary damages by the court. Because monetary damages are awarded by the court, one never knows what they will be until the court rules. • Specific performance. The injured party files a court action seeking an order of the court directing the defaulting party to perform according to the terms of the contract. Specific performance is the only remedy that would possibly result in the full execution (closing) of the transaction. The primary difference between monetary and liquidated damages is that the court awards monetary damages, and liquidated damages are stipulated in the contract. Punitive and compensatory damages must be pursued in court. Punitive damages punish the defaulting party, and compensatory damages are set to cover the actual injury or economic loss. SELLER DEFAULT: In the event of default by the seller, the buyer becomes the injured party. The buyer may have the following options: • Specific performance (see above) • Monetary damages (see above) • Refund of earnest money - The buyer's acceptance of an earnest money refund terminates the contract, releasing both parties from any further obligation under the contract. Because this is a refund of the buyer's earnest money, this cannot be considered liquidated damages.
Paragraph 21 of the 1-4 Family sales contract
Notices - Many agents fail or refuse to fill in the contact information for their clients in Paragraph 21 (Notices), or they enter their own contact information so that they can stay in control of the flow of information. Either of these actions makes it difficult for the title company and the other party to forward information pertaining to the sale to everyone. Agents make themselves and their brokers legally responsible for the receipt of notices when they use their contact information instead of their clients'. This practice could lead to a breach of fiduciary duties if an agent delays the delivery of notices because of the agent's actions when it causes harm to either party in the transaction. Considering the importance of correct contact information, coupled with broker liability issues, license holders should not enter their contact information in Paragraph 21.Copyright
Cooperatives
Owners within a cooperative do not own a specific unit. A corporation owns the entire cooperative complex. Those who wish to live in the cooperative buy shares in the corporation and receive proprietary leases on their units. When listing and selling cooperatives, a real estate license is often not required because the sale of a cooperative is the sale of stock rather than real property
RESPA - rules & prohibitions
PROHIBITION AGAINST KICKBACKS AND UNEARNED FEES NO REFERRAL FEES NO SPLIT OF CHARGES EXCEPT FOR ACTUAL SERVICES PERFORMED THING OF VALUE DEFINED IN REGULATION X AGREEMENT OR UNDERSTANDING AS DEFINED IN REGULATION X
Government rights in land (PETE)
Police Power - the right of the government to regulate and control the way land is used. The most common example of police power is zoning. Eminent Domain - is the right of the government to take private land for public use. Examples of valid reasons for taking the land include schools, parks, hospitals, government buildings, roads, and utilities. Taxation - the government retains the right to tax real property. Escheat - if a person dies intestate (without a will) and without heirs, the government will take title. If a property is abandoned, escheat will also be the solution. The government does not want land to be unowned. (Note: Single, without children does not mean without heirs.) Government does not want land to be unowned.
Police power terminology - zoning & associated terms
Police Power - the right of the government to regulate and control the way land is used. The most common example of police power is zoning. Other examples include wetlands legislation, environmental protection legislation, and health and fire codes. Government programs may include water conservation, land reclamation, crop programs, drought relief, and wildlife conservation. Changing the zoning of a property to a lower value use is called downzoning. The government is under no obligation to compensate an owner for this, even though the property may suffer a decrease in value as a result. The government will not reimburse the owner for any loss of value, however, because it has not "taken"
Agent's responsibilities when a client needs legal advice
Refer to an attorney or legal professional.
Lease terminology - subletting, assignment, option to buy, right of refusal
Subletting is the transfer of some or all of the tenant's rights and/or leased space to another with liability remaining with the lessee. So, the sublessee pays rent to the lessee, who, in turn, pays the landlord. The key distinction between assignment and subletting is that assignment releases the original. An assignment of a lease occurs when a tenant's rights and liabilities are transferred to another. When the assignment is complete, the original tenant is no longer obligated under the lease. An option agreement gives a potential buyer or tenant the right to purchase or lease a property. Right of first refusal (ROFR), also known as first right of refusal, is a contractual right to enter into a business transaction with a person or company before anyone else can.
Finance laws - ECOA, TIL, RESPA, CRA, Dodd Frank Act
The Equal Credit Opportunity Act (ECOA), originally passed in 1974, ensures that all consumers are given an equal chance to obtain credit. The Equal Credit Opportunity Act prohibits discrimination in any aspect of a credit transaction based on: • Race • Color • Religion • National Origin • Sex • Marital Status • Age (provided that the applicant has the capacity to enter into a binding contract) • Receipt of income from a public assistance program • The good faith exercise of any right under the Consumer Credit Protection Act The provisions of the ECOA do not prevent a mortgage loan originator from obtaining information necessary to evaluate the creditworthiness of an applicant. Public assistance programs include, but are not limited to: • Aid to Families with Dependent Children (AFDC) • Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) • Rent and mortgage supplement or assistance programs • Social Security and Supplemental Security Income (SSI), and unemployment compensation. The Truth In Lending Act (TILA) is a U.S. federal law designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs. A significant federal law that affects lenders is the Community Reinvestment Act. This federal law was passed to ensure that banks would serve the needs of the community in which they were chartered to do business. It prohibits redlining, which is the practice of refusing to provide financing in a particular area because of the location. Dodd Frank Act: The official purpose of the law is to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. Real Estate Settlement Procedures Act (RESPA), ensures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices. The act requires mortgage loan originators and servicers of residential loans to provide borrowers with timely disclosures of the nature and costs of the real estate settlement process. Designed to help consumers become more knowledgeable of settlement services costs, RESPA also prohibits abusive practices such as Real Estate Settlement Procedures Act (RESPA), ensures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices. The act requires mortgage loan originators and servicers of residential loans to provide borrowers with timely disclosures of the nature and costs of the real estate settlement process. Designed to help consumers become more knowledgeable of settlement services costs, RESPA also prohibits abusive practices such as undisclosed referral fees and kickbacks.
The SAFE Act - terminology
The Secure and Fair Enforcement for Mortgage Licensing Act is designed to enhance consumer protection and reduce fraud. The federal SAFE Act required each state to enact SAFE legislation or defer to the U. S. Department of Housing and Urban Development (HUD) for such regulation. State SAFE legislation must be compliant with the federal SAFE Act, and HUD was charged with the responsibility of monitoring compliance.
TVLB programs & provisions
The Texas Veterans Land Board Housing Assistance Program (VHAP) is a benefit that every buyer with a military background should consider. To participate in the program, the veteran obtains an FHA, VA, or conventional loan from a participating lender. The qualification process is the same as for any other FHA, VA, or conventional loan. The difference is that the loan is sold to the Texas Veterans Land Board (VLB), as opposed to a secondary market purchaser such as Fannie Mae or Freddie Mac. The primary benefit to the veteran is that the rate on the Veterans Land Board loan is often up to one percent below prevailing market rates.
Types of mortgage loan & their uses/purposes
The fixed-rate mortgage loan has dominated residential lending in the United States for many years. The typical mortgage loan is for a term of 15 or 30 years, with the rate remaining fixed for the entire term of the loan. Most of these loans are fully amortized. In an amortizing loan, the monthly payment includes an amount that is applied first to the interest due, with the remainder of the loan payment applied to the outstanding loan balance (also known as the principal balance). The most widely used alternative loan was an Adjustable Rate Mortgage (ARM). These alternative repayment plans were viewed as a way of helping borrowers qualify for a larger loan than they would have using a standard, fixed-interest rate product. A blanket mortgage covers more than one piece of property. A package mortgage includes both real and personal property (fixtures and furnishings). Furnished condominiums in resort areas are often sold this way. In a budget mortgage, the monthly house payment includes principal, interest, taxes, and insurance (known as PITI). The tax and insurance portion of the payment is held in a special account called an escrow account. It is also called an impound, trust, or reserve account. BALLOON NOTE Balloon loans are beneficial to some borrowers, especially those who do not plan to stay in their homes for an extended period. A balloon loan is a partially amortized loan with a final payment substantially larger than the others. The benefit of this type of loan is a lower interest rate A hard money loan is a specific type of asset-based financing in which a borrower receives funds secured by the value of a parcel of real estate. A wraparound mortgage is a method of financing that preserves the low, existing interest rate on the original note. The wraparound is seller financing, in which a new loan takes a secondary lien position, and the original mortgage is not repaid. OPEN-END MORTGAGE An open-end mortgage permits additional borrowing on the same note and mortgage In a participation loan, two or more lenders own a share, allowing lenders to share or distribute the risk. Another form of participation loan allows the lenders to share in the profitability of the property, in addition to collecting principal and interest on the loan. Homeowners who are least 62 years of age can borrow against the equity in their property, using a reverse annuity mortgage. The loan becomes due upon the sale of the property or the death of the owner. The borrower can NEVER be forced to sell the home. Sub-prime loans have risk-based pricing. The rates are not published on these loans. Borrowers are rated A-F with a prime borrower having an A rating. A minus to F-rated borrowers will pay 1 to 5 % higher than those with good credit. These are non-conforming loans.
Ownership estates - severalty, joint tenancy, syndicate, tenancy in common, entirety
The form of ownership created when real estate is purchased is determined by the manner in which the property is deeded. An estate in severalty involves ownership of real estate by one individual or entity. The advantage of ownership in severalty is total control of the property. The disadvantage is full responsibility. In addition to individuals, companies may hold ownership in severalty. Tenancy in common is ownership of real estate by two or more entities in undivided interests. Because these interests are undivided, all co-owners share the right of possession of the property. A less popular type of ownership by more than one is joint tenancy. The unique aspect of joint tenancy is the right of survivorship of the tenants. When a joint tenant dies, his or her share is equally divided among the surviving joint tenants immediately. In order to create a joint tenancy, four unities are required. Time - Owners must acquire their interest at the same time. Title - They must acquire their interest from the same source (will, contract, deed, etc.) Interest - They must hold equal shares. Possession - Possession of the property must be shared equally. All of the four unities must vest at the same time, generally from a single deed of conveyance. Heirs and devisees have no claim on the property because joint tenancy is not an estate of inheritance. The final sursurvivor becomes an owner in severalty. Joint tenancy has been referred to as a "poor man's will.
Residential financing options
The most common type of financing is obtained from a third party, such as a mortgage company or bank. Another possible financing scenario would be the assumption of the seller's existing mortgage. A third possibility is seller financing, with the seller agreeing to accept a portion of the sales price in the form of a promissory note, which usually calls for the payment of monthly principal and interest.
Types of leasehold estates
There are four types of leasehold estates: 1. Estate for years - a lease with a definite beginning date and definite ending date. The lease period does not have to be for years. The criteria is a specific starting and ending date, which could be a lease for a week, a month, one year, or ten years; the key is the preset period. This lease survives the death of either the landlord or the tenant. It also survives the sale of the property. Notice to terminate is not required, as the lease has a termination date. 2. Periodic tenancy or periodic estate - a lease that renews itself automatically for like periods. Typical examples would be a month-to-month or a week-to-week lease. Usually, this is a lease for an undetermined period, with no preset termination date. This lease requires notice to terminate. Sometimes an estate for years will state that if a tenant remains after the termination date, the lease will become a periodic tenancy on a month-to-month basis. It also survives the death of either party and the sale of the property, but since it is easily terminated by notice, this is not usually a problem. 3. Tenancy at sufferance - is an interest in leased property created when the holdover tenant (one whose lease has ended and who refuses to leave) is occupying the leased property against the owner's will. The holdover tenant is not paying rent. The only thing that differentiates him or her from a trespasser is his or her former right to occupy the property. A landlord with a holdover tenant has the right to evict this tenant. This process would occur under the Forcible Entry and Detainer statutes. If the holdover tenant pays rent, and the landlord accepts that rent, then the interest becomes a holdover tenancy, which is sometimes considered a periodic estate. 4. Tenancy at will or estate at will- a leasehold in which a tenant occupies real estate with the permission of the owner for an uncertain or unspecified length of time; this is a very loose agreement. Little or no notice may be required, depending on the lease agreement, and either party can terminate at any time; however, a specific notice period is usually set. Tenancy at will is the only lease that is easily terminated by the death of the landlord or sale of the property. All other leases would remain in effect and binding on the new owner.
Real & personal property transfer documents at closing
Things of a temporary or movable nature are not part of the real property. They are considered personal property. Personal property is also known as personalty or chattel. If personal property is being transferred along with real property, a bill of sale is generally used to accomplish the transfer, which would normally accompany the deed. Removing fixtures (by detaching them from real property or by uninstalling them) to create personal property is severance. Examples of fixtures include wall-to-wall carpeting, ceiling fans, window coverings, and built-in appliances
Subrogation
Title insurance policies contain a subrogation clause that allows the title company to reduce the amount of compensation that they pay by the amount of any damages paid by the seller to the buyer. The subrogation clause enables the title company to assume the rights of a buyer with respect to any claim against a seller if the title company has made payments to that buyer to satisfy that claim. In this manner, the property owner cannot collect from both the title company and the seller for the same issue.
Presentation of offers - methods
Under ideal circumstances, an offer on a residential property is presented in writing on the required forms, including any needed addenda. On the other hand, circumstances are not always ideal, and any offer must be presented, even if it is an oral offer. An offer can be communicated by: • phone • fax • e-mail • letter • hand delivery
Types of deed & their uses/benefits
general warranty deed. In this deed, the grantor states promises to warrant and defend the grantee's interest in the property, back to the sovereignty of the soil. A grantee who wishes to ensure that the grantor has good title should require this type of deed. In a special warranty deed, the grantor promises to warrant and defend title, but only against claims which may have arisen during his or her period of ownership - executors or trustees who are transferring title for another use this type of deed often. A grantee can protect his or her ownership interest with this type of deed by purchasing title insurance. A bargain and sale deed is one with no guarantees or warranties. A quitclaim deed is one with no guarantees, warranties, or covenants. The grantor does not even claim to own the property. Some other types of less commonly used deeds include a gift deed, in which the consideration is love and affection, a guardian's deed, by which a minor's interest is conveyed, a sheriff's or trustee's deed, in the case of foreclosure, a correction deed, to correct an error in a previously executed deed, and a tax deed, which is used to convey title to property sold by the government at a tax sale.
Leases and "right of first refusal"
giving the tenant the right to purchase the leased property by matching or bettering any offer before the property will be sold to someone else.
Paragraph 11 - Special provisions - what can an agent write
license holders should ensure that any special provisions added to a contract are factual statements that do not change the legal effect of the contract.
Wills and the associated terminology
llThe formal judicial proceeding to prove or confirm the validity of a will, to collect the assets of the decedent's estate, to pay the debts and taxes, and to determine the persons to whom the remainder of the estate is to pass is called probate. Even if there is no will, the estate is still subject to a probate action. An individual who creates a will, known as a testator A will is a written expression of the desire of a person as to the disposition of that person's property after death. An individual who dies leaving a valid will is said to have died testate. That individual's estate will be settled by an executor chosen by that person and named in the will. The deceased's property will be passed to his or her beneficiaries at probate. Holographic or handwritten wills are also used in some states, including Texas. They are perfectly legal, but more easily contested. A nuncupative will is an oral or deathbed will. This type, while legal in many states, including Texas, is very vulnerable to being contested. Also, this type of will is only legal for personal property, not real property. A codicil is an addition or an amendment to an existing will. It must be done in the same in the same way as the original will. Therefore, a formal will requires a formal codicil, and a holographic will must have a holographic codicil. Intestate succession occurs when an individual dies, leaving no valid will.
