Promulgated Contract Forms
Loan origination vs assumption
A loan assumption occurs when a buyer assumes and agrees to pay the seller's existing mortgage. Loan origination is when a buyer originates the loan - new loan.
Stigmatized properties - causes and/or features
A property where there has been a murder or alleged haunting is stigmatized. A property can be considered stigmatized if it is in the vicinity of the residence of a known sexual offender.
When does an offer become a contract
An offer becomes a binding contract when all parties sign it, and the acceptance is communicated to the offering party
Mediation vs arbitration or lawsuit
Buyer and Seller agree to mediate in the event that the parties have a dispute that cannot be settled through informal discussion
Features of lease provisions - right of first refusal, option to buy, lease purchase
right of first refusal. This provision in a lease gives the tenant the right to purchase the leased property by matching or bettering any offer before the property will be sold to someone else. Another possibility is a lease with an option to purchase. Commonly known as a lease-purchase agreement, it gives the tenant occupancy in the present time and the right to purchase at a future date. In an option to purchase, the price is set when the lease agreement is negotiated, which is advantageous to the tenant-buyer.
The effective date of the contract
The execution date follows Paragraph 24. When the last party signs and acceptance has been communicated to the other party's agent, the date of final acceptance is filled in. The broker is responsible for ensuring that the effective date is filled in. All contracts must have an execution date filled in. The contract has many provisions that require compliance "within X days after the effective date of this contract...." Failure to enter an execution date can obviously cause considerable problems when trying to determine if a party is in compliance
TREC rules regarding the buyer's use of inspectors
The inspector is to be a TREC licensed inspector or another person otherwise allowed by law. This would seem to allow engineers and other professionals to perform inspections even if they are not licensed by TREC. The exception to this is the performance of hydrostatic testing, which must be authorized separately by the seller in writing.
Requirements of a valid option
For a valid option to exist, the following are required: 1. All of the blanks in Paragraph 23 must be filled in. 2. The option fee must be paid within three days after the effective date of the contract. 3. Buyer must pay the option fee directly to Seller or the listing broker. Do not pay the option fee to a third party, such as a title company. Buyer probably does not have a valid option if the fee is paid to anybody other than the listing broker or Seller.
Paragraph 24 -use & timing
PARAGRAPH 24. CONSULT AN ATTORNEY: TREC rules prohibit real estate license holders from giving legal advice. Enter attorney contact information if applicable. Some states require that an attorney represent the parties. In other states (like Texas), representation is optional. The execution date follows Paragraph 24. When the last party signs and acceptance has been communicated to the other party's agent, the date of final acceptance is filled in
Closing costs or settlement expenses
SETTLEMENT AND OTHER EXPENSES: A. The following expenses must be paid at or prior to closing: (1) Expenses payable by Seller (Seller's Expenses): (a) Releases of existing liens, including prepayment penalties and recording fees; release of Seller's loan liability; tax statements or certificates; preparation of deed; one-half of escrow fee; and other expenses payable by Seller under this contract. (b) Seller shall also pay an amount not to exceed $ to be applied in the following order: Buyer's Expenses which Buyer is prohibited from paying by FHA, VA, Texas Veterans Land Board or other governmental loan programs, and then to other Buyer's Expenses as allowed by the lender. Initialed for identification by Buyer and Seller (2) Expenses payable by Buyer (Buyer's Expenses): Appraisal fees; loan application fees; origination charges; credit reports; preparation of loan documents; interest on the notes from date of disbursement to one month prior to dates of first monthly payments; recording fees; copies of easements and restrictions; loan title policy with endorsements required by lender; loan-related inspection fees; photos; amortization schedules; onehalf of escrow fee; all prepaid items, including required premiums for flood and hazard insurance, reserve deposits for insurance, ad valorem taxes and special governmental assessments; final compliance inspection; courier fee; repair inspection; underwriting fee; wire transfer fee; expenses incident to any loan; Private Mortgage Insurance Premium (PMI), VA Loan Funding Fee, or FHA Mortgage Insurance Premium (MIP) as required by the lender; and other expenses payable by Buyer under this contract.
Number of days for the title company to deliver the title commitment
The title company has 20 days from the date that they receive the contract to furnish a commitment to the buyer for title insurance. This paragraph also provides for an automatic extension of the delivery period for up to 15 days or 3 days prior to closing if the commitment cannot be delivered within the 20 days allowed
Types of contracts - valid, void, voidable, executory, executed
executory contract from the effective date through the closing. 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. A valid contract is one that meets all of the requirements of law. A void contract is invalid from the beginning and does not affect the parties. A contract to perform an illegal act is a void contract. A voidable contract is one that cannot be enforced against one or more of the parties. When the sale is closed, the contract has been fully executed.
The purpose & use of Paragraph 6
.OBJECTIONS: Buyer may object to any matters that might prohibit a certain use or activity of the property, such as the installation of a satellite dish, operating a business out of the home, or parking of an RV within view of the street. Whatever the intended use of the property, it must be listed here. If the buyer is using the property for a residence only, many license holders insert the words "residential use" in this paragraph.
Requirements of a valid contract
1. Competent parties 2. Offer and acceptance (mutual consent) 3. Legal purpose 4. In writing (when required by law) 5. Consideration
Addressing the environmental concerns - TREC forms
A.ENVIRONMENTAL ASSESSMENT: Buyer, at Buyer's expense, may obtain an environmental assessment report prepared by an environmental specialist. B.THREATENED OR ENDANGERED SPECIES: Buyer, at Buyer's expense, may obtain a report from a natural resources professional to determine if there are any threatened or endangered species or their habitats as defined by the Texas Parks and Wildlife Department or the U.S. Fish and Wildlife Service. C.WETLANDS: Buyer, at Buyer's expense, may obtain a report from an environmental specialist to determine if there are wetlands, as defined by federal or state law or regulation.
Common amendments to the original contract
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
Possible responses or actions upon the receipt of an offer
Do nothing Reject Accept Counteroffer
Earnest money - definition, purpose, amount
Earnest money is a "deposit" paid upfront by Buyer to show that he or she is serious in his or her intent. There is no standard for the dollar amount of earnest money, but it is often in the range of 1% of the purchase price
What are good funds
Good funds is described as a cashier's check or wire transfer.
Features of the option fee vs the earnest money deposit
If Buyer chooses to terminate under the option, they will receive a refund of earnest money, but will not receive a refund of the option fee. The option fee is the consideration paid to Seller for taking the property off the market for a period of time while Buyer decides whether or not he or she wants to finalize the purchase of the property Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing.
The broker's responsibility in handling multiple offers on a single property
If a broker receives more than one offer, all offers must be presented to the seller unless instructed otherwise by the seller. No offer has a priority of presentation over another. The broker should submit all offers promptly
The T-47 affidavit - purpose & use
In Paragraph 1, the Affiant states that they are the owner of the property. If they are not the owner, they indicate their relationship to the property (manager, tenant, etc.).
Paragraph 5 - features
PARAGRAPH 5. EARNEST MONEY: Earnest money is a "deposit" paid upfront by Buyer to show that he or she is serious in his or her intent. There is no standard for the dollar amount of earnest money, but it is often in the range of 1% of the purchase price. Insert the amount of earnest money and the name and address of the title company. If additional earnest money is required, enter the amount and the number of days. Time is of the essence for this paragraph
Items to be retained by the Seller as specified in the contract
PARAGRAPH 2.(D) Enter exclusions to the sale. If an item is to be excluded, give it a name and a location. For example, "dining room chandelier" would be an adequate name and location. Excluded items are to be "removed prior to delivery of possession."
Paragraph 23 - features, number of days
PARAGRAPH 23. TERMINATION OPTION: Enter the option fee amount and the number of days. Check the box to indicate that the fee will or will not be credited to the sales price at closing
Paragraph 3.B - contents
PARAGRAPH 3.B. The sum of all financing from all sources. Insert only the amount actually being financed.
Provisions of an addendum vs the original contract - which prevails
Sometimes a provision in an addendum contradicts a provision in the main body of the contract. In such a case, the provision in the addendum prevails
Features of the lead based paint disclosure form
States that if you are about to buy a residential dwelling that was built before 1978, you are being notified with this addendum that the property may present to the buyer exposure to lead found in the paint. buyer may have the property inspected within 10 days of the effective date of the contract.
IABS - required uses
Texas law requires all brokers and sales agents to provide written notice regarding information about brokerage services at the first substantive communication with prospective buyers, tenants, sellers, and landlords concerning specific real property. A BROKER'S MINIMUM DUTIES REQUIRED BY LAW (A client is the person or party that the broker represents): Put the interests of the client above all others, including the broker's own interests; Inform the client of any material information about the property or transaction received by the broker; Answer the client's questions and present any offer to or counter-offer from the client; and Treat all parties to a real estate transaction honestly and fairly
A party used to conceal the identity of a buyer
The Straw Buyer is a person who is used to buy property in order to conceal the actual owner. The straw buyer does not intend to occupy the property or make payments and often deeds the property to the other individual immediately after closing. The straw buyer is usually compensated for the use of his or her identity.
Use of Third-Party Financing Addendum
Third party financing is divided into two broad categories: government loans and conventional loans. Government loans are insured or guaranteed by the U.S. Government and are made by lenders. Government loans are often either FHA or VA loans. A conventional loan is best described as any loan that is not a government loan.
Loan assumption - features & requirements
When a purchaser assumes an existing mortgage, the original borrower is not necessarily released from on-going liability for repayment. If the seller does not receive a release of liability, the buyer assuming the loan "joins the original borrower" on the note, leaving both with liability for repayment of the loan. If this is the case, the seller could be liable for repayment of the loan if the purchaser defaults.The TREC Promulgated form, Release of Liability on Assumption of FHA, VA or Conventional Loan (TREC No. 12-2) is used to make a contract contingent on the lender releasing the seller upon the assumption by the buyer. When negotiating an assumption, a license holder representing the seller would be wise to suggest that the contract include the release contingency
Imputed Notice - definition/example
an offer is presumed to have been delivered to the principal when it is delivered to the agent.
Short sale vs foreclosure vs deed in lieu of foreclosure
used when Seller is unable to sell property at or above what Seller owes the lender. The seller is requesting that the lender "short" themselves on what is owed
Types of contracts & their features - valid, void, voidable, unenforceable
void contract is invalid from the beginning and does not affect the parties. A contract to perform an illegal act is a void contract. voidable contract is one that cannot be enforced against one or more of the parties. Most contracts entered into with minors are voidable at the option of the minor. unenforceable contract is one that cannot be enforced due to some flaw in the contract, passage of time, or other issues that make enforcement impossible valid contract is one that meets all of the requirements of law
Fair Housing terminology & prohibited acts
The first federal fair housing law was the Civil Rights Act of 1866, which essentially prohibited discrimination in housing based on race or color by granting all races the same rights as whites. Title VIII of the Civil Rights Act of 1968. It prohibits discrimination based on race, religion, and national origin. Sex was added as a protected class in 1974, followed by physical handicap and familial status in 1988. The following activities are expressly prohibited: • Refusing to sell, or rent to, deal or negotiate with any person • Discriminating in the terms or conditions for buying or renting • Discriminating by advertising that housing is available only to persons of a certain race, color, religion, sex, or national origin, those who are not handicapped, or adults only • Denying availability of property, when it is available • Stating different terms and conditions for lending • Denying use of services; including MLS, or any other service related to selling, buying, or renting housing • Steering or blockbusting
Default - definition
When a party to a contract fails to perform under the contract, they are in default.
TREC contract forms & their uses
These contract forms expedite real estate transactions and reduce controversies while containing safeguards adequate to protect the interest of the principals to the transaction TREC has promulgated sales contract forms for most residential properties, including: 1. One-to-Four Family Contract (Resale) 2. New Home Contract (Incomplete Construction) 3. New Home Contract (Completed Construction) 4. Unimproved Property Contract 5. Residential Condominium Contract (Resale) 6. Farm and Ranch Contract TREC has two promulgated lease forms: 1. Buyer's Temporary Residential Lease - for use when the buyer occupies the property for no more than 90 days prior to closing. 2. Seller's Temporary Residential Lease - for use when the seller occupies the property for no more than 90 days after closing.
TREC temporary lease forms - use & limits
This lease is used when the buyer moves before closing. 90 days or less This lease is used when the seller remains in the property after closing
Purpose of the Notice to perspective buyer form
This notice complies with the provision of the Texas Real Estate License Act that requires that license holders advise buyers to have an abstract examined or obtain title insurance. All of the TREC-promulgated contracts have this notice in Paragraph 6 in the Title Notices section. This form could be used when a TREC contract is not being used or could be used anytime that the broker wants the buyer to acknowledge receipt of this advice
Broker-Lawyer Committee duties & purpose
The Texas Real Estate Broker-Lawyer Committee was created to draft and revise contract forms capable of standardization for use by real estate license holders These contract forms expedite real estate transactions and reduce controversies while containing safeguards adequate to protect the interest of the principals to the transaction. The Broker-Lawyer committee has 13 members. Six members are licensed brokers appointed by TREC, and six members are licensed attorneys appointed by the president of the State Bar. One public member is appointed by the governor.
Requirements for buyer approval according to the TREC Third Party Financing Addendum
APPROVAL OF FINANCING: This paragraph gives the buyer a specific number of days in which to obtain credit approval. The number of days allowed for credit approval varies, but sufficient time should be allowed. For the purposes of this addendum, time is of the essence. This means that if the buyer has been given twenty days in which to obtain approval, the approval must be obtained within the allotted twenty days. The days are calendar days, and the counting of days begins on the day following the effective date of the contract. The buyer has three options if credit approval has not been obtained within the allotted time: 1. Terminate the contract by providing written notice of the buyer's inability to obtain credit approval. 2. Allow the allotted time to run out without first obtaining credit approval. This would be risky, exposing the buyer to possible loss of earnest money or other liability under the contract if they fail to close. This option would presumably be used if the buyer had the ability to close without financing or was certain of his or her ability to obtain credit prior to closing. 3. Request an extension of time for obtaining credit approval from the seller. Of course, the seller would be under no obligation to agree to an extension. If an extension is given, be sure to get the extension in writing and signed by both the buyer and the seller.
TREC form RSC-2 - purpose & use requirements
Disclosure of Relationship with Residential Service Company, to disclose to a party to a real estate transaction in which the license holder represents one or both of the parties any payments received for services provided for or on behalf of a residential service company licensed under Texas Occupations Code Chapter 1303. Be aware that this disclosure applies to the entire brokerage firm. Brokers should advise all license holders in the firm of any compensation being received from a residential service company and the work that is being performed. A license holder is not required to use the form if a residential service company is not paying the license holder a fee. However, if the license holder or the sponsoring broker is paid for advertising services unrelated to any one transaction, the license holder must disclose such payments to the client.
Required use of TREC forms & exceptions to required use
License holders must not insert provisions into the contract that are addressed by using a TREC-promulgated addenda form. If provisions other than business details and factual statements need to be added that are not addressed by a TREC-promulgated addenda form, the parties should be referred to an attorney. TREC does not have any promulgated contract form for the sale of co-ops and has no forms for any type of commercial transaction. Also, TREC does not have any forms for the sale of mobile homes.
Paragraph 20 - Federal Tax Requirements
PARAGRAPH 20. FEDERAL TAX REQUIREMENTS: A seller who has no social security card or green card is considered a foreign person. The escrow agent will withhold from the sales proceeds an amount sufficient to comply with applicable tax law and deliver the same to the IRS. The contract says the buyer has an obligation to do this, but in reality, the escrow agent provides this service.
Paragraph 4 - disclosure of agency coupled w/an interest & family relationships
PARAGRAPH 4. LICENSE HOLDER DISCLOSURE: Paragraph 4 states that a license holder with a relationship with a party to the transaction must disclose this information to the other party before entering into a contract. LICENSE HOLDER DISCLOSURE: Texas law requires a real estate license holder who is a party to a transaction or acting on behalf of a spouse, parent, child, business entity in which the license holder owns more than 10%, or a trust for which the license holder acts as trustee or of which the license holder or the license holder's spouse, parent or child is a beneficiary, to notify the other party in writing before entering into a contract of sale.
Lender required repairs as addressed in the sales contract
PARAGRAPH 7.E. LENDER REQUIRED REPAIRS AND TREATMENTS: Lender required repairs, if any, are a negotiated expense item between the parties. If the lender repairs exceed 5% of the sales price, the buyer may terminate the contract and receive a refund of earnest money. Seller must complete all agreed to repairs prior to closing, or the closing date may be extended up to 5 days to complete repairs.
Items typically prorated/the proration process
PRORATION: Proration is the process of dividing ongoing expenses between the buyer and the seller at closing. Prorations are generally calculated through the day of closing for taxes, maintenance fees, and rents, if any, that the seller pays for on the closing day. Tax prorations may be calculated to take into consideration any change in exemptions that will affect the current year's taxes
Broker/seller commission agreements
Real estate brokerage fees are negotiated between the broker and the client. Fees are not set or recommended by the government or by any local, state, or federal organizationAny attempt to fix brokerage fees is a violation of the Sherman Act and the Clayton Act. License holders should never suggest that the fees that they charge are "customary," "mandatory," or "recommended." The listing agreement between the broker and seller addresses commissions in two areas. First, the agreement stipulates the fee that the broker will be paid if the property sells during the listing period. The fee is most often stated as a percentage of the final sales price. Secondly, the listing agreement specifies how the fee will be split between brokers if another broker sells the property. In many cases, two fees are stipulated. The selling broker may pay one fee to a broker who is a buyer's representative, and another fee to a broker who is a sub-agent of the listing broker.
The unlawful practice of law - specific examples
TREC can suspend or revoke a license suspended on proof that the license holder drew a deed, note, deed of trust, will, or other written instrument that transferred or affected the title to or an interest in land. Likewise, TREC can suspend or revoke a license if the license holder is found to have advised or counseled a person as to the validity or legal sufficiency of an instrument or as to the validity of title to real estate. License holders should not alter the pre-printed text of a promulgated form, as the alteration would likely amount to the unlawful practice of law. In many cases, license holders have added provisions to Paragraph 11, Special Provisions, that changed the legal effect of the contract. For example, inserting "time is of the essence" in Paragraph 11 changes the legal effect of the contract and could be interpreted as the unlawful practice of law by the license holder. License holders must not insert provisions into the contract that are addressed by using a TREC-promulgated addenda form. If provisions other than business details and factual statements need to be added that are not addressed by a TREC-promulgated addenda form, the parties should be referred to an attorney.
Farm and Ranch Contract - crops, accessories, improvements, - definitions
This includes the improvements, which are all man-made additions to the land, including the house, garage, and other permanently installed and built-in items. Included in the improvements are the usual residential improvements and specific farm and ranch improvements. PARAGRAPH 2.(C) Describes accessories, which, while not necessarily permanently installed or built-in, are commonly conveyed to Buyer in the sale. Accessories include the typical residential items. Farm and ranch accessories to be conveyed are indicated by checking the appropriate boxes. PARAGRAPH 2.D. CROPS: Even though Seller has the right to harvest right up to the delivery of possession, some Sellers may want to have the right to harvest after closing. For example, a cotton crop may not be ready to harvest at the time of closing, and since Seller has a significant investment in the crop, he may want the right to harvest some time after closing. If Buyer gives Seller this right, make sure Buyer is covered by a separate agreement for this operation. Buyer and Seller must agree as to how Seller will leave the land, including who will shred the stalks, plow the ground, and other issues.
Offers and the communication of offers
Under ideal circumstances, an offer on a residential property is presented in writing on the required forms, including addenda. On the other hand, circumstances are not always ideal, and any offer must be presented, even if it is an oral offer. All offers must be presented! An offer can be communicated by: • phone • fax • e-mail • letter • hand delivery
Lead paint - disclosures, dates, timing, buyer's rights, seller's responsibilities
built before 1978, you are being notified with this addendum that the property may present to the buyer exposure to lead found in the paint. the buyer may have the property inspected within 10 days of the effective date of the contract Broker must inform Seller of the seller's need to: (a) provide Buyer with the above-named pamphlet on lead poisoning prevention, (b) complete this addendum, (c) disclose if Seller is aware of lead-based paint and/or lead-based paint in or on the property, (d) deliver all records and reports to Buyer concerning lead-based paint and/ or lead-based paint hazards in the property, (e) give Buyer 10 days to have property inspected by an inspector of Buyer's choice, and (f) keep a copy of this addendum for at least 3 years following the sale of the subject property. Brokers must ensure compliance Both the Buyer and Seller certify by signing and dating on signature lines, respectively, that they have reviewed the entire addendum, recognize the addendum is required by federal law and to the best of their knowledge is true and accurate. Note that the brokers are also required to sign.