Section 5: Contract Law in Texas

Which of the following actions concerning tenant rights should real estate licensees take?

Learn and understand tenant rights.

Is it ever appropriate for a Texas licensee to provide legal counsel?

No, because that would be unauthorized practice of law

Where can licensees find all of the required forms promulgated by TREC?

On the TREC website

Who's required to complete the seller property condition disclosure form?

The seller

Which of these is a term for practicing outside the scope of one's license by offering legal advice or drafting legal documents?

The unauthorized practice of law

Tenant Rights

Know and understand tenant rights

When, and to whom, is a Texas licensee allowed to provide legal advice?

Never

What is a code of ethics?

Guidelines for conduct

Which authority administers the Texas Real Estate License Act?

Texas Real Estate Commission

When Will was found guilty of violating the Deceptive Trade Practices Act, the actual damages to his client were $7,000. But the court required Will to pay $21,000. Why might this be?

It was an intentional violation.

The purpose of promulgated forms in Texas is ______.

To make contractual terms crystal clear to the parties involved and to protect the parties involved

"TRELA is the real estate law and it is administered by TREC."

True

What is the difference, if any, between a TREC-approved form and a TREC-promulgated form?

An approved form is optional; a promulgated form is required.

According to the Texas rules relating to contract forms, the commission can't ban a licensee's use of a contract form when the form was prepared by a property owner or ______.

An attorney on behalf of a property owner

Maury is a service-oriented licensee in Texas. He always previews homes before showing, and he took a law course so he could help his clients decide what would be the best way for them to take title, and how to interpret legal clauses. If you were Maury's broker, what would you tell him?

"Your license is in jeopardy."

How many members does TREC appoint to the Broker-Lawyer Committee?

6

What is the term length for a member of the Texas Real Estate Commission?

6 years

When a real estate transaction involving a governmental agency takes place, the forms used in the transaction will need to be provided by that agency. This is what is known as an ______ to TREC's rule.

Exception

There are a few exceptions to the Texas rule requiring sellers to complete a seller property condition disclosure. Which of the options below is an example of such an exception?

Foreclosure properties

Which of the following is considered unauthorized practice of law?

Interpreting the legal consequences of a client's actions

Are you ready to be challenged? Jack was having a hard time deciding the proper promulgated form to use in his transaction. Jack was assisting Cari with purchasing a home on HUD's auction site. What contract form should Jack use?

Jack should use the forms that HUD provides for all HUD transactions.

James Barth is a real estate sales licensee. Currently, he's working with his clients, the Smiths, to purchase a home. When completing the required Promulgated One to Four Family Residential Contract, the Smiths look to him for better understanding, so he begins to explain the document to them.

James explained the meaning of statements and facts of the contract. He took care to not give any legal advice or opinions when doing so.

Which new Texas licensee is exempt from liability under the 2011 amendment to the DTPA?

Justin who accidently advised his client incorrectly

What key word do courts look for when deciding whether treble damages should be awarded in a case involving deceptive trade practices?

Knowingly

REALTOR Code of ethics

Members of the National Association of REALTORS® must subscribe to this

Which of the following would be a violation of the Texas Deceptive Trade Practices—Consumer Protection Act (DTPA)?

Misrepresenting the facts about the reasons for a price decrease

The Deceptive Trade Practices Act tries to prevent intentionally deceptive acts by providing for treble damages. Of these choices, which is an example of intentional deceit?

Not telling your client that the home they want to purchase will soon have a railway behind it.

Shelby is a new licensee. If he doesn't follow TREC rules relating to contract forms, what penalty might TREC impose?

Revocation or suspension of his license

Jessica is selling her own home. What promulgated form must she use per TREC rules?

She is not required to use a TREC form per the exception that she is selling the home on her own

Eliza heard that TREC updated nearly all of their promulgated forms recently. Where can she go to ensure she has the latest versions of the required forms?

She should go to the TREC website to download the forms

Shawnda, a Texas real estate licensee, has violated the Deceptive Trade Practices Act. She is required to compensate the victim $25,000. If it's found that she intentionally violated the act, what might the courts decide?

She will have to pay the victim $75,000 instead.

A form may be required by law, but not promulgated by TREC. In that case, there's often a _____-approved form available for licensee use.

TREC

Rulemaking authority for Texas Real Estate licensees is the responsibility of ____________.

TREC

Which of the following entities promulgates forms for Texas licensees?

TREC

Before being amended and renamed as the Texas Real Estate License Act, what was the name of the act that regulated licensed real estate activity?

The Real Estate Dealers Act

Which form is required by TREC and used for the owner to communicate to the buyer the known problems with the property?

The Seller Disclosure form

Where would Texas licensees find the requirements for completion of promulgated forms?

The Texas Property Code

Offering legal advice to your Texas client, whether intentionally or unintentionally, is considered ______.

The authorized practice of law

What does it mean when a court awards a plaintiff treble damages for a Deceptive Trade Practices Act?

The award for damages is tripled.

A Texas licensee may only strike through a clause or line item if it is not applicable to the transaction and the deletion is at the request of ______.

The client

The Commission's Mission with Contract Forms

The commission has rule-making authority and these rules have the full affect and force of the law. The rules relating to contract forms are to serve and protect the publics best interest.

In Texas, a potential consequence for the unauthorized practice of law is ______.

The revocation or suspension of one's real estate license

Understanding the Seller's Disclosure of Property Condition

The seller's disclosure form limits the seller's future liability by disclosing all known defects of the property. A licensee should have the seller complete this form at the time they list the home. If, for any reason, a buyer receives the disclosure after an offer is made on the property, the buyer has seven days from the date the form was received to terminate the offer. As usual, there are a few exceptions, one of them being that the seller disclosure form is not required if the property is new construction. As with all contract forms, if there's any confusion, seek the advice of your broker.

A Texas seller should complete the seller disclosure form at which phase in the transaction?

Time of listing

The purpose of TREC

To administer the laws, policies and rules under TRELA

What is the purpose of the Broker-Lawyer Committee?

To draft contract forms

What is the purpose of Deceptive Trade Practices Act (DTPA) with regard to real estate practice?

To protect consumers against real estate licensees who use false, misleading, or deceptive actions or practices in the advertising, offering for sale, selling, or leasing of personal property or real property

What is the purpose of the Texas Real Estate License Act?

To protect the public

According to Phillip, what's the purpose of the Texas Real Estate License Act?

To protect the public through the regulation of real estate licensees and other industry professionals.

The purpose of TRELA

To protect the public through the regulation of real estate professionals

"The purpose the committee must keep in mind when drafting and revising contract forms is to make the forms more efficient, rid them of potential controversy and to protect all the parties involved in real estate transactions."

True

The commission may adopt rules in the public's best interest that require license holders to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by the commission.

True

The Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) protects consumers against real estate licensees who ______.

Use lies, misrepresentations, fraud, or other deceptive practices or acts to advertise or sell real estate

An exception to the required use of promulgated contract forms in Texas is ______.

When an attorney drafts the necessary form on the owner's behalf

There are a few exceptions to the Texas rule that requires a seller to complete a property condition disclosure. Which of the following is an example of such an exception?

When the property is new construction.

Do You Know Which Forms are Optional

-Lead-Based Paint Addendum -Seller's Disclosure of Property Condition -Texas Real Estate Consumer Notice Concerning Hazards or Deficiencies

TRELA is an acronym for this

The Texas Real Estate License Act

To Do to Do When Completing Promulgated Forms

-Explain sections of the forms to your client to ensure their understanding-Mention to your clients that the forms they are about to sign are legal and binding

Kelly is a Texas real estate licensee, and her client has just asked for legal advice. Kelly should _____________.

Advise her client to seek legal counsel

Texas licensee Chip needs a form. TREC hasn't promulgated a form for this specific use, but does have an approved form available. Chip should ______.

Ask his broker which form to use.

Valentina is in the process of completing a sales contract for the purchase of a home in Texas. She has requested that her broker, Robert, provide legal counsel as she's new to the U.S. and wants to ensure her complete understanding of the home buying process. When is it appropriate for Robert to provide legal counsel to Valentina?

Never

A listing agent must include provisions informing parties of the availability of natural hazards information applicable to residents near _____ in Texas.

Coastal areas

Real estate licensee William is preparing a sale agreement that will include an unusual circumstance. What's his best course of action?

Consult an attorney.

Commission members

Nine

As a real estate licensee in Texas, if you advertise, otherwise market, or deal with a consumer using lies, misrepresentations, fraud, or other deceptive practices or acts, which act are you violating?

Deceptive Trade Practices-Consumer Protection Act

Basic Duties of the Broker-Lawyer Committee

Draft and revise new and existing forms

"It's illegal to fill in the blanks on promulgated contract forms."

False! You want to fill in the blanks

Which one of these statements is true as it relates to the required use of contract forms?

License holders are required to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and approved by the Texas Real Estate Commission, unless the contract form is prepared by a property owner or prepared by an attorney on behalf of a property owner.

TRELA rule on contract forms

Licensees must use forms that are promulgated by the Broker-Lawyer Committee and adopted by TREC

Texas licensee Jan drafted a sales contract, which her buyer and the seller of the home both signed. Jan could ______.

Lose her license

The Texas Real Estate Commission is the only entity that can ______ contract forms, making their use mandatory by real estate licensees in Texas.

Promulgate

In Texas, a contract form may be required by law, but not ______ by TREC.

Promulgated

The seller's disclosure notice is a required form by Texas law; however, it is not ______ by TREC.

Promulgated

Texas licensee Melinda has thoroughly reviewed the sales contract with her clients, the Arnolds, and has ensured that they understand all of the terms, provisions and that it is legally binding. What should Melinda do before her clients sign the contract?

Recommend that the Arnolds review the sales contract with an attorney before signing it

Tamron is the listing agent for Anthony's 25 acres of land. Carter is interested in purchasing the land and makes a full-price offer on the land. Anthony thought he could get more for his property because the first offer came in at full price and asked Tamron to counter-offer for a higher price. Carter, upset that his full price offer wasn't accepted, mentioned possibly contacting his lawyer to force the sale at the list price. Tamron persuaded Carter otherwise by telling him that it would be a lengthy process, cost more money, and, in her opinion, would not go in Carter's favor. Based on what Tamron told him, Carter agreed to the counter-offer and the sale was completed. Afterward, Carter filed a complaint. What do you think? Was Tamron in violation?

Yes

Texas licensee Jenna is working with a seller who doesn't want to complete the property condition disclosure. What is a good response?

"This form can help protect you from litigation."

Under what circumstances may a Texas licensee offer legal advice to a client?

Never

If Jemma were looking for the requirements for completing a promulgated form in Texas, where should she look?

Texas Property Code

How many members make up the Broker-Lawyer Committee?

13

Other rules related to contract forms pertain to the listing form. Identify the two provisions that must be included in the listing form.

-A provision informing the parties that real estate commissions are negotiable -A provision explaining the availability of Texas coastal natural hazard information

How Well Do You Know the Commission's Authority?

-Administer the law known as TRELA -Adopt rules and policies to protect the public -Establish rules requiring real estate licensees to use contract forms adopted by the commission -Suspend or revoke a license holder's license for unauthorized practice of law

Donald owns a commercial property. He hired Marcus as his real estate agent. After the property sold, Donald was upset to learn that had he disposed of the property through a trade rather than through a sale, his tax position would have been more favorable. What action(s) should Marcus have taken? Select all that apply.

-Advise Donald that the sale of the property might lead to unfavorable tax consequences -Suggest that Donald contact an attorney to discuss tax consequences of the transaction

Exception to Using Promulgated Forms

-Department of Housing and Urban Development wants you to use their own forms. -Transactions in which a person is representing only themselves. -If a property owner, or the property owner's attorney prepares the form.

Rule relating to contract forms

-License holders use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by TREC. -A listing form states that real estate commissions are negotiable. -A listing form outlines the availability of Texas coastal hazards information to coastal residents.

Items of Disclosure

-Roof repairs or replacement -Basement leaks -Pest damage -Source of drinking water

The seller's disclosure form requires certain actions of sellers. Which of these are true about the requirements?

-Sellers of one- to four-family residential properties must provide a disclosure. -Sellers must disclose any known material defects about the property to a prospective buyer. -Seller's must be truthful and honest when completing the form.

What are the potential repercussions for the unauthorized practice of law?

-Suspension of license -Revocation of license

One key to practicing within your area of expertise and avoiding unauthorized practice of law is understanding the actions you can and cannot take. Let's start by reviewing some of these actions.

-Use existing forms that have been reviewed by an attorney -Explain clauses to your clients -Crunch numbers for your clients -Notify buyers that a sale will likely prompt an increase in property taxes -Recommend buyers obtain professional home inspections -Provide a qualified list of professionals to your clients

How many lawyers does the governor appoint to the Broker-Lawyer Committee?

0

The governor appoints how many lawyers to the Broker-Lawyer Committee?

0

How many members of the general public are a part of the Broker-Lawyer Committee?

1

Joni is a new licensee representing the sellers of a home. Darla, also a new licensee, overhears Joni speaking with her clients when they ask about the Seller's Disclosure of Property Condition, and if they must disclose a crack in their home's foundation. Joni replies that, because the seller disclosure form is optional, there's no need to complete it if the sellers don't want to. Darla realizes that she needs to speak with Joni to inform her that the seller disclosure is in fact required, and even though the form TREC offers is optional, the disclosure itself is required by law. Is Darla right or wrong?

Darla is right.

Which of the following is a true statement about TREC-approved and promulgated forms?

Licensees must use promulgated forms, but approved, non-promulgated forms are optional.

What is the purpose of the Texas seller property condition disclosure?

Protect the seller from future liability

Texas licensee James is working with his clients, the Murphys, who are purchasing a new home. After he has explained to them the ins and outs of the sales contract, they still have additional questions and ask if they should consult with an attorney. What else should James do at this point?

Recommend they seek legal counsel on their own.

Alexander is a new sales agent in Texas currently representing Jim and Sue who are purchasing a home from Patricia. Patricia has had an attorney on hand for several years to consult in business dealings and other important matters. She has decided she'd be more comfortable if her attorney drafted the contract form for use in the sale rather than use a Texas promulgated form. Can Alexander move forward with his clients in the transaction with a contract drafted by the property owner's attorney?

Yes

Consider the example mentioned by Philip to Janice. If she steered a client away from a home inspection, telling her client they were a waste of money, just to make sure there were no hang-ups on the way to closing (and her commission check!), would this violate the Deceptive Trade Practices Act?

Yes

Nathan and Cassie are friends. Cassie, a real estate licensee, recently provided some real estate services to Nathan's company. Now, Nathan is preparing to do some work-related travel overseas and wants to give his wife power of attorney in case anything comes up while he's gone. He asked Cassie to prepare the POA for him and she agreed. Did Cassie violate her responsibilities as a real estate licensee?

Yes