Section 5: Covenants, Commitments and Notices in Texas Contracts
Escrow
A neutral repository for client funds
After closing
Title policy
Which section of the TREC residential One to Four Family (resale) contract identifies the party who will pay for title insurance and the extent of the policy coverage?
Title policy and survey section
What's the purpose of the Residential Real Property Affidavit T-47?
To help the lender and title company decide whether to accept the seller's existing survey or to request a new survey
What is the purpose of the license holder disclosure requirement of the TREC residential resale contract?
To protect the public by requiring license holders to disclose to the other party that they have a real estate license when they, close relatives, or certain entities are parties to a transaction
What's the purpose of the earnest money deposit?
To show the seller that the buyer is serious and intends to go through with the purchase
Survey part II
A blueprint or map showing measurements, boundaries, and area of a property
Before the title company will issue an insurance policy to the buyer, which of the following must a seller furnish to the buyer?
A commitment
Earnest money
A deposit to show sincere intention to purchase a property
What are the documents that the title company provides to the buyer along with a title commitment?
Evidence of exceptions in the title commitment
Title policy
Insures the policy owner against financial loss if the title to real estate is defective
Where does the buyer deposit the earnest money when the sales contract is signed?
Into an escrow account
Earnest money Part II
Money deposited to show a sincere intention to purchase a property
Option fee
Money paid for the right to terminate the contract during a defined period of time
In some cases, the buyer may offer to make an additional deposit of earnest money. When is the additional earnest money deposit due?
On the date specified
Title commitment
States that a title company is willing to issue title insurance under certain conditions
Commitment
States that the seller agrees to provide a commitment for title insurance.
Objections
States the buyer's objections to defects, exceptions, or encumbrances to title found in the survey or seller's title commitment.
Tide Waters
Required by Texas Natural Resources Code if the property abuts tidally influenced waters of the state
To which party is the title policy issued?
The buyer
Before closing
Title commitment
When, how, and to whom must the license holder disclosure be given?
-In writing -To the other party -Before entering into the sales contract
What's an option period as it's used in a TREC residential resale contract?
When the buyer who has paid an option fee can terminate the contract for any reason
Title notices
Draws the buyer's attention to various items that could affect title, if applicable to the property.
Propane Gas Systems
Required by the Texas Utility Code if the property is in this system service area owned by a distribution system retailer
Which of the following describes the Annexation section of the title notices paragraph provided in the TREC One to Four Family Residential Contract (Resale)?
Required by Texas Property Code if property may now or later be included in the extra-territorial jurisdiction of a municipality
Which of the following describes the Tide Waters notice of the Title Notices provided in the TREC One to Four Family Residential Contract (Resale)?
Required by the Texas Natural Resources Code if the property abuts tidally influenced waters of the state
Buyer's expense
The buyer obtains a survey.
Encroachment
An illegal intrusion of some structure or object across a boundary line
Ryan is a buyer who would like to make his offer attractive to the seller. Which of the following would show his sincere intention to purchase the property?
An earnest money deposit
Request a new survey
"I've added a swimming pool to the property since the last survey."
Your Turn to Try
"Mia, earnest money shows the seller that you are sincere in your intention to purchase the property. It's not required, but may make your offer more attractive to the seller. You specify the amount here in section five and then when the contract is signed, you'll deposit that amount into escrow. If the seller defaults on the contract, your deposit will be returned. If you default on the contract, the deposit will be paid to the seller. Of course, we're all hoping for this sale to close and in that case, your deposit will be applied to your down payment and closing costs."
Accept existing survey
"There have been no construction projects or changes in the fencing."
Nancy is explaining the termination option to her buyer client. How would she explain that "time is of the essence" for the termination option?
"This means that the deadline for depositing the option fee and the time frame for the option period will be strictly enforced. You don't want to miss these deadlines."
Let's say that a seller receives three offers to consider. Each one offers to pay the list price of $225,000 and a 20% down payment of $45,000. Assuming that the other terms of the contract are similar, which offer of earnest money would the seller find the most attractive?
$2,250
The first notice simply advises the buyer to obtain a title policy and/or have the abstract for the property examined by an attorney. TRELA requires that every licensee give this written notice to every buyer. Licensees can give this notice a few ways. Can you identify which three of the following forms include this written notice?
-Any TREC contract -TREC Notice to Prospective Buyer -TAR's Buyer Representation Agreement
The second notice requires a response to indicate whether or not the property is subject to mandatory membership in a property owners association. If so, the buyer is notified of which of the following?
-Obligation to pay assessment -Entitlement to copies of governing documents -Optional addendum regarding association membership
Disclosure Required
-Parent -Business entity in which the license holder owns 25% -Spouse
What happens if no dollar amount is stated as the option fee?
-The buyer won't have the unrestricted right to terminate the contract. -The termination option won't be part of the sales contract.
Termination Option
-The option fee can be negotiated in the sales contract. -During the option period, a buyer may terminate the contract for any reason and get their earnest money back.
The Title Policy
-The seller is responsible for providing the buyer with a title insurance owner policy. -The buyer is only insured against loss under the provisions of the title policy, which are subject to existing exclusions and a list of exceptions. -The amount of the title insurance must equal the purchase/sales price.
How many days does the Texas seller have to deliver a "commitment for title insurance" to the buyer under the terms of the TREC One To Four Family Residential Contract (Resale)?
20
How many days after receiving the buyer's list of objections to defects, exceptions, or encumbrances to title does the seller have to cure the objections under the TREC residential One to Four Family (resale) contract?
15 days
Per the Objections paragraph, the buyer and the buyer's lender are given a certain amount of time to review the title commitment, exceptions documents, and survey, and object in writing to any defects, exceptions, or encumbrances to title they may find. Within how many days of receiving the objections does the seller have to cure them?
15 days
Which of the following statements about obtaining a property survey for the title company and lender is true?
An existing survey may be used if it's accompanied by a Residential Real Property T-47 affidavit.
What is a title commitment?
An agreement by a title insurer to issue the final title insurance policy on the property after closing
Down payment
An amount of cash the buyer contributes to the purchase price
What's an option fee as it's used in the TREC residential resale contract?
An amount of money paid for the buyer's right to terminate the contract during a defined period of time
Remember Keira and her buyers, Brian and Peggy Haley? The Haleys decided to ask the seller to pay for the owners policy of title insurance. In Texas, it's customary for the owners policy of title insurance to be furnished at the seller's expense. So, is the policy issued to the seller or to the buyer? Select the party who will be covered by the title policy.
Buyer
If the buyer doesn't object in writing within the time allotted in the Objections paragraph of the TREC One to Four Family Residential Contract (Resale), which of the following is waived?
Buyer's right to object
Under the terms of the TREC One To Four Family Residential Contract (Resale) , what recourse do buyers have if a seller is unable to deliver the title commitment and exception documents to the buyer within the allotted time, due to factors beyond the seller's control?
Buyers can terminate the contract and have their earnest money refunded.
According to the Objections paragraph of the TREC One to Four Family Residential Contract (Resale) , how much time does the buyer have to object to title defects after receiving the commitment, exception documents, and survey?
By closing or the number of days specified, whichever is earlier
In which section of the TREC One To Four Family Residential Contract (Resale) do buyers indicate the amount of earnest money they are putting down?
Earnest money section
Title policy
Identifies who will pay for the title insurance policy, and what types of exceptions are acceptable to the buyer.
Survey
Includes options for obtaining professional measurements and boundaries of the property.
Which of the following statements about the owner's title insurance policy is true?
It insures the buyer against loss due to title defects under the provisions of the title policy, which are subject to existing exclusions and a list of exceptions.
What typically happens to any earnest money when a sales transaction successfully closes?
It's applied to the down payment and closing costs owed by the buyer.
Nick, a Texas license holder, is helping his son, Peter, locate a home he can afford to buy and is acting as Peter's agent. Peter has found a property that he wants to make an offer on. Which of the following statements regarding this situation is true?
Nick is required to disclose his relationship to the seller in writing prior to the parties entering into the contract.
Is Wayne, a sales agent, required by TREC rules to disclose that the buyer is also his mother-in-law?
No
The buyer and the seller may negotiate the length of an option period—the time during which the buyer may terminate the contract for any reason. If the option period has expired when the buyer terminates the contract, is the earnest money refunded to the buyer?
No
Rick is representing a business in a sales transaction. Rick owns 3% of the business. Is Rick required to provide a written license holder disclosure notice to the other party in the transaction?
No, because Rick does not own more than 10% of the business.
Brad, a Texas license holder, is acting on behalf of his brother, Ben, who's selling his home. Is Brad required to provide a written license holder disclosure notice to the other party in the transaction?
No, because license holder disclosure is not required when acting on behalf of siblings.
The option fee and the ______ are part of the terms of the termination option in the TREC residential One To Four Family (resale) contract.
Option period
In what form can a buyer pay earnest money?
Personal check
Restrictive covenant
Promises that appear on a deed and prohibit or require specific use of the property
What is a restrictive covenant?
Promises that may appear on a deed, and prohibit or require specific use of the property
Exception document
Provides evidence of exceptions in the title commitment
Annexation
Required by Texas Property Code if property may now or later be included in the extra-territorial jurisdiction of a municipality
Statutory Tax Districts
Required by Texas Water Code if the property is located in a district providing water, sewer, drainage, or flood control services
Public Improvement Districts
Required by the Texas Property Code if the property is subject to assessment for an improvement project
Transfer Fees
Required by the Texas Property Code if the property is subject to this fee obligation
Water Level Fluctuations
Required by the Texas Water Code if the property adjoins an impoundment of water
If the seller wants to provide an existing survey of the property, what other document is required under the Title Policy and Survey section of the TREC residential resale contract?
Residential Real Property Affidavit T-47
Koby is a Texas seller who has a recent property survey that he would like to provide to the buyer's lender and title company. Koby swears and notarizes a statement about any changes to the property since the existing survey. What document does Koby use to provide his statement?
Residential Real Property Affidavit T-47
The Texas seller must provide a survey that's acceptable to the buyer's lender and title company under the provisions of the Title Policy and Survey section of the TREC One to Four Family Residential Contract (Resale). The seller may submit an existing survey and a ______.
Residential Real Property Affidavit T-47
Simone is a trustee for her children's trust fund. Simone is also a broker. When she buys or sells investment property on behalf of that trust, which of the following is required by Texas law?
Simone must disclose in writing to the other party that she holds a real estate license.
The notice that advises the buyer to have the abstract or title policy examined by an attorney is required by which of the following pieces of legislation?
TRELA
What recourse do buyers have if a seller is unable to cure the title issues within 15 days after receiving the buyer's list of objections?
Terminate the contract.
If the buyer is putting earnest money down, which of the following statements is true?
The buyer must specify the exact amount in the contract.
Paige is a seller considering several offers for her property. One of the offers states that the buyer is offering two thousand over the asking price and earnest money in the amount of 1% of the offer. What does this mean?
The buyer is serious about wanting to purchase the property.
In a perfect transaction, the lender will accept the seller's survey, and the transaction will proceed to closing. But the survey may reveal a problem. In that case, what option is offered in paragraph 6D of the TREC residential resale contract?
The buyer may object in writing to defects, exceptions, or encumbrances to title disclosed on the survey.
What happens if the seller is unable to furnish the buyer with the commitment and exception documents within 20 days after the title company has received a signed copy of the TREC One to Four Family Residential Contract (Resale) ?
The deadline for delivery is automatically extended.
What typically happens to the earnest money when a buyer defaults on the sales contract?
The earnest money is paid to the seller.
Which of the following statements about the option fee in the TREC residential resale contract is true?
The option fee gives the buyer the right to terminate the contract for any reason during the option period.
What about the owner's policy of title insurance can be negotiated in the TREC One To Four Family Residential Contract (Resale)?
The selection of the title company and who will pay for the title policy
Title Commitment
The seller has 20 days from the date of the title company's receipt of the contract to deliver a commitment for title insurance to the buyer. -The delivery date is automatically extended, up to 15 days or three days before closing, whichever is earlier.
What happens when a Texas buyer who has paid the seller an option fee under the TREC residential One to Four Family (resale) contract terminates the contract after the option period expires?
The seller keeps the option fee and may get to keep the buyer's earnest money.
What happens when a buyer who has paid the seller an option fee terminates the contract during the option period?
The seller keeps the option fee, and the buyer gets the earnest money back.
Seller's expense
The seller provides a new survey.
Either seller or buyer, if needed
The seller provides an existing survey.
Robin, a buyer, has offered to pay an option fee to the seller within three days of the effective date of the contract. Robin put her check for the option fee in the mail and, unfortunately, the seller received it six days after the effective date of the contract. What happens next?
The termination option will not be part of the contract.
Frank is a buyer who wants an option to purchase but doesn't want to pay the seller an option fee. He puts "0" for the option fee amount in Paragraph 23 Termination Option in the TREC residential resale contract. What does this mean?
The termination option won't be a part of the sales contract.
If the title company doesn't deliver the title commitment within 20 day after receiving a copy of the TREC One To Four Family Residential Contract (Resale), what happens next?
The time for delivery is automatically extended by 15 days, or to three days before closing, whichever occurs earlier.
Which of the following statements about the title commitment is true?
The title commitment is the title insurance company's promise to issue a title insurance policy.
Which of the following documents insures the buyer against loss because of title issues and must be furnished by the seller to the buyer?
The title insurance owner's policy
If a buyer does offer earnest money, when must the earnest money be deposited into escrow?
Upon seller acceptance
Besides the name of the title company, which of the following information is needed in the Title Policy paragraph of the TREC One To Four Family Residential Contract (Resale)?
Whether the buyer or the seller will pay for the title policy
In the TREC One To Four Family Residential Contract (Resale), the Title Policy paragraph has checkboxes to indicate which of the following?
Whether the seller or the buyer will pay for the title policy
In a section of a contract, the legal phrase, "time is of the essence," means the parties agree to a strict time frame as part of the agreement. The termination option in the TREC residential resale contract states, "Time is of the essence for this paragraph and strict compliance with the time for performance is required." If a buyer pays the seller the option fee within three days after the effective date of the contract, does the buyer have the right to terminate the contract?
Yes
Jenna, a license holder, is acting on behalf of her spouse, Dan, who's making an offer on a property. Is Jenna required to provide a written license holder disclosure notice to the other party in the transaction?
Yes, because Jenna is acting on behalf of her spouse.