Texas Promulgated Contract Forms

Misrepresentation Vs. Fraud

Not always intentional. It can be a careless disregard for the truth that entices another into a contract. If the other party depends on the information and then experiences a loss, the party who committed the misrepresentation is still guilty. When the misrepresentation was committed intentionally to influence someone to enter into a contract and the other party depends on that misrepresentation, it is fraud.

Contracts for deed and lease option Contracts

The Texas Property Code considers contracts that do not close for an extended period as executory contracts. Usually the purchaser takes possession but does not get legal title until sometime later (often after all payments are made, etc.). Contracts for deed, land sales contracts, and lease with option to buy are all considered executory contracts under Texas state law.

Third Party Financing Addendum

The Third Party Financing Addendum creates a financing contingency for the purchaser on the contract for a limited period of time. Probably the most used addendum. The contingency is located on the second page

Community Property

All property acquired during a marriage is presumed to be community property. Under Texas laws, if you are married and are survived by a spouse and children, then: 1. Your surviving spouse will inherit all your community property if all your children are also the children of your surviving spouse; 2. Otherwise, all your one-half interest in the community estate will pass to your children, with your spouse keeping only his or her one-half interest. If you do not have any children, then your surviving spouse will inherit all of your community property.

In Texas - it must be written and say:

For a contract to exist there must be some form of mutual assent, either through a written agreement or actions. If it is in regard to real estate in Texas, it must be written. A phrase such as: "I accept and agree to all of the conditions and provisions stated in this contract" should be included in the document, along with the signatures of all the parties bound by the contract.

Reasons for Termination

The best way for any contract to terminate is to become fully executed (closed). Unfortunately, there are many other reasons a contract can terminate including the following: Paragraph 23 gives the buyer the right to terminate for any reason, within a limited time frame, if the buyer has purchased an option to terminate. ...Many other paragraphs.... Either party may terminate if an expense they have agreed to pay in a specific amount, exceeds that amount and the other party refuses to pay the excess.

Practice of Law

involves giving legal advice to clients, drafting legal documents for clients, and representing clients in legal negotiations and court proceedings such as lawsuits. The practice of law is applied to the professional services of an attorney at law, barrister, solicitor, or civil law notary. However, there is a substantial amount of overlap between the practice of law and various other professions where clients are represented by agents. These professions include real estate, banking, accounting, and insurance.

Unilateral Contract

made between two or more parties in which only one of those parties makes a promise or otherwise accepts an obligation. In short, this contract is an offer (promise) which can only be accepted by actually performing the terms of the offer.

Four Corners Rule

requires courts to interpret the meaning and understanding of the provisions contained in a document by considering the overall meaning and intention of that document. In such an interpretation of document, any external factors will not influence the meaning.

Lesson 2

Laws, Rules, and Regulations

Competent Parties: 18, Sane, and Sober

In United States law, competence concerns the mental capacity of an individual to participate in legal proceedings or transactions, and the mental condition a person must have to be responsible for his or her decisions or acts. Competence is an attribute that is decision specific. Depending on various factors which typically revolve around mental function integrity, an individual may or may not be competent to make a particular medical decision, a particular contractual agreement, to execute an effective deed to real property, or to execute a will having certain terms.

Quitclaim Deed

In a quitclaim deed, the grantor is saying, "I may or may not own the property but if I have any claim I give it up." The quitclaim deed transfers ownership of whatever the grantor owns but makes no guarantee of ownership and no promise to defend.

Novation

An alternative to assignment is novation, which is the substitution of a new contract for an existing contract. Once the substitution has been made, the parties bound by the contract can cancel the old contract. The new contract is subject to the same standards as the old contract; this means that it must meet the minimum requirements in order for the substitution to be valid.

Settlement Statement

The title company is required to supply you with a Closing Disclosure at least 3 days before the closing. It has all the numbers of who pays and gets what. Be sure to review the statement and compare it to the Loan Estimate you received after your loan application, as soon as you get it, and call the title company if there is anything you don't understand. On the closing day, the buyer and seller go to the title company. The buyer usually wires the funds needed to close a day before closing. Seller usually brings the keys. Each signs a pile of papers and the buyers are given the keys. The seller gets his money wired after the buyer's loan funds, which is later in the day or the next business day or goes back later and picks up his check.

Remedies for a Breach of Contract

When an individual or business breaches a contract, the other party to the agreement is entitled to relief (or a "remedy") under the law. The main remedies for a breach of contract are: • Damages, • Specific performance, or • Cancellation and restitution

Compensatory Damages

aim to put the non-breaching party in the position that they had been if the breach had not occurred.

Acceptance of Trust Money

(1) Any trust money accepted by a broker is held in a fiduciary capacity and must be maintained in a designated trust account maintained by the broker or delivered to an escrow agent authorized in Texas in accordance with the agreement of the principals of the transaction. (2) A salesperson shall not maintain a trust account. Any trust money received by a salesperson must be immediately delivered to the salesperson's sponsoring broker.

Contract

A contract is a legally binding and enforceable agreement to do or not to do a specific thing. Expressed contracts are either verbal or written, while implied contracts are created by actions, not in writing.

Void Contract

A void contract has no legal effect; this means that the stipulations and conditions in the contract cannot be legally enforced. A void contract is an attempt to create a legally binding agreement; however, it does not impose any legal rights or satisfy the requirements of a legally valid contract.

Assignment of Contract Rights

Assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if Party A contracts with Party B to sell Party A's car to Party B for $10, Party A can later assign the benefits of the contract - i.e., the right to be paid $10 - to Party C. In this scenario, Party A is the obligee/assignor, Party B is an obligor, and Party C is the assignee.

Texas Deceptive Trade Practices Act

Basically, Texas Legislature wanted to prohibit a seller's ability to sell something without warranties; they wanted to prohibit sellers from selling items "as is." In the 1970s, it was the responsibility of the consumer to ensure that he or she protected himself or herself from misrepresentation - as the adage states, "let the buyer beware." However, legislature wanted to move away from that maxim because of increasing levels of fraud and misrepresentation. A violation of the Deceptive Trade Practices Act occurs if an individual knowingly makes a false statement concerning the appearance, value or condition of something to a buyer that causes a detrimental loss to that buyer.

Lesson 1

Contract Law Overview

Statute of Frauds

Each state has a law known as the Statute of Frauds; this law requires that specific contracts be in writing and signed by all of the parties who are bound by contract. The purpose of the Statute of Frauds is to ensure that all of the parties have the terms of their agreement readily in hand; by having a copy of their agreement, any disputes that arise can be easily resolved.

Fraud and Misrepresentation

Fraudulent conduct can take many forms but basically includes a transaction whereby one party: • Makes a material misrepresentation; • The representation was false; • The party knows it is false or made the statement recklessly without any knowledge of the truth • Makes the representation intending that the other party rely upon it; and • The other party relied upon the misrepresentation to their detriment.

Duress

Happens when a party is acting while under threat or in some manner is being forced into the contract. Misrepresentation, fraud, and duress can all be causes for a party to rescind the contract.

Q: We tried to buy a house but our loan application was not approved. Our $500 earnest money had been deposited with a title company and they said they wouldn't return it without a release signed by the seller, which the seller won't sign. What can you do to help us?

The Commission does not have jurisdiction over title companies. While a license holder is encouraged to assist the parties in the exchange of the necessary earnest money release and need to sign the release as appropriate, there is nothing in TRELA or the Rules to determine who is entitled to the earnest money. You will need to consult a private attorney.

What Assignment will be permitted

The common law favors the freedom of assignment, so an assignment will generally be permitted unless there is an express prohibition against assignment in the contract. Where assignment is thus permitted, the assignor need not consult the other party to the contract. An assignment cannot have any effect on the duties of the other party to the contract, nor can it reduce the possibility of the other party receiving full performance of the same quality.

How long does an agent have to deposit the earnest money once a binding contract has been negotiated?

The earnest money must be deposited by the close of business on the second working day after execution of the contract by the principals, unless a different time is agreed upon in writing by the principals to the transaction.

Assignment vs Novation

Typically, a third-party is involved in a contract with the assignor, and the contract is in effect transferred to the assignee. For example, a borrower borrows money from a local bank. The local bank receives a mortgage note and can thereafter transfer that note to a financial institution in exchange for a lump-sum of cash, thereby assigning the right to receive payment from the borrower to another entity. Mortgages and lending contracts are relatively amenable to assignment since the lender's duties are relatively limited; The related concept of novation is not assignment; rather than assigning only the rights to another party, novation involves the replacement of the original party with a new party or the replacement of the original contract with a new contract. Since novation creates a new contract, it requires the consent of all parties whereas assignment does not require the consent of the non-assigning party

Communication of Acceptance

• The acceptance must be communicated. Prior to acceptance, an offer may be withdrawn. • As acceptance must be communicated, the offeror cannot include an Acceptance by Silence clause. • An exception exists in the case of unilateral contracts, in which the offeror makes an offer to the world that can be accepted by some act. • An offer can only be accepted by the offeree, that is, the person to whom the offer is made.

In a Mutual Agreement

• There must be an offer and acceptance. • There can be an offer and a counteroffer. • The contract must not contain any form of fraud, misrepresentation, or duress. • There cannot be mistakes in the terms and conditions of the contract

Texas is a Community Property State

Community property is generally considered to be all property that the two parties acquired during the marriage or partnership and includes debts, physical property, financial instruments, and money. This means that community property includes bank accounts, retirement accounts, income, stocks, home equity, vehicles, furniture, mortgages, credit card debt, tax debt, and student loans. When two parties divorce in a community property state, all the property acquired during marriage will be divided evenly.

Section 537.11b of the Rules of the Commission says that a licensee may not:

(1) Practice law, (2) Offer, give or attempt to give legal advice directly or indirectly (3) Give advice or opinions as to the legal effect of any contracts or any other such instruments which may affect the title to real estate (4) Give opinions concerning the status or validity of real estate or (5) Attempt to prevent or in any manner whatsoever discourage any principal to a real estate transaction from employing a lawyer.

Powers and Duties

(a) In addition to other delegated powers and duties, the committee shall draft and revise contract forms that are capable of being standardized to expedite real estate transactions and minimize controversy. (b) The contract forms must contain safeguards adequate to protect the principals in the transaction.

Committee Membership

(a) The Texas Real Estate Broker-Lawyer Committee consists of 13 members appointed as follows: (1) six members appointed by the commission; (2) six members of the State Bar of Texas appointed by the president of the state bar; and (3) one public member appointed by the governor. (b) Appointments to the committee shall be made without regard to the race, creed, sex, religion, or national origin of the appointee.

When negotiating, contracts binding the sale, exchange, option, lease or rental of any interest in real property, a real estate licensee shall use only those contract forms promulgated by the Texas Real Estate Commission for that kind of transaction with the following exceptions:

1) Transactions in which the licensee is functioning solely as a principal, not as an agent; 2) Transactions in which an agency of the United States government requires a different form to be used; 3) Transactions for which a contract form has been prepared by the property owner or prepared by an attorney and required by the property owner; 4) Transactions for which no standard contract form has been promulgated by the Texas Real Estate Commission, and the licensee uses a form prepared by an attorney at law licensed in this state and approved by the attorney for the particular kind of transaction involved or prepared by the Texas Real Estate Broker-Lawyer Committee and made available for trial use by licensees with the consent of the Texas Real Estate Commission.

Once a contract has been created, it falls into one of four categories:

1. Valid 2. Void 3. Voidable 4. Unenforceable

Legal Hotline

800-873-9155 It is your link to an attorney who can provide information about real estate law and related matters. All Texas REALTORS® can call the hotline. The designated REALTOR® for your office will be notified by e-mail when you call.

Breach of Contract

A business contract creates certain obligations that are to be fulfilled by the parties who entered into the agreement. Legally, one party's failure to fulfill any of its contractual obligations is known as a "breach" of the contract. Depending on the specifics, a breach can occur when a party fails to perform on time, does not perform in accordance with the terms of the agreement, or does not perform at all. Accordingly, a breach of contract will usually be categorized as either "material" or "immaterial" for purposes of determining the appropriate legal solution or "remedy" for the breach.

Unenforceable

A contract that cannot be enforced by the courts is unenforceable. An unenforceable contract was once a valid contract, but its enforcement is now barred by the statute of limitations or the doctrine of laches. It is essentially a contract without any legal remedy because the time allotted for enforcement has elapsed.

Remember that clients must make the decisions

Agents can tell them their options but can never tell them what to do. Agents should not even share what they would do themselves or how they would advise a family member. If clients need legal advice to decide, they must be advised to seek advice from an attorney. The client must always give instructions to the agent, never the other way around. Agents provide information, clients make decisions.

The Texas Real Estate License Act, 22 TAC 537.11, contains the following:

A license holder may not: (1) practice law; (2) offer, give or attempt to give legal advice, directly or indirectly; (3) give advice or opinions as to the legal effect of any contracts or other such instruments which may affect the title to real estate; (4) give opinions concerning the status or validity of title to real estate; or (5) attempt to prevent or in any manner whatsoever discourage any principal to a real estate transaction from employing a lawyer. This section does not limit a license holder's fiduciary obligation to disclose to the license holder's principals all pertinent facts which are within the knowledge of the license holder, including such facts which might affect the status of or title to real estate. A couple of other cautions regarding attorneys. Real estate agents can never furnish an attorney to their client. Clients must choose and pay for their own attorney

Cancellation and Restitution

A non-breaching party may cancel the contract and sue for restitution if the non-breaching party has given a benefit to the breaching party. "Restitution" as a contract remedy means that the non-breaching party is put back in the position it was in prior to the breach, while "cancellation" of the contract voids the contract and relieves all parties of any obligation under the agreement.

General Warranty Deed

A promise of general warranty from the seller (grantor) means the seller will warrant and forever defend the property against anyone and everyone making a claim against the property. The grantor also warrants that neither he nor his heirs have conveyed an interest in the property to anyone else and that the property is free from encumbrances. Grantor owns and will defend the property.

Special Warranty Deed

A special warranty deed also warrants that the grantor owns the property and there are no encumbrances on the property that were put on by this grantor. The big difference with the general warranty deed is that in the special warrant deed the grantor does not promise to defend the property if something arises from a period before his or her ownership. The grantor defends during his ownership only. (In real estate sometimes the word "special" means limited. Don't assume it means better.)

Void

A void contract means that the contract has no legal effect; it, in essence, cannot be enforced or carried out because the terms of the contract do not create legal rights or the terms call for illegal acts. A voidable contract has all of the essential elements of a legally enforceable contract, but one or more of the parties has the authority to rescind the contract. Usually, in a voidable contract, one party is either mentally incompetent or a minor or the contract involves fraud or duress.

Addenda

Addenda are materials added to and included in the initial contract. It is important to include any information regarding the transaction in the contract. When a dispute goes to court, the court is bound by the Parol Evidence Rule. The court can only consider what is inside the contract from the beginning to end of the contract. Legally, it does not matter what sellers said they would leave or what they said they would fix. If it is not in the contract, it cannot be considered. Licensees must make certain any verbal agreements between the parties are also in the contract.

Annexation

Annexation, specifically unilateral annexation, is one of the most debated issues in municipal law. Rarely a week goes by that annexation battles do not show up in newspaper headlines across the state. It is to incorporate (Territory) into the domain of a city, county, or state. In response to several annexations over the past years, several state legislators have stated that they believe that residents of an area should have the right to vote on whether to be annexed.

Common Mistakes

Anything that changes the legal rights of the buyer or the seller is the unauthorized practice of law.

Consideration

Consideration is basically the exchange of something of value in return for the promise or service of the other party. A legal consideration is one which results in either profit to one party or loss to another. For example, if A promises B movie tickets for B's promise to mow his lawn, the movie tickets would be the consideration for the promise. B's efforts at mowing the lawn would also be consideration. In addition, the exchange must be "bargained for." The exchange must be something that the parties agreed to prior to making the exchange. For example, B cannot suddenly mow A's lawn and expect payment unless A and B agreed that the exchange would be made. Otherwise, B mowing A's lawn would be treated as a gift. Contract promises which are not supported by consideration are generally not enforceable. In fact, the requirement of consideration is what distinguishes a contract from a mere gift. If one party merely promises goods to another party without requiring them to do something in exchange, the transaction would be a gift and not a contract.

Continued...

If a contract was unable to close until two days after the agreed upon date because the lender was not ready, a court would probably say that was within a reasonable time. When time is of the essence as in the termination option paragraph, when it says the option period ends in five days, it ends at 5 PM on the fifth day. Five minutes after 5 PM is too late. Licensees should never write "time is of the essence" in their contracts. If parties want to add the language, they need to be told they should consult an attorney first. Those words change legal rights under the contract.

Specific Performance

If damages are inadequate as a legal remedy, the non-breaching party may seek an alternative remedy called specific performance. Specific performance is best described as the breaching party's court ordered performance of duty under the contract. Specific performance may be used as a remedy for breach of contract if the subject matter of the agreement is rare or unique, and damages would not suffice to place the non-breaching party in as good a position as they would have been had the breach not occurred

Default under TREC Contract Forms

If one of the parties fails to complete an obligation, that party is in default. Paragraph 15 of the One to Four Family Residential Contract describes the party's rights when the other party is in default. Both parties have the same basic rights when the other party defaults under the contract: • Enforce specific performance, and seek such other relief provided by law, OR • Accept the earnest money as liquidated damages, releasing everyone under the contract. Read paragraph 15 carefully. Notice that when one of the parties decides to accept the earnest money as liquidated damages, it is over. No more lawsuits, no more damages. This is an important role played by the earnest money.

Material Misrepresentation

In court, a representation is considered "material" if a substantial likelihood exists that a reasonable plaintiff would consider the representation important in entering into the transaction in question. For example, if in selling a house, the owner tells the potential buyer that the house was built in 1988 when it was built in 1987, this might not be considered material because most buyers would not care about the one-year discrepancy. However, a ten-year difference might be considered a material misrepresentation.

Hydrostatic Testing

It is a term for pressure testing the water lines. Sometimes there are water leaks under the foundation of a home. Paragraph 7 says that hydrostatic testing must be authorized in writing by the seller before the testing is done.

Lawful Objective: Legal Purpose

Lawful objective means that the contract cannot call for any illegal activities. When a contract contains lawful objective, it takes all necessary laws and statutes into consideration. When a contract is drawn up, the offeror must consider the law and any regulations governing the transaction because any contract that involves illegal conduct is considered void and is unenforceable in a court of law.

To protect themselves from the charge of the unauthorized practice of law:

Licensees must also be cautious of the words they speak to their clients. For example, a licensee is obligated to explain the contract forms that clients are signing. It is one thing to simply read the form with clients and help them understand the meaning. The problem comes in when clients do not understand or begins to ask the licensee what they should do.

Mutual Agreement: Offer and Acceptance

Mutual agreement (offer and acceptance) is an element required for the formation of a legally binding contract: the expression of an offer to contract on certain terms by one person (the "offeror") to another person (the "offeree"), and an indication by the offeree of acceptance of those terms. The other elements traditionally required for a legally binding contract are consideration and an intention to be legally bound.

Continued...

Notwithstanding any other law, a license or certificate holder who completes a contract form for the sale, exchange, option, or lease of an interest in real property incidental to acting as a broker is not engaged in the unauthorized or illegal practice of law in this state if the form was: (1) adopted by the commission for the type of transaction for which the form is used; (2) prepared by an attorney licensed in this state and approved by the attorney for the type of transaction for which the form is used; or (3) prepared by the property owner or by an attorney and required by the property owner. The licensee is free to explain to the principals the meaning of the factual statements or business details contained in the contracts AS LONG AS THE LICENSEE DOES NOT OFFER OR GIVE LEGAL ADVICE.

Performance

Once the terms, obligations, and provisions of the contract have been established, it is the responsibility of all the parties to carry out their part of the contract. This is known as performance. Performance typically requires each party to carry out a specific action in order to achieve a specific end result. It is important that licensees keep their clients informed as to what their obligations are as well as attempting to prevent the client from being in default of the contract

Utility Districts

One of real estate licensees' many challenges is to understand special utility districts, many of which create special (many times extra) tax districts for their buyers and many times disclosure requirements for their sellers. The state laws governing these districts are found in Chapter 49-60 of the Texas Water Code. Of the many different types of utility districts, you may have seen abbreviations. These abbreviations stand for: ▪ PUD: Public Utility District ▪ MUD: Municipal Utility District ▪ FWSD: Fresh Water Supply District ▪ WCID: Water Control and Improvement District ▪ LID: Levee Improvement District ▪ RUD: Road Utility District ▪ UD: Utility District

Bilateral Contract

One party must promise to do something for the other party and the other party must promise to do something for them. This contract obligates both parties to fulfill certain terms. To satisfy or complete a bilateral contract, all parties involved must carry out their promises.

Notices and Contract Forms

One place an agent can give advice is to recommend the buyer obtain an abstract of the property title and have it examined by an attorney or to get a policy of title insurance. Licensees must advise the buyer to obtain an Abstract of Title on the property, examined by an attorney of their choice, or a Policy of Title Insurance. If they are getting a title policy, the commitment for title insurance should be examined by an attorney.

Parol Evidence RUle

Refers to extraneous evidence such as an oral agreement (a parol contract), or even a written agreement, that is not included in the relevant written document. The parol evidence rule is a principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document. Terms of a contract are commonly proposed, discussed, and negotiated before they are included in the final contract. When the parties to the negotiations do put their agreement in writing and acknowledge that the statement is the complete and exclusive declaration of their agreement, they have integrated the contract. The parol evidence rule applies to integrated contracts and provides that when parties put their agreement in writing, all prior and contemporaneous oral or written agreements merge in the writing. Courts do not permit integrated contracts to be modified, altered, amended, or changed in any way by prior or contemporaneous agreements that contradict the terms of the written agreement.

Grounds for License Suspension or Revocation

Section 1101.652 of the Texas Real Estate License Act includes approximately 35 separate opportunities for a licensee to lose his or her license. A few of the violations are listed below: 1. Fails to use a contract form required by the commission under Section 1101.155 2. Making a material misrepresentation, or failing to disclose to a potential purchaser any latent structural defect or any other defect known to the broker or salesperson. Latent structural defects and other defects do not refer to trivial or insignificant defects but refer to those defects that would be a significant factor to a reasonable and prudent purchaser in making a decision to purchase. 3. Acting in the dual capacity of broker and undisclosed principal in a transaction. 4. Publishing, or causing to be published, an advertisement including, but not limited to, advertising by newspaper, radio, television or display, which is misleading, or which is likely to deceive the public, or which in any manner tends to create a misleading impression, or which fails to identify the person causing the advertisement to be published as a real estate broker or agent. 5. Having knowingly withheld from or inserted in a statement of account or invoice, a statement that made it inaccurate in a material particular. 6. Failing to advise a purchaser in writing before the closing of a transaction that the purchaser should either have the abstract covering the real estate which is the subject of the contract examined by an attorney of the purchaser's own selection, or be furnished with or obtain a policy of title insurance. 7. Conduct which constitutes dishonest dealings, bad faith, or untrustworthiness. Honesty, competence, honesty, integrity and even more honesty is required.

Liquidated Damages

Specific damages that were previously identified by the parties in the contract itself, in the event that the contract is breached. Liquidated damages should be a reasonable estimate of actual damages that might result from a breach.

How are days counted in a TREC contract?

Starting with the effective (final execution) date of the contract, the first day of the period starts the next day. Each day is counted as calendar day. (includes weekends and holidays)

Licensees and TREC Forms

Texas licensees are required to use sales contract forms that are pre-approved by TREC. TREC provides both approved and promulgated (meaning required) contract forms, addenda, an amendment, two temporary leases (only to be used where a sales contract is involved) several notices, several disclosures and a few forms that just provide information to consumers. TREC does not provide listing agreements, buyer's representation agreements or property management agreements. The Texas Association of REALTORS® (TAR) provides all of those contracts plus brokerage forms like the Independent Contractor Agreement for their members. Brokers who are not members of TAR can have the forms created by a Texas licensed attorney. TREC has many addenda for use with the sales contract forms and yet there are still many situations that are not addressed in the TREC forms. ***All of the TREC forms are intended for use on residential property or property zoned as residential or agricultural. TAR does furnish a preprinted contract for commercial transactions. However, frequently the commercial transaction is very complex and the buyer making the offer prefers to have a contract prepared by his or her attorney***

Latches Doctrine Vs. Statute of Limitations

The Latches Doctrine is similar in nature to the concept of Statute of Limitations. A Statute of Limitations is a law that "restricts the time within which legal proceedings may be brought." Under such a law, the government establishes a certain amount of time within which the claim may be brought in court. The policy reasons behind this are much the same as the latches doctrine: it is unfair to the defendant for his sleep to be broken by the constant fear of litigation, and it is inefficient for the courts to deal with cases where evidence may have long since deteriorated. The main difference between statutes of limitation and the latches doctrine is the origin. Statutes of limitation are created by the legislatures, either state or federal, and codified in statutes; thus the "statute." In contrast, the latches doctrine is a common law concept, meaning it is at the discretion of the judge and is not codified anywhere.

Use of Promulgated Forms

The Real Estate Commission has promulgated and approved many forms for licensee's use. In addition to the addenda, temporary leases, notices and amendment listed earlier, TREC promulgates six contract forms including: 1. Unimproved Property Contract 2. One to Four Family Residential Contract (Resale) 3. New Home Contract (Incomplete Construction) 4. New Home Contract (Completed Construction) 5. Farm and Ranch Contract 6. Residential Condominium Contract (Resale)

Addendum for Sale of OTHER property by buyer

The Sale of Other Property Addendum is used when buyers making the offer have property they are trying to sell and want the offer they are making to be contingent upon their current property selling

Short Sale Addendum

The Short Sale Addendum creates an agreement to allow a purchaser to put up earnest money and option money and then wait for the sellers' lender to approve the short sale prior to proceeding with further performance. The effective date of the contract is amended to the date the buyer receives notice from the seller that the lender has approved the short sale.

Texas Real Estate Licence Act

The commission shall suspend or revoke the license or certificate of registration of a license or certificate holder who is not a licensed attorney in this state and who, for consideration, a reward, or in a pecuniary benefit, present or anticipated, direct or indirect, or in connection with the person's employment, agency, or fiduciary relationship as a license or certificate holder: (1) drafts an instrument, other than a form described by Section 1101.155, that transfers or otherwise affects an interest in real property; or (2) advises a person regarding the validity or legal sufficiency of an instrument or the validity of title to real property.

The Broker-Lawyer Committee and Promulgated Forms

The committee is comprised of six Real Estate Commission appointees (who are licensed real estate brokers) and six lawyers, appointed by the president of the State Bar of Texas, and one public member, appointed by the Governor. They serve staggered six-year terms. The license act establishes the membership and responsibilities of the committee.

Parol Evidence Rule exemptions

The parol evidence rule does not apply to written integrated contracts in some instances. For example, clerical or typographical errors found in the written agreement may be changed because the incorrect term does not represent the true agreement between the parties. Courts will also not apply the parol evidence rule to prohibit contradictory evidence that shows that the contract was entered into under duress, mistake, fraud, or undue influence. Finally, the parol evidence rule will not prevent evidence that shows the existence of a separate agreement between the parties.

Damages

The payment of damages -- payment in one form or another -- is the most common remedy for a breach of contract. There are many kinds of damages, including the following:

Texas Real Estate Commission

The purpose of the Texas Real Estate Commission is to protect the public through the regulation of licensed real estate brokerage practitioners, real estate inspectors, residential service companies, and entities offering timeshare interests. The policy-making body of the Texas Real Estate Commission is a nine-member commission appointed by the governor with the advice and consent of the senate for overlapping six-year terms. Six members must be active in real estate as full time brokers for five years immediately preceding appointment. Three members must not be licensed by the commission and have no financial interest in real estate, except as consumers. The Texas legislature meets every two years. Real estate licensees know that some of the rules and some of the forms may change each time the legislature meets

Paragraph 9 B3 and 4

The title company will guide the parties as to what is needed in the way of certificates, affidavits, notices, releases, etc. required in 9B3. 9B4 simply reinforces there will be no encumbrances against the property with the exception of a first lien mortgage that is being assumed by the buyer in an assumption transaction.

Addendum for Back-Up Contract

This addendum is used when the seller's property is already under a valid contract, but the seller wants to negotiate a "back-up" contract with another buyer in case the first contract does not close. The Back-Up Addendum creates an agreement to allow a purchaser to put up earnest money and option money and then wait to see if the first contract is going to fall through within a limited period of time, prior to proceeding with further performance. The effective date of the contract is amended to the date the buyer receives notice from the seller that the first contract has fallen through and this contract is now primary.

Paragraph 9 B5

This paragraph guides the parties when the property being sold is a rental property. The rental agreement must continue to be honored. The seller will transfer any security deposits to the new owner and the new owner will let the tenants know that he or she now owns the property and has the security deposit.

Time is of the Essence

Time is of the essence is a phrase in a contract that means that performance by one party at or within the period specified in the contract is necessary to enable that party to require performance by the other party. Failure to act within the time required constitutes a breach of the contract. The general rule is that time is not of the essence unless the contract expressly so provides. As a result, with respect to real estate transactions, the modern view is that time is not of the essence unless the parties have manifested such an intent. The same is generally true in construction contracts and in contracts relating to the manufacture of goods. When time is not of the essence, courts generally permit parties to perform their obligations within a reasonable time.

Trust Funds

Usually the agent deposits earnest money checks with the title company. It must be deposited by the close of business on the second working day after the effective date of the contract. Brokers can hold earnest money in a trust account but are usually happy to pass that responsibility to the title company. Brokers who practice property management or allow their agents to practice property management will need to establish a trust account.

Valid Contracts

Valid contracts are legal agreements meeting all the essential, basic requirements of the law. They accurately reflect the contracting parties' Intentions, making them legally binding and legally enforceable for all parties involved.

What Happens After a Contract is Breached?

When a breach of contract occurs or is alleged, one or both of the parties may wish to have the contract enforced on its terms, or may try to recover for any financial harm caused by the alleged breach. If a dispute over a contract arises and informal attempts at resolution fail, the most common next step is a lawsuit. If the amount at issue is below a certain dollar figure (usually $3,000 to $7,500 depending on the state), the parties may be able to resolve the issue in small claims court. Courts and formal lawsuits are not the only option for people and businesses involved in contract disputes. The parties can agree to have a mediator review a contract dispute, or may agree to binding arbitration of a contract dispute. These out-of-court options are two methods of "alternative dispute resolution."

Statutes of Limitations in Texas

Whether because the statute says so or a court has decided as much, a limitations period can start to run from the point that the plaintiff knew or should have known of an injury rather than the date of the injury itself. A statute might even provide, for instance, that you have two years to bring an action from the date you knew or should have known that you suffered some kind of harm, but in no event do you have more than six years from the date of the event in question.

Executory Contract

a contract that is not completely executed or performed. The terms are not fully carried out or are in the process of being carried out by one or more parties in the agreement. After an offer has been made and accepted on a home, both the buyer and the seller have things to do to perform the obligations of the contract. The buyer is often arranging for financing, getting inspections, etc. The seller may be ordering the title policy, doing required repairs, etc. During this period the contract is an executory contract or it is pending. Eventually when everything is ready, they will go to closing. At closing, the sales price will be paid and title to the home will be transferred to the buyer. Then the contract will no longer be executory, it will be executed.

The Latches Doctrine

a legal common law defense in an equitable action that "bars recovery by the plaintiff because of the plaintiff's undue delay in seeking relief." This doctrine is based on the idea that the courts should not aid those who take an inordinate amount of time to raise their claims. Elements include "knowledge of a claim, unreasonable delay, [and] neglect, which taken together hurt the opponent" because after a certain amount of time, an opponent reasonably does not expect a claim to be brought against them. It does not matter if the claim is legitimate, the doctrine can bar a claim that is made too late. "Laches" means "too bad, you are out of time", as in, "that door is now locked" Elements of laches include knowledge of a claim, unreasonable delay, neglect, which taken together hurt the opponent.

Executed Contract

a pre-existing contract in which all material terms have been fulfilled by all parties. (It is closed.) There are many kinds of contracts, but all contracts become an executed contract once all parties have completed their contractual obligations. When a contract is fulfilled, it is executed, or ceases to exist. It has no further legal power to bind any of the parties and is not considered to have any meaningful legal existence.

Mirror Image Rule ( Unequivocal and Absolute acceptance requirement)

an offer must be accepted exactly with no modifications. The offeror is the master of one's own offer. An attempt to accept the offer on different terms instead creates a counter-offer, and this constitutes a rejection of the original offer.

Punitive Damages

are payments that the breaching party must make, above and beyond the point that would fully compensate the non-breaching party. Punitive damages are meant to punish a wrongful party for particularly wrongful acts, and are rarely awarded in the business contracts setting.

Nominal Damages

are token damages awarded when a breach occurred, but no actual money loss to the non-breaching party was proven.

Contingencies

conditions that must be met if a contract is to continue on its way to closing. Several of the TREC Addenda create contingencies under the contract.

Unauthorized Practice of Law Includes

• Agents writing that the contract is contingent upon inspections, appraisals, etc.; that is changing legal rights • Agent writing something into the contract instead of using an addendum promulgated by the Texas Real Estate Commission • Agents adding or striking things from the pre-printed portion of the contract (unless it is specifically requested by the parties) • Agents using an out of date TREC form. • An agent advising a seller to put the home back on the market the day after the closing date in the contract, when the buyer was unable to close on time. • An agent writing "time is of the essence" into a contract form. • Writing into a contract that anything will cause the contract to terminate. • Telling a client what the attorney at the TAR Legal Hotline told them. • Hiring an attorney for a client.

Following is a partial list of Texas Statutes of Limitations:

• Assault and battery: 2 years • Contract: 4 years • False imprisonment: 2 years • Fraud: 4 years • Legal malpractice: 2 years • Libel: 1 year • Medical malpractice: 2 years • Personal injury: 2 years • Product liability: 2 years or 15 years • Property damage: 2 years • Slander: 1 year • Trespass: 2 years • Wrongful death: 2 years

Most common cases of Material Misrepresentation in Residential RE

• Claims that the foundation is in good shape when in fact it is damaged and needs foundation work. • Statements that the home is free of termites when the opposite is true. • Representations that the home has never flooded. This is quite common, especially in Houston. A flooded house increases chances that it will flood again and there are usually other problems such as mold or infestations as a result

Essential Elements of a contract

• Competent parties • Mutual agreement • Lawful objective • Consideration • In writing and signed

TREC is authorized to:

• Manage pre-license and CE education • Regulate business activities of licensees • Discipline violators of license law • Reprimand, suspend or revoke licenses

TREC is the state's regulatory agency for:

• Real estate brokers and salespeople • Real estate education providers, instructors, and courses • Real estate inspectors • Real estate inspection course providers • Residential service companies • Timeshare developers • The Texas Appraisal Licensing and Certification Board

The most common reasons a valid contract becomes unenforceable are:

• Statute of Frauds: A state law establishing the features of a valid contract. The law generally requires certain types of contracts to be set out in writing and written contracts be signed by all the parties bound by the contract. • Statute of Limitations: A state's statute of limitations is a law establishing a time limit for civil suits, setting a maximum period-of-time to elapse between the dates an injury occurs or the basis for a legal claim is discovered and the date a civil lawsuit is filed. There are also federal statutes setting maximum time limits regarding federal crimes and suits filed in federal courts. All claims must be filed prior to the statutory deadline or the legal right to press a claim is barred. In Texas, claims on a returned check must be made within three years.

TREC is authorized to suspend or revoke a licensee's license if such party:

• Violates any portion of the License Act or the Rules of the Commission • Drafts a legal instrument that transfers or affects an interest in real property • Advises a party as to the validity or legal sufficiency of an instrument • Advises a party as to the validity of title to real property • Commits misrepresentation, dishonesty, or fraud in transacting property in the name of the license holder, spouse, or blood relative, meaning parents or children