law of contract questions

What is a characteristic of mortgagee title policies?

Lenders require a loan policy when issuing a mortgage loan, and it is typically based on the dollar amount of the loan. Plus, it protects the lender's interests (not the buyer's interests!) in the property if a problem arises. The policy amount decreases and eventually disappears as the loan is paid off.

The SAFE Act regulates the licensure of which type of real estate professionals?

MLOs

trade fixtures

Objects affixed to the leased property that are owned by and necessary for the tenant's trade or business. Trade fixtures are different than non-trade fixtures in the fact that the tenant can usually take trade fixtures with them when they leave

Mary has one of her listings under contract. The contract calls for possession at closing. Now the seller asks if she can stay for three days after closing. The buyer orally agrees. What does Mary need to do now?

Once a contract is accepted and executed, the proper way to make any change is with the use of an amendment. An agent should never change the original document after it has been accepted.

What is the purpose of the TREC promulgated form Amendment to Contract?

Once a contract is accepted and executed, the proper way to make any change is with the use of an amendment. An agent should never change the original document after it has been accepted.

The six contract forms (mentioned above) promulgated by TREC are:

One to Four Family Residential Contract (Resale) Farm and Ranch Contract Condominium Contract Unimproved Property Contract New Home Contract (Completed Construction) New Home Contract (Incomplete Construction)

Which of the following scenarios may cause a loan balance to differ from as it is listed at the time of contract signing?

One way that the closing day loan balance could differ from the loan balance listed when the contract was signed is if the seller makes a mortgage payment or two during the interim.

A sneaky seller sells a house to two different buyers. Buyer 1, who actually moved into the house, claims that this is enough notice of their ownership. Is Buyer 1 right?

To protect themselves from fraud today, homebuyers can give notice to the world of their ownership by giving actual or constructive notice. Taking possession of the property would be considered having given actual notice. So, Buyer 1 is correct.

Fructus Naturales

Trees, persistent decorative plantings (aka shrubs), and uncultivated plants. considered real property because of their permanence.

If Jenna has the water rights to a property, she has the rights to use:

Water rights give owners the rights to bodies of water that their property borders, like a river or stream.

In order for a contract to become binding and effective:

it must be in writing, it has to be signed by all parties with changes initialed, acceptance must be completed, and acceptance of the contract must be communicated to the other party. There is not a faxing or delivery requirement.

common law

law derived from past judicial decisions of courts

You should NOT modify existing TREC forms or any other standard forms to create:

lease-purchase, lease-option contracts, or contracts for deed (a.k.a. land sales contracts).

How many days after the title company receives a copy of the contract must the buyer be furnished with a title commitment?

20

According to RESPA guidelines, if an escrow account contains an amount more than $50 in excess of the allowable limit, the lender:

According to RESPA guidelines, if an escrow account contains an amount more than $50 in excess of the allowable limit, the lender must return that amount to the borrower within 30 days.

A sale closes. The current year's taxes are unknown, so the previous year's numbers are used for proration. What should be done about any variance in tax amount (once the current tax amount is known)?

According to the One to Four Family Residential Contract, the parties will work any tax issues out on their own.

A buyer wishes to include an addendum to the sale that they must first sell their own home/property before completion of purchase of the seller's home. Where should it be indicated that this addendum is attached?

Agreement of the parties section

What's the difference between an addendum and an amendment?

An addendum is attached to a contract to create additional terms, and an amendment changes the terms within an existing contract. Both of these similar sounding terms need to be signed by all affected parties. Both can be promulgated by TREC, and neither is required for a valid contract.

fructus industriales, or emblements

Annually-cultivated crops. considered personal property, even prior to harvesting

Community Property:

Co-ownership for spouses, with a right of survivorship ownership after the death of either spouse

Tenancy in Common:

Co-ownership with rights of inheritance

Joint Tenancy:

Co-ownership without rights of inheritance, with rights of survivorship

Of the below, who is most likely to purchase a contract for deed?

Contracts for deed are typically used when a buyer is unable to obtain traditional financing (such as a mortgage loan through a financial institution), usually due to low income, poor credit history, or no credit history. It's not a typical choice for buyers who have the means to get a mortgage.

Which law protects consumers from fraudulent schemes?

Deceptive trade practice act

Compare option money and earnest money.

Earnest money is often refundable, whereas option money is never refundable. Option money compensates the seller for reserving the property for the interested buyer. If the deal closes, it is applied to the purchase price. If the contract is terminated, it is kept by the seller.

True or false? License holders CAN enforce implied contracts.

False

The Three Protections of the DTPA:

False and misleading statements or deceptive practices Unconscionable (inexcusable, unforgivable) actions Breaches of warranty

True or false? A digital signature is an image of your signature placed on a document.

False. An electronic signature is an image of your signature placed on a document. A digital signature is a secure way to verify the person who is signing the document is the person you sent it to.

True or false? In a suit for condemnation, land or land access is revoked due to improper use of the property.

False. False: In a suit for condemnation, the court can order a private owner to surrender their real estate to the state or federal government.

A seller had a roof repaired years ago. The roof shows no current problems. Does the seller still need to disclose the repairs?

For the Seller's Disclosure Notice, disclosure means that ANYTHING an agent knows about must, must, must be communicated to anyone involved with the sale of the home. It also lists any repairs in place or needed; this is all done to the best of the seller's knowledge. So in the spirit of full disclosure, put it all down — the good, the bad, and the ugly.

What should the license holder do if there are any last-minute changes to the sales contract?

If anything on the sales contract is changed, be sure the title company gets a copy of the amendment.

In a seller financing situation, if escrow is not required, what will the buyer need to provide proof of?

If escrow is NOT required, the buyer will provide proof that taxes and insurance are being paid on time.

Richard is reading over his title policy. It states that it will not cover any overlapping of improvements. Is this standard in Texas?

In Texas, it is standard for the title policy to decline to cover any discrepancies, conflicts, or shortages in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements.

Allen, the seller, wants to know about the impact of lender actions in relation to paragraphs D-F. Who should his agent recommend he contact for information about a buyer assuming the loan in these circumstances?

In terms of possible impact of lender actions related to paragraphs D-F, it might be helpful for the listing agent to have the seller contact the lender early on in the marketing of the property to know upfront how they would respond to an effort to allow a buyer to assume the loan.

A seller tells his agent that his house had never flooded. The agent checks the flood zone map and finds the property is not within the limits. After the house is sold, it is discovered that the property has flooded many times before and the buyer is furious. Could the agent be in violation of the DTPA?

In this situation, the agent has not violated the DTPA. It was the seller who made the false claim, and the agent's research of the flood zone map gave the agent no reason to suspect that the information was false.

Land's Physical Characteristics

Indestructible Immobile Non-homogenous

Jack died without a will. His property is disposed of through the laws of descent. That is considered:

Involuntary alienation of property happens when the current owner does not expressly give up title to the property by deed or will. Descent is the way property is disposed of if the owner dies without a will.

License holders can't:

Practice law 🚫 Give any type of legal advice 🚫 Discourage or otherwise prevent a customer or client from using a lawyer 🚫 Compensate a lawyer for services rendered to a principal 🚫

To complete the process of voluntary alienation, a seller must:

To complete the process of voluntary alienation, the seller must sign the deed.

Land's Economic Characteristics

Scarcity Situs -economic significance of a property's location Modification -the value of land can be affected by human-made changes to the land Fixity

Sama is selling her home. 11 days ago, Sama received documentation of creditworthiness from Jordan, the buyer. After reviewing the documents Jordan provided, Sama decides that the risk is too great to continue with a seller financing situation and wants to terminate the contract. What must Sama do at this point?

Sellers can request additional documentation from a buyer to deem creditworthiness. Sellers have a 7-day period to review the documents and determine their desire to continue. After 7 days, they lose the right to terminate and are deemed to have approved the buyer's creditworthiness.

If the buyer indicates they wish for the possession date to differ from the closing date, what would be the suggested course of action for the seller?

So, if the buyer occupies the property prior to closing, or if the seller occupies it after closing, a written lease should be used. In fact, TREC has a form just for that!

What is a trait of option periods?

Strict and timely performance during an option period is required. The buyer must do their due diligence within the specified timeframe if they choose to buy an option period.

Physical Ownership Rights

Subsurface Rights ⛽️ Surface Rights 🏠 Water Rights (littoral and riparian) 🌊 Air Rights ✈️

In which two places is it stated that a broker has a fiduciary responsibility to advise the buyer to obtain an abstract or a title policy?

TRELA and TREC's One to Four Family Residential Contract both say that a broker has a fiduciary responsibility to advise the buyer to obtain an abstract or a title policy.

Which of the following is an example of an acceptable use of Paragraph 11 - Special Provisions?

That's correct. The agent is NOT to use Section 11 to address any provisions for which a TREC promulgated form already exists. They can use this section to say that the buyer's representative is related to the buyer, and working for no commission.

What is the primary purpose of the Broker-Lawyer Committee?

The Broker-Lawyer committee creates, edits, and recommends contact forms to TREC. TREC then has the power to approve, promulgate, or dismiss those contract forms.

What is the Covenant of Further Assurance?

The Covenant of Further Assurance is the promise that the seller gives to make good any problems with the title.

Samantha has been found guilty of the unauthorized practice of law. Which of the following is the most likely example of a possible TREC penalty?

The Texas Real Estate Commission is very serious about license holders not practicing law. If investigated and found guilty, the agent (and their sponsoring broker) could be disciplined with a fine, probation, or suspension of license.

If the cabin had been assessed before the closing and the amount of property tax the owner would owe that year changed, the buyer and seller would have to determine between themselves how to handle the change. Where does that directive come from?

The directive that the parties must decide between themselves how to handle tax prorations if the tax owed is different from the previous year comes from Paragraph 13 of the One to Four Family Residential Contract.

A buyer is approved for a 5% interest rate. What would be a possible recommended figure used, with buyer permission, when filling in the interest rate for the loan?

The interest rate is a "not to exceed" figure, so with the buyer's permission, you should input a slightly higher number on the addendum so no correction is needed if the interest rate increases by closing time.

The primary purpose of a transaction checklist is to:

The primary purpose of a transaction checklist is to move a transaction from signed contract to closing.

What rights are included in that bundle of rights?

The right of exclusion The right of possession The right of disposition The right of quiet enjoyment

testamentary trust:

This trust is effective upon the death of the trustor. The deceased (trustor) conveys the property to the trust of the trustee, who manages the ownership for the beneficiary. Testamentary trusts are often created when the trustor wishes to provide for minor children or anyone who might incapable of managing their own financial affairs.

A broker is helping a government agency locate a building they can buy for an office. The agency has their own form they want the agent to use when they make their offer. Can the agent do that legally?

Yes, the agent can do this legally. Transactions in which an agency of the United States government requires a different form to be used is one of the exceptions to the mandatory use rules.

addendum

a document containing additional terms, information, or obligations that is attached to a contract.

amendment

a document that changes the terms in a sales contract that has been previously agreed to by all the parties. It requires all parties to the contract to sign the amendment in order for it to be valid.

deed

a legal document that is signed and delivered, especially one regarding the ownership of property or legal rights. Real property is transferred by deed

deed

a legal written document that conveys the intangible ownership rights (title) of a real estate property to another party.

deed of trust

a security instrument that places the deed to the property in a trust held by the lender until the mortgage is paid off, at which point, the trustee will transfer the deed to the borrower.

bill of sale

a written agreement used to sell, reassign, or transfer one's right to or interest in personal property.

abstract of title

an abbreviated history of a property, including info on any transfers, grants, wills, conveyances, liens, and encumbrances.

fixture

an object that was once personal property but is now firmly attached to the land in such a way that it is considered to be a part of the real estate.

Personal property is:

an unattached, moveable asset not considered real estate.

Improvement

any permanent human-made addition that is attached to the land. Buildings, fences, decks, and roads are all examples of improvements. Improvements are considered to be permanently attached to the land and therefore are considered real estate.

encumbrance

any restriction, encroachment, claim, or lien on a property (such as a mortgage) that affects the value or use of the property.

annexation

attaching personal property to real property — an item attached to the land in a way that makes it hard to remove.

Jane is selling her house and wants to sell the washer to the buyer as well. The washer is not annexed to the real estate and is considered personal property. What kind of document should Jane's license holder use to transfer ownership of the washer?

bill of sale

Living trust (inter vivos trust)

created during someone's life to manage their assets in life and in death. Living trusts may be created to care for a relative or loved one and may include specific instructions for medical care.

Co-operatives

formed when a legal entity, usually a corporation, owns real estate. The corporation is membership-based, with membership granted by way of share purchase (stock) in the corporation that owns the building(s).

Littoral rights

govern lakefront or seafront property and usually allow the property owner to use the water bordering their property. But littoral use does prohibit the property owner from artificially changing the water's location.

Riparian rights

govern the use of flowing water, such as rivers and streams that pass through or border a property.

real property

includes land and any human-made improvements attached to it, plus the bundle of legal rights of ownership.

Real estate

includes the land AND and human-made improvements attached to it

Community property is:

is a special form of joint tenancy that exists between a married couple.

Actual damages are:

monetary compensation given to an injured party for losses that were a result of the actions or omissions of another party which can be shown by evidence. These damages are not intended to compensate a party for "inconvenience" and cannot be speculative.

Equal Credit Opportunity Act (ECOA)

provides legal protection for consumers against unfair and discriminatory lending; located in Title VII of the Consumer Credit Protection Act.

statutory law

refers to laws formally created by lawmakers, such as legislature

adaptation

refers to the use and modification of a particular item for a specific use in a property.

rule of capture

surface owners have the right to the water below their property. And since they have that right, landowners have the right to pump up whatever water they can reach. If a property owner's well or pump can bring water to the surface, then they have the right to that water.

severance

the act of separating some element of the real estate from the land.

earnest money

the money the buyer offers as a deposit towards the purchase price of the property in order to show their serious intentions to the seller. If the buyer breaches the contract and does not purchase the house, the seller may keep the earnest money.

In a lease purchase agreement:

the optionee (prospective buyer or tenant) pays the optioner (landlord or seller) a nonrefundable deposit (option fee) that is applied to the purchase price of the property. The option fee gives the optionee the choice of purchasing the property before the conclusion of their lease. Once the optionee has paid the option fee, they must then pay the optioner a monthly rent to compensate for their use of the property. A fraction of that monthly payment is usually applied towards the purchase price or down payment of the property.

Land

the surface of the earth, extending down to the center of the earth and up into space. In the real estate world, land specifically refers to the physical or natural portion of a property.

True or false? The Texas Real Estate Commission does not write or change TRELA.

true

Where can the revision date of the form be found?

upper right hand corner

Marissa, a license holder, is assisting a seller in the sale of their condo. Does she need to use a promulgated contract?

yes. she will need to use the condominium contract