LAW OF CONTRACTS
Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum (28-2)
*Environmental assessment - may include old, asbestos, radon gas, water contamination, electromagnet fields, carbon monoxide gas, toxic waste sites, or leaking underground storage tanks *Threatened or endangered species *Wetlands
Land Contract
A contract between a seller and buyer of real property in which the seller provides financing to buyer to purchase the property for an agreed-upon purchase price and the buyer repays the loan in installments.
Acceleration clause
A contract provision that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met.
Executory contract
A contract under which one or both parties has not yet to performed
Mortgage
A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.
Earnest money
A deposit made to a seller showing the buyer's good faith in a transaction.
Legal life estate
A form of life estate created by state law.
Voidable contract
A formal agreement between two parties that may be rendered unenforceable for a number of legal reasons.
Void contract
A formal agreement that is illegitimate and unenforceable from the moment it is created.
The Deceptive Trade Practices Consumer Protection Act (DTPA)
Federal law (which has a Texas version) hat watches over business, not just real estate, to make sure that fraud and misrepresentation do not take place as companies provide products and services. The DTPA is a Consumer Law for Texas consumers who have been the victim of realtor deception, abuse, fraud, or other realtor injury or injury from seller or inspector. Created to protect consumers/public from deceptive, false, or misleading business practices, and to make consumers whole after a consumer transaction has damaged them.
One to Four Residential Contract cont.
Following paragraph 24 is a box to write in the date of final acceptance, which establishes the effective date of the contract, followed by signature blocks. Page 9 is the broker information and the commission that will be paid to the other broker (selling broker) Page 10 is for the Option Fee Receipt, Earnest Money Receipt, Contract Receipt and Additional Earnest Money Receipt
New Home Contract (23-15)
Intended for houses that are to be build basically from the ground up. Some of the differences are found in Paragraph 7. It includes sections for construction specifications, change orders, and allowances for Buyer selected materials. Paragraph 7G contains Federal Trade Commission required disclosure about the R-Value of insulation.
Notice of Buyer's Termination of Contract (38-5)
Notice applies to: *Termination under Paragraph 23, Termination Option *Financing approval is not obtainable under the Third Party Financing Condition Addendum *The property does not meet underwriting requirements for the loan *The buyer terminates under the provision of Paragraph 7B(2) relating to the seller's disclosure notice.
Water rights
One of the interests that may attach to real estate ownership, and pertain to the rights to use adjacent bodies of water.
Deceptive Trade Practices Act complaint process
The plaintiff must give the potential defendant 60 days warning about the intention to file and an outline of the complaint and damages; both economic damages and mental anguish. The list has to include expenses and attorney's fees. The defendant must be given a chance to inspect the property and to settle the matter without going to court. The consumer cannot receive the attorney's fees for representation in court. There is a two year from the event or discovery of the event statute of limitations.
Misrepresentation
created when a licensee made a misleading statement or a false statement that was accepted as fact from a customer or client and the person was damaged by relying on the information.
Net listing
listing in which the broker's commission is the excess of the sales price over an agreed-upon (net) price to the seller; illegal in some states but not Texas
Underwriter
typically works for a lender to go over all the required paperwork and give the final approval for a loan
Rescission
the unmaking or termination of a contract between parties
TREC promulgated forms continued
*Notice of Buyer's Termination of Contract *Addendum for Coastal Area Property *Addendum for Property Located Seaward of the Gulf Intracoastal Waterway *Addendum for Property Subject to Mandatory Membership in an Owner's Association *Third Party Financing Addendum for Credit Approval *Loan Assumption Addendum *Condominium Resale Certificate *Subdivision Information, Including Resale Certificate for Property Subject to Membership in a Property Owners' Association *Amendment to Contract *Short Sale Addendum *Addendum for Reservation of Oil, Gas and Other Minerals *Addendum for Property in a Propane Gas System Service Area
Forms promulgated by TREC for use by licensees
*One to Four Family Residential Contract (resale) *Unimproved Property Contract *New Home Contract (Incomplete Construction) *New Home Contract (Completed Construction) *Farm and Ranch Contract *Residential Condominium Contract (Resale) *Addendum for Sale of Other Property by Buyer *Addendum for Back-up Contract *Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement *Seller Financing Addendum *Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum
TREC promulgated forms - temporary leases
*Seller's Temporary Residential Lease *Buyer's Temporary Residential Lease
Title
A legal document evidencing a person's right to or ownership of a property.
Lease
A legal document outlining the terms under which one party agrees to rent property from another party.
Offer to purchase
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate.
Estate at will
A tenancy agreement where a tenant occupies property with the consent of the owner, but without an agreement that specifies a definite rental period or the regular payment of rent.
Voluntary alienation
A transfer of real property through one's intentional actions.
Exclusive right-to-sell listing
An agency agreement under which a real estate agent has the sole right to sell a specified property.
Computer loan origination (CLO)
An electronic network for handling loan applications through remote computer terminals linked to various lenders' computers.
Estate for years
An estate or interest in real property held under a rental agreement by which the owner gives another the right to occupy or use land for a period of time.
Estate from Period to Period
An interest in leased property that continues from period to period—week to week, month to month, or year to year.
Real property
Any property that is attached directly to land, as well as the land itself.
TREC contract forms
Are available to any person but are intended for use only by licensed real estate brokers or salespersons trained in their correct use. Mistakes in the use of a form may result in financial loss or a contract which is unenforceable. TREC does not promulgate listing or buyer representation agreements, property management contracts, forms for commercial property, or residential leases (other then temporary residential leases used in connection to a sale_.
Addendum for Sale of Other Property by Buyer (10-6)
Contingency that buyer needs to sell their other home to purchase the new one
New Home Contract (24-15) (Completed Construction)
Contract for completed construction which includes such items as the insulation paragraph. Both completed and incomplete forms address warranties in paragraph 7C. Any builder warranty is to be in a separate document and any manufacturer's warranties are to be passed from the builder to the home buyer.
Unimproved Property Contract (9-13)
Contract used for vacant land that has been subdivided into lots and blocks rather than large tracts of raw land. Paragraph 2 calls for lot and block numbers but allows for an exhibit to be attached for lengthy metes and bounds descriptions. The difference between Form 9-13 and 20-14 is found in Paragraph 7A where the buyer is informed to determine the availability of utilities to the property necessary to meet the buyer's needs. In paragraph 7G the buyer is advised of environment concerns and endangered species concerns that could impact their use of the property.
Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owner's Association (37-5)
Has important financial information about the subdivision association. It is required by state law hat the information must be requested in writing and delivery information must be included with the request. By law, the association must comply wit the request. They may also be charged a fee. This is a TREC promulgated form to be prepared solely by the owners' association and includes such info as: *The amount of current assessments *The amount of any unpaid fees or assessments due in association with the subject property The disclosure of any subdivision violations of the subject property Copies of various applicable documents
Texas Real Estate License Act (TRELA)
In accord with state and federal laws, the agency oversees real estate brokerage, appraisal, inspection, home warranty and timeshare interests providers. Through education, licensing and regulation, the agency ensures the availability of qualified and ethical service providers. Originally composed of 6 members but in 1979 the number was increased to 9: 6 members with at least 5 years active as real estate brokers prior to their appointment. 3 members that have no financial interest in the real estate business. They have rule-making authority and any rules they make have full force and effect of law.
Texas Administrative Code (TAC)
In addition to the statute (law) regulating real estate license holders, this code contains rules and regulations set down by various commissions and agencies of the state. Government entities are given rule-making authority and may enforce the rules they make. The Texas Real Estate Commission rules are found in TAC Chapter 537. (537.11 is key to licensee guidelines including use of standard forms, not giving legal advice and preparation of promulgated forms)
Loan Assumption Addendum (41-2)
Items addressed are: *credit worthiness of the buyer *credit approval of the buyer *loan details *transfer fees to lender This applies to assumptions of Conventional, FHA, VA, and other types of loans. Use the Third Party Financing Condition Addendum for NEW loans.
Subsurface rights
Landowner's rights to the water and other substances below the surface of land.
Homestead
Legal life estate occupied as the family home
One to Four Family Residential Contract
Most often used sales contract in real estate. Parties Property Sales price License Holder Disclosure Earnest Money Title Policy and Survey Property Condition Broker's fees Closing Possession Special Provisions Settlement and Other Expenses Prorations Casualty Loss Default Mediation Attorney's fees Escrow Representations Federal Tax requirements Notices Agreement of Parties Termination Option Consult an attorney
Condominium Resale Certificate (32-4)
Must be requested in writing with information for delivery and solely prepared by the condominium association. The one significant difference in condo and non-condo forms is that all condos have a mandatory owners' association where single family homes do not. Therefore, there is not an addendum addressing the buyer's options regarding the receipt of documents, it is incorporated into the body of the contract in the Property paragraph.
Broker-Lawyer committee
Operates according to TRELA and under the jurisdiction of TREC. The Texas Occupations Code, Chapter 1101 (also known as and commonly referred to as TRELA) describes the Broker-Lawyer Committee membership makeup. * six members appointed by the commission - must be brokers with certain experience qualifications. * six members of the State Bar of Texas appointed by the president of the state bar - usually have contracts and/or real estate specialties; and * one public member appointed by the governor - represents the public interest in the drafting of the forms. These thirteen committee members each serve six-year terms with two lawyer and two broker terms expiring every two years. The public member term expires every six years. It is an advisory body that drafts and recommends certain contract forms to TREC. The TREC directors reiew the recommendations and then approve and promulgate the forms (put into force under the law). The committee also revises promulgated forms as needed.
Addendum for Property Subject to Mandatory Membership in an Owners' Association (36-8)
Outlines buyer's and seller's responsibility for dues, what is included and who pays for repairs.
Marketable title
Ownership and possession of real property that is readily transferable since it is free from valid claims by outside parties.
Surface rights
Ownership rights in a parcel of real estate that are limited to the surface of the property and do not include the air above it (air rights) or the minerals below the surface (subsurface rights).
Residential Condominium Contract (Resale) (30-13)
Paragraph 2 - The Property, not only includes Unit and Building type legal descriptions, itemization of improvements and accessories but also addresses the Condominium Declaration, Bylaws, Rules of the Association, and the Resale Certificate. Paragraph 13 - Prorations also include the subject of maintenance fees, special condominium assessments, and cash reserves from condo assessments. Paragraph 14 - Casualty Loss covers issues of damages that may be the responsibility of the Condo Association rather than solely the seller of the property. TREC does not promulgate a form for Condominium new construction.
Addendum For Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement (12-3)
Restoration of seller's entitlement for a VA loan may be obtained only if the buyer is a veteran and willing to substitute his VA entitlement for the seller's. The parties must apply to VA to accomplish this. It allows the seller to get another VA loan using the restored entitlement.
Littoral rights
Rights relating to the ownership of property that abuts an ocean, sea, or lake.
Bundle of rights
Set of legal rights afforded to the real estate title holder, can include the right of possession (the property is owned by the title holder), control (the owner controls the property's use), exclusion (the holder can deny people access to the property), enjoyment (the holder can use the property in any legal manner), and disposition (the holder can buy or sell the property).
Amendment to Contract (39-8)
Specifically drafted to reflect changes negotiated after the original contract has been signed. It is not part of the original contract as addenda are. Each amendment is signed by the parties and has an effective date as of the signing. There are nine reasons to amend the contract: 1. Changing the sales price, down payment and/or amount financed. 2. Specifying additional repairs 3. Extending the closing date 4. Changing the seller's contribution to the buyer's closing costs 5. Reallocating the amounts the parties agree to pay for lender required repairs 6. Extending the Termination Option with amount of additional option fees 7. Waiving the right to the remainder of an existing option period 8. Extending the date by which the buyer must give notice regarding the securing of financing 9. Adding or deleting factual statements or business details concerning the existing contract
Promissory note
a written, signed, unconditional promise to pay a certain amount of money on demand at a specific time
Proration
The amount of or the act of determining a portion or share of a cost or benefit to be allocated between two parties
Buyer's Temporary Residential Lease (16-5)
The buyer/tenant may use the property only for residential purposes. The buyer/tenant my not assign this lease or sublet any part of the property. The buyer/tenant is not allowed to: *make any holes or drive nails into the woodwork, floors, walls or ceilings *alter, paint or decorate the property *install improvements or fixtures without the prior consent of landlord/seller Any improvements or fixtures placed on the property during the lease become a part of the property.
Texas Real Estate License Act rules relating to contract forms
The commission may adopt rules in the public's best interest that requires license holders to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by the commission. The commission may not prohibit a licensee from from using for sale, exchange, option, or least of an interest in real property a contract form that is prepared by the property owner or prepared by an attorney and required by the owner. Any contract adopted by the commission that relates to a contractual agreement between a seller and an agent must include: 1) a provision stating that commissions are negotiable 2) a provision explaining the availability of Texas coastal natural hazards information important to coastal residents if appropriate.
Legal description
The geographical description of a real estate property for the purpose of identifying the property for legal transactions.
Seller Financing Addendum (26-7)
The items addressed on the addendum are: Credit worthiness of the buyer Credit approval The Promissory Note Deed of Trust and if it is assumable Tax and insurance escrows
Involuntary Alienation
The loss of property due to an adverse action such as a foreclosure or tax sale.
Primary mortgage market
The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction - includes mortgage brokers, mortgage bankers, credit unions and banks.
Short Sale Addendum (45-1)
This addendum creates a contingency agreement based on the lender's approval of the "short sale". the lienholder's agreement to accept seller's net proceeds in full satisfaction of seller's liability under the mortgage loan and provide seller an executed release of lien against the property in a recordable format.
Third Party Financing addendum for Credit Approval (40-7)
This addendum is concerned only with financing approval.
Addendum for Coastal Area Property (33-2)
This addendum must be added to contracts involving land abutting tidally influenced waters. It provides warning that the boundaries of the property may change due to tidal forces. The landowner could lose or gain land. By law, coastal areas which are submerged due to tides belong to the state of Texas. No structures.
Addendum for Property in a Propane Gas System Service Area (47-0)
This addendum must be made part of the contract if the property is in a propane gas system service area. This notice is information given to the buyer that there may be costs associated with the propane gas service, such as special costs or charges, facilities and line charges, etc.
Farm and Ranch Contract (25-12)
This form is designed to be used for anything from country getaway place or the small farm to the large working farm or ranch. It covers barns, outbuildings, and farm houses. The legal description allows for a metes and bounds description and covers such things as water rights and easements. The improvements are divided into farm and ranch improvements such as windmills, barns, fences, etc. and residential improvements such as carpet and lighting fixtures. Accessories including hunting blinds, game feeders, livestock feeders, irrigation equipment and more. Crops are addressed giving seller the right to harvest all growing crops until title passes. Reservations give the seller the right to retain mineral, water, royalty, timber, or other interests that are listed. Paragraph 3 - Sales price allows for adjustments Paragraph 7J - government subsidies Paragraph 13A - Rollback taxes (when a property currently receiving a lower agricultural tax rate loses that benefit and additional taxes are due.
Addendum for Reservation of Oil, Gas and Other Minerals (44-2)
This form is only used only if the seller reserves all or a portion of the mineral estate in or around the property or under existing leases. It also addresses certain surface rights such as production and drilling rights, easements, lease payments and other benefits.
Addendum for "Back-Up" Contract (11-7)
This form is used for just what the name states. It is the "back-up" for a current valid contract on a property.
Seller's Temporary Residential Lease (15-5)
Used when a seller needs to remain in possession of the house after closing. This form is an addendum to a TREC contract form and is never to be used as any other lease agreement. The Seller's Temporary Residential Lease is used in home and condo sales. Paragraph 10 - possession, of the sales contract calls for possession to take place either upon closing and funding or according to temporary residential lease form promulgated by TREC or other written lease required by the parties. The temporary lease form must be used for any period of time in which the seller remains in possession after transfer of title, even for one day. The buyer becomes landlord and the seller is tenant. The temporary lease may not be used for a term of more than 90 days.
Texas Real Estate License Act (TRELA) History
Was passed in 1939 by the Texas legislature and was called Real Estate Dealer's License Act which required agents to acquire a license. Administered by the secretary of state until 1949 when it was assumed by the Texas Real Estate Commission. In 1955 the act's name changed to the Texas Real Estate License Act. It's purpose is to safeguard the public interest and protect consumers of real estate services.
Unilateral contract
a contract created by an offer than can only be accepted by performance.
Executed contract
a contract that has been fully performed by both parties
Valid contract
a contract that meets all the requirements of law, is binding upon its parties, and is enforceable in a court of law
Express contract
a contract whose terms are clearly spelled out, usually in writing
Addendum
a document attached to and made a part of the original contract. It can be explanatory, informational or indicate other requirements of the parties that aren't clearly spelled out in the contract.
Amendment
a document that makes a change to the ratified sales contract
Leasehold estate
a form of property tenure where one party buys the right to occupy land or a building for a given length of time.
Secondary mortgage market
a market for buying and selling mortgages
Open listing
a property listing that uses multiple real estate agents to sell it; with an open listing, the agent that sells the property collects the commission.
Contingency
a provision in a real estate contract that specifies the contract would cease to exist upon the occurrence of a certain event
Bilateral contract
a reciprocal arrangement between two parties where each promises to perform an act in exchange for the other party's act.
Riparian rights
a system for allocating water among those who possess land along its path
Personal property
a type of property which can include any asset other than real estate
Deed of Trust
a type of secured real estate transaction that some states use instead of mortgages
Fraud
an act of deception which was done deliberately by someone to get an unfair advantage over someone else. The concept of intention is alwayas a part of fraud.
Exclusive agency listing
an agency agreement in which the seller reserves the right to sell the property on his or her own, without paying a commission to the agent.
Option
an agreement in which one party buys the right to have the first chance of purchasing a piece of property at a specific price at some point in the future.
Survey
an assessment of property lines to determine the exact amount of land that a homeowner owns
Freehold estate
an estate in which ownership is for an undefined length of time
Amortized loan
an installment loan in which the monthly payments are applied first toward reducing the interest balance, and any remaining sum towards the principal balance.
Counteroffer
an offer made in response to a previous offer by the other party during negotiations for a final contract.
Short sale
any sale of real estate that generates proceeds that are less than the amount owed on the property
Texas Real Estate License Act (TRELA) & Texas Real Estate Commission (TREC)
purposes are to protect the public. Regulation of real estate brokers and salespersons includes the prohibition of the unauthorized practice of law. TREC has promulgated various forms for use by lincensees which must be used according to a strict set of rules. TREC has the authority to suspend or revoke the license of a violator under Sec. 1101.654
air rights
the right to control, occupy, or use the vertical space (air space) above a property, subject to the necessary and reasonable use by neighbor(s) and others (such as aircraft).
Article 13 of the National Association of Realtors Code of Ethics
states "Realtors shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.
Closing
the completion of a transaction involving the sale or exchange of real estate
Balloon payment
the final installment of a loan to be paid in an amount that is disproportionately larger than the regular installation
Addendum for Property Located Seaward of the Gulf Intracoastal Waterway (34-4)
the intracoastal waterway is part-manmade and part natural and is a series of canals and passages that extend from the Sabine Pass to the Brownsville ship channel. The primary purpose of this addendum is to inform buyers of land on or near the coast that beaches are open to the public. Texas law states that all beaches are open to the public as a public easement and no structures may be on any beach. Due to the erosion as a result of hurricane forces, the property owners may be sued by the state to remove their houses.
Texas Association of Realtors
the legal department drafts contract forms such as the sale contract and the lease contract which are a second type of authorized forms.
Appraisal
the process of valuing real property, using one of three approaches: cost approach income approach sales comparison approach
