Law of Contracts

TRECS main focus

To protect the public

Broker-Lawyer Committee

Established by TREC to address the unlawful practices of law. In doing so , they write residential contract forms that are mandatory for license holders (with some exceptions).

Promulgated forms

The contract forms that the Broker-Lawyer Committee create.

License revocation or suspension

Failure to use TREC-promulgated forms, a form written by an attorney, or a form required by a party can result in ___ by TREC.

Cooperatives (co-ops) or any forms for commercial transactions.

TREC does not promulgate contract forms for the sale of ___.

Buyer's Temporary Residential Lease

For use when the ____ occupies the property for no more than 90 days PRIOR to closing.

Seller's Temporary Residential Lease

For use when the ___ occupies the property for no more than 90 days AFTER closing.

Right of first refusal

Gives the tenant the right to purchase the leased property by matching or bettering any offer before the property is sold to someone else.

Lease-purchase agreement

Gives the tenant occupancy in the present time and the right to purchase at a future date.

Good

Under DTPA, the sale of a house is considered a ___.

Service

Brokerage is a ___.

Seller’s disclosure notice.

A disclosure that most sellers prepare, and are responsible for the accuracy of the form.

Common law

A law based upon common sense and local customs.

Land

Defined as the surface of the earth. Includes natural things such as trees, crops, and water.

Real Estate

Includes all that is encompassed in land , with the addition of all man-made improvements to the land. Such as roads, houses, and commercial building.

Real Property

A broader term that goes beyond physical real estate and includes the rights a person has in the land. Often referred to as the “bundle of rights.”

Surface Rights

The ability to develop or improve the surface and to use resources extracted from or near the surface, including stone, gravel, water, and limestone.

Subsurface Rights

Include the rights to oil, gas and other minerals. Commonly conveyed through a lease, mineral deed or by reservation.

Air rights

Extend above the surface without limitation, can be leased, sold or mortgaged.

Personal Property

Things of a temporary or moveable nature. Also known as personalty or chattel.

Bill of Sale

Generally used when personal property is transferred along with real property. Normally accompanied the deed.

Fixture

Personal property that has become attached to the land, resulting in it becomes part of the real property.

Annexation

The process of attaching personal property so that is becomes real property.

Severance

Removing fixtures to create personal property.

Emblementa

Annual crops produced with labor.

Modification

The fact that value is affected by man-made changes to the land. Example - Orlando, Florida increased in value enormously after the construction of Disney World.

Estate in Severalty

Involves ownership of real estate by one individual or entity.

Partition

When tenants in common decide that they want to own their own distinct tract of land. May be done voluntarily or by order of the court.

Joint Tenancy

Referred to as a “poor man’s will.” When one tenant dies , the defendants share passes to the surviving tenant(s); a will is not required for this to happen.

Sole Proprietorship

A venture(business) that is owned by one individual.

Cooperative (Co-Ops)

Owners do not own a specific unit. A corporation owns the entire complex. Those who wish to live here buy shares in the corporation and receive proprietary leases on their units.

Prohibited in Advertising

Use of Racial and ethnic terms

Gender preferences

Familial status

Religious preference

Handicapped persons

Contract

An agreement between two or more parties to do something or to refrain from doing something.

Unilateral Contract

Said to lack mutuality. A contract where only one party is obligated to perform.

COLIC

Five essential elements must exist for a contract to be considered valid and enforceable.

COLIC stands for

Competent parties

Offer and acceptance (mutual agreement)

Legal Purpose

In writing (when required by law)

Consideration.

Competent Parties (COLIC)

Certain people that do not have full contractual capacity or are not considered competent, including minors, Individuals that have guardians appointed and those under the influence of drugs or alcohol

Offer and Acceptance - Mutual Agreement (COLIC)

A valid contract must be based upon the consent of both parties. The contract must, therefore, reflect the intent and wish of the parties. Often referred to as the “meeting of minds.”

Legal Purpose (COLIC)

A contract that is for an illegal purpose is void. An example would be one to have somebody killed or to deliver illegal drugs.

In Writing (COLIC)

In order to comply with the Statute of Frauds, contracts for the conveyance of an interest in real estate or leases for a term of more than one year must be ______. If the contract is not _____, it would be valid but not enforceable.

Consideration (COLIC)

Defined as something given in exchange for a promise. There is no requirement for the _______ to be in the form of money. In a contract this could be nothing more than a promise made by one party in exchange for a promise made by the other.

Both parties remain liable beyond closing for their representations made in the contract.

When the sale finally closes, the contract is fully executed. However, according to the TREC-promulgated contract forms, all representations made by seller and buyer "survive closing," which means that ____

Police Power

The right of the government to regulate and control the way land is used.

Buffer Zone

An area of land separating one land use from another, such as residential from commercial.

Life Estate

Ownership for the duration of someone’s life. The owner is called the life tenant. He or she has all the rights, privileges, duties, and responsibilities of a few simple owner, except the ability to own will the estate to his/her heirs.

Statutory estates

Created by statute or law, one example is community property.

Dower

The interest a wife has in the property of her husband.

Easement by Necessity

The courts may award an easement to a property owner who has no legal access to his or her land (Usually when landlocked)

Easement by Condemnation

The government, under its power of eminent domain, takes an easement.

Encumbrance

A claim, lien, charge, or liability attached to and binding real property.

Texas Railroad Commission

Controls all drilling for oil and gas in the state. It regulates all drilling activity in the state.

Radon

A naturally occurring, colorless, and odorless gas produced by the decay of radioactive materials in rocks under the ground.

Lead

Found in paint, pipes, and soil.

Lead Paint Disclosure

A disclosure for all properties built before 1978.

Environmental Site Assessment (ESA)

If a buyer has concerns about possible contamination of a potential property, the buyer or the lender may opt to have an __________ performed on the property to determine if it is environmentally challenged.

A contract may be discharged

If a property experiences destruction. Examples include fires, earthquakes, acts of war, and hurricanes. If the seller intentionally destroys the property, they are not discharged and are liable for damages.

A valid listing agreement includes

Names and signatures of all of the property's owners and the listing agent

The property description

The list price that was determined by the seller

A definite starting and ending (termination) date

Broker compensation

Open Listing

Gives the seller the right to list the property with multiple competing brokers and to sell the property personally without liability for payment of a commission.

Estate for Years

A lease is a definite beginning date and definite ending date. Does not have to be for years.

Periodic Tenancy / Periodic Estate

A lease that renews itself automatically for like periods. Examples would month to month or week to week.

Tenancy at Sufferance

Is an interest in leased property created when the holdover tenant is occupying the leased property against the owners will.

Tenancy at Will / Estate at Will

A leasehold in which a tenant occupies real estate with the permission of the owner for an uncertain or unspecified length of time; this is a very loose agreement.

Gross Lease

The simplest of all leases. The landlord pays costs regularly incurred in ownership, such as taxes, insurance, utilities, and maintenance.

Net Lease

In addition to rent, the tenant pays expenses such as taxes, insurance, and maintenance.

Percentage Lease

In the retail environment, obligates the tenant to pay a base rent and a percentage of the gross sales.

Business owners

Often own the real estate used in the business. The property could be any type, including office, retail, industrial, and others.

Assignment

Occurs when a tenant's rights and liabilities are transferred to another. In most cases, the landlord reserves the right to approve the new tenant. The original tenant is no longer obligated under the lease when the assignment is complete.

Sublet

The transfer of some of all of the tenants rights and/or leased space the another, with liability remaining with the lessee.

Lease Option

Allows a tenant to buy the property at a preset price and terms for a given period. This can also be called a lease with an option to buy.

Offer

On a residential property is presented in writing on the required forms, including any needed addenda.

Ways an offer can be communicated

Phone , fax , email , letter, and hand delivered.

Presented , presentation

ALL offers must be _____. Some states have specific time requirements for the _____ of offers

Signed , Communicated

An offer becomes binding when it is _____ by all parties, and the acceptance is _______ to the offering party.

Notification

Also referred to as communication

Promissory Note

Known as a real estate lien note, is the borrowers unconditional promise to repay and includes the amount borrowed, payment amount, due date, and rate of interest. Not genuinely recorded.

Federal Reserve

The central banking system of the United States.

Primary Mortgage Market

The market in which borrowers and mortgage lenders come together to create and negotiate the terms of a mortgage transaction.

Servicing

Sending monthly payment statements and collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance (and managing escrow and impound funds), remitting fund to the note holder and following up on delinquencies.

Blanket Mortgage

Covers more than the one piece of a property. A builder may buy more than one lot in a new subdivision; he will do with one loan. Likely to contain a release clause.

Capacity

A measure of the borrowers ability to repay the debt and is demonstrated through current earnings and job stability.

Mortgage insurance premium (MIP)

Because the FHA is a mortgage insurance program, premiums are paid into a pool of funds, out of which claims are paid when a borrower defaults on a loan. The cost of the mortgage insurance is passed along to the borrower in the form of a ________. The borrower pays two premiums, an upfront premium at closing and an annual premium.

Up-Front Mortgage Insurance Premium (UFMIP)

When a loan is funded, the FHA charges an __________. The ____ can be paid at closing or added to the loan at funding. The ____ can be added to the loan even if it causes the loan to exceed the appraised value of the property.

Residential Mortgage Loan Originator (RMLOs)

Mandated by the SAFE Act. A good rule of thumb is to provide the buyer with at least three loan originators to consider, understanding that the buyer is free to use any loan originator.

Equal Credit Opportunity Act (ECOA)

Originally passed in 1974, ensures that all consumers are given an equal chance to obtain credit.

Devise

Real property conveyed by will.

Title by devise, devisee

A person who acquires title to property under a will. These people are referred to as a ___.

Bequest

Personal property that is inherited

Legacy

Money that is inherited

Beneficiary

One who receives property through a will.

Codicil

An addition or an amendment to an existing will. It must be done in the same way as the original will.

Probate

The formal judicial proceeding to prove or confirm the validity of a will, to collect the assets of the decedents estate, to pay the debts and taxes, and to determine the persons to whom the remainder of the estate is to pass.

General warranty deed

The most common type of deed used in Texas, and the one that affords the purchaser the greatest degree of protection.

Quitclaim Deed

A deed with no guarantees, warranties, or covenants. These people grantor doesn’t even claim to own the property.

Assemblage / Plottage

The combination of two or more properties into one.

Assemblage

The action of combining the properties.

Plottage

The increased usability and value.

Abstract of Title

A complete history of the title of a piece of property that includes deeds, easements, liens, foreclosures, wills, marriages, deaths, life estates, fee simple estates, and anything else that may have ever been recorded about a property.

Title Commitment

Divided into sections called “schedules” and must delivered by the title company within 20 days of its receipt of the contract.

Deliver the contract and earnest money to the title company

When the title company opens a file upon receipt of a contract, the license holder MUST _______________ promptly after all the parties have signed.

Subrogation Clause

Enables the title company to assume the rights of a buyer with respect to any claim against a seller if the title company has made payments to that buyer to satisfy that claim. In this manner, the property owner cannot collect from both the title company and the seller for the same issue.