I’m not professing or holding myself out to be a police of TREC violations. I am offering some friendly reminders to my colleagues and customers whom I know always want to do the right thing but sometimes we need a refresher on the basic “do not do” list. Show When negotiating contracts that bind a sale, option, lease or rental of any real property, a licensee shall use only the promulgated TREC contract forms with the exceptions of an agent representing herself as a principal, not as an agent or prepared by an attorney. A licensee cannot offer or give legal advice which also includes giving advice or opinions as to the legalities of any contract or any form that affects the title to property. We don’t give opinions about the validity or status of the title to real estate. In fact, we can violate our rules and regulations if we discourage a principal from using an attorney. We are obligated to disclose to our principals all pertinent facts which are within the agent’s knowledge. When in doubt as to whether it is a pertinent fact, just disclose anyway. Real estate agents cannot prepare documents defining legal rights of principals to a real estate transaction. You can have the principal put in writing their statement of clarification on an item. When filling in the blanks of a form a licensee can only fill in the blanks provided and may not add to or strike matter from the form but their principal can. Agents can add factual statements. Agents can add business details required or recommended by their principals. If there is an addendum addressing the business detail or factual statement, then the agent is required to use the addendum, not strike out on the promulgated contract form. All of this does not prevent an agent from explaining the factual statements and business details on the forms to a principal. Just be careful to not give your opinion which could come across as legal advice. Another surprise to some agents is the fact that a real estate licensee may not pay for the use of an attorney’s expertise to represent any principal in a real estate transaction in which the agent is involved. The agent certainly can retain and pay for an attorney to represent them in a transaction including preparation of the contract, or other legal instruments to be executed by the principals. In fact, an agent should always let their principal know the document or contract they are ready to sign is binding on them. An explanation of the option period is a good suggestion. Principals always have questions as to what it is for and what it means to them. An agent is allowed to give their principals the benefit of the agent’s expertise. What are the 5 elements to a legally enforceable contract?
What are the three 'requirements' for legal capacity to be valid?
What are the two forms that consideration can take?
No legal force because illegal or against public policy. Ex:
What is a VOIDABLE contract? Subject to cancellation (choice of one or both parties), but can be converted into valid contract if chosen. What is a 'mutual mistake' in voidable contracts defined as? Material mistake made by both parties, can be voidable, validated, or voided...depends on their choice What is an UNENFORCEABLE contract? Contract can't be fulfilled for other reasons - at its face it appears properly formed and with all requisite elements. Ex:
What is an EXECUTED contract defined as? Where all parties have fulfilled their promises What is an EXECUTORY contract defined as? One that still has material duties needing performed. What is known as the 'classic executory contract'? A Contract for Deed (aka land sales contract) because it provides that the buyer gets title after making all payments over period of years. Duties need to be performed.
Contracts for deed, lease-purchases, and lease-options longer than 180 days are defined legally as... (what type of contracts)? Executory Contracts (duties need to be performed) What is a Termination Option (sec 5) from the TREC 1-4 contract? Allows buyer (within 3 days of acceptance of offer) option to cancel without penalty. Amount and fee are negotiated. Fee is typically not recoverable if option not taken. Can timing in a contract be material, or immaterial, or both? Can be both! Need to see if 'time is of the essence' is in contract. What does TREC define 'reasonable time' as regarding earnest money? Must be delivered to authorized escrow agent by close of business on second business day after broker receives trust money. What is the difference between Amendments and Addenda? Addenda are usually added on/ incorporated into the basic contract agreement and add something, whereas amendments usually change something previously agreed upon. An amendment must always include reference to... (4 things)
What are two advantages to addenda?
What addendum is used for any new type of loan (excluding seller/owner financing)? Third Party Financing Addendum What addendum is used for owner/seller financing situations? Seller Financing Addendum What addendum is used for homes that require mandatory HOA? Property Subject to Mandatory Membership in a Property Owner's Association Addendum What addendum is used when a buyer takes possession of a home within 90 days PRIOR to closing? Buyer's Temporary Residential Lease Form What addendum/form is used for? It includes credit approval options similar to seller financing addendum, and also specifies whether seller is released from liability, and any conditions for the seller to be released. What addendum is used when a buyer has to sell one property in order to finance the second? What is an important paragraph in that form regarding Time is of the essence? The Sale of Other Property by Buyer Addendum. Paragraph E specifies 'time is of the essence' which is important here. What addendum is used when a seller wants to retain some or all of their mineral rights? Reservation of Oil, Gas, and Other Minerals Addendum What addendum is used when there is a 'back up offer' The Addendum for 'Back-Up' Contract What is 'effective date' defined as? The date when both parties have signed off on everything and the acceptance has been communicated to the other party or other party's agent. When is 'assignment' typically permitted?
Does assignment always relinquish obligations from the assignor? What is Novation defined as? Replacement of existing contract with new contract. Must reference the original contract. Can also be novation of the parties. This DOES release all terms and obligations of original agremeent. What is the Statute of Limitations (SOL) defined as in real estate? One has to file lawsuit within specific timeframe after the event in question has taken place. What is the statute of limitations for a lease of a property for one year or less? What is a solid identifiable starting point for Statute of Limitations? What is the Statute of Limitations for Default (written contract)? What is 'Breach of Contract' defined as? Violation of a material term or condition of a contract without legal justification. (ed: buyer not providing funds in reasonable time) What does it mean if a buyer sues for 'specific performance' in the event of a seller breach of contract? This calls for the breaching party to perform their contractual duties as agreed, as opposed for seeking legal damages (i.e. money)
What does 'sue for damages' entail? To get money for damages that one has suffered. Can a party suffering financial loss from breach sue for both specific performance and legal damages? What is Partial Performance defined as? Only some of the duties owed have been completed, a written acceptance by the non-underperforming parties can be enought to satisfy the contract. May also be cause for discharge/termination. What is Substantial Performance defined as? Where a party has substantially performed all obligations but doesn't complete all details exactly as the contract requires. May still be enough to force payment, but payment may be reduced to compensate. What is this an example of? A new home is provided by a developer per their agreement, but failed to complete the promised front yard lawn, the contractor is entitled to the final payment. The buyer may be entitled to a price reduction equivalent to the cost of having the lawn put in, but would not be released from the home purchase. What reason for termination are the following? This could be that an event, such as an earthquake, destroyed the home in question, or that the developer doing the building has gone bankrupt and cannot complete their construction. Another example would be where a buyer has signed a sales contract for a new home so long as a certain imported material is used, then an embargo forbids any more importing of that material. What is 'impossibility' defined as regarding causes for contract termination? An act required by the contract that cannot now be legally or physically possible. What does 'mutual agreement' mean regarding contract termination? Both parties agree in writing to cancel contract What 3 causes could trigger an 'Operation of Law' contract termination?
What is 'rescission' defined as regarding contract termination? One sided action of cancelling/terminating contract. Requires return of parties to original positions, so money must be returned and services done must be paid for. How does Cancellation differ from Rescission? Cancellation does not return parties to original positions, so no obligation to return money or pay for services done. When did regulation of Texas Real Estate Industry START, and what entity oversaw that? 1939, started with Securities Division of the Secretary of State's Office When was the Texas Real Estate Commission formed and assigned responsibility of regulation? Why does Texas test and regulate real estate agents/brokers (3 things)?
What is the member makeup of TREC? 9 members
Does TREC have rulemaking authority? Yes with full force and effect of law. What two things must a licensee give a buyer prior to signing a purchase contract?
What does the 'broker-lawyer' committee do? Revises and Drafts contract forms for use by real estate licensees. Purpose is to expedite real estate transactions and reduce controversies while protecting interests of all parties. Does the broker-lawyer committee promulgate, or publish, forms for mandatory use by licensees? NO, only TREC has that rulemaking authority. What 'serving terms' do TREC members serve? What is the member make-up of the Broker-Lawyer Committee? 13 members
What are the 'serving terms' for the Broker-Lawyer committee? Staggered 6 year terms, with terms of two commission members and two state bar members expiring every two years, and term of public members expiring every 6 years. What is the definition of Promulgated to officially announce, publish, make known to public, or to Formally announce a statute or decision by a court. The act of making it 'official' What TREC rule # authorizes and recommends use of standardized forms? What is a 'tort' defined as? An act that damages another individual and provides cause for legal action. What are the 4 ways a seller can respond to an offer?
If you want to reject an offer but provide additional info to the offeror that clarifies terms more acceptable, which form do you use? the Texas Association of Realtors (TAR) Seller's Invitation to Buyer to Submit New Offer form Does a licensee have duty to present offers after an offer has been accepted? No, but seller has option to continue to accept and negotiate back-up offers. Does a seller have any duty to respond to offers in any particular order? If there are multiple counter-offers out there, which one wins and in what scenario? The FIRST to accept and notify seller or seller's agent of the acceptance wins!
What should you do if there are multiple counter offers out there (not accepted yet), and a better offer comes in? Notify original parties immediately of seller withdrawing counter offers in order to accept newer better offer. When does the Real Estate sales contract become an offer? When it has been prepared and signed by the purchaser When does a 'contract' become a Sales Contract? Not until it is accepted, signed by seller, and the acceptance has been communicated to buyer or buyer's agent. What info is needed to complete contract forms? (4 things)
Can you pay option fee separately from earnest money? What does Sec 12 Settlement and Other Expenses detail in the TREC 1-4 form? details what is necessary for closing, including cost assignment/responsibility, plus escape clause What does Sec 13 Prorations detail in the TREC 1-4? Lists anticipated expenses that may be apportioned to the parties, including but not limited to property taxes, maintenance fees, association dues, and rent. What does Sec 14 Casualty Loss detail in the TREC 1-4? Addresses the possibility of catastrophic damage to the property following the effective date depending on nature of calamity and cause of damage. What does Sec 15 Default detail in the TREC 1-4? Briefly outlines rights and responsibilities based on default by other side. What does sec 16 Mediation detail in the TREC 1-4? Recommends use of alternative dispute resolution in event of conflict and assigns anticipated responsibility for any related expenses. What does sec 17 Attorney's Fees detail in the TREC 1-4? States that prevailing party in dispute is entitled to reimbursement for attorney expenses from proceeding. What 5 parts does sec 18 Escrow detail in the TREC 1-4? (5 parts)
What does sec 19 in TREC 1-4 outline regarding Representations? All covenants, representations, and warranties in the contract survive closing. Seller is in default if details are untrue on closing date. Seller can receive, negotiate, and accept back-up offers. What does sec 20 'Federal Tax Requirements' outline in TREC 1-4? Allows for withholding of potential federal tax liabilities if seller is a 'foreign person' or fails to file an affidavit declaring they are not 'foreign person' What does sec 21 'Notices' outline in the TREC 1-4? Essentially that 'time is of the essence' What does sec 22 'Agreement of Parties' outline in the TREC 1-4? Provides list of addenda available for inclusion in original offer. What page of the TREC 1-4 is for signatures? Page 9 (page 1-8 outline the entire agreement) What page of the TREC 1-4 is detailing broker commission and license info. What does the 'Receipts Page' page 10 of the TREC 1-4 outline? Provides receipts for...
In addition to the transaction closing at 'closing', what also closes? If a transaction fails to close, can the escrow agent require payment from earnest money? Yes, they can require payment for unpaid expenses incurred on behalf of a party. Is earnest money required? No, it is not required to make an acceptance of an offer into a valid contract in Texas. It is a post-acceptance obligation of buyer to show faith and security, which is deposited AFTER the contract agreement is fully accepted. What is typical for option fee cost? Can be as little as $1 if negotiated as that, but usually is 1/10 of 1% of sales price. (aka $200 for $200k offer, or $300 for $300k offer) What is a 'typical' option fee time window? Is an option fee typically refunded? No, unless agreed upon otherwise. What are some key differences between earnest money and option fees? (3)
What is a Commitment for Title Insurance defined as? It is the title insurance company's promise to issue the title insurance policy. What is the standard timeline for the seller to provide the buyer the commitment for title insurance and legible copies of deed restrictions? 20 days, and can be extended up to 15 days or 3 days before closing. What are common restrictive covenants? (10)
What does providing a Title Policy do? It is an economical way for the seller to show evidence of a clear title and indemnify the buyer from financial loss in the event of title failure What is a title endorsement? An addition or limitation of coverage that is attached to a title insurance policy. Provides coverage that tailors the policy to fit the needs of the insured for a specific transaction.
To whom is a surveyor liable? Only liable to the original homeowner to whom that survey was first issued. What happens if the seller doesn't furnish a survey within x days of contract? Buyer shall obtain new survey at seller's expense no later than 3 days prior to closing date. What does the "notice to Prospective Buyer' form do? This is like a one-page security blanket for licensees. Proof of fulfillment of licensee's obligation to advise buyers to have title docs reviewed by attorney. What does an 'Abstract of Title' do? Searches real estate records in county where property is located to determine legal owner of property and lists any...
What do the 'title opinion letter' and the 'title insurance commitment' do? they delineate everything that needs to be done and any problems that need to be corrected before the purchaser can be assured of 'good' or 'clean' title What info is included in the 'seller's disclosure'?
What are the exceptions for the Lead Based Paint Disclosure?
What is the 'Environmental Assessment & threatened or Endangered Species & Wetlands Addendum' used for? Gives buyer ability to conduct or have conducted inspections and assessments related to the subject property prior to closing the contract. Buyer can terminate if anything found. What is a Residential Service Company (RSC)? RSC's offer home warranty contracts for maintenance, repair, or replacement of all or any part of the appliances, structural components, electrical, plumbing, heating, or air conditioning systems. Who handles consumer complaints about Risk Retention Groups? Texas Department of Insurance and the Office of the Attorney General Who looks into Residential Service Companies to see if the Residential Services Company Act has been violated? TREC's Standards & Enforcement Services (SES) What form would you use if the buyer's name is too long to fit in a blank or if the legal description is super long? What is the day limit for seller/buyer's temporary lease form? Up to 90 days beyond closing What does the 'Settlement & Other Expenses' form do? Delineates the costs that need to be handled at closing and designates who is to take how much responsibility for these costs. What are some common SELLER's expenses on the 'settlement & other expenses' form?
What are some common BUYER's expenses on the 'settlement & other expenses' form?
What is the recourse if expenses noted in the 'settlement & other expenses' form are higher than expected? That party may terminate the contract unless other party agrees to pay for excesses Can a seller be held liable for material representation even after closing? What are the 4 things needed to have a valid executed date?
In addition to the TREC 1-4, what are the other 5 forms promulgated by TREC?
What type of property description is required for Farm and Ranch sales? Metes-and-bounds legal description vs. normal recorded plat, lot, and block What are some other different issues in a farm and ranch contract (6)?
Tax collected on agricultural properties when the property ceases to be used for ag. purposes and therefore no longer qualifies for reduced ag. tax rate. Buyer and seller must determine who gets this burden, and it survives closing. What is the normal timeframe for buyer to remove contingency in event of a back-up offer? What is the effective date for a back-up offer for purposes of paying earnest money and termination option fees? The date of final acceptance (last party signs and notifies other party of acceptance) What is the effective date for back-up offer for purposes of first contract termination? The effective date changes to the date that the seller notified the back-up buyer of the first contract's termination. How long does the seller have to provide contact info of any existing mineral lessee 'known' to the seller to the buyer? 7 days after the effective date of the agreement What is the form used for mutual termination of contract? Texas Association of Realtors (TAR) 1904 Release of Earnest Money form Does the TAR 1904 Release of Earnest Money form actually terminate the agreement? No, just acknowledges that there is an agreement of the parties to terminate What signatures are required on the TAR 1904 Release of Earnest money form? What does the Addendum of Property Located Seaward of the Gulf Intracoastal Waterway disclose?
When was the Short Sale Addendum adopted by TREC? Who's approval is needed to move forward with a short sale? Coopearation/approval of lender and their Loss Mitigation Dept. When must a licensee provide the 'Information About Brokerage Services' form? First substantive discussion What does the 'information about brokerage services (IABS)' form do? Provides client the list of minimum duties required by law from broker...
Who legally can obtain and pay for resale certificate? How long does HOA manager have to produce resale certificate after payment? Up to 10 days, usually good for 30 days What does the TREC promulgated Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owner's Association (TREC form 37-5) include?
What are Non-Realty items defined as? Items of personal property that a buyer wants to ensure are included in the real estate transaction. What is the TREC Non-Realty Items Addendum used for? Used for adding on to a real estate contract and is used to purchase personal property along with the home. What two things must be included when listing items in the Non-Realty Items Addendum? List of the goods (specific) and the monetary value What is one drawback to using the Non-Realty Items Addendum? May give lenders pause to finance the purchase What is Illegal or False Flipping defined as? Property purchased and quickly resold at inflated prices by phony appraisals. Essentially buys home, sells to bogus buyer/partner at inflated price justified by phony appraisal. That bogus buyer doesn't make any payments and walk away with difference What are 'buyer rebates' defined as, and are they legal? A kind of kickback to the buyer without the knowledge of the lender - definitely illegal. What is a buyer rebate fraud scheme? Contract calls for payment to particular vendor for improvements after closing - once the home closes they don't do any repairs and split the money. What are 6 red flags that fraud may be taking place?
What are predatory lending practices defined as? Predatory lending practices are actions taken by a lender that are intended to convince a borrower to take a loan with high fees or a high interest rate. This may also include loans that remove a large amount of equity or place the borrower in a lower credit-rated loan that ultimately benefits the lender. What is the main federal legislation that deals with predatory lending? the Home Ownership and Equity Protection Act of 1994 (HOEPA) What loans fall into the classification of 'predatory lending'? Annual percentage rate more than 10% above Treasury securities or have total fees and points that total more than $400 or more than 8% of the total cost of the loan. What is the threshhold for excessive fees (predatory lending)? Fees more than 5% of the total loan (normal are equal to 1% or less) What is 'excessive fees' regarding predatory lending? Loans that carry excess fees that aren't reflected in interest rate. What is an 'abusive prepayment penalty' regarding predatory lending? Excessive penalty if borrower pays off loan early (many subprime loans carry high penalties for prepayment) What is "unnecessary products' regarding predatory lending? Requiring borrowers to purchase financial products they don't need. What is 'steering and targeting' regarding predatory lending? Unscrupulous lenders may direct borrowers into purchasing loans that are either inadequate, inappropriate, or too expensive. One example of this is lenders who convince borrowers to purchase subprime loans when those borrowers qualify for mainstream mortgages. What is the difference between a Texas Real Estate Commission promulgated and an approved form?What is the difference between a "TREC-approved" form and a "TREC-promulgated" form? promulgated forms must be used, while approved forms may be used. The Texas Real Estate Commission regulates licensed real estate brokers and sales agents in the state.
Which of the following is an exception to the required use of promulgated contract forms in Texas?One of the exceptions for when a licensee must use a TREC-promulgated contract form is in transactions in which the licensee is functioning solely as a principal, not as an agent.
Who promulgates forms for Texas licensees?The Texas Broker-Lawyer Committee consists of six members appointed by TREC. They write and revise all contracts that TREC promulgates. Before TREC even considers a contract form for promulgation, the Broker-Lawyer Committee must identify a real estate transaction requiring a standardized contract.
What is another name for an installment sale contract?Introduction. An installment contract (also called a land contract or articles of agreement for warranty deed or contract for deed) is an agreement between a real estate seller and buyer, under which the buyer agrees to pay to the seller the purchase price plus interest in installments over a set period of time.
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Under rule 537.11, must licensed real estate sales agents always use promulgated forms?
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