Chapter 13/14 Flashcards
A __________ is a negligent or wrongful act concerning a breach of duty rising out of law. It is an act that damages another person and may bring about legal action.
Tort
When does an offer become a contract?
When an offer is accepted, that acceptance is communicated to the other party, and all signatures and initials are obtained.
A typical residential sale contract contains the following kind of provisions:
1) parties, consideration, and property
2) legal description
3) price and terms
4) loan approval
5) earnest money deposit
6) escrow
7) closing and possession dates
8) conveyed interest - type of deed
9) title evidence
10) closing costs
11) damage and destruction
12) default
13) broker representation and commission
14) seller’s representations
15) residential property condition disclosure
16) right of rescission
17) agent’s responsibility
18) completing the form
A sale contract may contain numerous additional clauses, depending on the complexity of the transaction including:
1) inspections
2) owner’s association disclosure
3) survey
4) environmental hazards
5) compliance with laws
6) due-on-sale clause
7) seller financing disclosure
8) rental property; tenant’s rights
9) FHA or VA financing condition
10) flood plain - flood insurance
11) condominium assessments
12) foreign seller withholding
13) tax deferred exchange
14) merger of agreements
15) notices
16) time is of the essence
17) fax transmission
18) survival
19) dispute resolution
20) addenda
What does foreign seller withholding in a sales contract mean?
The seller acknowledges that the buyer must withhold 10% of the purchase price at closing if the seller is a foreign person or entity, and forward the withheld amount to the Internal Revenue Service.
In a sales contract, that does the tax deferred exchange provision mean?
For income properties only, buyer and seller disclose their intentions to participate in an exchange and agree to cooperate in completing necessary procedures.
What information is included in the price and terms provision of a sales contract?
1) final price
2) down payment
3) financing information
What does the escrow clause in a sales contract do?
It provides for the custody and disbursement of the earnest money deposit, and releases the escrow agent from certain liabilities in the performance of escrow duties.
What does a right of rescission clause set forth?
Buyer’s right under certain conditions to rescind the sale contract and re-claim their deposits if sellers fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion.
What does a due-on-sale clause say?
The parties state their understanding that loans that survive the closing may be called due by the lender. Both parties agree to hold the other party harmless for the consequences of an acceleration of the loan.
There are six different types of financing in this addendum. They include:
1) Conventional
2) Texas Veterans Loan
3) FHA Insured Financing
4) VA Guaranteed Financing
5) USDA Guaranteed Financing
6) Reverse Mortgage financing
The __________________ pertains to the duty of the buyer to obtain financing promptly and to furnish all information and documents required by their lender. Additionally, this addendum contains an option for a loan contingency and property approval contingency.
Third Party Financing Addendum
The ___________________ discusses credit documentation and approval, assumption of the seller’s loan and the terms, consent by noteholder, seller’s liens, tax and insurance escrow, and notices to the buyer and seller.
Loan Assumption Addendum
The _________________ addresses credit documentation and approval, financial verification, employment verification, and tax and insurance escrow.
Seller Financing Addendum
True or false: Most earnest deposits are typically between 1-3% of the offer price, with a minimum of $500.
True
Which paragraph of the TREC One to Four Family Residential Contract (Resale) describes the good faith money?
Paragraph 5 - Earnest Money
The Sales Price, Paragraph 3.C, is calculated by adding what two numbers together?
3.A (down payment) + 3.B (total financing amount) = 3.C (sales price)
Who is typically considered the escrow agent in Paragraph 5?
A title company
A _________________ is any defect in a specific property that could either affect a Buyer’s decision to purchase it or affect the property’s value, such as a leaking roof or the presence of termites.
Material defect
TheTexas Real Estate License Act includes a section stating certain information the licensee is NOT required to disclose, because the issue relates to occupants of the property, not material defects in the real estate. Specifically, licensees do not need to disclose:
1) if a previous or current occupant has or had AIDS or any HIV related illness
2) a death on a property by natural causes, suicide, or accident unrelated to the condition of the property.
What causes of death must be disclosed?
1) Faulty electrical wiring or a gas leak that caused a death on the property along with the corrections made to eliminate the danger.
2) Any murder must be disclosed. Texas has no time limits as to the date of death, however, only known information must be disclosed.
In _______, the Texas Legislature passed a “mandatory Seller disclosure law.” It became mandatory in 1994 and has been amended to update the disclosure.
1993
True or false: Seller’s failure to deliver the Disclosure Notice creates a voidable contract at the option of the Buyer.
True
There are eleven exemptions to filling out a seller’s disclosure:
1) Court ordered or actual court foreclosures
2) Bankruptcy trustee sale
3) Deed in lieu of foreclosure sale
4) Resale of property acquired by a lender by foreclosure
5) Probate sale, guardian, conservatorship, or trust sale
6) Co-owner sale from one co-owner to another
7) Sale to a relative or spouse
8) Divorce sale between two spouses
9) Government sale
10) Homebuilder sale of a house never occupied as a home
11) Land sale with a house valued at 5% or less of the property value
True or false: Seller’s disclosures that are mostly marked “unknown” are indicators of the necessity of inspections.
True
The Lead-Based Paint Hazard Reduction Act, a federal law, effective in ______, requires disclosure of any tests for lead and/or the possibility of the presence of lead-based paint or lead-based paint hazards.
1996
True or false: The EPA pamphlet “Protect Your Family From Lead In Your Home” is required to be given to all Buyers before entering into contract to buy a targeted property.
True
Real estate Brokers are responsible for ensuring Seller compliance and failure to do so can result in fines up to ___________ per omission.
$11,000
Texas Legislature passed a “mandatory Seller disclosure law”, requiring owners to fill out a ___________________________.
Seller’s Disclosure of Property Condition
What is the contract term that means parties are liable for the truthfulness of representations and warranties after the closing?
Survival
Which sales contract section allows parties to amend dates and deadlines if both give written approval?
Time is of the essence
_____________ is the transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage or a lien.
Conveyance
A typical conveyance transaction contains two major landmarks:
1) the exchange of contracts (whereby equitable title passes)
2) completion (whereby legal title passes)
Conveyance occurs in three stages:
1) before contract
2) before completion
3) after completion
Once conditions of a purchase contract have been met, the buyer has an “__________________”.
Equitable title
Words used to indicate conveyance, or words of conveyance include:
Grant, devise, give, and sell
A _________ is any legal instrument in writing which passes, affirms or confirms an
Deed
The ___________ is the event in which the money (or other consideration) for the real estate is paid for and title (ownership) of the real estate is conveyed from the seller(s) to the buyer(s).
Closing
The _____________ will secure the property and examine documents to make sure that the terms of the sale are met on each end, serving both the buyer and seller in the transaction.
Escrow agent
The title company will do an “________________” searching the real estate records in the county where the property is located
Abstract of title
An abstract if title will:
1) determine the legal owner of the property
2) reveal any mortgages, liens, judgments, or unpaid taxes that will have to be satisfied before the property is conveyed
3) detail any existing easements, restrictions, or leases that effect the property.
After the abstract is completed, the title company will issue a “______________________” to the lender and/or prospective buyer.
Commitment of Title Insurance
_________________ is the means by which the ownership of land is satisfactorily demonstrated within a given jurisdiction.
Evidence of title
There are four kinds of evidence of title:
1) abstract and opinion
2) certificate of title
3) title insurance
4) Torrens certificate
True or false: In the event of a fire or other casualty loss, this does not release the buyer from the contract. The seller has until closing to bring the property back to its prior condition or the buyer can accept the property in its damaged condition and the seller assign the insurance proceeds to the buyer. The buyer can terminate and receive his earnest money if the seller cannot perform.
True
The closing date may be extended up to ____ days, when necessary, after curing objections to the Commitment or Survey.
7
_____________________ in Texas requires that all contracts affecting title to or interest in real estate be in writing and signed by the parties. An oral agreement of sale is void and therefore unenforceable.
The Statute of Frauds
There is one exception to the Statute of Frauds. ________________________may be oral and are enforceable.
Leases for one year or less
_____________________ is proven when the purchaser pays the purchase price, has possession of the land, and makes improvements on the land, all with the permission of the seller.
Part performance
What are the requirements for someone else to sign a contract in the first person’s place?
As long as the person is authorized to do so, this can occur through the power of attorney, corporate management structure, or by creating a contract granting a designated person such authorization.
Name three contracts where witnesses to signatures may be needed.
wills, deeds, mortgages, and sometimes marriage contracts.
A ________________ is a failure to perform according to the terms of the agreement. Also called default, it gives the damaged party the right to take legal action.
Breach of contract
In Texas, the statute of limitations to sue for breach of contract in real estate is ______________ from the time the breach occurred.
Four years
True or false: Contract law states that a material breach of contract is an irreparable break in a legally binding contract.
True
_________________ occurs where one party refuses to form his side of the bargain on the due date or performs incompletely.
Actual breach
____________________ occurs where one party announces, in advance of the due date for performance, that he or she intends not to perform on his or her side of the bargain. The innocent party may sue for damages immediately when the breach is announced.
Anticipatory breach
The three situations of breach which give the innocent party the option of terminating the contract are:
1) Renunciation
2) Breach of Condition
3) Fundamental Breach
_________________ occurs where a party refuses to perform his obligations under the contract. It may be either express or implied.
Renunciation
A breach of contract committed by one of the parties is a ______________________ if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.
Fundamental breach
In seeking damages for default, three of the remedies are covered in the Default paragraph of the TREC promulgated forms. Basically the choices are:
1) accept the earnest money as liquidated damages
2) sue the defaulting party for specific performance
3) sue the defaulting party for money damages
A predetermined amount of money stipulated in the contract to be the total amount of compensation the non-defaulting party should receive upon breach by the other party is ______________________.
Liquidated damages
In order for a liquidated damages clause to be upheld, two conditions must be met:
1) the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term
2) the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages.
A ______________________ is an action brought in a court to compel a party to carry out the terms of a contract. A party would be made to perform his or her obligations under threat of contempt of court.
Suit for specific performance
Sometimes referred to as “legal remedies”, ________________ may be awarded to the aggrieved party as restitution or to compensate him or her for expenses incurred as a result of the transaction.
Money damages
True or false: According to the TREC contract, if the seller chooses to accept the earnest money that terminates the contract and there is no more recourse.
True
________________ is a forum in which an impartial person, the mediator, facilitates communication between parties to promote reconciliation, settlement, or understanding among them.
Mediation
The mediator does not offer advice, make judgments or decisions. Mediators do not resolve the dispute. The mediator will:
1) Facilitate communication between the disputing parties
2) Set ground rules for the process
3) Remain impartial throughout the proceeding
True or false: Under Texas law the mediator or any party present is prohibited from telling a court anything said during the mediation.
True
Define liquidated damages.
A predetermined amount of money stipulated in the contract to be the total amount of compensation the non-defaulting party should receive upon breach by the other party
Default of a real estate contract is also called _____________________.
Material breach of contract
What are the two major landmarks of a typical conveyance transaction?
The exchange of contracts and completion
In a breach of contract the non-defaulting party is:
Released from any further obligations of the agreement
If a seller fails to comply with a contract he or she will be in __________.
Default
What is an action brought in a court to compel a party to carry out the terms of a contract called?
Specific performance
In Texas, the statute of limitations to sue for breach of contract in real estate is:
Four years from the time the breach occurred.
