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Chapter 3 Flashcards

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1
Q

What is the contract most often used by licensees?

A

One to Four Family Contract (TREC 20-14)

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2
Q

What does Paragraph 1 “Parties” of the residential contract do?

A

It identifies the parties to the contract - buyers and sellers.

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3
Q

What does Paragraph 2 “Property” of the residential contract do?

A

It identifies the property to be sold by it’s legal description and lists the items that go with the property as well as those items to be excluded.

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4
Q

What does Paragraph 3 “Sales Price” of the residential contract do?

A

This is where the offer of money is made. It shows the down payment, the loan amount, and the sales price.

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5
Q

What does Paragraph 4 “License Holder Disclosure” of the residential contract do?

A

It allows the licensee to disclose if they are a party to a transaction.

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6
Q

What does Paragraph 5 “Earnest Money“ of the residential contract do?

A

It allows the buyer to demonstrate “good faith” in the contract and gives details of earnest money contribution. It also identifies the escrow agent.

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7
Q

What does Paragraph 6 “Title Policy and Survey” of the residential contract do?

A

It identifies which party will pay for the policy, what company will issue the policy, the conditions for the title commitment, the options for the survey, the procedures for a buyer to object to required documents, and the notices required to be provided to the buyer.

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8
Q

What does Paragraph 7 “Property Condition” of the residential contract do?

A

It states the buyer has a right to have inspections, discusses the seller’s responsibility to provide Seller’s Disclosure Notice and Lead-Based Paint Disclosure, discusses the buyer’s acceptance of the property, discusses repairs, treatments, environmental issues, and residential service contracts.

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9
Q

What does Paragraph 8 “Broker’s Fees” of the residential contract do?

A

It ddresses the fact that commission agreements and broker fees are all addressed in separate written agreements.

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10
Q

What does Paragraph 9 “Closing” of the residential contract do?

A

It sets the date for the closing and discusses the responsibilities of the seller and buyer at the closing.

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11
Q

What does Paragraph 10 “Possession”of the residential contract do?

A

It sets the transfer of occupancy date.

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12
Q

What does Paragraph 11 “Special Provisions” of the residential contract do?

A

It allows the buyer to include items that have no other paragraph addressing them.

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13
Q

What does Paragraph 12 “Settlement and Other Expenses” of the residential contract do?

A

It spells out the buyer’s and the seller’s expenses.

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14
Q

What does Paragraph 13 “Prorations” of the residential contract do?

A

It divides some of the expenses between the buyer and the seller.

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15
Q

What does Paragraph 14 “Casualty Loss” of the residential contract do?

A

It describes the ramifications of the property being damaged or destroyed prior to closing.

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16
Q

What does Paragraph 15 “Default” of the residential contract do?

A

It addresses the non-defaulting party’s remedies in the event of a breach of contract.

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17
Q

What does Paragraph 16 “Mediation” of the residential contract do?

A

It provides a box to be marked to allow for mediation. If mediation is chosen as an option, the costs will be divided equally between parties.

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18
Q

What does Paragraph 17 “Attorney’s Fees” of the residential contract do?

A

It specifies how the expenses of a court case will be paid.

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19
Q

What does Paragraph 18 “Escrow” of the residential contract do?

A

It discusses the conditions under which the escrow agent will hold the funds and specifies how the funds will be handled if the transaction does not close.

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20
Q

What does Paragraph 19 “Representations” of the residential contract do?

A

It states all covenants, representations, and warranties survive closing. If the seller has made any representations that are untrue on the day of closing, the seller is in default.

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21
Q

What does Paragraph 20 “Federal Tax Requirements” of the residential contract do?

A

It states when a real estate transaction closes if taxes are owed, the IRS still will be paid.

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22
Q

What does Paragraph 21 “Notices” of the residential contract do?

A

It states that all notices from one party to another must be in writing and are effective when they are mailed, hand delivered, emailed, or faxed.

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23
Q

What does Paragraph 22 “Agreement of Parties” of the residential contract do?

A

It includes most of the frequently used addendum. If an addendum not listed is desired by the parties to the contract, then it is to be added under “Other”.

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24
Q

What does Paragraph 23 “Termination Option” of the residential contract do?

A

It allows the buyer to terminate this contract for any reason during an agreed amount of time for an agreed upon amount of money. This option fee can be credited at closing if agreed to.

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25
Q

What does Paragraph 24 “Consult an Attorney” of the residential contract do?

A

It emphasizes the fact that real estate licensees cannot give legal advise and cautions the parties to read the contract carefully and consult and attorney BEFORE signing if there is anything in the contract they do not understand.

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26
Q

What follows paragraph 24 of the residential contract?

A

A box to write in the date of final acceptance, which establishes the effective date of the contract, followed by signature blocks.

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27
Q

What is on page 9 of the residential contract?

A

The broker information and commission that will be paid to the other broker (selling broker).

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28
Q

What is page 10 of the residential contract used for?

A

It is for Option Fee Receipt, Earnest Money Receipt, Contract Receipt, and Additional Money Receipt.

29
Q

Which forms and agreements are NOT promulgated by TREC?

A

Listing or buyer representation agreements, property management contracts, forms for commercial property, or residential leases (other than temporary residential leases used in connection with a sale).

30
Q

When is mediation used?

A

When resolving conflicts between a buyer and seller in which a mediator listens to each side to help make a mutually agreeable decision.

31
Q

What is an Unimproved Property Contract used for?

A

It is used for vacant land that has been subdivided into lots and blocks rather than large tracts of land.

32
Q

True or False: Paragraph 2 of an Unimproved Property Contract calls for lot and block numbers but allows for an exhibit to be attached for lengthy metes and bounds descriptions.

A

True

33
Q

What does Paragraph 7A of the Unimproved Property Contract advise the Buyer of?

A

To determine the availability of utilities to the property necessary to meet the Buyer’s needs.

34
Q

What does Paragraph 7G of the Unimproved Property Contract (TREC 9-13) advise the Buyer of?

A

The presence of wetlands, toxic substances, including asbestos and wastes or other environmental hazards, or the presence of a threatened or endangered species or its habitat which may affect Buyer’s intended use of the property.

35
Q

True or False: In new home contracts, usually written by the builders attorneys, the contract may favor the builder.

A

True

36
Q

True or False: The New Home Contract (Incomplete Construction) (TREC 23-15) is intended for houses that are built from the ground up and cannot be used for Condominium transactions or closings prior to completion of construction. Paragraph 7 includes sections for construction specifications, change orders, and allowances for Buyer selected materials. Paragraph 7E addresses start and completion dates of construction. Paragraph 7G contains the Federal Trade Commission required disclosure about the R-Value of insulation.

A

True

37
Q

True or False: The New Home Contract (Completed Construction) (TREC 24-15) includes such items as the insulation paragraph and address building 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 Buyer.

It is not intended for use for condo transactions or closings prior to completion of construction.

A

True

38
Q

True or false: The Farm and Ranch Contract (TREC 25-12) is designed for anything from the country getaway place or the small farm to the large working farm or ranch. It covers barns, outbuildings, and farm homes.

A

True

39
Q

What 2 types of improvements are listed in the Farm and Ranch Contract (TREC 25-12?

A

“Farm and ranch improvements” such as windmills, barns, fences, etc and “residential improvements” such as carpet and light fixtures, and residential accessories such as hunting blinds, game feeders, livestock feeders, irrigation equipment, etc.

40
Q

True or False: In a Farm and Ranch Contract, crops are addressed giving the seller the right to harvest all growing crops until the title passes.

A

True

41
Q

What rights do “reservations” give the seller in a Farm and Ranch Contract (TREC 24-12)?

A

The right to retain mineral, water, royalty, timber, or other interests that are listed.

42
Q

Per Texas Property Code, how is a condominium defined?

A

A form of real property ownership that combines separate ownership of individual apartments or units with common ownership of all other elements.

43
Q

True or False: The residential Condominium Contract (Resale) (TREC 30-13) is not for use where Seller owns a fee simple title to the land beneath the unit.

A

True

44
Q

In the Residential Condominium Contract (Resale) (TREC 30-13), what does Paragraph 2 state?

A

The “property” not only includes the unit and building type legal description, itemization of improvements and accessories but also addresses the Condominium Declaration, Bylaws, Rules of the Association, and the Resale Certificate.

45
Q

In the Residential Condominium Contract (Resale) (TREC 30-13), what does Paragraph 13 state?

A

“Prorations” also include the subject of maintenance fees, special condominium assessments, and cash reserves from condo assessments.

46
Q

In the Residential Condominium Contract (Resale) (TREC 30-13), what does Paragraph 14 state?

A

Casualty Loss and issues of damages that may be the responsibility of the condo association rather than solely the seller of the property.

47
Q

What form is used if the buyer must sell another house before they can buy the new house?

A

An Addendum For Sale of Other Property by Buyer which creates a contingency contract.

48
Q

What is the incentive for the Seller to accept an Addendum For Sale of Other Property by Buyer?

A

The seller may continue to show the property for sale and accept another contract. If Seller does accept a second offer, they must give the Buyer a certain number of days to either remove their contingency or drop out and have their earnest money returned.

49
Q

What does a “Back-Up” Contract (TREC 11-7) do?

A

If the first contract terminates within certain time limits, the “backup buyer” steps in and buys the property. This addendum is common when the supply of properties is low and there is a healthy demand. The back-up buyer must deposit any required earnest money and pay the option fee if she wants a termination option. If the first contract does not terminate, all monies are refunded to the Buyer.

50
Q

What is an Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement (TREC 12-3) used for?

A

Used if a buyer is assuming the seller’s current loan and the seller wishes to be release from liability upon the buyer’s assumption of the loan. It will also restore the seller’s VA entitlement IF the Buyer is a veteran and using his entitlement in place of the Seller’s entitlement.

51
Q

What is a Seller Financing Addendum (TREC 26-7) used for?

A

Used when the Seller owns the property “free and clear” and does not require the entire amount of the sales price in cash. The Seller acts as the “bank” and the property is the collateral for the loan. Addendum addresses credit worthiness of the Buyer, credit approval, Promissory Note, Deed of Trust and if it’s assumable, and tax and insurance escrows.

52
Q

What does the Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum (TREC 28-2) do?

A

This form is used when a buyer is concerned about environmental issues including mold, asbestos, radon gas, water contamination, electromagnet fields, carbon monoxide gas, toxic waste sites, or leaking underground storage tanks. There are three categories: 1) Environment assessment, 2) Threatened or endangered species, 3) Wetlands. The buyer has a specific time period to have formal inspections completed. If an adverse report is received, the buyer may terminate the contract.

53
Q

What does the Notice of Buyer’s Termination of Contract (TREC 38-5) do?

A

This form serves as a when the contract requires the buyer to notify the seller of termination of the contract due to one of the contingencies built into the agreement. The contingencies are intended to protect buyers from contractual obligations they cannot fulfill. Examples of reasons to use this form are 1) using the Termination Option under paragraph 23, 2)Financing approval not attainable, 3) Property does not meet underwriting requirements, 4) Buyer terminates relating to the seller’s disclosure notice.

54
Q

What does the Addendum for Coastal Area Property (TREC 33-2) do?

A

This addendum must be added to contracts involving land 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 are allowed in such areas unless the state has issued a permit for the structure.

55
Q

What does the Addendum for Property Located Seward of the Gulf Intracoastal Waterway (TREC 34-4) do?

A

This form informs 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. The state may require property owners to remove their houses due to erosion as a result of hurricane forces.

56
Q

What does the Addendum for Property Subject to Mandatory Membership in an Owners’ Association (TREC 36-8) do?

A

This form is used if checkbox is checked in Paragraph 6E(2) of the main contract indicating the property is located in a mandatory homeowner’s association.

The buyer may choose to request the seller provide subdivision information. If the seller fails to comply or if the information is found to be untrue or if any material adverse change occurs before closing, the buyer can terminate the contract and any earnest money will be refunded.

57
Q

What does the Third Party Financing Addendum for Credit Approval (TREC 40-7) do?

A

This form requires the buyer to apply promptly and use all diligence in securing financing within a specified number of days. If the buyer cannot secure financing, the contract terminates. This addendum applies to conventional, Texas Veterans, FHA insured, VA guaranteed financing, and USDA Guaranteed Financing.

58
Q

What does a Loan Assumption Addendum (TREC 41-2) do?

A

This addendum addresses loan assumptions and credit worthiness of the buyer, credit approval of the buyer, loan details, and transfer fees to lender. This applies to assumptions of CONV, FHA, VA, and other types of loans. This does not apply to NEW loans.

59
Q

What does a Condominium Resale Certificate (TREC 32-4) do?

A

This form relates to the transfer of a condominium. It must be requested in writing with information for delivery of the certificate and must be solely prepared by the condo association.

60
Q

What does Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owner’s Association (TREC 37-5) do?

A

This form includes information such as 1) the amount of current assessments, 2) the amount of any unpaid fees or assessments due in association with the subject property, 3) the disclosure of any subdivision violations of the subject property, and 4) copies of various applicable documents. It must be requested in writing with delivery information included. The association must comply and they can charge a fee.

61
Q

What does the Amendment to Contract (TREC 39-8) do?

A

It is specifically drafted to reflect changes negotiated AFTER the original contract has been signed.

62
Q

What are the 9 reasons for amending a contract?

A

1) Changing the sale price, down payment 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 fee
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

63
Q

What does a Short Sale Addendum (TREC 45-1) do?

A

This addendum creates a contingency agreement based on the lender’s approval of the short sale.

64
Q

What does an Addendum for Reservation of Oil, Gas and Other Minerals (TREC 44-2) do?

A

This form addresses reservations of subsurface minerals. It is for use only if the seller reserves all or a portion of the mineral estate (oil, gas, and other minerals in or under the property and any royalty under existing leases.

It also addresses certain surface rights such as production and drilling rights, easements, lease payments and other benefits.

65
Q

What does an Addendum for Property in a Propane Gays System Service Area (TREC 47-0) do?

A

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. This gives the buyer the opportunity to investigate the costs associated with propane gas service to the property.

66
Q

What is a Seller’s Temporary Residential Lease (TREC 15-5) for?

A

This form is used when a seller needs to remain in possession of the house after closing. It serves as a temporary lease. This form addresses daily rent charges, term of the lease, security deposit, repairs, hold-over penalties, insurance, default, and other common lease issues.

67
Q

What is the maximum allowable time a Seller’s Temporary Residential Lease can be used?

A

90 days

68
Q

What is a Buyer’s Temporary Residential Lease (TREC 16-5) used for?

A

This form is used when a buyer needs to lease a house before closing. The form has a limit of 90 days and the buyer must use the property for residential purposes. They cannot assign the lease or sublet any part of the property. The buyer also cannot make holes or drive nails into floors, walls or ceilings, alter, paint or decorate the property, or instal improvements or fixtures without the prior written consent of the landlord/seller. Any improvements or fixtures placed on the property during the lease become part of the property.

69
Q

How does the Texas Property Code define a condominium?

A

As “a form of real property ownership that combines separate ownership of individual apartments or units with common ownership of all other elements.”

Texas Law of Contracts (16 decks)

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