Chapter 4 Quiz Law of Contracts Flashcards
1. Some of the most common mistakes in contracts are all of the following EXCEPT: A. Time for performance too short B. Inadequate legal description C. Improper use of special provisions D. Broker’s fee
The correct answer is D.
Broker’s fee is not part of the contract, but a broker notification is on page 9 of
the 1-4 Family Resale contract. The other three choices are all listed in the 10 Most Common Mistakes section of Chapter 11.
- Paragraph 13 of the ONE-TO-FOUR FAMILY RESIDENTIAL CONTRACT (RESALE) addresses
prorations. Which of the following is prorated at closing?
A. Utilities
B. Taxes
C. Escrow fees
D. Title policy
The correct answer is B.
Paragraph 13 of the 1-4 Family Resale Contract, Prorations, speaks specifically
on taxes, which accrue daily and continue for the calendar year. The seller will be charged up through the day of closing for their portion which is credited to the buyer, who will cover the entire cost at the end of
the calendar year.
3. Which of the following is not an expressed contract? A. An oral contract B. A written contract C. An implied contract D. All are expressed contracts.
The correct answer is C.
An expressed contract can be expressed either orally, by talking about your agency representation, or in writing, through a written document. Only the implied agency is not expressed but implied by the actions of both parties. If it walks like and duck and talks like a duck, then it must be a duck. In the agency relationship, if an agent is offering advice and opinion to a buyer, that buyer may assume they have agency representation.
4. A promise for a promise is considered a \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_contract. A. Unilateral B. Bilateral C. Valid D. Void
The correct answer is B. A bilateral contract, or a promise for a promise, is where both parties are agreeing to both take an agreed action.
- After the contract has been finalized, inspections and repairs, change of assigning fees, closing
dates and disclosures are addressed on what form?
A. Amendments
B. Addenda
C. Contract
D. No forms are required.
The correct answer is A.
Any change to modify a contract including addressing repair requests, changes to any of the dollar amounts or dates will be addressed on an amendment to the contract, thereby
amending what has already been agreed to.
- RESPA does all of the following EXCEPT:
A. RESPA protects buyers from foreclosures.
B. RESPA regulates the cost of mortgage settlement.
C. RESPA protects consumers from unnecessary charges.
D. RESPA outlaws kickbacks.
The correct answer is A.
RESPA (Real Estate Settlement and Procedures Act), requires lenders to disclose costs of a loan and does not allow lenders to receive any hidden financial incentives for the use of certain loans, so each of the answers offered are going to be regulated by RESPA except protecting buyers from foreclosure which would only happen through the actions or nonpayment of the borrower
themselves.
7. The \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is the contractual agreement to repay the debt. A. Mortgage B. Deed of Trust C. Deed D. Promissory Note
The correct answer is D.
The note is the agreement for repayment of the debt which will include all the terms of the agreement. The mortgage is the loan itself; the deed of trust is the document held to insure payment of the note; and the deed is the document showing ownership of a property.
8. In owner financing, who receives the deed of trust? A. The buyer B. The escrow officer C. The seller D. The mortgage company
The correct answer is C.
In owner financing, the owner is the lender, as a bank is in a mortgage, so the owner will hold the deed of trust which insures payment of the note.
9. FNMA, FHLMC, GNMA, and REITS describe: A. Primary markets B. Secondary markets C. Regions of the Federal Reserve D. Mortgage lenders
The correct answer is B.
Secondary markets are where the conforming loans are sold, which include FNMA (Fannie Mae), FHLMC (Freddie Mac), REITS (Real Estate Investment Trusts) and GNMA (Ginnie Mae). Any question with these acronyms are going to refer to the secondary market where loans conforming to the guideline are sold.
10. What kind of law is handed down by the legislature? A. Agency law B. Common law C. TREC D. Statutory law
The correct answer is D.
Statutory laws are the laws passed by the State Legislature.
- For a sum of money negotiated between the parties, the buyer has a time period, stated in this
paragraph, for the “unrestricted right” to terminate. Which paragraph does this reference?
A. Sales price paragraph
B. Earnest money paragraph
C. Option money paragraph
D. Repairs escrow paragraph
The correct answer is C.
The option money paragraph is the only negotiable term that allows a buyer the
unrestricted right to terminate the contract. All other terminations by the buyer for the contract are
restricted rights such as delivery of the Seller’s Disclosure.
- With regard to common mistakes on contracts, it is recommended that the seller’s name be used
on the contract as it is named in the ____________.
A. Deed
B. Previous contract when they bought the house
C. Survey
D. Mortgagee’s title policy
The correct answer is A.
The deed is the document of ownership, so the deed is the best source for the
owner’s name that intends to transfer ownership to the buyer.
13. Land and all items attached to the property are considered: A. Attachments B. Real property C. Personal property D. Personal items
The correct answer is B.
When land is improved with attached items, they become part of the property
and therefore become part of the real estate.
14. This is a communication that gives the listener the power to conclude a contract. A. Representation B. Acceptance C. Offer D. Disclosure
The correct answer is C.
This question includes the word, “conclude” a contract which means you have offer and acceptance, so the communication to conclude a contract must be acceptance of the offer.
15. Failure to file an answer or other response to a summons or complaint in a lawsuit is a \_\_\_\_\_\_\_\_\_\_\_. A. Breach B. Fraud C. Deception D. Default
The correct answer is D.
Failure to respond to a lawsuit or a summons and complaint in a lawsuit is putting the respondent in a default position.
16. What is the occupation of land to which another person has title with the intention of possessing it as one's own? A. Escheat B. Police power C. Eminent domain D. Adverse possession
The correct answer is D.
Adverse possession is when a non-owner occupies land owned by another with the intention of possessing it as one’s own (as an owner).
17. Who approves the property and the loan for the buyer? A. Underwriter B. Loan Officer C. Escrow Officer D. Broker
The correct answer is A.
The underwriter has three functions: to approve the buyer, to approve the property, and to approve the paperwork.
18. In addition to the existing survey, what else needs to be included for the title company to consider accepting the existing survey? A. The S67 testimony of the seller B. A letter from the original surveyor C. The T-47 affidavit D. A letter from the lender
The correct answer is C.
For a title office to accept a survey from a seller, the seller must include a T-47 which is an affidavit of any changes the seller has made that might affect the survey.
- The only provision in the TREC contract for which time is of the essence is the:
A. Loan approval clause of the contract
B. Mandatory Homeowner’s Association documents
C. Termination Option section of the contract
D. U.S. Constitution
The correct answer is C.
The option money paragraph is strictly enforced and must not be handled loosely, so the language, “Time is of the Essence” is included to let all parties know this.
20. Involuntary alienation is not done with: A. Escheat B. A will C. Adverse possession D. Eminent domain
The correct answer is B.
Involuntary alienation is not by choice, so a will is the only possible answer as a will is voluntary alienation.
- The seller covenants with the buyer that the seller has not personally done anything to adversely
affect the title being conveyed. What does he give to the buyer?
A. Special warranty deed
B. General warranty deed
C. Quitclaim deed
D. Title policy
The correct answer is A.
The seller is only willing to provide a special warranty deed which only warrants the seller has not done anything personally to encumber the title. This is usually what a new home seller
provides.
- If an agent inserts a provision into the contract that may materially affect the legal rights or duties
of the parties, the provision:
A. May render the contract voidable
B. Is grounds for civil penalties
C. Could result in a foreclosure
D. May be considered the unauthorized practice of law
The correct answer is D.
If an agent adds language that alters, changes, or affects the legal rights or
duties of the parties, the agent may be accused of or considered to be practicing law without a license.
- All of the following are exemptions to the Seller’s Disclosure Notice EXCEPT:
A. Transfer of the property by court order
B. The transfer of the property by a trustee in a bankruptcy
C. A transfer of the property between spouses
D. Sellers of residential properties
The correct answer is D.
Sellers of residential properties are required to provide a Seller’s Disclosure Notice to buyers. The key word in this question is “seller.”
24. Three parties (the mortgagor, mortgagee, and the trustee) are all part of the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ used in Texas. A. Deed B. Title policy C. Deed of trust D. Bill of sale
The correct answer is C.
With the three parties named, a mortgagor (borrower), a mortgagee (lender),
and a trustee who is servicing the loan until payoff, then the deed of trust is the scenario named.
- In an S Corporation, the earnings of the shareholders are __________.
A. Deferred
B. Taxed
C. Automatically put into a tax-free IRA
D. Shifted to a C Corporation if there are profits in the S Corporation
The correct answer is B.
n an S Corporation, the earnings of the shareholders are taxed, each at their own individual rate depending on their individual incomes.
- General Partnership is a flow-through business entity where profits and losses flow to the
individual partners just as they do in a(n):
A. C Corporation
B. S Corporation
C. Sole proprietor
D. There are no other entities that are follow-through.
The correct answer is B.
Losses from a general partnership “flow through” giving the hint to the correct answer, S corporations, where the individual partners are taxed based on their personal incomes.
27. TREC exists to protect: A. Real estate agents B. The citizens of Texas C. Real estate brokers D. Lenders, appraisers, and all licensees
The correct answer is B.
TREC is a consumer protection agency, so the correct answer is the citizens of
Texas.
28. Nonhomogeneity, immobility, and indestructibility are examples of: A. Physical characteristics of property B. Economic characteristics of property C. Bundle of legal rights of property D. Mineral rights of property
The correct answer is A.
The three characteristics of property are non-homogeneity (every parcel is in a
different place on the globe), immobility, and indestructibility (although property can be altered or
damaged).
29. Property in Texas owned by the husband and wife that was acquired during the marriage is called: A. Separate property B. Tenancy in Common C. Community property D. Non-challenged property
The correct answer is C.
Texas is a community property state, so properties acquired during a marriage are subject to community property laws
30. This type of ownership assumes that husband and wife are one person. A. Community property B. Joint tenancy C. Tenancy in common D. Tenants by entirety
The correct answer is D.
As the answer suggests, this is where a husband and wife are considered to be
as one legal entity, so they are one entirety or one entity in the way they are holding the property.
- Condominium ownership includes:
A. The land and the unit
B. The land, the parking space, and a percentage of the recreational areas
C. The interior space of the unit and a percentage of the common area
D. The interior and exterior of the unit
The correct answer is C.
Condominium ownership is the airspace between the walls as the private space
and any other areas that are community owned, whether this includes community parking or community recreational areas will depend on the condo development and the extent of the common areas. The correct answer is anything other than the interior and maybe a garage or parking space as a percentage of ownership with the other owners.
32. A form of shared property ownership in which rights vest in several owners for a specified period each year. A. Cooperatives B. Timeshares C. Townhomes D. Condominiums The correct answer is B.
The correct answer is B.
Timeshares are the only type of ownership of real property that is only for a
certain period of time.
- If a party to the contract defaults, what option(s) does the non-defaulting party have?
A. To terminate the contract and receive the earnest money
B. To enforce specific performance
C. Both A and B
D. Either A or B
The correct answer is D.
If a party defaults to the contract, in paragraph #15, the most important word in
the paragraph is the OR as the non-defaulting party has the contracted right to sue for specific
performance OR receive the earnest money as damages and release all parties from the contract. The OR in the paragraph is why the Either A or B is the correct answer.
- The owners agree to list the property with only one broker, however, the owners reserve the right
to sell the property themselves. What kind of listing is this?
A. Exclusive right to sell
B. Exclusive agency
C. Open
D. Net
The correct answer is B.
Under the four types of listing agreements, this is the agreement, exclusive
agency, where the owner will list with one company, but holds the right to sell the property themselves,
as opposed to the most used listing agreement, the exclusive right to sell, where the broker is guaranteed
to get paid when the property sell
- An agency relationship which is created after the fact when the principal agrees to be bound by
the actions of another person who is acting without authority is called:
A. Agency by ratification
B. Implied agency
C. Expressed oral agency
D. Expressed written agency
The correct answer is A.
Agency by ratification often transpires while the owner is contracting with an
agent for a different real estate service. Instead a different type of transaction occurs which the agent
was not originally contracted for, like an agent listing a property for sale and subsequently writing a lease
for the property to be leased instead of sold.
36. This estate may be terminated at the will of either party. It has no duration limitation. A. Estate at will B. Estate from period to period C. Estate for years D. Freehold estate .
The correct answer is A.
As the question includes the words “at the will” this indicates the correct answer
estate at will which allows for either party to terminate the lease with enough notice
37. With this lease, the tenant pays the taxes, insurance, and maintenance. A. Gross lease B. Percentage lease C. Net lease D. Ground lease
The correct answer is C.
his is a common commercial lease structure and it is known as the triple net lease if the tenant is paying the taxes, maintenance, and insurance, or can be a single net lease with only one of the additional costs, double net for two.
38. When a buyer acquires an “equitable” title, what does he have? A. Lease-option contract B. Lease purchase contract C. Deed of trust contract D. Contract for deed
The correct answer is D.
When a buyer has contracted to purchase a property, but the buyer will be purchasing over time and the purchase will not conclude for some years, the buyer has an interest or
equitable title in the property and not the deed, so this indicates the buyer is under a contract for deed
purchase agreement.
- How does a lease option agreement differ from a lease purchase agreement?
A. The lease option contract already has a purchase agreement in place.
B. The lease purchase contract already has a purchase agreement in place.
C. The lease option has equitable title.
D. The lease purchase has equitable title.
The correct answer is B.
A lease option agreement only allows the tenant the option to make a purchase during the term of their lease, and the lease will not include the terms of the purchase; whereas, a lease purchase will already have the purchase terms included in lease agreement.
40. What is the law that established the Texas Real Estate Commission? A. TREC B. TRELA C. TAR D. TCEQ
The correct answer is B.
TRELA (or The Texas Real Estate License Act) required someone to administer
it which created the need for the Texas Real Estate Commission.
41. The Broker-Lawyer Committee has how many members? A. 10 B. 6 C. 13 D. 3
The correct answer is C.
The Broker-Lawyer Committee is the group formed to review and modify the contracts that allow non-attorneys to provide real estate services including writing legal binding contracts and is made up of 6 Brokers and 6 Attorneys for a balance between licensed attorneys and licensed Real Estate Brokers and one public member equaling 13 total members.
