Chapter 5/6 Flashcards
“_______________” is a form of ownership of a freehold estate held by only one owner.
In severalty
“_______________” is a form of ownership of a freehold estate held by two or more people.
In co-ownership
“_______________” is a form of ownership of a freehold estate held by a third party for the benefit of someone else.
In trust
Why is it important for a licensee to know how a property is held?
1) when selling a property the broker must know who will be required to sign all the documents to make the transaction legal, including the listing agreement, the purchase offers, the sales contract and the deed.
2) the buyers must inform the broker as to how they wish to take the title.
What is the ownership in severalty also known as?
Sole ownership or tenancy in severalty
What happens to the estate of a deceased tenant in severalty?
It passes to the heirs by probate.
What 3 types of co-ownership are recognized in Texas?
1) tenancy in common
2) joint tenancy
3) community property
A “___________” is a fiduciary who holds and manages the estate for the benefit of another party.
A trustee
What are ways a trust can be created?
1) a deed
2) a will
3) a trust agreement
True or false: in an estate in trust, a fee owner (grantor or trustor) transfers the legal title to a fiduciary (trustee) who holds and manages the estate for another party (beneficiary).
True
This type of trust allows the trustor, during his or her lifetime, to convey title to a trustee for the benefit of a third party. The trustor charges the trustee with all necessary responsibilities for managing the property, protecting its value, and securing whatever income it may produce. The trustee may also be ordered to sell the property at a given point. The beneficiary receives all income and sales proceeds, net of the trustee’s fees.
A living trust
This type of trust allows the trustor to convey the fee estate to the trustee and to name himself or herself the beneficiary. The land trust applies only to real property, not to personal property. The agreement, or deed in trust, grants the beneficiary the rights to possess and use the property, and to exercise control over the actions of the trustee.
A land trust
These are characteristics of what type of co-ownership? Two or more owners Identical rights Interests individually owned Electable ownership shares No survivorship No unity of time
A tenancy in common or “estate in common”
True or false: No co-tenant may claim to own any physical portion of the property exclusively
True - They share what is called undivided possession or unity of possession.
What does the term “no survivorship” mean in a tenancy in common ownership?
A deceased co-tenant’s estate passes by probate to the decedent’s heirs and devisees rather than to the other tenants in common. Any number of heirs can share in the ownership of the willed tenancy.
What does the term “no unity of time” mean in a tenancy in common ownership?
It is not necessary for tenants in common to acquire their interests at the same time. A new co-tenant may enter into a pre-existing tenancy in common.
How is a “joint tenancy relationship” created in Texas?
By written agreement
What are the defining characteristics and requirements of joint tenancy?
1) unity of ownership
2) equal ownership
3) transfer of interest
4) survivorship
What ownership relationship is a property owned by two or more persons collectively?
Joint tenancy
What does “unity of ownership” in a joint tenancy ownership relationship mean?
Joint tenants hold a single title to the property.
What does “equal ownership” in a joint tenancy ownership relationship mean?
Joint tenants own equal shares in the property, without exception. If there are four co-tenants, each owns 25% of the property. If there are ten co-tenants, each owns 10%.
What does “transfer of interest” in a joint tenancy ownership relationship mean?
A joint tenant may transfer his or her interest in the property to an outside party, but only as a tenancy in common interest. Whoever acquires the interest co-owns the property as a tenant in common with the other joint tenants.
The remaining joint tenants continue to own an undivided interest in the property, less the new co-tenant’s share.
What does “survivorship” in a joint tenancy ownership relationship mean?
if a joint tenant dies, all interests and rights pass to the surviving joint tenants free from any claims of creditors or heirs.
When only one joint tenant survives, the survivor’s interest becomes an estate in severalty, and the joint tenancy is terminated. The estate will be then probated upon the severalty owner’s death.
How is a joint tenancy relationship created?
All owners must acquire the property at the same time, use the same deed, acquire equal interests, and share in equal rights of possession.
What are the “four unities” in relation to the creation of a joint tenancy relationship?
1) unity of time
2) unity of title
3) unity of interest
4) unity of possession
“________________” means all parties must acquire the joint interest at the same time.
Unity of time
“________________” means all parties must acquire the property in the same deed of conveyance.
Unity of title
“________________” means all parties must receive equal, undivided interests.
Unity of interest
“________________” means all parties must receive the same rights of possession.
Unity of possession
When one of the joint tenants exercises his right to sell or give away his interest in the property, the new owner is not a joint tenant with the other owners. The new owner becomes a “________________”.
Tenant in common
A “_______________” is a legal way for an owner to dispose of his or her interest against the wishes of other co-owners.
A partition suit (the courts divide or “partition” the property)
“________________” is a form of ownership reserved exclusively for husband and wife, but it is not recognized in Texas. It features survivorship, equal interests, and limited exposure to foreclosure.
Tenancy by the entirety
“_______________” consists of property owned by either spouse at the time of the marriage, property acquired by either spouse through inheritance or gift during the marriage, property acquired with separate-property funds, income from separate property.
Separate property
How can a spouse gain an equitable interest in separate property?
The value of the separate property increases during the marriage or community property funds were used to discharge any debt on the separate property.
“_________________” consists of all other property earned or acquired by either party during the marriage.
Community property
True or false: In Texas, as a community property state, title insurance companies like to have the signatures of both spouses on a conveyance of separate property to do away with any speculation that the property is not community property.
True
True or false: Upon the death of either spouse, half of the deceased’s community property passes to the surviving spouse, and the other half passes to the decedent’s heirs.
True
The “______________” was created in 1987 by an amendment to the state constitution that states community property rights of survivorship differ from a joint tenancy rights of survivorship, when debts are incurred.
Community property right of survivorship
In a “joint tenancy”, a party is only responsible for ½ the debt.
Joint tenancy
In “______________” both parties are responsible for all debt.
Community property
An agreement to create the community property right of survivorship must:
1) be in writing
2) be signed by both spouses
3) describe the community property in the agreement
4) contain a phrase describing the intent such as “…will become the property of the survivor”
“_________________” is a form of ownership held by business partners, as provided by the Uniform Partnership Act. This type of relationship grants equal rights to all partners, but the property must be used in connection with the partnership’s business. Individual rights are not assignable.
Tenancy in partnership
In a “______________”, one person owns the whole business and reports all the profits and losses on his or her personal income tax return.
Sole proprietorship
A “_______________” is when two or more people become associated to carry on a business for profit.
A partnership
A “_______________” is an active partner in the partnership who has unlimited personal liability for the debts of the partnership
General partner
True or false: If a new general partner joins an existing partnership, he or she would have unlimited liability for future debt to the partnership, but his or her liability for the existing partnership debts would be limited to the extent of his or her investment of capital.
True
What rights did the Uniform Partnership Act of 1994 give general partners?
1) equal rights to use partnership property for partnership purposes
2) cannot transfer their interest to another without the consent of the other partners.
Who has first claim on the assets of a partnership?
Creditors
What happens when a partner files bankruptcy?
It would dissolve the partnership as it applies to the bankrupt partner and the creditors would be able to get to the bankrupt partner’s share of the partnership assets.
“_______________” are partnerships in which the limited partners have limited liability as opposed to the unlimited liability of a general partnership.
Limited partnerships
A limited partnership must have at least one ____________ who has unlimited liability.
General partner
How is a limited partnership created?
In writing and the partnership must file a formal certificate of limited partnership.
True or False: A limited partner cannot permit his or her name to be used in a way that would signify that he or she is a general partner.
True
According to the _________________, partners may contribute services to the partnership instead of only money.
1983 Revised Limited Partnership Act
True or False: Any limited partner may ask for an accounting from a general partner.
True
True or False: Limited partners have the authority to get rid of the general partner for cause
True
The __________________ eliminated many of the tax advantages for limited partnerships in real estate investment. These tax changes led to a significant decline in the real estate syndicate’s use of the limited partnership form of ownership.
Tax Reform Act of 1986
“_____________” are partnerships for a single undertaking rather than a continuing business.
Joint venture
What is the most common partnership form of a joint venture?
Limited partnership
Generally in real estate, _____________ are the investors that provide most of the equity capital, while _____________are usually responsible for managing the partnership assets and they may contribute a relatively small amount of the required capital.
Limited partners, general partners
True or False: Since a joint venture is considered a partnership, it is taxed in the same way as a partnership; that is, the individual joint venture members are responsible for paying the taxes.
True
True or False: The death of a joint venture member does not necessarily dissolve the joint venture. A managing partner typically has control of the joint venture.
True
A ___________ is a separate legal entity established under state law by the filing of articles of incorporation with the Secretary of State.
Corporation
Because a corporation is a legal person, real estate ownership by a corporation is a(an) ______________.
Ownership in severalty
If just a few people hold all the stock in a corporation so they can actively control the business, the corporation is said to be ____________.
Closely held
How can closely held corporations avoid considerable corporate taxation?
By not showing a profit (salaries, benefits, bonuses to officers who are also stockholders).
True or false: Corporations can own property in the corporate name.
True
True or false: Shareholders of a corporation have limited liability and do not participate directly in managing the corporation.
True
True or false: Shareholders elect a board of directors, who are the ones responsible for setting corporate policy
True
True or false: The directors hire corporate officers, who operate the corporation.
True
True or false: The corporate bylaws, which are the rules of the corporation, lay out the power of the corporate officers.
True
True or false: Because a corporation is a separate legal entity, shareholders can sue the corporation.
True
True or false: Because a corporation is a legal entity, it has an unlimited life and theoretically exists forever.
True
True or false: If the corporation wants to sell all or a majority of its corporate assets, the majority of the stockholders must approve the sale.
True
True or false: If a corporation exists in name only - in other words, individual funds are commingled with corporate funds, the courts can decide that the corporation is actually a partnership or sole proprietorship. If this happens, the corporation will lose its limited liability protection.
True
A ______________ is a hybrid business entity having characteristics of both a corporation and a partnership.
Limited Liability Company (LLC)
What is the primary corporate characteristic of a Limited Liability Company (LLC)?
Limited liability
What is the primary partnership characteristic of a Limited Liability Company (LLC)?
The availability of pass-through income taxation.
The ____________ is the document most important to an LLC’s success because it determines, defines, and apportions the rights of the members.
Operating Agreement
How many members must each LLC have?
One
True or false: Members of an LLC may be persons, corporations, partnerships, or other LLCs.
True
A member’s ownership interest in the LLC is called a ______________.
Membership interest or shares
True or false: All LLCs must file evidence of their existence with the secretary of state of the state where they choose to be organized. All LLCs must disclose their company name, appoint a statutory agent and disclose their valid business purpose.
True
_______________ is a descriptive term for a group of two or more people who combine their financial resources to achieve certain investment objectives.
Syndication
____________ are typically used in cases of multiple, continuing projects that require the investment of substantial amounts of money from many sources.
Syndicates
What are the 3 cycles of syndication?
1) Organization (planning, purchasing property, meeting registration and disclosure rules, and marketing)
2) Operation (managing both the syndicate and the real property, usually done by the sponsor)
3) Liquidation (reselling the property)
What business organization can a syndicate adopt?
Limited partnership, general partnership, corporation or real estate investment trust
What is the liability for limited partners?
They are liable only to the extent of their investment.
What are the ways a business can be organized?
Sole proprietorship Partnership Joint venture Corporation Limited Liability company Syndicate Real estate investment trust
A _________ is a hybrid form of ownership of multi-unit residential or commercial properties. It combines ownership of a fee simple interest in the airspace within a unit with ownership of an undivided share, and as a tenant in common, of the entire property’s common elements, such as lobbies, swimming pools, and hallways.
Condominium
According to Texas law, the condominium boundaries include:
The interior surfaces of the perimeter walls, floors and ceilings.
The ___________ owner of an apartment or unit holds a fee simple title to his or her unit and a share of common elements as tenants in common.
Texas Uniform Condominium Act
What do “common elements” in a condo unit include?
1) the land (if not leased)
2) structural components of the building, such as exterior windows, roof, and foundation
3) physical operating systems supporting all units, such as plumbing, power, communications installations, and central air conditioning
4) recreational facilities
5) building and ground areas used non-exclusively, such as stairways, elevators, hallways, and laundry rooms
A ____________ unit has boundaried airspace that is privately-owned by the homeowner, while all other connecting areas of the complex are communally owned by all condo residents. _____________ are individual houses that are placed side-by-side, where one or two walls of each house are shared between adjacent homes.
Condominium, Townhouses
Explain differences between condos and townhomes.
Condos are governed by legal statutes, while townhouses are not.
Condos have Condominium Associations that are responsible for the day-to-day maintenance of the building, exteriors, and common areas. Townhouses have Property Owners’ Associations that are responsible for day-to-day maintenance of exteriors and common areas.
Condos have less privacy than townhouses do.
Condos can be on any floor; townhouses start on the ground level, but may be more than one story.
In a _____________, the person owns shares in a non-profit corporation or cooperative association, which in turn acquires and owns an apartment building as its principal asset.
Cooperative, or co-op
In a co-op, the shareholder acquires a ________________ to occupy one of the apartments units.
Proprietary lease
True or false: In a co-op, the number of shares purchased reflects the value of the apartment unit in relation to the property’s total value. The ratio of the unit’s value to total value also establishes what portions of the property’s expenses the owner must pay.
True
The _______________ of the cooperative association is the only party in the cooperative with a real property interest.
Corporate entity
True or false: In owning stock and a lease, a co-op unit owner’s interest is personal property that is subject to control by the corporation.
True
The co-op lease is called a ________________ because the tenant is an owner (proprietor) of the corporation that owns the property.
Proprietary lease
What is the proprietor-tenant is responsible for in a co-op?
The unit’s pro rata share of the corporation’s expenses in supporting the cooperative.
How is a co-op interest transferred to the buyer?
By assigning both the stock certificates and lease to the buyer.
______________ is a fee, or leasehold interest, in a property whose owners or tenants agree to use the property on a periodic, non-overlapping basis. This type of ownership commonly concerns vacation and resort properties.
Time-share
Before a developer can sell a timeshare interest in Texas, the timeshare plan must:
Be registered with the Texas Real Estate Commission.
In a ______________, the tenant agrees to rent the property on a scheduled basis, or under any pre-arranged system of reservation, according to the terms of the lease.
Leasehold time-share
In a ________________, or interval ownership estate, tenants in common own undivided interests in the property.
Freehold time-share
The ___________ deals with contractual fiduciary relationships that involve an agent that is authorized to act on behalf of a principal to create legal relations with a third party.
Law of agency
“____________” means to do what one agreed to do.
Performance
Some contracts require a party to refrain from doing something and that is called “___________”.
Forbearance
“_____________” is to fail to do something required by law or duty.
Default
A “______” is something torn or broken. In contract law, it means that someone has broken his or her word.
Breach
What are the 6 elements of a valid contract?
Competent parties Consideration Mutual Agreement Lawful Objective In Writing and Signed by the Parties Contain a Legal Description
A __________ has the legal capacity to enter into a contract and may be held to the promises made in the agreement.
Competent party
An _____________ may not be held to the terms of the contract.
Incompetent party
A party may appoint an “____________” to serve as a fiduciary for him or her under a power of attorney.
Attorney-in-fact
What must a POA for a transfer of title to real estate include?
Legal description of the property of authority
“____________” is the exchange of promises offered by one party to another to do or not do something.
Consideration
“_____________” are funds paid by the defaulting party to the non-defaulting party according to the terms of the contract.
Liquidated damages
“_____________” is a type of contract that requires a purchaser to pay money to bind the contract.
Option contract
The full consent of all parties to a contract is “_______________”.
Mutual agreement - the parties have entered into contract with full and truthful information and have done so voluntarily.
The performance of a contract must be lawful to meet the ________________ element of a contract.
Lawful objective
The _____________ 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.
Statute of Frauds
What is an exception to the Texas Statute of Frauds requirement that all contracts be in writing?
Leases for less than one year
What must be included on any real estate contract that transfers property or any interest in the property?
Legal description including leases, easements, right-of -ways, mortgages, time shares, and sales.
What are 2 types of legal descriptions?
Metes and bounds, reference to a platted subdivision (lot, block, section, and subdivision name)
An “___________” is one in which all the terms and covenants of the agreement have been clearly stated and agreed to by all parties, whether verbally or in writing.
Express contract
An “______________” is an unstated or unintentional agreement that may be considered to exist when the actions of any of the parties suggest the existence of an agreement.
Implied contract
In the United States every contract for the sale of goods that involves an amount that exceeds $500.00 must be _________________.
Written to be legally enforceable.
A “___________” is a promise or set of promises with legal consequences.
Contract
The Texas Supreme Court has noted that every contract includes ___________________.
An element of confidence and trust that the parties will faithfully perform their obligations under the contract.
What types of contracts cannot be made orally?
1) real estate contracts
2) a promise by an executor to answer out of the executor’s own estate for any debt or damages
3) a lease of real estate for longer than one year
4) a promise to pay a commission for the sale or purchase of an oil or base lease or royalty, minerals, or mineral interest
5) an agreement that is not to be performed within one year of making the agreement
6) loan agreements in excess of $50,000 made by financial institutions
_____________ may be either oral or in writing
Listing agreements
True or false: A contract implied in fact is a true contract.
True
To establish the existence of an implied contract, it is necessary to show:
1) an unambiguous offer
2) unambiguous acceptance
3) mutual intent to be bound
4) consideration
Real Estate License Act states that “A person may not maintain an action in this state to recover a commission for the sale or purchase of real estate unless what?
The promise or agreement on which the action is based, or a memorandum, is in writing and signed by the party against whom the action is brought or by a person authorized by that party to sign the document.
A “______________” is one in which both parties promise to perform their respective parts of an agreement in exchange for performance by the other party.
Bilateral contract
In a “________________”, only one party promises to do something, provided the other party does something. The latter party is not obligated to perform any act, but the promising party must fulfill the promise if the other party chooses to perform.
Unilateral contract
Which criteria must be proven to enforce a bilateral or unilateral contract in court?
The contract existed
The contract was broken
A loss was suffered
The person challenged was responsible
Options are always unilateral or bilateral contracts?
Unilateral
A meeting of the minds, or _________________means parties freely agree to the terms of the contract, exactly as the contract is written
Mutual assent
An ______________ is a situation beyond the parties’ control that makes the transaction impossible or exceedingly difficult or expensive to close and may be unenforceable.
Impossibility (Ex. home destroyed by tornado)
A _____contract is an agreement that does not meet the tests for validity, and therefore is no contract at all.
Void
A ___________contract is one which initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability. Only the party who claims the disability may cancel the legal effect of the contract.
Voidable (a party is the victim of duress, coercion or fraud in creation of a contract)
How does a voidable contract differs from a void contract?
The void contract does not require an act of disaffirmation to make it unenforceable.
An ____________ contract is a contract which cannot be enforced in a court of law.
Unenforceable contract
The _______________ principal states that a court has determined a contract is unenforceable due to needless delay or neglect in filing a claim even though the statute of limitations may not have expired.
Doctrine of Laches (Ex. Julie bought a house from Craig using a written purchase and sale agreement. After taking possession, Julie discovers a small leak in a pipe in the crawl space of the house, but does not take any action against Craig for three years. The court decided that the contract was unenforceable because of Julie’s delay, even though the Statute of Limitations had not expired. The court ruling was based on the Doctrine of Laches.)
In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways. What are the four?
Valid, valid but unenforceable, void, voidable
An _____________ is one that has been fully performed and fulfilled: neither party bears any further obligation.
Executed contract
An ___________ contract means it is a contract that is capable of being executed.
Executory
What are important details to complete to help parties execute a contract?
1) Don’t assume the last circulated copy is what is correct. Make sure everyone understands all of the provisions of the contract
2) Date the contract
3) All parties must sign the contract
4) Initial last minute hand written changes to the contract
5) Check the other party’s authority to sign
6) Get an original executed copy of the contract for company files
How should last minute changes to a contract be handled?
Each change should be initialed by the parties or an amendment should be completed, signed by all parties, and made part of the original contract.
What are examples of contracts that may be valid but not enforceable?
An oral long-term lease and an oral real estate contract
