Earnest Money, Options and Title

Question 1

A title search will not discover

the sellers motivation to sell.
a lien for a swimming pool.
unpaid taxes.
heirs.

Answer 1

the sellers motivation to sell

Question 2

An option could be used in which of the following ways?

To give a buyer time to fly an out-of-town spouse in to make a final decision.
To give time for a seller to conduct repairs
To give an investor a look at several houses at once without having to buy any.
All of the above are correct.

Answer 2

All of the above are correct.

Question 3

What are liquidated damages?

Damages that are not solid in legal terms.
Damages that are spread among multiple defendants.
Damages that are agreed to in advance.
Damages that are awarded in court.

Answer 3

Damages that are agreed to in advance.

Question 4

Which of the following is not an example of good consideration for the sale of a house?

Cash
Earnest money
Jewelry
Another house

Answer 4

Earnest money

Question 5

If a claim is made against the title as covered by the title policy. The issuing title company and or the Underwriter that issued the title policy on behalf of the title company protects the buyers by:

Refunding the cost of the title policy.
Defending the title, in court if necessary, at the buyer’s expense.
Bearing the cost of settling the claim if it proves valid, in order to perfect the title and keep the buyers in possession of their property.
There is no protection for the buyers, the title policy only covers the lender that is involved.

Answer 5

Bearing the cost of settling the claim if it proves valid, in order to perfect the title and keep the buyers in possession of their property.

Question 6

Who does the mortgagee’s title policy protect?

Buyer
Seller
Lender
No one

Answer 6

Lender

Question 7

What does the term “good and marketable” mean?

The property is currently for sale.
The property could be sold without interference.
The property is being sold “marketable” on the TREC website.
It is a guarantee of title.

Answer 7

The property could be sold without interference.

Question 8

How many days is an option for?

3 days
7 days
10 days
negotiable

Answer 8

negotiable

Question 9

How much is the option fee?

Answer 9

Negotiable

Question 10

What is the maximum amount of time allowed on an option?

Answer 10

Negotiable

Question 11

An important note on Earnest Money is that it is not

Answer 11

a consideration of a real estate contract, it is simply a term of the contract. There are contracts that have zero dollars of earnest money if it is agreed upon by the buyer and the seller.

Question 12

Earnest money is typically on a real estate contract and the amount varies

Answer 12

but one to two percent of the sales price is usually adequate. If the contract goes to closing then the earnest money would go to the buyer’s closing costs.

Question 13

Earnest money is used in real estate contracts for two reasons

Answer 13

It’s good faith money. The buyer is stating that he or she is entering into the contract under good faith and is willing to put up money to back that good faith.
It is liquidated damages. Liquidated damages are damages agreed to in advance. It is difficult for a judge to determine all of the expenses (damages) in a real estate lawsuit. The liquidated damages make it easy; the judge simply awards the non-defaulting party the earnest money because that was the amount of damages agreed to in advance.

Question 14

The word Option is used in several different ways when it comes to contracts (1)

Answer 14

The most common way involves a residential contract to purchase. The buyer and seller could agree that the buyer would have a time period after the contract is accepted by both parties that would allow the buyer to terminate the contract without recourse. The buyer would have to pay the seller a fee for this right and the funds would have to be delivered to the seller or the listing agent within two calendar days. The buyer would have the unrestricted right to terminate the contract with the time period agreed to (such as 14 days).

Question 15

The word Option is used in several different ways when it comes to contracts (2)

Answer 15

Another way that the word option is used in real estate is an option to buy a property rather than to terminate a contract. In this situation, the possible buyer thinks the real estate may become more valuable in the future. The interested party could agree with the owner to pay for a time period, such as two years, to decide if he or she will go through with the purchase.

Question 16

The word Option is used in several different ways when it comes to contracts (3)

Answer 16

Another way an option can used is when a seller options a property to the buyer to sell at a later date. The seller has the option to require the buyer to buy but is not required to sell.

Question 17

Title insurance

Answer 17

insurance that protects the real estate title that a buyer is about to purchase. Because the title process is usually a seller sided event, the seller needs to prove to the buyer that they can sell the house as agreed.

Question 18

Title Search

Answer 18

uncovers are any unpaid taxes or mortgages, judgments against previous owners, easements, and other court actions or recorded documents which can affect title to real estate. A title company will find and report such defects in the title to the real estate buyers wish to buy so that these matters can be corrected and cleared up. It is the first benefit a consumer will receive when title insurance is ordered.

Question 19

The owner’s policy of title insurance is issued to an OWNER of real property insuring that the title is “good and marketable”

Answer 19

The insurance will protect the owner from any defects to that title that were not disclosed on the title commitment.

Question 20

A title that is called “good and marketable” is one that means that the property

Answer 20

can be sold. The property may have encumbrances but those will not hinder the property from being sold.

Question 21

Do not ever say a title is “free and clear.” A title that is “free and clear” means

Answer 21

that the property can be sold and there are no encumbrances on the property. The problem with this is that almost every property sold has a utility easement. The easement creates an encumbrance.

Question 22

In Texas, the title officer is the closing agent. The title officer is a

Answer 22

neutral third party who ensures that all conditions of a real estate transaction are met. These people handle all of the paperwork involved in the closing of the transaction. These people handle the figuring and transferring of funds.

Question 23

Title attorneys

Answer 23

are the ones that put together all the legal papers to transfer title from one person to another. Most of the papers to be used at closing need an attorney involved. These attorneys do not represent either party they just make the transaction work.

Question 24

Title commitment

Answer 24

looks the same as the title policy except that the title policy is issued to the owner of the property. The buyer is not the owner before closing but the buyer would still want to know the status of the title before closing. The title commitment gives the buyer this satisfaction and basically states that if nothing changes between when the title commitment was issued and closing the actual title policy will be issued with only the disclosed defects.

Question 25

The Commitment for Title Insurance

Answer 25

is issued only as a preliminary instrument in instances in which the title company has a bona fide order for the policy or policies of title insurance specified therein, to be issued within ninety (90) days from the effective date of the Commitment.

It has 4 Schedules

Question 26

The Commitment for Title Insurance Schedule A

Answer 26

sets out the effective date of the commitment, the names of the insured’s, the sale price, loan amount, the estate or interest in the land (fee simple, easement estate, leasehold estate, etc.), the name of the person/s in title at the date of the commitment and the legal description of the property under consideration.

Question 27

The Commitment for Title Insurance Schedule B

Answer 27

informs the insured’s of everything of record that affects the property such as restrictions, liens, oil and gas reservations, easements and so on, guarantees and ad valorem taxes are paid current through a designated year and in general, limits the liability of the policy to be issued.

Question 28

The Commitment for Title Insurance Schedule C

Answer 28

which informs the insured’s of any requirement that must be met before a policy will be issued.

Question 29

The Commitment for Title Insurance Schedule D

Answer 29

a disclosure of the officers of the Title Company and Underwriter and also discloses the premiums to be charged for the policy and the beneficiary of such premiums.

Question 30

Endorsements

Answer 30

are a clause in an insurance policy detailing an exemption from or a change in coverage. Each endorsement will add costs to the title insurance policy coverage.