Law of Contracts Flashcards
Government Rights in Land
- Police Power
- Eminent Domain
- Taxation
- Escheat
Police Power
right to regulate and control how land is used
Eminent Domain
right to take private land for public use
Escheat
transferring real estate to the state when a person dies without will or heirs
Fixed- Rate Mortgage
- Rate does not change
- Amortized loan
- Payment applied to interest first
Adjustable-Rate Mortgage
rate changes
Advantages of ARM Loans
- Lower interest rate
- Higher loans
- Falling rates
Disadvantages of ARM Loans
- Early refinancing
- Unpredictable home mortgage payments
- Long-term cost
- Confusion
Blanket Mortgage
covers more than one property
Package Mortgage
Includes real and personal property
Budget Mortgage
Payment includes PITI, principal, interest, taxes, insurance
Balloon Note
- Partially amortized final payment is much larger
- Lower interest rate
- High cost of refinancing
Collateral- Dependent Loans (Hard Money Loans)
Funds secured by value of parcel
Wraparound Mortgage
- Low interest rate
- Seller financing, new loan takes secondary lien original not repaid
Open-End Mortgage
- Additional borrowing on same note
- Home Equity Line of Credit
- Minimum withdrawal is $4,000
Participation Loan
- 2+ lenders own a share
- Share appreciation mortgage
- Lender collected PI and shares when sold
Reverse Annuity Mortgage
- At least 62 years old
- Due upon sale or death
Sub-Prime Loans
- Risk-based pricing
- Borrowers rated A-F
- Interest is based on rating
Right of First Refusal
A tenant has the right to match or better any offer the landlord may receive on the property before the property is sold to someone else.
Chain of Title
history of all previous owners
Abstract of Title
complete history of title
Attorney’s Opinion of Title
opinion regarding state and transferability of title
Cloud on the Title
claim or encumbrance on title
Patent
original conveyance of land from government
Title Commitment
statement of condition of title from title company
Title Insurance Policy
title company agrees to compensate for losses due to defects in title
Real Estate Settlement Procedures Act (RESPA)
- Consumer Financial Protection Bureau (CFPB) Regulation X
- Ensures consumers are provided with information regarding mortgage settlement and protected from unnecessarily high settlement charges
- Prohibits undisclosed referral fees and kickbacks
Mortgage Insurance Premium
- Part of FHA loan
- Covers claims when borrower defaults on loan
- Pays up-front and annual premium
- Can be added to loan even if it exceeds appraised value
Private Mortgage Insurance
- Allows lenders to increase LTV
- Required when LTV exceeds 80% in conventional loans
- Insures difference between down payment and 80% LTV
Five elements of a valid and enforceable contract
COLIC
- Competent Parties
- Offer and Acceptance
- Legal Purpose
- In Writing
- Consideration
Contract
Agreement between two or more parties to do or refrain from doing something
Special Warranty Deed
promises to defend title only against claims during their ownership
Bargain and Sale Deed
no guarantees or warranties. Implies ownership
Quitclaim Deed
no guarantees, warranties or covenants. Does not claim to own property
Gift Deed
consideration is love and affection
Guardian’s Deed
minor’s interest is conveyed
Sheriff/Trustee’s Deed
foreclosure
Correction Deed
corrects error in previous deed
Tax Deed
property sold by government at a tax sale
Intestate Succession
person dies with no will
Probate
judicial proceeding to confirm validity of will
Formal Will
prepared by attorney
Holographic Will
handwritten
Nuncupative Will
oral or deathbed will, only valid for personal property
Codicil
addition to existing will
Types of Leasehold Estates
- Estate for years
- Periodic Tenancy
- Tenancy at Sufferance
- Tenancy at Will
Estate for Years
set term. Survives death and sale
Periodic Tenancy
renews automatically. Survives death and sale
Tenancy at Sufferance
tenant occupies against owner’s wishes
Tenancy at Will
tenant occupies with permission for uncertain time
Gross Lease
- landlord pays charges. taxes, insurance, repairs
- tenant only pays rent
Net Lease
- tenant pays rent plus expenses
Double net lease
Tenant pays rent, property taxes and property insurance
Triple Net Lease
tenant pays rent and all fixed and variable expenses
Single Net Lease
tenant pays rent and property taxes
Percentage Rent
- rent is based of gross receipts of tenant’s business
Easement
Gives one right to use or pass through another’s property
Easement in Gross
Belongs to person or corporation and not land
Easement Appurtenant
Right to benefit from piece of land
Creation of Easements
- Grant
- Reservation
- Implied grant
- Prescription- continuous use without permission
- Necessity
- Condemnation
Termination of Easements
- Merger
- Release
- Abandonment
- Death
Subrogation
Title insurance policy that allows title company to reduce compensation from claim by amount seller is paying
Contingency
Provision in contract requiring specific act for contract to be binding
Presentation of offers
- All offers must be presented
- Imputed notice- offered presumed to be delivered when given to agent
Acceptance
-No changes to offer, as is Intent -Manner of acceptance -Timeliness of acceptance -If acceptance is unconditional
Remedies for Buyer Default
- Liquidated Damages- earnest money
- Monetary Damages- decided by court
- Specific Performance- force to complete contract
Remedies for Seller Default
- Refund of Earnest Money
- Monetary Damages- decided by court
- Specific Performance- force to complete contract
Physical Characteristics of Land
- Indestructibility
- Immobility
- Nonhomogeneity
Economic Characteristics of Land
- Scarcity- supply and demand
- Modification- value affected by man made changes
- Fixity- land pays for itself
- Situs- location from economic viewpoint
Paragraph 11- Special Provisions
Terms can be addressed that are not covered in contract or addenda
Statute of Frauds
All contracts for longer than one year must be in writing
Texas Veterans Land Board
- Veteran’s loan is sold to TVLB
- Rate is up to 1% lower
TREC Temporary Lease Agreements
When buyer or seller occupies for less than 90 days from closing
Option Contracts
Seller gives buyer right to purchase for a period for some form of consideration
Prorated Items at Closing
Property taxes and HOA fees
Common Law
- Based on local custom and common sense
- Developed in England
- Uses previous decisions
Statutory Law
based on laws and regulations
Bill of Sale
personal property being transferred with real property
Cooperatives
- Do not own specific unit
- Buy shares and receive proprietary leases
Executory Contracts
Contract is binding on parties but some duties have not been performed yet
Earnest Money
- Shows buyer is serious about intent to purchase
- Placed into escrow when contract signed
- If not delivered on time, seller can terminate
Buffer Zone
area of land separating one land use from another
Setback
amount of space required from lot line to building line
Variance
permission to violate rules
Addendum
attachment to contract that adds or further describes duties
Amendment
changes to contract
Encumbrance
claim, lien char or liability attached to and binding real property
Lien
right given by law to certain creditors to have debts paid out of property of a defaulting debtor
Equal Credit Opportunity Act (ECOA)
- 1974
- All consumers given equal chance for credit
- Prohibits discrimination on protected classes, and for receiving public assistance
- Does not prevent obtaining information
Truth in Lending Act (TILA)
Disclosure of key terms in lending arrangement and all costs
Regulation Z
Advertisement must disclose key terms
Community Reinvestment Act (CRA)
prohibits redlining and ensures banks serve needs of community in which they do business
Dodd-Frank Wall Street Reform and Consumer Protection Act
- Established Consumer Financial Protection Bureau
- Promote financial stability by improving accountability and transparency
- Ending bailouts
Seller’s Disclosure Notice
Seller discloses all facts and defects concerning property
Offer Requirements
- Communicated to specific offeree
- Intended to be serious offer
- Definite and certain enough to be accepted
Counteroffer
- Party changes offer in some way
- Reject initial offer and make new offer
Rejection with Invitation to Resubmit
Reject offer and makes suggestions to what would be acceptable
Ownership in Severalty
Ownership by one person or entity
Co-Ownership
Ownership by 2+ people or entities
Tenancy in Common
Ownership by 2+ in undivided interests
Joint Tenancy
- Right of survivorship
- 4 Unities
- Time- acquire at same time
- Title- from same source
- Interest- equal shares
- Possession- shared equally
Community Property
Property acquired during marriage is owned equally
Separate Property
Property owned by married person that is not community property
Tenancy by Entirety
Joint tenancy between two married individuals
Syndicate
Two or more join to create and operate investment
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)
- Enhance consumer protection and reduce fraud by establishing minimum standards for licensing and registration of loan originators
- Must be registered with Nationwide Mortgage Licensing System and Registry
Sole Proprietorship
Venture owned by one individual
Partnership
- Must have one or more general partners
- Can be created with written or oral agreement
Joint Venture
Individuals join for project them dissolve upon completion
Corporate Ownership
- Filed with Office of Secretary of State
- 3 components
- Shareholders
- Board of directors
- Corporate officers
S Corporation
Under 100 shareholders
Sublet
Transfer of some or all of tenants rights to another party with liability remaining on lessee
Assignment
Rights and liabilities of tenant transfer to another
Option to Buy
Allows tenant to buy at preset price and terms for given period
Mutual Rescission
Lease termination by agreement of both parties
Essential Elements of Option Agreement
- Term
- Price
- Conditions
Contract for Deed
- Title transfers at closing
- No lender used, seller financing
Lease-Purchase Agreement
- Tenant agrees to purchase the property at some agreed-to time and terms
- Binding on both parties
- Payments applied to down payment or sale price
Residential Financing Options
- Third Party
- Assumption of existing mortgage, FHA, VA
- Seller Financing
Causes for contract termination
- Non-performance
- Performance is illegal
- Destruction of Property
- Mutual Rescission
Escalation Clause
Anything above a certain amount of taxes and utilities is charged to tenant
Fair Housing Advertisement Protected Categories
- Use of Racial and Ethnic Terms
- Religious Preference
- Gender Preference
- Handicapped Persons
- Familial Status
Title Contingency
Title must be marketable and examined
Financing Contingency
Must be able to obtain financing approval
Sale of Other Property Contingency
Sale is contingent on buyer selling existing property
Appraisal Contingency
Property must appraise for sales price
Inspection Contingency
Subject to satisfactory inspection
Mandatory Disclosures
- Lead-based paint if home built before 1978
- Environmental hazards
- Radon
Potential Hazardous Materials
- Radon
- Asbestos
- Urea Formaldehyde Foam Insulation
- Lead
- Landfills- water testing
- Underground Storage Fuel Tanks- water testing
- Farming Herbicides and Pesticides- water testing
- Electromagnetic Fields
Consideration in a valid contract
Something given in exchange for a promise
Paragraph 21 of the 1-4 Family Sales Contract
- Notices
- Must enter client’s contact information
DTPA Coverage Categories
- Producing cause of
- Deceptive act
- Breach of warranty
- Unconscionable course of action
- Act in violation of Texas Insurance Code
Mortgage
Contract between lender and borrower
Deed of Trust
Contract between borrower, lender, and trustee
Promissory Note
Borrower’s unconditional promise to repay
Escrow
- Bank account to pay expenses
- Escrow agent is fiduciary
- Administered by lender
Trust
- Hold funds until completion
- Benefit beneficiary, trustee
