LESSON 1: TEXAS CONTRACT LAW Flashcards
What does TRELA stand for?
Texas Real Estate License Act.
What is the purpose of TRELA?
It sets guidelines, requirements, and standards for real estate professionals in Texas.
Can a person practice real estate for a commission without a license?
No, a valid and active license is required.
What happens when the Commission revokes a license?
The license is recalled and voided.
What happens when the Commission suspends a license?
The license becomes ineffective for a period of time.
What subchapter of Chapter 1101 deals with real estate brokers and salespersons?
Subchapter A.
What is Section 1101.552 of TRELA about?
It lists reasons for which a real estate license can be suspended.
Name one reason a licensee’s license can be suspended under Section 1101.552.
Conviction of a felony involving fraud.
What happens if a licensee procures a real estate license through fraud?
Their license can be suspended or revoked.
What action can result in suspension when selling, trading, or renting property in one’s own name?
Misrepresentation or dishonest fraudulent actions.
What is a consequence of failing to make good on a check to the Commission?
License suspension.
What does TRELA say about acting negligently or incompetently?
The Commission may suspend or revoke the license.
What must a license holder disclose to a potential buyer?
Any known material defects.
What is prohibited regarding real estate advertising?
False or misleading advertisements.
What is the rule regarding real estate commissions in listing contracts?
They must include a provision stating that commissions are negotiable.
What is Section 1101.654 about?
Prohibits licensees from practicing law.
Can a real estate agent create legal contracts for clients?
No, they can only fill in promulgated forms by TREC.
What happens if a real estate licensee engages in unauthorized practice of law?
Their license or certificate can be suspended or revoked.
Can real estate agents draft legal instruments affecting real estate interests?
No, unless using a form approved by TREC under Section 1101.155.
What is the difference between explaining and advising on a contract?
Explaining tells clients what a form means; advising suggests legal action, which is unauthorized practice of law.
What are common mistakes that constitute unauthorized practice of law?
Writing contract contingencies, modifying contracts without using TREC addenda, advising legal actions, hiring attorneys for clients.
Why was the Texas Real Estate Broker-Lawyer Committee created?
To resolve conflicts between lawyers and real estate professionals over contract preparation.
How many members are in the Texas Real Estate Broker-Lawyer Committee?
13 members: 6 brokers, 6 attorneys, and 1 public member.
What is the role of the Texas Real Estate Broker-Lawyer Committee?
It drafts and recommends contract forms to TREC, which decides on their use.
How many members are on the Texas Real Estate Commission (TREC)?
9 members: 6 brokers with at least 5 years’ experience and 3 public members.
What are the requirements for the public members of TREC?
They cannot have a real estate license, financial interest in real estate, or represent someone with such interests.
What contract forms are promulgated by TREC?
One to Four Family Residential Contract (Resale), New Home Contract, Farm & Ranch Contract, and Residential Condominium Contract.
What are some commonly required contract addenda?
Third Party Financing Conditions Addendum, Seller Financing Addendum.
Where can real estate licensees access TREC forms?
TREC website, TAR website, and ZIP forms.
Can a license holder modify a promulgated contract form?
Only by filling in blanks or striking content per client request, without altering legal rights.
What must a license holder do if there is no TREC form for a transaction?
Use a form prepared by an attorney licensed in Texas.
What does the TREC rule say about modifying forms?
License holders can fill in blanks but cannot alter legal rights; factual statements and business details can be added.
What should a licensee do when a client requests a legal modification?
Advise the client to consult an attorney.
What happens if a license holder uses an outdated TREC form?
It is considered unauthorized practice of law.
Can real estate licensees create legal documents?
No, they can only complete TREC-approved forms or those prepared by an attorney or the property owner.
What happens when TREC promulgates a new form?
It may be issued on a trial basis before full implementation.
What is required for an earnest money deposit?
It must be delivered to the escrow officer within three days of the contract’s effective date.
What is the Texas Deceptive Trade Practices Act (DTPA)?
A consumer protection law under Chapter 17 of the Texas Business and Commerce Code, passed in 1972 to prevent misrepresentation and fraud.
Why was the DTPA enacted?
To protect consumers from fraud and misrepresentation by prohibiting “as is” sales without warranties.
What was the previous legal standard before the DTPA?
“Buyer Beware” (caveat emptor), meaning buyers were responsible for protecting themselves from misrepresentation.
What constitutes a violation of the DTPA?
Knowingly making false statements about the appearance, value, or condition of a product, causing loss to the buyer.
Are Texas real estate licensees exempt from the DTPA?
Yes, since May 2011, but they are still liable for unconscionable acts, misrepresentation of material facts, or failure to disclose with intent to induce a transaction.
What is “puffing” in real estate?
Exaggerated claims about a property’s benefits that do not cross into misrepresentation.
What is the best protection for a seller under the DTPA?
Full honesty and disclosure of a property’s condition, often via the Seller’s Condition of Property form.
Does the DTPA apply to all real estate transactions?
No, it does not apply to commercial transactions over $500,000 but always applies to residential properties used as residences.
How long does a consumer have to file a complaint under the DTPA?
Two years from the date of discovery of the deceptive act.
What damages can a consumer receive under the DTPA?
Triple damages (treble damages) for proven violations.
What are some defenses available to real estate professionals under the DTPA?
Reliance on reports from licensed inspectors, seller disclosures, or official government records.
What case set a precedent for MLS errors under the DTPA?
Cameron v. Terrell & Garrett (1981), where the Texas Supreme Court ruled that misrepresentation of square footage in MLS listings violated the DTPA.
What is an “As Is” sale in real estate?
A sale where the seller makes no warranties about the property’s condition, though they must still disclose known issues.
When does an “As Is” defense NOT work under the DTPA?
If the buyer was fraudulently induced into the contract, the seller obstructed inspections, or the clause was hidden in fine print without negotiation.
What is a waiver under the DTPA?
A legal agreement where a buyer waives their rights under the DTPA, but it requires attorney consultation and must meet strict conditions.
How should real estate agents handle property inspector recommendations?
Provide multiple options, suggest looking up licensed inspectors on the TREC website, and avoid endorsing a specific inspector.
What is the importance of written disclosures under the DTPA?
They protect license holders from liability if they relied on false statements made by sellers, as long as the statements were in writing.
What disclosures are required in Texas real estate transactions?
Seller’s disclosure forms, HOA membership details, tax liabilities, subsurface disclosures, and federal hazardous material disclosures (e.g., lead-based paint for homes built before 1978).
Why should sellers complete their own disclosure forms?
If an agent fills out the form incorrectly, they could be held liable for any misrepresentation.
Who is required to provide a Seller’s Disclosure of Property Condition?
A seller of residential real property comprising not more than one dwelling unit in the state.
What must the Seller’s Disclosure include?
A written notice containing, at a minimum, all items prescribed by law.
Are sellers required to disclose deaths that occurred on the property?
No, unless the death was related to the condition of the property.
Are sellers required to disclose if a previous occupant had AIDS or HIV?
No, sellers and agents are not required to disclose this information.
How should a seller complete the disclosure notice?
To the best of their belief and knowledge as of the date of completion and signing.
What should a seller do if they do not know an answer on the disclosure notice?
Indicate that the information is unknown.
Name one situation where a seller is NOT required to provide a disclosure notice.
Sales pursuant to a court order or foreclosure sale.
Do investors and relocation companies have to provide a Seller’s Disclosure?
Yes, they are not exempt from providing the disclosure.
What is the best risk management tool for sellers and agents?
Disclose, disclose, disclose! When in doubt, disclose.
What are examples of required disclosures?
Property condition, notorious events (e.g., well-publicized murder/suicide), city plans affecting the area.
Are sellers required to disclose registered sex offenders in the area?
No, but they are permitted to disclose this information.
What disclosures are prohibited under the Fair Housing Act?
Race, color, religion, sex, handicap (including AIDS or HIV), national origin, and familial status.
Where do license holders typically obtain property information?
Government sources such as tax records and official documents.
What should a license holder do if they notice discrepancies in property details?
Disclose the discrepancy and notify the listing agent.
What is the statute of limitations for breach of a real estate sales agreement in Texas?
4 years.
How long does a consumer have to file a claim under the DTPA?
2 years from the occurrence or discovery of the deceptive act.
What can extend the statute of limitations under the DTPA?
If the violation was concealed or difficult to detect, or if the violator engaged in conduct to delay the filing.
What is the penalty for filing a frivolous claim under the DTPA?
The defendant may be awarded attorney’s fees and costs if the claim is found groundless and brought in bad faith.
What is a defense under the DTPA for false information?
If the defendant relied on false written information from an official government record or another reliable source and did not know it was false.
What does the DTPA apply to?
False, misleading, or deceptive acts in trade or commerce, including real estate transactions.
Who qualifies as a “consumer” under the DTPA?
An individual, partnership, corporation, or government entity that purchases or leases goods or services.
What businesses are NOT covered by the DTPA?
Businesses with assets of $25 million or more.
Does intent matter in DTPA violations?
No, a violation can occur even if there was no intent to deceive.
What additional damages can be awarded if a DTPA violation is intentional?
Up to three times the amount of economic damages.
What are the four private remedies a consumer may sue for under the DTPA?
1) Violation of the “laundry list” (if relied upon to the consumer’s detriment), 2) Breach of an express or implied warranty, 3) An unconscionable action, 4) Certain violations of the Texas Insurance Code.
What damages can a consumer recover under the DTPA?
Economic damages; if the conduct was “knowingly” committed, up to three times economic damages + mental anguish; if “intentionally” committed, up to three times mental anguish damages.
What must a consumer do before filing a lawsuit under the DTPA?
1) Provide written notice to the alleged violator specifying the complaint, damages, and expenses (including attorney fees), 2) Give the alleged violator 60 days to respond.
What happens if a consumer rejects a settlement offer under the DTPA?
The violator may file the offer with the court; if the court finds the offer is substantially the same as the actual damages found, the consumer cannot recover more than the amount offered.
What are the exceptions to the 60-day notice rule under the DTPA?
1) If immediate filing is needed to prevent the expiration of the statute of limitations, 2) If the DTPA claim is a counterclaim in an existing suit.
In Wyatt v. Petn’la (1988), why was the seller not liable for failing to disclose a leak?
The seller was not liable because they lacked knowledge of the leak.
In Henry S. Miller Co. v. Bynum (1990), why was a leasing agent held liable under the DTPA?
The agent had a duty to verify the truthfulness of representations about a shopping center, and failure to disclose the truth was a violation.
How does Texas law treat a seller’s affirmative representations about a property?
The law requires the seller to know if their statement is true, meaning misrepresentations about a home’s condition can be a breach of warranty.
In K.C. Roofing Co. Inc. v. Abundis (1977), what actions led to liability under the DTPA?
The contractor guaranteed a roof would not leak, admitted it did leak, admitted faulty work, failed to fix it, but still billed the owner—showing “knowing” misconduct.
What was the key factor in the Supreme Court ruling in Prudential Insurance Co. v. Jefferson-Assoc., Ltd. (1995)?
The “as-is” clause was enforced because the buyer was an experienced investor, had the property inspected, and negotiated the clause at arm’s length.
When is an “as-is” clause ineffective under the DTPA?
When the seller actively misrepresents or conceals known defects, as seen in Smith v. Levine (1995).
Under what conditions is a DTPA waiver valid?
The waiver must be: 1) In writing and signed, 2) Not involve a significantly weaker bargaining position, 3) Made with legal counsel chosen by the consumer.
What is a plea in abatement under the DTPA?
A legal action to delay or dismiss a suit due to failure to provide the required 60-day notice before filing.
How does a violation of the DTPA affect a real estate licensee under TRELA?
A DTPA violation may also constitute a deceptive practice under Texas Real Estate Licensing Act (TRELA), leading to potential license suspension or revocation.
