LESSON 10: AGENCY, ETHICS, LAW Flashcards
What is the definition of law in the United States?
Law is a body of rules of conduct that are of binding legal force, recognized, and enforced by controlling authorities. U.S. law includes statutes, case law, treaties, executive orders, and regulations made by federal, state, and local governments. Laws regulate what we can or cannot do and impose consequences for violations.
What is the difference between law, ethics, and morals?
Law refers to rules enacted by governing bodies with legal consequences for violations. Ethics are personal or professional rules of conduct based on what is right or wrong. Morals are principles of right and wrong that are often taught through fables or general truths, and are subjective to individuals.
What is common law?
Common law is a system of law based on court decisions and customs, as opposed to statutes or written laws. It evolves from judicial decisions and precedents.
What are the main goals of the Truth in Lending Act (TILA)?
TILA aims to promote informed use of consumer credit by requiring lenders to disclose the terms and costs of loans. It allows consumers to compare credit costs and protects them from unfair credit practices. TILA also provides a “right of rescission,” which gives borrowers three days to back out of certain loans without penalty.
What does the Fair Housing Act prohibit?
The Fair Housing Act prohibits discrimination in housing based on race, color, religion, sex, familial status, or national origin. It also prohibits discrimination in terms, conditions, privileges, and advertising of the sale or rental of properties.
What is the purpose of the Community Reinvestment Act (CRA)?
The CRA encourages depository institutions to meet the credit needs of all areas in their communities, including low- and moderate-income neighborhoods. It requires institutions to submit annual statements about their efforts to help these communities, and evaluates them periodically to ensure they meet credit needs.
What is redlining in the context of the CRA?
Redlining refers to the practice of limiting the number of loans or setting unfavorable terms in certain neighborhoods based on racial or other discriminatory factors. It violates both the Fair Housing Act and the Community Reinvestment Act.
What type of loans does the Truth in Lending Act (TILA) apply to?
TILA applies to real estate loans, consumer loans for $25,000 or less, and personal, family, or household loans that are repaid in more than four installments or involve a finance charge.
What information must lenders disclose under Regulation Z of TILA?
Lenders must disclose loan application fees, the property address, the total sale price, the amount financed, finance charges, the APR, prepayment penalties, late payment charges, and whether the loan is assumable. If the loan is an ARM, the highest possible interest rate must be disclosed.
What are the consequences of noncompliance with TILA?
Civil liability for creditors who fail to comply with TILA may include actual damages, legal fees, and penalties. Criminal liability includes fines up to $5,000 or imprisonment for up to one year. Administrative actions can require adjustments to consumer accounts or reimbursement for violations.
What is the Real Estate Settlement Procedures Act (RESPA) designed to do?
RESPA is a consumer protection law that educates consumers about the costs and services involved in real estate transactions. It aims to eliminate unnecessary referral fees and tacked-on charges that increase closing costs. It applies to most loans secured by a mortgage lien on residential properties.
What must lenders provide within three days of receiving a loan application under RESPA?
Lenders must provide a booklet about settlement costs, a truth-in-lending statement, and a good-faith estimate of settlement costs. They must also inform borrowers if they refer them to an affiliated business.
What does RESPA prohibit in real estate transactions?
RESPA prohibits parties from accepting or giving fees for referring closing services, charging for unperformed services, and requiring the use of a specific title insurance company. It also limits escrow account amounts and requires standardized settlement statements.
What triggered the Dodd-Frank Wall Street Reform Act?
The financial crisis of 2008, which caused millions of Americans to lose jobs and resulted in trillions in lost wealth, due to a fragmented, outdated financial regulatory system.
What was the primary purpose of the Dodd-Frank Act?
To prevent excessive risk-taking that led to the financial crisis and provide protections for American families from unfair, abusive financial practices.
What agency did the Dodd-Frank Act create?
The Consumer Financial Protection Bureau (CFPB), which regulates and enforces financial consumer laws.
What is the purpose of the “Know Before You Owe” program?
To simplify mortgage disclosures by combining two federally required forms into one, making it easier for consumers to understand and compare loan costs and risks.
Which financial products does the CFPB regulate?
The CFPB regulates all consumer financial products, including mortgages, and enforces the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
What are the exceptions from CFPB regulations?
Reverse mortgages, home equity lines of credit (HELOCs), and mobile home loans (if the mobile home is not attached to real property).
What are the CFPB’s stated goals?
To create easier-to-use mortgage disclosure forms, improve consumer understanding, aid comparison shopping, and prevent surprises at closing.
When did the new disclosure rules under the CFPB become effective?
October 3, 2015.
What are the new requirements for loan disclosures under the CFPB regulations?
The Good Faith Estimate (GFE) and Truth-in-Lending (TIL) became one form called Loan Estimate, which must be provided within 3 days after loan application. The HUD-I Settlement Statement and final TIL became one form called Closing Disclosure, which must be delivered 3 days prior to closing.
What is the penalty for failing to follow CFPB regulations?
Daily penalties: $5,000 for failure to follow the law, $25,000 for gross negligence, and $1,000,000 for intentional violations.
What is the Safe Mortgage Licensing Act (SAFE Act)?
A law passed in 2008 that set minimum standards for the licensing and registration of state-licensed mortgage loan originators (MLOs) to reduce fraud and enhance consumer protection.
What requirements does the SAFE Act impose on mortgage loan originators?
Mortgage loan originators must pass a qualified written test, complete pre-licensure education, take annual continuing education courses, submit fingerprints for a criminal background check, and allow NMLS to obtain a credit report.
What is the Texas Fair Housing Act?
A law that prohibits discrimination in the sale or rental of housing based on race, color, religion, sex, familial status, or national origin.
What types of discriminatory practices are prohibited by the Texas Fair Housing Act?
Refusal to sell or rent a dwelling, discriminatory advertisements, blockbusting, and discrimination in terms, conditions, or privileges of a sale or rental.
What exemptions exist under the Texas Fair Housing Act?
Exemptions include private sales or rentals by an owner of no more than three single-family houses, religious organizations, private clubs, and certain housing for elderly individuals.
What is blockbusting?
Inducing someone to sell or rent a property by making false claims about the entry of people of a certain race, color, religion, sex, disability, familial status, or national origin into a neighborhood.
What criminal penalty exists for interference with fair housing practices?
A Class A misdemeanor for intentionally intimidating or interfering with a person involved in a housing transaction or participating in related activities.
What is the role of TREC (Texas Real Estate Commission)?
TREC regulates real estate brokers and sales agents, real estate inspectors, education providers, residential service companies, timeshare developers, and easement or right-of-way agents in Texas.
What laws does TREC administer?
TREC administers the Texas Occupations Code, Chapters 1101 (Real Estate License Act), 1102 (Real Estate Inspectors), 1303 (Residential Service Company Act), and 221 (Texas Timeshare Act).
What authority does TREC have?
TREC can create and enforce rules, establish a Code of Conduct, conduct hearings, issue disciplinary decisions, adopt rules for contract forms, issue subpoenas, and maintain a registry of license holders.
What is the fiduciary duty of a real estate agent?
A real estate agent must prioritize the interests of their client, act faithfully and ethically, and place the client’s interests above personal interests.
What is required of real estate agents in terms of integrity?
Real estate agents must exercise integrity, avoid misrepresentation, and demonstrate prudence and caution in their responsibilities.
What competencies must a real estate agent have?
A real estate agent must stay informed about market conditions, continuing education, national, state, and local real estate issues, and apply sound judgment and skill in their work
What are the two recovery funds maintained by TREC?
TREC maintains two recovery funds: one for brokers, sales agents, or registered Easement or Right-of-Way agents, and one for real estate inspectors.
What is the primary mission of the Texas Real Estate Commission (TREC)?
TREC’s mission is to assist and protect consumers of real estate services, fostering economic growth in Texas by ensuring capable and honest real estate service providers.
What are some grounds for suspension or revocation of a license under TRELA?
Grounds include felony convictions, fraud, misrepresentation in applications, failure to honor checks, and failure to provide requested information.
What happens if a license holder fails to notify TREC of a final conviction or plea within 30 days?
The license holder may face suspension or revocation of their license for failing to notify TREC of a final conviction or plea of guilty to a felony or fraud-related crime.
What misconduct could lead to suspension or revocation of a license according to TRELA?
Misrepresentation, dishonesty, fraud in real estate transactions, incompetency, negligence, and failure to disclose known defects are grounds for suspension or revocation.
Can a licensed broker pay a commission to someone who is not a licensed individual?
No, a licensed broker cannot pay a commission to someone who is not a license holder or a real estate broker licensed in another state.
Can a sales agent accept compensation from someone other than their sponsoring broker?
No, a sales agent cannot accept compensation from anyone other than the broker that sponsors them.
What is the Texas Deceptive Trade Practices Act (DTPA)?
The DTPA protects consumers against false, misleading, or deceptive business practices, unconscionable actions, and breaches of warranty.
What is the exemption for real estate licensees under the DTPA?
Real estate licensees are exempt from DTPA claims unless they have committed an unconscionable act, misrepresentation, or failure to disclose with the intent to induce a consumer into a transaction.
How did the 82nd Texas Legislature amend the DTPA in 2011?
It added real estate brokerage as a specific exemption to the DTPA, limiting liability unless there is intentional fraud or misconduct.
What is considered an “unconscionable action” under the DTPA?
An unconscionable action is one that takes advantage of a person’s lack of knowledge, experience, or capacity to an unfair degree.
What is the Fraud Act’s definition of “actual awareness”?
The Fraud Act defines “actual awareness” as knowing that a representation or promise is false, which can result in additional damages if proven.
What are the consequences of failing to disclose a false representation under the Fraud Act?
If a person has actual awareness of a false representation and fails to disclose it, they are liable for fraud and may face exemplary damages.
What is fraud in real estate?
Fraud is deliberately doing something with the intention of gaining something of value or causing damage to another person. Example: Telling a buyer a property will double in value when values are increasing by only 10%. Fraud is intentional and has severe legal penalties.
What is misrepresentation in real estate?
Misrepresentation is failing to disclose important facts. Example: Failing to inform the buyer that a creek behind a property has caused flooding twice in the past two years. If an agent knows the seller is being dishonest, they can also be guilty of misrepresentation.
What is the defense for misrepresentation?
A good rule is to “disclose when in doubt”. Disclosing information allows the buyer to decide if it’s material. Agents are not responsible for unknown facts, but in certain areas (e.g., foundation issues), they should advise buyers to seek an engineer’s report.
What is “Innocent Misrepresentation”?
If an agent misrepresents something without knowing, it can still be actionable in civil court, especially if it’s a material misrepresentation. The court may rescind the transaction if it caused the buyer loss.
What should an agent do when relying on others’ information?
Always disclose the source of the information. Example: “The seller said…” or “The tax rolls say…”. Document everything, especially when the seller or their agent shares information.
What should agents do if they learn new information after a contract is signed?
Agents must inform the buyer and advise them to consult with an attorney if necessary. If important information was shared in person, it should be followed up in writing to avoid misunderstandings.
What should agents do regarding the Seller’s Disclosure?
Always have the seller complete the Seller’s Disclosure. If there are red flags, ask questions. Representing a seller does not mean helping them commit fraud.
What is Article 1 of the NAR Code of Ethics?
REALTORS® pledge to protect and promote their client’s interests while treating all parties honestly. This obligation applies whether acting as agents or in non-agency roles.
What is Standard of Practice 1-1?
REALTORS®, when acting as principals in a real estate transaction, are still bound by the duties imposed by the Code of Ethics.
What is Standard of Practice 1-2?
The duties imposed by the Code of Ethics apply to all real estate activities, including electronic transactions and non-agency relationships.
What is Article 2 of the NAR Code of Ethics?
REALTORS® must avoid exaggeration, misrepresentation, or concealment of pertinent facts. However, they are not obligated to discover latent defects or advise on matters outside their license scope.
What is Article 3 of the NAR Code of Ethics?
REALTORS® must cooperate with other brokers unless it’s not in the client’s best interest. Cooperation does not mean sharing commissions or compensating another broker.
What is Article 4 of the NAR Code of Ethics?
REALTORS® must disclose their ownership interest when buying or selling property. They must reveal any interest they have in writing to the buyer or their agent.
What is Article 5 of the NAR Code of Ethics?
REALTORS® must disclose any interest they have in a property before providing professional services related to it.
What is Article 6 of the NAR Code of Ethics?
REALTORS® must not accept commissions, rebates, or profits from clients without their consent. They must disclose any financial benefits they receive when recommending services.
What is Article 7 of the NAR Code of Ethics?
REALTORS® must not accept compensation from more than one party without full disclosure and informed consent from all parties involved.
What is Article 8 of the NAR Code of Ethics?
REALTORS® must keep trust funds and other client-related money in a separate account, distinct from their own funds.
What is Article 9 of the NAR Code of Ethics?
REALTORS® must ensure all real estate agreements are in writing, clear, and understandable, and provide a copy to all parties after signing.
What is Article 10 of the NAR Code of Ethics?
REALTORS® cannot deny equal professional services based on race, color, religion, sex, disability, familial status, national origin, sexual orientation, or gender identity.
What is Article 11 of the NAR Code of Ethics?
REALTORS® must meet the standards of practice and competence expected in their specific real estate discipline. They must disclose any limitations in their competence and seek assistance when necessary.
What is Article 12 of the NAR Code of Ethics?
REALTORS® must be honest and truthful in their advertising and marketing. They must present a true picture and ensure that their status as a real estate professional is clear.
What is Article 13 of the NAR Code of Ethics?
REALTORS® must not engage in unauthorized legal practices and should recommend legal counsel when necessary.
What is Article 14 of the NAR Code of Ethics?
REALTORS® must cooperate with ethical investigations and present all facts if charged with unethical practice.
What is Article 15 of the NAR Code of Ethics?
REALTORS® must not knowingly make false or misleading statements about other real estate professionals.
What is Article 16 of the NAR Code of Ethics?
REALTORS® must respect exclusive representation or brokerage agreements between other REALTORS® and clients.
What is Article 17 of the NAR Code of Ethics?
REALTORS® must mediate or arbitrate disputes arising between REALTORS® of different firms, rather than litigating.
What is the term “Procuring Cause” in real estate?
It refers to the MLS Rule that the cooperating broker who successfully brings a buyer to the property is entitled to the commission offered by the listing broker.
What happens when two or more brokers claim the commission?
The dispute must be arbitrated according to the NAR Code of Ethics and MLS Rules.
What question do arbitrators need to answer in commission disputes?
“Who was the procuring cause of the sale?”
How do arbitrators determine who should get the commission?
Arbitrators weigh various factors such as first showing the property, having an agency relationship, and writing the accepted offer.
What are the duties of a Buyer’s Agent?
The fiduciary duties to the buyer.
What are the duties of a Seller’s Agent?
The fiduciary duties to the seller.
What are the duties of a Mortgage Broker?
They usually have no fiduciary duties to anyone.
What are the duties of a Mortgage Banker?
Fiduciary duties to their investors.
What are the duties of an Underwriter?
Their duty is to protect the lender and the investors.
What is the duty of Title Companies?
They have no fiduciary duties and must remain neutral.
What are the duties of an Appraiser?
Their duties are to the lender.
What are the duties of Residential Service Policy sales persons, repair persons, and insurance salespeople?
They work for and represent their companies.
What laws and regulations must real estate professionals observe?
The NAR Code of Ethics, TREC’s Canons of Ethics, state and federal antidiscrimination laws, and the Texas Real Estate and Licensing Act.
What does Fidelity mean in real estate ethics?
Fidelity means being faithful to one’s clients, profession, and beliefs.
What does Integrity mean in real estate ethics?
Integrity involves being honest, moral, and upright, and avoiding temptation.
What is Competency in real estate ethics?
Competency means understanding the market, tools, and continually upgrading skills to best serve clients.
What happens when rules and ethical requirements conflict?
Professionals must balance conflicting demands, such as revealing or concealing material information.
Are brokers required to disclose a registered sex offender living next to a property?
Texas rules do not require brokers to disclose this information but do have a duty to advise the buyer about where to find it.
What types of disclosures are required in real estate transactions?
Full disclosure about property condition, notorious events, or things that may affect the buyer’s decision.
What types of disclosures are permitted but not required?
Sellers and agents may disclose deaths or the presence of registered sex offenders, though it is not required.
What types of disclosures are prohibited?
Anything related to a protected class under the Fair Housing Act, such as race, color, religion, sex, etc.
What does Confidentiality mean in real estate?
It involves keeping confidential any information the client wishes to remain private, such as financial issues or personal struggles.
What is the duty regarding Non-Discrimination?
Discrimination is prohibited based on protected classes like race, color, religion, sex, national origin, familial status, etc.
What is Subordination of Self-Interest?
It involves avoiding conflicts of interest and putting clients’ needs above personal financial gain or shortcuts.
How does observance of Religious or Moral Beliefs relate to real estate ethics?
Agents must balance their religious or moral beliefs with the duty to provide services to clients, sometimes in conflicting ways.
What are the fiduciary duties of Buyer’s agents?
Fiduciary duties to the buyer and fairness to others.
What are the fiduciary duties of Seller’s agents?
Fiduciary duties to the seller and fairness to others.
What fiduciary duties do Mortgage brokers have?
They usually have no fiduciary duties to anyone.
What fiduciary duties do Mortgage bankers have?
Fiduciary duties to their investors.
What is the duty of Title Companies?
Duty of neutrality to everyone.
