LESSON 2: BASICS OF REAL ESTATE LAW Flashcards

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4
Q

What is the basis of all laws affecting real estate?

A

The basis of all laws starts with the U.S. Constitution and State Constitutions, which include laws like fair housing laws, homestead laws, and community property laws.

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5
Q

Which governing bodies affect the real estate industry in Texas?

A

The Texas State Legislature and the Texas Real Estate Commission (TREC) directly affect the real estate industry in Texas.

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6
Q

What is the role of the Texas State Legislature in real estate?

A

The Texas State Legislature is responsible for all laws in Texas, including those affecting the real estate industry.

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7
Q

What are the two main functions of the Texas Real Estate Commission (TREC)?

A
  1. To enforce real estate-related statutes in the Texas Occupations Code, Chapter 1101 and 1102. 2. To adopt and enforce new rules governing the practice of real estate.
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8
Q

What is the purpose of the Texas Real Estate License Act (TRELA)?

A

TRELA grants TREC the authority to enforce real estate statutes and adopt new rules for the real estate industry, and real estate professionals must adhere to these regulations.

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9
Q

What is the difference between real property and personal property?

A

Real property includes land and anything attached to it, such as buildings and plants, while personal property includes movable, unattached items.

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10
Q

What does the law govern in relation to real estate?

A

The law governs ownership, development, sale, zoning, subdivision, utilities, landlord-tenant relationships, property taxes, insurance, and estate planning.

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11
Q

What happened in real estate before the Real Estate License Act was adopted?

A

Before the Act, there were no regulations, leading to fraud, misrepresentation, and unethical practices in real estate transactions.

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12
Q

Who established the National Association of REALTORS® (NAR) and what was its purpose?

A

The NAR was established by real estate vendors to distinguish themselves from unethical vendors and to develop a Code of Ethics for the real estate industry.

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13
Q

When was the first Texas Real Estate Licensing Act passed?

A

The first Texas Real Estate Licensing Act was passed in 1949 by the Texas Legislature.

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14
Q

How is the National Association of REALTORS® Code of Ethics updated?

A

The NAR Code of Ethics is reviewed and updated annually.

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15
Q

How often is the Texas Real Estate License Act (TRELA) reviewed and updated?

A

TRELA is reviewed and updated every two years when the Texas Legislature meets.

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16
Q

What is the minimum level of service a Texas broker must provide their clients?

A

A broker must answer the party’s questions, present offers, and inform them of any material information related to the transaction.

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17
Q

What are the specialties within the real estate industry?

A

Real estate specialties include residential, commercial, industrial, recreational, unimproved land, farm and ranch sales, property management, and more.

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18
Q

How can a license holder prepare for real estate specialties?

A

A license holder should focus on competence within their area and, when lacking expertise, seek assistance from those competent in the field and disclose this to the client.

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19
Q

What does Article 11 of the NAR Code of Ethics specify?

A

REALTORS® must provide services only within their scope of competence and disclose any lack of experience in a particular area, seeking assistance if needed.

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20
Q

How would you summarize the basic concept of Article 11?

A

REALTORS® must be competent in the services they perform and avoid offering services outside their expertise without seeking assistance from a competent individual.

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21
Q

How was land ownership different in medieval Europe compared to today?

A

In medieval Europe, land ownership was based on feudalism, where the king owned all the land, and lords granted land use to vassals in exchange for taxes and allegiance.

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22
Q

What was the feudal system of land ownership?

A

Feudalism was a system where the king owned all land, granting use of land to lords who, in turn, allowed peasants or vassals to live on and work the land in exchange for services.

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23
Q

What responsibilities did a lord have to a vassal under feudalism?

A

The lord had to provide protection, maintain the land, and ensure the vassal’s peaceful occupation of the land.

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24
Q

What obligations did a vassal have to the lord in feudalism?

A

A vassal was obligated to provide services, including military service, in exchange for land use and protection.

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25
Q

What is allodial land ownership?

A

Allodial ownership is land ownership where the land is owned completely without any obligation to another, and it can be passed to heirs.

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26
Q

How does allodial ownership differ from feudal land ownership?

A

Allodial ownership is absolute, with no duties or reciprocal obligations, unlike feudal ownership, which involved responsibilities between the lord and the vassal.

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27
Q

What is the difference between land, real estate, and real property?

A

Land is the earth’s surface, subsurface, and air space; real estate includes land plus attachments; real property includes land, real estate, and the associated rights of ownership.

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28
Q

What does the term “land” refer to in real estate?

A

In real estate, “land” refers to the earth’s surface, subsurface (down to the center of the earth), and the air space above it, including natural elements like trees and water.

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29
Q

What are “fructus naturales” and “fructus industriales”?

A

“Fructus naturales” are naturally occurring plants like trees and crops that don’t require cultivation, while “fructus industriales” are plants like orchards or vineyards that do.

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30
Q

What are “real estate” and “real property” in terms of real estate?

A

Real estate includes land and everything permanently attached to it. Real property includes all interests, benefits, and rights that come with ownership of real estate.

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31
Q

What are surface rights in land ownership?

A

Surface rights refer to ownership rights in the land’s surface, excluding the air above or minerals below it.

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32
Q

What are subsurface rights?

A

Subsurface rights are the rights to materials below the surface, including mineral and water rights. These rights can be sold separately from surface rights.

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33
Q

What are air rights?

A

Air rights refer to the rights to space above the land, and they can be bought or sold, such as for extending buildings or preventing construction in the airspace above.

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34
Q

What are water rights in real estate?

A

Water rights govern the use of water on or near a property, with riparian rights for flowing water (rivers, streams) and littoral rights for water bodies like lakes or seas.

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35
Q

What are riparian rights?

A

Riparian rights govern the use of flowing water (like rivers and streams) that pass through or border a property, allowing use but not ownership of the water.

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36
Q

What are littoral rights?

A

Littoral rights govern the use of water on lakes, seas, or other non-flowing bodies of water, allowing property owners to use the water but not alter its course.

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37
Q

How are water rights connected to surface rights?

A

Water rights are generally included in surface rights, especially when the property borders a body of water.

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38
Q

How do real estate licensees typically treat the terms land, real estate, and real property?

A

In practice, real estate licensees use the terms interchangeably, but they must understand the technical distinctions for education and licensing exams.

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39
Q

What are improvements in real estate?

A

Improvements are any man-made physical additions to the land, such as buildings, fences, or roads. They do not need to increase value but must be permanently attached.

40
Q

What is the difference between personal property and real property?

A

Personal property is movable items not permanently attached to land or improvements, while real property is immovable and includes land and permanent attachments.

41
Q

What is severance in real estate?

A

Severance is the act of separating something from the real estate, turning it into personal property, such as cutting down a tree and turning it into personal property.

42
Q

What is a fixture in real estate?

A

A fixture is personal property that has been permanently attached to real estate, transforming it into real property.

43
Q

Give an example of personal property turned into a fixture.

A

Wood, nails, and paint used to build a fence on land, transforming them into a fixture.

44
Q

What are some common examples of fixtures?

A

Elevators, central air conditioning units, garage door openers.

45
Q

What are trade fixtures?

A

Items affixed to leased property that are necessary for a tenant’s business, and they remain the tenant’s property after the lease expires.

46
Q

What happens to trade fixtures after the lease expires?

A

Trade fixtures remain the tenant’s property if removed by the last day of the lease.

47
Q

Give examples of trade fixtures.

A

Check-out stands, coolers, display shelves, display racks, counters, desks.

48
Q

What must a tenant do with trade fixtures after the lease ends?

A

The tenant must remove the trade fixture by the last day of the lease.

49
Q

What criteria help determine whether something is a fixture?

A

Annexation, adaptation, and intention.

50
Q

What is annexation in determining if an item is a fixture?

A

Annexation refers to how an item is attached to the land, often requiring tools or machinery for removal.

51
Q

What is adaptation in determining if an item is a fixture?

A

Adaptation refers to the use and modification of an item for a specific property.

52
Q

What is intention in determining if an item is a fixture?

A

Intention refers to the owner’s intent, inferred from how the item is attached and adapted for the property.

53
Q

What is the Texas Real Estate Commission’s Non-Realty Items Addendum?

A

It is a form used to separate personal property from the sale of real estate if agreed upon by both parties.

54
Q

What are fructus naturales?

A

Trees, bushes, and grasses that do not require annual cultivation and are considered real estate.

55
Q

What are emblements (fructus industriales)?

A

Annually cultivated crops that are considered personal property, even prior to harvesting.

56
Q

How are minerals classified in real estate?

A

Minerals are considered real estate when underground, but become personal property once extracted.

57
Q

How are mobile homes classified?

A

Mobile homes are personal property unless they are permanently attached to land and sold with the land.

58
Q

What is required for a mobile home to be considered real estate in Texas?

A

It must be connected to utilities and permanently attached to the land that is owned through a deed or contract.

59
Q

What are the physical characteristics of land?

A

Immobility, indestructibility, and non-homogeneity (uniqueness of each parcel).

60
Q

What is the economic characteristic of land?

A

Scarcity, improvements, permanence, and area preference (situs).

61
Q

Why can’t two parcels of land be identical?

A

Due to non-homogeneity, each parcel is unique, making them legally distinct and requiring specific performance in contracts.

62
Q

What is Tenancy in Severalty?

A

Tenancy in Severalty refers to ownership by a single person or single entity, where one individual or entity holds full ownership of the property.

63
Q

What is Tenancy in Common?

A

Tenancy in Common involves unity of possession, where all owners have an undivided interest in the property, though their shares may not be equal. When an owner dies, their share passes to heirs. It is presumed if not specified in the document of conveyance.

64
Q

What is an example of Undivided Interest in Tenancy in Common?

A

In a condominium or warehouse, an individual may own a 5% undivided interest in common areas but have 100% use of those areas.

65
Q

What is Joint Tenancy?

A

Joint Tenancy means all co-owners have equal rights to possession, enjoyment, and control. It includes the right of survivorship, so if one joint tenant dies, the other(s) inherit their share. It must meet the four unities of time, title, interest, and possession.

66
Q

What happens if one joint tenant sells their interest?

A

If one joint tenant sells to a new person, the four unities are broken, and the new owner becomes a tenant in common with the remaining joint tenants.

67
Q

What is Tenancy by the Entirety?

A

Tenancy by the Entirety is ownership shared by a married couple, where both must agree to sell the property. Upon the death of one spouse, the surviving spouse retains ownership. This type of ownership is not used in Texas.

68
Q

What is Community Property?

A

In community property states, property acquired during marriage is presumed to be community property. It can be willed to third parties or pass to an heir if one spouse dies intestate. Property before marriage, by gift, or inheritance is considered separate property.

69
Q

What are Freehold Estates?

A

Freehold estates are ownership of real property for an indefinite period. Two types are fee simple absolute (property can be passed down indefinitely) and life estate (ownership lasts for the life of the owner, then passes to a third party or reverts back).

70
Q

What is a Leasehold Estate?

A

A leasehold estate is a non-freehold estate with a limited period of time. Types include estates for years, estates at will, periodic estates, and tenancy at sufferance.

71
Q

What types of entities can own real estate?

A

Real estate can be owned by corporations, S Corps, LLCs, trusts, partnerships, and limited partnerships.

72
Q

What is a Sole Proprietorship?

A

A sole proprietorship is a business run by a single owner who is personally responsible for the business’s operations. The business is not a separate legal entity. Real estate bought under a sole proprietorship belongs to the owner personally.

73
Q

What is an Independent Entity in real estate?

A

An independent entity like a corporation must file formation paperwork with a state agency. It can hold title to real property under the business’s name and is separate from its owners.

74
Q

What is a Disregarded Entity?

A

A disregarded entity like a sole proprietorship does not file formation paperwork and is not separate from the owner. Real estate bought under a disregarded entity belongs to the owner personally.

75
Q

How does a sole proprietor hold title to real estate?

A

A sole proprietor cannot hold title to real estate under the business’s name. Real estate bought under a sole proprietorship belongs to the owner personally. If the owner wants to separate real estate from personal assets, they need to convert to a corporation or LLC.

76
Q

What is a General Partnership?

A

A general partnership is a business where all partners share responsibility and liability. It can own real estate, but it must comply with registration, filing, and tax requirements. A partnership automatically dissolves upon the death or withdrawal of a general partner.

77
Q

What is a Limited Partnership?

A

A limited partnership has one or more general partners who are fully liable and limited partners whose liability is limited to their investment. A limited partnership continues if a partner dies or withdraws.

78
Q

How do you form a Partnership in Texas?

A

To form a partnership in Texas, choose a business name, file an assumed name, draft a partnership agreement, obtain licenses, and get an Employer Identification Number (EIN).

79
Q

What is a Corporation in real estate?

A

A corporation is a legal entity created by state law. It is run by elected directors and can own real estate under the business name, separate from its owners. The death or withdrawal of officers or shareholders generally does not impact the corporation’s existence.

80
Q

What is a Limited Liability Company (LLC)?

A

An LLC is a hybrid business structure that combines the limited liability of a corporation with the tax advantages of a partnership. It can own real estate and is not impacted by the death or withdrawal of members.

81
Q

What are REITs?

A

REITs (Real Estate Investment Trusts) are trusts with ownership by a trustee for the benefit of another. They are similar to stockbroker’s answers to real estate investment, providing tax-exempt status and pass-through taxation like partnerships.

82
Q

What are the requirements for a REIT?

A
  1. 100 or more owners of certificates. 2. 50% of all outstanding certificates cannot be owned by 5 or fewer persons. 3. Certificates must be transferable. 4. Income must be primarily from rent, interest on mortgages, etc. 5. A minimum of 90% of earned income must be distributed to beneficiaries.
83
Q

What is a housing cooperative (Co-op)?

A

A co-op is a legal entity (usually a corporation) that owns real estate consisting of residential buildings. Membership is granted through share purchases. Members have lease rights to the units, and financing is based on stock certificates.

84
Q

What is the difference between a condominium and a townhouse?

A

Condominiums have individual ownership of the unit’s interior, and shared ownership of common areas. Townhouses also have common areas but owners own the land beneath their units. Townhouses are usually two-story, while condos are typically one-story.

85
Q

What is the enabling declaration in a condominium?

A

It commits the property to condominium ownership and defines the rights and responsibilities of individual owners regarding maintenance and financial liabilities.

86
Q

What are the bylaws in a condominium or townhouse?

A

Bylaws outline the administration structure, rules, regulations, and enforcement mechanisms (e.g., voting rules, maintenance fees). Homeowner’s associations enforce these rules, and they can place liens on properties for unpaid dues.

87
Q

What are the advantages of owning a condominium?

A

Condominiums are typically less expensive, with shared costs for maintenance and amenities. Owners don’t have to manage exterior upkeep and landscaping.

88
Q

What are the disadvantages of owning a condominium?

A

Fees may increase, deferred maintenance can occur, and noise from neighbors may be an issue.

89
Q

What is timesharing in real estate?

A

Timesharing is a form of shared property ownership, usually in vacation or recreation properties, where owners have the right to use a unit for a specified period each year. The ownership can be a right-to-use or fee simple for a period.

90
Q

What is required for a timeshare to be legally registered?

A

A timeshare plan must be registered with the commission before being offered or disposed of, and deposits must be placed in a segregated escrow account. The deposit must be fully refundable.

91
Q

What laws affect real estate?

A

Real estate is affected by contract law, laws governing property conveyance, encumbrance, foreclosure, taxation, land use, and zoning. It is also influenced by the Fair Housing Act, Texas Real Estate License Act, and local regulations.

92
Q

What is the Fair Housing Act?

A

The Fair Housing Act, part of the Civil Rights Act of 1968, prevents discrimination in housing based on race, color, religion, sex, familial status, handicap, or national origin.

93
Q

What are the implications of the Fair Housing Act for real estate professionals?

A

Real estate professionals must avoid discrimination in advertisements, service, and transactions. They must ensure fair treatment for all prospective buyers, and follow legal protections for the seven protected classes.

94
Q

Are there exemptions to the Fair Housing Act?

A

Yes, exemptions exist for properties owned by religious organizations, some non-profit institutions, single-sex dormitories, and in some cases when an owner sells their primary residence without a broker.

95
Q

What are the main concerns for homeowners associations in condominiums?

A

Concerns include enforcing bylaws, managing maintenance fees, and ensuring financing approval. Homeowners may face liens for unpaid dues and have to follow the association’s rules and regulations.