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Mathematical Applications for the Management, Life, and Social Sciences
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Unformatted text preview: Texas PROMULGATED FORMS SECOND EDITION UPDATE Peggy Santmyer, Contributing Author Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 1 4/14/2016 1:21:43 PM This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. President: Dr. Andrew Temte Chief Learning Officer: Dr. Tim Smaby Executive Director, Real Estate Education: Melissa Kleeman-Moy Development Editor: Julia Marti TEXAS PROMULGATED FORMS SECOND EDITION UPDATE ©2016 Kaplan, Inc. Published by DF Institute, Inc., d/b/a Dearborn Real Estate Education 332 Front St. S., Suite 501 La Crosse, WI 54601 All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. Printed in the United States of America ISBN: 978-1-4754-0909-3 Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 2 4/14/2016 1:21:43 PM Contents Preface vii About the Book  vii We’d Like to Hear From You  viii CHAPTER 1 Contract Law Overview  1 Key Terms  2 Elements of a Valid Contract  2 Valid/Void/Unenforceable/Voidable 4 Executed and Executory Contracts  5 Bilateral Versus Unilateral  6 Reasonable Time Versus Time is of the Essence  7 Amendments and Addenda  8 Performance of a Contract  8 Reasons for Termination  10 Summary 11 Chapter 1 Quiz  13 CHAPTER 2 Laws, Rules, and Regulations  14 Key Terms  14 Texas Real Estate License Act  15 Unauthorized Practice of Law  18 The Broker-Lawyer Committee  19 Use of Promulgated Forms  20 Presenting Offers and Multiple Offers  22 When Does the Offer Become a Contract?  24 Summary 25 Chapter 2 Quiz  26 CHAPTER 3 Parties, Property, and the Money  28 Key Terms  28 Introduction 29 Information Needed to Complete Contract Forms   29 Elements of the One to Four Family Residential Contract (Resale)  31 Third Party Financing Addendum  35 Loan Assumption Addendum  40 Seller Financing Addendum  43 Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement 47 Summary 49 Contract Workshop  49 Chapter 3 Quiz  50 Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 3 iii 4/14/2016 1:21:43 PM iv     CHAPTER 4 Covenants, Commitments, and Notices  52 Key Terms  52 License Holder Disclosure  52 Earnest Money  53 Option Money  53 Title Policy and Survey  54 Property Condition: Inspections, Acceptance, Repairs  58 Brokers’ Fees  62 Summary 62 Contract Workshop  62 Chapter 4 Quiz  63 CHAPTER 5 Closing, Possession, and More  64 Key Terms  65 Closing And Possession  65 Possession 65 Temporary Lease Forms  66 Special Provisions  67 Settlement and Other Expenses  68 Prorations, Casualty Loss, Default, and Mediation   68 Escrow Provisions  69 Other Contract Provisions  70 Executing the Contract and Finalizing the Agreement  71 Amendment 72 The Last Page  72 Summary 73 Contract Workshop  73 Transaction: Strassman to Applewhite  74 Chapter 5 Quiz  76 CHAPTER 6 The Remaining Promulgated Forms  77 Key Terms  77 Introduction 77 Is it Different from the One to Four Family Contract?  78 Residential Condominium Contract  78 Farm and Ranch Contract  79 Unimproved Property Contract  80 New Home Contracts  80 Summary 81 Transaction: Tomas to Perry  81 Chapter 6 Quiz  83 Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 4 4/14/2016 1:21:43 PM v     CHAPTER 7 Promulgated Addenda, Notices, and Other Forms  84 Key Terms  84 Introduction 85 Addendum for Sale of Other Property by Buyer  85 Addendum for Back-Up Contract  85 Addendum for Reservation of Oil, Gas, and Other Minerals  86 Notice of Buyer’s Termination of Contract  87 Mutual Termination of Contract  87 Addendum for Property Located Seaward of the Gulf Intracoastal Waterway  87 Addendum for Coastal Area Property  88 Addendum for Property Subject to Mandatory Membership in an Owner’s Association  88 Short Sale Addendum  89 Noncontract Forms  89 Non-Realty Items  90 Texas Real Estate Consumer Notice Concerning Hazards Or Deficiencies  90 Addendum for Property in a Propane Gas System Service Area  90 Summary 90 Contract Workshop  91 Which Form Do I Use?  91 True/False Quiz  92 Chapter 7 Quiz  96 CHAPTER 8 Other Real Estate Matters  98 Key Terms  98 Real Estate Fraud  98 Brokers’ Fees  102 Fair Housing Laws  103 Other Disclosures  105 Occupancy Standards  106 Summary 106 Chapter 8 Quiz  108 CHAPTER 9 Practice Makes Perfect  109 Transaction: Fleming to Donaldson  110 Transaction: Johnson to Swanson  111 Transaction: Kramer to Sweeney  112 Glossary 114 Answers to Chapter Quizzes and Exercises  120 Index 122 Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 5 4/14/2016 1:21:43 PM Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 6 4/14/2016 1:21:43 PM Preface ■■ ABOUT THE BOOK When representing buyers and sellers, one of the most important things a real estate licensee does is prepare and review offers for the parties by filling in the blanks of promulgated forms. In order to be knowledgeable, as required by the Canons of Professional Ethics, it is necessary for licensees to not only know what goes in the blank, but also what is in the preprinted portion of the contract. Licensees may not give legal advice and must advise the parties to seek help from attorneys if a question arises regarding legal rights or remedies. Licensees can, however, point out to the parties the verbiage in the contract form. To fulfill that roll, licensees must be completely familiar with the forms. At the conclusion of this course, you will be able to ■■ select the correct form or forms that are appropriate to define the agreement of the parties to a real estate transaction; ■■ complete promulgated forms and addenda to accurately set forth the wishes ■■ ■■ ■■ ■■ ■■ ■■ and intents of the parties; summarize the business details covered in the contract; explain how and when to use an amendment or an addendum; identify notices and their roles; describe the unauthorized practice of law and how to avoid it; identify potential legal problems and know when to encourage parties to seek legal advice; and explain the parties’ options under the contract. How to Use Texas Promulgated Forms Supplement This textbook comes with the Texas Promulgated Forms Supplement. The supplement contains the Texas Real Estate Commission (TREC) forms discussed in this book. The forms are available on the Texas Real Estate Commission’s website at (or go to , click the Forms, Laws & Contracts tab, and then click the Contract Forms and Addenda link). As you read through this book, look up the form in the supplement and carefully read the language in it. Thoughtful study of these forms will ensure success on the exam and in your real estate practice. For ease of use, all forms are listed in the table of contents of Texas Promulgated Forms Supplement. Refer to the contents page for the location of the form. The forms are provided in the supplement according Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 7 vii 4/14/2016 1:21:43 PM viii Preface to the form’s type (promulgated contract, promulgated addenda, approved form, etc.) and in the same order they are listed in this book under the Use of Promulgated Forms section in Chapter 2. There are case studies/practice transactions in this book in Chapters 5, 6, and 9. The forms needed for those activities are in the supplement in the Case Studies section. You will fill out the forms according to the scenario transaction in this book. When you have filled them out entirely, you can check them against the filled-out forms that appear immediately after the blank forms for that case study. ■■ WE’D LIKE TO HEAR FROM YOU We like to hear from our readers. You are our partners in the real estate education process. Comments about this text or any services we provide are always appreciated and should be directed to [email protected] Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 8 4/14/2016 1:21:43 PM 1 C H A P T E R ■■ LEARNING OBJECTIVES Contract Law Overview When you have completed this chapter, you will be able to ■■ identify the essential elements of a valid contract; ■■ explain the difference in valid, void, voidable, and unenforceable contracts; ■■ distinguish between bilateral and unilateral, and executed and executory contracts; ■■ distinguish between an amendment and an addendum, and describe how and when they are used; ■■ state the statute of limitations for written and oral contracts in Texas; and ■■ list reasons for a termination of a contract, including breach of contract. Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 1 1 4/14/2016 1:21:57 PM 2 Texas Promulgated Forms Second Edition Update ■■ KEY TERMS addendum amendment assignment attorney-in-fact bilateral contract binding breach competent party consideration default earnest money enforceable contract executed contract executory contract forbearance fraud incompetent party lawful objective legal description liquidated damages minor mutual agreement novation option option to purchase option to terminate performance reasonable time rescission Statute of Frauds time is of the essence unenforceable unilateral contract valid void voidable ■■ ELEMENTS OF A VALID CONTRACT Every day, individuals enter into agreements to do or to refrain from doing specific acts. Some of these agreements can be classified as contracts, while others are simply agreements. A contract is a legally enforceable agreement to do (performance) or not to do (forbearance) a specific thing. Texas statutes protect contractual rights. Those who enter a contract and fail to perform (default or breach) may be sued by the other party or parties to the agreement. The non-defaulting party may ask the court to enforce specific performance or may try to prove to the court that economic damages were created by the default and seek money damages to compensate the loss. To be considered a legally binding or enforceable contract, the agreement must meet certain requirements defined by Texas statutes. Parties who enter into agreements that do not meet those requirements may not have legal recourse when the other party decides to ignore the terms and conditions of the agreement. While a contract is legally enforceable in a court of law, an agreement may not be. When creating contracts, the final agreement should be clear, and the promises exchanged should be definite and specific. The six elements of a valid real estate contract include the following: ■■ ■■ ■■ ■■ ■■ ■■ Competent parties Consideration Mutual agreement (mutual assent) Lawful objective In writing and signed by the parties Contain a legal description Competent Parties A party who does not have legal capacity (incompetent party) may not be held to the terms of an agreement. To be a legally competent party, one must have attained the age of majority, which is 18 in Texas. An individual younger than 18 may be emancipated by a court of competent jurisdiction and declared an adult Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 2 4/14/2016 1:21:57 PM Chapter 1   Contract Law Overview 3 with contractual capacity. A contract signed by a minor (younger than 18) is classified as voidable; that is, it can be set aside at the sole option of the minor party. If the minor chooses to uphold and fulfill the terms of the agreement, the contract is binding. The parties must be in control of their mental faculties. Individuals are considered sane or mentally competent until declared otherwise by a court. The parties must also be sober and demonstrate contractual intent. In short, a competent party is a person who is at least 18 years old, sane, and sober. Any person who meets the competent party test may, through a duly executed specific power of attorney, name and appoint another to act as an attorney-in-fact. The attorney-in-fact serves in a fiduciary capacity to the person who makes the appointment. The signature of the attorney-in-fact binds a party just as effectively as the party’s own signature. It should be noted that a power of attorney granting authority to transfer title to real property must recite the legal description of the subject of the authority. Licensees dealing with corporate-owned real estate should remember that only an officer named in a corporate resolution, passed at a meeting of the board of directors, may sign a contract for and on behalf of the corporation. It may be a waste of a licensee’s time to attempt to market and negotiate corporately owned real estate prior to obtaining a copy of the corporate resolution for the licensee’s file, and subsequently, for the title company that will be asked to close the transaction. Consideration To be valid, a contract must identify that something, usually money, is being given in exchange for something else. Texas courts have ruled that a promise given in exchange for a promise is adequate consideration to bind a purchase agreement. The promise to sell and the promise to purchase, in paragraph 1 of the promulgated forms, serve as adequate consideration to bind the contract: “Your promise exchanged for my promise is a thing of value, something that is sacred in the eyes of the courts.” Many people incorrectly believe that earnest money must be tendered to create a valid contract. This belief was undoubtedly fostered by the fact that licensees used to refer to real estate sales contracts as earnest money contracts. With regard to a purchase contract, the listing broker best fulfills the fiduciary duty to the seller by encouraging a substantial amount of earnest money. The earnest money can demonstrate the buyer’s serious intent to purchase and may serve as liquidated damages in the event of a breach of contract, as defined in paragraph 15 of the contracts promulgated by the Texas Real Estate Commission (TREC). Liquidated damages are monies paid to a non-defaulting party under the terms of a contract as opposed to money damages, which are determined and awarded by a court. The one type of contract that requires a prospect to tender money to bind the agreement is an option contract—an option to purchase or an option to terminate. In an option contract, the property owner gives a promise and the purchaser gives money to purchase a legal right and to bind the agreement. Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 3 4/14/2016 1:21:57 PM 4 Texas Promulgated Forms Second Edition Update Mutual Agreement (Mutual Assent) Mutual agreement means that the parties must enter the contract freely and voluntarily. Their decisions must be based on truthful, accurate information. The presence of false information or fraud (a deliberate act of deception) by either acts of commission (telling a lie) or acts of omission (failing to reveal material facts about the property) precludes an enforceable agreement. Licensees should take decisive action to ensure that full disclosure is made and that the parties to a purchase agreement are making their decisions based on truthful, accurate information. Lawful Objective Lawful objective concerns the provisions of an agreement, which must call for lawful activity. A provision that does not comply with federal, state, or local law cannot be upheld by a court. Suppose a tenant signs a lease stating that if the tenant fails to pay the rent, the landlord may enter the premises, seize all of the tenant’s personal possessions, and immediately sell them to satisfy the rent obligation. Because this provision is in violation of the homestead law, it is void. In Writing and Signed by the Parties The Statute of Frauds requires that, to be enforceable, all agreements affecting title to or interest in real estate in Texas be in writing and signed by the parties. An oral agreement of sale is void and therefore unenforceable. It is inadvisable for licensees to conduct real estate negotiations orally. Offers and counteroffers should always be in writing. One does not have a binding executory contract until (1) a written offer has been made; (2) a written acceptance has occurred; and (3) the offeror has been notified of the acceptance. The only exception to the in writing rule is a lease for one year or less. All other real estate agreements must be in writing to be enforceable. Contain a Legal Description A street address does not constitute an adequate description of the property for contract and conveyance purposes. The Statute of Frauds calls for the agreement to contain a legal description that is of such certainty and accuracy that one can go to and identify it. The two commonly used legal descriptions are (1) reference to a recorded plat (lot, block, section number, subdivision name); and (2) metes and bounds. If students of real estate and readers of this book have not previously taken a Principles of Real Estate course, they will learn a great deal about legal descriptions if and when they do. ■■ VALID/VOID/UNENFORCEABLE/VOIDABLE If an agreement has all six of the elements described previously, it is considered valid and will be upheld by Texas courts. If it does not have the elements, it is identified as a void (the absence of) contract. Due to a change in the law or the passage of time, a contract or certain provisions of a contract may become unenforceable. It is important to emphasize that there is a difference between void and Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by CE Source. TX_Prom_Forms_2e.indb 4 4/14/2016 1:21:57 PM Chapter 1   Contract Law Overview 5 unenforceable. A void contract is not a contract at all; void means the absence of something. An unenforceable contract is an agreement that had all six elements at the time it became an executory contract but, due to a change in conditions, no longer meets the requirements of law and no longer can be upheld by a court. A void contract was never enforceable; an unenforceable contract was valid but is no longer. As mentioned earlier, contracts can also be voidable (set aside at the option of one of the contracting parties). Voidable contracts typically exist in the following instances: ■■ When entered into with a minor, the agreement is voidable at the option of ■■ ■■ ■■ ■■ the minor party. When fraud by acts of commission or acts of omission can be proven, the agreement is voidable at the option of the non-fraudulent party. When the seller fails to provide and the buyer of a previously occupied single-family residence fails to receive the written seller’s disclosure of property condition as required by se...
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