TX-18-04-06_Promulgated-Contract-Forms.pdf - Providing Award-Winning Real Estate Education Since 1983 Champions School of Real Estate Awards 2014 Best

TX-18-04-06_Promulgated-Contract-Forms.pdf - Providing...

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Unformatted text preview: Providing Award-Winning Real Estate Education Since 1983 Champions School of Real Estate Awards 2014 Best Companies to Work For in Texas 2013 Houston Business Journal - #5 Best Places to Work 2013 BBB Award for Excellence 2007 National Pinnacle Award, RealtyU 2006 National Pinnacle Award, RealtyU 2005 National Pinnacle Award, RealtyU 2003 WCR TX Chapter Affiliate of the Year 2003 Chairman’s Leadership Award 2000 Chairman’s Leadership Award Champions School Individual Awards 2010 Top 50 Most Influential Women in Houston 2008 Texas WCR Business Woman of the Year - Rita Santamaria 2008 HAR Hero of the Month for February - Rita Santamaria 2007 WCR Houston Chapter Business Woman of the Year - Rita Santamaria 2007 WCR Texas Business Woman of the Year - Rita Santamaria 2002 & 2004 RealtyU Instructor of the Year - Sue Ikeler 2003 NAR REBAC Realtor® Hall of Fame - Rita Santamaria 1994 WCR Chapter President Award Promulgated Contract Forms Champions School of Real Estate® TX-18-04-06_Prom_Forms TABLE OF CONTENTS CHAPTER 1: CONTRACT LAW OVERVIEW.......................................................................................... 9 Valid/Void/Unenforceable/Voidable Contracts........................................................11 Elements of a Valid and Enforceable Contract........................................................11 Executory Contracts and Sales Contract Default Remedies................................... 12 Bilateral and Unilateral Contracts.......................................................................... 13 Reasonable Time vs. Time is of the Essence.......................................................... 13 Amendments and Addenda.....................................................................................14 Performance of a Contract.......................................................................................14 Statute of Limitations............................................................................................. 15 Reasons for Termination......................................................................................... 15 Real World Scenario: Contracts............................................................................17 CHAPTER 2: LAW, RULES AND REGULATIONS .............................................................................. 21 Table of Contents The Texas Real Estate License Act......................................................................... 23 Unauthorized Practice of Law................................................................................ 23 Examples of Common Mistakes.......................................................................... 23 Broker-Lawyer Committee..................................................................................... 24 Use of Promulgated Forms..................................................................................... 24 Offers...................................................................................................................... 25 Presentation of Offers........................................................................................... 25 Multiple Offers..................................................................................................... 28 When Does the Offer Become a Contract?.......................................................... 28 CHAPTER 3: PARTIES, PROPERTY AND FINANCING....................................................................33 Information Needed to Complete Contract Forms..................................................35 Review Elements and Practice 1-4 Family Residential Contract (Resale)...............35 Review Elements and Practice 3rd Party Financing and Loan Assumption Addenda ................................................................................................................................ 38 ii Loan Assumption Addendum ............................................................................. 42 Copyright © 2018 Champions School of Real Estate® Addendum For Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement........................................................................................ 46 Review Elements and Practice: Seller Financing Addendum................................. 48 Non-Realty Items Addendum...............................................................................51 Authorization to Furnish TILA-RESPA Integrated Disclosures.........................52 CHAPTER 4: COVENANTS, COMMITMENTS AND NOTICES....................................................... 57 Earnest Money Requirement...................................................................................59 Title Policy, Title Commitment and Endorsements................................................59 Survey......................................................................................................................61 Residential Real Property Affidavit...................................................................... 65 Notice to Prospective Buyer.................................................................................... 66 Property Condition: Inspection, Acceptance and Repairs.......................................67 Seller’s Disclosure....................................................................................................69 Real World Scenario: Earnest Money.................................................................. 73 Addendum for Seller’s Disclosure of Lead-Based Paint and Lead-Based Paint Table of Contents Hazards.................................................................................................................74 Environmental Assessment, Threatened or Endangered Species and Wetlands Addendum.............................................................................................................76 Disclosure of Relationship With Residential Service Company........................... 78 CHAPTER 5: CLOSING, POSSESSION AND MORE..........................................................................83 Closing.................................................................................................................... 85 Possession............................................................................................................... 86 Special Provisions................................................................................................. 86 Buyer’s Temporary Residential Lease................................................................... 87 Seller’s Temporary Residential Lease.................................................................... 89 Settlement and Other Expenses............................................................................. 91 Prorations, Casualty Loss, Default and Mediation of Contract.............................. 92 Escrow.................................................................................................................. 94 Copyright © 2018 Champions School of Real Estate® iii Other Contract Provisions.......................................................................................95 Executing the Contract & Finalizing the Agreement............................................ 96 Case Study............................................................................................................ 98 Amendment........................................................................................................ 100 CHAPTER 6: THE REMAINING PROMULGATED FORMS............................................................. 105 Overview of Selected Provisions Common to All TREC-Promulgated Contracts.107 Differences Between 1-4 Family Residential Contract and Other Contracts........107 Residential Condominium Contract...................................................................108 Farm and Ranch Contract.................................................................................. 124 Unimproved Property Contract...........................................................................144 New Home Contracts..........................................................................................160 Case Study: Condominium.................................................................................188 CHAPTER 7: PROMULGATED ADDENDA, NOTICES AND OTHER FORMS.............................. 191 Table of Contents Promulgated Addenda Case Study............................................................................193 Addendum for Sale of Other Property by Buyer...................................................194 Real World Scenario: Addendum for Sale of Other Property.............................196 Addendum for Back-up Contract..........................................................................198 Addendum for Reservation of Oil, Gas, and Other Minerals ............................. 200 Addendum for Property Located Seaward of the Gulf Intracoastal Waterway.... 202 Addendum For Coastal Area Property................................................................. 204 Short Sale Addendum........................................................................................... 208 Notice of Buyer’s/Mutual Termination of Contract...............................................211 Addendum for Property Subject to Mandatory Membership in a Property Owners Association....................................................212 Non-Contract Forms.............................................................................................214 Promulgated Resale Certificates..........................................................................214 CN 1-2.................................................................................................................216 iv Information About Brokerage Services (IABS) Form.........................................217 Copyright © 2018 Champions School of Real Estate® Non-Realty Items Addendum.............................................................................219 CHAPTER 8: OTHER REAL ESTATE MATTERS................................................................................223 Real Estate Fraud.................................................................................................. 225 Broker’s Fees......................................................................................................... 226 Fair Housing Laws............................................................................................... 226 Reasonable Accommodation......................................................................... 230 Other Disclosures..................................................................................................233 Occupancy Standards............................................................................................235 CHAPTER 9: PRACTICE MAKES PERFECT......................................................................................239 Practice Makes Perfect.......................................................................................... 240 Case Study: Unlawful Practice of Law............................................................... 240 FHA Case Study................................................................................................ 243 Assumption Case Study...................................................................................... 246 APPENDIX A PROMULGATED CONTRACT FORMS......................................................................249 ANSWERS TO CASE STUDIES...........................................................................................................263 Table of Contents ANSWERS KEY......................................................................................................................................279 BIBLIOGRAPHY......................................................................................................................................285 GENERAL TEST INFORMATION.........................................................................................................287 INDEX.......................................................................................................................................................293 v Copyright © 2018 Champions School of Real Estate® INDEX OF FORMS BY NAME Third Party Financing Addendum 40-7..................................................................39 Loan Assumption Addendum 41-2......................................................................... 43 Addendum For Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement 12-3...............................................................................................47 Seller Financing Addendum 26-7........................................................................... 49 Non-Realty Items Addendum OP-M......................................................................51 Residential Real Property Affidavit T-47............................................................... 65 Notice To Prospective Buyer OP-C........................................................................ 66 Addendum for Seller’s Disclosure of Information on Lead-Based Paint and LeadBased Paint Hazards OP-L.....................................................................................75 Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum 28-2...................................................................................................... 77 Table of Contents Disclosure of Relationship with Residential Service Company RSC 2................... 79 Buyer’s Temporary Residential Lease 16-5............................................................. 87 Seller’s Temporary Residential Lease 15-5.............................................................. 89 Amendment 39-8...................................................................................................101 Residential Condominium Contract (Resale) 30-12..............................................109 Farm and Ranch Contract 25-11.......................................................................... 125 Unimproved Property Contract 9-12.....................................................................145 New Home Contract (Completed Construction) 24-14........................................161 New Home Contract (Incomplete Construction) 23-14........................................178 Addendum for Sale of Other Property By Buyer 10-6..........................................195 Addendum for “Back-Up” Contract 11-7...............................................................199 Addendum for Reservation of Oil, Gas and Other Minerals 44-2....................... 201 Addendum for Property Located Seaward of the Gulf Intracoastal Waterway 34-4.. .............................................................................................................................. 203 vi Copyright © 2018 Champions School of Real Estate® Addendum for Coastal Area Property 33-2.......................................................... 205 Addendum for Property In A Propane Gas System Service Area 47-0................ 207 Short Sale Addendum 45-1................................................................................... 209 Notice of Buyer’s Termination of Contract 38-5....................................................211 Property Subject to Mandatory Membership in a Property Owners Association 36-8 ...............................................................................................................................212 Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners Association 37-5.................................213 Condominium Resale Certificate 32-4..................................................................214 CN 1-2...................................................................................................................216 Information About Brokerage Services (IABS 1-0)...............................................217 Texas Real Estate Consumer Notice Concerning Hazards or Deficiencies OP-I....218 Table of Contents vii Copyright © 2018 Champions School of Real Estate® Notes viii Copyright © 2018 Champions School of Real Estate® Chapter 1 Contract Law Overview Champions School of Real Estate®   Chapter 1: Contract Law Overview  KEY TERMS contract valid void voidable unenforceable competent parties legal purpose consideration mutual consent executory contract executed contract bilateral unilateral option performance PRETEST Directions: Match each term with its best definition. 1. ____ Mutual consent 2. ____ Unilateral contract Chapter 1 Contract Law Overview a. A  n agreement between a buyer and seller giving the buyer the right to purchase a property at a preset price for a given period of time b. A “meeting of the minds” 3. ____ Consideration c. A  contract that cannot be enforced due to some flaw or other issue in the contract 4. ____ Option d. Something given in exchange for a promise 5. ____ Unenforceable contract e. A  contract in which only one party is obligated to perform 1. b. 2. e. 3. d. 4. a. 5. c. Answers to Pretest 10 Copyright © 2018 Champions School of Real Estate® INTRODUCTION U nderstanding and using contracts and related addenda are integral parts of being a licensed real estate agent. License holders are expected to be knowledgeable in their field, and one of the most important functions of an agent is the ability to advise and guide their clients regarding the proper and legal completion of the forms required to facilitate a real estate transaction. VALID/VOID/UNENFORCEABLE/VOIDABLE CONTRACTS Contracts may be valid, void, voidable, or unenforceable. A valid contract is one that meets all of the requirements of law. A void contract is invalid from the beginning, and has no effect on the parties. A contract to perform an illegal act is a void contract. A voidable contract is one that cannot be enforced against one or more of the parties. Most contracts entered into with minors are voidable at the option of the minor. An unenforceable contract is one that cannot be enforced due to some flaw in the contract, passage of time, or other issues that make enforcement impossible. Of course, in the real estate business, we prefer to negotiate valid, enforceable contracts. ELEMENTS OF A VALID AND ENFORCEABLE CONTRACT Five essential elements must exist for a contract to be considered valid and enforceable. They are: 1. Competent parties 2. Offer and acceptance (mutual consent) 3. Legal purpose 4. In writing (when required by law) 5. Consideration COMPETENT PARTIES Chapter 1 The general rule of law is that all parties to a contract have read it and understand it. This is true even if they are illiterate or not knowledgeable in the subject of the contract. Certain persons do not have full contractual capacity, including minors, individuals who have had guardians appointed, and those under the influence of drugs or alcohol. Contract Law Overview An individual under the age of eighteen is considered a minor. Contracts executed by minors are generally voidable at the option of the minor, but may be enforced by the minor against the adult party. Therefore, anyone who contracts with a minor does so with the possibility that the minor may choose to void the contract. Assuming they took no action to void the agreement, the contract generally becomes valid and binding when the contract closes or when the minor reaches legal age. Contracts with a person who lacks mental capacity can be either void or voidable. If the person has been judged to be incompetent, the contract is void because the person never had the capacity to enter into the contract. When the courts have determined that an individual is incompetent, a guardian will...
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