Promulgated Forms Questions with complete solutions

Promulgated Forms Questions with complete solutions 1. TREC contract forms and their uses - page 35 The title of the form reveals its intended use. The contract form is the One to Four Family Residential Contract (Resale). One to four means that it can be used for single-family properties, duplexes, triplex properties, and four-unit buildings. A building with five or more living units would be considered to be a commercial transaction. It is also used for resales only. A new home contract would be used on new home sales. This form is not to be used for a condominium, but may be used for the sale of a townhouse License holders must have a full understanding of the many promulgated forms and how best to use them to facilitate the wishes of the client License holders must take care to use only the most current version of a contract form. Failure to use the most current version is a violation of the License Act Other states (including Texas) allow license holders to prepare standardized contract forms and addenda for the parties to the transaction. TREC has promulgated forms for: Residential transactions/properties 2. TREC contract forms and their uses - page 24 If the license holder properly uses TREC-promulgated forms, the unlawful practice of law issue is more easily avoided. The use of a form by license holders, which was prepared and approved by a licensed Texas attorney for the particular transaction involved or a form prepared by the property owner or prepared by an attorney and required by the property owner, is also authorized. 1. One-to-Four Family Contract (Resale) 2. New Home Contract (Incomplete Construction) 3. New Home Contract (Completed Construction) 4. Unimproved Property Contract 5. Residential Condominium Contract (Resale) 6. Farm and Ranch Contract 3. TREC rules regarding the buyer's use of inspectors - page 63 Seller is to permit the buyer to perform as many inspections as the buyer deems necessary, provided they are done at reasonable times. The inspector is to be a TREC licensed inspector or another person otherwise allowed by law. This would seem to allow engineers and other professionals to perform inspections even if they are not licensed by TREC. The exception to this is the performance of hydrostatic testing, which must be authorized separately by the seller in writing. This paragraph intends to avoid a situation where a potential buyer hires his brother, uncle, or cousin as an "inspector" who produces a bad report that is used to renegotiate a lower sales price 4. The purpose and use of Paragraph 6 - page 57 A new survey is to be obtained at Seller's expense Either a new or existing survey can be used. If a new survey is to be obtained, the license holder must be aware of the lead time for ordering one in their market. In most urban areas, a survey can be obtained in a few days. In many rural markets, it might take several weeks. If Seller has an existing survey that is to be used, the survey must be acceptable to the title company and Buyer's lender. If the survey is unacceptable to either the lender or the title company, a new survey will be obtained either at Seller's or Buyer's expense If using Seller's existing survey, one possible issue is that the Seller's survey WAS NOT done for Buyer, and while Buyer may rely on the survey, Buyer did not purchase it, nor did Buyer hire the surveyor. Buyer may have no cause of action against the surveyor in the event the survey is incorrect 5. The parties to the contract specifically as noted in paragraph 18.A. - page 88 The escrow agent is not a party to the contract, and has no liability for the performance of either party. The title company performs two primary functions: escrow services and title insurance. Escrow services are performed when something of value, such as a deed, money, or written instrument, is put into the custody of a third person to be retained until the occurrence of a contingency or performance of a contract. The title company is the escrow agent, the trusted third party that will receive and hold a deed signed by the seller. They will also have the buyer's earnest money and loan funds released to them by the lender The escrow agent may wait for a buyer's check to clear before delivering the funds to the seller 6. Stigmatized properties - causes and/or features - page 234 A property where there has been a murder or alleged haunting is stigmatized. A property can be considered stigmatized if it is in the vicinity of the residence of a known sexual offender. Megan's Law is a federal law requiring all states to release information to the public about known convicted sex offenders, when necessary, to protect the public's safety. Megan Kanka was a 7-yearold girl who was murdered on July 29, 1994, in New Jersey. The law was created in response to her death. License holders are not required to disclose the information but should refer buyers to local information sources if buyers ask about this. 7. The unlawful practice of law - specific examples - page 24 TREC can suspend or revoke a license on proof that the license holder drew a deed, note, deed of trust, will, or other written instrument that transferred or affected the title to or an interest in land. Likewise, TREC can suspend or revoke a license if the license holder is found to have advised or counseled a person as to the validity or legal sufficiency of an instrument or as to the validity of title to real estate. License holders should not alter the pre-printed text of a promulgated form, as the alteration would likely amount to the unlawful practice of law. In many cases, license holders have added provisions to Paragraph 11, Special Provisions, that changed the legal effect of the contract. For example, inserting "time is of the essence" in Paragraph 11 changes the legal effect of the contract and could be interpreted as the unlawful practice of law by the license holder. License holders must not insert provisions into the contract that are addressed by using a TREC-promulgated addenda form. If provisions other than business details and factual statements need to be added that are not addressed by a TREC-promulgated addenda form, the parties should be referred to an attorney. 8. Items to be retained by the Seller as specified in the contract - page 36 PARAGRAPH 2.(D) Enter exclusions to the sale. If an item is to be excluded, give it a name and a location. For example, "dining room chandelier" would be an adequate name and location. Excluded items are to be "removed prior to delivery of possession." 9. Paragraph 5 - features - page 53 PARAGRAPH 5. EARNEST MONEY AND TERMINATION OPTION: Earnest money is a "deposit" paid upfront by Buyer to show that he or she is serious in his or her intent. There is no standard for the dollar amount of earnest money, but it is often in the range of 1% of the purchase price. Insert the amount of earnest money and the name and address of the title company. If additional earnest money is required, enter the amount and the number of days. An option gives Buyer the unrestricted right to terminate the contract within the option period. The termination may be for any reason or no reason at all. If Buyer chooses to terminate within the option period and gives the proper notice of termination, they will receive a refund of their earnest money and have no further obligations under the contract. PARAGRAPH 5.A. The buyer will deliver the earnest money and the option fee to the escrow agent within 3 days after the contract's effective date. The buyer may combine the earnest money and the option fee into a single payment or make two separate payments. If the buyer makes one payment for both, the payment will be applied to the option fee first, and then to the earnest money. The buyer must ensure that the payment is sufficient for both PARAGRAPH 5.B. While no mention is made of inspections in this paragraph, the option period is the time allowed for inspections that Buyer may wan 10. Requirements for buyer approval according to the TREC Third Party Financing Addendum - page 39 PARAGRAPH 2. APPROVAL OF FINANCING: This paragraph gives the buyer a specific number of days in which to obtain credit approval. The number of days allowed for credit approval varies, but sufficient time should be allowed. For the purposes of this addendum, time is of the essence. This means that if the buyer has been given twenty days in which to obtain approval, the approval must be obtained within the allotted twenty days. The days are calendar days, and the counting of days begins on the day following the effective date of the contract