Law Of Contracts Exam Study Guide
Abstract of Title:
(Ans- An abbreviated history of a property, including info on any transfers, grants, wills, conveyances, liens, and encumbrances.
Example: Before Alice purchases the house on 1701 J J Solice Drive, she
should ask for the property's abstract of title.
Addendum:
(Ans- An additional form attached to a real estate contract
Example: Percy is adding an Addendum for Reservation of Oil, Gas, and
Other Minerals to his ranch home sale because he wants to retain the rights to the natural gas he's selling to an oil company.
Air Rights (Ans- Ownership rights to the air above a property, extending from the surface of the land up into space
Note: The concept of air rights (and subsurface rights) comes from the
Latin phrase "For whoever owns the soil, it is theirs up to heaven and down to hell."
Amendment:
(Ans- A document that changes the terms in a sales contract that has been previously agreed to by all the parties; requires all parties to sign the amendment for it to be valid
Example: The property owner who sold Crystal her new home last week
called today to ask for her to sign an amendment changing the date of closing.
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What's the difference between an addendum and an amendment?(Ans- An addendum is attached to a contract to create additional terms, and an amendment changes the terms within an existing contract.
Closing:
(Ans- The final step in the homebuying process, when the title to the property is transferred from the seller to the buyer and consideration is paid to the seller
Example: Tomorrow is Shane's closing date for his new house and I can't
tell who is more excited, Shane or his mom, who will finally have an empty basement again.
Community Property:
(Ans- A special form of joint tenancy that exists between a married couple, with each owning a one-half interest; any house or real estate purchased during a marriage is considered community property
Example: John and Mary are getting divorced. They bought their house
while they were married, so it's considered community property in Texas and must be split evenly between the two of them.
Note: Upon the death of someone who owns community property, the
decedent's interest passes in a manner similar to tenants in common.
Which of the following statements about community property is TRUE?(Ans- Community property is a special form of joint tenancy that exists between a married couple.
Deed of Trust:
(Ans- A security instrument that places the deed to the property in a trust held by the lender until the mortgage is paid off, when the trustee will transfer the deed to borrower
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Example: Mikayla financed the purchase of her new home through a deed
of trust. A trustee will hold the title to her home until she, the borrower, pays off the money loaned to her by the lenders.
Earnest Money:
(Ans- Money the buyer offers to deposit towards the purchase price of the property in order to show their serious intentions to the seller
Example: Jane has signed the contract to purchase the home on Castle
Drive and has deposited $5,000 in earnest money to the title company. It's legit; she's going to buy the house!
Note: Earnest money is not the same as the down payment, but the money
does go towards the down payment. If the buyer breeches the contract and does not purchase the house, the seller may keep the earnest money. If the broker receives a deposit or earnest money, the broker must deposit the money by the close of business on the second working day after the effective date of the contract.
Encumbrance:
(Ans- Any restriction, encroachment, claim, or lien on a property (such as a mortgage) that affects the value or use of the property
Example: Jane owns the title to that house, but the IRS has a tax lien on
the property so if she ever sells the house, the IRS will make sure they get their money first.
Equal Credit Opportunity Act (ECOA):
(Ans- A legal protection for consumers against unfair and discriminatory lending; located in Title VII of the Consumer Credit Protection Act
Which of these is NOT governed by TREC?(Ans- mortgage banker
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The Texas Real Estate Commission does not write or change TRELA.(Ans- TRUE
TRUE or FALSE: License holders can always create their own forms to use
in real estate transactions.(Ans- FALSE
(Explained: License holders CANNOT always create their own forms for
transactions. The Commission, however, does not prohibit a license holder from using a form that is prepared by the property owner or prepared by a lawyer and required by the property owner.)
All real estate agents MUST:
(Ans- use contracts promulgated by TREC
A broker is helping a government agency locate a building they can buy for an office. The agency has their own forms they want the agent to use when they make their offer. Can the agent do that legally?(Ans- Yes, a government agency can require their own form to be used.
All of the following are possible penalties for unauthorized practice of law
EXCEPT:
(Ans- finishing a mandatory 100 hours of community service
Promulgated Contracts:
(Ans- Contracts promoted by the Texas Real Estate Commission and required for use by all real estate sales agents when completing the transaction for which the contract was created
Approved Contracts:
(Ans- Contracts that are allowed by the Texas Real Estate Commission but not required
What is the primary purpose of the Broker-Lawyer Committee?(Ans- to create, edit and recommend contract forms to TREC
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