Real Estate Sales Contracts (Ch 8, Exam 4)

Front 1

What are the five requirements in Texas for an Earnest Money Contract to be valid?

Back 1

1. In writing

2. Be signed by all parties

3. Have identifiable grantor and grantee

4. Legally identifiable property to be conveyed

5. Evidence of intent to convey an interest

Front 2

Does a Texas Real Estate Agent have to use their own forms for an Earnest Money Contract, standard forms by the TREC, or either?

Back 2

They must use the forms promulgated by the Texas Real Estate Commission.

Front 3

Sam and John sign a valid Earnest Money Contract that includes the phrase "time is of the essence". What happens if John does not faithfully observe the time limits of the contract?

Back 3

The contract is voidable by Sam, the non- defaulting party. Also, Sam may have the right to sue for damages as many of the deadlines are critical.

Front 4

What is your professor's advice regarding a real estate agent's contractual use of the phrase "time is of the essence" and why is this his advice?

Back 4

Don't use the phrase! Many deadlines can be difficult to meet because they involve third parties you can't control (acquiring title commitment, survey, financing, etc.). Using this language opens both parties up to being stuck in situations they weren't anticipating.

Front 5

A real estate agent in Texas uses the TREC promulgated form for an Earnest Money Contract. Does this form provide that "time is of the essence"?

Back 5

Overall, no. Only in and applicable to paragraph 23 and a few addenda.

Front 6

Heather and Samantha have both signed a valid Earnest Money Contract in Texas that entails Heather conveying her property to Samantha. As the process plays out, the FHA appraised value of the home shows the value of the house to be significantly below the agreed purchase price and Samantha becomes outraged, feeling she was tricked. Can she get out of the contract? Why or why not?

Back 6

Yes, Samantha can get out of the contract because of the federally required Amendatory Language Clause which allows a contract to be terminated in precisely this circumstance. Federal law requires this clause be included in real estate sales contracts.

Front 7

In addition to the Amendatory Language Clause, what other clause is required by the federal government to be in all real estate sales contracts?

Back 7

Insulation Disclosures. FTC requires sellers/builders of new houses to site the characteristics of the insulation installed.

Front 8

James sells a plot of vacant Texas land to Eric that has rollback taxes related to the special tax classification of the land for agricultural uses. This tax classification is not disclosed in the sale contract. Three years later, Eric is finding himself facing a financial burden because he did not know about this. Who pays? Was it Eric's responsibility to know the tax classification of the land or James' responsibility to inform him?

Back 8

James is at fault as the seller. Texas requires all contracts for the sale of vacant land must include a notice of the potential liability for rollback taxes for up to five years. It is not the buyer's responsibility.

Front 9

In Texas, any contract for the sale of vacant land must include a statutory notice about the potential liability for how many years of rollback taxes?

Back 9

Five years

Front 10

Mike is purchasing a new home from Andrea. The home is a part of a Home Owner's Association that has certain fees and requirements. Mike doesn't ask about those fees and a year into his use of the land, discovers the fees are enormous. He wants to sue Andrea for not informing him of these large fees. Does he have the right to do so?

Back 10

No, Andrea is in the right. Mike has to pay the HOA fees and can't sue Andrea. The law requires a disclosure of this nature by the seller within 10 days of the written request of the buyer. It is not an assumed disclosure without that written request.

Front 11

Three location-based disclosures are required by real estate sale law. The seller must inform the buyer of certain risks based on the location of the property. What are those three types of locations and the risk of each?

Back 11

1) Outside of city limits--seller must warn buyer that they might be annexed, which could involve various tax/legal changes.

2) In Water Districts--buyer must be told the property is in the municipal utility district (MUD) or other drainage area and whether the property can therefore be annexed.

3) In Certified Service Area of Utility Service Provider--buyer must tell seller the property is in such a region and then it is the buyer's responsibility to see if this will result in extra charges to receive water or sewage or if water or sewage is even available.

Front 12

A residential seller must disclose the location of ________________ on the property. If the seller is not aware whether or not these are present, then the seller must ____________.

Back 12

1) Transportation pipelines on the property must be disclosed.

2) If the seller doesn't know, the lack of knowledge must be explicitly stated.

Front 13

75% of housing built before _________ contains some led-based paint.

Back 13

1978

Front 14

Is a disclosure of led-based paint before a buyer becomes obligated under contract for sale/lease required by federal or state law?

Back 14

Federal

Front 15

A seller or landlord is required by law to do what two things with respect to the risk of lead-based paint?

Back 15

Disclose to a buyer/tenant prior to contractual obligation the possibility of lead-based paint hazards.

Provide available reports and the pamphlet "Protect Your Family From Lead in Your Home"

Front 16

What kind of buyer would prefer an Installment Contract over a typical Earnest Money Contract?

Back 16

A buyer who cannot obtain a loan or who has insufficient capital.

Front 17

In an Installment Contract, the buyer is given the right of ___________ and ____________ but does not receive ________________ until all or most of the price is paid.

Back 17

The buyer has the right of use and possession.

Does not receive the title until all or most of the price is paid.

Front 18

With the use of an Installment Contract, even though the buyer is not promised the title until the price is paid, what kind of title is said to be held? Can this title be sold?

Back 18

An Equitable Title, which is the exclusive right to acquire the title, along with possession of the property.

The buyer can sell this.

Front 19

With the use of an Installment Contract, upon default, who is favored more? The seller or the buyer? How?

Back 19

The seller is favored far more than the buyer because the seller avoids the costs of foreclosure, keeps all payments and retakes possession. Plus, the seller may not be able or willing to deliver the title.

Front 20

Recognizing the burden placed on a defaulting buyer in an Installment Contract, what two means of relief does Texas provide?

Back 20

1) Texas gives the defaulting buyer 60 days to cure the default with Installment Contracts.

2) Texas also says that if 48 months have passed or if over 40%+repayment has been paid, then the seller must follow general foreclosure laws.

Front 21

Land contract, conditional sales contract, contract for deed, and agreement of sale are all other names for what type of contract?

Back 21

An Installment Contract

Front 22

A lease with option to buy or a lease-purchase agreement gives the tenant the option to buy the home at a ___________________ for a ___________________.

Back 22

1) Stated price

2) For a stated period of time

Front 23

In what kind of market are lease-purchase agreements popular?

Back 23

Soft/bad/buyers markets make lease-purchase agreements popular

Front 24

In a lease-purchase agreement, the tenant may be given the option for part of the monthly rent to be applied to purchase. If this is done, what are two important caveats to remember?

Back 24

1) Only payments in excess of FMV can apply to the purchase price.

2) Tax consequences should be handled by a tax professional only.

Front 25

What is the "Right of First Refusal" in lease-purchase agreements?

Back 25

The owner must present any outside offer to purchase the house to the current tenant to provide an opportunity to the tenant to match the price for purchase.

Front 26

Jeff has a lease-purchase agreement with Morgan on a property for the next year that includes the Right of First Refusal. Morgan has been causing problems for Jeff and he wants to get her off the property, but has no legal grounds to do so. How can he use the Right of First Refusal to get Morgan off the property?

Back 26

He can have a "conspirator" submit a bogus offer that Morgan could never match and then she will have to leave.

Front 27

An IRC Sec. 1031 Exchange allows the _____________ of capital gains tax by reducing the ___________ in the new property.

Back 27

1) Deferral

2) Basis

Front 28

Emily sells a property an uses an IRC Sec. 1031 Exchange to invest that money in a second property immediately. When does she have to pay the capital gains tax on the funds gained from the sell?

Back 28

When the second property sells (if he doesn't use another 1031).

Front 29

Using an IRC Sec 1031 Exchange, when is it wise to sell outright?

Back 29

When in a lower marginal tax bracket.

Front 30

In an IRC Sec 1031 Exchange, "Boot" is assets used to _______________________.

Back 30

Balance the deal

Front 31

You need to look at the last slide and see if it makes sense to you. It is a problem involving IRC Sec. 1031 exchanges.

Back 31

You get it?