LESSON 2: LAWS, RULES, REGULATIONS

Question 1

What are the key elements of civil fraud in real estate transactions?

Answer 1

A material misrepresentation, false representation, knowledge of falsity or reckless disregard, intent for the other party to rely on it, and actual reliance causing harm.

Question 2

When is a misrepresentation considered “material” in court?

Answer 2

When a reasonable person would consider it important in deciding to enter into the transaction.

Question 3

What are common misrepresentations in real estate fraud?

Answer 3

False claims about foundation condition, termite presence, and past flooding history.

Question 4

What is the Texas Deceptive Trade Practices Act (DTPA)?

Answer 4

A consumer protection law preventing sellers from misrepresenting goods or services, including real estate transactions.

Question 5

What is a key requirement for a defense under the DTPA?

Answer 5

The defendant must provide reasonable, timely written notice of reliance on third-party or official information before the transaction is finalized.

Question 6

What actions can lead to the suspension or revocation of a real estate license in Texas?

Answer 6

Material misrepresentation, failure to disclose defects, acting as an undisclosed principal, misleading advertisements, and dishonest conduct.

Question 7

What are TREC’s requirements for contract forms in Texas real estate transactions?

Answer 7

Licensees must use promulgated forms unless they are the principal, required by the U.S. government, or using a contract prepared by an attorney or property owner.

Question 8

Does TREC provide commercial earnest money contract forms?

Answer 8

No, a form must be drafted by an attorney or supplied by the buyer/seller.

Question 9

Is earnest money required for a binding real estate contract?

Answer 9

No, but failure to deposit it can put the buyer in default under the contract.

Question 10

What are the rules for reproducing TREC contract forms?

Answer 10

They must be obtained from TREC’s website, printed copies, or computer-driven printers following strict formatting guidelines.

Question 11

What legal caution should real estate licensees take regarding contract modifications?

Answer 11

Licensees should not alter contracts in ways that change legal rights or provide unauthorized legal advice.

Question 12

What do the abbreviations PUD, MUD, FWSD, WCID, LID, RUD, and UD stand for?

Answer 12

PUD: Public Utility District, MUD: Municipal Utility District, FWSD: Fresh Water Supply District, WCID: Water Control and Improvement District, LID: Levee Improvement District, RUD: Road Utility District, UD: Utility District.

Question 13

Can a WCID, LID, or RUD contain other types of districts?

Answer 13

Yes, a WCID, LID, or RUD can contain one of the other types of districts within its boundaries, with each district having its own tax rates and Boards of Directors.

Question 14

Who governs utility districts in Texas?

Answer 14

Utility districts are governed by the Texas Commission on Environmental Quality (TCEQ), a state agency.

Question 15

How is a utility district created in Texas?

Answer 15

A utility district is created by the TCEQ through the Office of the State Attorney General based on an application, usually filed by a developer.

Question 16

What is the primary objective of a utility district?

Answer 16

The primary objective is to provide services like water, sewer, and drainage in areas lacking municipal services.

Question 17

How are utility districts funded?

Answer 17

Funding is obtained through the public sale of tax-exempt municipal bonds, approved by registered voters within the district’s boundaries.

Question 18

Who manages a utility district?

Answer 18

The district is managed by an elected Board of Directors composed of five landowners within the district.

Question 19

What are the duties of the Board of Directors in a utility district?

Answer 19

The Board ensures growth and development, generates funds through ad valorem taxes and service billings to retire the district’s bonded indebtedness.

Question 20

Who provides operational services for a utility district?

Answer 20

Professional companies provide utility system operations, billing, tax assessment, bookkeeping, and auditing services.

Question 21

Where are fresh water districts usually created?

Answer 21

Fresh water districts are typically created in areas outside city boundaries.

Question 22

What must a seller provide to a buyer regarding MUD Districts before a contract is executed?

Answer 22

The seller must provide a notice from the district office, either separately or as an addendum to the purchase contract, prior to execution of a binding contract.

Question 23

What happens if a seller fails to provide the required notice about a MUD District?

Answer 23

The purchaser is entitled to terminate the contract unless the seller provides the notice at or before closing, at which point the purchaser waives the right to terminate.

Question 24

Why is annexation authority critical to Texas cities?

Answer 24

Annexation allows cities to extend municipal services and exercise regulatory authority to protect public health, safety, and welfare, ensuring businesses and residents contribute to maintaining city infrastructure.

Question 25

What is the benefit of annexation for Texas cities?

Answer 25

Annexation helps cities manage growth and ensures that residents outside city limits who benefit from city services contribute to maintaining those services.

Question 26

How do Texas cities typically fund services and infrastructure?

Answer 26

Texas cities rely on local taxes, as there is little state aid provided for municipal services and infrastructure.

Question 27

How does the lack of state financial assistance affect Texas cities?

Answer 27

The lack of state aid means cities must use annexation to expand their tax base and support regional infrastructure, as Texas does not transfer state-generated revenue to cities.

Question 28

What would happen if annexation authority were eliminated in Texas?

Answer 28

Eliminating annexation authority without considering fiscal assistance would severely impact cities, making Texas the only state that lacks both state financial assistance and annexation authority for cities.

Question 29

What is hydrostatic testing?

Answer 29

Hydrostatic testing is pressure testing of the water lines to check for leaks, especially under the foundation of a home. It must be authorized in writing by the seller.

Question 30

What is the first step of the hydrostatic testing process?

Answer 30

The first step is the overall test, where a first-floor toilet is removed to monitor the drain system. The drain line is blocked with an inflatable ball and filled with water to check for leaks.

Question 31

How is the overall test performed?

Answer 31

The ball is placed outside the house, and water level is monitored for 20 minutes. If the water drops, there's a leak; if it stays, there's no leak. All removed toilets are reset with new seals.

Question 32

What is the second step if leakage is present?

Answer 32

The second step is the isolation test, which determines the location of leaks using multiple test points and inflatable balls. A map of the house with leak locations is drawn, and a repair proposal is created.

Question 33

What are cameras used for in hydrostatic testing?

Answer 33

Cameras are used to view the pipe, but they do not perform the actual test. They can reveal obvious breaks, but the water test is the recognized method for a complete diagnosis.

Question 34

What is the significance of clean outs in hydrostatic testing?

Answer 34

Clean outs allow for thorough testing and isolation of leaks. They are important for accurate results, especially in homes with multiple plumbing systems.

Question 35

What are community property states?

Answer 35

Nine states are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Puerto Rico is also a community property jurisdiction.

Question 36

What is excluded from community property?

Answer 36

Gifts, inheritances, and profits from property acquired before marriage are not considered community property.

Question 37

What types of complaints can be filed with TREC?

Answer 37

Complaints can be filed against real estate brokers, sales agents, inspectors, approved education providers, and other related entities. Complaints are not accepted for home builders, appraisers, mortgage brokers, and certain other professionals.

Question 38

How often do TREC contract forms change?

Answer 38

TREC contract forms are reviewed and potentially changed at least every two years, after the Texas Legislature meets.

Question 39

What is the role of the Broker-Lawyer Committee?

Answer 39

The Real Estate Broker-Lawyer Committee advises TREC on matters related to real estate contracts. It consists of six real estate brokers, six lawyers, and one public member.

Question 40

What contract forms are promulgated by TREC?

Answer 40

TREC promulgates several contract forms, including the Unimproved Property Contract, One to Four Family Residential Contract (Resale), New Home Contracts, Farm and Ranch Contract, and Residential Condominium Contract (Resale).

Question 41

What happened in the case of Seller Arnold's property?

Answer 41

There was an issue with the legal description of the property, leading to a delay in closing. The title commitment referred to the wrong parcels, requiring re-platting of the property.

Question 42

What must an offer include under the Statute of Frauds?

Answer 42

Under the Statute of Frauds in Texas, offers for real estate must be in writing to be valid.

Question 43

What is the seller's duty in multiple offer situations?

Answer 43

The seller has no duty to respond in any particular order to offers. They can reject previous offers and accept a later one.

Question 44

What is an agent's duty regarding offers?

Answer 44

An agent must submit all offers to the seller until closing unless the listing agreement states otherwise.

Question 45

What should a seller do when a better offer comes in after countering another?

Answer 45

The seller must withdraw the counteroffer to the first buyer before accepting the second offer to avoid selling to two different parties.

Question 46

What is the role of an agent representing a buyer in a competitive offer situation?

Answer 46

The agent's role is to help the buyer present their best offer and prepare them for the possibility of losing in a bidding war.