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© 2014 OnCourse Learning Chapter 3 Additional Legal Update and Hot Topics.

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1 © 2014 OnCourse Learning Chapter 3 Additional Legal Update and Hot Topics

2 © 2014 OnCourse Learning Sponsoring Broker’s Executive Summary of New TREC Regulations “To Do” Lists

3 Advise sales people of scope of activities. Review all advertising. Establish team leader or supervisor. Keep the following for at least FOUR years: All Disclosures. Compensation agreements, all work files, contracts, exhibits, and addenda. Receipts and disbursements. All property management contracts. All agent agreements © 2014 OnCourse Learning

4 Prepare policy and procedure manual which: Confirms four-year record-keeping policy. Has procedure to maintain licenses current. Compensation to be paid through broker. Fees not be shared with unlicensed entity. Trust account cannot be comingled. REQUIRES USE OF TREC Form RSC-1, DISCLOSURE OF RELATIONSHIP WITH RESIDENTIAL SERVICE COMPANY. © 2014 OnCourse Learning

5 Make sure all licensees disclose licensee is engaging in a real estate transaction: On his or her own behalf On behalf of a business entity in which licensee owns more than 10 % On behalf of the licensee’s spouse, parent, or child. Set up a procedure for immediately delivering all mail to sponsored salespersons. © 2014 OnCourse Learning

6 Texas Contracts The following Real Estate Commission forms are currently promulgated for use by all real estate licensees, and their use is required in all transactions to which the form is applicable.

7 TREC 9-10 Unimproved Property Contract TREC One-to-Four Family Residential Contract (Resale) TREC New Home Contract (Incomplete Construction) TREC New Home Contract (Completed Construction) TREC Farm and Ranch Contract TREC Residential Condominium Contract (Resale) © 2014 OnCourse Learning Texas Contracts Addendums for the above-referenced forms are also promulgated and required for use by licensees in all transactions in which the form is applicable:

8 © 2014 OnCourse Learning TREC 10-6 Addendum for Sale of Other Property by Buyer TREC 11-7 Addendum for “Back-Up” Contract TREC 12-3 Seller’s Release of Liability and VA Restoration of Entitlement TREC 15-5 Seller’s Temporary Residential Lease TREC 16-5 Buyer’s Temporary Residential Lease TREC 26-6 Seller Financing Addendum Texas Contracts

9 TREC 28-2 Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum TREC 32-3 Condominium Resale Certificate TREC 33-2 Notice for Coastal Area Property TREC 34-4 Addendum for Property Located Seaward of the Gulf Intercoastal Waterway TREC 36-7 Addendum for Property Subject to Mandatory Membership in an Owners’ Association TREC 37-4 Resale Certificate for Property Subject to Mandatory Membership in an Owners’ Association © 2014 OnCourse Learning Texas Contracts

10 TREC 38-4 Notice of Termination of Contract TREC 39-7 Amendment to Contract TREC Consumer Information Form TREC 40-5 Third-Party Financing Condition Addendum for Credit Approval TREC 41-2 Loan Assumption Addendum TREC 44-1 Addendum for Reservation of Oil, Gas, and Other Minerals TREC 45-1 Short Sale Addendum © 2014 OnCourse Learning Texas Contracts

11 © 2014 OnCourse Learning Other Forms Also Promulgated by TREC TREC OP-C Notice to Prospective Buyer TREC OP-H Seller’s Disclosure of Property Condition TREC OP-I Texas Real Estate Consumer Notice Concerning Recognized Hazards TREC OP-K Information About Brokerage Services TREC OP-L Lead-Based Paint Addendum TREC OP-M Non-Realty Items Addendum RSC 1 Disclosure of Relationship with Residential Service Company

12 © 2014 OnCourse Learning Computerized Forms TREC regulations provide computer-driven printers can print forms Practicing Law – TREC requires all licensees use promulgated forms or forms prepared by owner or attorney Pertinent Provisions

13 © 2014 OnCourse Learning Specific Paragraphs Paragraph 1. Parties Paragraph 2. Property Paragraph 4. Financing Paragraph 5. Earnest Money Paragraph 6. Title (C,D,E) Humphrey v. Camelot Retirement Community

14 © 2014 OnCourse Learning Specific Paragraphs Paragraph 7. Property Condition Paragraph 8. Broker Fees Paragraph 9. Closing Paragraph 10. Possession Paragraph 11. Special Provisions Paragraph 12. Sales Expenses Paragraph 14. Casualty Loss Paragraph 15. Default

15 © 2014 OnCourse Learning Specific Paragraphs Paragraph 16. Mediation Paragraph 17. Attorney’s Fees Paragraph 18. Escrow Paragraph 20. Federal Tax Requirement Paragraph 21. Notices Paragraph 22. Addenda Paragraph 23. Option to Terminate Paragraph 24. Consult and Attorney

16 © 2014 OnCourse Learning Addenda Third-Party Financing Addendum For Credit Approval Assumption Seller Financing Addendum Addendum for “Back-Up” Contract Addendum for Sale of Other Property by Buyer

17 © 2014 OnCourse Learning Addenda Addendum for Property Subject to Mandatory Membership in an Owners’ Association Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owners’ Association Addendum for Seller’s Disclosure of Information on Lead-Based Paint and Lead Based Paint Hazards

18 © 2014 OnCourse Learning Addenda Buyer’s and Seller’s Temporary Residential Lease Amendment Notice of Termination of Contract Non-Realty Items Addendum Short Sale Addendum Addendum for Reservation of Oil, Gas, and Other Minerals

19 © 2014 OnCourse Learning Effective Date Broker is required to fill in date of final acceptance and party’s addresses. Extremely important because effective date keys all time requirements. If contract is tendered to title company 5 or more days after effective date, it substantially alters title company’s ability to issue the title commitment and all other contingencies and may create significant liability for brokers

20 © 2014 OnCourse Learning Homestead Issues Two Types of Homesteads, Urban or Rural Liens Judicial Foreclosure Fees Lines of Credit Prepayment Penalty Additional Collateral Agricultural Property Exemption Decrease in Market Value

21 © 2014 OnCourse Learning Homestead Issues One Debt Substantially Equal Payments/Full Interest Amortization Cooling Off Period Location of Closing Cross Default Authorized Lenders

22 © 2014 OnCourse Learning Homestead Issues See Section 50(a)(6)(P) Anti-Flipping Provision Anti-Redlining Provision Home Improvement Loans Reverse Mortgage Loans Urban Homestead Judgment Liens – do not attach to homesteads

23 © 2014 OnCourse Learning Homestead Issues In re Henderson Court noted decision in Tarrant Bank demonstrated judicial lien does impair homestead exemption Property Code amended - judgment lien may be discharged under Federal Bankruptcy New Statute – Regarding judgment liens Affidavit Not a Release

24 © 2014 OnCourse Learning Homestead Issues New Bankruptcy Rules Federal Homestead Cap $125,000 Homestead Cap

25 © 2014 OnCourse Learning Recent Homestead Cases In re Preston In re Box Norris v. Thomas, Texas Supreme Court London v. London Prudential Ins. Co. of America v. Italian Cowboy Partners, Ltd

26 © 2014 OnCourse Learning New Federal Landlord and Tenant Law! Enables tenant leasing premises that are foreclosed upon, to continue occupancy unless new owner intends property as primary residence. Owner must give tenant 90 days notice. Applies to a federally regulated mortgage. Tenant can’t be mortgagor or their relatives. Problems for creditors if there are long term leases

27 © 2014 OnCourse Learning Fair Housing Adults Only, Familial Status U.S. v. Fountainbleau Housing Opportunities Project for Excellence, Inc. v. Key Colony No. 4 Condominium Assoc., Inc. In U.S. v. Matusoff Rental Co. Lender Liability-----’Reverse red-lining’’ M & T Mortgage Corp. v. Foy Sex Offenders - Doe v. Miller

28 © 2014 OnCourse Learning Title Insurance Closing Attorney’s - Referral Fees Newington Limited v. Forrester

29 © 2014 OnCourse Learning WATER RIGHTS Surface Water Rights – In Texas, government controlled use of water through prior appropriation Texas Supreme Court held vested right to water only a usufructuary use of what state owns Surface Water Rights State may authorize use of state water Conflicting Claims

30 © 2014 OnCourse Learning WIND FARMS Texas has become nation’s leading source of wind power. Rankin vs. FPL Energy, LLC

31 © 2014 OnCourse Learning Mortgage Fraud The ‘‘Flip’’ - usually use of a straw man established in the middle of the transaction The Old Switch The Contractor’s Scheme The Ultimate Lie “Trust Me’ Identity Theft Fake Check/Fast Closing

32 © 2014 OnCourse Learning Mortgage Fraud Who’s Liable? Brokers may have some potential liability Title company seems to be in the middle of everything! Home Loan Corporation v. Texas American Title Company Red Flags

33 © 2014 OnCourse Learning RESPA Under new rules all third parties’ charges paid by title agents must be separately itemized and cannot exceed amount actually paid. Another amendment provides for a new good faith estimate of closing costs and provides for “tolerances” for variations. New rule publishes two new HUD-1 and HUD-1A forms.

34 © 2014 OnCourse Learning Texas Deceptive Trade Practices Act One Important Change

35 © 2014 OnCourse Learning DTPA Consumer can maintain DTPA action if it is a producing cause of damages The plaintiff only has to show producing cause “Economic damages” Definitions: Goods Services Consumer Unconscionable action or course of action

36 © 2014 OnCourse Learning Other Important Provisions Section Waivers now valid and enforceable Waiver of Consumer Rights - Does not require signature of consumer’s attorney New Section prohibits a claim for damages based on rendering of a professional service The Laundry List Unconscionable Action or Course of Action

37 © 2014 OnCourse Learning Brokerage Cases Interpreting DTPA Spradling v. Williams Holloman v. Denson Lerma v. Brecheisen Henry S. Miller Management Corp. v. Houston State Associates Trenholm v. Ratcliff Robertson v. United New Mexico Bank at Roswell. Cameron v. Terrell & Garrett, Inc

38 © 2014 OnCourse Learning Brokerage Cases Interpreting DTPA Pleasant v. Bradford Ridco v. Sexton Autohaus, Inc., v. Aguilar Kelley v. TREC Henry S. Miller v. Bynum Ramsey v. Gordon

39 © 2014 OnCourse Learning Other DTPA Cases Weitzel v. Barnes Prudential Wyatt v. Petrila. Canada v. Kearns Miller v. Keyser ECC Parkway Joint Venture v. Baldwin O’Hern v. Hogard

40 © 2014 OnCourse Learning Other DTPA Cases Haney v. Purcell Company, Inc. Chrysler Plymouth City, Inc., v. Guerrero. Century 21 Page One Realty v. Naghad Nix v. Born Chastain v. Koonce Sanchez v. Guerrero

41 © 2014 OnCourse Learning Other DTPA Cases Lefmark Management Company v. Old Shapiro v. Sutherland NUISANCE; diminished property value? Smith v. Kansas Guest Service Co. et al, Smith v. Herco, Inc

42 © 2014 OnCourse Learning Other DTPA Cases McFarland v. Associated Brokers Brokers; Can you represent two buyers? Zuazua v. Tibbles Rivkin v Century 21 Teran Realty LLC

43 © 2014 OnCourse Learning Defenses Under the DTPA Statutory Defenses Section Section Compulsory Mediation Section Didn’t say it. Newsome v. Starkey; Didn’t know. Robinson v. Preston Chrysler Plymouth, Inc.. Not me. Baxter & Swinford, Inc., v. Mercier

44 © 2014 OnCourse Learning Case Law Defenses I told him. Zak v. Parks. Too vague. Autohaus v. Aguilar, supra; Not my job. Kubinsky v. Van Zandt Realtors, “As Is.” The Prudential Insurance Company of America v. Jefferson Associates Smith v. Levine Fletcher v. Edwards In Larsen v. Langford & Associates, Inc.

45 © 2014 OnCourse Learning Case Law Defenses Cole v. Johnson Cherry v. McCall Boehl v Boley Exceptions to “as is” rule Kupchynsky v. Nardiello

46 © 2014 OnCourse Learning Licensed Real Estate Property Inspectors Head v. U.S. Inspect DFW, Inc Seller Disclosure Forms Zak v. Parks; Dubow v. Dragon; Pfeiffer v. Ebby Halliday Statute does not apply to transfers Seller Disclosure Forms

47 © 2014 OnCourse Learning Seller’s Disclosures in the Courts Kessler v. Fanning Seller Didn’t Know - Bynum v. Prudential Residential Services, et al Sherman v. Elkowitz Structural Repairs - Robertson vs. Odom

48 © 2014 OnCourse Learning The amount of economic damages found by the trier of fact. An order adjoining such acts or failure of act. Orders necessary to restore to any part of the suit any money or property, real or personal, which may have been acquired in violation of this subchapter. Any other relief court deems proper. Damages Under the DTPA

49 © 2014 OnCourse Learning Negligent Misrepresentation Another cause of action beginning to permeate cases is negligent misrepresentation Hagans v. Woodruff

50 © 2014 OnCourse Learning Real Estate Recovery Fund Texas Real Estate Commission v. Century 21 Security Realty, Inc.. Texas Real Estate Commission v. Hood Only actual damages (not treble damages) may be recovered. State v. Pace St. Paul Ins. Co. v. Bonded Realty, Inc.


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