1. © 2014 OnCourse Learning Texas Real Estate Commission Legal Update MCE

2. © 2014 OnCourse Learning Chapter 1 Legislative Changes

3. SB 985 – Local Government Code HB 3038 – Auctioning Real Estate SB 985 – Authorizing Broker Agreements for Sale by Certain Municipalities. Must be “home rule” city. House Bill 3038 amends Chapter 1802 of the Texas Occupations Code Auctioneer must holds an auctioneer’s license. © 2014 OnCourse Learning

4. HB 2075 – Texas Uniform Condominium Act and Property Owner Associations Borrowing Money Insurance Coverage New Foreclosure Sale Rules Property Owner Associations HB 35 – Use of Adjacent Lot HOA cannot prohibit or restrict an owner’s use of adjacent lot © 2014 OnCourse Learning

5. Property Owner Associations and Timeshare Act Amendments HB 680 – Flag Poles HOA may regulate size, number and location SB 198 – Drought-Resistant Landscaping (effective September 1, 2013) HOA cannot prohibit or restrict use SB 1372 – Timeshare Act Amendments Timeshare owners associations are exempt Provisions for governance of timeshare owners associations. © 2014 OnCourse Learning

6. SB 2911 – Real Estate Inspectors and HB 585 – Appraiser Disclosure Requirements (ARB) Bill contains provisions about professionalism of R.E. inspectors and adopts practices to match those used by other TREC licensees. HB 585 – Appraiser Disclosure Requirements Before an ARB Has no impact on appraisers, bill requires an appraiser and property tax consultant must state capacity under which they are appearing before the ARB. © 2014 OnCourse Learning

7. HB2532 – Propane Distribution Retailer Disclosure Amends Utilities Code to establish standards for propane distribution system retailers. Bill requires retailers to provide disclosures and record documents in county property records. Establishes notice requirements for a homeowner who proposes to convey property located in a propane gas system service area. © 2014 OnCourse Learning

8. Chapter 2 Regulatory Changes

9. New Broker License Requirements Measured by transactional experience Applicant must accrue 3,600 points for transactional experience for 4 of 5 years. Application must have signature of applicant’s sponsoring broker(s). © 2014 OnCourse Learning

10. Transaction Document Verification Documents not required with application, must be provided upon request. Affidavit in Lieu of Documentation If unable to obtain documentation or signature, applicant must submit other evidence © 2014 OnCourse Learning

11. Licensee Issues Licensees Buying, Selling and Leasing Property for Themselves TREC Disciplinary Action Broker Price Opinions or Comparative Market Analyses “appraisal of real property” has been removed from definition of real estate brokerage. © 2014 OnCourse Learning

12. Final Mortgage Rules/ Consumer Financial Protection Bureau (CFPB) Rules setting out new standards address standards on “ability-to-repay” and “qualified mortgages” (QM Rule) changes in HOEPA escrow accounts for higher-priced loans QM Rule applies to consumer credit transactions, which are secured by a dwelling and are other than lines of credit, timeshare plan, reverse mortgages, or bridge loans © 2014 OnCourse Learning

13. The lender must take into account: borrower’s income and assets current employment status loan payments payments for mortgage-related obligations (insurance, tax, etc.) and other debt alimony and child support monthly debt-to-income ratio or residual income applicant’s credit history © 2014 OnCourse Learning

14. New Issues New Appraisal Requirements Capital Gains Tax Rule Changes 3.8 Percent Investment Income Tax & 0.9 Percent Medicare Tax Appraisal Management Companies AMCs must ensure appraisers are competent © 2014 OnCourse Learning

15. Rules for Business Entities Owning Less Than 10 Percent of an Entity A licensed business entity required to obtain E&O insurance of at least $1 million if broker owns less than 10% of the entity Compensation Partnerships and LLCs SB 747 eliminated exception for licensure for partnership or LLP © 2014 OnCourse Learning

16. Education Standard Advisory Committee Statutory committee created by TRELA Function is to regularly review and revise curriculum standards, course content requirements, and instructor certification requirements for core and MCE courses. Committee consists of 12 members appointed by TREC. S even real estate members, four instructors and one public member © 2014 OnCourse Learning

17. Education Standard Advisory Committee ESAC has recommended a curriculum for Principles I and II, Law of Agency and are formulating curricula for courses in Promulgated Contracts, Law of Contracts. Long term goals include reviewing: all core curriculum content course fees and approval processes acceptability of delivery methodologies (classroom, correspondence, alternative delivery, and combination delivery) © 2014 OnCourse Learning

18. Justice Court Rule Changes for Evictions Legislature asked Supreme Court to create rules for eviction for consolidation of small claims and justice courts. Texas Supreme Court finalized a new set of rules for justice-court cases, which can affect timelines, mediation and formality. Timelines Mediation Formality © 2014 OnCourse Learning

19. Chapter 3 Hot Topics

20. Choice of Title Company No seller shall require title insurance be purchased from a particular title company. Choice of title company negotiable Licensees may suggest particular title companies but should not insist If seller insists licensees should advise principals to seek legal advice. © 2014 OnCourse Learning

21. Form 36-7 – Addendum for Property Subject to Mandatory Membership in Owners Association Chapter 207 of Property Code deals with resale certificates and other information POAs are required to provide upon request. Para. A defines items POA is to provide: resale certificate POA’s bylaws any rules the POA maintains subdivision’s restrictions Now buyer, seller, title company or brokers may obtain subdivision information. © 2014 OnCourse Learning

22. Form 36-7 – Addendum for Property Subject to Mandatory Membership in Owners Association If buyer does not require subdivision info, parties may check Para A(4). If seller has obtained info, - Para A(3). Para C allows parties to negotiate fees. Para D says “deposit” or “reserve” not a fee; Para E is seller’s authorization to POA to provide updated information to buyer, title company or broker. POA may charge a reasonable fee. © 2014 OnCourse Learning

23. Mutual Termination of Contract Form “Mutual Termination of Contract,” likely to be adopted in 2014. Form is used only when both buyer and seller agree that contract is terminated. Does not replace Form No. 38-4, Notice of Buyer’s Termination of Contract, which is used when the buyer has a right to terminate. © 2014 OnCourse Learning

24. E-mail Negotiations and the Creation of Contracts Cases involving UETA being litigated. Generally, 5 principles courts will consider. UETA’s Purpose enforceability of contract. UETA’s Effect on the Law of Contracts electronic version substitute for “paper and ink.” Using an Electronic Signature. © 2014 OnCourse Learning

25. Satisfaction of Contract Elements Elements for an enforceable contract are Offer, acceptance, consideration, Also, meeting of the minds, communication that each party has consented to terms, and delivery with intent it be mutually binding. Must additionally satisfy statute of frauds (a writing and a signature). © 2014 OnCourse Learning

26. The Authority of the Broker Broker typically special agent, not general agent. Special agent does not have authority to bind principal, but is engaged to conduct a specific act. Electronic communications from broker to broker have not generally been found to bind principals - broker did not have authority to bind the principal © 2014 OnCourse Learning

27. Clarifying E-Mail A broker who wants to make it clear e-mail may not bind principal, may wish to disavow by written statement. Examples: “The broker’s statements in this e-mail do not create an agreement for broker’s clients.” “My typed name is not my electronic signature nor the electronic signature of any clients,” or “I, the named broker, do not have authority to bind my clients.” © 2014 OnCourse Learning

28. Case Study Dittman V. Cerone, …..ruled, under the facts that a broker’s e- mail did, in fact, bind broker’s principal. The Dittmans owned a 3.78-acre track and adjoining 17-acre tract. Next to 17-acre tract owned by neighbor. Dittmans and the neighbor listed properties as single 34 acres. Broker responded by e-mail that Dittmans might accept a “right of first refusal.” © 2014 OnCourse Learning

29. There were three critical e-mails sent during negotiations: E-mail 1 - broker e-mail to buyer E-mail 2 - Broker to Seller E-mail 3 – Dittman’s e-mail Buyer sued Trial court issued a detailed order and concluded that the three e-mails constituted a valid option contract Dittmans appealed, arguing e-mails could not, together, constitute one contract. © 2014 OnCourse Learning

30. Case Study Dittman V. Cerone, Sellers argued e-mails did not comply with Statute of Frauds Court noted Dittmans did not communicate that e-mail was incorrect Dittmans argued broker did not have authority to bind them Trial court held Dittmans committed fraud and appellate court upheld © 2014 OnCourse Learning

31. Handling Trust and Property Management Funds About 25% of TREC’s disciplinary orders involve failure to properly handle trust funds. Most serious because they strike at core fiduciary responsibilities: honesty and trustworthiness, required to obtain license. TRELA requires a licensee to properly account for or remit money, within a reasonable time and prohibits commingling. © 2014 OnCourse Learning

32. Rules regarding “trust accounts” If broker holds another’s money, must use separate account or agent to hold funds. Salesperson must timely deliver funds to broker. Licensee may not commingle money. Must p roperly account, disburse money to appropriate party; pay into registry of a court If licensee acquires ownership of money in account, licensee must remove money. © 2014 OnCourse Learning

33. What Should Happen When an Agent Changes Broker? Sponsorship Change on Paper: Form-1 is required and available on TREC website. Paper sponsorship change takes longer, more costly than an online change. TREC’s Online Relationship Management Tool (RMT) is available. RMT has been positive for TREC, licensees and consumers. RMT allows licensees to manage sponsor relationships online quickly and easily. © 2014 OnCourse Learning

34. Termination of Salesperson’s Association with Sponsoring Broker If sponsorship has ended salesperson shall send written notification to broker. If TREC receives request from broker to sponsor salesperson sponsored by another broker, TREC shall notify former broker. When sponsorship of salesperson ends, broker shall immediately return salesperson’s license, or otherwise notify TREC in writing. If salesperson’s license becomes inactive procedure is different to reactivate license. © 2014 OnCourse Learning

35. Craigslist Leasing Scams Prospective renters respond to online ad for rental property offered at below market rates. “Landlord,” scammer who holds no ownership, replies that renter needs to wire money for deposit or rent. Landlord cannot show property. Current tenant and prospective tenant are bewildered. Property may be for sale but not for rent. © 2014 OnCourse Learning

36. Forms Changes

37. TREC No. 20-12, One to Four Family Residential Contract (Resale) Definition of “Property” moved. Para. 6.A.(8). Third sentence in Para. 6.B Para. 7.D amended to redefine “As Is” Notice after para. 7.D moved Para. 7.F amended © 2014 OnCourse Learning

38. TREC No. 20-12, One to Four Family Residential Contract (Resale) New Para 9B regarding leases – incorporates Para 9.B(5) and renumbers existing Para. 9B to 9C to contain 9B(1)-(4). Para. 14 amended to add “or cause to be restored” in first sentence. Para. 16 amended to remove check boxes. Para. 23 - Seller or Listing Broker must receive option fee within 3 days. Last page - agents do not sign on blank lines. © 2014 OnCourse Learning

39. TREC No. 9-11, Unimproved Property Contract Definition of “Property” not changed. Para. 7.E(1) is amended Para. 7.E(3) amended TREC No. 23-13, New Home Contract (Incomplete Construction) The definition of “Property” not changed. Para. 7 insert missing parentheses. Para. 7.I(3) amended New Para. 9.B © 2014 OnCourse Learning

40. TREC No. 24-13, New Home Contract (Completed Construction) Para. 7.H(3) amended Para. 9 amended adding new Para. 9.B TREC No. 25-10, Farm and Ranch Contract Para. 2 amended Last page not amended TREC No. 30-11, Residential Condominium Para. 2.B(3) is deleted ; No changes to para. 6.A.(8). © 2014 OnCourse Learning

41. TREC No. 37-5, Subdivision Information, Including Resale Certificate TREC No. 37-5 amended: Para. H to more closely track statutory changes to Chapter 207, Property Code. TREC No. 40-5, Third Party Financing Addendum New para. E added to reference USDA Guaranteed Financing. © 2014 OnCourse Learning

42. Licensees may only use forms that are authorized by Section 537.11 of the TREC Rules. Those forms include: forms adopted for type of transaction, forms required by property owner, forms required by government agency, forms prepared by an attorney if no TREC form has ben promulgated. TREC does not promulgate listing or buyer rep agreements, property management contracts, forms for commercial property, or residential leases © 2014 OnCourse Learning

43. Case Studies

44. “As Is” vs. Seller’s Disclosure - RITCHEY V. PINNELL, 357 S.W.3D 410 Splitting Commission with Buyer - WU V. RHEE, (WL 5198336, BKRTCY. S.D. TEX. 2012) Buyer Representation/ Misrepresentation DEFTERIOS V. DALLAS BAYOU BEND, LTD., 350 S.W.3D 659 (TEX.APP.-DALLAS 2011) Reversionary Interests are Compensable in a Takings Case - EL DORADO LAND COMPANY, L.P. V. CITY OF MCKINNEY, 395 S.W.3D 798, TEX., MARCH 29, 2013 © 2014 OnCourse Learning

45. Case Studies Attempt to Convert Separate Property to Community Property - ESTATE OF CUNNINGHAM, 390 S.W.3D 685, TEX.APP.–DALLAS, 2012 The Risk Caused by Certain Pets - HARRIS V. EBBY HALLIDAY REAL ESTATE, INC., 345 S.W.3D 756, TEX. APP. – EL PASO, JULY 20, 2011 Mutual Mistake/Scrivener’s Error - SIMPSON V. CURTIS, 351 S.W.3D 374 (TEX. APP.-TYLER 2010, NO PET.) © 2014 OnCourse Learning

46. Case Studies Real Estate License Required for a Business Broker to Sell Real Estate - SMITH SALES V. METAL SYSTEMS, 397 S.W.3D 305, TEX. APP. – DALLAS, MARCH 5, 2013 Stigma Damage May be Awarded for Remediated Property - HOUSTON UNLIMITED, INC. V. MEL ACRES RANCH, 389 S.W.3D 583, TEX. APP.– HOUSTON (14TH DISTRICT), NOVEMBER 15, 2012 © 2014 OnCourse Learning

47. Case Studies Listing Agreement/Protection Period - 839 E. 19TH STREET, L.P. V. FRIEDSON, 373 S.W.3D 674 (TEX.APP.-HOUSTON [14TH DIST.] 2012, NO PET. HISTORY TO DATE) Mold! - ARLINGTON HOME INC. V. PEEK ENVIRONMENTAL CONSULTANTS, INC., 361 S.W.3D 773 (TEX. APP. –HOUSTON [14TH DIST.] 2012) © 2014 OnCourse Learning

48. Case Studies Inspectors are Professional for Purposes of DTPA - RETHERFORD V. CASTRO, TEX. APP. – WACO, JAN. 4, 2012 Failure to Disclose Prior Termite Infestation and Damage - LAWRENCE V. KINSER, TEX.-APP. – DALLAS, DECEMBER 15, 2011 © 2014 OnCourse Learning