© 2014 OnCourse Learning Texas Real Estate Commission Legal Update MCE

© 2014 OnCourse Learning

Texas Real Estate Commission

Legal Update MCE


Chapter 1

Legislative Changes

SB 985 – Local Government CodeHB 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.


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


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.


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.


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.



Chapter 2

Regulatory Changes

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).


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


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.


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


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


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


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


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. Seven real estate members, four

instructors and one public member


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)


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



Chapter 3

Hot Topics

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.


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.


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 .


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.


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.


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).


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


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.”


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.”


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.


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


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.


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 properly account, disburse money to

appropriate party; pay into registry of a court If licensee acquires ownership of money in

account, licensee must remove money.


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.


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.


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.



Forms Changes

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


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.


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


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

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.


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



Case Studies

Case Studies

“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/ MisrepresentationDEFTERIOS 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


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.)


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


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)


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
