Legal Update I

TREC Statute Rules & Updates

Section 1

Statutory Changes to Texas Real Estate License Act (TRELA, Act)

Senate Bill 699 amends Chapter 1101 of the Texas Occupations Code (Texas Real Estate Licensing Act, TRELA), which regulates the licensing of real estate agents and brokers. The bill clarifies and expands various definitions to ensure the Texas Real Estate Commission (TREC) has the tools needed to adequately protect Texans and updates terminology throughout the Act to current TREC practices.

Specific statutory changes:

* Terminology changes: Salesperson is now Sales Agent; Administrator is now Executive Director; Core education is now Qualifying education.

* Clarifies that “acts of brokerage” include advice regarding the negotiation or completion of a “short sale” and optioning property through “lease to purchase.”

* Allows TREC commissioners and staff to make uncompensated presentations to groups of license holders with those presentations being able to qualify for continuing education credit (1101.061).

* Provides TREC additional flexibility regarding the content and delivery of various statutory notices to consumers, including Information About Brokerage Services (1101.202, 1101.558, and 1101.605).

* Clarifies that a current license term period is 24 months (1101.451).

* Requires additional education if an applicant fails the examination three times (1101.405).

* Requires the eight hours of non-elective CE be taken before first renewal of sales license (1101.454).

* Clarifies TREC’s ability to set continuing education (CE) requirements by rule, subject to a minimum requirement of 15 hours and limits TREC’s ability to increase CE hours by no more than three hours over a license term (1101.455).

* Expands legal and ethics continuing education course to eight hours to include more content on promulgated contracts and the other listed statutory topics (1101.455).

* Sets reporting restriction to match the continuing education hours claimed (replacing the 24-hour rule) (1101.455).

* Adds a two-year waiting period for reapplication after revocation, surrender, or denial of a license after the opportunity for a hearing (1101.663).

* Allows agency’s investigative files to remain confidential until the investigation is completed (1101.2051).

* Updates certain procedures regarding a respondent’s failure to appear at hearing and authorizes cost recovery for the agency should a SOAH judge

deem it appropriate (1101.664).


    • Clarifies the process for contributions to, replenishment of, and claims against the recovery fund (1101.603 and 1101.605).

    • Establishes a connection between a designated broker and business entity broker regarding claims against the recovery fund (1101.6011 and 1101.610).

    • Clarifies that timely repayment of the fund is necessary to maintain a license (1101.665).

Section II

Commission Rule Changes 

It is every license holder’s responsibility to know and operate under the current laws applicable to their license. TREC communicates proposed and adopted rule changes to license holders eight times each year through the Advisor electronic newsletter. Recently adopted or proposed rules can also always be found on the TREC website at www.trec.texas.gov/formslawscontracts/rules_codes/Rule.asp. This section highlights certain rule changes adopted by TREC since January 1, 2014.

Some of the legislative changes above will require rule changes; refer to Appen- dix D for recently adopted rules, and be sure to read the TREC Advisor regularly to stay informed.

* “Licensee” is now “license holder” throughout the rules.

* §535.2, Broker Responsibility Requires the broker give notice of the scope of authorized activities to a sponsored sales agent in writing.

* §535.4, License Required Holds a person conducting brokerage business from another state through the mail, Internet or other medium under the jurisdiction of Texas Real Estate Licensing Act if the property is located in Texas.

* §535.44, Commission Seal (New) clarifies TREC seal may be used only by TREC.

* §535.53, Business Entity; Designated Broker The amendments clarify the requirements necessary to apply for a business entity broker license and add language regarding what is required to meet the “in good standing” TREC stan- dard set out in §1101.355 of the Texas Occupations Code for a broker to act as designated broker for a business entity. For example, a broker may not act as a designated broker for an entity if the broker’s license was revoked or sus- pended, including probated revocation or suspension, in the past two years or if the broker has any past due monetary obligations to TREC.

* Subchapter E Regarding Requirements for Licensure, were reorganized and clarified.

* Subchapters F and G Regarding Requirements for Education Providers, Course and Instructors for Qualifying and CE Education were reorganized and clarified.

* §535.91 Renewal of a Real Estate License The fee to defer completion of con- tinuing education for up to an additional 60 days will now be due at the time of the filing of the renewal application and CE credit for a subsequent licens- ing period will not start until after all deferred CE has been completed.

* §535.93. Late Renewal Applications A CE deferral fee and a CE late reporting fee may be due depending on when CE for the subsequent licensing period was completed.

* §535.146, Maintaining Trust Money (New) combines and replaces §535.146,

§535.159 and §535.160. It clarifies that a broker may only authorize another license holder to withdraw or transfer money from a trust account. The broker still remains ultimately responsible and accountable for all trust funds.

* §535.401, Required Notices The amendments update and clarify the form Easement and Right-of-Way that agents are required to give a consumer prior to the consumer entering into a transaction concerning an easement or right-of-way.

* §535.223, Standard Inspection Report Form The amendments notify consum- ers regarding potential hazards with improper bonding of corrugated stainless steel tubing (CSST) or other metal gas tubing by adding language to the “Con- sumer Notice Concerning Hazards or Deficiencies” section, in the standard inspection form Property Inspection Report Form REI 7-5.

Property Management Legislative Changes

Section 1

House Bill 311 

Amends Property Code Sections 5.062, 5.064, 5.066, 5.070, 5.076, 5.077, 5.079,

and 5.081

Effective September 1, 2015

Relating to an executory contract for the conveyance of real property; providing a civil penalty.

This bill amends provisions of the Property Code relating to executory contracts for conveyance of real property (also known as “contracts for deed”) to make contracts for deed more akin to transactions employing traditional seller-financing using a deed and lien (such as a vendor’s lien or deed of trust). In fact, the bill specifies that a recorded executory contract is the same as a deed with a vendor’s lien (in other words, on recording, an executory contract conveys legal title to the purchaser subject to a lien retained by the seller for the amount of the unpaid contract price less any lawful deductions). A seller must record the contract within 30 days after its execution. The bill denies sellers the remedies of rescission and forfeiture and acceleration if the contract has been recorded. A seller who violates the recording requirement is liable to the purchaser in the same manner and for the same amount as a seller who violates statutory requirements for the transfer of recorded, legal title to the property, except that damages are limited to $500 per year of noncompliance (but without prejudice to other remedies a purchaser may have under other law).

Section 2

Senate Bill 478

Adds Government Code Section 22.019 Effective September 1, 2015

Relating to the promulgation of certain forms for use in landlord-tenant matters.

This bill requires the Supreme Court of Texas to promulgate standardized forms to be used by individuals representing themselves in residential landlord-tenant matters and to provide instructions for the proper use of each form. The bill requires the forms and instructions to be written in plain language easy for the general public to understand, to clearly and conspicuously state that the form is not a substitute for an attorney’s advice, to be made readily available in the manner pre- scribed by the Supreme Court, and to be translated into Spanish (though the Spanish forms are for information only and may not be used in court). The bill requires the clerk of a court to inform members of the public of the availability of the forms and to make the forms available free of charge. A court must accept use of a form unless the form has been completed in a manner that causes an uncurable substantive defect.

Section 3

House Bill 1510

Adds Property Code Section 92.025 Effective January 1, 2016

Relating to liability of persons who lease dwellings to persons with criminal records.

Establishes that no cause of action accrues against a landlord or its manager or agent solely for leasing a dwelling to a tenant who has been convicted of, or arrested or placed on deferred adjudication for, an offense. (The intent of this bill being to make available more housing opportunities for formerly incarcerated individuals, thereby decreasing homelessness and recidivism.) Causes of action for negligence, however, are not precluded if the tenant was convicted of (or has a report- able offense for) one of a list of crimes involving murder, burglary, sexual assault, indecency with a child, prostitution, human trafficking, elder or child abuse, sex offenses, and similar offenses and the landlord, manager, or agent knew or should have known of the conviction or adjudication.


Section 5

Senate Bill 1626

Amends Property Code Section 202.010 Effective Date: September 1, 2015

Relating to the regulation by a developer of the installation of solar energy devices in a residential subdivision.

Chapter 202 of the Property Code limits restrictions that may be imposed against installation of solar energy devices in a residential subdivision. Prior to this bill, however, Chapter 202 allowed developers to limit or restrict property owners from installing solar energy devices during the development period. This bill limits this right to developers of developments of 50 units or less.

.

Section 6

House Bill 2066

Adds Property Code Section 51.016 Effective September 1, 2015

Relating to the rescission of non-judicial foreclosure sales.

This bill applies only to non-judicial foreclosure sales of residential property and permits a mortgagee, trustee, or substitute trustee to rescind a sale within 15 days after the foreclosure if

* statutory requirements for the sale were not met,

* the underlying default was cured before the sale,

* a receivership or dependent probate administration involving the property was pending at the time of sale,

* a sale condition specified by the trustee or substitute trustee before the sale was not met,

* the mortgagee or mortgage servicer and the debtor agreed to cancel the sale beforehand based on the debtor’s agreement to cure, or

* a bankruptcy stay was in effect at the time of sale.

The sales price must be returned to the purchaser and the debtor must return excess proceeds if the sale is rescinded. Challenges to the rescission must be brought within 30 days after the date required notices of the rescission are recorded. A pur- chaser who effectively challenges a rescission is entitled to damages only in the amount of the portion (if any) of the purchase price not returned to the purchaser plus interest (unless the rescission is due to bankruptcy, in which case no interest is payable).

Section 7

House Bill 2207

Adds Property Code Chapter 66 Effective September 1, 2015

Relating to the foreclosure sale of property subject to an oil or gas lease.

Makes clear that a foreclosure sale does not cut off an oil and gas lease if the lease is recorded prior to the sale. (An oil and gas lease is not a “lease” in the tra- ditional sense; rather it is a determinable conveyance of an interest in the mineral estate.) Notwithstanding the preceding, if the foreclosed property includes an inter- est in hydrocarbons as well as the surface, the foreclosure sale terminates the oil or gas lessee’s surface rights to the extent the foreclosed mortgage had priority over the lease.

Section 8

Property Management Issues 

The Real Estate Center at Texas A&M University publishes Landlord and Tenants Guide that is helpful in addressing many questions for property managers, tenants and landlords. The manual is a free download on the Center’s website (recenter. tamu.edu).

The Property Code has three chapters which specifically govern the Land- lord-Tenant relationship:

  • Chapter 91, applies to both residential and commercial tenancies;

  • Chapter 92, applies to residential tenancies; and

  • Chapter 93, applies to commercial tenancies.

There are other statutes that may affect residential and commercial tenancies not discussed here, such as lead-based paint disclosures, asbestos removal, American with Disabilities Act, and others.

Consider This...Residential Tenancies

Which conditions must a landlord repair regardless of what the lease may provide?

Unless the landlord agrees otherwise, which conditions might the landlord not repair?

What is a reasonable time for making repairs in a residential tenancy? What is the definition of a security deposit?

Do certain conditions have to be met before a landlord may charge a late fee? Must a landlord provide a copy of the lease to the tenant?

May a landlord refuse to accept cash from a tenant?

What should the landlord do with the tenant’s property and the security deposit if the tenant dies?

What security devices must the landlord install, and when must the landlord rekey the security devices?

Buyers, Landlords, Tenants & Sellers Legislative Changes

Section 1

Legislative Changes 

House Bill 1221

Amends Property Code Section 5.008 Effective January 1, 2016

Relating to seller’s disclosures in connection with residential real property subject to groundwater regulation.

Adds to the standard residential property seller’s disclosure notice required under Section 5.008 of the Property Code a requirement that a seller disclose whether he or she is aware that any portion of the property is located in a groundwater con- servation district or a subsidence district. (Such location may affect a purchaser’s ability to draw groundwater.)

House Bill 1665

Adds Property Code Section 5.019 Effective September 1, 2015

Relating to notice of water level fluctuations to purchasers of real property adjoining an impoundment of water.

Requires a seller of residential or commercial property adjoining a lake, reser- voir, or other impoundment of water with a normal operating capacity of 5,000 acre-feet or more to give the purchaser a statutorily prescribed form of notice, as follows:

“NOTICE OF WATER LEVEL FLUCTUATIONS

The water level of the impoundment of water adjoining the property at

  (street address and city) or described as (legal descrip- tion) fluctuates for various reasons, including as a result of:

(1) an entity lawfully exercising its right to use the water stored in the impoundment; or

(2) drought or flood conditions.”

The notice must be given on or before the effective date of a contract binding the purchaser; otherwise, the purchase may terminate the contract for any reason within seven days after receiving the notice from the seller or information described by the notice from any other person. After the date of conveyance, the purchaser may bring an action against the seller for misrepresentation if the seller failed to give the notice before the conveyance and had actual knowledge that the water level fluctuates.


Section 2

The Out-of-Date Seller's Disclosure

In Domel v. Birdwell, 2014 WL 4347815 (Tex. App. –Eastland 2014), Birdwell sued Domel for negligent misrepresentation and other claims that arose out of Bird- well’s purchase of Angel Fire Ranch. Waite was Domel’s listing agent. The Domels had lived there for several years, but wanted to move closer to Austin because of their business interests. Waite had the Domels fill out of Seller’s Disclosure, sign it and then return it to him. The notice indicated that the seller agreed to amend any applicable notices in disclosures during the listing period. The notice also con- tained the statement that there had been no prior flooding, no prior insurance set- tlements, and no prior damage to the roof.

Birdwell had the property inspected again after the closing and discovered that the entire roof needed to be replaced. Upon being contacted by the real estate broker, Waite, the Domels did not deny that they had filed an insurance claim and lied on the Seller’s Disclosure when they checked “no” on the insurance settlements disclosure. In fact, they had received a check for $114,650.04 in a settlement.

Later, Birdwell discovered that there was also prior flooding on the property that also was not disclosed. The Domels admitted that they never amended the notice and didn’t think they had a duty to amend the notice even though the notice was over a year old.

One of the key issues discussed by the appellate court was whether or not the Domels had a duty to update the Seller’s Disclosure form. The court noted that Section 5.008 of the Property Code does not, in itself, create a continuing duty or obligation to update matters on the form. The court did hold, however, that there is such a duty to disclose in four situations:

1. where there is a confidential or fiduciary relationship;

2. when one voluntarily discloses information, the whole truth must be disclosed;

3. when one makes a representation, new information must be disclosed when that new information makes the earlier representation misleading or untrue; and

4. when one makes a partial disclosure and conveys a false impression.

The court also cited a corollary principle: when there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts. The appellate court then affirmed $264,926 in damages, $67,000 in attorney’s fees, and $19,161.77 in prejudgment interest.

Scenario

Discussion

  1. Should all of these documents have been presented to the seller (Otto) for signature at this time?

  2. Are there any issues with the description of the various documents to Otto?

  3. With all these doc- uments, are there any documents missing?

  4. This scenario is based on a TREC com- plaint. In addition to the above scenario, Maynard listed the property in MLS as “appointment only – call listing agent.” This notation remained

     after the tenant vacated the property. Is this a problem knowing that Otto wanted to sell the property quickly?
  5. Are there other issues Maynard should address?

Promulgated Contract & Addendum Forms

What is a Promulgated Contract

Promulgated Contracts 

Promulgated contracts and addenda are created and revised by the Broker Lawyer Committee. This committee is statutorily authorized to create promulgated contracts for TREC, and TREC has the authority to require their use by license holders. The Broker Lawyer Committee consists of six attorneys appointed by the State Bar of Texas, six brokers appointed by TREC, and one public member appointed by the Governor. TREC-approved contract forms are intended for use by licensed real estate brokers or sales agents who are trained in their correct use. Mistakes in the use of a form may result in financial loss or an unenforceable contract.

Promulgated Contracts Changes since January 1, 2014

TREC Form No. 47-0, Addendum for Property in a Propane Gas System Service Area (New) 2014

TREC Form No. 9-12, Unimproved Property Contract 2015

TREC Form No. 20-13, One to Four Family Residential Contract (Resale) 2015 TREC Form No. 23-14, New Home Contract (Incomplete Construction) 2015 TREC Form No. 24-14, New Home Contract (Complete Construction) 2015 TREC Form No. 25-11, Farm and Ranch Contract 2015

TREC Form No. 26-7, Seller Financing Addendum 2015

TREC Form No. 30-12, Residential Condominium Contract (Resale) 2015 TREC Form No. 32-4, Condominium Resale Certificate 2015

TREC Form No. 38-5, Notice of Buyer’s Termination of Contract 2015 TREC Form No. 39-8, Amendment to Contract 2015

TREC Form No. 40-7, Third Party Financing Addendum 2015 OP-H, Seller’s Disclosure of Property Condition 2015

Redline versions of the new forms can be found at http://www.trec.texas.gov/ formslawscontracts/rules_codes/Rule.asp under recently adopted rules. The new forms are available for use at http://www.trec.texas.gov/formslawscontracts/forms/ forms-contracts.asp.

Contract Changes Highlights

The noted changes apply to all contract forms unless specified otherwise. Para- graph numbers referenced are from the One to Four Family Residential Contract (Resale). The One to Four Family Residential Contract (Resale) and the new Third Party Financing Addendum will be reviewed in detail later in this chapter.

* Paragraph 3, Sales Price, now references all of the financing addenda previ- ously contained in paragraph 4 of the old versions.

* The Third Party Financing Addendum is completely rewritten and addresses both credit approval and property approval by the lender. Reverse mortgage loans are also addressed in this addendum, so form OP-N, Reverse Mortgage Financing Addendum is repealed.

* Credit Approval was renamed Buyer Approval.

* The Authorization to Release Information was expanded to include title com- panies and escrow agents for closing disclosure.

* A new paragraph 4 is added regarding license holder disclosure. This para- graph is where a license holder will disclose that he or she is a party to the transaction or related to a party that requires disclosure under the law.

* A new paragraph 6E(10), Title Notices, Notice of Water Fluctuations, is added to add new statutory notice requirement regarding the fluctuation of the level of certain impoundments of water that adjoin a property.

* Paragraph 7A, Property Condition, Access, Inspections and Utilities, is amended to add a provision that hydrostatic testing must be authorized in writing by the seller.

* Paragraph 9B(5), Closing, is amended to conform the language with a statu- tory change to the property code, noting that the buyer has to acknowledge to a tenant that the buyer has acquired the property and is responsible for the return of the security deposit.

* Paragraph 14, Casualty Loss, is amended to make it clear that an insurance company must permit insurance proceeds to be assigned to the buyer before the buyer can use this option after a casualty.

* Paragraph 18D, Escrow Damages, is amended to take out the treble damages provision based on recent case law.

* Paragraph 23, Termination Option is amended to require a 5 p.m. local time deadline for delivery of all notices under the paragraph.

* License numbers are added to the Broker Information Section to facilitate compliance with the TILA-RESPA Integrated Disclosure Rule, and the order of the Associate and the Associate’s Supervisor were reversed.

* Paragraph 13, Prorations and Rollback Taxes, in the Farm and Ranch and Unimproved Property Contract forms, is amended to provide that assessments imposed due to the seller’s use or change in use of the property are the seller’s responsibility.

* A new Paragraph 2D to the Condominium Contract Form is added to address situations where the condominium documents reveal the existence of a right of first refusal after the parties enter into a contract.

* The Condominium Resale Certificate is amended to conform to new statutory disclosure requirements.

* The Seller’s Disclosure of Property Condition (OP-H) is amended to conform to a new statutory requirement.

* The Amendment form and Seller Financing Addendum were revised to be consistent with changes to the contract forms and Thirty Party Financing Addendum.

One to Four Family Residential Contract

Contract

Discussion (Paragraphs 1-4)

Paragraph 1

1. How do you verify that you have correctly listed the parties to the contract? That the seller is the title holder of the property?

Paragraph 2

2. A. How do you verify that you have correctly inserted the legal description?

Paragraph 3 

This paragraph has been amended to include the financing addendum options formerly in Paragraph 4. The revised Third Party Financing Addendum contains the other parts of old Paragraph 4 and is discussed below. In Paragraph 3 be sure to fill in all of the blanks and check the math. This paragraph often gets changed during the negotiations. How do you properly document contract price revisions?

Can multiple boxes be checked in 3.B?





TREC Case Study 1

What could Amos have done to avoid this complaint and the delay?

Third Party Financing Addendum

Third Party Financing Addendum

The revised addendum contains all of the information contained in the prior addendum as well as addressing reverse mortgage financing (previously in form OP-N) and the property approval provisions previously contained in former para- graph 4. The information is reorganized but essentially the same.

Which type of approval does the Third Party Financing Addendum address?

What is the difference between financing (loan) approval, property approval and buyer approval (formerly credit approval)?

Third Party Financing Addendum-PDF

Third.Party.Financing.Addendum

True or False

  1. The amount listed as the principal amount of the loan(s) in the addendum(s) should match the amount in Paragraph 3B of the contract.

  • Put your answer option here
  • Put your answer option here

True or False

2. If the buyer receives buyer approval during the time period stated in the addendum, the earnest money will not be refunded if the loan does not close.

  • Put your answer option here
  • Put your answer option here

True or False

3. Suppose the buyer received buyer approval and after the time period for termination under the addendum had passed, something changed in the buyer’s circumstances that caused the lender to subsequently disapprove the loan based on the buyer’s credit. The buyer can then give the seller notice, and the earnest money is returned to the buyer.

  • Put your answer option here
  • Put your answer option here

True or False

4. The buyer’s notice of failure to receive buyer approval from the lender, written on a napkin and given to the seller before the deadline, is sufficient to terminate the contract and receive a return of the earnest money.

  • Put your answer option here
  • Put your answer option here

True or False

5. If the seller does not believe the buyer was denied buyer approval after the buyer sends notice of termination stating such, the seller can demand proof from the buyer.

  • Put your answer option here
  • Put your answer option here

Paragraph 4

This paragraph is new. Texas law requires a real estate license holder who is a party to a transaction or acting on behalf of a spouse, parent, child, business entity in which the license holder owns more than 10 percent or a trust for which the license holder acts as trustee or of which the license holder or the license holder’s spouse, parent or child is a beneficiary must notify the other party in writing before entering into a contract of sale. License holders who are members of trade associa- tions such as the Texas Association of REALTORS, may need to make additional dis- closures in similar situations. This paragraph provides a space for a license holder to disclose either of those required relationship disclosures.

TREC Case Study 2