Chapter 3
Additional Legal Update and
Hot Topics
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Sponsoring Broker’s
Executive Summary of
New TREC Regulations
“To Do” Lists
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 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
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 Prepare policy and procedure manual which:
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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.
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 Make sure all licensees disclose licensee is
engaging in a real estate transaction:
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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.
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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.
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Texas Contracts
 TREC 9-10 Unimproved Property Contract
 TREC 20-12 One-to-Four Family Residential Contract
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(Resale)
TREC 23-13 New Home Contract (Incomplete
Construction)
TREC 24-14 New Home Contract (Completed
Construction)
TREC 25-10 Farm and Ranch Contract
TREC 30-11 Residential Condominium Contract (Resale)
Addendums for the above-referenced forms are also
promulgated and required for use by licensees in all
transactions in which the form is applicable:
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Texas Contracts
 TREC 10-6 Addendum for Sale of Other Property by
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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
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Texas Contracts
 TREC 28-2 Environmental Assessment, Threatened
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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
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Texas Contracts
 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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Homestead Issues
 Two Types of Homesteads, Urban or Rural
 Liens
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Judicial Foreclosure
Fees
Lines of Credit
Prepayment Penalty
Additional Collateral
 Agricultural Property Exemption
 Decrease in Market Value
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Homestead Issues
 One Debt
 Substantially Equal Payments/Full Interest
Amortization
 Cooling Off Period
 Location of Closing
 Cross Default
 Authorized Lenders
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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
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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
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Homestead Issues
 New Bankruptcy Rules
 Federal Homestead Cap
 $125,000 Homestead Cap
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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
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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.
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Tenant can’t be mortgagor or their relatives.
 Problems for creditors if there are long term
leases
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Fair Housing
 Adults Only, Familial Status
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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’’
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M & T Mortgage Corp. v. Foy
 Sex Offenders - Doe v. Miller
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Title Insurance
 Closing Attorney’s - Referral Fees
 Newington Limited v. Forrester
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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
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WIND FARMS
 Texas has become nation’s leading source of
wind power.
 Rankin vs. FPL Energy, LLC
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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
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Mortgage Fraud
 Who’s Liable?
 Brokers may have some potential liability
 Title company seems to be in the middle
of everything!
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Home Loan Corporation v. Texas American
Title Company
 Red Flags
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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.
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Texas Deceptive Trade
Practices Act
One Important Change
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DTPA
 Consumer can maintain DTPA action if it is a
producing cause of damages
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The plaintiff only has to show producing
cause
 “Economic damages”
 Definitions:
 Goods
 Services
 Consumer
 Unconscionable action or course of action
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Other Important Provisions
 Section 17.42 Waivers now valid and
enforceable
 Waiver of Consumer Rights - Does not
require signature of consumer’s attorney
 New Section 17.49 prohibits a claim for
damages based on rendering of a
professional service
 The Laundry List
 Unconscionable Action or Course of
Action
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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
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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
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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
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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
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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
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Other DTPA Cases
 McFarland v. Associated Brokers
 Brokers; Can you represent two buyers?
 Zuazua v. Tibbles
 Rivkin v Century 21 Teran Realty LLC
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Defenses Under the DTPA
 Statutory Defenses
 Section 17.505
 Section 17.5051 Compulsory Mediation
 Section 17.555
 Didn’t say it. Newsome v. Starkey;
 Didn’t know. Robinson v. Preston Chrysler
Plymouth, Inc..
 Not me. Baxter & Swinford, Inc., v. Mercier
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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.
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Case Law Defenses
 Cole v. Johnson
 Cherry v. McCall
 Boehl v Boley
 Exceptions to “as is” rule
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Kupchynsky v. Nardiello
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Licensed Real Estate
Property Inspectors
 Head v. U.S. Inspect DFW, Inc
 Seller Disclosure Forms
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Zak v. Parks;
Dubow v. Dragon;
Pfeiffer v. Ebby Halliday
 Statute does not apply to transfers
 Seller Disclosure Forms
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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
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Damages Under the DTPA
 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.
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Negligent Misrepresentation
 Another cause of action beginning to
permeate cases is negligent
misrepresentation
 Hagans v. Woodruff
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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.
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State v. Pace
St. Paul Ins. Co. v. Bonded Realty, Inc.
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