Texas Real Estate
Commission
Legal Update MCE
© 2014 OnCourse Learning
Chapter 1
Legislative Changes
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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.
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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

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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.
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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.
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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.
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Chapter 2
Regulatory Changes
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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).

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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
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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.
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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

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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

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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
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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

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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

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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)
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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
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Chapter 3
Hot Topics
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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.
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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.
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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 .
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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.
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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.
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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).

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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
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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.”
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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.”
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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.
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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

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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.
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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.
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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.
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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.
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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.
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Forms Changes
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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
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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.
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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

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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).

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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.
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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
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Case Studies
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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/ 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
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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.)
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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
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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)
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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
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