Texas Real Estate Brokerage
and Law of Agency, 6th Edition
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Chapter
11
FEDERAL LEGISLATION AFFECTING
REAL ESTATE BROKERS--PART I
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Introduction
• Federal law imposes requirements on
brokers,
• Including requirements to properly represent
facts that could otherwise cause damage to
a purchaser.
• There is liability even though there is no
fiduciary relationship with purchaser.
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Introduction
• Recent expansion requires that brokers need
to keep current with legal developments that
may impose new or potential legal duties
and liabilities.
• Liability now extends to negligence, negligent
misrepresentation, fraud, innocent
misrepresentation, conspiracy, failure to
exercise due diligence, and disclosure
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The Real Estate Settlement
Procedures Act (RESPA)
• Originally enacted to correct abuse from
high settlement or closing costs.
• “Good faith” estimates of closing costs and
special information booklets
• GFE of closing costs provides for
“tolerances” for variations of those costs
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Two New HUD-1 and HUD-1A Forms
• Rules require loan originator to cure any
violation by reimbursing borrower any
amount that exceeded the 10% tolerance
– Busby v. JRHBW Realty, Inc
• Section 2607 of RESPA prohibits the giving
or acceptance of any kickback fee
– charges for services actually performed only
• CLOs
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Exceptions to the Application of RESPA
•
•
•
•
farms of 25 acres or more
home equity line of credit transactions
modification of existing obligations
“bridge” loans
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Exceptions to the Application of RESPA
• assumptions, if no lender approval is
required
• temporary financing like a construction loan
• secondary market transactions
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“Final Rule” Addressing CBAs
• Statement of Policy 1996-1
– Computerized Loan Origination (CLOs)
• Statement of Policy 1996-2
– Sham Affiliated Business Arrangements (AFBAS)
• Statement of Policy 1996-3
– Rental of Office Space, Lock-outs, and
Retaliation
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SECURITIES AND EXCHANGE
COMMISSION (SEC)
• SEC regulates certain forms of land use,
which involve securities, investment
contracts, or sales of equity interests
• SEC has been very effective in regulating
REITs, real estate syndications, and certain
types of condominium offerings
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Foreign Investments Real Property Tax
Act (FIRPTA)
• FIRPTA was originally enacted to eliminate
tax advantages for foreign investors
– The statute requires withholding by the
purchaser of 10 % of the proceeds to the sale of
a U. S. real estate interest by a foreign entity
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Truth in Lending Act
• TILA is administered by the Fed Board of
Governors
– Regulation Z (Reg Z) requires disclosures that
enable the consumer to see the total dollar
payments for life of the loan and total finance
charges broken
– TILA also deals with certain elements of broker
advertising and disclosure of assumeability of
loans
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Land Use Legislation
• The National Flood and Insurance
Program
• Endangered Species Act
• Safe Drinking Water Act
• Clean Water Act
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Land Use Legislation
• Comprehensive Environmental
Response Compensation and
Liability Act (CERCLA)
• National Historic Preservation Act
• Zoning Coastal Management
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The Taking/Condemnation Issue
• Excessive land use restrictions can be
considered a compensable “taking”
– Nollan v. California Coastal Commission
– Dolan v. City of Tigard
– Lucas v. South Carolina Coastal Council
– Kelo v. City of New London
– Matcha v. Maddox, -Galveston
– Severance v. Patterson, - Galveston
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Wetlands Legislation
• Provisions of the Clean Water Act
– regulates activities in wetland areas through the
Corps of Engineers with oversight by the EPA
– permits for discharging dredged or filled
materials into navigable waters (which are
defined very broadly)
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Definition of Wetlands
• Those areas that are saturated by a surface or
ground water at a frequency sufficient to support,
and that under normal circumstances do support,
vegetation typically adapted for life in saturated soil
• Wetlands generally include swamps, marshes,
bogs, and similar areas, but many other areas have
been designated as wetlands.
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The Endangered Species Act
• The federal Endangered Species Act
protects any species of animal or plant life
declared to be endangered
• Prohibits taking of a protected species’
habitat, which includes harassing
protected animals or disturbing their
environments
– There are both civil and criminal remedies
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Underground Storage Tanks
• Hundreds of thousands of storage tanks are
buried all over the U. S.
• Many are leaking hydrocarbons and lead
contaminants into the soil
• City, state, and federal governments have
enacted courses to give protection against
the danger to the environment
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Asbestos
• Asbestos is a white, fibrous mineral that is
found in about 20 % of our older public and
commercial buildings
– insulations, sidings, roofing shingles, and floor
coverings
– Use has been limited since the 1970s
• Exposure can lead to illness and death
– cancers and tumors, scarring of the lungs, and
thickening of the lung lining membranes
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Lead-Based Paint
• EPA has issued rules concerning lead-based
paint disclosures
• Contract addendum available for use with
TREC-promulgated forms
– A copy is shown in Figure 11-2.
• The rule does not require testing, removal or
abatement – just disclosure
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Lead-Based Paint
• The statute targets housing built prior to
1978 and does not cover the following:
– housing built after 1977
– zero bedroom units
– leases for less than 100 days
– houses exclusively for the elderly
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Lead-Based Paint
• Not included:
– housing for the handicapped
– rental houses that have been inspected by a
certified inspector and found to be free
– foreclosures
– renewals of existing leases in which the landlord
has previously disclosed all information
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Chlorofluorocarbon (CFC)
• A chlorofluorocarbon (CFC) is an organic
compound that has been used in
refrigerants, propellants (in aerosol cans),
and solvents
• They have been found to be ozone-depleting
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Electromagnetic Fields (EMFs)
• EMFs are created by the flow of electric
current through wires
• They occur in the wiring of household
appliances and in high-voltage power lines
– early studies reported a possible association
between the elevated risk of childhood leukemia
and proximity to residential power lines
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Comprehensive Response, Compensation,
and Liability Act (CERCLA)
• CERCLA originally enacted in response to
environmental and public health hazards
imposed by hazardous waste
– intended to effect prompt abatement of health
and environmental risks from leaking hazardous
waste dumps and releases of toxic substances
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CERCLA
• The statute created a “super fund” to be
utilized to clean up certain waste sites that
have been designated “Superfund Sites.”
• Created liability for literally all parties in the
chain of title, like the truck driver and any
owner in the chain of title, regardless of their
knowledge of the hazardous waste deposit.
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