Law of Contracts - Chapters 6-11
Terms in this set (118)
under ideal conditions is presented in writing, on the required forms, and includes all addenda. However they can be made orally.
when the offering party has been informed of the acceptance of an offer. At this point the offer becomes a binding contract.
An offer is ASSUMED to be delivered to the principal when it is delivered to the agent.
an estimate of the net proceeds to the seller based on the offer being considered.
Power of Acceptance
The ability for the offeree to accept or reject an offer.
Characteristics of a valid offer
Must be communicated to a specific oferee.
Must be Intended to be a serious offer.
Specific, definite and certain enough to be accepted.
options of the seller after receiving an Offer
Reject (or Reject with the invitation to resubmit)
When a party changes an offer in dome way and communicates that change to the other party. 2 things required: Rejection of the first offer coupled with a NEW OFFER.
Withdrawl of an offer
may be done at any time prior to its acceptance by the offeree.
Requirements of the Contract
Name of the parties (in the form in which they want to talke/did take title
Addressees of the parties
Legal Description of the property
Names of the Parties
should appear on the contract in the same manner as when they took title/want to take title
Metes and Bounds
Uses terminal points and angles to describe a parcel of land. Usually starts with "beginning at the point..." Most often used to describe rural properties.
A permanent marker installed on the land by a surveyor. They are often the reference point for the beginning.
Lot and Block
A method of describing land commonly used in subdivisions. The lay out of streets, lots, utilities, common areas and easements are laid out in a plat.
Governmental Survey System
Also known as the rectangular survey system is a method for describing land that was adopted by Congress in 1785. Terms used with this system include: initial point, Principle Meridian (north south line), baseline (east west line), range lines, township lines, and township.
Serves as a source for the payment of liquidated damages to the seller in the event of default by the buyer. It is deposited in an ESCROW account when the contract is SIGNED by all parties and acceptance is COMMUNICATED.
Received upon closing and funding.
Typical Closing Costs
Title Policy Fees, document preparation fees, recording fees, surveys, inspections, and loan fees. Most fees can be paid by either the buyer or the seller, but some government loan programs can only be paid by the seller.
Sources of Financing
Third party financing (most common)
Assumption of sellers mortgage (allowed in VA and FHA loans)
Operations of Law that Terminate a Contract
Death of either party
Bankruptcy of either party
Change in the law that renders the contract illegal
The special provisions paragraph
Allows licensees to insert:
Factual Business Details
Statements not addressed in the contract
Information for which there is no TREC promulgated form, addendum, lease or mandatory form.
Remedies for Buyer Default
Specific Performance (make them follow through)
Monetary Damages (done through the courts)
Liquidated Damages (seller takes the ernest money and releases all parties from further obligation.
Remedies for Seller Default
Refund of Ernest money. Taking receipt of ernest money releases both parties from further obligations.
(Subject to) A provision in a contract that requires that a certain act or event happens in order for the contract to be binding on a party. i.e buyer selling their home, buyer obtaining financing, having good title. They need to be SPECIFIC and MEASURABLE and TIME framed.
Types of Contingencies
Sale of Other Property
Lead Based Paint
a Change to the Contract Can be for things such as Changes to the closing date, Changes to the sales price, down payment, or amount financed, Repairs that the seller agrees to or removal or waiver of contingencies
an ATTACHMENT to a Contract that adds or further describes the rights and duties of the parties. If there is a conflict between an Addenda and what is in the contract, the information in the addenda PREVAILS over that of the contract.
Types of Addenda
Financing, Seller Financing, Mineral Reservations, Lead-based Paint, Flood Hazard, and POA information
1% of the LOAN AMOUNT. The are Pre-paid interest.
a loan with NO discount points.
A pledge of real estate as security for repayment of debt.
A Promissory Note plus a Mortgage.
An unconditional promise to pay. It contains the amount borrowed, payment amount, due date and interest rate.
The process of securing the repayment of a loan with real estate.
Deed of Trust
A three party mortgage that include: a borrower, a lender and a Trustee.
The least common form of mortgage financing. It protects the buyer because Title Transfers at Closing.
Title Theory State
A Mortgage is an ACTUAL TRANSFER of OWNERSHIP from the borrower to the lender. Title is transferred back to the owner When the loan is REPAID.
Lien Theory State
The borrower RETAINS OWNERSHIP subject to the Lien.
the Central Banking System of the US. It keeps the economy healthy via the application of monetary policy. These policies actions affect prices, employment, and economic growth by influencing the availability and cost of money and credit in the economy.
3 Primary Tools used by the Federal Reserve
Open Market Operations (most flexible and most often used)
The Discount Rate(the rate charged to financial institutions)
Reserve Requirements (% of deposits set aside and not lent out)
Secondary Mortgage Market
The market used for the purchase and sale of existing mortgages. It provides LIQUIDITY to the market because Loan Originators can sell their loans and thus recover cash form making new loans.
The money earned on an investment.
the ROI an investor receives over time.
The Rate of Interest the Fed chargers eligible FINANCIAL institutions to borrow funds on a SHORT TERM basis.
Operates EXCLUSIVELY in the Secondary Market. It is now PRIVATELY owned, operates with private Capital and enhances the Flow of Funds to the secondary market. It is the LARGEST investor in home mortgages.
Fannie Mae accomplishes 3 things
Addresses imbalances of mortgage credit among regions of the US
Allows lenders to originate mortgages for sale rather than portfolio investment.
Standardizes Mortgage Loans
STOCKHOLDER Owned Corporation. Increases the supply of Funds to mortgage lenders by buying mortgages in the secondary market.
GUARANTEES Loans if borrowers and issuers default on their obligations. This guarantee allows lenders to obtain a better price for their loans.
Use their OWN rather that OTHER PEOPLE's Money.
Specialize in being the Middle Men between borrowers and lenders. Loans are made in the LENDER's NAME
Like a Mortgage Banker, they process, underwrite, close and fund loans in their OWN NAME. Then they sell it.
The Process of creating a new mortgage loan. Includes attracting and qualifying a borrower.
where a file is built that will be used to make the underwriting decision. Credit reports are pulled in this phase
The detailed process of evaluating a borrower's loan application to determine the risk involved for the lender.
The Consummation of a real estate transaction. Documents are signed, and the proceeds of the loan are disbursed by the lender.
The process of transferring funds to a title company for disbursement.
Sending monthly statements, collecting payments, collecting and paying insurance and taxes etc. a fee of 1/4% or 1/2% is charged to the borrower.
When the borrower has been evaluated in the underwriting process. It does not require the specific property address.
Fixed Rate Mortgage
The rate is FIXED for the entire term of the loan.
Adjustable Rate Mortgage
Rate is fixed for a period of time and then ADJUSTS to the current prevailing market rate. The advantages to the borrower are: lower interest rate (initially), larger loans protection against FALLING rtes.
Allows additional borrowing on the same note i.e HELOC
When a lender takes advantage of a consumer's lack of knowledge regarding lending practices.
Assumption of a Loan
When the buyer assumes the mortgage of the seller. VA and FHA loans are assumable with no change in interest rates.
a measure of the willingness of a borrower to make on time payments
a measure of the borrowers ABILITY to repay debt. determined by using front ratio and back ratio.
.The sum of all assets that the borrower has accumulated.
Loan to Value Ratio (LTV)
the percentage of the LESSER of the appraised value or sales price that the lender will lend. i.e. the lender will lend up to 80% of the sales price or appraisal price (whichever is LOWER)
required when the LTV of a conventional loan exceeds 80%
a function of the borrower's credit score and the LTV ratio and is quoted as a percentage amount.
USDA and FHA loans
are fully insured. AKA Section 502 loan.
is a mortgage insurance program. The premiums are called MIP (mortgage insurance premiums.) the 2 MIPs are Up Front and Annual. The upfront premium can be rolled into the loan even if it causes the loan to go above the appraisal price.
When the seller agrees to pay some of the buyer's expenses. Seller Concessions can be up to 4% of the sales price for a FHA loan.
FHA Loan Ratios
31% front ratio, 43% back ratio
Used in VA LOANS. The money left at the end of the month after all of the borrower's major expenses are paid. The amount remaining is usually spent on groceries, gas and other living expenses.
Usen in VA LOANS. The ratio of total monthly debt payments to gross monthly income.
Seller Concessions in VA loans
Cannot exceed 4%
a term mandated by the SAFE act. An agent should provide a buyer with 3 RMLOs for them to consider.
SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act)
Designed to enhance consumer protections and reduce Fraud by encouraging states to establish minimum standards for the licensing and registration of RMLOs.
CFPB (Consumer Financial Protection Bureau)
Established under the Dodd Frank Act. It promotes the financial stability of the US by improving Accountability and Transparency in the financial System. It oversees compliance with the SAFE act and enforces federal consumer financial law including TILA, FCRA, RESPA and ECOA
ECOA (Equal Credit Opportunity Act)
Requires that MLOs apply credit standards in a fair manner, so that all consumers are given an equal chance to obtain credit.
The main purpose of the act is to insure the meaningful disclosure of consumer credit and lease terms so that consumers can compare those terms and shop wisely.
TILA Advertising Provision
Certain terms TRIGGER certain disclosures.
The amount of the DOWN payment
The amount of ANY payment
The NUMBER of Payments
The amount of ANY finance charge.
The more specific the statement, the more likely it is to trigger additional disclosures.
Lower Costs of underwriting
Improves the Accuracy
Reduces the Time needed from weeks to days
Fannie Mae - Desktop Underwriter
Freddie Mac - Loan Prospector
A deed which is used to convey title to property sold by the government at a tax sale.
The EVIDENCE an individual has of his or her right to possess land. Title is most often TRANSFERRED by Deed.
Any CHANGE in OWNERSHIP of real property.
Occurs when an individual acquires title from the rightful owner through hostile, actual, and continuous occupation of the land for the statutory period. (most often 10 years)
Any Property whether REAL or PERSONAL that is capable of being inherited.
Gradual INCREASE of land (Alluvion is the material deposits)
Gradual DECREASE in land
Sudden ADDITION of land
Recording a Deed
Not required for a valid Deed
Enters it into the public record and gives CONSTRUCTIVE NOTICE that ownership has transferred.
Requires Acknowledgment that ones signature was freely given.
A written document that Conveys Ownership.
Elements of a Valid Deed
Words of Conveyance
Delivery and Acceptance
Is a limit place on a new owner by the grantor.
Reserves Rights for the Grantor
documents gathered by the loan processor for the FILE
Completed and Signed Loan Ap
Existing or new survey
Verification of Employment
Verification of Funds
Other docs as required by lender (FHA, VA etc)
Title Issues of Concern to lenders
Legal Access to the Property
Research done by an examiner or abstractor. It is used to prepare the Title Commitment.
Recorded notices of pending lawsuits affecting the property.
Broker's Obligations Pertaining to Title (2 methods)
1. Buyers should Obtain an abstract and have their atty. examine it.
2. Obtain a Title Insurance Policy
Title Insurance Policy
A contract between the Title company and the insured. The title company agrees to compensate or reimburse the insured against losses sustained as a result of defects in title, other than the exceptions listed in the policy.
Items not Covered in a Title Insurance Policy
Issues occurring AFTER the the date of the policy
Violations of building and zoning ordinances.
Losses resulting from right claimed by "parties in possession." such as renters.
Condemned land (unless the notice appeared in the public record)
Homestead, community property, or survivorship rights of a policyholder's spouse.
Parts of a Title Commitment
Schedule A - Basic info on property and transaction.
Schedule B - Exceptions from COVERAGE i.e easements.
Schedule C - Exceptions to TITLE
A notarized statement from the owners of the property that notes any changes to the footprint of the improvements to the property since the survey date.
Types of Title Policies
Owner's Title Policy - in effect as long as the purchaser or the purchaser's heirs won the property.
Lender's Title Policy - Covers losses up to the loan amount.
Says Title Companies
cannot pay for SUBSIDIZED ADVERTIZNG
cannot provide FOOD AND BEVERAGES for a picnic for a single firm,
cannot provide an ANNUAL PARTY for a single firm and cannot provide CONTINUING EDUCATION classes unless they charge the market rate for the classes.
Title Insurance Premiums
Are set by the Texas Dept. of Insurance
Are paid only ONCE at closing
Owner's Title Policy GENERALLY paid by the SELLER for the buyer's benefit.
The MORTGAGEE'S Title Policy is generally paid by the BUYER for the LENDER'S benefit
Number of days from Jan 1 to May 30
Number of days from Jan 1 to June 30
Number of days from Jan 1 to October 31
Things done at Closing by the Seller
Sign the Deed of Conveyance
Provide Title Insurance
Authorize the Title Co. to pay of existing mortgages or liens.
Sign other Documents as Needed.
RESPA applies to
1 - 4 family structures
Loans made by a lender, creditor or dealer
Loans made or insured by an agency of the Government
Loans made in connection with a HUD program.
Loans intended to be sold to Fannie Mae, Freddie Mac or
Home Equity Conversion or Reverse Mortgage loans.
Shopping for your Home: HUD Settlement Cost Booklet
Must be given to the borrower either at the time of application or within THREE business days.
RESPA Section 8
Prohibits Kickbacks and Referral Fees.
Controlled Business Arrangements must be Disclosed.
Controlled Business Arrangement
When the LENDER has either an affiliate relationship or a direct or beneficial ownership interest of more than 1 PERCENT in a provider of settlement services and the lender either directly or indirectly refers business to the provider.
RESPA Regulation X
prohibits a SELLER from requiring a purchaser to buy title insurance from a specific title company as a condition of the sale.
Requires timely disclosure of the nature and costs of the settlement process.
Mandates Disclosures for escrow accounts at closing and annualy