Category Archives: Brokerage

New TREC rules effective February 1, 2016

§531.18, Consumer Information (Brokers and Agents), §535.220, Professional
Conduct and Ethics (Inspectors), and §535.401, Required Notices (ERW). A new
mandatory Consumer Protection Notice was adopted and must be displayed by
each TREC license holder in their offices and through a link on the homepage of
each license holder’s website.
§531.20, Information About Brokerage Services. A new mandatory Information
About Brokerage Services form was adopted. It updates and clarifies the information
provided to the public and requires that brokerage and agent contact information
be provided. The IABS must still be given to a customer at the first substantive
dialogue. Additionally, the license holder’s website must have a link to the IABS on
the homepage.

Highlights to changes in the TREC Forms

The noted changes apply to all contract forms unless specified otherwise. Paragraph
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 previously
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Financing Addendum is repealed.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 companies
and escrow agents for closing disclosure.
* A new paragraph 4 is added regarding license holder disclosure. This paragraph
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 statutory
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.

Your Seller has a Duty to Update the 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 Birdwell’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 contained
the statement that there had been no prior flooding, no prior insurance settlements,
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.

Legislative Updates

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).

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 prescribed
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.

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 reportable
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.

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.

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 purchaser
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).

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 traditional
sense; rather it is a determinable conveyance of an interest in the mineral
estate.) Notwithstanding the preceding, if the foreclosed property includes an interest
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.

 

“Tracking the spoor of a very healthy commission.”

Virginia Oak Venture, LLC v. Fought, 448 S.W.3d 179 (Tex.App.-Texarkana 2014, no pet.).  Fought was a real estate salesman who was hired by the seller to find a buyer for the apartment complex.  He located a buyer and wooed her extensively.  Fought not only located an attorney to create the LLC to act as the purchasing entity, he agreed to be personally named as Texas resident agent for service of process for the entity. Fought was extremely solicitous of Buyer by acting as her chauffeur from the airport, personally taking her through each of the ten properties he was attempting to sell her, directing her to a particular lender, and preparing all the documents involved in the transaction.

Buyer bought the apartment complex.  It turned out to have been a bad investment and she sued everyone in sight.  Among her claims were that Fought had grossly misrepresented the occupancy levels of the property, the income and expenses of the property, that he supplied false information to be used by the appraiser and the lender, and hid from Buyer, the appraiser, and the lender more accurate rent rolls, financial data, and most importantly, a sale of the property just ten months earlier at nearly half the price, all so that an inflated appraisal and inflated loan would result, and so Buyer would rely on the information given them and on the loan and appraisal to close the purchase.

Buyer also claimed that Fought was acting as her agent in connection with the purchase, citing all the things he did for her, as described above.   The question went to the jury, which found that Fought was not acting as her agent.  Although there was some behavior on Fought’s part that could be construed to support the conclusion that he was acting as her agent, it could likewise be construed to simply have been the Broker helping Buyer in order to “grease the wheels” of the deal.  The Court found that while one could believe that those activities, taken as a whole, might suggest the existence of a personal relationship, they may also be representative of a dedicated salesman “tracking the spoor of a very healthy commission.”

 

DBA vs LLC – in Brokerage

What’s In a Name and Why Does It Matter?

Many license holders ask: what is the difference between using a DBA (“doing business as”) or assumed name and using the name of business entity — a limited liability company (LLC), a corporation, or a partnership?

A DBA is not a separate legal entity

The principal difference is that a DBA is NOT a legal entity; it is simply any name, including a team or group name, used in business by an individual broker or entity broker other than the name shown on the broker’s license issued by the Commission. The DBA can be used in advertising in place of the broker’s licensed name so long as it is properly registered with the Commission. (See §535.154 of the Commission Rules).

An LLC, a corporation, or a partnership is a separate legal entity

An LLC or a corporation, on the other hand, is an artificial person or a legal entity created under the authority of the laws of a state. The law treats the LLC or corporation itself as a person which can sue and be sued. The law also treats the LLC or corporation as a person and therefore the legal entity must hold its own Texas real estate broker license in order to engage in brokerage activities or to receive a commission or brokerage fees. The LLC or corporation is distinct from the individuals who own it, so even if a licensed sales agent or a broker owns the corporation, the owner and the corporation are two distinct legal “persons” and the legal entity must hold a broker license under Section 1101.351(a-1) of the License Act.

Registering or filing with the Secretary of State is not a filing with TREC

On occasion, a license holder will attempt to use the name of an LLC or corporation as an additional DBA or assumed name of the broker and will submit a “Notice of DBA or Assumed Name” attempting to register that name with the Commission. The Commission, however, will reject such a form because an LLC or corporation cannot be a DBA of a broker. A legal entity must have its own broker’s license and a license holder cannot register the name as a DBA to avoid this requirement.  Some license holders who file for incorporation with the Secretary of State incorrectly assume that by filing for an assumed name certificate with the Secretary of State they also comply with the Commission’s requirements. If you have a separate legal entity that is engaging in real estate brokerage activities (like taking commission checks or advertising broker activities) – get a license Brokerage activity by an unlicensed entity violates Section 1101.351(a-1) of the License Act. If you have questions on this subject, contact the Commission or your attorney. You can apply for a business entity broker license on our website. TREC’s DBA or assumed name registration form.

Residential Service Contracts: What Do You Need to Know? What is a residential service company contract?

A residential service contract, also called a home warranty contract, is an agreement that covers certain repairs and replacements on systems in a residential property, usually for one year. Depending on the service contract, it may cover the structural components, appliances, or the electrical, plumbing, heating, cooling or air conditioning systems in a home. A service contract is not insurance nor is it a replacement for insurance. A homeowner’s insurance policy covers things such as damage to the structure of the property or to a homeowner’s personal property. A service contract covers specific components of the home when they fail due to normal wear and tear.

What do you need to know about these contracts? All companies selling service contracts in Texas must be licensed by the Commission. A current list of all licensed residential service companies is on the TREC website. A real estate sales agent or broker should be familiar with how a service contract works and what it covers. Typically, a contract only covers items that are in good working order when the contract is purchased. Many covered items have limitations of coverage and the contract may not cover the entire cost of all necessary repairs. A sales agent or broker should never represent that the contract covers everything or that it is a substitute for negotiating necessary repairs with a seller. Making this type of representation violates the Texas Real Estate License Act.

Coverage and cost vary by company, so you should recommend that your client compare companies before making a decision on whether to purchase a contract. If a buyer does get a service contract, it is a good business practice to recommend that the buyer carefully review the contract before they need it so that they understand what is and is not covered by the contract.

Do I need to disclose that I’m getting paid by a residential service company? Yes. A real estate sales agent or broker must present TREC Form RSC-1, Disclosure of Relationship with Residential Company, to each party the agent or broker represents.

Proposed Changes to the TREC Forms

The Commission has proposed changes to the following forms recommended by the Broker Lawyer Committee:

TREC Form No. 9-12 Unimproved Property Contract

TREC Form No. 20-13 One to Four Family Residential Contract (Resale)

TREC Form No. 23-14 New Home Contract (Incomplete Construction)

TREC Form No. 24-14 New Home Contract (Complete Construction)

TREC Form No. 25-11 Farm and Ranch Contract

TREC Form No. 26-7 Seller Financing Addendum

TREC Form No. 30-12 Residential Condominium Contract (Resale)

TREC Form No. 32-4 Condominium Resale Certificate

TREC Form No. 38-5 Notice of Buyer’s Termination of Contract

TREC Form No. 39-8 Amendment to Contract

TREC Form No. 40-7 Third Party Financing Addendum

OP-H, Seller’s Disclosure of Property Condition

Redline versions of the proposed forms can be found under recently proposed rules. Comments on the proposals should be sent to general.counsel@trec.texas.gov before October 4th so that they can be considered by the Broker Lawyer Committee at their October 7th meeting.

Contract Changes Highlights

The noted changes apply to all contract forms unless specified otherwise. Paragraph numbers referenced are from the One to Four Family Residential Contract (Resale). Paragraph 3, Sales Price, now references all of the financing addenda previously 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. A new paragraph 4 is added regarding license holder disclosure. This paragraph 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 by the seller in writing. Paragraph 9, Closing, is amended to add a provision allowing a ten-day extension of closing if the buyer’s lender is required to provide additional disclosures mandated by the TILA-RESPA Integrated Disclosure Rule. Paragraph 9B(5) is amended to conform the language with a statutory change to the property code, noting that the buyer has to acknowledge to a tenant 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 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 condominium documents reveal the existence of a right of first refusal after the parties entered into a contract. The Condominium Resale Certificate is amended to conform to new statutory disclosure requirements. (This was also adopted by emergency since the new statutory requirements are effective September 1, 2015.)

The Subjects of TREC Complaints

TREC received over 1000 complaints related to brokers and sales agents in Fiscal Year 2014 (September 2013 through August 2014). Based on data tracked from fiscal year 2014, as well as staff impressions, here is what they see:  About 22 percent of complaints relate to leasing and property management (mostly the latter):  Leasing/Property Management – Misappropriation, includes misappropriation, commingling, and failure to properly account for money  Leasing/Property Management – Other, includes general negligence, referrals, etc.  Abouu 8 percent of complaints relate to advertising  About 8 percent of complaints relate to unlicensed activity  About 6 percent of complaints relate to licensure issues such as criminal background history, application disapprovals, probationary licenses, etc.  About 6 percent of complaints relate to broker supervision, which is a broker’s failure to supervise sponsored salespersons  About 5 percent of complaints relate to a breach of fiduciary duty, which includes false promises  About 5 percent of complaints relate to TREC administrative actions such as bad checks to the agency, or a license holder’s failure to cooperate or to provide current contact information, etc.   And about 33 percent of complaints are in the miscellaneous category of “Sales – Other”, which includes general negligence, rebates, improper referrals, and earnest money issues  What else?  TREC receivers a number of complaints related to a license holder’s actions as a principal in a transaction (about 3 percent), failure to disclose (about 2 percent), intermediary/IABS violations (about 1.5 percent), improper form usage (about half a percent), and sales misappropriation (about half a percent).

TREC receives a large number of inquiries related to advertising, but not  a large percentage of signed complaints on that issue. Because TREC DOES NOT accept anonymous complaints and typically cannot conduct a covert investigation, it is very limited in what it can do with an unsigned complaint. In addition, TREC frequently enforce issues arising out of criminal background checks on renewals when the license holder fails to timely disclose a plea of guilty or nolo contendere to a criminal offense involving a felony or fraud (under “licensure issues” above). Another area where TREC frequently find violations is a broker’s failure to register the broker’s or salesperson’s dba or assumed name with TREC (under “administrative” above).