RE Law Ch.5 Duties to Third Parties

  1. An agency owes fiduciary duties to the customer/third parties.
    false; does not owe fiduciary duties to the customer or third parties, but does owe them duty of care
  2. What are the Duties of Care an agent owes to the customer/third parties? State clearly
    -Disclosure of Title; a real estate broker/agent is required to advise the purchaser in WRITING that the purchaser is to obtain a policy of title insurance or have an attorney of his/her choice examine an abstract of title to the property.

    -Disclosure of Defects; a licensee has a duty to disclose know defects regardless of whom the broker represents; applies to both residential and commerical

    -Disclosure of License; if the licensee is acting as the principal in a transaction, the licensee must disclosure to the customer that he/she is a real estate agent; also applies if agent is engaged in a business entity in which the licensee owns 10% or the company or is working on behalf of the licensee's spouse, parent, or child; must be in WRITING.

    -Disclosure of Broker's Relationship; when engaging in discussion of "significiant dialogue" with a consumer, the broker/agent has a duty to deliver an Information About Brokerage Services form to that consumer. Get a copy signed for you.

    -Disclosure of Representation; requires disclosure of whom the broker/agent represents to all parties of the transaction.

    -Disclosure of Residential Service Company Contracts; if a broker/agent has paid a fee for providing advertising and other services on behalf of a residential service company, TREC requires that the licensee uses Form RSC-1 to disclose such fee in WRITING to the client. A licensee is not required to use the form if he/she is not being paid a fee by the residential service company.
  3. What defects might or might not be significant to a purchaser?

    How can a licensee accomplish this?
    think about it...major structural damages, if they mention something they want to do on the property but there is a deed restriction, etc.

    -find out what they are looking for; disclose major repairs; talk about upgrades as you mention downgrades
  4. What acts towards third parties result in revoking or suspending of a license?
    • -non-disclosure of lateral structural defects that are known to the agent
    • -not clearly stating who the licensee/broker represents to all parties
    • -making false promises
    • -knowingly misrepresenting things
    • -a licensee must not solicit, sell, or offer for sale, real property under a scheme or program that constitutes lottery or deceptive practice
    • -the licensee must not negotiate or attempt to negotiate the sale, purchase, exchange, lease, or rental of real property with an owner, lessor, buyer, or tenant knowing that the owner is a party to an outstanding written contract, granting exclusive agency in connection with the property to another real estate broker.
    • -misleading advertising
    • -the licensee must surrender to the rightful owner, on demand, a document relating to a real estate transaction to a person who signed the document.
    • -The licensee must not engage in any act or conduct that constitutes discrimination.
  5. How does a licensee determine what defects would be a significant factor to a reasonable and prudent purchaser?
    When in doubt, disclose!!
  6. An agent can still be held accountable for misrepresentations, even though they were innocent, unknowing misrepresentations.
    true; having things in writing is your best defense
  7. The broker can be held reliable for innocent misrepresentations in brochures that were prepared by his principal.
  8. How can a broker and owner protect themselves from each others misrepresentation?
    investigate each others statements or knowledge, requiring the seller to sign at the time  of the listing a statement setting forth representations that will be made, certifying that they are true and providing for indemnification if they are not.
  9. License Act prohibits disclosure or discussion about HIV or HIV-related illnesses as it relates to the property.
  10. A real estate licensee has the duty to inquire about, disclose, or make representations concerning a death on a property that was the result of suicide, natural causes, or accidents on the property.
    • false; the real estate licensee does NOT disclose about suicides, natural causes, or accidents.
    • The real estate licensee MUST disclose if there was a murder on the premises
  11. The agent does not have the duty to disclose about sex offenders to a prospective buyer.
    true; but a licensee can give the prospects websites; also don't lie if you do know you can tell them; may be required to disclose if the owner was a child molester
  12. An agent misrepresented the square footage of a house can get the agent in a lot of trouble.
  13. One must never hid an inspection report, a termite report, or any other report that may shed light or be informative as to the condition of the property.
  14. An agent does not have to disclose to the buyers that the property was undergoing foreclosure procedures.
    false; Gray v. Boyle, 803 S.W.2d 678 (Tenn. 1990)
  15. A broker can get into trouble if he/she misrepresents the availability of financing through third party sources.
    true; Danny Darby Real Estate v. Jacobs, 760 S.W.2d 711 (Tex. App. 1988)
  16. An agent must disclose if the property is in a flood zone and may need flood insurance.
  17. Agents should not recommend inspectors.
    true; just give a list
  18. When holding an open house, the first thing to do is...
    inspect the premises of dangers; falling hazords
  19. What are stigmatized properties?
    Properties that bear no physical defects but have a lower value or are more difficult to sell for emotional or psychological reasons; owner was a child molester, violent death on the premises, haunted houses, etc.
  20. What are the agents' defenses from third party misrepresentations?
    -The agent didn't say it; agent never made the representation

    • -The licensee didn't know; can't get into trouble for info you don't know about; 
    • ---The court noted that "the decisive test" is whether the seller asserts a fact of which the buyer is ignorant, or merely states an opinion or judgment on a matter of which the seller has no special knowledge and on which the buyer may be expected also to have an opinion and to exercise his/her own judgment. The court held that the comments were not actionable because they merely pointed out the obvious.
    • ---has no duty to disclose material facts of which he/she should have known.
    • ---Sellers can't disclose what they don't know, and absent "actual knowledge" of the defect, the plaintiff's cause of action failed.  ---The court also noted that there was no duty to provide continuing updates as to matters within the Seller's Disclosure of Property Condition.
    • ---The court also held that if a defect has been corrected, there is no duty to disclose a corrected defect, because repairing a defect doesn't prove its continued existence. 
    • ---The court also held that there was no duty to disclose prior lawsuits affecting the property.

    • -The agent made a mistake; the fact that the agent made a mere mistake that did not result from a lack of honesty or from a lack of diligence that a reasonable broker would employ is not a breach of fiduciary duty.
    • -It's not the agent's job, and just not fair; if the purchaser hired someone else to do the inspections, the broker is not liable.
    • ---If the info is beyond the scope of the real estate brokerage, the broker is not liable
    • ---The agent's duty to present all offers to the seller, not to the purchaser.
    • ---Inaccurate financial info provided by the seller MAY not fall under the broker's area of expertise and, if supplied by the seller, is not the broker's responsibility.
    • ---relies on third party representations, not on the broker's.
    • ---parties to a contract have an obligation to protect themselves by reading what they sign.
    • ---The failure of one party to read a contract or any of the materials appertaining to it, however, does not equate with a failure of other party to disclose the info contained within the four corners of the contract.

    • -The purchaser ignored the defect or the information; broker has no liable where: 1. the defective conditions are discoverable; 2. the purchaser has an opportunity for investigation without concealment or hindrance by the vendor; 3. the condition was open to observation; and 4. the vendor hasn't engaged in fraud. 
    • ---a duty falls upon the purchaser to make inquiry or examination, however, it does not apply to an incorrect response to a direct inquiry. The use of the Seller's Disclosure Form is no defense to an agent's misrepresentation.
    • ---it is a defense if the defect is disclosed and the purchaser buys anyways
    • ---if the buyer knew of the fire damage and bargained for a lower purchase price because of it, the buyer can't turn around and sue the broker over the fire damage.

    -The agent helped the buyer to help the seller; if the agent's conduct to the buyer does not interfer with the fiduciary duties to the seller (principal), it may not be improper; assist third party to find financing  or inspections and doing so will not create a new agency between the agent and purchaser.

    • -The professional limitation period has been reached; Texas statute does not specify real estate licensees as professionals, but the DTPA does consider real estate licensees as professionals.
    • ---The TREC has some of its own rules; in order to access the reimbursemenst provisions of the recovery fund, a plaintiff must bring his/her cause to action against a licensee no later than two years from the date of the transaction. 

    • -A broker has no duty to inspect the property; this rule is different for the buyer's broker
    • ---held that the broker has the fiduciary duty to confirm that the property meets with the client's standards or should disclose that no such investigation has been made.

    -A broker may not be liable for another broker's misconduct; the fiduciary duties of one real estate salesperson are not attributable to another salesperson OPERATING under the SAME qualifying broker UNLESS one salesperson is at fault in appointing, supervising, or cooperating with the other. Texas legislature made an attempt to limit some of this liability through an amendment to the TRELA. Tort reform.

    -A sponsoring broker has no liability if the agent doesn't; if the agent did not engage in any misconduct, you can't impute misconduct to a sponsoring broker who had no contact with the plaintiff.

    • -The purchaser is too smart; purchaser knows better; if the broker can't give such advice, the broker has a duty to advise the client to obtain it elsewhere.
    • ---real estate agents as principals

    -No duty to successor agents?; if the licensee does not know something the previous agent or owner knows about, it is not the licensees fault.
  21. There is a duty to provide continuing updates as to matter withing the Seller's Disclosure of Property Conditions to the buyer.
  22. If a defect has been corrected on the property, there is no duty to disclose a corrected defect.
    true; because repairing a defect doesn't prove its continued exxistence
  23. There is no duty to disclose prior lawsuits affecting the property.
    true; only current ones
  24. If the purchaser hired someone else to do the inspections, is the broker liable?
    • no, is the purchaser relies on someone else info for property inspections, it shows that the purchaser did not rely on the broker.
    • --If something comes up later, such as foundation damage, it is on the inspector, not the broker
  25. If the purchaser relies on third party representations about the property and not the brokers stated representations, the broker is not held liable.
  26. Parties to a contract have an obligation to protect themselves by reading what they sign.
    true; the failure of one party to read a contract or any of the materials appertaining to it, does not equate with a failure of other party to disclose the info contained within the contract.
  27. What is puffing
    obvious exaggeration; puffing by the seller or agent.
  28. When dealing with third parties, what are the two simple rules to follow to protect yourself?
    1. Disclose anything you think would make a difference to a prudent purchaser in making his/her decision to purchase

    2. Investigate any material that you are to deliver to the purchaser to be sure that the representations contained in the material are true.
  29. A seller or buyer deems that an item is confidential and requests that you not disclose it; but you, as an agent, know that it would make a material difference to the other party in making a decision to purchase. What should you do?
    • Sit down with the seller and explain his or her obligations to disclose; when defects are discovered later, the purchaser will sue both the broker and the seller.
    • -maybe bring up some cases
  30. The Texas Constitution gives a special tax benefit to qualifying owners of agricultural and open space land basing taxes on the productivity capacity of the land, not the market value.  Could bring lower taxes for the years of eligibility.

    If the agricultural use of the land is changed to nonagricultural use or if the land is sold, what happens?

    What happens when there are changes in the use of ecological laboratories, timberlands, and agricultural open land?
    • -the taxes are rolled back five years
    • -taxes are rolled back three years
  31. What are rollback taxes?
    is figured as the difference between the taxes as billed and the taxes that would have been billed without the special benefits from the preceding three years; can occur when there are changes to agricultual land.
  32. What are MUDs? What are the requirements when it come to handling a MUD property?
    • Municipal (mu-nis-aple) Utility District
    • -to provide water, sewer, drainage, and/or flood control protection facilities or services for properties located outside the boundaries of a town or city.
    • -paid for by bonds and bonds are made from levying taxes. 

    -The Texas Water Code requires the seller/agent to furnish the buyer a statutory notice relating to the tax rate, bonded indebtness, or standby fee of the district prior to final execution of the contract.
  33. If the MUD notice is not signed by the buyer, the sales contract may not be valid and can be terminated by the buyer.
  34. Texas is an open-beach state. What does this mean?
    -where property beyond the natural vegetation line toward the ocean or gulf is an easement under state protection "as recognized in law and custom." This beach easement changes size as the vegetation line moves.
  35. No one can build on the beach without special permission from the State of Texas.
  36. This notice states that the property boundary is subject to change and that the owner may lose or gain parts of the land because of changes in boundary due to sea.
    Addendum for Coastal Area Property
  37. When dealing with mold remediation, if the property owner sells the property, the property owner is required to provide the buyer a copy of each certificate that has been issued for the property under the statute.
    true; the statute provides that the property owner is not liable for damages related to mold remediation on the property if; 1. a certificate of mold remediation has been issued and 2. damages are accrued on or before the date of issuance of the certification.
  38. Mold can cause cancer, fatigue, gastrointestinal problems, or neurological disorders.
    false; a study by the Institute of Medicine has concluded that mold does NOT cause cancer, fatigue, gastrointestinal problems, or neurological disorders. It can cause allergies, but no severe illnesses as believed in the past.
  39. HUD requires that the borrower, in any transaction involving FHA Insurance, be provided with what before the execution of a contract?
    be provided with a notice acknowledging the importance of a home inspection; TAR For Your Protection: Get a Home Inspection.

    **The notice states that HUD does not warrant the condition of the property and that it is important that a buyer have a home inspection to identify any possible defects. The borrower may finance up to $200 of the inspection costs.
  40. If the Seller's Disclosure Notice is not delivered to the buyers before the sales contract, what happens?

    When should the Seller's Disclosure Notice be given to the buyers?
    the buyers have seven days from receipt of the notice to cancel the contract for any reason. 

    -asap, before offer, have readily available.
  41. When should the Seller's Disclosure Notice be filled out by the sellers?
    should be filled out and signed at or before the time of listing.

    ***It is vital that the seller understands his or her responsibilities and extreme importance for the truth and accuracy in completion of this form.
  42. When is the Seller's Disclosure not required?
    -pursuant to a court order or foreclosure sale

    -by a trustee in bankruptcy

    -to a mortgage by a mortgagor or successor in interest, or to a beneficiary of a deed of trust by a trustor or successor in interest.

    -by a mortgagee or a beneficiary under a deed of trust who has acquired the real property at a sale conducted pursuant to a power of sale under a deed of trust or a sale pursuant to a court ordered foreclosure or has acquired the real property by a deed in lieu of foreclosure.

    -by a fiduciary in the course of the adminstration of a decedent's estate, guardianship, conservatorship, or trust.

    -from one co-owner to one or more other co-owners

    -made to a spouse or to a person or persons in the lineal line of consanguinity of one or more of the transferors.

    -between spouses resulting from a decreee of dissolution of marriage or a decree of legal separeation or from a property settlement agreement incidental to such a decree.

    -to or from any governmental entity 

    -transfers to new residences of not more than one dwelling unit that have not previously been occupied for residential purposes.

    -transfers  of real property where the value of any dwelling does not exceed 5% of the value of the property.

    ***Basically any transaction that includes foreclosures, court handling, family, co-owners, etc.
  43. Buyer of a residential condo must receive info and notices from the seller, what are they?
    • -condominium's Declaration, Bylaws, and any Rules of the Association
    • -Resale Certification from the Condominium Owners' Association; states the financial condition 
    • **Must be prepared more than three months before the delivery date to the buyer's or the seller's affidavit.
  44. A sellers who's property is located in the extraterritorial jurisdiction of a city is required to give the purchaser a written notice that the property is located outside the limits of the municipality.
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RE Law Ch.5 Duties to Third Parties
Duties to third parties