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Legal Update I

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0% found this document useful (0 votes)

707 views111 pages

Legal Update I

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desikudi9000

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Legal Update I

Course Manual

Note:

This is a copy of most of the materials presented in the online

course. These supplemental materials are not a replacement for
taking this online course. The student must log into the course
through the 123ceinc.com website to complete the course using
the 123ce Inc Learning Management System (LMS). This material
may be updated on a regular basis so students should not save a
copy until the end of a course.

Disclaimer:

The general information offered on this website/online course through 123CE Inc. is not
intended as a substitute for legal or other professional real estate advice and direction. If
you have questions or concerns about the real estate or mortgage profession, please
contact your Broker of Record, or a qualified Attorney. While we have exercised care in
providing information, including links to other sites, no guarantee as to its accuracy,
timeliness or applicability can be or is made.
These supplemental materials are not a replacement for taking this online course. The
student must log into the course through the 123ceinc.com website to complete the course
using the 123ce Inc Learning Management System (LMS).

LMS Page #0

Instructions on how to use this Learning Management System (LMS)

To get started - you can start, stop or pause this course at any time. In the event you close
the course, or lose your internet connection, our system will remember the last page you
accessed.

To continue to the next page of the course - click the Next Page link unless otherwise
instructed. You can also press the right arrow on your keyboard.

Due to TREC requirements (TREC Rules §535 Subchapter G), you must spend a required
minimum amount of time in this course. You can view this time to the right. Once you have
accumulated the required amount of time, you will be able to complete the course.

While viewing a course page, you can also use the following options by clicking on the
corresponding icon:

Print the current page

Message an instructor

Turn the audio narration on or off

Share your comments with other students about the topic

Pause Course

The Pause link will pause the course and all the modules and pages within this course will be
listed. It indicates which pages are complete, and allows you to access previous pages you
have completed for review.

Help/Options: (located to the right)

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Online Course – Supplemental Manual to Online Course
These supplemental materials are not a replacement for taking this online course. The
student must log into the course through the 123ceinc.com website to complete the course
using the 123ce Inc Learning Management System (LMS).

There are various options available including detailed course navigation information, search
the course, add your profile picture, adjust the text size, turn the audio narration on or off
and contact support or an instructor.

Course Completion/Certificate

Once you have completed this course, the course progress to the right will show 100%. At
that time, you will be able to print a course completion certificate for your records.

We submit course completions electronically to TREC several times every day between the
hours of 9:00am-9:00pm (central time), as long as the TREC systems are not down for
maintenance. Do not wait until the last minute of any deadlines you may have to complete
this course.

As we receive confirmation, we will also email you a copy of the course completion
certificate. Spam blockers do sometimes block those automated emails. If you do not
receive one and need a copy for your records, log into our website, and click on previously
completed courses to print a copy. Reminder: if you purchased multiple courses, make sure
to complete all courses. Once all your required courses have been processed by TREC, make
sure to complete your renewal and pay your renewal fee.

Now - to continue with the course, click the Next Page link below.

LMS Page #1

Legal Update I: Laws, Rules and Forms

LMS Page #2

Notice

The authors of this course hereby disclaim any and all liability for any advice, opinions,
actions, or future actions that may result from the educational materials contained in this
course by any participant or student.

All information provided in this course is intended for educational purposes only, and for no
other purpose, including but not limited to interpretation of license laws and/or giving
advice to clients or customers.

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

By continuing, all participants and/or students of this course acknowledge they understand
their duty to abide by the laws that regulate their specific industry and/or state.

LMS Page #3

Purpose of the Course

This course covers relevant statutes, regulatory actions, recent cases, changes in contracts
or other real estate forms, and other relevant legal topics. Also reviewed are issues of
recurring importance such as commission rules, fair housing, landlord-tenant laws, and
other relevant legal topics.

Relevance of the Course

This course is relevant as it deals with legal topics that a working license holder uses in his
or her day to day activity. A knowledge of these topics is invaluable to the license holder
and benefits the public that the license holder serves.

Orientation Information

Requirement for text or other course materials

This course is all inclusive. Although no other materials are needed, additional .pdf
downloads may be provided during the course depending on recent developments in regard
to the topic being presented.

Policy and course completion expectations

To complete this course, the student is required to complete all sessions of the course. Any
student not fulfilling these requirements will be disqualified from receiving a completion
certificate. This course is available for 6 months. If you need additional time, please call
for an extension. As previously noted, there are no refunds for partially completed courses.

Policy regarding attendance and behavior

Students will not attempt to disrupt any security options of the Learning Management
System, and will not use any profanity when submitting blog entries or work assignments.

Module of instruction

Each module is approximately 1 hour in length.

Technology requirements

Legal Update I | TREC #47600

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Students will not need any additional technology such as a calculator. *Should you need any
technical support or assistance in operating this Learning Management System, please
contact 123CE Inc any time at 1-877-550-5808.

Instructor

If you need instructor assistance, please contact Scott Hilton at 281-692-0777 or via the
iMail function. Responses will be less than 24 hours.

By clicking the Next Page link, you further agree to this policy information.

LMS Page
#4 Pre-course Assessment Explanation

Before you begin this course, we're going to allow you to assess your knowledge on a few
topics. This will allow you to see your level of understanding prior to commencing the course
materials.

Now relax...

You are not being graded on these pre-course assessment questions.

Click the next page link to continue.

LMS Page #5

Pre-Course Assessment Question

Question: Which of the following is NOT a Committee at the Texas Real Estate
Commission?

Possible answers:

A. Education Standards Advisory Committee (ESAC)

B. Broker Responsibility Advisory Committee (BRAC)

C. Texas Real Estate Broker-Lawyer Committee (BLC)

D. Commercial Real Estate Committee (CRC)

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Answer: Commercial Real Estate Committee (CRC)

This page includes the interactive activity above. The student will click on the
answer to the question.

LMS Page #6

Pre-Course Assessment Question

Question: TREC Rules require brokers and sales agents to respond to their client, a broker,
or sales agent representing another party to a real estate transaction, or an unrepresented
party to a real estate transaction in what time period?

Possible answers:

A. two calendar days

B. two business days

C. three calendar days

D. There is no TREC Rule with this requirement.

Answer: The Commission adopted TREC Rules §535.157, Obligation to Respond Timely, in
May 2023 which requires brokers and sales agents to respond to their client, a broker, or
sales agent representing another party to a real estate transaction, or an unrepresented
party to a real estate transaction within two calendar days.

This page includes the interactive activity above. The student will click on the
answer to the question.

LMS Page #7

Pre-Course Assessment Question

Question: What year was the first civil rights legislation passed in the United States?

Possible answers:

A. 1866

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B. 1968

C. 1974

D. 1988

Answer: 1866

This page includes the interactive activity above. The student will click on the
answer to the question.

LMS Page #8

Key Terms

Let's take a moment to look at a few basic key terms.

Redlining

Redlining can be defined as a discriminatory practice that consists of the systematic denial
of services such as mortgages, insurance loans, and other financial services including real
estate, to residents of certain areas, based on their race or ethnicity.

Deed Restrictions

Deed restrictions, also known as restrictive covenants, are legal agreements that can affect
the use and enjoyment of a property. Developers can impose these covenants to regulate
the size and location of structures, the design of improvements, and other property uses.

LMS Page #9

Key Terms

Steering

Steering refers to the illegal practice of directing a prospective homebuyer toward — or

away from — a particular neighborhood or area based on protected characteristics. These
characteristics include race, religion and more.

Appraisal Bias

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Appraisal bias refers to bias based on race, ethnicity, or national origin in the opinion of
value rendered by a professional appraiser.

LMS Page #10

Key Terms

Reasonable Accommodation

A reasonable accommodation is a change in rules, policies, or practices that may be

necessary to afford a person with a disability an equal opportunity to use or enjoy a
dwelling, such as assistance in filling out a rental application or allowing a unit transfer.

Reasonable Modification

A reasonable modification is a structural change made to existing premises, occupied or to

be occupied by a person with a disability, in order to afford such person full enjoyment of
the premises.

LMS Page #11

Lesson 1

LMS Page #12

Learning Objectives

After participating in this module, you will be able to:

• describe TREC's advisory committees that examine different areas of the real estate
industry,
• explain how an idea becomes a TREC rule,
• describe why TREC's quadrennial rule review is important to license holders and
consumers,
• identify recent TREC rule changes that affect license holders,
• understand legislation passed by the 88th Texas Legislature relating to the practice
of real estate,
• summarize the purpose and practice of the Broker-Lawyer Committee,
• explain why TREC contract forms change,
• identify recent changes to the One to Four Family Residential Contract (Resale) and
other contract forms,
• analyze possible consequences of loan assumptions and the importance of a license
holder's familiarity with the Loan Assumption Addendum form,

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© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

• and distinguish between mandatory and voluntary use of TREC contract forms.

LMS Page #13

Note from the Instructor

To get started, I wanted to introduce myself. I'm your instructor, Scott Hilton and I have
been licensed since 1987. As a real estate broker, I have at times sponsored over 200 sales
agents, and as a previous Mortgage Broker I sponsored over 200 loan officers.

I've been instructing license holders since 1999, and have trained over 450,000 students.

This Legal I course written by the Texas Real Estate Commission contains a lot of material,
so let's start there.

You probably won't remember every piece of information provided in this course.

My goal is to provide you the information, give case studies and include frequently asked
questions to assist in your understanding of new rules, and even old rules you may have
forgotten or need a better understanding.

LMS Page #14

I'm here to help!

If you have questions, don't understand a topic or need any assistance, feel free to send an
iMail (Instructor Mail) or call me anytime 24/7.

My goal is to help you understand the topics we cover, and for the most part – increase the
level of professionalism and knowledge of these topics.

At any time, even after you complete the course, if you have questions on a topic - call me.

Remember: I'm your personal instructor.

I'll do my best to answer your questions, or give you a contact that can assist you.

LMS Page #15

Who Makes The Rules?

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

License holders often wonder whether TREC staff comes up with all the rule changes, but
the reality is these initiatives generally come from advisory committees, the nine TREC
Commissioners, and public input from license holders like you. Ultimately, the full
Commission votes on whether to adopt a rule.

There's a Committee for That!

Texas Occupations Code §1101.158 authorizes TREC to create and appoint members to
advisory committees to examine different areas of the real estate industry with a focus on
consumer protection. As of publication, TREC has four active advisory committees, each
with a different purpose and members that include license holders and subject matter
experts.

LMS Page #16

Who Gets to Serve on Advisory Committees?

TREC administers an application process for potential advisory committee members every
year and seeks individuals to fill specific roles. Selection committees composed of
Commissioners review each application and appoint members to serve terms.

If you are interested in serving on a committee, subscribe to TREC's e-newsletters, follow

TREC on social media, or regularly check trec.texas.gov for announcements. More
information about the composition of each committee is explained next.

What Do Advisory Committees Do?

Sometimes, advisory committee discussions and recommendations prompt rule changes.

Other times, the Commission may ask a committee to consider a specific issue, like required
education for brokers and sales agents. Advisory committees typically meet quarterly, and
meetings are open to the public. License holders are encouraged to attend and participate.

LMS Page #17

How Do I Get My Ideas Considered?

License holders and members of the public may request the Commission consider an idea or
proposal several different ways, including during the public comment portion of a
Commission meeting or attending and presenting at an advisory committee meeting. Find
out when committee meetings occur using the calendar on TREC's website
at trec.texas.gov/agency-calendar.

How Does a Rule Get Implemented?

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

New rules and rule proposals are often recommended to the Commission by the advisory
committees. The Commissioners then vote on whether a rule should be proposed for public
comment or needs to be reviewed by the committee again.

Once a rule has been proposed by the Commission, typically at the quarterly TREC
Meetings, a public comment period opens where anyone can give their opinions on
proposals. After the comment period closes, the advisory committee reviews all the
comments and, as a result, may make changes to proposed rules, decide to withdraw their
recommendation, or leave the recommendation as originally presented.

Once thoroughly considered, the rule must be formally adopted by the Commission before it
goes into effect. Rule adoptions also happen at the quarterly TREC Meetings.

LMS Page #18

TREC Advisory Committees

Advisory committees review and provide feedback - ensuring all possible changes are
examined for their potential implications on the practice of real estate consumer protection.
Here are the four advisory committees, who they are composed of, and their function.

Education Standards Advisory Committee (ESAC)

Duties

ESAC regularly reviews curriculum standards, course content requirements, and instructor
qualifications for qualifying and continuing education courses. It makes recommendations to
the Commission to ensure license holder education meets the highest educational
standards.

Members

12 total members: Seven real estate license holders, four education providers licensed by
the Commission, and one public member.

Side Note

I served on ESAC from 2018 through 2020.

LMS Page #19

Broker Responsibility Advisory Committee (BRAC)

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Duties

BRAC is tasked with advising TREC as to issues surrounding broker responsibility within the
real estate industry. This committee may make recommendations to TREC regarding
possible legislative and rule changes associated with brokers and broker responsibility
issues impacting both the real estate industry and the consumer.

Members

Nine real estate broker license holders.

LMS Page #20

Texas Real Estate Broker-Lawyer Committee (BLC)

Duties

The BLC drafts and revises contract forms promulgated by TREC.

Members

There are 13 total members:

• six real estate broker license holders appointed by the Commission,

• six attorney members appointed by the State Bar of Texas, and
• one public member appointed by the Governor's Office.

LMS Page #21

Texas Real Estate Inspector Committee (TREIC): The correct pronunciation of the
acronym TREIC is "treek".

Duties

TREIC provides recommendations to the Commission regarding the licensing, education, and
regulation of inspectors in Texas to promote a high degree of service from the inspection
industry and ensure the protection of the public.

Members

There are 9 total members:

Legal Update I | TREC #47600

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• six real estate inspector license holders and

• three public members.

LMS Page #22

The Life Cycle of a TREC Rule

Ideas and Consideration

License holders, the public, and even TREC staff may identify issues license holders are
facing and ask advisory committees to consider making changes to existing TREC Rules or
proposing a new one.

Drafting

Rule change recommendations are reviewed by the appropriate committee. Once the
committee is satisfied with the language, it will vote to move the rule or rule change
forward for proposal at a future TREC Meeting.

LMS Page #23

Proposal and Public Comment

If the Commission proposes a rule or rule change at a TREC Meeting, it gets published in the
Texas Register. Once published there, the public has 30 days to provide written comment
about the proposal.

It is easy to provide these comments through the online tool on TREC's website.

Public Comment Consideration

Public comments are first reviewed by the appropriate committee who can recommend
changes in response to those comments.

Once the appropriate committee formally recommends the rules for adoption, the
Commission votes whether to adopt the rule.

LMS Page #24

The Commission Votes Whether to Adopt the Rule

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

The Commission votes whether to adopt a rule or rule change at quarterly TREC Meetings.
The effective date of rules are usually in the future.

However, rules can be adopted on an emergency basis for immediate implementation,

typically when the Texas Legislature has passed laws with effective dates TREC must comply
with.

Ad Hoc Working Group Examines the Unauthorized Practice of Law

The Commission sometimes creates temporary ad hoc working groups to address specific
issues in the real estate industry. An example of such a group is the Unauthorized Practice
of Law Working Group (UPL), which conducted a thorough review of TREC Rules §537.11.

LMS Page #25

Unauthorized Practice of Law Group and Special Provisions

Click the image above to watch the video.

LMS Page #26

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

TREC Rules Change Highlights: Quadrennial Rule Review Changes

State agencies like TREC are required by law to conduct a rule review every four years,
known as quadrennial rule review. All TREC Rules are "open" and reviewed by staff to
determine if any rules should be revised or repealed.

Most changes are administrative, revising old terminology and references to outdated laws.
For example, 2022 quadrennial rule changes included adopted amendments to change a
staff position from "Administrator" to "Executive Director". Amendments also eliminated
outdated references to residency requirements associated with real estate licenses, because
those requirements were eliminated by the legislature in 2019.

Why does this matter to you?

Quadrennial rule review is a chance for license holders and the public to provide input on
existing regulation. This process ensures regulatory transparency and reflects a
commitment to consumer protection and economic growth without burdensome regulation.

LMS Page #27

"Hello, Is Anyone There?" New Rule Addresses Sales Agents and Broker Response
Times

The Commission adopted TREC Rules §535.157, Obligation to Respond Timely, in May 2023
which requires brokers and sales agents to respond to their client, a broker, or sales agent
representing another party to a real estate transaction, or an unrepresented party to a real
estate transaction within two calendar days.

TREC Rules §535.2 still requires brokers and delegated supervisors to respond to sponsored
sales agents within two calendar days.

So, does that mean I have to return every call I get within two calendar days?
Haven't you ever heard of a weekend? How am I supposed to have a life?

You can have a life! The rule language speaks specifically to a real estate transaction. So, if
you are currently in the process of working with a client on a real estate transaction, this
requirement to respond is triggered. Real estate transactions happen 365 days a year as a
sales agent or broker, so be sure to plan your time accordingly. There will likely be times
when you need to respond on weekends or holidays, but only when an inquiry is tied to a
real estate transaction.

LMS Page #28

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Can I still go on the cruise I booked six months ago if I have a real estate
transaction pending?

• It depends! No, really, it depends. While this course cannot provide you with an
absolute answer to this question, consider implementing some best practices for
such a scenario.
• Review policies and procedures in place that may address time away.
• Designate another license holder to manage your clients and pending transactions
while you are out.
• Ensure your backup license holder is familiar with and has all the important details of
the transaction, plus an understanding of the expectations surrounding your duties
and theirs during this time.

LMS Page #29

Broker Responsibility Rule Changes

According to TREC Rules §535.2(i)(5), a broker must provide coaching and training to a
sales agent the first THREE times a sales agent engages in a NEW TYPE of brokerage
activity. This replaces the previous requirement that the broker provide coaching or training
the first time a sales agent engages in a new type of brokerage activity.

For example, sales agents must receive coaching and training the first three times they act
as a buyer's agent and the first three times they engage in leasing a property. While the
broker is not required to be the one providing the coaching and training, the broker must
ensure the person providing the coaching and training is competent.

The following checklist has tips for brokers and agents to comply with this requirement.

LMS Page #30

Best Practice Tips for Brokers and Sales Agents

Brokers

• Make sure you have something in your policies and procedures that is clear on how
this practice is handled at your brokerage. Make it absolutely clear what a sales
agent needs to do in this event, who they need to contact, and what they can
expect.
• Make clear what meaningful coaching and mentoring is at your brokerage.
• Have something in place to track the required training and coaching.

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

• Remember, you can have more stringent requirements in your policies and
procedures than TREC has in the Rules. So, if you want to require more training and
coaching, you absolutely can.
• See this as an opportunity to train and ensure your sales agents represent your
brokerage in a meaningful way and not just a checkbox!

LMS Page #31

Sales Agents

• Make sure you know exactly what to do under your policies and procedures and how
to proceed correctly in the event you are practicing a type of real estate brokerage
for the first three times.
• Document the training and coaching you receive so that you can show you received
it and where you are in your development.
• See this as an opportunity to learn and grow and not just a checkbox!

LMS Page #32

TREC Rule Changes Related to Late Renewals

Effective October 2023, active license holders whose licenses expire are set to inactive
status as of the expiration date, and any license relationships between sales agents and
brokers are terminated.

If you late renew - up to six months after your expiration date - your license will be
renewed on inactive status.

Know Your License Expiration Date

Some license holders depended on having their brokers certify that they were being
supervised while their license was expired. If you don't want an interruption in your ability
to work, make sure to renew your license well before the expiration date.

LMS Page #33

What Happens if My License Expires and I Keep Practicing?

License holders on inactive status cannot conduct brokerage activities. Doing so would be
unlicensed activity and can result in disciplinary actions from TREC, including a minimum
fine of $1,000.

In addition, the gap in your active time will be reflected in your license record.

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

How to Return to Active Status

License holders will go through fewer steps to renew an inactive license. You must complete
all required Continuing Education (CE) and submit a request to activate your license.

LMS Page #34

What This Means for Brokers

If you go inactive, any sales agents you sponsor will be set to inactive status. If you are a
designated broker for a business entity broker license, that business entity and any agents
sponsored by it will also be set to inactive status. Brokers returning to active status will
have to re-establish all of their terminated relationships to sales agents and as designated
brokers for business entity brokers after activation.

What This Means for Sales Agents

Sales agents who want to return to active status will need to request sponsorship by a
broker using TREC's Online Licensing Services portal.

LMS Page #35

What Happens if I Wait to Renew After Six Months?

After six months and up to two years past your license expiration date, you may apply for
reinstatement of your license (TREC Rules §535.91). After two years past the expiration
date, you will have to reapply and pass the examination.

License Expire Process Chart

The following charts show examples of two license holders' experiences under the new
expire process.

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Let's review the scenarios.

LMS Page #36

Ben Takes No Action

90-Day Notice

TREC sends out email reminders 90 days before a license expires. Ben received the 90 day
notice but took no action. Ben's license expired and his license was placed on inactive
status.

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Ben's License Expiration Date

After he realized his license had expired, Ben submitted his renewal application and paid a
late renewal fee. At this point, CE is not required to renew his inactive license. In addition,
Ben cannot engage in real estate activity with an inactive license.

Ben's License is Inactive

Ben wants to continue with real estate activities

so he will need to complete all required renewal
education and then find a new or his previous
broker to get sponsored and return to active
status.

Remember:

There is no lookback period and he could be

subject to disciplinary action if he conducted real
estate activity while inactive.

Taylor Takes No Action

90-Day Notice

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© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

TREC sends out email reminders 90 days before a license expires. Taylor received the 90
day notice but took no action. Taylor's license expired and her license was placed on
inactive status.

LMS Page #37

Taylor's License Expiration Date

After she realized her license had expired, Taylor submitted her renewal application after 60
days but less than 6 months and paid a late renewal fee. Like Ben, at this point, CE is not
required to renew her inactive license. In addition, Taylor cannot engage in real estate
activity with an inactive license.

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Taylor's License is Inactive

Taylor wants to continue with real estate activities so

he will need to complete all required renewal
education and then find a new or his previous broker
to get sponsored and return to active status.

Her license history will reflect that she was inactive

from her license expiration date until she returned to
active status.

Remember:

There is no lookback period and she could be subject

to disciplinary action if she conducted real estate
activity while inactive.

LMS Page #38

88th Texas Legislature: What License Holders Need to Know

Senate Bill 1577 went into effect January 1, 2024, and includes several provisions affecting
TREC and its license holders. Here are a few highlights.

Broker Education Requirements

TREC has rulemaking authority to make changes to the education hours required to become
a broker. License holders can easily follow the rulemaking process and comment on
changes. Previously, this required a statutory change.

New Disclosure Requirements for Wholesaling

Wholesaling is a model in which an individual enters into a contract to buy real estate and
then sells their contractual interest in the property to a third party prior to closing. A license
is not necessary as long as the wholesaler discloses the nature of their interest in writing to
potential buyers and sellers. Previously, wholesalers only had to provide disclosure to
potential buyers.

LMS Page #39

Legal Update I | TREC #47600

© 123CE Inc | TREC Provider #0655 | 1.877.550.5808

Real Estate Recovery Trust Account

TREC has rulemaking authority to set and collect fees to cover maintenance of the Real
Estate Recovery Trust Account. Limits are raised to $125,000 per claim with a $250,000 cap
per license holder. Limits had not been updated since 1991.

Business Entity License Exemption

Business entities such as LLCs and S Corporations established for the sole purpose of
receiving compensation earned by a license holder while engaged in real estate brokerage
and is at least 51% owned by the license holder on whose behalf the entity receives
compensation are exempt from licensure but must register with TREC.

Previously, LLCs and S Corporations were required to hold a business entity broker's license.
A license is still required for this type of business if it is engaged in any other brokerage
activity, and you still have the option to obtain or maintain a business entity broker's license
if desired. See chart above.

LMS Page #40

Registration (LLCs, S-Corps)

This option would be used for license holders having the sole purpose of receiving
compensation earned while engaged in real estate brokerage. This may be a good option
when your CPA suggests your commission be written to your LLC or C-Corp.

• Does NOT need a designated broker

• CAN receive compensation on behalf of a license holder
• CANNOT perform any brokerage activity
• NOT required to carry E&O Insurance

License (LLCs, Corporations including S-Corps, Partnerships, Other authorized

entities)

• DOES need a designated broker

• CAN receive compensation on behalf of a license holder
• CAN perform any brokerage activity
• IS required to carry E&O Insurance (If the designated broker owns less than 10% of
the business entity)

LMS Page #41

Broker-Lawyer Committee and TREC Contract Forms

Legal Update I | TREC #47600

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The Texas Real Estate Broker-Lawyer Committee (BLC) is established by law and consists of
six attorney members who are appointed by the State Bar of Texas, six members appointed
by TREC, and one public member appointed by the Governor. Members serve six-year
appointments, except for the public member who serves a two-year term.

The Texas Legislature has charged this committee with drafting and revising the TREC
contract forms that are "capable of being standardized to expedite real estate transactions
and minimize controversy". That means creating forms consumers can trust and license
holders can use.

TREC Forms Help You Avoid Practicing Law

License holders are prohibited from practicing law. That's where BLC steps in, drafting forms
in such a way that they can be used by license holders to facilitate real estate transactions
without wading into the waters of practicing law.

LMS Page #42

Why do TREC contract forms change?

In the legal world, there is no such thing as a static contract. Contracts are living
documents in a perpetual state of change. TREC forms are often revised because of
legislative changes. It is the responsibility of the BLC to regularly review contract forms and
revise them as necessary. The good news is that the BLC drafts contract forms that
generally work in many residential transactions.

Changes in real estate brokerage practice and market demands can prompt revisions;
however, the committee is mindful that any changes made must not be based solely on a
"hot market" or vice versa.

BLC-recommended changes are typically released all at once (pending Commission

approval) approximately on a two-year schedule. However, legislative changes happen on
their own schedule, which is why it might feel like the TREC contract forms are always
changing.

LMS Page #43

I sent in a suggested change to the Broker-Lawyer Committee that would address

an issue we are seeing in my coastal city. Why did they refer to it as a "5% issue"
and not make the change?

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The "5% rule" is a guideline the committee generally follows. This means committee
members discuss whether a change to a TREC contract form addresses an issue affecting a
high percentage of transactions (think 95%) or a small percentage (think 5%).

In this example, the license holder's idea might be a great one, but if it is specific to an
issue related to the coast, it doesn't meet the threshold for changing forms affecting license
holders across the state.

LMS Page #44

Mandatory Versus Voluntary Use of TREC Contract Forms

The Commission updates all rules associated with the TREC contract forms to indicate
whether use of the form by a license holder is mandatory or voluntary. License holders can
use this as a reference point should they have a question as to whether they are required to
use the form or have the option to use it voluntarily.

Here are two examples.

TREC Rules §537.22 Standard Contract, TREC Form 11-7, Addendum for "Back-Up"
Contract

The Texas Real Estate Commission (Commission) adopts by reference standard

contract TREC Form 11-7 approved by the Commission back in 2012 for mandatory use as
an addendum to be attached to promulgated forms of contracts which are second or "back-
up" contracts.

LMS Page #45

TREC Rules §537.64 Standard Contract TREC Form OP-M, Non-Realty Items
Addendum

The Texas Real Estate Commission (Commission) adopts by reference standard

contract TREC Form OP-M approved by the Commission back in 2011 for voluntary use
when the parties need to convey items of personal property not already listed in Paragraph
2, Property, of the contracts.

The Commission further clarified these terms by providing a definition for both in TREC
Rules §§537.1(5) and (6).

The definition for "mandatory use" provides that unless an exception applies under TREC
Rules §537.11(a), a license holder must use the form, and as the phrase suggests,
"voluntary use" means the license holder may, but is not required to use the form.

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LMS Page #46

Get to Know Your Redlines

Whenever there are proposed changes to contracts, TREC will issue "redline" versions of the
forms to show what is being removed or added.

Click the image above to watch the video.

Click here if you would like a copy of the redline craft contracts.

LMS Page #47

Contract Form Changes Summary

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Click the image above to watch the video.

LMS Page #48

TREC Contract Form Changes Highlights

What's With the Capital Letters?

Have you ever noticed words in contracts that seem capitalized at random? It's not a
mistake: Whenever a term is capitalized in a contract, it means the definition of that term is
somewhere else in the contract. For example, if Kelly Jones is filled in the "Buyer" blank, the
term "Buyer" in all later instances in the contract means Kelly Jones.

Contract Updates

Effective February 1, 2023, the Commission adopted multiple changes to the promulgated
contract forms. Many of these changes were technical in nature but are still important to
understand. This section will highlight some specific changes.

The following changes apply to all contract forms unless specified otherwise.

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Paragraph numbers referenced are from the One to Four Family Residential Contract
(Resale), TREC Form 20-17.

LMS Page #49

Escrow Agent

The term "Escrow Agent" is capitalized throughout the contract to reflect its status as a
defined term.

Get Your Escrow Agent Right!

The Texas Real Estate Broker-Lawyer Committee has said "Escrow Agent" could be either
the title company or an individual, like an attorney or a sole proprietor. However, the
committee cautions about situations in which the parties may be using a specific title
company, but the real estate agent inserts the name of the individual escrow officer.

Problems can then arise if, for instance, a check is written out to the escrow officer instead
of the title company, or the officer isn't available or leaves the company.

LMS Page #50

Additional Changes

Paragraph 3A

Was amended to add a definition of "cash portion of the sales price".

New in Paragraph 6

A new "required notices" section is added to Paragraph 6, which provides a location where
MUD, PID, or other similar notices that have been given or are attached to the contract can
be listed.

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LMS Page #51

Paragraph 7F

Was revised to require the seller:

• Provide the buyer with copies of documentation from the repair person that shows
both the scope of work and payment for the work completed
• Transfer, at seller's expense, any transferable warranties at closing.

Discussion Questions

Paragraph 7F Changes

What are the benefits of this change for your clients?

Your clients will have more information about the scope of work, when the work was
completed, and who performed the work. In the past, buyer's agents would request this
information from the seller and seller's agent and often the information was not provided.

LMS Page #52

As a seller's agent, what do you need to advise your client as it relates to this
change?

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As a seller's agent you should point out this change to the contract when you are with the
seller on your listing appointment and make sure they are aware of their obligation. Remind
the seller to keep documents related to repairs to provide to the buyer.

As a broker, how will you ensure your sales agents understand the implications of
this change?

Brokers should focus on training their sponsored agents on these changes. Training can
happen one-on-one, at weekly, monthly, or quarterly meetings. Solicit other training ideas
from the group. Examples could include emailing reminders to sponsored agents or putting
this information in a brokerage newsletter.

LMS Page #53

New Paragraph 9B(5)

Provides that private transfer fees will be the obligation of the seller, unless otherwise
provided in this contract, and that transfer fees assessed by a property owner's association
are governed by the Addendum for Property Subject to Mandatory Membership in a Property
Owners Association.

A similar sentence is added to the Residential Condominium Contract.

LMS Page #54

Paragraph 21

Was amended to add a line for contact information of the buyer's and seller's agent,
respectively, to provide copies.

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Discussion Questions

Paragraph 21 Changes

How does this change help your real estate practice?

The change makes clear the intent of this paragraph is for the notices to be sent to the
client as well as the license holder.

What is a best practice associated with this change?

Make certain the client and the license holder's email addresses are provided. Ensure
everyone's information is in the right spot.

LMS Page #55

Other Contracts

In the Unimproved Property Contract, TREC Form 9-16, the Farm and Ranch Contract, TREC
Form 25-15, the New Home Contract (Incomplete Construction), TREC Form 23-18, and
the New Home Contract (Completed Construction), TREC Form 24-18, the Seller's
Disclosure Paragraph has been amended to:

• Add checkboxes to each disclosure item to indicate whether the seller is or is not
aware.
• Add two additional disclosures relating to whether the property is located in a
floodplain or if any tree located on the property has oak wilt.

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This may require communication with the seller or seller's agent before a buyer submits an
offer or some additional back and forth communication if what the buyer initially submits is
not correct. A seller's agent may also provide the answers on the MLS, if applicable.

LMS Page #56

Adopted Changes to the Farm and Ranch Contract Form

The Farm and Ranch Contract underwent quite a few changes in 2023. If you practice in this
area, make sure you pay close attention. If you don't, still pay close attention!

A notice is added that states the form is designed for use in sales of existing farms or
ranches of any size, and that it's not for use in complex transactions.

Paragraph 2A

Added the term "Counties" to reflect the fact that farm and ranch properties could be
located across two or more counties. Additionally, the phrase "including but not limited to
water rights, claims, permits, strips and gores, easements, and cooperative or association
memberships" is deleted from the paragraph for consistency across forms and to eliminate
unnecessary language.

LMS Page #57

Paragraph 2B

Was amended to make the terms "house" and "garage" plural.

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Paragraph 3D

Was amended to alter the calculation of the sales price adjustment should the survey reveal
a difference in acreage.

LMS Page #58

New Paragraph 4D

Was added to address surface leases and includes options regarding whether the seller has
delivered copies of written leases or provided notice of oral leases to the buyer, similar to
the existing natural resource lease paragraph. The corresponding language in Paragraph 6F
is also amended.

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On Page 10 of the contract

The statement "Do not sign if there is a separate written agreement for payment of Brokers'
fees" is modified to make it more conspicuous.

LMS Page #59

Adopted Changes to the Residential Condominium Contract (Resale)

The Residential Condominium Contract (Resale), TREC Form 30-16 contains the following
changes:

Paragraphs 2B(2) and 2C(2)

Were amended to clarify the timing related to termination and to add a reference to the
applicable Property Code provision.

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Paragraph 12A(3)

Was amended to except regular periodic maintenance fees, assessments, or dues (including
prepaid items) that are prorated under Paragraph 13 from the parties' obligation to pay
under this section, as well as costs and fees provided by Paragraph 2.

LMS Page #60

Adopted Changes to the Amendment to Contract, TREC Form 39-9

Repairs

The Amendment to Contract is amended to add a notice to consult an attorney and to add a
reference to Paragraph 7 of the contracts in Paragraph 2 of the Amendment dealing with
repairs.

Practicing Law

The form is also amended to replace the parenthetical following Paragraph 9, Other
Modifications, with a statement that real estate brokers and sales agents are prohibited
from practicing law.

Lines have also been inserted into the blank.

LMS Page #61

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Adopted Changes to the Seller Financing Addendum, TREC Form 26-8

The Seller Financing Addendum contains the following amendments:

Notice

A notice is at the top of the form encouraging consultation with an attorney and a financial
professional and informing parties of the complicated nature of these transactions.

LMS Page #62

Paragraph B

Was amended to modify the time period within which the seller may terminate.

New

A new instructional parenthetical is added in Paragraph C. Additionally, the interest is

modified to reflect a per annum interest rate.

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New Paragraph D2

Was added to address casualty insurance and Paragraph D3(a) and (b) are amended to
clarify the casualty insurance requirements.

LMS Page #63

Paragraph D3(b)

Was further amended to add a requirement that the seller provide the buyer with an annual
accounting of the escrow account, use escrow deposits to pay taxes and insurance
premiums in a timely manner in certain circumstances, and hold the escrow deposit in a
separate account.

Language is also added to specify whether the escrow account will or will not be serviced by
a third-party servicer at either the buyer's or seller's expense.

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LMS Page #64

Adopted Changes to the Addendum for Property Subject to Mandatory Membership

in a Property Owners Association, TREC Form 36-10

The Addendum for Property Subject to Mandatory Membership in a Property Owners

Association is amended to except regular periodic maintenance fees, assessments, or dues
(including prepaid items) that are prorated under Paragraph 13 from the parties' obligation
to pay under this section, as well as costs and fees provided by Paragraphs A and D.

LMS Page #65

Adopted Changes to the Third Party Financing Addendum, TREC Form 40-10

The Third Party Financing Addendum contains the following amendments:

Paragraph 1

Was amended to add an "other financing" box.

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Paragraph 3

Was amended to add that a note must be secured by vendor's and deed of trust liens only if
required by the buyer's lender.

Removed

The phrase "provided in relation to the closing of this sale" is struck from Paragraph 5B to
streamline the paragraph.

LMS Page #66

Adopted Changes to the Addendum Regarding Residential Leases, TREC Form 51-
1 and Addendum Regarding Fixture Leases, TREC Form 52-1

Both the Addendum Regarding Residential Leases and the Addendum Regarding Fixture
Leases are amended to add a checkbox in Paragraph B1 related to notice of oral leases.

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Additionally, the Addendum Regarding Fixture Leases is amended to modify Paragraph A1 to

include checkboxes, in lieu of a blank line, so that the parties can specifically indicate what
types of fixture leases will be assumed and assigned.

LMS Page #67

Adopted Changes to the Loan Assumption Addendum, TREC Form 41-3

Get to Know the Loan Assumption Addendum!

The Loan Assumption Addendum is a form that has regained popularity with recent changes
in the market. Make sure you understand it and the changes recently adopted, and make
sure you review everything with your agents if you are a sponsoring broker.

Loan Assumption Addendum Information

Loan assumptions haven't been a common choice for buyers for several years. It is a tool
now being used with mixed results, and one used to commit mortgage fraud. Read the
addendum carefully. Familiarize yourself with the Addendum for Release of Liability on
Assumed Loan, TREC Form 12-3, which will often be required in conjunction with the Loan
Assumption Addendum.

LMS Page #68

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VA and FHA loans are generally assumable

The terms and conditions of a loan assumption are up to the loan servicer. VA requires a
.5% assumption fee and FHA allows a $900 assumption fee. Other fees, interest rates, and
terms would need to be obtained from the loan servicer. Loans backed by government
sponsored enterprises (GSEs), like Fannie Mae and Freddie Mac, generally do not allow
assumptions of their loans.

As a listing agent, be prepared to discuss this possibility with the seller. The first action the
seller should take is contacting the current mortgage company and obtaining in writing
information about whether the loan can be assumed and under what terms and conditions.
While a mortgage statement the seller receives may provide loan information, this
statement likely does not have an accurate payoff amount, and rarely do statements show
any forbearance a seller may have taken in years past.

Forbearance should show up on a payoff letter, so the seller needs to request one. Another
task for the listing agent is to ensure the seller obtains a copy of the note(s), the deed(s) of
trust, and a payoff quote from the lender. These documents must be provided to the buyer
within seven days of the effective date of the contract.

LMS Page #69

The form contemplates requirements for whether there is an escrow account

If there is no escrow account, the amount of property taxes will be prorated to the closing
date. If there is an escrow account, the balance will be transferred to the buyer "with no
deficiency" and the buyer will reimburse the seller for the amount transferred. "With no
deficiency" requires some effort to ensure all fees and taxes being escrowed are calculated
properly.

How will the buyer make up the difference between the sales price and the assumed loan?
Will they be paying cash, or will they require a lender who will loan them a second
mortgage? A prudent agent will have a list of lenders who perform this type of lending. The
lenders will have their own fees, which will be required. In some cases, each lender (the
assumption lender and the second lender) do not share appraisals, therefore two appraisals
may be ordered at the expense of either the seller or the buyer. The original loan service
provider must approve the second lien.

Generally, all these tasks cause an assumption transaction to take longer than a new loan
process. Parties should be prepared for the assumption process to take 60 to 90 days or
longer.

LMS Page #70

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How is this tool being used in mortgage fraud?

The market has produced a series of potential "creative" financing ideas. For example, the
seller contacts the mortgage service provider to inform it that the seller is going to move
the property into an LLC, LP, corporation, or trust.

After that is complete, the seller sells the interest in the entity to another person without
informing the mortgage service provider of this change. Ask your favorite lender if this
action would constitute mortgage fraud.

Another example is when the seller and buyer agree to have an attorney draft a "wrap" note
instead of an assumption.

If you are wondering what that means, let's say the seller owes a mortgage service provider
$275,000 on a property whose value is $525,000.

LMS Page #71

Due on Sale

The buyer has $50,000 to put down. In spite of the fact that the loan has a "due on sale"
clause, an attorney drafts a note for $475,000 which "wraps" the $275,000 and the
$200,000 additional money required to purchase the property. The buyer will then be
paying the mortgage service provider on the $275,000 note and paying the seller on the
$200,000 note.

Sounds like an amazing way to close some transactions, but maybe not. Due on sale
clauses are in most deeds of trust written in Texas for the last 25 years, so that means if
the lender finds out the seller sold the property without paying off the loan, the lender may
call the note due and payable within 30 days of learning of the sale.

This is a hard secret to keep. Don't do it.

LMS Page #72

Amendments

The Loan Assumption Addendum contains the following amendments:

Terms

"Effective Date" and "Title Company" are capitalized throughout because they are defined
terms.

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Paragraph A

Was amended to add that the noteholder of the loan being assumed is authorized to receive
a copy of the buyer's credit reports.

Paragraph B

Was amended to modify the time period within which the seller may terminate.

LMS Page #73

Paragraph C

Was amended to clarify that the buyer will assume in writing the following notes at closing,
removes the reference to $500 and instead inserts a blank, and adds the following
sentence: "Within 7 days after the Effective Date, Seller will deliver to Buyer copies of the
note(s) to be assumed, the deed(s) of trust, and the most recent loan statement(s) from
the lender".

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New Paragraph H

Was added related to authorization to release information.

Something New

A new due on sale notice was added.

LMS Page #74

Adopted Changes to the Addendum for Reservation of Oil, Gas, and Other Minerals,
TREC Form 44-3 - ALERT!

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The Addendum for Reservation of Oil, Gas, and Other Minerals is amended to replace the
phrase "reserve and retain implied" with "waive" in Paragraph C. This change is to clearly
inform sellers they may want to consult an attorney before determining whether to waive
their right to the mineral estate.

The change in terminology reverses the previous language. The old language "reserved",
the new language "waives". It is important to understand the meaning and impact of this
change. In addition, the term "current" is added to "contact information" in Paragraph D.

Note

The change to the box in Paragraph C. The second box has changed from "does or does not
reserve and retain implied rights of ingress and egress" to "does or does not waive rights of
ingress and egress".

LMS Page #75

System Page

LMS Page #76

Lesson 2

LMS Page #77

Learning Objectives

After participating in this module, you will be able to:

• better understand contract forms after reviewing FAQs,

• explain how to determine the effective date,
• better understand contract timelines,
• and answer miscellaneous questions about commercial contracts.

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LMS Page #78

Miscellaneous Contract/Forms FAQs

As license holders - we often have questions and need answers. Here are some of those
questions and answers.

We put in an offer to buy a house. The agent held the offer and then another offer
came in on the same house. Isn't it illegal or unethical for an agent to present two
offers to the seller at the same time? Shouldn't an agent present the first offer
received so that the seller accepts or rejects it before presenting the second offer?

The listing agent represents the seller and has a duty to present all offers in a timely
manner to the seller. There is no prohibition against a license holder presenting more than
one offer at a time to a seller. A seller may receive, review and negotiate several offers
simultaneously.

LMS Page #79

Would it be permissible to use a promulgated contract form as a contract for deed

or contract of sale by making appropriate changes in Paragraph 11?

No. None of the forms promulgated by TREC are intended for use as a contract for deed. An
attorney will need to prepare an appropriate form.

Does a license holder have to use TREC's contract forms?

Does TREC ever discipline a license holder who fails to use an adopted form?

Yes and yes. A license holder is required to use contract forms adopted by TREC. [TRELA
§1101.155, TREC Rules §537.11, etc.]

Some exceptions for when a license holder does not have to use a form are in TREC Rules
§537.11(a).

LMS Page #80

TREC Rules §537.11 Use of Standard Contract Forms

When negotiating contracts binding the sale, exchange, option, lease or rental of any
interest in real property, a real estate license holder shall use only those contract forms
promulgated by the Texas Real Estate Commission (the Commission) for that kind of
transaction with the following exceptions:

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• transactions in which the license holder is functioning solely as a principal, not as an

agent;
• transactions in which an agency of the United States government requires a different
form to be used;
• transactions for which a contract form has been prepared by a principal to the
transaction or prepared by an attorney and required by a principal to the
transaction; or
• transactions for which no standard contract form has been promulgated by the
Commission, and the license holder uses a form prepared by an attorney at law
licensed by this state and approved by the attorney for the particular kind of
transactions involved or prepared by the Texas Real Estate Broker-Lawyer
Committee (the committee) and made available for trial use by license holders with
the consent of the Commission.

A license holder should also be familiar with TREC Rules §537.11(b)-(d). Those rules
prohibit a license holder from adding anything except "informational items" to a form
adopted by TREC for mandatory use. Contract forms adopted for mandatory use are on
TREC's website.

LMS Page #81

Does a lease for a term of longer than one year and a contract for the sale of real
estate need to be in writing to be enforceable?

Yes. The Statute of Frauds, as defined by Chapter 26 of the Business and Commerce Code,
requires that certain agreements be reduced to writing to be enforceable. However, you
should consult with a private attorney for advice on this matter.

My wife and I signed an offer to buy a house over the weekend. Now we have
changed our minds and don't want to buy the house after all. Can we get out of
the deal?

If the seller has accepted your offer, you may have a binding contract. There is no
automatic three-day or 72 hour cooling off period for you to change your mind like in some
other consumer contract situations. Any rights that you have to terminate the contract will
be contained in the contract. For example, you may have paid a fee to obtain an "option"
period in the contract. You should consult with a private attorney for advice regarding
termination of your contract.

LMS Page #82

Must the earnest money check be delivered to create a binding contract?

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The formation of a real estate contract requires "consideration" for the contract to be
binding. In general, the buyer's promise to buy and seller's promise to sell is consideration.
Although the TREC contract forms include a provision for the delivery of earnest money, if
the buyer fails to deliver the earnest money the buyer is considered in default of the
contract, and the other party may then exercise the remedies under paragraph 15 of the
contract. However, TREC is unable to make a determination as to whether your contract is
binding.

You should discuss the validity of your contract with a private attorney. Once a binding
agreement has been created, a license holder handling the check must deliver the earnest
money in a timely fashion in accordance with the contract terms. In addition, a license
holder's failure to deliver the earnest money within a reasonable time is a violation of
§1101.652(b)(30) of TRELA.

LMS Page #83

Earnest money is not "consideration" for the TREC contracts

A real estate contract is an enforceable contract if it is in writing, shows a meeting of the

minds on all terms and conditions, and is signed by all parties to the contract. The promise
of the seller to sell and of the buyer to buy is sufficient consideration to support the making
of a contract. The failure of a party to perform an obligation required under the terms of the
contract, including a failure of a buyer to timely deliver earnest money, is a default by that
party authorizing the other party to exercise any of the default remedies described in
paragraph 15 of the TREC contracts.

The formal notification by a seller in writing to a buyer would be prudent in order to

eliminate an argument by the buyer that by conduct or comment the seller might be
waiving his right to insist on timely performance by the buyer of his obligation to deliver the
earnest
money. LMS Page #84

Does TREC have an improved commercial earnest money contract form?

No. You must use a form drafted by an attorney or a form supplied by either the buyer or
seller. [TREC Rules §537.11(a)] If you are a member of Texas REALTORS® (TXR), you may
use a form prepared by TXR attorneys.

I'm changing sponsoring brokers. Can I take the buyers I represent with me to the
new broker if the buyers signed buyer representation agreements?

Normally - no. A buyer representation agreement is a private contract between the buyer
and the real estate broker, not the sales agent. As such, the buyer would still be

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represented by the sales agent's previous broker. The buyer may, however, seek to be
released from the buyer representation agreement.

Note:

The answer is the same for listings.

LMS Page #85

I signed a contract to purchase a timeshare interest yesterday. Last night I

reconsidered. Can I back out?

Yes. You have to provide the appropriate cancellation notice to the developer before the
sixth day after you signed the contract. Consult the contract or the timeshare disclosure
statement you received for instructions on how to proceed.

If a broker has an exclusive listing with a seller, may another broker solicit a
listing from the same seller that would begin after the other listing expired?

Yes. TREC Rules §535.153 states that §1101.652(b)(22) of TRELA does not prohibit a
license holder from soliciting a listing from the owner while the owner's property is subject
to an exclusive listing with another broker, provided the listing does not commence until
after the current listing expires.

LMS Page #86

I listed my property for sale with a broker and the broker has done nothing about
selling the house. Can I break my contract and list with someone else?

Your listing contract with the broker is a private legal contract. TREC is unable to advise you
on private contractual matters. If you feel that the broker has not fulfilled the broker's part
of the agreement, i.e. advertising, holding open houses, etc., then you may have grounds
to terminate the contract but you would need to contact a private attorney for help in
making that determination. You could also ask the broker to agree to cancel or release the
listing. If the broker agrees, then the contract can be mutually rescinded.

I signed a buyer representation agreement, but I want to work with a different

Broker. Can I cancel the agreement?

A buyer representation agreement is intended to be a legal and binding contract. You can
ask the broker to release you from the buyer representation agreement. However, TREC
does not have the authority to require a broker to release you from the agreement. If the

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broker refuses to release you from your buyer representation agreement, you should seek
the advice of a private attorney.

LMS Page #87

Can listing agreements be extended?

Listing agreements are private contracts between a real estate broker and a seller. The
terms of the contract and/or desires of the parties would determine whether the listing
agreement can be extended. You should contact a private attorney if you have any
questions about extending a listing agreement.

Does TREC have a promulgated listing agreement form?

No. A listing agreement is a private contract between a real estate broker and a property
owner and is not promulgated by TREC. Texas REALTORS® provides certain forms to its
members. If you are a member, you may find a listing agreement form that meets your
needs through TXR. Otherwise, you should consult with a private attorney.

Note:

The answer is the same for buyer representation agreements.

LMS Page #88

When a contract falls through, can part of the earnest money be held to pay the
commission fee for the other real estate license holder?

No, unless the parties agree in writing otherwise.

We are selling our house and the buyer never paid the option fee. What happens
now?

Typically, the buyer's agent collects the option fee upon final acceptance of the terms of the
contract and delivers the option fee check. The 1-4 Family Residential Contract provides "If
no dollar amount is stated as the Option Fee or if the Buyer fails to pay the Option Fee
within the time prescribed, this paragraph will not be a part of this contract and Buyer shall
not have the unrestricted right to terminate this contract". Under the terms of the 1-4
Family Residential Contract, the buyer (or buyer's agent) has three days to deliver the
option fee. If the fee is not paid and the parties need help interpreting this provision, they
will need to consult with a private attorney.

LMS Page #89

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I'm buying a house. Do I have to have pay for an option period to be able to buy
the house?

No. The termination option is a negotiable contract term. However, if you pay the seller an
agreed option fee, you have the unrestricted right to terminate the contract for any reason
if you give written notice to the seller during the option period. A buyer can use the option
period to perform an inspection of the property and negotiate an amendment to the
contract for any necessary repairs as a result of the inspection.

My buyer client is on day four of his 10-day termination-option period. I sent a

copy of his inspection report to the listing agent along with an amendment for
repairs, but the listing agent told us that his client refuses to open the report or
negotiate for any repairs. What can my buyer do?

If the buyer is not satisfied with the information in the inspection report or cannot get the
seller to agree to requested repairs, the buyer can exercise the buyer's right to terminate
the contract before the option period ends.

A broker or seller who receives an inspection report is charged with knowledge of the
information in the report even if the broker or seller does not open the report. While sellers
and listing agents should review inspection reports they receive on the property, a buyer or
buyer's representative can't force them to review the reports. There is also no requirement
that sellers agree to or even consider amendments requiring the seller to perform repairs to
the property.

LMS Page #90

I am a 25% stockholder in a corporation that holds title to a number of investment

properties. I typically negotiate the resale of the properties for the corporation.
Must I disclose my licensed status?

Yes. If you participate in a transaction and hold more than a 10% interest in the corporation
or other business entity, you are subject to the disclosure requirements. Additionally, you
may not use your expertise to the disadvantage of others with whom you deal. [TREC Rules
§535.144(b)]

I was trying to buy a house and the earnest money was deposited in the broker's
escrow or trust account. The transaction has fallen through and now the broker
won't return the earnest money.

If the broker used a Commission promulgated form, it contains provisions permitting the
broker to require the buyer and seller to agree on who gets the earnest money and to sign a
release before the money is disbursed. See TREC Rules §535.146(d) for proper procedures

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for handling earnest money disputes where the broker is holding the money in a trust or
escrow account.

LMS Page #91

We tried to buy a house, but our loan application was not approved. Our $500
earnest money had been delivered to a title company and they said they wouldn't
return it without a release signed by the seller, which the seller won't sign. Help!

The Commission does not have jurisdiction over title companies. While a license holder is
encouraged to assist the parties in the exchange of the necessary earnest money release
and need to sign the release as appropriate, there is nothing in TRELA or the Rules to
determine who is entitled to the earnest money. You will need to consult a private attorney.

I signed a listing agreement with a broker and don't understand some of the terms
in the agreement. Can you explain the terms to me?

No. TREC is unable to advise you in private contractual matters. You should discuss the
terms of the listing agreement with a private attorney.

LMS Page #92

I am a seller and I signed a contract with a buyer. Before the earnest money was
delivered, the buyer backed out. Am I entitled to the earnest money?

The Commission does not have jurisdiction to decide which party is entitled to the earnest
money. However, a real estate license holder's failure to deliver earnest money in
accordance with the terms of the contract could form the basis of a complaint. Please note
that TREC cannot order a license holder to pay money damages. You will need to consult a
private attorney about monetary damages or other civil remedies.

If a broker does not have a written agreement to represent the buyer, what
recourse does the broker have if another broker "steals" a client?

A buyer can choose the broker with whom the buyer wants to work. TREC does not
determine what constitutes "procuring cause" or who is entitled to a commission or other
compensation. Like a listing agreement, the buyer representation agreement must be in
writing and signed by the buyer and broker to be binding.

LMS Page #93

How are days counted in a TREC contract?

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Unless otherwise stated, starting with the effective date of the contract, the first day of a
period starts the next day. Each day is counted as a calendar day.

Is the Disclosure of Relationship with Contract Provider or Administrator form

required for every transaction?

No. This form is required only when a residential service contract provider or administrator
agrees to pay a license holder for a service provided to or on behalf of the company. The
form should indicate which license holders have received or will receive the payment. If a
license holder is not receiving a payment from the company, this should be noted as well.
Each license holder must sign the form.

Click here if you would like to view the Disclosure of Relationship with Contract Provider or
Administrator, TREC Form RSC-4

LMS Page #94

My client does not want to accept the property "as is" and wants to wait until after
the inspection to list specific repairs that he wants the seller to fix. Can I just
leave both boxes in Paragraph 7D of the One to Four Family Residential Contract
(Resale) blank or can I check 7D2 and write in "repairs to be listed following
inspection"?

Neither option is permissible. Leaving both boxes blank in Paragraph 7D or altering the
contract terms by adding language that does not enumerate specific repairs in Paragraph
7D2 could be considered to be acting negligently or incompetently if a complaint were to be
filed in connection with the transaction [TRELA §1101.652(b)(1)]. The buyer should only
choose Paragraph 7D2 if there are specific repairs known at the time of the contract that the
buyer wants the seller to pay for. Otherwise, the buyer should check Paragraph 7D1.

Most buyers in your client's situation will then also elect to pay an option fee in exchange
for the right to terminate for any reason within a negotiated number of days. During this
option period, an inspection can be performed and if specific repairs are identified, the
parties can negotiate to amend the contract to address these items, or the buyer can
terminate the contract.

LMS Page #95

What should I do if TREC doesn't promulgate a form that I need?

Texas REALTORS® provides certain forms to its members. However, if you are not a
member of TXR, you should have an attorney draft the necessary documents. It is a

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violation of the law for a license holder to draft an instrument that transfers or otherwise
affects an interest in real property. [TRELA §1101.654]

Can a non-license holder use the promulgated contract forms?

Yes. The contract forms are available for public use. A TREC contract form, however, is
intended for use primarily by licensed real estate brokers or sales agents who are trained in
their correct use. A mistake in the use of a form may result in financial loss or an
unenforceable contract. A person using a TREC form assumes all risks associated with its
use.

LMS Page #96

My buyer client checked Paragraph 6C(1) in the One to Four Family Residential
Contract, agreeing to pay for a new survey if the existing survey isn't approved by
the title company or the buyer's lender. The seller's agent told me the seller can't
find his existing survey, so my client will have to pay for a new one. Does my
client have to pay for a new survey in this instance?

No. A seller who cannot find the existing survey isn't exempt from furnishing it. If the seller
agreed to deliver the existing survey to the buyer, he is required to deliver the survey and
the affidavit within the specified time.

Paragraph 6C(1) says, in bold, "If Seller fails to furnish the existing survey or affidavit
within the time prescribed, Buyer shall obtain a new survey at Seller's expense no later than
3 days prior to Closing Date". This means the seller will be responsible for the cost of a new
survey if he can't find the existing survey. Any party to the contract who doesn't perform a
"shall" obligation under the contract would probably be found in default by a court unless
otherwise excused from performance by the terms of the contract.

The seller could try to obtain another copy from the surveyor or title company he used when
purchasing the property so that he can fulfill his contractual obligations. To avoid this
situation, sellers should only agree to provide an existing survey if they have it readily
available.

LMS Page #97

My seller is closing next week, but will stay in the property for 30 days after
closing under a temporary lease. Does the buyer still get a set of keys at closing?

Yes. The Seller's Temporary Residential Lease (TREC Form 15-6) states that a tenant will
provide the landlord door keys and access codes so he or she may enter the property at

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reasonable times to inspect it during the term of the lease or to otherwise access it as
allowed by the lease.

However, the buyer cannot occupy the property until after the termination date stated in
the seller's lease, unless it's terminated earlier by reason of other provisions.

LMS Page #98

My client received an offer on his home. He wants to submit a counteroffer to the

prospective buyer and asked me to call the buyer's agent with the information.
The buyer's broker insists that the seller must either make a formal counteroffer
in writing or reject the buyer's offer in writing. Does my client have to respond in
writing?

No. A seller has no legal duty to respond to an offer in any particular way. A verbal
counteroffer could expedite negotiations for the sale of a property in many cases. Of course,
once there is an agreement about the terms and conditions of the sale, the parties should
promptly reduce the agreement to writing and sign the contract to make it a binding
obligation.

A seller could respond to a buyer's offer by using the Seller's Invitation to Buyer to Submit
New Offer (TXR Form 1926). This form would be particularly useful when the seller's
proposal contains several changes to the buyer's offer. By using this form, the seller is free
to consider other offers without having to be concerned about the withdrawal of a previous,
written counteroffer.

LMS Page #99

I submitted an offer to a listing agent on behalf of my client, who offered to pay

$1,500 in earnest money. This listing agent reviewed the offer but said he
wouldn't present it until he received the check. He said if the seller accepts my
client's offer, then the earnest money is necessary for the offer to become a
binding contract. Is this true?

No. Earnest money is not necessary to make an otherwise accepted offer into a valid
contract. Earnest money is a buyer-performance item required to be delivered after a
contract is fully executed. A contract could become effective even if no earnest money is
required in the agreement.

While a seller could instruct an agent to only present offers that include an earnest-money
check, an agent who decided himself that he will not present an offer without an earnest-
money check may be violating TREC Rules.

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LMS Page #100

My seller received a written offer to purchase his property. Instead of countering

the offer in writing, the parties engaged in verbal negotiations that resulted in a
verbal agreement on new terms. Before the buyer's broker submitted an updated
offer with those terms included, my seller received a written offer from another
potential buyer that he chose to accept. Now, the first buyer is threatening to sue
my client for breach of contract because of their verbal agreement. Is the verbal
agreement enforceable?

No. A verbal agreement must be reduced to writing and signed by the buyer and seller to
become valid. Since a contract was never created, nor signed, there is nothing for the buyer
to enforce. While verbal negotiations of contracts can be a quicker way to reach an
agreement, verbal agreements are not enforceable for the sale of real property.

LMS Page #101

Is it appropriate to fill in one of the sections of the TREC Third Party Financing
Addendum with something like market in the space for the maximum interest rate
permitted for the loan contingency or to leave the percentage amount blank for
the maximum loan fees permitted for the loan contingency?

The Third Party Financing Addendum is designed to limit the maximum amount of interest
and loan fees that a buyer would be obligated to pay as part of his loan contingency.
Inserting the word market in lieu of a stated interest rate or leaving a blank space for the
maximum loan fees would defeat the purpose of the loan contingency. The market interest
rate might be several percentage points higher than the buyer intended, assuming it was
possible to determine what the market rate was at a particular time in the contracting
process.

Similarly, a buyer might be required to pay a much greater amount of loan fees than he
intended if that figure was left blank and a court imposed a "reasonable" or "market" test to
determine the amount of permitted loan fees. TREC and the Broker Lawyer Committee
intended that percentage figures would be inserted in these blanks or they would not have
promulgated the form with percentage signs after the blanks. Clarity in contracts requires
that buyers research what the current market allows for interest rates and loan fees, which
are defined in TREC contracts, and that those percentage figures are inserted in the
appropriate blanks. Ambiguity or unenforceability of contracts can be avoided by careful
attention to inserting appropriate percentage figures in these blanks.

LMS Page #102

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I'm representing the buyer in a transaction. He gave me his earnest money check
and now the contract is executed. When do I have to deliver the earnest money
with the escrow agent named in the contract?

TREC Rules §535.146 requires that unless a different time period is agreed upon in writing,
any trust money, including earnest money received by the broker, must be delivered to an
authorized escrow agent (or deposited in a trust account) within a reasonable time. The
commission has determined "a reasonable time" to be not later than the close of business of
the second working day after the date the broker receives the trust money.

Since you have the buyer's earnest money check, you should deliver it as soon as possible
to ensure that your buyer is not found to be in default for failure to deliver the earnest
money in a timely manner.

LMS Page #103

I submitted an offer on a home for my client and included the Third Party
Financing Addendum for Credit Approval for a conventional loan. In Paragraph
12A(1)(b) of the TREC One to Four Family Residential Contract (Resale), we wrote
that the seller would contribute to the buyer's expenses not to exceed $1,500. The
listing agent told me I cannot put a seller contribution amount in this paragraph
because the buyer isn't seeking an FHA or VA loan. Can the seller contribution
apply to a buyer's expense in a conventional loan?

Yes. The language in Paragraph 12A(1)(b) does not restrict the contribution based on loan
type, but does provide an order in which a seller's contribution will be applied. If there are
not any expenses that the buyer is prohibited from paying by a governmental loan program,
then the seller's contribution would next be applied to the other buyer's expenses as
allowed by the lender. Paragraph 12A(2) defines "Buyer's Expenses".

LMS Page #104

My seller client is ready to close, but the buyer's lender won't have the loan
processed in time for tomorrow's closing. What can my client do?

Since the contract does not include an automatic extension to allow the lender time to
complete his role, your seller has two options.

He could amend the contract to extend the closing date to allow the lender time to process
the loan.

Another option is to consider the buyer in default.

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However, since time is not of the essence to the closing date, the buyer might argue that a
short delay in closing is not a material breach of contract.

This issue may end up in court.

LMS Page #105

Can the lack of the lender's underwriting approval of the property still result in the
termination of the contract even though the time has already passed for the buyer
to give notice to terminate the contract under the Third Party Financing
Addendum?

Yes. Under the Third Party Financing Addendum, the buyer has a certain number of days
within which to give the seller written notice that the buyer cannot obtain financing
approval. Financing approval in this case means that the terms of the loan described in the
addendum are available and that the buyer has satisfied all of the lender's financial
requirements relating to the buyer's assets, income, and credit history.

If the buyer does not give the seller such a notice within that time period, the contract will
no longer be subject to or contingent upon the buyer's financing approval for the described
loan and the buyer's assets, income and credit history.

LMS Page #106

Time Limits

No such time limit restricts the lender's underwriting approval of the property under the
addendum. The lender's underwriting approval of the property can be dependent upon
many factors (e.g., appraisal, required repairs, etc.)

This time distinction is important.

Under the Third Party Financing Addendum, if the buyer gives the notice within the days
stated then the contract terminates and the earnest money will be refunded to the buyer.

A failure by the buyer to give the timely notice means that a subsequent failure to obtain
the financing approval for the type of loan described and the buyer's financial requirements
would not allow for the automatic termination of the contract and refund of the earnest
money to the buyer.

LMS Page #107

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My client wants to enter into a lease-purchase agreement with a prospective

tenant. A former client's attorney prepared a lease-purchase agreement similar to
what my current client needs. Can I make changes to the agreement so it's
applicable to my client's transaction?

No. Under no circumstance should a real estate license holder attempt to prepare a lease-
purchase agreement. Since there is no lease-purchase agreement form for license holders
to use that complies with the Real Estate License Act requirements, an attorney must
prepare the agreement.

Preparing your own document or changing a lease-purchase agreement prepared by an

attorney for another transaction is a violation of the Real Estate License Act. Taking such
action is the unauthorized practice of law. In addition, there's a risk you could be sued by
the parties if they have a disagreement over the lease-purchase agreement you prepared.

The requirements of the Texas Property Code provisions that apply to lease-purchase
transactions are complicated, and your client shouldn't enter into one without talking to a
real estate attorney.

LMS Page #108

I'm helping my client prepare an offer for a vacant residential lot using TREC's
Unimproved Property Contract. A checkbox in the form asks whether the property
is located in a Texas agricultural development district. What does this mean?

The provision you described is in TREC's Unimproved Property Contract and Farm and Ranch
Contract in the event a seller is located in such a district. Then he's required to give written
notice to prospective buyers prior to the execution of a binding contract to purchase the
property, which can be done either separately or within the terms of the contract itself. The
seller and buyer of property in an agricultural development district must also sign a notice
at closing that is recorded in the deed records.

The process for creating agricultural development districts was enacted in 2001 by the
Texas Legislature to promote the development of agricultural facilities that result in
employment and economic activity. However, to date, no such districts have been created,
according to the Texas Department of Agriculture.

LMS Page #109

My buyer client wants to include in her initial offer a requirement that the seller
repair a specific item listed in the seller's disclosure notice as in need of repair.
She also wants to request that the seller contribute to closing costs. What is the
best way to prepare the offer with these terms?

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Paragraph 7D(2) of the TREC contracts is the appropriate section to cover a seller's
agreement to repair a specific item of the property. General phrases that do not identify
specific repairs, such as "subject to inspections", are not appropriate.

Paragraph 12A(1)(b) should be used to show the seller's contribution to the buyer's closing
costs. This paragraph already provides for language to limit the seller's obligation to the
amount shown in the blank space. Note that the paragraph also controls the order in which
the seller's contribution shall be applied to various buyer's expenses.

LMS Page #110

My client's contract to sell his home fell through, and the buyer and seller disagree
over who is at fault and who should get the earnest money that was delivered to
the title company. Now my seller wants to put the property back on the market
even though the earnest-money dispute hasn't been resolved. What should I do?

Since the parties haven't agreed on the termination of the contract and no judge has
decided the issue, you shouldn't give either party advice about the termination of the
contract. Tell your seller to get advice from his attorney concerning the risks of proceeding
with a subsequent sale of the property without a final settlement of the issue of contract
termination.

The seller's primary goal should be to have formal termination of the contract. That ensures
he can put the property back on the market and sell it to someone else without risking a
lawsuit that could stop a subsequent sale of the property.

LMS Page #111

The Seller…

A contract can be formally terminated if both parties agree to terminate - usually in writing
with a release-of-earnest-money form - or if a judge orders the contract to be terminated.
Because of the potential risk of an adverse ruling by a judge concerning the seller's right to
terminate the contract, title companies often refuse to open a second escrow file on a
property where the first contract has not been formally terminated.

Remember: Texas Real Estate Commission contracts now require buyers and sellers to
participate in mandatory mediation to resolve disputes before going to court.

LMS Page #112

Should the agents' information be inserted in Paragraph 21 of the TREC contracts

as the points of contact to receive notices?

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The parties to the contract should consider several factors before deciding what contact
information should be inserted in Paragraph 21.

Time is of the essence in almost all of the notice provisions in TREC contracts. This means
they require time-sensitive action. Having an agent as the point of contact to receive
notices for his or her client could create delays that may result in the party losing a time-
sensitive option or right provided in the contract, such as the termination option or the Third
Party Financing Addendum for Credit Approval.

In addition, the word "notices" in Paragraph 21 has contractual meaning. Giving notice to a
party can affect the party's rights and obligations in several parts of the contract, so care
should be taken to provide notices in ways that don't cause needless delay. Some agents
are reluctant to put buyers' and sellers' contact info in Paragraph 21 because they think
direct contact with the other party is forbidden. However, as long as you're using the
contact information to provide notice to the other party, you're not crossing the boundary of
soliciting another agent's client.

LMS Page #113

A seller under a listing agreement wants me to take her property off the market.
Do I have to terminate the listing to do this? I'm concerned that the seller might
list with another broker in a few days.

In this situation, you can use Amendment to Listing (TXR Form 1404). A provision in the
amendment states that the seller is instructing the broker to cease marketing the property
until further notice or until a specific date. The provision states that the listing is not
terminated and remains in full effect.

If the seller is contemplating signing a listing with another broker, the seller will likely not
agree to sign the amendment and this could lead to further discussions. If you determine
that you wish to terminate the listing agreement, you can use Termination of Listing (TXR
Form 1410). This form provides for early termination of a listing and determines whether
the broker will receive compensation for early termination.

LMS Page #114

A seller received two offers at about the same time.

He wants to counter both.

May he do so?

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It's not a good idea to do so because the seller potentially could be bound to sell the
property to two different purchasers if both were to accept the seller's counteroffer.

The seller could reject both offers and invite the prospects to submit better offers or the
seller could make a counteroffer to one prospect.

When a party makes an offer or counteroffer, that party gives to the other party the power
of acceptance to create a binding contract.

LMS Page #115

My client wants to submit a back-up offer on a property that's already under

contract. I see that Paragraph B of the Addendum for Back-Up Contract (TXR Form
1909) is for the contingency date when the first contract has to terminate or else
the back-up contract terminates. What date should I put here?

It depends on how long the back-up buyer wants to stay in the back-up position. Some
back-up buyers may want to have their contract terminate within days if the first contract
doesn't terminate early, while others may want to retain their back-up contract rights until
after the last possible date that the first contract might close.

If your client wants his back-up contract to last until or beyond the first contract's closing
date, you can also ask the listing agent to provide the first contract's closing date.

LMS Page #116

Can you give an example of determining the effective date?

• The buyer makes a written offer through his agent to the listing agent on May 15.
• The listing agent delivers the offer to the seller on May 16.
• The seller signs the offer as submitted on May 17.
• The seller delivers the signed offer to the listing agent on May 18.
• The listing agent emails the executed contract to the buyer's agent on May 19.
• The buyer's agent calls the buyer on May 20 and informs the buyer that the seller
has accepted the offer.

The effective date in this example is May 19, the date the listing agent communicated to the
buyer's agent that the seller signed and unequivocally accepted the buyer's offer.

LMS Page #117

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A seller authorized me to advertise in the MLS that her refrigerator conveys with
the sale. But when she sold her property, her contract didn't mention the
refrigerator at all, so she took it when she moved.

The buyer says she should have left it since it was advertised as conveying with
the sale in the MLS listing.

Does the seller have to give the buyer the refrigerator?

No. If the signed contract does not state that the refrigerator conveys with the property, the
seller does not have to leave it.

Previous negotiations and advertisements, such as in the MLS, are not enforceable like a
contract signed by the parties.

This situation is an example of why agents should help clients ensure all material items of
prior agreements are contained in the signed contract.

LMS Page #118

My client has submitted an offer to purchase a home. We have not heard from the
seller or his agent regarding the offer. My client has now found another home that
he likes better and wants to withdraw the first offer. Is there a form that we can
use to withdraw an offer?

Since your client wants to withdraw his offer before the seller has accepted it, a prompt
communication of that withdrawal is essential. Call the listing agent and tell her about your
client's decision to withdraw his offer. Follow the telephone call with a text or email
confirming your telephone notification of the time and date of your client's withdrawal of his
offer. This kind of written confirmation of the verbal withdrawal of the offer can help
document the timeliness of the withdrawal should an issue develop concerning the seller's
possible argument that he had already accepted the offer.

It should be noted that this same procedure could be used by a listing agent where the
seller wants to withdraw a counteroffer made to a buyer so that he can sell the property to
another buyer.

TREC does not promulgate a form for this, however, Texas REALTORS® provides Notice of
Withdrawal of Offer, TXR Form 1945.

LMS Page #119

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After my buyer completed his inspection, he sent the seller an amendment to ask
for several repairs. The seller responded with his own amendment that stated he
would complete one of the requested repairs and that the contract would
terminate if the buyer didn't sign the amendment within 24 hours. Can the seller
terminate the contract if the buyer doesn't accept the amendment?

No. Even though a buyer or seller can propose an amendment to the contract at any time,
merely proposing an amendment to a contract - or refusing to accept a proposed
amendment - does not give either party a unilateral right to terminate an existing contract.
The contract is only changed after the parties sign the amendment signifying their
agreement. Without a fully executed amendment, the original contract remains in effect as
written.

Keep in mind that if the buyer purchased a termination option that had not yet expired, the
buyer could terminate the contract for any reason.

LMS Page #120

How do I determine the effective date?

The effective date is determined by the final date of acceptance. The final date of
acceptance is the date on which the contract becomes binding between the parties. It is the
date that both buyer and seller have agreed to all terms of the contract and have executed
the contract. Four elements must be satisfied for final acceptance to take place:

1. The final contract must be in writing. (This is typically satisfied when negotiations are
made using promulgated forms.)

2. The buyer and seller must sign the final contract, including the initialing of any
changes to the initially drafted offer, if applicable.

3. Acceptance must be unequivocal.

4. The last party to accept must communicate acceptance back to the other party or
the other party's agent, if applicable.

The effective date is the date when the last element (communicating acceptance back) is
made after the other three elements are satisfied. One reason why communicating
acceptance back to the other party is mandated is so the other party will know when the
contract performance requirements or periods for performance begin.

LMS Page #121

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My buyer client is on the eighth day of his 10-day termination-option period, and
the seller still hasn't turned on the utilities to allow the buyer to have the property
inspected. The seller promised to have the utilities on next week, so my buyer just
wants to extend the termination-option period another 10 days. Will the buyer
have to pay another option fee even though the extension is because the seller
breached the contract?

Yes. If the buyer in this situation chooses to request an extension of the termination-option
period instead of exercising the default remedies available to him in the contract, then he
must agree to offer something of value as consideration to the seller to ensure that the
extension is legally enforceable. This is often done by paying an additional termination-
option fee.

Extensive case law in Texas suggests a termination-option period cannot be extended

without an additional option fee, so a buyer should pay another option fee to reliably extend
the option period.

LMS Page #122

I represent a buyer who wants to purchase a home that is for-sale-by-owner. The

owner tells me he will pay me a fee if he signs a contract with my buyer and that
contract closes. Is there a form I can use to secure my fee?

You could use the Registration Agreement Between Broker and Owner (TXR Form 2401),
available exclusively to Texas REALTORS®. This form allows you to register your buyer to
cover the purchase of the owner's property during an agreed time period. It also contains
language to provide that the owner will pay your negotiated fee should your buyer purchase
the property.

The agreement doesn't allow you to list the property for sale or require the owner to pay
you a fee should the owner sell the property to someone else. This form could be used in
situations where the broker is representing a buyer interested in farm and ranch or
commercial property that is for-sale-by-owner. It is not intended to take the place of a
buyer's representation agreement between a broker and his buyer client.

LMS Page #123

I am confused about the effective date in TXR's commercial contracts. The TREC
contracts provide a place to insert the effective date of those contracts, and this
date is defined in the contract as the "Effective Date". There is no similar place for
the brokers or the parties to insert such a date in the commercial contracts.

The commercial contracts address the matter of the effective date in paragraph 24. The task
force of commercial practitioners working on these contracts felt that because of the way

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that many commercial contracts are negotiated it would be appropriate to provide that the
time for performance of the parties should not begin until the escrow agent receipts the
contract after all parties have signed.

This was done to allow for delays often experienced in commercial transactions in getting
the contract to the escrow agent and to allow the parties to not have to begin performance
obligations until the contract was escrowed.

LMS Page #124

Obligations

This means that for "the purpose of performance of all obligations" the clock does not start
running for the parties until the contract has been receipted by the escrow agent. This does
not mean that there is no enforceable contract prior to the receipt by the escrow agent. To
the contrary, the law of offers and acceptance would still control and there would be an
"enforceable" contract under the statute of frauds when the last party to accept all of the
terms of the contract signs the contract and communicates that acceptance and signing to
the other party.

Thus, while the date for the beginning of performance is handled in a different way in the
commercial contracts than in the TREC contracts, the law regarding when there is an
enforceable contract is the same for both. It should also be noted that the Escrow Receipt at
the end of the commercial contracts has a parenthetical reference that the day of the
receipt of the contract is the "effective date".

LMS Page #125

If the broker uses a TREC residential contract form, may the broker add a simple
reservation clause with respect to the minerals in special provisions?

The Broker/Lawyer Committee at TREC has on several occasions chosen not to insert a
reservation clause into the residential contract forms. The committee believes that the
better public policy is to provide for the conveyance of the fee simple estate (without
reservations) in residential sales that utilize the standard TREC forms. Due to the fact that
most residential property owners in urban and suburban areas are not familiar with oil and
gas transactions, the committee believes that the negotiation of such matters is best
addressed by attorneys representing the parties in residential sales.

Additionally, historically, these items have not been at issue during negotiations in the
typical residential sale (probably due to the fact that the minerals may have been severed,
the surface is too small to worry about drilling activity, and cities have regulated drilling
activities within their jurisdictional limits). Based on the foregoing, the better alternative for
the broker in this question is to suggest to the parties to seek the advice of counsel.

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LMS Page #126

My client received a full-price offer on a property I listed for him after signing a
Residential Real Estate Listing Agreement Exclusive Right to Sell (TXR Form
1101), but he now states he is no longer interested in selling his property and
refuses to accept the offer. I believe that I still deserve my commission because I
fulfilled my obligation under the listing agreement by bringing him a suitable
buyer. Am I still entitled to receive my commission?

Yes. Paragraph 5 of the TXR Listing Agreement explains that a seller will pay the broker
either a percentage of the sales price or a set fee when the compensation is earned and
payable. This paragraph also lists the circumstances when compensation is deemed
"earned" and "payable".

In this situation, you could argue that the compensation was earned when you procured a
buyer who was ready, willing, and able to buy the property at the listing price, and the
compensation was payable when the seller refused to sell the property after your
compensation had been earned. Alternatively, you could argue that the seller's refusal to
sell the property was a breach of the TXR Listing Agreement, and that compensation was
earned and payable as a result of that breach.

If negotiations with your client fail and your client is not willing to pay your compensation,
you may need to contact an attorney.

LMS Page #127

On Saturday evening, the listing agent notifies the buyer's agent that the seller
accepted the offer from the buyer.

The seller accepted the offer unequivocally and signed the contract.

The buyer's agent informs the listing agent that he will not be able to notify the
buyer of the acceptance until Monday.

Should the brokers insert Monday as the effective date?

No. Under these facts the elements of final acceptance are satisfied on Saturday.

LMS Page #128

How important is it for the effective date of the contract to be filled in?

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The effective date is the most crucial date in the contract. It is the date from which most, if
not all, performance periods are measured. One of the most significant complaints that
escrow agents make about real estate license holders is that, many times, license holders
fail to insert the effective date in the contract.

If a sales contract is executed by a buyer and seller with a sales price of less than
what the seller owes and the sale is subject to the lender's approval, what should
the MLS status be reflected as?

Each MLS enacts and enforces its own rules, so consult your MLS to discover if there is an
answer that could be unique to that MLS. Generally speaking, the status should be
"pending". Any time a contract is executed on a listing, the MLS status should be changed
to "pending". Remember, even though the sale is subject to lender approval, once the buyer
and seller execute the contract, it is effective.

LMS Page #129

The seller of a commercial property has rejected my client's offer to purchase that
property. We used TXR Form 1801, Commercial Contract - Improved Property. The
seller's agent said the seller rejected the offer because he was selling the property
"as is" and was not going to do any repairs. Therefore, the buyer's request for a
feasibility period and his right to inspect the property were not necessary for the
contract. The listing agent suggests that we submit another offer without the
feasibility paragraph checked on the form.

Do we have to choose between the property condition "as is" paragraph and the
feasibility paragraph in the contract?

Unless a buyer is requesting in his offer that the seller agrees to do certain repairs, all
buyers purchase property in its present condition (or "as is") at the time of contract
execution. Paragraph 7A of the TXR contract allows for the buyer to purchase the property
"as is" or to require certain seller repairs as part of the contract provisions. Regardless
which choice is made in paragraph 7A, there is nothing inconsistent with either of those
choices and a buyer's right to inspect the property and possibly terminate the contract
under the terms of paragraph 7B, the feasibility paragraph.

LMS Page #130

System Page

LMS Page #131

Lesson 3

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LMS Page #132

Learning Objectives

After participating in this module, you will be able to:

• identify federal, state, and local fair housing laws,

• distinguish between the protected classes found in the:
o Fair Housing Act,
o Texas Real Estate Commission's Canons of Professional Ethics and Conduct,
o TREC Rules §531.19,
o and the NAR Code of Ethics,
• recognize and define different forms of bias,
• and describe steering and strategies to avoid it.

LMS Page #133

Introduction to Fair Housing

Why Do Fair Housing Rules Exist?

The United States has a long, complicated history with property rights. Discriminatory
policies and practices have prohibited property ownership for centuries, dating back to the
1700s against slaves and the 1800s against women. There was legislation in place that
denied property rights to Native Americans and certain individuals of African, Asian, and
Latin American decent.

After the Civil War, the Civil Rights Act of 1866 was passed, but it did not erase the impact
of decades of denying certain classes of people the right to own and control their own
property.

Redlining

Laws were implemented allowing zoning by race. The Federal Home Owner's Corporation, a
U.S. government agency, created red, yellow, and green color coded maps indicating risk
levels for lenders. Areas highlighted in red were considered high-risk lending areas,
generally with high minority populations. You may have heard of this practice as redlining.

LMS Page #134

Deed Restrictions

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After World War II, there was a rush to build housing in areas right outside of cities, further
segregating populations around the country. Many of these developments had restrictions in
their covenants that prohibited people of color from living within the developments.

It was not until 1948 that restrictive deed covenants were deemed unenforceable. The
impact of redlining and restrictive deed covenants affected families for years to come.

Fair Housing Laws in Texas

Texas has its own fair housing act, which is nearly identical to the federal Fair Housing Act.
Under the federal Fair Housing Act, complaints in states that have adopted similar fair
housing laws, like Texas has, are referred to the state for enforcement and resolution. In
Texas, the Texas Workforce Commission Civil Rights Division is the agency charged with
administering and enforcing the Texas Fair Housing Act (with a few limited exceptions where
cities have adopted their own fair housing act).

LMS Page #135

History of Civil Rights Laws Impacting Real Estate

The Civil Rights Act of 1968

The Civil Rights Act of 1968, commonly known as the Fair Housing Act, was passed to
protect consumers from discrimination in mortgage lending, leasing, buying, and selling a
home, and engaging in activities related to housing.

Congress had considered the bill from 1966 through 1967. But in 1968, after the
assassination of Martin Luther King Jr., President Lyndon B. Johnson urged Congress to act,
resulting in the passage of the Civil Rights Act of 1968.

The Fair Housing Act prohibits discrimination in the sale, lease, or financing of housing
based on race, color, religion, and national origin. Amendments in 1974 added sex as a
protected class, followed by amendments in 1988 adding protections based upon familial
status and disabilities.

April 2023 marked the 55th anniversary of the passage of the Fair Housing Act, which is
also National Fair Housing Month.

LMS Page #136

Jones v. Alfred H. Mayer Co.

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The groundbreaking Supreme Court decision in the case of Jones v. Alfred H. Mayer Co. in
1968 confirmed the government could regulate the sale of public and private property,
making racial discrimination illegal.

HUD's Equal Access Rule

In 2012, the United States Department of Housing and Urban Development (HUD) issued its
Equal Access Rule. This regulation prohibits housing discrimination based on sexual
orientation and gender identity in HUD-funded or HUD-insured housing.

Several courts have upheld sexual orientation and gender identity discrimination protection
in private housing.

For more information on the history of the Fair Housing Act and HUD, visit www.hud.gov.

LMS Page #137

Why Does Fair Housing Matter for You?

Understanding the history of fair housing laws is important for license holders because these
laws were established to prevent discrimination and provide equal opportunity for everyone.

Fair housing laws continue to evolve.

This understanding complements the fiduciary responsibility license holders owe their clients
and the duties owed to customers and the public.

It is crucial that you follow and promote fair housing laws.

While many of the formal restrictions on an individual's property rights are no longer, these
practices have literally drawn maps and condoned land development in ways that still put
people at a disadvantage.

LMS Page #138

Fair Housing Activity

Knowledge Check

What year was the first civil rights legislation passed in the United States?

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1 1866

2 1968

3 1974

4 1988

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #139

Fair Housing Activity

Knowledge Check

What is another name for the Civil Rights Act of 1968?

1 Americans with Disabilities Act (ADA)

2 Fair Housing Act (FHA)

3 Housing Affordability Act (HAA)

4 Consumer Protection Act (CPA)

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

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LMS Page #140

Fair Housing Activity

Knowledge Check

What protected class was added to the Civil Rights Act in 1974?

1 Race

2 Religion

3 National Origin

4 Sex

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #141

Fair Housing Activity

Knowledge Check

In 1988, the most recent amendment to the Civil Rights Act was passed. What two
protected categories were added?

1 Religion and national origin

2 Gender preference and religion

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3 Familial status and individuals with disabilities

4 Race and color

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #142

Fair Housing Complaint Trends

The National Fair Housing Alliance®, 2022 Fair-Housing Trend Report collects data
regarding Fair Housing from the

• National Fair Housing Alliance Member Organizations (NFHA),

• The U.S. Department of Housing and Urban Development (HUD),
• Fair Housing Assistance Program (FHAP),
• Department of Justice (DOJ).

The following information is reprinted with permission from the National Fair Housing
Alliance®, 2022 Fair-Housing Trend Report.

LMS Page #143

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Housing Discrimination Complaints by Basis and Agency

This data shows that among the four agencies, disability continues to be the category with
the most complaints. One reason for this volume is that discrimination based on disability
can be obvious, and therefore easier to describe in a complaint.

The second-most-reported type of housing discrimination was based on race, constituting

18.97% of all complaints. According to the National Fair Housing Alliance®, 2022 Fair-
Housing Trend Report, "This is an increase in race-based complaints, as in 2020, race-based
housing discrimination complaints made up 16.79% of complaints received". This represents
an increase of approximately 3% of all complaints.

Discrimination against other protected classes such as familial status, sex, and national
origin is generally more subtle and therefore harder to detect and report. Color and religion,
as in previous reports made up the fewest number of reported cases.

LMS Page #144

Housing Discrimination Complaints by Transaction Type

The data in this section of the National Fair Housing Alliance®, 2022 Fair-Housing Trend
Report are based on complaints received that occurred in rental, real estate sales, mortgage
lending, and homeowners' insurance transactions. This data also include harassment and
other complaints based on protected class.

As in previous years' reports, the highest number of complaints were related to rental
housing. The National Fair Housing Alliance®, 2022 Fair-Housing Trend Report points to two
reasons for this.

First, rental transactions are the most frequent type of housing transaction. Second, the
simplicity of the transaction can make it easier to identify (or suspect) discrimination. In
2021, the number of rental-related housing discrimination complaints increased by almost
10% over the previous year's data.

LMS Page #145

The Report

According to the report, "This increase in complaints is the result of higher demand and
lower supply of available housing along with the continuing effects of the global pandemic.
While the federal government took steps to bolster the economy, additional safeguards were
needed to protect renter households from unfair and discriminatory practices.

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Such unfair practices can include landlords demanding three to five times the monthly rent
for tenants to qualify and restricting the application process to online systems. These
practices typically impact those already at a disadvantage for housing opportunities". The
second highest number of complaints were under the real estate sales transaction at 4.51%,
which is dramatically lower than rental-related complaints.

LMS Page #146

Total Fair Housing Complaints by HUD Region

The map below shows the total number of fair housing complaints by the 10 HUD regions
for the United States. It shows data for all the agencies combined (FHAP, NFHA, HUD, and
DOJ).

According to the National Fair Housing Alliance®, 2022 Fair-Housing Trend Report, " …
there are many states and localities that do not have a private or governmental fair housing
enforcement agency. This can make it difficult for consumers to understand their fair
housing rights and to know where and how to file a housing discrimination complaint".

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LMS Page #147

Fair Housing Investigations

The following are two fair housing investigations affecting Texas homebuyers and
homeowners. Both cases involve fair housing laws and the agencies that enforce them.
These cases appear in the National Fair Housing Alliance®, 2022 Fair-Housing Trend Report.

National Fair Housing Alliance v. Redfin

In April 2022, the National Fair Housing Alliance, along with nine local fair housing
organizations, agreed to settle a race discrimination lawsuit with Redfin Corporation. The
plaintiffs alleged Redfin "redlined communities of color in this digital age by setting
minimum home listing prices in each housing market on its website under which it will not

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offer any real estate brokerage services to buyers or sellers". They charged that Redfin's
practices perpetuated separate and unequal housing markets based on race in violation of
the Fair Housing Act.

Under the terms of the settlement agreement, Redfin agreed to change its minimum
housing price policy and implement changes to other practices to increase its services and
help counter redlining and residential segregation. It will pay the plaintiffs a total of $4
million.

LMS Page #148

Texas Housers v. State of Texas

In March 2022, HUD issued letters of findings that the State of Texas violated Title VI of the
Civil Rights Act of 1964 and Section 109 of the Housing and Community Development Act of
1987 by unlawfully discriminating based on race in its distribution of disaster relief funding.

In their complaint, Texas Housers and Northeast Action Collective alleged that the State of
Texas was awarding funding to prevent and mitigate disaster to white neighborhoods and
depriving that same funding to those in need who reside in historically black and Hispanic
neighborhoods.

If the parties are unable to agree to a voluntary resolution, HUD may refer the complainant
to the Department of Justice for resolution.

LMS Page #149

Exceptions to the Fair Housing Act

The Fair Housing Act applies to most, but not all, types of housing. Some exceptions to the
Fair Housing Act are as follows:

• Owner-occupied buildings with four or fewer units.

• Single-family homes rented without using a broker. There are caveats to this, but
the broker part is what you should note.
• Religious organizations. This is complicated, so if you are doing work on behalf of a
religious organization, know the limits of this exception.
• Private clubs and housing for the elderly.

LMS Page #150

TREC Rules Related to Discriminatory Practices

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The Texas Real Estate Commission has rules regarding discriminatory practices. TRELA
§1101.652(b)(32) authorizes TREC to suspend or revoke a license if the license holder,
while acting as a broker or sales agent, discriminates against an owner, potential buyer, a
landlord or potential tenant on the basis of:

• race,
• color,
• religion,
• sex,
• disability,
• familial status,
• national origin, or
• ancestry,

including directing a prospective buyer or tenant interested in equivalent properties to a

different area based on:

• race,
• color,
• religion,
• sex,
• disability,
• familial status,
• national origin, or
• ancestry of the potential owner or tenant.

LMS Page #151

Statute

The statute referenced is reflected in TREC Rules under Chapter 531, Canons of Professional
Ethics and Conduct, which states in §531.19, Discriminatory Practices:

(a) No real estate license holder shall inquire about, respond to, or facilitate inquiries
about, or make a disclosure of an owner, previous or current occupant, potential
purchaser, lessor, or potential lessee of real property which indicates or is intended
to indicate any preference, limitation, or discrimination based on the following:

(1) race;

(2) color;

(3) religion;

(4) sex;

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(5) national origin;

(6) ancestry;

(7) familial status; or

(8) disability.

(b) For the purpose of this section, disability includes AIDS, HIV-related illnesses, or HIV
infection as defined by the Centers for Disease Control of the United States Public
Health Service.

LMS Page #152

National Association of REALTORS® (NAR) Code of Ethics and Standards of

Practice

Members of the REALTOR® organization must also consider the NAR Code of Ethics and
Standards of Practice. Article 10 says REALTORS® shall not deny equal professional services
to any person or be parties to any plan to discriminate for reasons of race, color, religion,
sex, disability, familial status, national origin, sexual orientation, or gender identity.

In November 2020 and again in January 2023, NAR approved a series of recommendations
from NAR's Professional Standards Committee that extend the application of Article 10 of
the Code of Ethics to discriminatory speech and conduct outside of members' real estate
practices. Standard of Practice 10-5 says REALTORS® must not use harassing speech, hate
speech, epithets, or slurs based on race, color, religion, sex, handicap, familial status,
national origin, sexual orientation, or gender identity.

LMS Page #153

Definitions and FAQs Courtesy of NAR

Harassing Speech

Speech that is intended to threaten, intimidate, denigrate, or otherwise harass a person or

group of people.

Hate Speech

Speech that is intended to insult, offend, or intimidate a person because of some trait (such
as race, religion, sexual orientation, national origin, or disability).

Epithets

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A characterizing word or phrase accompanying or occurring in place of the name of a person

or thing; A disparaging or abusive word or phrase.

Slurs

Insulting or disparaging remark or innuendo; aspersion; A shaming or degrading effect;

Stain or stigma.

LMS Page #154

Does TREC Enforce the National Association of REALTORS® (NAR) Code of Ethics?

TREC is the state government agency that regulates real estate license holders in Texas.

When a license holder violates TREC Rules or state laws, TREC can take disciplinary action
that can include license suspension or revocation.

The NAR Code of Ethics is enforced statewide by Texas REALTORS®, the voluntary
membership organization for real estate license holders.

TREC does not enforce the NAR Code of Ethics and complaints should go to Texas
REALTORS®.

LMS Page #155

What is the difference between discrimination based on race versus color?

Race discrimination is treating people differently based on their ancestral or cultural

characteristics.

Color discrimination is treating people differently based on their skin color but can occur
between persons of different and/or the same race.

Color relates to the pigmentation of the skin.

Color discrimination may occur between people of the same race who have different skin
tones.

Color and race discrimination may occur at the same time but are also independent
concepts.

LMS Page #156

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What is the difference between discrimination based on national origin versus

ancestry?

Ancestry refers to the place where your ancestors came from, and though this is different
from national origin (which refers to the place where you yourself were born), the two types
of discrimination are closely tied to one another.

Discrimination based on ancestry is often tied to issues of race, color, and nationality.

It can take many forms, but generally is based on language, physical appearance, cultural
customs or dress, or a combination of these.

LMS Page #157

What is Bias and Why Does it Matter in Real Estate?

Bias is a disproportionate weight in favor of or against an idea or thing. No one is

completely free from bias, and often those feelings are innocuous. For instance, you may
hold a bias against a certain college football team because it is your alma mater's football
rival. Or you might think Texas barbecue is the best in the country. Typically, these biases
don't keep you from becoming friends with people who attended your rival college, or from
tasting the barbecue style of pitmasters from Nashville or Kansas City.

Bias becomes harmful when it results in actions that are closed-minded, prejudicial, or
unfair. Biases can be innate or learned. People may develop biases for or against an
individual, a group, or a belief. Knowing what bias is and how it comes up in the practice of
real estate means you will be able to spot it and intervene as appropriate. Being able to
identify the three different types of bias is a key tool in recognizing and addressing your
own biases (and how they could impact your duties to your client and the ethical practice of
real estate).

LMS Page #158

Let's Look

Take a look and see if you can identify any of your own, or any that you have seen in your
practice. With these descriptions in mind, walk through the activities that follow.

Cognitive Bias

Cognitive bias happens when a person recognizes the impact of biases on the judgment of
others, while failing to see the impact of biases on one's own judgment.

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Implicit Biases

Implicit bias often occurs unintentionally and affects judgments, behaviors, and decisions.
This kind of bias occurs as the brain makes judgments based on past experiences,
education, and background.

Unconscious Biases

Unconscious biases are learned attitudes or social stereotypes about an individual, a group
or a belief that comes from outside one's own conscious awareness. Unconscious biases can
involuntarily affect the way we think and act. Unconscious bias and beliefs often stem from
one's tendency to organize social worlds by categorizing.

LMS Page #159

Bias Activity

Knowledge Check

Seeing the bias in others but failing to see the impact of biases on one's own
judgment describes which of the following?

1 Biases

2 Cognitive Bias

3 Implicit Biases

4 Unconscious Bias

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #160

Bias Activity

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Knowledge Check

This kind of bias occurs automatically as the brain makes judgments based on past
experiences, education, and background:

1 Biases

2 Cognitive Bias

3 Implicit Biases

4 Unconscious Bias

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #161

Bias Activity

Knowledge Check

Disproportionate weight in favor of or against an idea or thing, usually in a way

that is closed-minded, prejudicial, or unfair describes which of the following?

1 Biases

2 Cognitive Bias

3 Implicit Biases

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4 Unconscious Bias

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #162

Bias Activity

Knowledge Check

Learned attitudes or social stereotypes about certain groups of people that

individuals from outside their own conscious awareness describes which of the
following?

1 Biases

2 Cognitive Bias

3 Implicit Biases

4 Unconscious Bias

This page contains the above Interactive Activity. The student will make their choice and be
given the percentage results of other students.

LMS Page #163

Mrs. Hottenshot Sells Her Home

Imogene, a licensed sales agent for Big City Realty, has a listing appointment this afternoon
at a house in her farm area. She is excited about the opportunity, but a little nervous
because the seller, Mrs. Hottenshot, is a referral from her mom. Mrs. Hottenshot and

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Imogene's mom are friends, involved in several community groups together, and have lunch
together every month.

Imogene is well prepared for the appointment. Like all listing opportunities, she has
provided Mrs. Hottenshot with a packet of information introducing herself and her company.
Imogene included market information about the neighborhood in her presentation. She has
a detailed CMA and a marketing plan to attract the most probable buyers. Although
Imogene hasn't been inside Mrs. Hottenshot's home, she has sold several properties on the
same cul-de-sac over the years.

LMS Page #164

Dancing Queen

When Imogene arrives at Mrs. Hottenshot's home, she gathers her materials from the car
and nearly dances her way to the front door in her excitement to help one of her mom's
friends. "This is going to be great", she thinks as she rings the doorbell.

The two greet each other warmly. Before inviting Imogene inside, Mrs. Hottenshot walks
Imogene out into the front yard. As she points down the peaceful tree-lined street, she tells
Imogene about her neighbors.

"What a great street!" thinks Imogene.

"Such a friendly neighborhood. This sale should be a snap", exclaims Imogene. "I can see
how anyone would want to live here".

Mrs. Hottenshot jolts to a stop and turns to Imogene with a frown.

LMS Page #165

Ruined?

"I don't think you understand, Imogene", says Mrs. Hottenshot. "I need to know what
potential buyers look like before they can view my home. You see, there are only people like
me who live on this street. If I let the wrong kind of people buy my house, the entire street
and neighborhood could be ruined. I don't want to be responsible for that. I have a
responsibility to my neighbors to keep this neighborhood up".

Shocked, Imogene isn't sure how to respond. After a deafening silence, she decides to start
by explaining the Fair Housing Act and how she as a license holder must act. Imogene lists
the protected classes under the law.

Legal Update I | TREC #47600

Not to be denied her opinion, Mrs. Hottenshot continues. She proclaims with great
determination, "I will only sell my house to someone who looks like me and who was born
right here in our great country".

LMS Page #166

Discussion Questions

If you were Imogene, how would you respond to Mrs. Hottenshot?

Imogene should refuse the listing. She should once more explain the fair housing act and
TREC's rule on discriminatory practices found in the Canons of Professional Ethics.

What should Imogene say to her broker?

When back in her office, Imogene should document the conversation that she and Mrs.
Hottenshot had. She should alert her broker of the incident and provide the broker the
detailed description that she has written.

LMS Page #167

What is Steering When Showing Properties?

Steering in real estate is about showing properties - or not showing properties - based on
race, color, national origin, religion, sex, familial status, or disability. It includes directing
clients to view property in certain neighborhoods or not providing information on housing
available in certain areas because of a particular status.

Steering is a violation of fair housing laws. License holders must keep their biases in check
and not make assumptions based on stereotypes. Consumers must be allowed to choose
which communities and neighborhoods they want to live in. Here are two different examples
with the same result.

LMS Page #168

Agent Kirin and Client Aaron

Sales agent Kirin is a devout Christian and active in his church. He lives in a part of town
with many families who are members of the same church.

Client Aaron has asked Kirin to view rental properties, specifically some available near
Kirin's neighborhood. Aaron is single, and mentioned in passing to Kirin that he is Jewish.

Legal Update I | TREC #47600

Although Kirin knows there are some available rental properties in his neighborhood, Kirin
tells him that part of town is only families, and that Aaron would probably be more
comfortable with a property closer to the local synagogue where he might "fit in better".

Aaron doesn't know what to do. He was shocked when Kirin told him he wouldn't fit in
because of his religion and feels like he can't ask Kirin to show him what is available in his
desired neighborhood.

LMS Page #169

Discussion Questions

How is this an example of steering?

Kirin steered Aaron away from his own neighborhood full of families because Aaron is single
and Kirin thought he should be closer to the synagogue because of Aaron's religion.

How could Kirin avoid steering Aaron?

Kirin shouldn't let his bias cloud his judgment of which properties to show. Kirin is bound by
his fiduciary duties and fair housing laws in his representation of Aaron.

What would you tell Aaron to do in this scenario?

Tell Aaron that it is unlawful and that he should file a complaint and inform Kirin's broker.
You can also contact Kirin's broker and file a complaint with TREC, the Texas Workforce
Commission, or local housing agency, as applicable.

LMS Page #170

Agent Kylie and the New Family in Town

Sales agent Kylie's clients, a family recently immigrated from Pakistan, has asked to view
rental properties close to their new workplace, as they do not want a long commute.
However, Kylie is excited to show them properties in another part of town with a high
population of Pakistani immigrants and a thriving Pakistani cultural center.

Kylie is certain that once the family sees the two rental properties next to the cultural
center, they will definitely want to take one despite the longer commute to work. Sure,
there are other rental properties near the office where the family "thinks" they want to live,
but she isn't going to tell them about those. She knows they will thank her for finding a
place where they will feel right at home.

Legal Update I | TREC #47600

LMS Page #171

Discussion Questions

How is this an example of steering?

Kylie is steering her clients towards a part of town she thinks is better for them based on
her own assumptions and beliefs regarding their nationality.

How is this scenario different than Kirin and Aaron, and how is it similar?

Although Kylie doesn't tell them they belong in another part of town like Kirin did, Kylie is
making assumptions based on her clients' national origin and not showing her clients
properties in the part of town they requested. The results are the same - both are instances
of unlawful steering.

How could Kylie avoid steering the new family in town?

Kylie is bound by the same fiduciary duties and legal obligations as Kirin. Kylie should listen
to her clients instead of thinking for them, which was clearly misdirected since the family
specified their preferences.

LMS Page #172

System Page

LMS Page #173

Lesson 4

LMS Page #174

Learning Objectives

After participating in this module, you will be able to:

• explain appraisal bias, including federal and state initiatives to reduce it,
• describe best practices for advertising and marketing related to fair housing,
• recall resources for fair housing information and assistance,
• understand the rights of tenants with disabilities under the Fair Housing Act,
• and understand the differences between reasonable accommodations and
modifications.

Legal Update I | TREC #47600

LMS Page #175

Appraisal Bias

A person's home is often one of their most highly valued assets. However, research shows
biases by appraisers can result in undervalued homes, particularly in communities with
people of color. The federal government created the Interagency Task Force on Property
Appraisal and Valuation Equity (PAVE).

According to the PAVE website at https://pave.hud.gov/about, PAVE is dedicated to ending

bias in home valuation. This task force includes 13 federal agencies and offices and is
chaired by the U.S. Department of Housing and Urban Development (HUD) and the White
House Domestic Policy Council.

LMS Page #176

HUD Secretary Marcia Fudge Regarding Appraisal Bias

Click the image above to watch the video.

LMS Page #177

Legal Update I | TREC #47600

Texas State Agencies Partner to Address Appraisal Bias, Fair Housing Violations

A new partnership between the Texas Appraiser Licensing and Certification Board (TALCB)
and the Texas Workforce Commission Civil Rights Division (TWC) benefits Texas consumers
who may experience discrimination or bias in their home appraisal.

Federal and state laws prohibit discrimination by appraisers in the appraisal process.

Yet, research shows there is bias in property valuations at the national level based on race,
ethnicity, or national origin, particularly in majority-Black and majority-Latino
neighborhoods, resulting in undervalued properties and ultimately lower financial returns on
homeownership.

LMS Page #178

Serious Concern

"Appraisal bias is a serious concern for the appraisal industry. The vast majority of
appraisers work to ensure appraisals are completed objectively and without bias. As a
Board, we strive to ensure fairness and thoroughness in the investigative process for all
involved. Our partnership with TWC expands the resources available to achieve this goal",
said TALCB Chair Sara Oates, president of Total Appraisal Management & Review in Austin.

Texas Workforce Commission (TWC), the state agency that investigates complaints alleging
violations of the Texas Fair Housing Act, and TALCB, the state agency that licenses and
regulates real property appraisers, will each review complaints by consumers related to
appraisals that involve possible fair housing violations.

LMS Page #179

Response

"The partnership between TALCB and TWC ensures highly trained staff in both agencies are
able to respond to possible instances of bias in appraisals of housing", said TWC Executive
Director Ed Serna. "TWC remains dedicated to ensuring all Texans are protected against
bias in housing sales, rentals, financing, and appraisals".

"The partnership between TWC and TALCB means Texas consumers affected by appraisal
bias can trust that their complaints will be investigated from every angle by professionals
with deep knowledge in both fair housing and appraiser industry standards and regulations",
said TALCB Commissioner Chelsea Buchholtz.

A complaint that alleges appraisal bias can go to either agency.

Legal Update I | TREC #47600

LMS Page #180

TALCB's Program and More Information about Appraisal Bias

Click the image above to watch the video.

LMS Page #181

Appraiser Awareness

TALCB Gets Tips on Discriminatory Language

The Texas Appraiser Licensing and Certification Board (TALCB) is receiving state tips from
Fannie Mae on discriminatory language in appraisals. Both organizations are working to
make appraisers aware of the issue.

Appraisers should exercise care to avoid comments in a report that may be perceived as
biased or illegally discriminatory.

For example, describing a neighborhood as "poverty stricken with ___% of Black; ___%
Hispanic; ___% Asian" is inappropriate.

Legal Update I | TREC #47600

Other inappropriate language, as described by the Federal Housing Finance Agency (FHFA),
includes statements like "predominately Hispanic", and "residents have assimilated their
culture heritage into the neighborhood".

LMS Page #182

USPAP

The Uniform Standards of Professional Appraisal Practice (USPAP) Ethics Rule requires
appraisers to perform assignments ethically, with impartiality, objectivity, and
independence, and without unsupported conclusions relating to characteristics such as race,
color, religion, national origin, and gender.

Appraisers can earn continuing education credit for taking courses that include ethics, Fair
Housing, bias, and discrimination.

The Appraisal Standards Board adopted the Fifth Exposure Draft in April 2023 with an
effective date of January 1, 2024. It changes the USPAP Ethics Rule by adding
nondiscrimination provisions, along with other revisions that clarify an appraiser's
obligations related to nondiscrimination in appraisal practice.

LMS Page #183

Fair Housing Executive Order 13988 - Protection Against Sexual Orientation and
Gender Identity

Following the June 2020 Supreme Court decision in Bostock v. Clayton County in which the
Court stated that prohibition against sex discrimination included sexual orientation and
gender identity, President Biden issued Executive Order 13988 on Preventing and
Combating Discrimination on the Basis of Gender Identity or Sexual Orientation, which set a
policy "to prevent and combat discrimination on the basis of gender identity or sexual
orientation, and to fully enforce Title VII and other laws that prohibit discrimination on the
basis of gender identity or sexual orientation".

In accordance with the Executive Order, the HUD Fair Housing and Equal Opportunity
Department (FHEO) issued a memorandum in February 2021 titled "Implementation of
Executive Order 13988 on the Enforcement of the Fair Housing Act".

LMS Page #184

The Memo

Legal Update I | TREC #47600

The memorandum stated, that due to the decision in Bostock v. Clayton County and
Executive Order 13988, the FHEO would take actions to administer and fully enforce the Fair
Housing Act to prohibit discrimination based on sexual orientation and gender identity, and
address discrimination based on actual or perceived sexual orientation and gender identity
under the Fair Housing Act.

It is important for all license holders in Texas to be aware of this Supreme Court ruling, the
Executive Order, and the FHEO memorandum because anti-discrimination protections are
now in place for individuals of all sexual orientations and gender identities regarding fair
housing.

Click here if you would like to view the Memorandum

In Conclusion

License holders have an obligation to advocate for others, and a threat to justice anywhere
is a threat to justice everywhere. License holders must be engaged in assessing their own
biases and assisting themselves and others to find common ground.

LMS Page #185

Fair Housing: Do's and Dont's, Property Management

Fair Housing Advertising and Marketing Prohibitions

Under the Fair Housing Act, it is illegal for anyone to:

• Advertise or make any statement that indicates a limitation or preference based on

race, religion, color, sex, national origin, disability, or familial status. This prohibition
against discriminatory advertising applies to all housing, including single-family and
owner-occupied housing that is otherwise exempt from the Texas Fair Housing Act.
• Harass, coerce, intimidate, threaten, or interfere with anyone exercising a fair
housing right or assisting others who exercise their fair housing rights.

Did you notice that we said it is illegal for anyone to do these things? By anyone, we (and
the government) mean anyone. While there are certain carve outs for certain types of
properties, this prohibition applies to all, including owner-occupied buildings and single-
family residences.

LMS Page #186

Fair Housing Dont's

Legal Update I | TREC #47600

As a license holder, you have a lot on your to-do list. But this don'ts list will keep you out of
fair housing hot water.

Under the federal Fair Housing Act and Texas Fair Housing Act, no one may take any of the
following actions in the sale and rental of housing based on race, color, religion, sex,
national origin, disability, or familial status.

• Refuse to rent or sell housing.

• Refuse to negotiate for housing.
• Advertise housing to preferred groups of people only.
• Show apartments or homes in certain neighborhoods only.
• Say that housing is unavailable for inspection, sale or rental when in fact it is
available.
• Set different terms, conditions or privileges for sale or rental of a dwelling.
• Provide different housing services or facilities.
• Deny access to or membership in a facility or service (such as a multiple listing
service) related to the sale or rental of housing.
• Refuse to make certain modifications or accommodations for people with disabilities.

LMS Page #187

Helpful Resource Alert!

The Office of the Governor is also committed to ensuring Texans are treated in accordance
with the law when it comes to fair housing. In fact, the Governor has an entire page
dedicated to fair housing. It contains various resources, links, explanations, and important
guidance related to fair housing in the State of Texas. You can find that page
at gov.texas.gov/organization/disabilities/housing.

Fair Housing Best Practices

Understand your responsibilities as a license holder under federal and state fair
housing laws.

This course contains a lot of information, but there are also a lot of resources and training
modules available online through HUD and TDHCA that go into more detail.

You can learn about fair housing in every area of real estate.

LMS Page #188

Provide your sponsored agents training about fair housing.

Legal Update I | TREC #47600

If you are a broker, it is your duty to ensure your sponsored agents are current on real
estate laws and regulations.

It makes your sponsored agents better at what they do and more confident in identifying
fair housing issues that may impact your clients.

Don't assume you know which housing choice best "fits" your client.

These assumptions are often based on their disability, familial status, or protected classes.
Give your clients all the information about all of the available properties that meet their
stated criteria.

LMS Page #189

Bonus Tip

Focus on a client's budget and not personal assumptions on where you believe they should
live. Find housing options that meet the budget and any other requested criteria.

Be mindful of sharing your personal opinion instead of facts...

Especially descriptions of neighborhoods, schools, or crime.

Don't be afraid to say you cannot answer certain questions.

You are not allowed to answer questions like, "What kind of people live in this
neighborhood?" because of fair housing laws.

That is not a breach of your fiduciary duty - you are following the law.

LMS Page #190

Understand the difference between a request for reasonable accommodation and

reasonable modification.

Having that knowledge will help you help your client.

Make a difference!

Commit to treating all your clients and parties to a transaction fairly.

Legal Update I | TREC #47600

Do not assume that you "don't discriminate", so therefore you don't need to be worried
about fair housing.

Teach those around you.

A license holder committed to doing the right thing under fair housing and actively working
to teach the real estate community about fair housing is a big step in the right direction.

LMS Page #191

The Fair Housing Poster

No office is complete without a few inspirational posters related to teamwork! But did you
know there's another poster that is even more important than those? It's the federal Fair
Housing Poster, which provides a brief summary of the Fair Housing Act and relevant HUD
contact information for individuals who believe they have experienced unlawful
discrimination.

The poster must be prominently displayed and readily apparent to anyone seeking housing
accommodations. Where you must post the poster depends on the type of property being
offered sale or rent.

Single-family dwellings (not being offered for sale or rental in conjunction with
the sale or rental of other dwellings)

There must be a Fair Housing poster at any place of business where the dwelling is offered
for sale or rental (like a broker's office).

LMS Page #192

Other dwellings

The Fair Housing poster must be posted at any place of business where the dwelling is
offered for sale or rental.

This is true unless the single-family dwelling is being offered for sale or rental with other
dwellings and the poster is maintained at model dwellings - posted at the beginning of
construction and throughout construction.

There are required dimensions for the Fair Housing Poster. You can find it online on the HUD
website.

Legal Update I | TREC #47600

Failure to properly display the Fair Housing Poster is considered prima facie evidence of
discrimination, meaning it is presumed you discriminated against the person who made a
complaint against you if you don't have the poster properly displayed.

Not to get too lawyerly on you, but that is a really big deal!

LMS Page #193

Make sure you are complying!

This is the current version. Click here if you would like a copy.

Legal Update I | TREC #47600

LMS Page #194

Resources for Fair Housing Information

This exchange between the Engaged Broker and TREC contains helpful links to the Texas
Department of Housing and Community Affairs (tdhca.state.tx.us), the Texas Workforce
Commission (twc.texas.gov), and the U.S. Department of Housing and Urban Development
(hud.gov) websites providing fair housing information and assistance.

However, did you know that counties and municipalities in Texas may have additional
housing discrimination laws to protect additional groups that may exceed federal
protections?

For example, veterans are a protected status in San Antonio. The Austin Municipal Code
includes gender identity, creed, age, and student status as protected classes.

To find out about existing additional protections in your county or municipality, contact your
local Legal Aid Office using TexasLawHelp.org.

LMS Page #195

Fair Housing and Rental Properties

The Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings,
and in other housing-related transactions, based on race, color, national origin, religion,
sex, and familial status. You may have missed the "rental" component of that in the chapter
before, but it is crucial that license holders engaging in leasing and property management
understand rental properties are governed by the Fair Housing Act.

If you don't understand these concepts and how they apply in the rental market, you could
be on a dangerous path and ultimately harm consumers. Even if leasing and property
management is not your area of practice, make sure you pay close attention. You never
know when your area of practice is going to change. Plus, being knowledgeable in fair
housing in any type of brokerage activity will only make you a better license holder who can
spot discrimination and speak up!

Two separate laws provide rights for people with disabilities: The Americans with Disabilities
Act (ADA) and the state and federal Fair Housing Act. This section will focus on the Fair
Housing Act because it applies to private property.

LMS Page #196

Fair Housing and Disability Rights

Legal Update I | TREC #47600

What is a Disability?

Under the Fair Housing Act, a disability means a physical or mental impairment which
substantially limits one or more of a person's major life activities, a record of the
impairment, or being regarded as having an impairment.

Below are some specific prohibitions related to disability under the Fair Housing Act. Every
license holder should be mindful of these rights for renters with disabilities.

• Housing providers may not refuse to rent housing to a person with a disability
because of that disability.
• Housing providers may not have tenant selection criteria, fees, or conditions that are
different from those applied or provided to people without disabilities.
• Housing providers cannot require people with disabilities to only live on certain floors
or certain areas of the community.
• Housing providers cannot refuse to make repairs or limit access to public or common
areas, parking privileges, or services available to other residents.

LMS Page #197

Reasonable Accommodation Requests

People with disabilities have a right to request a reasonable accommodation, which is a

change in rules, policies, practices, or services necessary so someone with a disability has
an equal opportunity to use and enjoy a dwelling, including public and common-use areas.
When feasible, housing providers like landlords and property managers are required to
provide reasonable accommodations when tenants or prospective tenants make a request
because of their disability. Costs associated with reasonable accommodation requests are at
the landlord's expense.

However, there has to be a connection between the requested accommodation and the
disability. Just because someone has a disability and makes a request doesn't mean it has
to be granted. Here are other tips about reasonable accommodation requests.

• Requests can be verbal or written.

• There are no specific words, like reasonable accommodation, that must be included
in a request.
• Requests can be from the person with the disability, by a family member of that
person, or someone else requesting it on a person's behalf.

If a request meets all the requirements but the property owner or manager still refuses to
make a reasonable accommodation, this could be unlawful discrimination.

Legal Update I | TREC #47600

LMS Page #198

Reasonable Modification Requests

Some prospective or current tenants may request a reasonable modification. A reasonable

modification under the Fair Housing Act is a structural change made to an existing premises,
occupied or to be occupied by a person with a disability, in an effort to afford such person
full enjoyment of the premises.

Examples of modifications that typically are reasonable include widening doorways to make
rooms more accessible for people using wheelchairs, installing grab bars in bathrooms,
adding a ramp to make a primary entrance accessible, or altering a walkway to provide
access to a public or common-use area.

Importantly, the Fair Housing Act provides that the tenant is generally responsible for costs
associated with a reasonable modification.

LMS Page #199

What Would You Do?

Fair Housing Edition

What Would You Do? was a popular television reality show.

As you're reading these, put yourself in the scenarios. Think about the facts as they are
happening.

• What could be different?

• Could anything change with just one different action?

Using the knowledge you have gained, let's take a look at some scenarios and then you can
decide...

What Would You Do? Fair Housing Edition.

LMS Page #200

Episode One

Mary-Anne drives by a lovely one-story home in a coveted cul-de-sac with a for lease sign in
the yard and snaps a picture to schedule a showing. With her lease ending soon, Mary-Anne
feels the property is too good for her and her son to miss out on.

Legal Update I | TREC #47600

Mary-Anne's son David is an Olympian who would like to be within 15 minutes driving time
from his training gym.

Mary-Anne meets the agent at the property, tours the home, and falls in love. David's gym
is just one exit from the home. She is on a video call with David, who is at practice,
throughout the process to let him see the home. They both agree to file an application right
away. David says he will head straight to the home after practice to view it himself before
submitting their paperwork.

LMS Page #201

On Point

Everything is good until David makes his way into the living room where Mary-Anne and
real estate agent Judy are talking. David introduces himself to Judy and tells her he
competes in wheelchair archery.

Judy's smile begins to falter when David asks whether the landlord will allow them to make
modifications to the home while renting, including adding a ramp to the front door to make
it easier for him to access the home.

Judy knows that her clients said they want to "maintain the integrity of the neighborhood"
and would be very hesitant to allow certain modifications.

LMS Page #202

Discussion Questions

How should Judy approach this situation?

This is an opportunity to address the importance of having a conversation with all parties
regarding modifications and who (the landlord or tenant) is responsible for what. Possible
answers could include:

• Tenant may be allowed to make approved modifications.

• Tenant will restore property back to original state.
• Tenant may render a drawing of what modifications will look like.
• Landlord may consult with contractor.

LMS Page #203

Episode Two

Legal Update I | TREC #47600

Malika and Darius Daniels, a Black couple, are looking to buy three residential investment
properties to lease. The husband and wife team already own five properties and share over
15 years of leasing experience between them. They arrive to tour the Lantana Lofts with
agent Kevin Nguyen, a REALTOR® who seems uninterested in showing the couple the three
available units. Malika loves the units and tells Darius they should put an offer in on all
three. He agrees and lets Kevin know.

Kevin expresses concerns over whether Malika and Darius will be able to qualify for the
financing. Darius suspects something is amiss but assures Kevin that they can afford the
units and are purchasing with cash. Kevin then says that he is reluctant to sell to the couple
because he does not feel they will fit in. He says he advertised the property as being in a
"vibrant Vietnamese community … mere minutes from Asiatown", which set off alarm bells
in the couple's heads. Before they leave, Kevin insists that they visit another property down
the road before submitting an offer with him. On the car ride to the next property, Darius
tells Malika he feels they are being discriminated against, and she agrees they should look
into filing a complaint.

LMS Page #204

Discussion Questions

If you were Darius or Malika, would you move forward with filing a complaint?

Darius and Malika could certainly file a complaint.

There were several red flags that could provide a basis for a complaint:

• Kevin assumed that Darius and Malika could not qualify for financing.
• Kevin's insistence on visiting another property when Darius and Malika were
interested in making an offer on the Lantana Lofts.
• The way the properties were advertised is problematic.

What federal or state fair housing laws, TREC Rules, or NAR Code of Ethics
violations may Kevin be facing?

The Fair Housing Act (both Texas and federal), The Real Estate Licensing Act (TRELA), TREC
Rules §531.19, and NAR Article 10.

LMS Page #205

Episode Three

Legal Update I | TREC #47600

Victor wants a change of scenery and is looking for a new property before his lease ends. He
finds an option online and contacts Jose, the property owner.

During the walkthrough, Jose, who is Latino like Victor, told Victor he usually has white
tenants because he never has problems with them. Victor assured Jose he would take good
care of the unit if approved. Jose told him everyone says that before moving in.

Though anxious of remarks during the showing, Victor submitted his rental application.

After completing the initial steps, Victor asked Jose to provide him with an approval letter to
receive payment assistance for his security deposit. Jose refused, which keeps Victor from
renting.

LMS Page #206

Discussion Questions

If you were Victor, what would be your next steps?

Victor could file a complaint based on Jose's comments.

Why do you think Jose refused to provide Victor with the approval letter?

More information is needed. However, Jose stated he doesn't usually have problems with
white tenants, so his refusal to provide the letter may have been race based. Another
reason could have been that Jose was apprehensive to work with someone using rental
assistance.

What type of bias did Jose have against Victor?

Jose's biases include implicit bias and stereotyping (unconscious bias). Jose needs to have a
system in place where he uses the same procedure for all applicants.

LMS Page #207

Assistance Animal Requests

Animals that provide assistance, perform tasks for the benefit of a person with a disability,
or provide emotional support that alleviates one or more identified effects of a person's
disability are considered assistance animals.

People with assistance animals can request a reasonable accommodation to allow their
assistance animal to live with them.

Legal Update I | TREC #47600

This is true even in properties that have a "no pets policy".

According to HUD, an assistance animal is not a pet. Under the law, assistance animals do
not have to have a certificate or specific training.

LMS Page #208

No Pets Means No Pets?

Sales agent Nicola's client Anna has an assistance animal named Rocko. Nicola doesn't
know exactly what the large dog does, but she knows Rocko assists Anna with her disability.

Nicola shows her client a property that seems ideal. She later finds out that property has a
strict no pets policy, even for assistance animals. Nicola has a feeling this is illegal, but she
has only ever seen dogs used as service animals for blind people, so maybe Rocko isn't
considered an assistance animal.

Better to be safe than sorry in this tough rental market, she thinks. She advises her client
to move on in her search, because no pets means no pets.

LMS Page #209

Discussion Questions

What should Nicola have done in this scenario?

The scenario discussed in "No Pets Means No Pets?" is an example of where the prospective
tenant had a right to request a reasonable accommodation for her assistance animal.

Let's change that scenario up a bit and make it so that the landlord allowed pets but
charged a monthly "pet rent". In that case, the landlord would have likely needed to make a
change to the "pet rent" policy to exempt Anna's assistance animal from the pet rent as a
reasonable accommodation.

What should Nicola have done in this scenario?

Nicola's feeling should have been more than just a feeling. She should have worked with her
client and informed the property owner's agent that her client has an assistance animal
related to her disability. As a license holder, you should know that a no pets policy is fine,
but not when it comes to assistance animals. For more information about assistance
animals, visit the following links:

HUD Information About Assistance Animals

Legal Update I | TREC #47600

https://www.hud.gov/program_offices/fair_housing_equal_opp/assistance_animals

HUD Memo on Assistance Animals

https://www.hud.gov/sites/dfiles/PA/documents/HUDAsstAnimalNC1-28-2020.pdf

LMS Page #210

Laws Related to Fair Housing From the 88th Texas Legislature

House Bill 567: The Crown Act (Creating a Respectful and Open World for Natural
Hair)

The Texas Fair Housing Act was amended to add a new section related to racial
discrimination based on hair texture or protective hairstyle.

Texas Property Code §301.0045 states that discrimination because of race or on the basis of
race under the Texas Fair Housing Act includes discrimination because of or on the basis of
a person's hair texture or protective hairstyle commonly or historically associated with race.

It also states that "protective hairstyle" includes braids, locks, and twists.

LMS Page #211

House Bill 1193: Section 8 and Property Owners' Associations

As a result of House Bill 1193, property owners' associations cannot prohibit a property
owner from leasing to a tenant based on the tenant's method of payment, like Section 8.
Section 8 is a federal housing voucher program designed to assist low-income families, the
elderly, and people with disabilities, so they can afford housing by subsidizing a portion of
their rent.

This legislation came after a North Texas association drew criticism for adopting a policy
banning Section 8 tenants. This policy would have displaced nearly 600 residents, 93% of
whom were Black. Subsequently, both the Department of Housing and Urban Development
(HUD) and the U.S. Department of Justice had begun investigating whether this policy
violated the federal Fair Housing Act.

House Bill 1193, which amends Chapter 202 of the Texas Property Code, applies to all
property owners' associations, including condominiums.

LMS Page #212

Legal Update I | TREC #47600

Am I an Expert on Fair Housing Now?

These last sections have touched on some very important topics related to fair housing.

However, fair housing is complex and ever evolving in both practice and the law.

The more you know about fair housing, the better.

Continue learning about fair housing so you are compliant in your practice and so you can
spot issues when you see them.

Remember, fair housing is fair for everyone!

LMS Page #213

Final Thoughts

So – that's a lot of information – but no one ever said practicing real estate was easy. The
TREC Legal Update I course contains valuable rules updates and case studies that all license
holders can learn from. Please remember - one result in a case doesn't mean the same
result will always happen. When in front of a jury or judge - ANYTHING can happen.

Our school is often asked... "Why do we need to know... X?", or "Why did TREC include that
topic in the course?" We listened - and we took the time to ask TREC those very questions.
Their response was: "Some of these changes are important to know, even if not used every
day."

TREC did make an effort to include various topics in this update, for various types of license
holders, REALTOR® members, and topics on commercial transactions.

Reminder: At any time, even after you complete this course, if you have questions on a
topic - call me. I'm your personal instructor, and I'll do my best to answer your questions,
or give you a contact that will assist you... and with that - Bob's your uncle. (And before
you ask.. that means - that's the end of this course). Please click the next page link to finish
the last few pages.

Acknowledgments

Texas Real Estate Commission

• R. Scott Kesner, Chair

• Mark Woodroof, Vice Chair
• Benjamin "Ben" Peña, Secretary

Legal Update I | TREC #47600

• Stuart Bernstein
• Chance Brown
• Jason Hartgraves
• Leslie Lerner
• Renee Harvey Lowe
• Barbara Russell
• Chelsea Buchholtz, Executive Director

TREC Writing Staff

• Vanessa Burgess, General Counsel

• Jennifer Grube, Curriculum Developer
• Abby Lee, Deputy General Counsel
• Michael Molloy, Director of Enforcement
• Summer Mandell, Government and Strategic Communications Director
• Michael Molloy, Director of Enforcement
• Sierra Pizarro, Communications Specialist
• Jennifer Wheeler, Education and Examinations Director

Texas Real Estate Research Center at Texas A&M University Staff

• Pamela Canon, Executive Director

• Cheryl Pruitt, Program Director
• Gary Maler, Director of Strategic Initiatives

Texas Real Estate Research Center Advisory Committee

• W. Douglas Jennings, Chairman

• Doug Foster, Vice Chairman
• Troy C. Alley, Jr.
• Russell L. Cain
• Vicki Fullerton
• Patrick Geddes
• Besa Martin
• Rebecca "Becky" Vajdak
• Barbara Russell, Ex-Officio

LMS Page #214

System Page

LMS Page #215

Legal Update I | TREC #47600

Final Exam (Review)

You're about to begin the final exam for this course.

No passing grade is required.

To help with your mastery of the course topics, you will be provided the correct answers so
you can review any questions you missed.

If you are ready to begin, click the Next Page link below.

LMS Page #216

Quiz/Exam Page

LMS Page #217

3 More Steps

To finish up this course, please click the next page link, complete a course evaluation, and
digitally sign the TREC Distance Education Reporting Form so your credit can be processed
to TREC.

LMS Page #218

System Page

LMS Page #219

Course Evaluation Page

LMS Page #220

TREC Distance Education Reporting Form Page

Legal Update I | TREC #47600

LMS Page #221

Finished

Legal Update I | TREC #47600

Online Course – Supplemental Manual to Online Course

Common questions

The process for implementing a new rule by TREC starts with identifying issues by license holders, the public, or TREC staff, which may then be considered by advisory committees for proposing rule changes . These recommendations are drafted and reviewed by the appropriate committee, and if satisfied, the committee proposes the rule at a TREC Meeting . Once a rule is proposed, it is published in the Texas Register for public comment, allowing a 30-day period during which the public can submit written comments . After the comment period, the relevant committee reviews the comments and may recommend changes to the proposed rule based on feedback or maintain the original recommendation . Following this, the Commission votes whether to formally adopt the rule at a quarterly meeting . Public comments play a significant role as they can influence changes to the proposed rule or even lead to its withdrawal if significant concerns arise during the review process .

The Education Standards Advisory Committee (ESAC) plays a critical role in shaping real estate education standards in Texas. Comprised of 12 members, including seven real estate license holders, four education providers, and one public member, ESAC is responsible for regularly reviewing curriculum standards, course content, and instructor qualifications for qualifying and continuing education courses. It makes recommendations to the Texas Real Estate Commission (TREC) to ensure that education for license holders meets the highest standards, thereby enhancing the professionalism within the industry and protecting consumers . ESAC's influence is significant as it provides vital feedback that can lead to changes in the educational requirements for real estate professionals, impacting both new and current license holders. This ensures that education remains relevant and comprehensive, adapting to advancements and changes within the real estate sector . ESAC's recommendations are considered during the quarterly TREC meetings where rules can be proposed and reviewed, indicating its integral role in the ongoing development and adjustment of educational standards ."}

License holders and the public can influence TREC decisions by identifying issues and asking advisory committees to consider rule changes or new proposals . These proposals can be presented during the public comment portions of Commission meetings or advisory committee meetings, which are open to the public . Public comments are reviewed by the appropriate committee, which can recommend changes to proposed rules based on the feedback . Ultimately, the Commission votes on these rules at TREC Meetings after considering the advisory committee recommendations and public input .

The Fair Housing Act, a federal law, prohibits discrimination in housing-related transactions based on race, color, national origin, religion, sex, disability, and familial status, and this is complemented by Texas's own fair housing act, which is nearly identical . In Texas, the Texas Workforce Commission Civil Rights Division enforces these laws and works towards resolving complaints . License holders in Texas must adhere to fair housing laws, promoting equal opportunity and preventing discrimination in real estate transactions . In addition, Texas real estate laws, regulated by the Texas Real Estate Commission (TREC), provide for the suspension or revocation of a license if discrimination based on protected classes is found in real estate practices . This state-level enforcement strengthens the federal regulations by ensuring local compliance and addressing violations efficiently .

The Texas Real Estate Broker-Lawyer Committee (BLC) is tasked with drafting and revising the contract forms promulgated by the Texas Real Estate Commission (TREC) that are standardized to expedite real estate transactions and minimize controversy . This allows real estate license holders to use these forms without wading into practicing law . The BLC consists of 13 members: six attorney members appointed by the State Bar of Texas, six real estate broker license holders appointed by TREC, and one public member appointed by the Governor . Members serve six-year terms, except for the public member who serves a two-year term .

To ensure specific repairs and seller contributions to closing costs are included in a real estate offer, a buyer should explicitly include these items in the written contract. Any agreements or expectations regarding repairs or contributions should be documented in the contract to be enforceable, as verbal agreements or advertisements (such as MLS listings) are not legally binding . The buyer should utilize contractual provisions or addendums that detail repairs the seller is to undertake and specify the amount or percentage of closing costs the seller will cover. During negotiations, if specific repairs are agreed upon, these should be included in an amendment to the contract . It's also important to make use of any applicable forms provided by organizations like Texas REALTORS® or have an attorney draft necessary documents to ensure all terms are clear and legally enforceable ."}

Advisory committees contribute to the Texas Real Estate Commission (TREC) rulemaking process by examining various aspects of the real estate industry with a focus on consumer protection. These committees, which meet quarterly, consist of license holders and subject matter experts. They provide recommendations to the Commission, sometimes prompting rule changes based on their discussions or specific issues referred by the Commission, such as required education for brokers and sales agents . The committees play a role in proposing new rules, which the Commission then considers for public comment. After the public comment period, the advisory committees review feedback and can modify, withdraw, or maintain their recommendations before the Commission votes on formal adoption . Overall, advisory committees ensure comprehensive consideration and feedback on potential rule changes, thus shaping TREC's regulatory framework ."}

If a contract to sell has been broken due to an earnest money dispute and the seller wishes to re-list the property, the seller should first seek a formal termination of the existing contract. This can be achieved if both parties agree to terminate the contract in writing, typically involving a release-of-earnest-money form, or by obtaining a court order if necessary . The seller is advised to consult with a private attorney about the risks involved in proceeding with a subsequent sale without resolving the dispute, as unresolved contract issues can lead to legal complications . In the meantime, the agents involved should refrain from giving parties any advice about the termination of the contract and should focus on ensuring that any future transactions do not engage in conduct that could be construed as infringing on the existing contractual obligations ."}

TREC ensures transparency in the rule adoption process by publishing proposed rules or changes in the Texas Register, which allows the public a 30-day period to provide written comments. This feedback period ensures transparency and public involvement in the rule-making process. Proposed changes are reviewed by the relevant advisory committees who may revise the proposals based on public feedback before they are voted on by the Commission . Additionally, TREC meetings, where these proposals and adoptions are discussed, are open to the public, allowing further scrutiny and participation .

A seller can verbally make a counteroffer to a buyer, which can facilitate quicker negotiations for the sale of a property. However, it is important to note that once the parties agree on the terms and conditions of the sale, the agreement should be put into writing and signed by both parties to become a legally binding contract . While a verbal counteroffer is permissible, using a formal document, such as the Seller's Invitation to Buyer to Submit New Offer, can make the process more structured and allow the seller freedom to consider other offers .

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