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LAW OF CONTRACTS EXAM 2025 | QUESTIONS AND ANSWERS (100% Accurate)
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For an amendment to a contract to be valid, who must sign the amendment? - ANSWER - all parties involved With net leases, each added "net" requires a tenant to pay for an additional expense that may have otherwise fallen on the landlord. All of the following are expenses that could be paid under a net lease EXCEPT: - ANSWER - debt interest (Any lease that requires a tenant to pay rent, property taxes, insurance, and maintenance expenses is a triple-net lease.) Jasper and Aziz are engaging a real estate transaction. They want to make sure the interest being conveyed is officially and accurately recorded. What would they use to do that? - ANSWER - one of the sales contracts promulgated by TREC The six TREC-promulgated sales contracts describe the conveyance that the buyer and seller are agreeing upon. What allows the courts to identify a property with reasonable certainty? - ANSWER - The legal property description from the deed A sale and leaseback agreement is: - ANSWER - a way for landowners to free up capital while maintaining the same overhead expenses An unenforceable contract is one that has (or had) the potential of being a valid contract, but its enforcement is (or was) barred by some attribute of the contract or a technicality of law. Which of the following is NOT a law that could make a contract unenforceable? - ANSWER - doctrine of ratification (on the contrary: Some common causes for a valid contract being unenforceable are if a contract violates the statute of frauds, statute of limitations, or doctrine of laches) During a contract for deed: - ANSWER - The seller hold the legal title to the property and the buyer is entitled to possession and equitable title to the property An orange tree (which is not moveable and is something growing on the land in question) would be considered: - ANSWER - real property Real Property is the land plus improvements on the land (including what's growing on the land). Real estate loans are bought and sold on the: - ANSWER - secondary mortgage market
What is an executed contract? - ANSWER - a contract in which all terms have been fulfilled by all parties Aviv and Gregory are friends who are also parties to a real estate sale. They agree over a sale price verbally because they trust each other. As per the Statute of Frauds, which of the following is TRUE regarding the enforceability of their contract? - ANSWER - For their contract to be enforceable, it must be in writing AND signed by the party being charged. Contracts must be in writing and signed by the party to be charged to be enforceable. According to the TREC contracts, the title company (on behalf of the seller) will send what to the buyer within 20 days after they receive the signed contract? - ANSWER - Commitment for title insurance Which of the following about the unauthorized practice of law and real estate contracts is TRUE? - ANSWER - license holders are able to complete (fill in the blanks of) real estate contracts promulgated by TREC but should NOT create their own contracts If the buyer wants to make the contract contingent upon their ability to have environmental inspections of the property, the correct way to do that is: - ANSWER - Attach the Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum to the offer. What is eminent domain? - ANSWER - the power of the state to seize a citizen's private property or rights in a property WITH compensation but without the consent of the owner (prop taken for gov. use A seller's homeowner's insurance policy is cancelled at the time of closing. They will receive WHAT after closing for the part of their premium that was paid in advance? - ANSWER - A refund check WHAT loan programs are great for first-time homebuyers because they offer loan programs that focus on low down payments? - ANSWER - FHA & VA loans What is one limiting factor put on urban homesteads and rural homesteads? - ANSWER
The SAFE Mortgage Licensing Act requires a WHAT of MLOs? - ANSWER - state (Texas) and national mortgage license Both a Texas and national mortgage license is required for mortgage loan originators in Texas. What is a statutory law? - ANSWER - a law formally created by legislatures Eduardo made several changes to his contract. WHAT are these changes called and WHO must receive a copy of them? - ANSWER - These changes are amendments // the title company must receive a copy of them. To be enforceable in court, a sales contract must have: - ANSWER - competent parties WHAT specifies that the buyer will make payments to the seller and defines the terms of the property's seller becoming the lender? - ANSWER - Seller financing addendum The legislation code that governs real estate licensing today and the activities of licensed agents in Texas is the: - ANSWER - TRELA What is novation? - ANSWER - creating a new contract to replace an old contract and relieve the original party from liability (Novation is an alternative to assignment.) Commercial properties most commonly utilize which type of lease? - ANSWER - Net Lease The person proposing the contract is known as the: - ANSWER - Offeror When there is a breach of contract, the non-breaching party has the right to do all of the following EXCEPT: - ANSWER - nothing. B/C ***the non-breaching party can forfeit, rescind, sue for specific performance, or sue for compensatory damages. Which of the following pieces of legislation do NOT affect the mortgage lending business? - ANSWER - TRELA What does RESPA stand for? - ANSWER - Real Estate Settlement Procedures Act Brigit is an agent showing a house to Molly. Brigit knows the property's material facts have been disclosed, so she attempts to sell the property by drawing attention to the spacious family room and nice backyard view. Which of the following statements is TRUE? - ANSWER - Brigit can talk up the good qualities of the property (a little puffing is okay) as long as all the material disclosures have been made.
An offer that does not describe the method and terms of financing but does state the price is: - ANSWER - Valid What is an estate for years? - ANSWER - a leased possession of property for a certain, specific period of time WHAT must be delivered to the seller or the seller's agent within three days after the effective date of the contract? - ANSWER - A check for the Option fee What does the Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum do? - ANSWER - it makes the contract contingent on the buyer obtaining certain acceptable environment inspections What does it mean when a contract has lawful objective? - ANSWER - The subject of the contract adheres to all the necessary laws and regulations. Lynn leases an apartment. She invites her mother and her friend, Gaby, over for dinner. Of the parties present, Lynn is responsible for: - ANSWER - damages caused by all parties present (Lynn, Lynn's mother, and Gaby) Money the buyer offers to deposit towards the purchase price of a property in order to show their serious intentions to the seller is known as: - ANSWER - Earnest Money Real estate sales agents may: - ANSWER - Fill in promulgated forms Use fill-in-blank forms A seller knows they need to correct a title defect when they convey their property. They will likely utilize a: - ANSWER - Quitclaim deed When a breach of contract occurs, the injured party has the right to force performance or sue for monetary damages, which include all of the following EXCEPT ______. - ANSWER - Transitional What is implied agency? - ANSWER - when a party assumes consent to the relationship based solely upon inferences formed by the actions, conduct, and words of either or both parties. Kirpa and Tim are a married couple. Tim separately owns a property that both him and Kirpa live on for many years. Who will likely need to sign the deed at closing to sever homestead rights? - ANSWER - Both. When a married couple occupies a separate property (owned by just one of them), the non-owner acquires homestead rights. If the couple sells the home, the non-owner will also likely be required to sign the deed at closing to sever their homestead rights. Condominium owners: - ANSWER - DO own the interior of a residential unit
The statute of frauds states some leases must be in writing while others do not need to be in writing. Which of the following is TRUE? - ANSWER - Leases lasting for a term of longer than one year must be in writing. Leases for a period of longer than one year must be in writing to be enforceable. A financing contingency clause requires that: - ANSWER - the buyer get approved for a loan before being able to complete the purchase of a home (A financing contingency clause, also called a mortgage contingency, requires that the buyer get approved for a loan before being able to complete the purchase of a home.) Which of the following regarding personal and real property is TRUE? - ANSWER - Real property is land plus improvements on the land, so a house is an example of real property. Savings and loan associations, commercial banks, and savings banks are all: - ANSWER - primary lenders (When a homebuyer goes to a lender to make a loan, the consumer is doing business with a primary lender.) If a license holder put the client's earnest money into his/her own personal checking account he or she is guilty of: - ANSWER - Commingling ONLY a broker can enter into an agency relationship with a(n): - ANSWER - Principal (ONLY a broker can enter into an agency relationship with a principal (who may be a seller, buyer, landlord, or tenant). Though a title is not an actual document, it still signifies the: - ANSWER - actual ownership of a property Fannie Mae and Freddie Mac participate in which of the following? - ANSWER - Secondary Mortgage Market (government-sponsored enterprises (GSEs) that participate in the secondary mortgage market) Joe is a real estate agent assisting a client with a promulgated form. The client does not agree with a few phrases in the form, so Joe strikes those phrases out. Which of the following is TRUE? - ANSWER - Joe should NOT have done that as agents may only fill in the appropriate blanks in a form or add their business details. In completing those forms, the agent may only fill in the appropriate blanks in the form or add their business details. Which of the following represents a contract that would be considered both executory and voidable? - ANSWER - Al and Sue entered into a contract when Sue was intoxicated. The contract will close in two weeks.
An executory contract is a contract which has NOT been completely executed or performed. Any contract made with a party who is NOT mentally competent is voidable. Which of the following about tax lien priority is TRUE? - ANSWER - tax liens take priority over non-tax liens Taxing entities take priority over those that are in the public records. The IRS gets their money first, then real estate tax liens are settled, and then (if any) the mechanic's tax lien is settled. The Non-Realty Items Addendum is used to provide the parties to a contract a place to negotiate and agree to non-real estate items that may be: - ANSWER - purchased separately from the property The Non-Realty Items Addendum is used to provide the parties to a contract a place to negotiate and agree to non-real estate items that may be purchased separately from the property. Who is allowed to require that a promulgated form is used? - ANSWER - a property owner OR a government agency A government agency can require the use of their own form instead of the TREC promulgated form. A property owner (principal) can also request a promulgated form be used. The buyer and seller closed on a property on June 17th. The tax bills will not come in until November. Who will receive and pay the taxes when the tax bill arrives? - ANSWER - Buyer After a tenants moves out of their unit, the landlord has HOW MANY days to mail them their security deposit as per WHAT code? - ANSWER - 30 days as per the Texas Property Code Landlords must mail a tenant's security deposit within 30 days of the tenant moving out of the residence. In which type of lease does the base rent change? - ANSWER - Variable The leasing of bare, undeveloped land is carried out through a: - ANSWER - Ground Lease Sharkari owes $23,000 on a first lien mortgage and $13,000 on a second lien recorded just a few weeks ago. Her property goes into foreclosure. Which sum will be paid off first? - ANSWER - the $23,000 because it was recorded first In general, liens are prioritized by the date that they are recorded. An example of voluntary alienation is: - ANSWER - property passing to a party according to a will A valid will is an instrument for voluntary alienation.
If the prospective buyer backs out of the contract for reasons not stipulated or allowed in the contract, they have breached the contract and thereby forfeit their earnest money. A seller should counter, accept, and respond to offers on their property: - ANSWER - as they see fit because they are not required to respond Offers on a property can be countered or accepted in any order by the seller. Sellers utilizing the Seller Financing Addendum and acting as a lender should: - ANSWER - take the precautions a lender does when an institutional loan is made, such as asking for a buyer's credit report Just like any other lender, a seller providing seller financing has the right to check a buyer's creditworthiness. What is severance? - ANSWER - Severance of the mineral estate and surface estate occurs when an owner sells the surface and retains all or part of the minerals. Jack and Jill own a property as tenants in common. Jack dies. What happens to Jack's interest in the estate? - ANSWER - Jack's interest will go to Jack's heirs. When someone who is a tenant in common with another person dies, the deceased person's interest in the estate is transferred to the deceased person's heir. When a buyer applies for a loan, the lender will consider factors such as credit, income, and what else? - ANSWER - debts What are riparian rights? - ANSWER - rights that govern the use of flowing water, such as rivers, streams, and creeks that pass through or border a property The surface of land, all things below the surface of the land, and things growing on the land are all considered: - ANSWER - real property Real Property is the land and improvements on the land. Real property is not moveable and includes the surface of the land, all things below the surface of the land, and what's growing on the land. Which of the following contracts has no legal effect? - ANSWER - A void contract What are the three parties to the deed of trust? - ANSWER - Borrower, lender, trustee When dealing with contracts, which of the following best describes assignment? - ANSWER - one party to a contract relinquishes the responsibilities and benefits of a contract to another party who takes their place How do lenders recover their money when borrowers do not pay their mortgage? - ANSWER - The lender can foreclose, take title to the property, and sell it to recover as much money as possible.
Jose needs third-party financing, so he knows he will need to fill out the Third Party Financing Addendum. Jose's agent knows this addendum will address: - ANSWER - the six types of third-party financing If a buyer is going to be obtaining a conventional home loan through a financial institution in order to purchase a house, the buyer will need to include the Third Party Financing Addendum as part of the contract. This addresses the types of third-party financing. If the court issues a protective order due to domestic violence or abuse, the Texas Property Code gives a tenant the right to: - ANSWER - terminate their lease Ernesto is a buyer who puts earnest money towards a transaction. He is worried because his credit is not immediately applied. When will Ernesto's earnest money be applied? - ANSWER - when the sale closes When a contract is executed, the earnest money will be applied toward the closing costs. Jeffery is a seller who knows he needs to disclose a few concerning facts about his property. He should utilize a: - ANSWER - Seller's Disclosure Notice A Seller's Disclosure Notice serves to allow sellers to disclose all items the Texas Property Code requires to be disclosed. If TREC promulgates a form, agents must use that TREC form. Which of the following is NOT one of the many TREC-promulgated forms? - ANSWER - Buyer/Tenant Representation Agreement TREC does not promulgate a form for a Buyer/Tenant Representation Agreement. Which of the following statements regarding agency agreements is TRUE? - ANSWER - Oral agreements are held to the same standards of agency relationships as written ones. Forms all real estate sales agents are required to use in certain circumstances (such as in real estate transactions for which a certain form was created) are called: - ANSWER - promulgated contracts Which of the following creates mutual consent? - ANSWER - Offer and Acceptance As a general rule, an oral sales contract involving the sale of real estate: - ANSWER - is unenforceable What type of funds MUST be deposited by the second working day after the effective date of the contract? - ANSWER - Earnest Money What is a method of withdrawing from a contract without actually canceling it? - ANSWER - Assignment
Which of the following is an example of an implied contract? - ANSWER - a person going to the doctor The general social conventions surrounding medical practices, combined with an individual's acceptance of the doctor's services, that create an implied contract between doctor and patient. All other choices are examples of express contracts. What is option money or the option fee? - ANSWER - the money a buyer pays a seller for unrestricted rights to terminate the sales contract within a specified amount of days after the effective date The contract used for resale homes, NOT new constructions, is known as the: - ANSWER - One to Four The One to Four Family Residential Contract (Resale) is the contract used for resale homes. The forced sale of a mortgaged property at a public auction is called a: - ANSWER - foreclosure The government of Pleasantville is seizing land in order to widen several major streets in the city. They take the land without the property owners' consent. This is an example of: - ANSWER - eminent domain Which of the following BEST describes joint tenancy? - ANSWER - co-ownership in which the parties have the right of survivorship; when one dies, the others receive that person's portion of the estate Which of the following statements regarding mineral rights and surface rights is TRUE?
If a homeowner sells his home, he is said to be separated from his home via: - ANSWER - voluntary alienation Which of the following is an example of a lien? - ANSWER - mortgage If the debt is not repaid, the debt recovered by foreclosure and sale of the real estate. TREC promulgated contracts have built-in contingencies. Most of them allow the: - ANSWER - buyer to legally terminate the contract The statute of frauds requires contracts to be in writing in certain, specific scenarios. All of the following scenarios ALWAYS require written contracts EXCEPT scenarios that: - ANSWER - involve terms that extend for LESS than a period of one year The statute of frauds requires for all contracts that involve the sale or transfer of real estate, debts, specific obligations, the sale of goods (exceeding $500), and lease terms longer than 1 year be in writing. The statute of frauds states some leases must be in writing while others do not need to be in writing. Which of the following is TRUE? - ANSWER - Leases lasting for a term of longer than one year must be in writing. Leases for a period of longer than one year must be in writing to be enforceable. What is essential for creating an express agency relationship? - ANSWER - Consent of both parties In which ownership structure does a group of people own a property together, with each receiving individual rights of possession during specific time periods? - ANSWER - Time Share Jeremy would like to move out of his parents house and rent an apartment. He is 17 years old and has sufficient savings to finance an apartment. Which of the following is TRUE? - ANSWER - Jeremy would NOT be considered a competent party to a lease because he is not at least 18 years old. A buyer who needs to ensure they are able to sell their old home before committing to the purchase of a new home should: - ANSWER - Include the promulgated addendum with the contract Deeds, marriages and divorces, liens, and owners of record are a few of the things an examiner at a title company will look at to issue a: - ANSWER - title company What gives the buyer the right to get a home inspected and negotiate further if there are repair issues? - ANSWER - inspection contingency