LAW OF CONTRACTS|| ACTUAL EXAM|| CORRECT QUESTIONS & ANSWERS, Exams of Commercial Law

Download LAW OF CONTRACTS|| ACTUAL EXAM|| CORRECT QUESTIONS & ANSWERS and more Exams Commercial Law in PDF only on Docsity! LAW OF CONTRACTS|| ACTUAL EXAM|| CORRECT QUESTIONS & ANSWERS A sale and leaseback agreement is: - ANSWER a way for landowners to free up capital while maintaining the same overhead expenses 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.) What allows the courts to identify a property with reasonable certainty? - ANSWER The legal property description from the deed A promissory note is: - ANSWER the borrower's personal promise to repay the loan to the lender Who is responsible for writing commission checks to the brokers? - ANSWER Title Company 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. 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) The requirement for certain contracts be in writing and signed by all of the parties to the contract is included in the: - ANSWER Statute of frauds Jackie is a license holder who creates her own real estate contracts because she wishes to save herself (and her brokerage) time and money. Jackie has good intentions; what is true of her (and other license holders like her who create their own contracts)? - ANSWER Creating and drawing up contracts that transfer real property ownership is prohibited as it is an unauthorized practice of law. What makes a contract legally binding, is defined as "something of value exchanged by the parties as evidence of agreement to the terms of a contract," and applies the legal philosophy that a person CANNOT do something of value without receiving something in turn? - ANSWER Consideration (Consideration is something valuable that each party exchanges in order to demonstrate that they agree to the contract's terms. It can be a promise, money, property, forbearance, or services.) A seller stays in a property a few days after closing. They become the tenant and the buyer becomes the landlord. To put this in writing, utilize the: - ANSWER Seller's Temporary Residential Lease Adverse possession is: - ANSWER when a person develops legitimate ownership interests in another person's property through an openly hostile and continuous occupation of the land Four investors agree to co-ownership of an investment property. They have arranged the ownership structure so that if one of them dies, the decedent's ownership stake passes to the remaining investors. What form of co-ownership do the investors have? - ANSWER joint tenacy 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 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 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 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 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 violated and a party does not perform License suspension or revocation, fines, and further education requirements are all: - ANSWER possible penalties TREC may impose for violating the License Act It is possible for two people to accidentally create a contract by their actions. What kind of contract is this? - ANSWER implied contract What does the title company do with the earnest money check? - ANSWER They deposit it into an escrow account A sale contract must include the minimum requirements for a valid contract as well as: - ANSWER a legal property description Geri is about to sign a buyer/tenant representation agreement with a client. Which of the following is FALSE about Geri and Geri's agreement? - ANSWER Geri's client can be a party to as many buyer/tenant representation agreements as they like. Agents CANNOT enter into a buyer/tenant representation agreement with a client until they terminate their agreement with their current agent. These agreements should also be limited to a specific time period. Which entity drafts and edits contract forms? - ANSWER The Broker-Lawyer Committee `The statute of frauds is a state law that requires certain types of contracts to be: - ANSWER set out in writing and signed by all the parties bound by the contract Which instrument of conveyance provides the owner with the greatest protection? - ANSWER General warranty deed 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. 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. Yamina is taking out a VA loan. She will NOT be permitted to pay: - ANSWER escrow fees In a VA loan, the buyer is NOT permitted to pay any escrow fees. Which of the following statements is TRUE regarding encumbrances? - ANSWER All liens are encumbrances. If a buyer wants to show good faith, they can do it through presenting the seller with: - 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.) 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. The stipulations that there must be an offer and acceptance, that a contract must not contain any form of fraud, misrepresentation, or duress, and that there cannot be mistakes in the terms and conditions of a contract are all: - ANSWER hallmarks of mutual consent Three hallmarks or attributes of mutual consent are that there must be an offer and acceptance (there can be an offer and a counteroffer), the contract must not contain any form of fraud, misrepresentation or duress, and there cannot be mistakes in the terms and conditions of the contract. Regarding buyer and seller credits and debits, a seller is charged for taxes from January 1st through closing. WHO pays for the actual day of closing? - ANSWER the seller -- Ongoing expenses are prorated through the day of closing, with the seller paying for the actual day of closing. A home is about to be sold but is condemned before closing day. The sales contract is discharged by operation of law. Operation of law occurs when: - ANSWER a contract is not legally valid or becomes unenforceable due to a statute of frauds, a statute of limitations, or other legal regulations When is the best time for your buyer-client to get quotes on insurance policies? - ANSWER During her option period in the contract, this way if costs are exorbitant for some reason, they may still walk away from the transaction. Which of the following is NOT one of the five essential elements of a legally valid contract? - ANSWER orally agreed upon What are the essential elements to a legally valid contract? - ANSWER Legally competent parties, mutual consent, lawful objective, consideration, and adherence to the statute of frauds are the five elements of a legally valid contract. In Texas, the statute of limitations for specific performance of a contract for the conveyance of real property is: - ANSWER four years- Statute of limitations has to do with state and federal laws establishing a time limit for bringing certain kinds of legal actions. 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 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 statements is TRUE if a license holder is acting - ANSWER The license holder can use the promulgated form, but it is not required. In regard to contracts, which of the following BEST describes a performance agreement? - ANSWER a requirement that the contracting parties either perform certain actions or uphold certain contractual promises Regulation Z contains most of: - ANSWER TILA The Truth in Lending Act's principle laws are contained in Regulation Z.