2010 Texas MCE
Post Assessment Questions
With Answers and Rationales
1. Which of the following addendums deals with the admissibility of an existing residential survey?
a. Notice of Buyer’s Termination of Contract.
b. Short Sale Addendum.
c. Residential Real Property Affidavit.
d. Oil, Gas, and Other Mineral Addendum.
Ans. c; Ref: Page 10
Rationale:Under the TREC’s promulgated contract forms, the survey contingency [Paragraph6.C.(1)] has a provision for the seller to provide the seller’s existing survey (it might be old) to the potentialbuyer for review, provided the existing surveyis correct.
The contingency, however, provides that the survey must be acceptable to the title company and the buyer’slender.
2. In determining the value of a residential homestead, the chief appraiser may not exclude the value of other residential property in the same neighborhood, because
a. it was sold at a foreclosure sale conducted within three years of the preceding tax year.
b. the market value has declined because of the declining economy.
c. either a or b.
d. neither a nor b.
Ans. c; Ref: Page 22
Rationale: In determining the value of a residential homestead, the chief appraiser may not exclude from considerationthe value of other residential property in the sameneighborhood, becauseit was sold at a foreclosure sale conducted withinthree years of the preceding tax year, or the market value has declined because of the decliningeconomy.
3.Insurance Code, §2703.101 provides that an owner’s title insurance policy on residential real propertythat is issued to an individual,coverage is expanded to the benefitof and provides title insurance to
a. the original insured’s spousewho receives title in a dissolution of marriage.
b. the trustee or successor of a trust established by theoriginal insured to whom the original insured transferred title.
c. the beneficiaries of the trust on the death of the original insured.
d. all of the above.
Ans. d; Ref: Page 23
Rationale:(Insurance Code, §2703.101) For an owner’s title insurance policy on residential real propertythat is issued to an individual,coverage is expanded to the benefitof and provides title insuranceto a person who inherits the originalinsured’s title upon the insured’sdeath; the original insured’s spousewho receives title in a dissolutionof marriage; the trustee or successor of a trust established by theoriginal insured to whom the original insuredtransferred title; or the beneficiaries of the trust on the death of theoriginal insured.
4. HB 10 was passed to comply with the Federal Secure and Fair Enforcement (SAFE) of Mortgage LicensingAct in 2008. The statute exempts all or the following EXCEPT
a. a registered mortgage loan originator acting for a depository institution.
b. all employees of an existing mortgage company.
c. a person who offers or negotiates a residential mortgage for an immediate family member.
d. a person who is an exclusive agent of a registeredfinancial services company.
Ans. b; Ref: Page 26
Rationale: The statute exemptsa registered mortgage loan originator acting for adepository institution,a person who offers or negotiates a residential mortgagefor an immediate family member,a licensed attorney who negotiates the terms of aresidential mortgage loan on behalf of a client,(unless the attorney takes a residential mortgage loanapplication and offers or negotiates the terms of theloan), a person who is an exclusive agent of a registeredfinancial services company,a person who offers or negotiates the terms of a residentialloan secured by his own residence, and a non-profit organization providing self-help housingthat originates zero interest residential loans.
5. Which of the following statements are true?
a. State law requires a property owners association toissue a resale certificate to confirm that no dues areowed for special assessments on a particular piece ofproperty.
b. No tolerances are allowed in the GFE in quoting the lender charges for taking, underwriting and processing the application.
c. The quoted terms andprices in theGFE must be available for 3 businessdays after the
GFE is issued.
d. If the parties agreeto modify a contract (for example, extend the closing date), thebroker need not suggest that the parties execute anamendment.
Ans. a; Ref: Page 28-31
Rationale:State law requires a property owners association to issue a resale certificate to confirm that no dues areowed for special assessments on a particular piece ofproperty.The quoted terms andprices in the GFE must be available for atleast 10 businessdays after theGFE is issued.The cost quoted in the GFE is subject to“tolerances” and lender charges for taking, underwritingand processing the application. Oral agreements to modify or extend time periodshave been the subject of litigation. If the parties agreeto modify (for example, extend the closing date), thebroker should suggest that the parties execute anamendment.
6. Which of the following is an exception to the TREC rule (22 TAC §537.11) which states that when negotiatingcontracts binding the sale, exchange, option,lease or rental of any interest in real property, a realestate licensee shall use only those contract formspromulgated by TREC?
a.Transactions in which the licensee is functioningsolely as a principal, not as an agent.
b.Transactions in which a governmental agency requires a different form.
c.Transactions for which a contract form has been preparedby the property owner or prepared by an attorneyand required by the property owner.
d. All of the above are exceptions.
Ans. d; Ref: Page 32
Rationale:The only exceptions to theforegoing rule are: transactions in which the licensee is functioningsolely as a principal, not as an agent; transactions in which a governmental agency requiresa different form; transactions for which a contract form has been preparedby the property owner or prepared by an attorneyand required by the property owner; transactions for which no form has been promulgatedby TREC, and the licensee uses a form preparedby a Texas-licensed attorney and which is approvedby the attorney for the particular kind oftransaction involved.
7. A licensee represents the interests of the agent’s client. The agent, in performing duties to the client, must do all of the following EXCEPT
a. treat other parties to a transaction fairly.
b. insist that the client hire an attorney to represent them.
c.. place no personal interest above the interest of his or her client.
d. perform his or her duties scrupulously and meticulously.
Ans. b; Ref: Page 63
Rationale: A licensee represents the interest of the agent’s client. The agent, in performing duties to the client,must make his or her position clear to all partiesconcernedin a real estate transaction, treat other parties to a transaction fairly, be faithful and observant to the trust placed in theagent, perform his or her duties scrupulously and meticulously,and place no personal interest above the interest of his orher client.
8. With regard to intermediary practices
a. a broker who representsthe buyer and the seller inthe same transaction must act as anintermediary.
b. the intermediary may appoint two licensees not associated with the broker to work with the buyer and seller.
c. both salespersons and brokers can act as intermediaries.
d. most typical intermediary relationships are created just prior to closing.
Ans. a; Ref: Page 71
Rationale:Intermediary status was created by statute in 1996 to acknowledge that a broker couldbe in the position of assisting twoprincipals involved in the sametransaction. A broker who representsthe buyer and the seller inthe same transaction must act as anintermediary.
9.With regard to “Minimum Services”, under TAC §535.156, the licensee has an obligation to submit all offers, and
a. must convey all known information that will affectthe principal’s decision to make, accept or reject offers.
b. must deal fairly and honestlywith all parties butowes a duty of fidelity tohis or her principal.
c. both a and b.
d. neither a nor b.
Ans. c; Ref: Page 82
Rationale: TREC regulations have addressed the minimum services a broker is obligated to provide in a number ofways. Under 22 TAC §535.156, the licensee has an obligation to submit all offers, must convey all known information that will affectthe principal’s decision to make, accept or reject offers, must deal fairly and honestlywith all parties butowes a duty of fidelity tohis or her principal, has an affirmative duty tokeep the principal informed,at all times, ofsignificant informationapplicable to the transaction,and has a duty to convey accurateinformation.
10. Which of the following is NOT required of the broker when dealing with a property defect?
a. Inform the seller that the broker is obligated by statuteto make the disclosure.
b. Inform the seller that an attorneyshould be consulted if the seller chooses not to disclosethe defect.
c. Inform the seller that the defect must be corrected prior to showing the property.
d. Inform the seller that the rules apply to commercial as well as residential property.
Ans. c; Ref: Page 85
Rationale:A seller of real property in Texas and a real estate broker must disclose to a prospective buyer any knowndefect in the property. The broker’s duty to discloseknown defects is the same regardless of whom thebroker represents. This duty applies to all types ofproperty (residential and commercial) [TRELA§1101.652(b)(4)].
11. TRELA §1101.652(b)(23) authorizes TREC totake disciplinary action against a licensee who is responsiblefor an advertisement (in any media) that
a. islikely to deceive the public.
b. in any mannertends to create a misleading impression.
c. fails to identify the advertiser as a licensed real estate broker or agent.
d. any of the above.
Ans. d; Ref: Page 89
Rationale:TRELA §1101.652(b)(23) authorizes TREC to take disciplinary action against a licensee who is responsiblefor an advertisement (in any media) that islikely to deceive the public or that in any mannertends to create a misleading impression or one thatfails to identify the advertiser as a licensed real estatebroker or agent.
12. Regarding mediation, which of the following statements is/are true?
a. Mediators do not make decisionsor give awards.
b. In a successful mediation, theparties agree on a settlement in writing, which becomesbinding on both parties.
c. Mediators followADR Procedures that are included in Chapter 154 ofthe Texas Civil Practices and Remedies Code.
d. All of the above are true.
Ans. d; Ref: Page 95
Rationale:Mediators do not make decisions or give awards. In a successful mediation, theparties agree on a settlement in writing, which becomesbinding on both parties. Mediators followADR Procedures that are included in Chapter 154 ofthe Texas Civil Practices and Remedies Code. Researchersat the RealEstateCenter at Texas A&M
University surveyed practitioners and found that mediation has been used to settle a high percentage ofdisputes. Many Texas judges require court-orderedmediation before hearing a case.
13. The Texas Real Estate Commission regulations provide that computer-driven printers can print forms, provided certain guidelines are followed. Which of the following is not one of the guidelines?
a. The computer file or program containing the form text must not allow the end userdirect access to the text of the form and may only permit the user to insert language inblanks in these forms.
b. All sample computer printed forms must be submitted to TREC for original approval.
c. Typefaces or fonts must appear to be identical to those used by the Commission inprinted forms of the particular form.
d. The text and number of pages must be identical to that used by the Commission inprinted proofs of the particular form.
Ans. b; Ref: Page 143
Rationale:The Texas Real Estate Commission regulations provide that computer-driven printers can print forms, provided these guidelines are followed:
? The computer file or program containing the form text must not allow the end user direct access to the text of the form and may only permit the user to insert language inblanks in these forms.
? Typefaces or fonts must appear to be identical to those used by the Commission in printed forms of the particular form.
? The text and number of pages must be identical to that used by the Commission inprinted proofs of the particular form.
? The spacing, length of blanks, borders, and placement of text on the page must appear to be identical to that used by the Commission in printed proofs of the form.
? The name and address of the person or firm responsible for developing the software program must be legibly printed below the border at the bottom of each page in no lessthan six-point type and no larger than ten-point type.
? The text of the form must be obtained from a proof of the form bearing a controlnumber assigned by the Commission.
14. With regard to the promulgated contract form, if box 7.D.(2) is checked and a defect is discovered during the option period what can the buyer do?
a. The buyer can exercise his right to terminate as set out in Paragraph 23, using TREC Form No. 38-2.
b. The buyer may propose an amendment to the contract, using TREC Form 39-6.
c. The buyer can do either of the above.
d. The buyer can do neither of the above.
Ans. c; Ref: Page 149
Rationale: If box 7.D.(2) is checked, it means the buyer has noticed a specific item on the property (broken trapeze in the master bedroom) that needs to be repaired and specifies the repairand/or treatment that must be completed prior to closing. In theory, this creates a shift of theburden, where the buyer is agreeing to take the property either “as is” or only after the sellerhas made the specific repairs. So it is up to the buyer to carry out inspections during theoption period.What if a defect is discovered during the option period? At this point, the buyer has to makea choice: (1) exercise his right to terminate as set out in Paragraph 23, using TREC FormNo. 38-2, or (2) propose an amendment to the contract, using TREC Form 39-6.
15. Texas law defines “reverse mortgage” as an extension of credit that requires no payment of principal or interest until
a. all borrowers have died.
b. the homestead property securing the loan is sold or otherwise transferred.
c. all borrowers cease occupying the homestead property for a period of longer than 12consecutive months without prior written approval from the lender.
d. any of the above.
Ans. d; Ref: Page 163
Rationale:Texas law defines “reverse mortgage” as an extension of credit that requires no payment of principal or interest until all borrowers have died, the homestead property securing the loan is sold or otherwise transferred or, all borrowers cease occupying the homestead property for a period of longer than 12consecutive months without prior written approval from the lender.
16. With regard to mortgage fraud, which of the following statements would be considered a “Red Flag”?
a. Investors and/or sellers receiving excess sales proceeds after acquiring the property.
b. Investors, appraisers, or mortgage officers telling buyers that they can acquire appraisals in excess of the sales price.
c. Secret second mortgages or earnest money deposits paid outside of closing.
d. All of the above would be considered “Red Flags”.
Ans. d; Ref: Page 189
Rationale: The following is a list of “red flags”:
•Investors making offers of significantly above asking price, particularly on property thathas been on the market for a long time.
• Investor/buyer/mortgage officers telling buyers that they can acquire appraisals in excess of the sales price.
• Investors claiming property as their primary principal residence, which is to be owneroccupied.
• Investors and/or sellers receiving excess sales proceeds after acquiring the property.
• Use of for-sale-by-owner transactions to circumvent the use of real estate professionals.
• Use of inexperienced or unsupervised licensees.
•Undisclosed concessions at the closing table.
• Not knowing the source or actual amount of the buyer’s down payment, inflated appraisals, false information about the borrower’s credit, and undisclosed rebates to anunknown third party.
• Secret second mortgages, earnest money deposits paid outside of closing.
• Double contracting, closing the sale on one tract while closing the loan on the second, higher priced contract.
17. Disclosure of a defect is required for a broker under §1101.652(b)(3) & (4) of the License Act and is required for which of the following transactions?
a. A transfer pursuant to a court order.
b. A sale of an existing residence.
c. A transfer by a trustee in bankruptcy.
d. A transfer to a mortgagee by a mortgagor or successor in interest.
Ans. b; Ref: Page 217
Rationale:The statute does not applyto any transfers:
• pursuant to a court order.
• by a trustee in bankruptcy.
• to a mortgagee by a mortgagor or successor in interest.
• by a mortgagee or a beneficiary under a deed of trust who has acquired the real propertyby sale conducted pursuant to a power of sale under a deed of trust or a sale pursuant to acourt-ordered foreclosure or has acquired the real property by deed in lieu of foreclosure.
• by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.
• from one co-owner to one or more other co-owners.
• made to a spouse or to a person or persons in the initial line of consanguinity of one o more of the transferors.
• between the spouses resulting from a decree of dissolution of marriage or a decree oflegal separation or from a property settlement agreement incident to such a decree.
• to or from any governmental entity.
• of new residences of not more than one dwelling unit that have not previously been occupied for essential purposes.
• of real property where the value of any dwelling does not exceed 5 percent of the value ofthe property.
18. In 2008, Fannie Mae and Freddie Mac were taken over by
a. France.
b. The Federal Reserve Bank.
c. The Federal Housing Finance Agency.
d. The FDIC.
Ans. c; Ref: Page 240
Rationale:On September 6, 2008, Director James Lockhart of the Federal Housing Finance Agency (FHFA) appointed FHFA as conservator ofFannie Mae. The U.S. Department of the Treasury has agreed to provide up to $200 billionin capital as needed to ensure the company continues to provide liquidity to the housing andmortgage markets.
19. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008,also known as SAFE Mortgage Licensing Act,
a. encourages the states toestablish a Nationwide Mortgage Licensing System and Registry for the residential mortgage industry.
b. sets forth procedures,requirements (including education and testing), and standards for mandatory registration andstate licensing of mortgage loan originators.
c. both a and b.
d. neither a nor b.
Ans. c; Ref: Page 256
Rationale:This Act, also known as SAFE Mortgage Licensing Act of 2008, encourages the states to establish a Nationwide Mortgage Licensing System and Registry for the residential mortgageindustry through the Conference of State Bank Supervisors (CSBS) and the AmericanAssociation of Residential Mortgage Regulators (AARMR). The Act sets forth procedures,requirements (including education and testing), and standards for mandatory registration andstate licensing of mortgage loan originators.