Law of Contracts | Complete Questions
and Answers | 2026 Update | 100%
Correct - A+
Abstract of Title: -✓✓An abbreviated history of a property, including info on any
transfers, grants, wills, conveyances, liens, and encumbrances.
Example: Before Alice purchases the house on 1701 J J Solice Drive, she should ask
for the property's abstract of title.
Addendum: -✓✓An additional form attached to a real estate contract
Example: Percy is adding an Addendum for Reservation of Oil, Gas, and Other Minerals
to his ranch home sale because he wants to retain the rights to the natural gas he's
selling to an oil company.
Air Rights -✓✓Ownership rights to the air above a property, extending from the surface
of the land up into space
Note: The concept of air rights (and subsurface rights) comes from the Latin phrase "For
whoever owns the soil, it is theirs up to heaven and down to hell."
Amendement: -✓✓A document that changes the terms in a sales contract that has been
previously agreed to by all the parties; requires all parties to sign the amendment for it
to be valid
Example: The property owner who sold Crystal her new home last week called today to
ask for her to sign an amendment changing the date of closing.
What's the difference between an addendum and an amendment? -✓✓An addendum is
attached to a contract to create additional terms, and an amendment changes the terms
within an existing contract.
Closing: -✓✓The final step in the homebuying process, when the title to the property is
transferred from the seller to the buyer and consideration is paid to the seller
Example: Tomorrow is Shane's closing date for his new house and I can't tell who is
more excited, Shane or his mom, who will finally have an empty basement again.
Community Property: -✓✓A special form of joint tenancy that exists between a married
couple, with each owning a one-half interest; any house or real estate purchased during
a marriage is considered community property
,Example: John and Mary are getting divorced. They bought their house while they were
married, so it's considered community property in Texas and must be split evenly
between the two of them.
Note: Upon the death of someone who owns community property, the decedent's
interest passes in a manner similar to tenants in common.
Which of the following statements about community property is TRUE? -✓✓Community
property is a special form of joint tenancy that exists between a married couple.
Deed of Trust: -✓✓A security instrument that places the deed to the property in a trust
held by the lender until the mortgage is paid off, when the trustee will transfer the deed
to borrower
Example: Mikayla financed the purchase of her new home through a deed of trust. A
trustee will hold the title to her home until she, the borrower, pays off the money loaned
to her by the lenders.
Earnest Money: -✓✓Money the buyer offers to deposit towards the purchase price of
the property in order to show their serious intentions to the seller
Example: Jane has signed the contract to purchase the home on Castle Drive and has
deposited $5,000 in earnest money to the title company. It's legit; she's going to buy the
house!
Note: Earnest money is not the same as the down payment, but the money does go
towards the down payment. If the buyer breeches the contract and does not purchase
the house, the seller may keep the earnest money. If the broker receives a deposit or
earnest money, the broker must deposit the money by the close of business on the
second working day after the effective date of the contract.
Encumbrance: -✓✓Any restriction, encroachment, claim, or lien on a property (such as
a mortgage) that affects the value or use of the property
Example: Jane owns the title to that house, but the IRS has a tax lien on the property so
if she ever sells the house, the IRS will make sure they get their money first.
Equal Credit Opportunity Act (ECOA): -✓✓A legal protection for consumers against
unfair and discriminatory lending; located in Title VII of the Consumer Credit Protection
Act
Which of these is NOT governed by TREC? -✓✓mortgage banker
The Texas Real Estate Commission does not write or change TRELA. -✓✓TRUE
,TRUE or FALSE: License holders can always create their own forms to use in real
estate transactions. -✓✓FALSE
(Explained: License holders CANNOT always create their own forms for transactions.
The Commission, however, does not prohibit a license holder from using a form that is
prepared by the property owner or prepared by a lawyer and required by the property
owner.)
All real estate agents MUST: -✓✓use contracts promulgated by TREC
A broker is helping a government agency locate a building they can buy for an office.
The agency has their own forms they want the agent to use when they make their offer.
Can the agent do that legally? -✓✓Yes, a government agency can require their own
form to be used.
All of the following are possible penalties for unauthorized practice of law EXCEPT: -
✓✓finishing a mandatory 100 hours of community service
Promulgated Contracts: -✓✓Contracts promoted by the Texas Real Estate Commission
and required for use by all real estate sales agents when completing the transaction for
which the contract was created
Approved Contracts: -✓✓Contracts that are allowed by the Texas Real Estate
Commission but not required
What is the primary purpose of the Broker-Lawyer Committee? -✓✓to create, edit and
recommend contract forms to TREC
A form that TREC requires agents to use is called a(n) ______. -✓✓promulgated
contract
How many brokers are on the Broker-Lawyer Committee? -✓✓6
A Promulgated Contract's Life Cycle - -✓✓Step One: The Texas Broker-Lawyer
Committee identifies a real estate transaction that needs a standardized contract.
Step Two: The Committee then creates a contract for the transaction.
Step Three: The Committee then posts proposed contracts to the public in order to
receive feedback.
Step Four: The Committee makes any necessary revisions and then submits it to
TREC.
Step Five: TREC decides whether the Committee's proposed contract should be:
All of the following are contracts promulgated by TREC EXCEPT: -✓✓Timeshare/Resort
Residential Contract
, Which one of these is NOT a TREC promulgated contract? -✓✓First Time Home Buyer
Contract
Texas Deceptive Trade Practices Act (DTPA): -✓✓is the primary consumer protection
law in Texas. While the law has changed from its original version in 1973, it continues to
provide protection to consumers against:
-False and misleading statements or deceptive practices
-Unconscionable (inexcusable, unforgivable) actions
-Breaches of warranty
The DTPA gives consumers the right to sue for economic damages.
Which law protects consumers from fraudulent schemes? -✓✓Deceptive Trade
Practices Act
A seller tells his agent that his house had never flooded. The agent checks the flood
zone map and finds the property is not within the limits. After the house is sold, it is
discovered that the property has flooded many times before and the buyer is furious.
Could the agent be in violation of the DTPA? -✓✓No, it was the seller who made the
false claim, and the agent had no reason to doubt him.
Who enforces TRELA and oversees the licensing of agents? -✓✓Texas Real Estate
Commission
Which law protects consumers from fraudulent schemes? -✓✓Deceptive Trade
Practices Act
Common Law: -✓✓Law derived from past judicial decisions of courts
Statutory Law: -✓✓Law formally created by legislatures
Statutory laws are formally created by _____. -✓✓legistlatures
Land: -✓✓The surface of the earth, extending down to the center of the earth and up
into space
Improvement: -✓✓Any permanent man-made addition to land
Real Estate: -✓✓Includes the land AND any permanent human-made improvements
attached to it
Real Property: -✓✓Includes land and any permanent human-made improvements
attached to it, plus the bundle of legal rights of ownership
and Answers | 2026 Update | 100%
Correct - A+
Abstract of Title: -✓✓An abbreviated history of a property, including info on any
transfers, grants, wills, conveyances, liens, and encumbrances.
Example: Before Alice purchases the house on 1701 J J Solice Drive, she should ask
for the property's abstract of title.
Addendum: -✓✓An additional form attached to a real estate contract
Example: Percy is adding an Addendum for Reservation of Oil, Gas, and Other Minerals
to his ranch home sale because he wants to retain the rights to the natural gas he's
selling to an oil company.
Air Rights -✓✓Ownership rights to the air above a property, extending from the surface
of the land up into space
Note: The concept of air rights (and subsurface rights) comes from the Latin phrase "For
whoever owns the soil, it is theirs up to heaven and down to hell."
Amendement: -✓✓A document that changes the terms in a sales contract that has been
previously agreed to by all the parties; requires all parties to sign the amendment for it
to be valid
Example: The property owner who sold Crystal her new home last week called today to
ask for her to sign an amendment changing the date of closing.
What's the difference between an addendum and an amendment? -✓✓An addendum is
attached to a contract to create additional terms, and an amendment changes the terms
within an existing contract.
Closing: -✓✓The final step in the homebuying process, when the title to the property is
transferred from the seller to the buyer and consideration is paid to the seller
Example: Tomorrow is Shane's closing date for his new house and I can't tell who is
more excited, Shane or his mom, who will finally have an empty basement again.
Community Property: -✓✓A special form of joint tenancy that exists between a married
couple, with each owning a one-half interest; any house or real estate purchased during
a marriage is considered community property
,Example: John and Mary are getting divorced. They bought their house while they were
married, so it's considered community property in Texas and must be split evenly
between the two of them.
Note: Upon the death of someone who owns community property, the decedent's
interest passes in a manner similar to tenants in common.
Which of the following statements about community property is TRUE? -✓✓Community
property is a special form of joint tenancy that exists between a married couple.
Deed of Trust: -✓✓A security instrument that places the deed to the property in a trust
held by the lender until the mortgage is paid off, when the trustee will transfer the deed
to borrower
Example: Mikayla financed the purchase of her new home through a deed of trust. A
trustee will hold the title to her home until she, the borrower, pays off the money loaned
to her by the lenders.
Earnest Money: -✓✓Money the buyer offers to deposit towards the purchase price of
the property in order to show their serious intentions to the seller
Example: Jane has signed the contract to purchase the home on Castle Drive and has
deposited $5,000 in earnest money to the title company. It's legit; she's going to buy the
house!
Note: Earnest money is not the same as the down payment, but the money does go
towards the down payment. If the buyer breeches the contract and does not purchase
the house, the seller may keep the earnest money. If the broker receives a deposit or
earnest money, the broker must deposit the money by the close of business on the
second working day after the effective date of the contract.
Encumbrance: -✓✓Any restriction, encroachment, claim, or lien on a property (such as
a mortgage) that affects the value or use of the property
Example: Jane owns the title to that house, but the IRS has a tax lien on the property so
if she ever sells the house, the IRS will make sure they get their money first.
Equal Credit Opportunity Act (ECOA): -✓✓A legal protection for consumers against
unfair and discriminatory lending; located in Title VII of the Consumer Credit Protection
Act
Which of these is NOT governed by TREC? -✓✓mortgage banker
The Texas Real Estate Commission does not write or change TRELA. -✓✓TRUE
,TRUE or FALSE: License holders can always create their own forms to use in real
estate transactions. -✓✓FALSE
(Explained: License holders CANNOT always create their own forms for transactions.
The Commission, however, does not prohibit a license holder from using a form that is
prepared by the property owner or prepared by a lawyer and required by the property
owner.)
All real estate agents MUST: -✓✓use contracts promulgated by TREC
A broker is helping a government agency locate a building they can buy for an office.
The agency has their own forms they want the agent to use when they make their offer.
Can the agent do that legally? -✓✓Yes, a government agency can require their own
form to be used.
All of the following are possible penalties for unauthorized practice of law EXCEPT: -
✓✓finishing a mandatory 100 hours of community service
Promulgated Contracts: -✓✓Contracts promoted by the Texas Real Estate Commission
and required for use by all real estate sales agents when completing the transaction for
which the contract was created
Approved Contracts: -✓✓Contracts that are allowed by the Texas Real Estate
Commission but not required
What is the primary purpose of the Broker-Lawyer Committee? -✓✓to create, edit and
recommend contract forms to TREC
A form that TREC requires agents to use is called a(n) ______. -✓✓promulgated
contract
How many brokers are on the Broker-Lawyer Committee? -✓✓6
A Promulgated Contract's Life Cycle - -✓✓Step One: The Texas Broker-Lawyer
Committee identifies a real estate transaction that needs a standardized contract.
Step Two: The Committee then creates a contract for the transaction.
Step Three: The Committee then posts proposed contracts to the public in order to
receive feedback.
Step Four: The Committee makes any necessary revisions and then submits it to
TREC.
Step Five: TREC decides whether the Committee's proposed contract should be:
All of the following are contracts promulgated by TREC EXCEPT: -✓✓Timeshare/Resort
Residential Contract
, Which one of these is NOT a TREC promulgated contract? -✓✓First Time Home Buyer
Contract
Texas Deceptive Trade Practices Act (DTPA): -✓✓is the primary consumer protection
law in Texas. While the law has changed from its original version in 1973, it continues to
provide protection to consumers against:
-False and misleading statements or deceptive practices
-Unconscionable (inexcusable, unforgivable) actions
-Breaches of warranty
The DTPA gives consumers the right to sue for economic damages.
Which law protects consumers from fraudulent schemes? -✓✓Deceptive Trade
Practices Act
A seller tells his agent that his house had never flooded. The agent checks the flood
zone map and finds the property is not within the limits. After the house is sold, it is
discovered that the property has flooded many times before and the buyer is furious.
Could the agent be in violation of the DTPA? -✓✓No, it was the seller who made the
false claim, and the agent had no reason to doubt him.
Who enforces TRELA and oversees the licensing of agents? -✓✓Texas Real Estate
Commission
Which law protects consumers from fraudulent schemes? -✓✓Deceptive Trade
Practices Act
Common Law: -✓✓Law derived from past judicial decisions of courts
Statutory Law: -✓✓Law formally created by legislatures
Statutory laws are formally created by _____. -✓✓legistlatures
Land: -✓✓The surface of the earth, extending down to the center of the earth and up
into space
Improvement: -✓✓Any permanent man-made addition to land
Real Estate: -✓✓Includes the land AND any permanent human-made improvements
attached to it
Real Property: -✓✓Includes land and any permanent human-made improvements
attached to it, plus the bundle of legal rights of ownership
