1. A Texas broker receives earnest money in a commercial lease transaction rather than a residential sales transaction. Under TREC Rule 535.146, how must the broker handle these funds?
- A. Commercial lease deposits are exempt from TREC trust account rules; the broker may hold them in any account
- B. The broker must deposit the funds into the same trust account used for residential sales earnest money
- C. The broker must deposit the funds into a trust account maintained in accordance with TREC Rule 535.146, using proper client ledger records, regardless of whether the transaction is commercial or residential ✓
- D. The broker must forward the funds to a licensed title company within 24 hours because brokers cannot hold commercial escrow funds
TREC Rule 535.146 applies to all client funds received by a licensed broker in connection with a real estate transaction — it is not limited to residential sales. Whether the transaction involves a residential sale, commercial sale, or commercial lease, the broker must deposit client funds into a properly maintained trust account with individual client ledgers. There is no exemption for commercial transactions, and brokers are not required to forward such funds to a title company.
2. Under Texas Property Code Section 5.062, which of the following residential transactions is EXEMPT from the executory contract (contract for deed) disclosure requirements of Subchapter D?
- A. A contract for the sale of a single-family home where the buyer will use the property as their primary residence and the purchase price is under $50,000.
- B. A contract for the sale of a condominium unit located in a deed-restricted subdivision.
- C. A contract for the sale of residential property where the term of the executory contract is three years or less and the buyer has paid at least 40% of the purchase price.
- D. A lease with an option to purchase where the lease term does not exceed 180 days and the option is not otherwise combined with a purchase agreement. ✓
Texas Property Code Section 5.062 provides that Subchapter D's executory contract requirements do not apply to, among other things, a lease coupled with an option to purchase if the lease term is 180 days or less and the lease is not otherwise combined into a purchase contract. This narrow exemption recognizes that very short-term lease-option arrangements differ functionally from long-term installment sale contracts requiring the full set of statutory consumer protections.
3. Under TRELA, if a buyer's agent learns during a transaction that the buyer intends to use the purchased property for an illegal purpose, what is the license holder's obligation?
- A. The license holder must continue representing the buyer loyally because fiduciary duty supersedes all other considerations
- B. The license holder must immediately report the buyer to local law enforcement before taking any other action
- C. The license holder may withdraw from representation and is not required to assist the buyer in furtherance of an illegal purpose, even if doing so breaches the representation agreement ✓
- D. The license holder must disclose the buyer's intent to the seller so the seller can withdraw from the contract
Under TRELA and general Texas agency law, a license holder's fiduciary duty does not require them to assist a client in committing an illegal act. A license holder may withdraw from the representation to avoid participation in illegal activity. While TRELA imposes duties of loyalty and obedience to the client, those duties do not extend to facilitating unlawful conduct. The license holder is not mandated to report to law enforcement but may not continue facilitating the illegal purpose.
4. Under TREC rules, which of the following describes the proper handling of earnest money received by a salesperson in connection with a real estate transaction?
- A. The salesperson must promptly deliver the earnest money to the sponsoring broker, who must deposit it into a trust or escrow account in accordance with TREC rules; a salesperson may not maintain their own trust account. ✓
- B. The salesperson may hold the earnest money in a personal account for up to five business days before turning it over to the broker.
- C. The salesperson may deposit earnest money directly into the brokerage's operating account as long as it is properly logged.
- D. The salesperson may hold the earnest money in their own trust account provided they notify the broker in writing within 24 hours.
Under 22 TAC 535.146 and Texas Occupations Code §1101.652, a salesperson has no authority to maintain a trust or escrow account. Any earnest money received must be promptly delivered to the sponsoring broker for deposit into a properly maintained trust account. Commingling funds with a personal or operating account is a violation subject to disciplinary action.
5. Under TREC rules and the TREC One to Four Family Residential Contract, if a property is subject to a homeowners association (HOA), which of the following documents is the HOA seller specifically required to provide, and within what framework does this obligation arise?
- A. The seller must provide the HOA's audited financial statements within 5 days of the effective date of the contract
- B. The seller must provide the subdivision information including HOA documents, and if not timely delivered, the buyer may terminate the contract under the HOA Addendum ✓
- C. The seller is only required to provide the HOA's deed restrictions; the buyer must obtain all other HOA documents independently
- D. The seller must provide HOA documents within the option period; if the option period has expired, no further disclosure is required
Under the TREC Addendum for Property Subject to Mandatory Membership in a Property Owners Association, the seller is required to furnish subdivision information — which includes documents such as the HOA bylaws, rules, regulations, and current fees. If the seller fails to deliver these documents within the required time, the buyer has the right to terminate the contract and receive a refund of the earnest money. The obligation arises from the HOA Addendum, not just the main contract.