Texas Real Estate Laws You Need to Know for the Exam

One of the key components of the real estate exam is a thorough understanding of Texas-specific real estate laws and regulations. In this blog post, we'll highlight some of the most important legal concepts you need to know and some sample exam questions and answers to help you ace this section of the exam.

Deceptive Trade Practices Act

The Texas Deceptive Trade Practices Act (DTPA) is a critical piece of legislation that all real estate professionals must understand. It's designed to protect consumers from false, misleading, or deceptive business practices. As a real estate agent, you must be aware of the practices that are considered deceptive under this act to ensure that you conduct your business in a transparent and honest manner.

Key points about the DTPA include:

• Who it protects: The DTPA covers individuals, partnerships, corporations, or governmental entities that purchase or lease goods or services.
• What it prohibits: It outlaws deceptive business practices, which can range from passing off goods or services as those of another, making false statements about the source or sponsorship of goods or services, to selling goods under the pretense that they are something they are not.
• Who can be sued: Under the DTPA, anyone making false, misleading, or deceptive statements in business can be sued, including individuals, partnerships, and corporations.
• What is considered 'unconscionable': This refers to actions that take advantage of a person's lack of knowledge or ability to a grossly unfair degree.
• Breach of warranty: The act covers breaches of both express and implied warranties.
• Legal procedure: Before filing a lawsuit, consumers must give the merchant or seller a written notice of the problem at least 60 days before they can file suit in court.
• Potential damages: If a consumer wins a lawsuit under the DTPA and proves that the defendant knowingly deceived them, they may be eligible to recover up to three times the amount of damages.

Sample Question: Which of the following actions would be considered a violation of the Texas Deceptive Trade Practices Act?

• A. Providing a comparative market analysis to a potential seller.
• B. Failing to disclose known foundation issues to a buyer.
• C. Hosting an open house for a listed property.
• D. Placing a "For Sale" sign on a property with the owner's permission.

Answer: B. Failing to disclose known foundation issues to a buyer.

Homestead Laws

‍
Homestead laws in Texas offer significant protections to homeowners, allowing them to shield their homes from most creditors and providing tax benefits. A "homestead" can be a house, condominium, or a manufactured home located on owned or leased land, as long as the homeowner resides there. It may include up to 20 acres if the land is used for residential purposes.

To qualify for homestead exemptions, homeowners must own the home, it must be their principal residence, and their driver's license or state-issued ID must match the residence address. There are also specific exemptions for homeowners over 65, disabled individuals, and veterans, based on the level of the veteran's disability.

Tax benefits include a general residence homestead exemption, which, as of the latest updates, provides a $100,000 school tax exemption, meaning the homeowner's school taxes are calculated on a reduced property value. Additionally, there are exemptions for the elderly and disabled, and local governments may offer additional exemptions.

Homesteads in Texas can be urban or rural, with urban homesteads limited to 10 acres and rural ones to 100 acres for a single adult or 200 acres for a family. The classification of homestead as urban or rural can affect the size and type of exemptions available.

One doesn't need to file any formal document to establish a homestead—it arises automatically when the owner uses the land as a permanent residence and intends to make it their home. However, filing a homestead affidavit can be beneficial for both tax purposes and protection from creditors. Once a homestead is established, it continues unless it is abandoned, sold, or upon the owner's death. Even after selling a homestead, proceeds from the sale are protected from creditors for six months, allowing time to acquire a new homestead.

Understanding these laws is essential for advising clients about their rights and obligations when buying or selling property.

Sample Question: In Texas, which of the following is a requirement for a property to be considered a homestead?

• A. The property must be located within a city's limits.
• B. The property must be used exclusively for commercial purposes.
• C. The owner must designate the property as a homestead in the county records.
• D. The property must be the owner's primary residence.

Answer: D. The property must be the owner's primary residence.

Community Property Laws

Texas Community Property Laws outline that during a marriage, all property and income that spouses acquire are generally considered community property, meaning both spouses own them jointly. This encompasses a wide range of assets such as income from employment, real estate, vehicles, contributions to retirement accounts, unemployment benefits, and balances in bank accounts. However, certain types of property are classified as separate property, including anything owned before marriage or received as a gift, inheritance, or personal injury settlement during the marriage.

When it comes to division upon divorce, Texas courts aim to distribute community property in a manner that is "just and right," which may not necessarily be equal. Factors influencing this division include each spouse’s earning capacity, contributions to the marriage, custody of children, and fault in the dissolution of the marriage, among others.

For debts, those incurred during the marriage are typically considered the responsibility of the community property. Therefore, both spouses may be held liable for debts, irrespective of which spouse incurred them.

Community property also has implications for inheritance rights and can be affected by legal agreements such as prenuptial and postnuptial contracts. These agreements can specify terms for property division that differ from the standard community property rules.

In the event of divorce, dividing community property involves a comprehensive process that includes inventorying assets, appraising values, and sometimes negotiating settlements either in or out of court. It is important to document property and transactions clearly to distinguish between community and separate property, especially in high net worth cases or when assets have been commingled.

Sample Question: In a Texas divorce, how is community property generally divided?

• A. Equally between the spouses.
• B. Based on each spouse's financial contribution to the property.
• C. According to the terms of a prenuptial agreement.
• D. At the discretion of the court, based on what is just and right.

Answer: D. At the discretion of the court, based on what is just and right.

Landlord-Tenant Laws

As a real estate professional, you may be involved in leasing properties. In Texas, landlord-tenant laws cover a range of rights and responsibilities for both parties involved in a rental agreement. Some of the key areas these laws address include:

• Rental Agreements: Most landlords require a written lease agreement, but oral agreements are also legally binding. Any changes to a lease should be in writing and initialed by both parties.
• Security Deposits: There's no statutory limit on the amount a landlord can charge for a security deposit in Texas. However, landlords must return the deposit within 30 days of the tenant moving out, providing an itemized list of deductions if any part of the deposit is retained to cover damage or unpaid rent.
• Right to Quiet Enjoyment: Tenants have the right to quiet enjoyment of their premises, meaning landlords cannot evict them without cause and must not disturb their peaceful living without a valid reason.
• Health and Safety: Tenants can demand repairs for any condition that materially affects their physical health or safety. If the landlord doesn't make repairs after being properly notified, tenants may have options such as terminating the lease, deducting repair costs from rent, or seeking a court order for repairs.
• Security Devices: Rental properties must have certain security devices in place, such as window latches and deadbolts on exterior doors, and landlords must install and repair these at their expense.
• Evictions: Landlords have specific procedures to follow for evicting a tenant, which include providing proper notice and obtaining a court order.
• Tenant Duties and Consequences: Tenants are expected to comply with the rental agreement and can face consequences for violations, including eviction.
• Termination and Moving: The lease may include conditions for how and when a tenant can move out and what notice must be given.

Familiarity with these laws is crucial for managing rental properties effectively and legally.

Sample Question: In Texas, how long does a landlord have to return a security deposit after a tenant has vacated the property?

• A. 30 days.
• B. 60 days.
• C. 90 days.
• D. There is no specific time frame mandated by law.

Answer: A. 30 days.

Easements and Encroachments

In Texas, easements and encroachments relate to the use of or intrusion onto another person's property.

Easements

An easement is a legally recognized right for someone to use a portion of someone else's property for a specific purpose, like access to a road or utility lines. The creation of an easement in Texas can be done in several ways:

• Express Grant: Formally agreed upon in writing, following the formalities of real estate transactions.
• Prescription: Gained through continuous, exclusive, and open use of property against the owner’s wishes for at least ten years.
• Estoppel: Based on a property owner’s oral agreement if the person using the land has relied on that promise to their detriment.
• Implication: Imposed by a court for equity and usually when an easement has been used for some time without a formal agreement.
• Necessity: Particularly in cases where land would be landlocked without the easement.

Encroachments 

These occur when someone uses or intrudes on another person's property without permission, like when a neighbor builds a structure that extends over the property line. This can sometimes lead to disputes and may need to be resolved through negotiation or legal action. If a property owner suffers an encroachment, they may have to prove that they did not consent to the neighbor’s use and that it wasn’t a case of easement by prescription.

Sample Question: Which of the following best describes an easement in Texas?

• A. A permanent structure built by a neighbor that extends onto another's property.
• B. A written agreement between neighbors to share a driveway.
• C. A right granted by a property owner to a utility company to install power lines.
• D. A fence built by a property owner that encroaches on a neighbor's land.

Answer: C. A right granted by a property owner to a utility company to install power lines.

Final Thoughts

These are just a few examples of the Texas-specific legal concepts that you need to be familiar with for the real estate exam. Studying these areas thoroughly will not only help you pass the exam but also equip you with the knowledge to serve your clients effectively and ethically.

If you're looking for comprehensive exam prep to help you tackle the Texas real estate exam, consider Real Estate Exam Prep. We provide unlimited customizable practice exams, engaging concept videos, digital flashcards, and interactive exam prep e-books. Our intuitive online system tracks your performance and offers a nationwide pass guarantee.