Home > Real Estate Stuff Consumers Should Know > New Texas TREC Residential Contract Changes Effective March 03-01-2011

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Published February 28 2011 8:53 pm

The use of the new Texas TREC promulgated Residential Sales contract becomes mandatory use effective March 03-01-2011. The contracts affected are:

• One to Four Family Resale Residential Contract
• New Home Contract (Incomplete Construction)
• New Home Contract (Completed Construction)
• Residential Condominium Contract
• Unimproved Property Contract
• Farm & Ranch Contract
• Third Party Financing Addendum
• Addendum for Property Subject to Mandatory Membership in a Property Owners Association
• Disclosure of Relationship with Residential Service Company
  
  (These contracts that are highlighted to indicate that the changes will be noted in this articles).

Note to Consumers: Real estate sales contracts are legal binding contracts between buyers and sellers of real estate transaction. If you do not understand these contracts or want these contracts to be explained to you in further detail, you must consult a Texas real estate attorney.

One to Four Family Resale Residential Contract

Paragraph 2.C. ACCESSORIES: The following described related accessories, if any: window air conditioning units, stove, fireplace screens, curtains and rods, blinds, window shades, draperies and rods, door keys, mailbox keys, above ground pool, swimming pool equipment and maintenance accessories, artificial fireplace logs, and controls for: (i) satellite dish systems, (ii) garage doors, (iii) entry gates and (iv) other improvements and accessories.

More often than not, controls are often left out (ie. forgotten) when the sellers vacate their properties for the new owners. This new change just bring to both buyers and sellers the importance of leaving these accessories behind. Some of the often-forgotten accessories include remote controls for blinds and garage door openers.

Paragraph 4.A.1. FINANCING

(1) Property Approval: If the Property does not satisfy the lenders' underwriting requirements for the loan(s) (including, but not limited to appraisal, insurability and lender required repairs), buyer may terminate this contract by giving notice to Seller prior to closing and the earnest money will be refunded to Buyer.

Prior to this change, when the property does not appraised, the contract is automatically terminated. However, it is change to give the Buyer the opportunity to terminate instead of occurring automatically.

(2) Credit Approval: (Previously known as Financing Approval)

This was changed from Financing Approval. See Third Party Financing Addendum for further explanation.

Paragraph 6.C.1. SURVEY

Seller shall furnish to Buyer and Title Company Seller's existing survey of the Property and a Residential Real Property Affidavit promulgated by the Texas Department of Insurance (T-47 Affidavit).
If Seller fails to furnish the existing survey or affidavit within the time prescribed, Buyer shall obtain a new survey at Seller's expense no later than 3 days prior to Closing Date.

The new contract added the name of the form (T-47 Affidavit). Also, the following paragraph was re-arranged from where it used to be to emphasize the importance.

Paragraph 6.E.2. PROPERTY OWNERS ASSOCIATION(S) MANDATORY MEMBERSHIP

If Buyer is concerned about these matters, the TREC promulgated Addendum for Property Subject to Mandatory Membership in a Property Owners Association should be used for each association.

Some properties are located with two (or more) Homeowners' Associations. Hence, this change is to recognize that if it happens, that there must corresponding number of Addendums for Mandatory Memberships.

Paragraph 7.D.2. ACCEPTANCE OF PROPERTY CONDITION

(Do not insert general phrases, such as "subject to inspections" that do not identify specific repairs). NOTICE TO BUYER AND SELLER: Buyer's agreement to accept the Property in its present condition under Paragraph 7D(1) or (2) does not preclude Buyer from inspecting the Property from terminating this contract during the Option Period, if any.

Two reasons for these additional statements. In the past, many buyers insert  general "subject to inspections" language into Paragraph (2). It is not advisable that Sellers sign an "open statement" such as that.

Also, the resale sales residential contract is an as-is sales contract. Buyers fear that if they check Box (1), that they would not be allowed to re-negotiate contract after the home inspection. The addition of this statement just makes clear to Buyer that by checking Box (1) at the time the contract was offered, that the buyer can still terminate during the Option Period, if any.

Paragraph 9.B.5. AT CLOSING

If the Property is subject to a lease, Seller shall (i) deliver to Buyer the lease(s) and the move-in condition form signed by the tenant, if any, and (ii) transfer security deposits (as defined under §92.102, Property Code), if any, to Buyer. In such an event, Buyer shall deliver to the tenant a signed statement acknowledging that the Buyer has received the security deposit and is responsible for the return of the security deposit, and specifying the exact dollar amount of the security deposit.

This is a new paragraph that was entered into the contract. In the past, whenever a Buyer purchases a property with an existing lease in place, the security deposit and other aspects of the lease-in-place were not discussed. This paragraph is intended to address the issues.

Paragraph 12.A.2. EXPENSES PAYABLE BY BUYER (BUYER'S EXPENSES)

Appraisal fees; loan application fees; adjusted origination charges; credit reports; preparation of loan documents ...

The term on the previous contract was loan application fees to adjusted origination charges.

Paragraph 15.B. DEFAULT

Seller automatically waives Seller's right to enforce specific performance if Seller fails to file a petition for specific performance within 45 days after the Closing Date as specified in Paragraph 9 or as extended in a written amendment in escrow agent's possession. Buyer automatically waives Buyer's right to enforce specific performance if Buyer fails to file a petition for specific performance within 45 days after the Closing Date as specified in Paragraph 9 or as extended in a written amendment in escrow's possession. The party filing the petition for specific performance must send a copy of the petition to escrow agent at the time the petition is filed.

This paragraph was initially included in the revision of the contract (TREC 20-09). However, on February 14th 2011, it was REMOVED because TREC has no power and authority to put a statue of Limitations on DEFAULT.

The original intention for the inclusion of the paragraph is to allow the property to be put on the market again by waiving the rights to remedy specific performance by either party. It is quickly removed.

The new revised version 20-10 must replace the 20-09 version.

Paragraph 18.B. EXPENSES

At closing, the earnest money must be applied first to any cash down payment, then to Buyer's Expenses and any excess refunded to Buyer. If no closing occurs, escrow agent may: (i) require a written release of liability of the escrow agent from all parties, (ii) require payment of unpaid expenses incurred on behalf of a party, and (iii) only deduct from the earnest money the amount of unpaid expenses incurred on behalf of the party receiving the earnest money.

This paragraph explains the liability of expenses occurred during escrow must be paid by the party who incurred the expense. This gives the right to the escrow agent to deduct the expense.

Paragraph 23. TERMINATION OPTION

Seller grants Buyer the unrestricted right to terminate this contract (Option Period).

The paragraph defines the term, Option Period.

Paragraph 24. CONSULT AN ATTORNEY:

TREC rules prohibit real estate licenses from giving legal advice.

This statement is to reinstate that TREC does not permit licenses from giving legal advice.

BROKER INFORMATION

Licensed Supervisor of Associate

This name and contact information is an additional line item to include the Supervisor of the Agents involved.

THIRD PARTY FINANCING ADDENDUM FOR CREDIT APPROVAL

The new terminology (For Credit Approval) was added to the previous form,  Third Party Financing Condition Addendum was added for clarity.

Financing Approval was changed to Credit Approval.

The full loan approval consists of 2 parts: Property approval and credit approval (based on buyer's credit worthiness). The Third Party Financing Addendum for Credit Approval only addresses the credit approval of the buyer.

Adjusted Origination Charges as shown on Buyer's Good Faith Estimate

Previously known as Loan Fees (loan origination, discount, buy-down, and commitment fees) is now replaced with Adjusted Origination Charges. The language is modified to match the New Good Faith Estimate.

ADDENDUM FOR PROPERTY SUBJECT TO MANDATORY MEMBERSHIP IN A PROPERTY OWNERS ASSOCIATION

A. SUBDIVISION INFORMATION:

2. Buyer has received and approved the Subdivision Information before signing the contract. Buyer does or does not require an updated resale certificate. If Buyer requires an updated resale certificate, Seller at Buyer's expense, shall deliver it to Buyer within in 10 days after receiving payment for the updated resale certificate from Buyer. Buyer may terminate this contract and the earnest money will be refunded to Buyer if Seller fails to deliver the updated resale certificate within the time required.

This paragraph explains in further detail after the HOA information have been received.

B. FEES: Except as provided by Paragraph C, Buyer shall pay any and all Association fees or other charges resulting from the transfer of the Property not to exceed $____ and Seller shall pay any excess.

Added the exception to Paragraph C, the financial obligation by both parties, Buyer and Seller.

C. DEPOSITS FOR RESERVES: Buyer shall pay any deposits for reserves required at closing by the Association.

This paragraph is inserted to make clear to Buyer should the Homeowner's Association required additional funds, that the Buyer will agree to it.

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Originally Posted in New Texas TREC Residential Contract Changes Effective March 03-01-2011