TREC CONTRACT CHANGES

Tue, 04/17/2018 - 10:35am

The Texas Real Estate Commission adopted changes to the mandatory contract forms in February. The updated forms are available for use now and become mandatory for use May 15, 2018. Below is a description of the changes to the forms and the changes apply to all forms unless noted otherwise. The paragraphs referenced below will track the numbers in the One to Four Family Residential Contract (Resale) and may adjust in the other contract forms.

Paragraph 2

This paragraph has been added to clarify that any reservations of mineral rights must be done in a separate addendum.  When a seller transfers title in a warranty deed they convey all of the rights in the property that they own unless certain rights are specifically withheld in the deed.  Mineral rights convey unless specifically reserved.  A real estate agent involved in a transaction involving a mineral reservation should work very closely with a trusted title company to be sure things are handled properly.

Paragraph 5

This paragraph now requires that Earnest Money be delivered within 3 days of the Effective Date. When the final day for delivery is a Saturday, Sunday or legal holiday, the earnest money is due on the next day that is not a Saturday, Sunday or legal holiday. If the buyer fails to timely deliver the Earnest Money the seller may terminate the contract as long as the seller notifies the buyer of seller’s election to terminate the contract before buyer delivers the Earnest Money. Time is made of the essence for this paragraph, which in “lawyer speak” means the deadline is final and not flexible.

It is also important to know here that the words “Effective Date” has now been made a defined term throughout the contracts. The Effective Date is still tied to the final date of acceptance provided on the signature page and completion of that date is a critical step to be completed by the agents involved in the transaction.

An alarming fact is that about 50% of the contracts that are turned into the title company to receipt are missing the effective date. It is truly amazing how many contracts are received with a blank date. Completion of this date definitely falls under the real estate agent’s list of duties and all agents should be very diligent about making sure that date gets completed once all parties have signed.

Paragraph 6A(8 and 9)

This paragraph has made visual changes to Item 8 to help parties identify whether or not the buyer will have the survey exception deleted. Deleting the Survey exception is an important piece of insurance for a buyer and has been discussed in detail in a prior Closer’s Corner. If you need that article please contact your Texas National Title team. This paragraph has also had Item 9 added to include a permitted exception for minerals as approved by the Texas Department of Insurance.

Paragraph 6B

The phrase “due to factors beyond Seller’s control” has been removed allowing Buyer to terminate the contract if the Commitment and Exception documents are not timely received.

Paragraph 6D

This paragraph has been modified to define the timeline under which the seller is to cure objections as the “Cure Period.” The paragraph also provides a specific time frame for the buyer to send their notification to the seller of objections. If the buyer does not send their notice in this time period they have waived their objections. This paragraph also contains additional time periods for the buyer to object and for the seller to cure if the buyer receives an updated title commitment, survey or additional exception documents.

Paragraph 22

This paragraph has been updated to include two new addendums that can be attached to the contract. As a reminder, it is very important that a real estate agent intending to include any addendums as part of the negotiations between the parties makes sure that the box is checked. Without the box being checked that addendum may not legally be a part of the contract.

Selling Agent, Listing Agent and Brokerage Page

This section has added a place for the broker phone numbers and removed the fax numbers.

Earnest Money, Contract and Additional Earnest Money Page

The new contract has a separate receipt box for Earnest Money, the Contract and Additional Earnest Money. This allows the title company to easily receipt the contract only if the earnest money funds have not been receipted yet. This also provides a standard form to document the receipt of additional earnest money.

OTHER NOTABLE FORM CHANGES:
New Addendum: Addendum Concerning Right To Terminate Due To Lender’s Appraisal.

This addendum was adopted to help address the parties desire to create a contingency to the contract regarding appraisal issues. This addendum addresses the buyer’s right or waiver associated with that contingency. There are three options available to the parties in this addendum, which are of course subject to negotiation between the parties. The great news with this addendum is that agents are removed from trying to draft any language to include this contingency in the contract. Drafting of language could be construed as the unauthorized practice of law that an agent must always be careful to avoid.

 

At Texas National Title we have been seeing these new forms for about a month now and our closing teams are very well versed on the changes. Please ask your trusted closing team any questions you have about these changes.