Promulgated Contract Forms Champions school of real estate Exam 2023/2024, Study Guides, Projects, Research of Business Administration

Download Promulgated Contract Forms Champions school of real estate Exam 2023/2024 and more Study Guides, Projects, Research Business Administration in PDF only on Docsity! Promulgated Contract Forms Champions school of real estate Exam 2023/2024 Mutual Consent Often referred to as a "meeting of the minds." Five Elements Of A Valid and Enforceable Contract COLIC 1. Competent parties 2. Offer and acceptance (mutual consent) 3. Legal purpose 4. In writing (when required by law) 5. Consideration Unilateral Contract Only one party is obligated to perform. A unilateral contract is said to lack mutuality. Consideration Something of value given in exchange for a promise. Option An agreement between a buyer and seller or landlord and tenant. A seller, in exchange for some form of consideration (an option fee), gives the buyer the right to purchase the property at some preset price and terms for a period of time. Unenforceable Contract Is one that cannot be enforced due to some flaw in the contract, passage of time, or other issues that make enforcement impossible. Valid Contract One that meets all of the requirements of law. Void Contract Is invalid from the beginning, and has no effect on the parties. A contract to perform an illegal act is a ______ contract. Voidable Contract Is one that cannot be enforced against one or more of the parties. Most contracts entered into with minors are ________ at the option of the minor Competent Parties The general rule of law is that all parties to a contract have read it and understand it. Offer and Acceptance A valid contract must be based upon the consent of the parties. The contract must therefore reflect the intent and wishes of the parties. Mutual consent is often referred to as a "meeting of the minds." For a contract to exist, there must have been a meeting of the minds (offer and acceptance) between the parties. The determination of mutual consent is usually a question of fact and is completed by the process of offer and acceptance. Legal Purpose A contract for an illegal purpose is void, and the law treats the contract as if it were never created. An example of a void contract would be one to have somebody killed or to deliver illegal drugs. In Writing In order to comply with the Statute of Frauds, contracts for the conveyance of an interest in real estate or leases for a term of more than one year must be in writing. Executory Contract A contract that is binding on the parties, with one or more of the parties having contractual duties that have not yet been performed. Bilateral Contract Both parties are obligated to perform. Reasonable Time Contracts contain many dates by which the parties must perform. The parties have a reasonable amount of time in which to perform. If a party fails to meet a required date, the contract is still valid and enforceable if the party has been making a reasonable effort to perform. Time is of the Essence For the important milestones in a contract that must be performed on time the language ___________________ is often inserted into the relevant provision of the contract. The phrase, "___________________" means that the time for performance will be literally interpreted, and that performance must be complete by the day stipulated. In the past, license holders have erroneously inserted the words "___________________" in a contract, making every date one that must be strictly interpreted, with a failure to perform amounting to a material breach of the contract. Because the words "_____________________" change the legal effect of a contract, license holders who add this language may be engaging in the unlawful practice of law. Common Amendments • Changes to the closing date • Changes to the sales price, down payment and/or amount financed acceptable and writing the acceptable term next to it. The changed term will then be initialed and sent back to the other party. Unauthorized Practice of Law License holders adding complex provisions to a contract. Lease-Purchase Agreement Combines some of the elements of a sale with a lease. It gives the tenant occupancy in the present time and the right to purchase at a future date. The price is set when the lease agreement is negotiated, which is advantageous to the tenant-buyer. TREC specifically prohibits license holders in Texas from writing any lease with an option to purchase. If a license holder has a client interested in this type of transaction, the assistance of an attorney is required. Offeror The person making the offer. Offeree A person to whom an offer is made. Adding Provisions to a Contract The license holder should add only factual statements and business details that are required for the transaction. Broker-Lawyer Committee Drafts and revises contract forms for use in real estate transactions in the state of Texas. • Has 13 members. • 6 members are appointed by TREC. • 6 members from the State Bar of Texas are appointed by the President of the State Bar. • 1 public member is appointed by the governor. • The Broker-Lawyer Committee writes the contract forms, which are then approved by the Commission. • The Commission promulgates the forms for use by Texas license holders. TREC Promulgated Lease Forms 1. Buyer's Temporary Residential Lease 2. Seller's Temporary Residential Lease Presentation of Offers All offers must be presented! Some states have specific time requirements for the presentation of offers. The rule requiring that all offers be presented means that an offer must be presented no matter how low or ridiculous it might be. The agent simply does not have the authority to dismiss an offer without presenting it unless the party has given the agent instructions to the contrary. The exception to the "all offers must be presented rule" is that an agent can reject an offer of a certain price if the seller has given the agent written instructions to do so. Offers Can Be Communicated By: • Phone • Fax • E-mail • Letter • Hand Delivery Evaluation of Offers In most cases, the initial offer is prepared by the agent working with the buyer. The offer is delivered to the listing agent (seller's agent) who presents the offer to the seller. When a seller receives an offer, "What is the bottom line?" is one of the first questions asked. Sellers are most interested in what they are going to net at closing. When presenting an offer to a seller, the listing agent should prepare a net sheet. The net sheet is an estimate of the net proceeds to the seller and should be prepared based upon the offer being considered. Net Sheet An estimate of the net proceeds to the seller and should be prepared based upon the offer being considered. The net sheet gives the seller an estimate of what the seller will realize at closing if the offer is accepted as presented. By preparing the net sheet, the license holder is not suggesting that the seller accept the offer as presented; they are simply performing their duty to keep their client apprised of all important aspects of the transaction. Seller's Contribution In some cases a buyer might ask for a ___________ _________________ to the buyer's closing costs. ____________ _________________ to the buyer's closing costs reduce the amount of cash needed by the buyer at closing. Power of Acceptance The party to whom the offer was made has the power to bind the offeror to the contract. Legal Requirements of an Offer 1. Communicated to a specific offeree. 2. Intended to be a serious offer. 3. Definite and certain enough to be accepted by the offeree. Responding to an Offer 1. Do nothing. An offeree is under no legal obligation to respond to any offer. This is obviously a less than desirable response, but is an option nonetheless. 2. Reject. 3. Accept 4. Counteroffer Rejecting an Offer An offer may be rejected without explanation or comment. This is also a less than desirable response because it does not invite further negotiations. A variation is the "reject with invitation to resubmit", where the offeree rejects the offer, but provides suggestions to the offeror that might be acceptable to the offeree. Accepting an Offer Acceptance of a contract must include full acceptance of the entire offer without change. Any change, no matter how minor, becomes a counteroffer. Rejection of the Initial Offer In most cases, a counteroffer is a rejection of the original offer. As such, the original offer is no longer available for acceptance by the offeree. New Offer A counteroffer communicated to the other party becomes a new offer. Note that a working counteroffer does not change the list price of a property. Offer Acceptance Means that the accepting party does so with no change to the contract whatsoever. Any change, no matter how trivial, turns the offer into a counteroffer. Multiple Offers If a broker receives more than one offer, all offers must be presented to the seller unless instructed otherwise. No offer has a priority of presentation over another. The broker should submit all offers promptly. For example, if a license holder receives an offer at 9 a.m. and presents it to the seller and then receives a second offer at 3 p.m. (before the seller has accepted the first offer), the license holder has the duty to submit the later offer to the seller. In the same example, if the agent representing the second buyer is aware that multiple offers have been received, the listing agent should notify the agent representing the first buyer that multiple offers have been received. The same would be true regardless of the number of offers. The listing agent should keep the terms and conditions confidential so as not to give one buyer a significant negotiating advantage over another. A broker is obligated to place the client's interest first and is also obligated to treat other parties to the transaction honestly. Termination of Offers If an offer has been made, it can be terminated prior to acceptance by the offeree due to: • The acts of the parties • Operation of law Acts of the Parties Acts of the parties depend on the conduct of the offeror and offeree. The offer, if no time is specified, remains open for a reasonable time and the offeree may accept this offer within the reasonable time period. If there is a specified time period, the offer terminates upon the expiration of the time period. An offer may include language such as "this offer is in effect until 5:00 p.m. (month, date, year)." In any event, an offer may be withdrawn at any time prior to its acceptance by the offeree. If there is not a specified termination time, an offer should be withdrawn in writing if that is the offeror's desire. Operation of Law obtain approval, the approval must be obtained within the allotted twenty days. The days are calendar days, and the counting of days begins on the day following the effective date of the contract. The buyer has three options if credit approval has not been obtained within the allotted time: 1. Terminate the contract by providing written notice of the buyer's inability to obtain credit approval. 2. Allow the allotted time to run out without first obtaining credit approval. This would be risky, exposing the buyer to possible loss of earnest money or other liability under the contract if they fail to close. This option would presumably be used if the buyer had the ability to close without financing or was absolutely certain of his or her ability to obtain credit prior to closing. 3. Request an extension of time for obtaining credit approval from the seller. Of course, the seller would be under no obligation to agree to an extension. If an extension is given, be sure to get the extension in writing, and signed by both the buyer and the seller. Third Party Financing Addendum - PARAGRAPH D. FHA/VA REQUIRED PROVISION: In transactions where financing involves FHA-insured or VA financing, this paragraph makes clear that the Buyer is not obligated to purchase the property in question if either the Buyer has not received a written statement of value from an approved source (Certificate of Reasonable Value for VA loans only), OR the purchase price or cost exceeds the reasonable value of the property, as established by the Department of Veterans Affairs. Third Party Financing Addendum - PARAGRAPH E. AUTHORIZATION TO RELEASE INFORMATION: Authorizes lenders to disclose and/or furnish various pieces of information related to financing approval status and/or closing disclosures. Benefits of Loan Assumption • The buyer is possibly assuming a loan at a rate that is not currently available. • The assumption of an existing loan is substantially less expensive than obtaining a new loan. Assumption fees are generally less than $500. • Even if the rate on the seller's existing loan is somewhat higher than a rate that is available today, the loan assumption might still make sense considering the savings in fees associated with a new loan. Concerns Regarding Loan Assumption • Seller's liability. The seller, who is the original borrower on the loan assumed, may continue to be liable along with the buyer. The sale can be made contingent on the release of the seller using the TREC- promulgated form Release of Liability on Assumption of FHA, VA or Conventional Loan. • Time to process. Processing a loan assumption is not a core business activity of lenders. The assumption department may be overworked and understaffed, resulting in long processing times. Seller Liability on Assumed Loans If the seller does not receive a release of liability, the buyer assuming the loan "joins the original borrower" on the note, leaving both with liability for repayment of the loan. If this is the case, the seller could be liable for repayment of the loan if the purchaser defaults. ADDENDUM FOR RELEASE OF LIABILITY ON ASSUMED LOAN AND/OR RESTORATION OF SELLER'S VA ENTITLEMENT This form serves a dual purpose. In some cases, when assuming Seller's existing loan, Seller remains liable for repayment in the event that the purchaser defaults. In Paragraph A, Seller and Buyer agree that they will seek to have Seller released from the loan after the assumption is complete. In Paragraph B, Seller will attempt to obtain a restoration of Seller's VA entitlement. If a VA loan is assumed by Buyer without sufficient VA entitlement, Seller's entitlement remains with the existing loan. As a result, Seller's entitlement cannot be fully restored. If Buyer has sufficient VA entitlement, Buyer's entitlement may be substituted for Seller's entitlement. After closing, Seller can then apply for a full restoration of entitlement from the VA. Seller Financing Addendum - PARAGRAPH A. CREDIT DOCUMENTATION: Buyer will provide the documentation necessary for Seller's approval of Buyer's creditworthiness. Seller Financing Addendum - PARAGRAPH B. BUYER'S CREDIT APPROVAL: If the documentation is not delivered to Seller, he or she has the right to terminate the contract provided he or she gives Buyer the required notice. Credit approval is at the sole discretion of Seller. Seller Financing Addendum - PARAGRAPH C. PROMISSORY NOTE: The interest rate is negotiable, and can be paid in three possible repayment plans: • PARAGRAPH C.(1) A single payment with interest payable at maturity, monthly or quarterly. • PARAGRAPH C.(2) Monthly installments that either include interest or have interest added to them; the most common is monthly installments including interest. • PARAGRAPH C.(3) Payments will be made in a combination of interest-only payments followed by payment of principal and interest. Seller Financing Addendum - PARAGRAPH D. DEED OF TRUST • PARAGRAPH D.(1) PROPERTY TRANSFERS: If D(1)(a) is selected, the property may be sold to a future buyer who assumes the loan without the consent of the seller. If D(1)(b) is selected, any assumption of the loan must be approved by Seller. D(1)(b) is essentially a "due on sale" clause, and is the preferred choice of most sellers. • PARAGRAPH D.(2) TAX AND INSURANCE ESCROW: Escrow is either required or not. If escrow is not required, Buyer must furnish Seller each year with evidence of taxes being paid and must provide Seller with evidence of paid-up casualty insurance naming Seller as a mortgagee loss payee. • PARAGRAPH D.(2) PRIOR LIENS: Default on a superior lien will constitute a default under the deed of trust securing the note. For example, the deed of trust is in second position behind a first mortgage on the property. Seller could foreclose on this deed of trust if the first mortgage becomes delinquent, even if the note in this transaction is up to date. NON-REALTY ITEMS ADDENDUM This optional form is used when personal property is to be included in a sale. Indicate the price agreed to between the parties for the property in Paragraph A. Some brokerage firms and the Texas Association of REALTORS® have created their own form for dealing with personal property included in a sale. AUTHORIZATION TO FURNISH TILA-RESPA INTEGRATED DISCLOSURES Form TAR-2516, Authorization to Furnish TILA-RESPA Integrated Disclosures, should be completed by the buyer or seller, and indicates to lenders, title companies, and/or escrow agents that the buyer or seller has signed an exclusive agreement with a particular broker, and authorizes these entities to disclose and furnish any documents or information pertinent to the transaction to the broker or broker's agent. Earnest Money A "deposit" paid upfront by the buyer to show that he or she is serious in his or her intent. Survey A Measurement of boundaries and land area required in some sale contracts. Title Policy Insurance policy against losses resulting from defects in title. Endoresement A change made to a standard insurance policy. Seller's Disclosure Form stating known facts and defects concerning a property. 1-4 Contract - PARAGRAPH 5. EARNEST MONEY: There is no standard for the dollar amount of earnest money, but it is often in the range of 1% of the purchase price. Insert the amount of the earnest money and the name and address of the title company. If additional earnest money is required, enter the amount and the number of days. 1-4 Contract - PARAGRAPH 6.A. Title Policy The owner's title policy can be paid for by either Buyer or Seller. In most cases, the title policy is paid for by the seller. e title policy is generally issued by the title company listed in Paragraph 5. 1-4 Contract - PARAGRAPH 6.B. COMMITMENT: The title company has 20 days from the date that they receive the contract to furnish a commitment to the buyer for title insurance. This paragraph also provides for an automatic extension of the delivery period for up to 15 days or 3 days prior to closing if the commitment cannot be delivered within the 20 days allowed. 1-4 Contract - PARAGRAPH 6.C. SURVEY • PARAGRAPH 6.C.(1) Seller has an existing survey that he or she intends to use. Enter the number of days that the seller has to deliver the survey. If the survey is unacceptable to the title company or lender, a new survey will be obtained at either Buyer's or Seller's expense. If the survey is not delivered within the time specified, Buyer will obtain a new survey at Seller's expense. • PARAGRAPH 6.C.(2) A new survey is to be obtained at Buyer's expense. It would be advisable to ensure that Buyer has obtained credit approval prior to paying for a survey if the survey is to be obtained the property since the date of the existing survey. The T-47 must be signed in the presence of a notary. If the use of an existing survey is anticipated, listing agents should have the T-47 completed when the listing is taken. In many cases the T-47 is not completed until closing. However, the contract states that both the T-47 and the survey must be delivered within the negotiated number of days. NOTICE TO PROSPECTIVE BUYER This notice complies with the provision of the Texas Real Estate License Act that requires that license holders advise buyers to have an abstract examined or obtain title insurance. All of the TREC- promulgated contracts have this notice in Paragraph 6 in the Title Notices section. This form could be used when a TREC contract is not being used, or could be used anytime that the broker wants the buyer to specifically acknowledge receipt of this advice. 1-4 Contract - PARAGRAPH 7 PROPERTY CONDITION Property condition is one of the more important considerations when purchasing residential real estate. All TREC-promulgated contracts stipulate that the buyer is purchasing the property "as is." This is quite often a concept that is misunderstood on the part of buyers, sellers and license holders. 1-4 Contract - PARAGRAPH 7.A. ACCESS, INSPECTIONS AND UTILITIES: Seller permits Buyer access to the property at reasonable times for inspections. Seller will turn on utilities and leave utilities on during the time covered by this contract. Seller is to permit the buyer to perform as many inspections as the buyer deems necessary, provided they are done at reasonable times. The inspector is to be a TREC licensed inspector or another person otherwise allowed by law. This would seem to allow engineers and other professionals to perform inspections even if they are not licensed by TREC. The exception to this is the performance of hydrostatic testing, which must be authorized separately by the seller, in writing. 1-4 Contract - PARAGRAPH 7.B. SELLER'S DISCLOSURE NOTICE PURSUANT TO § 5.008, TEXAS PROPERTY CODE (NOTICE): The Seller's Disclosure should be received by the buyer prior to making an offer. Paragraph B has three options: • PARAGRAPH 7.B.(1) The buyer has received the notice. This is the most desirable option if the seller is obligated to provide a seller's disclosure. • PARAGRAPH 7.B.(2) The Buyer has not received the notice, and can terminate for any reason up to 7 days after receiving the notice or prior to closing whichever occurs first. • PARAGRAPH 7.B.(3) If the seller is not required to provide the notice, check this box. 1-4 Contract - PARAGRAPH 7.C. SELLER'S DISCLOSURE OF LEAD-BASED PAINT AND LEAD- BASED PAINT HAZARDS: If the property was built prior to 1978, the required Lead-Based Paint Addendum must accompany the contract. 1-4 Contract - PARAGRAPH 7.D. ACCEPTANCE OF PROPERTY CONDITION: If D(1) is selected, the buyer accepts the property in its present condition. If D(2) is selected, the buyer accepts the property in its present condition provided that the seller complete certain specific repairs and treatments. It is important to remember that this paragraph is for specific repairs or treatments, and should not include open-ended statements such as "subject to inspections" or other broad statements that would create a seemingly unlimited liability on the part of the seller. The specific repairs and treatments are generally items that the buyer noticed when looking at the property. The language of both Paragraph 7.D(1)&(2) stipulate that the property is being sold "as is." The fact that the purchase is "as is" makes the option period in Paragraph 23 of utmost importance. Note that "as is" does not in any way relieve the seller of the obligation to complete a Seller's Disclosure of Property Condition and to disclose all material defects known to the seller. 1-4 Contract - PARAGRAPH 7.E. LENDER REQUIRED REPAIRS AND TREATMENTS: Lender required repairs, if any, are a negotiated expense item between the parties. If the lender repairs exceed 5% of the sales price, the buyer may terminate the contract and receive a refund of ear- nest money. Seller must complete all agreed to repairs prior to closing, or the closing date may be extended up to 5 days to complete repairs. 1-4 Contract - PARAGRAPH 7.F. COMPLETION OF REPAIRS AND TREATMENTS: As a rule, Seller is to complete any agreed repairs and treatments prior to the closing date. 1-4 Contract - PARAGRAPH 7.G. ENVIRONMENTAL MATTERS: This is a notice to Buyer that, if Buyer is concerned about environmental matters affecting the property, a TREC Promulgated Environmental Addendum is available. The addendum allows Buyer, at Buyer's expense, to perform environmental assessments on the property. 1-4 Contract - PARAGRAPH 7.H. RESIDENTIAL SERVICE CONTRACTS: These are commonly known as home warranties. Buyer can purchase a home warranty under any circumstances. Seller is obligated to reimburse Buyer for the amount entered in this paragraph at closing. Seller is under no obligation to offer to pay for Buyer's home warranty. It is a negotiated item. 1-4 Contract - PARAGRAPH 8. BROKER'S FEES: All fees due the broker are found in separate agreements, usually the listing agreement between the broker and the seller, and Buyer's representation agreement between the buyer and the broker. 11 Exceptions to Completing a SDN • Pursuant to a court order or foreclosure sale • By a bankruptcy trustee • To a lienholder by the owner of a property • By a mortgagee (lender) who has acquired the property through a foreclosure or a deed in lieu of foreclosure • By a fiduciary (e.g. an executor, trustee or guardian) in the course of administration of a decedent's estate, guardianship, conservatorship or trust • From one co-owner to one or more other co-owners • To a spouse or to a person in the lineal line of consanguinity (e.g. parents, grandparents, children) of one or more of the transferrers • Between spouses resulting from a divorce decree or a property settlement agreement incident to a divorce decree • To or from any governmental entity • Of a new residence which has not previously been occupied for residential purposes • Where the value of the dwelling does not exceed five percent of the value of the property Seller's Disclosure Notice Forms The two most common disclosure forms include one from the Texas Real Estate Commission, and another for REALTORS® through the Texas Association of REALTORS® (TAR®). Most residential agents use the longer and more complete TAR® form. Seller's Disclosure Notice The State of Texas requires that most sellers of residential property provide a SDN to a potential buyer. This applies to most residential property owners whether the property is listed with a broker or sold as a For Sale By Owner (FSBO). The purpose is to have the owner of the property disclose all facts and defects concerning the property. This is a good tool to use as a defense in a DTPA lawsuit. It should be filled out by the seller, not the seller's agent. ADDENDUM FOR SELLER'S DISCLOSURE OF LEAD-BASED PAINT AND LEAD-BASED PAINT HAZARDS This addendum is promulgated by TREC and satisfies the requirement under federal law for disclosure of lead-based paint issues. The addendum should be completed by Seller when the property is listed. LBP Addendum - PARAGRAPH A. LEAD WARNING STATEMENT: States if you are about to buy a residential dwelling that was built before 1978, you are being notified with this addendum that the property may present to the buyer exposure to lead found in the paint. LBP Addendum - PARAGRAPH B. SELLER'S DISCLOSURE: Select the correct box to check that either they do or do not know of lead-based paint or lead-based paint hazards. Likewise indicate if the seller has provided the buyer with reports, or if the seller has no reports or records pertaining to lead-based paint or lead-based paint hazards. LBP Addendum - PARAGRAPH C. BUYER'S RIGHTS: Buyer to indicate whether Buyer waives the right to con-duct a risk assessment or inspection. Otherwise, the buyer may have the property inspected within 10 days of the effective date of the contract. LBP Addendum - PARAGRAPH D. BUYER'S ACKNOWLEDGMENT: Seller and Buyer agree to execute notices and documents reasonably required of them to complete the transaction. 1-4 Contract - PARAGRAPH 9.B.(4) There will be no liens, assessments or security interests against the property which will not be paid out of the sales proceeds, unless it is a loan or other obligation assumed by Buyer. 1-4 Contract - PARAGRAPH 9.B.(5) If the property is subject to a lease, Seller will provide Buyer with a copy of the lease and other documentation regarding the lease and security deposit. The security deposit will be transferred to Buyer 1-4 Contract - PARAGRAPH 10. POSSESSION: Seller shall deliver the property in its present condition, ordinary wear and tear excepted. As a rule, possession should be given to Buyer upon closing and funding. Funding does not necessarily immediately follow closing. If funding is delayed, Buyer needs to be informed so they can make the appropriate moving arrangements. If Seller is to remain in the property for one night or more after closing and funding, a Seller's Temporary Residential Lease form should be completed. The lease form can be used for an occupancy of 90 days or less. Likewise, a Buyer's Temporary Residential Lease form should be used if Buyer occupies the property 90 days or less prior to closing. 1-4 Contract - PARAGRAPH 11. SPECIAL PROVISIONS: This paragraph is only for factual business details or statements not addressed in the contract form, and for which there is no TREC-promulgated addendum, lease or other mandatory form. Special care must be taken in adding anything in Paragraph 11. A great risk when doing so is to be engaged in the unlawful practice of law. Much of the litigation surrounding this contract involves poorly constructed provisions in this paragraph. BUYER'S TEMPORARY RESIDENTIAL LEASE Should be used if Buyer occupies the property 90 days or less prior to closing. This lease is used when the buyer moves in prior to closing. Allowing the buyer to move in prior to closing carries considerable risk for the seller, and the decision must be made with great care. One significant risk is the possibility of the buyer's credit approval being withdrawn prior to closing, resulting in a buyer who is unable to close. Note that the rental to be paid is "per day," reflecting the short-term nature of this lease SELLER'S TEMPORARY RESIDENTIAL LEASE Should be used if Seller is to remain in the property for one night or more after closing and funding, 1-4 Contract - PARAGRAPH 12. SETTLEMENT AND OTHER EXPENSES: Buyer's and Seller's expenses and settlement costs are stated. Even though printed in the form to be paid by one party or the other, they are negotiable. 1-4 Contract - PARAGRAPH 12.A(1)(a): Shows the typical seller's expenses at or prior to closing. 1-4 Contract - PARAGRAPH 12.A(1)(b): Expenses the seller is willing to pay on the buyer's behalf. Included here would be expenses the buyer is not allowed to pay on certain government loan programs, or simply expenses Seller and Buyer have negotiated that the Seller will pay on behalf of the Buyer. 1-4 Contract - PARAGRAPH 12.A(2) Includes typical buyer expenses. Included here are appraisal fees, loan application fees and adjusted origination charges (from Buyer's loan estimate). Also included would be PMI, MIP, or VA Funding Fee per the requirement of the lender and any other fee expenses payable by Buyer. 1-4 Contract - PARAGRAPH 12.B. If any of these listed expenses exceeds what the party agreed to pay, the contract will terminate, UNLESS the other party agrees to pay the excess. 1-4 Contract - PARAGRAPH 13. PRORATION: Proration is the process of dividing ongoing expenses between the buyer and the seller at closing. Prorations are generally calculated through the day of closing for taxes, maintenance fees and rents, if any, that the seller pays for on closing day. Tax prorations may be calculated to take into consideration any change in exemptions that will affect the current year's taxes. 1-4 Contract - PARAGRAPH 14. CASUALTY LOSS: A fire or other casualty loss does not release the buyer or seller from the contract. Seller has until closing to bring the property back to its prior condition. Buyer can accept the property in its damaged condition with the seller assigning insurance proceeds to the buyer if such action is permitted by Seller's insurance carrier. Buyer can terminate the contract and receive an earnest money refund if the property cannot be repaired in the time allotted. Seller bears the risk of casualty loss up to the moment of closing. 1-4 Contract - PARAGRAPH 15. DEFAULT: Once all the terms of an offer have been agreed to and signed by the parties, and acceptance has been communicated to the offering party, we have a contract that binds the parties. Upon signing by all parties, the contract is known as an executory contract from the effective date of the contract through the date of closing. When a party to a contract fails to perform under the contract, they are in default. Failure to perform is also commonly referred to as a "breach of contract." Oral Negotiations Are voluntary, and do not become binding until committed to writing. Buyer Default In the event of default by the buyer, the seller has several options, which include: 1. Specific performance 2. Monetary damages 3. Liquidated damages - Seller can choose to accept Buyer's earnest money as liquidated damages, which releases both parties from any further obligation under the contract. Damages that may be determined by a reading of the contract are generally known as liquidated damages. Seller Default In the event of default by Seller, Buyer becomes the injured party. Buyer has the following options: 1. Specific performance 2. Monetary damages 3. Refund of earnest money - Buyer's acceptance of an earnest money refund terminates the contract, releasing both parties from any further obligation under the contract. Because this is a refund of Buyer's earnest money, this cannot be considered liquidated damages Specific Performance The injured party files a court action seeking an order of the court directing the defaulting party to perform according to the terms of the contract. This is the only remedy that would possibly result in the full execution (closing) of the transaction. Monetary Damages In addition to specific performance, the injured party may "seek such other relief as may be provided by law." This would be an award of monetary damages by the court. Because monetary damages are awarded by the court, one never knows what they will be until the court rules. 1-4 Contract - PARAGRAPH 16. MEDIATION: Buyer and Seller agree to mediate in the event that the parties have a dispute that cannot be settled through informal discussion. The cost of mediation is shared equally between Buyer and Seller. Mediation does not in any way imply a waiver of the right to file a suit if a party is unhappy with the results of mediation. 1-4 Contract - PARAGRAPH 17. ATTORNEY'S FEES: Attorney's fees and all costs of such proceeding are recovered by a party who prevails in any legal proceeding related to this contract. This includes buyer, seller, listing broker, other broker or escrow agent. 1-4 Contract - PARAGRAPH 18.A. ESCROW: The escrow agent is not a party to the contract, and has no liability for the performance of either party. The title company performs two primary functions: escrow services and title insurance. Escrow services are performed when something of value, such as a deed, money, or written instrument is put into the custody of a third person to be retained until the occurrence of a contingency or performance of a contract. The title company is the escrow agent, the trusted third party that will receive and hold a deed signed by the seller. They will also have the buyer's earnest money and loan funds released to them by the lender. 1-4 Contract - PARAGRAPH 18.B. EXPENSES: Earnest money is applied first to the cash down payment and then to Buyer's expenses. Any excess is refunded to Buyer. If closing fails to occur, the escrow agent will require a signed release of all escrow funds from all parties. The title company has the right to deduct from the earnest money the amount of unpaid expenses incurred on behalf of the party receiving the earnest money. 1-4 Contract - PARAGRAPH 18.C. DEMAND: • PARAGRAPH (8): Seller is granting Buyer additional time to obtain approval pursuant to the Third Party Financing Addendum. • PARAGRAPH (9): Only insert factual statements and business details that are applicable to this sale. Liquidated Damages The seller can choose to accept the buyer's earnest money as liquidated damages, releasing all parties from any further obligation under the contract. Liquidated Damages vs. Monetary Damages The primary difference between monetary and liquidated damages is that monetary damages are awarded by the court, and liquidated damages are stipulated in the contract. Good Funds Described as a cashier's check or wire transfer. Escrow Agent Is not a party to the contract, and has no liability for the performance of either party. Res Condo Contract - PARAGRAPH 2.A.(1) PROPERTY AND CONDOMINIUM DOCUMENTS: Enter the Unit and Building number. If the unit has assigned parking, enter the description. Res Condo Contract - PARAGRAPH 2.B If Buyer has received "Documents", check B.(1). If not, check B.(2). Ideally, Buyer should have reviewed the Documents prior to entering into a contract. If the Documents are not available, check B.(3) to indicate that Seller has requested the documents from the Association. Res Condo Contract - PARAGRAPH 2.C. If Buyer has received the Certificate, check C.(1). If not, check C.(2) unless Seller does not have the Certificate available. Ideally, Buyer should have reviewed the Certificate prior to entering into a contract. If the Certificate is not available, check C.(3) to indicate that Seller has requested the Certificate from the Association. Farm & Ranch Contract - PARAGRAPH 2.(B) This includes the improvements, which are all man-made additions to the land including the house, garage and other permanently installed and built-in items. Included in the improvements are the usual residential improvements and specific farm and ranch improvements . Farm & Ranch Contract - PARAGRAPH 2.(C) Describes accessories, which, while not necessarily permanently installed or built-in, are commonly conveyed to Buyer in the sale. Accessories include the typical residential items. Farm and ranch accessories to be conveyed are indicated by checking the appropriate boxes. Farm & Ranch Contract - PARAGRAPH 2.D. CROPS: Even though Seller has the right to harvest right up to delivery of possession, some Sellers may want to have the right to harvest after closing. For example, a cotton crop may not be ready to harvest at the time of closing and since Seller has a large investment in the crop he may want the right to harvest some time after closing. If Buyer gives Seller this right, make sure Buyer is covered by a separate agreement for this operation. Buyer and Seller must agree as to how Seller will leave the land, including who will shred the stalks, plow the ground, and other issues. Farm & Ranch Contract - PARAGRAPH 2.E. EXCLUSIONS: Would include portable pumps, augers, grain stored in a storage device, baled hay, feed for stock, fertilizer. Once again, if Seller is given the right to remove these after closing a separate agreement should be drawn up with a time limit on the removal. Farm & Ranch Contract - PARAGRAPH 2.F. RESERVATIONS: As with all TREC-promulgated contracts, any mineral interest owned by Seller will be conveyed to Buyer by default. If minerals are to be reserved, they must be reserved using the TREC Addendum for Reservation of Oil, Gas, and Other Minerals (44-2) on page <?> or an attorney-prepared form acceptable to the parties. Farm & Ranch Contract - PARAGRAPH 3.D. The Sales Price may or may not be adjusted based upon a survey required in Para- graph 6.C. The parties can agree to adjust the cash portion, the financing portion, or allocate between cash and financing proportionately. Note that the contract may be terminated by either party if the Sales Price varies by more than 10% from that stipulated in 3.C. If adjusting, the parties should insert a per acre price adjustment. Farm & Ranch Contract - PARAGRAPH 6.C.(4) No survey is required. Farm & Ranch Contract - PARAGRAPH 6.E. EXCEPTION DOCUMENTS: Exception documents can vary from property to property but some of the common exceptions are oil or gas pipelines, granted easements, granted surface waivers, utility easements, and cemeteries. In many cases the listing agent may not have a complete list of exceptions so it might be wise to allow the title company to identify all the exceptions, which will all appear on the "search of title document." Farm & Ranch Contract - PARAGRAPH 6.F. SURFACE LEASES: Most surface leases should become evident upon visiting the property but some may not. The listing agent should have a list of information of surface leases. It is import- ant that you discuss these leases with your Buyer since he or she may not be willing to continue them. Leases can be written or oral, but most of them are oral. The most common are leases for grazing, hunting, hay, sand and gravel, and wind. Buyer will have to take a position on any or all of these. If Buyer wants to cancel any lease, then a statement to that effect should be made on the lines below or in Paragraph 11 of this contract. Farm & Ranch Contract - PARAGRAPH 6.G.(7) TEXAS AGRICULTURAL DEVELOPMENT DISTRICT: The property is or is not located in a development district. The intent of the Agricultural Development District is to encourage agricultural development within a geographically designated area. Legislation enabling the creation of districts was passed in 2001. As of 2015 there were no districts in Texas. Farm & Ranch Contract - PARAGRAPH 6.G.(9) PROPANE GAS SYSTEM SERVICE AREA: Some properties fall within a propane gas system service area. If so, Buyer will be notified, and an addendum containing the notice will be completed and included with the contract. See page <?> for more information regarding this addenda. Farm & Ranch Contract - PARAGRAPH 7.H. SELLER'S DISCLOSURES: Seller has no knowledge of a range of issues relating to flooding, and environmental hazards unless otherwise disclosed in the contract. Farm & Ranch Contract - PARAGRAPH 7.J. GOVERNMENT PROGRAMS: The most common government programs are grants from the U.S. Department of Agriculture (USDA) that are used for soil and water conservation projects on the property. This would include the planting of grasses, construction of dams, ponds, and other projects. Administered through local county agents, the USDA will often reimburse the land owner 20% - 80% of the cost of these projects. Farm & Ranch Contract - PARAGRAPH 13. PRORATIONS AND ROLLBACK TAXES: Prorations are calculated through the day of closing for taxes, maintenance fees and rents, if any. Tax prorations may be calculated to take into consideration any change in exemptions that will affect the current year's taxes. All counties in the State of Texas allow qualified landowners "al status" of farm or ranch property or for property used for the production of agricultural products including timber. This conditional status is most commonly referred to as an "exemp- tion." This conditional status does not include homes or out buildings on the land, but just the value of the land itself. Three of the most common types of land use that could qualify for this condition are agricultural, wildlife and timber. Agricultural may include row crops, grazing of animals, baling of hay, truck farming, nursery activity, cash crops and horse breeding. The example below shows the taxing authority agricultural use valuation on 100 acres to be $15,210 while the non-agricultural use valuation is deemed to be $628,480 by the taxing authority. If the landowner qualifies for an agricultural condition, he will pay taxes on the land at a value of $15,210 or $304.20 per year. Thus, the rollback rules came into being for every county of Texas. If an owner has taken advantage of the condition or exemption and changes the use of the property, the taxing authority in that county will roll the taxes back for a period of five years. The most common "change of use" would be creating subdivisions or commercial developments. This rollback is assessed to the owner of the property, regardless of how long it has been owned. The example below indicates a rollback on the 100 acres of $76,327 to be paid at the time of the change. Buyer will additionally be charged interest on the unpaid taxes over the previous five years at a rate of seven percent per annum. Agricultural Use Valuation $15,210 /100 = 152.1 × $2.00 = $304.20 (annual taxes under exemption) $304.20 × 5 = $1,521.00 (total of taxes paid over five years) Non Agricultural Use Valuation $628,480 / 100 = 6284.8 × $2.00 = $12,569.60 (annual tax without exemption) $12,569.60 × 5 YEARS = $62,848 - $1,521.00 = $61,327 (rollback tax due and payable by Buyer) Unimproved Property Contract - PARAGRAPH 6.E.(8) TEXAS AGRICULTURAL DEVELOPMENT DISTRICT: When preparing a back-up offer, complete the appropriate contract form and all of the associated addenda. By adding this addendum form, the contract becomes a "back-up contract." NOTE: The intent of a back-up contract is that it is to be contingent on the failure of an existing contract to close. In no way is this contract to be interpreted as an attempt on the part of a seller to replace a valid and enforceable contract with a new one that may have terms more favorable to the seller. ADDENDUM FOR BACK-UP CONTRACT - PARAGRAPH B. Enter the date on which the First Contract must terminate. If the First Contract terminates, the amended effective date of the back-up contract becomes the date on which Buyer was notified of the termination. ADDENDUM FOR BACK-UP CONTRACT - PARAGRAPH C. An amendment to the First Contract does not constitute a termination of the First Contract ADDENDUM FOR BACK-UP CONTRACT - PARAGRAPH D. If Buyer has an option to terminate, the time for giving notice of termination begins on the amended effective date of the back-up contract, and ends upon the expiration of Buyer's option period. ADDENDUM FOR RESERVATION OF OIL, GAS, AND OTHER MINERALS The mineral estate is severed from the surface estate in one of two ways. First, mineral interests can be conveyed from one owner to another with a mineral deed, by will or through inheritance. Over the years, thousands of land owners have sold their mineral interests in this manner, and to this day, investors continue to purchase mineral interests from surface owners as well as other mineral owners. Secondly, when property is sold, Seller often reserves some if not all of the mineral estate. Assuming Seller owns any of the mineral estate, the negotiation of the sale of unimproved property and farm and ranch property almost always involves the negotiation of mineral interests. ADDENDUM FOR RESERVATION OF OIL, GAS, AND OTHER MINERALS - Paragraph B.(1), Seller is reserving all of the mineral estate owned (if any). ADDENDUM FOR RESERVATION OF OIL, GAS, AND OTHER MINERALS - Paragraph B.(2), Seller reserves a fractional interest. If 50% is entered in this paragraph, and the seller owns all (100%) of the mineral estate at closing, Buyer will acquire the surface, improvements and 50% of the mineral estate. ADDENDUM FOR PROPERTY LOCATED SEAWARD OF THE GULF INTRACOASTAL WATERWAY The addendum is actually a disclosure notice for purchasers of property in the affected area. The public in Texas is guaranteed access to most beaches in Texas, whether they are under private or public ownership. The access affects the beach from the natural vegetation line to the mean low tide line in the Gulf of Mexico. This line moves over time through a number of natural forces such as regular beach erosion. The vegetation line is also affected by tropical storms and hurricanes. The purchaser is advised that the property described in this contract is in the vicinity of a public beach, and that it is possible that the vegetation line could move in such a way as to leave the property and its improvements on a public beach. The owner of such property could be liable for the cost of demolition and removal of the improvements. ADDENDUM FOR PROPERTY IN A PROPANE GAS SYSTEM SERVICE AREA House Bill 2532 amends the Utilities Code to establish standards for propane distribution system retailers. This bill has no effect on retailers who supply propane to users by refilling on-site propane tanks. A propane distribution system delivers propane gas from a central storage location via a pipe- line to residential users, much in the same way that natural gas is delivered. The bill requires distribution system retailers to provide certain disclosures and to record certain documents in the county real property records, in which the distribution system retailer owns or operates a propane gas system. The bill also establishes notice requirements for a homeowner who proposes to sell or convey real property located in a propane gas system service area owned by such a retailer. The notice required by the bill is required to be provided by a seller "at or before the execution of a binding contract for the purchase of the real property described in the notice or at closing of purchase of the real property." While the effective date of the bill is September 1, 2013, the recording required of a distribution system retailer must be completed no later than January 1, 2014, or the 90th day after the date a distribution system retailer completes construction of a new propane gas system in the county. SHORT SALE ADDENDUM - PARAGRAPH A. This document is used when Seller is unable to sell property at or above what Seller owes the lender. The seller is requesting lender to "short" themselves on what is owed. In A(1), Buyer is informed that Seller's net proceeds at closing will not be enough to pay off Seller's mortgage loan. In A(2), Seller requires the lienholder's consent to sell and requires the lender to accept Seller's net proceeds as full satis- faction of the mortgage loan. The lender is also to give to seller an executed release of lien against property in recordable format. ADDENDUM FOR COASTAL AREA PROPERTY This addendum is used when a property abuts any tidally influenced waters of Texas. This would include lands fronting on the Gulf of Mexico, including all bays and waterways whose level rise and fall with the tide. The seller must disclose any known fill on the property. Construction of structures such as bulk- heads and piers over state-owned submerged lands must be done with a proper permit from the state. SHORT SALE ADDENDUM - PARAGRAPH C. This addendum is attached to the contract and becomes binding when both Seller and Buyer enter into a contract. Earnest money and option fee paid as agreed in contract. Seller must apply immediately, upon executing contract, requesting that the lienholder give consent and agreement for short sale. Seller must also provide all requested documents to the lienholder. It will take more effort on Seller's part to receive the lienholder's consent and agreement than it did to get the original loan. Seller and Buyer are not required to perform while awaiting the lienholder's consent and agreement. SHORT SALE ADDENDUM - PARAGRAPH D. Buyer must decide how long they are willing to wait for the lienholder's consent (ex. 90 days - 120 days). Place the date on the blank line in Paragraph 1. If the lienholder doesn't give consent by that date, the contract terminates with earnest money refunded to Buyer. Seller will retain the option money if an option was created using Paragraph 23. If the lienholder gives consent, the contract is amended to reflect the new execution date (Amended Effective Date). SHORT SALE ADDENDUM - PARAGRAPH E. If the lienholder never provides consent and agreement or withdraws its consent, Seller must notify Buyer of the lienholder's refusal or withdrawal. SHORT SALE ADDENDUM - PARAGRAPH F. If Buyer has the unrestricted right to terminate contract, the option period begins on effective date of contract and continues through the amended effective date. Buyer has right to inspect immediately and terminate during stated time. Buyer may reinspect again during the new amended effective date. SHORT SALE ADDENDUM - PARAGRAPH G. Time is of the essence. Buyer needs to have cash or financing in place when the lienholder gives consent and agreement. Buyer may lose his or her loan lock interest rate while waiting for the lienholder's consent. Likewise, the property may go down in value. SHORT SALE ADDENDUM - PARAGRAPH H. Seller gives written authority for any other lienholder to give requested information to Buyer or Buyer's representative. SHORT SALE ADDENDUM - PARAGRAPH I. If there is more than one lienholder secured by property this addendum applies to each lienholder. NOTICE OF BUYER'S/MUTUAL TERMINATION OF CONTRACT This is a "multi-purpose" termination form that provides five specific reasons to terminate. If the termination is pursuant to another provision of the contract, the appropriate information can be entered in Paragraph 6. ADDENDUM FOR PROPERTY SUBJECT TO MANDATORY MEMBERSHIP IN A PROPERTY OWNERS ASSOCIATION This is the subdivision information and resale certificate referred to in the Addendum For Property Subject To Mandatory Membership In A Property Owners Association 36-8. Information regarding fees, assessments, violation of restrictions, and litigation regarding the Association should be carefully reviewed by the buyer. SUBDIVISION INFORMATION FORM This form is completed by the property owners association or the management company representing the association. It details the financial condition of the association and any issues related to the property. PROMULGATED RESALE CERTIFICATES This certificate is prepared by the management of the condominium project. It should be carefully reviewed by the buyer to determine that there are no significant issues relating to the project as a whole or to the particular unit being purchased. TEXAS REAL ESTATE CONSUMER NOTICE CONCERNING HAZARDS OR DEFICIENCIES