Section 4: Parties, Property and Financing in Texas Contracts
Sasha loves the play structure in the backyard of a property she is considering purchasing. It's a free-standing item. Can she expect this item to remain with the property?
No, a free-standing play structure would be considered the seller's personal property.
Loan assumption
_____________means the buyer is allowed to take over the seller's mortgage and make mortgage payments.
How would a licensee explain seller financing to a buyer?
"Seller financing is when the seller extends credit to the buyer for the purchase of the property. The buyer then pays back the loan with interest, over time."
The Loan Assumption Addendum to the TREC residential One to Four Family (resale) sales contract allows for a variance of ______ in the amount of the total principal balance at time of closing.
$500
VA entitlement
A _____________ is a financial guaranty from the government to repay a portion of the home mortgage in the event of default.
Why is it so important that the legal description be captured correctly in the sales contract?
A mistake in the legal description may lead to more or less land being conveyed to the buyer than was intended.
Conventional financing
A primary mortgage loan that is not guaranteed or insured by any government agency
Which as an acceptable way to identify Barbara Harrison as the administrator of her late husband, Geoffrey Harrison's, estate?
Barbara Harrison, administrator of the estate of Geoffrey Harrison, deceased
Why is it important to identify the marital status of the parties in a sales contract in Texas?
Because Texas is a community property state
Type of Financing
Buyer agrees to apply for financing as described and make every reasonable effort to obtain approval for the financing.
All third-party financing is subject to property approval and may or may not be subject to ______.
Buyer approval
Approval for financing as described in the Third Party Financing Addendum will be deemed to have been obtained when ______ are obtained.
Buyer approval and property approval
Allison is helping her buyer complete a Seller Financing Addendum to a sales contract. Where should she put that the buyer needs a $40,000 loan at a 6% fixed rate from the seller to be paid back in 120 monthly payments?
In the Promissory Note paragraph
Soon-Yi Chin is making an offer to purchase a three-bedroom, three-bath house on the outskirts of Austin. She is offering $270,500 for the property. Where on the TREC residential One to Four Family (resale) sales contract should she indicate the price she's offering?
In the Sales Price section
Promissory Note
Includes terms for repayment of the loan and the borrower's promise to repay the loan.
You're helping a buyer, Salvador Valen, complete the TREC residential resale contract. He's not married. Which of the following is the best way to identify him in the contract?
Salvador Valen, an unmarried person
Deed of Trust
Secures the note and provides for property transfers, tax and insurance escrow, and prior liens.
Russel Maverick likes to get things done quickly, so when he decided to buy Kent Regent's property, he asked Kent if he'd be willing to take a promissory note for the difference between the down payment and the purchase price that he would pay off in installments. Kent agreed. What type of financing is this?
Seller financing
Texas licensee Alexandra is helping her clients, the Kents, fill out the Sales Price section of the TREC residential One to Four Family (resale) contract. What amount will they put in this space?
The Kents' purchase offer
Sellers Tim and Carol are in a hurry to move closer to their new grandbaby, who lives across the country. They've even offered seller financing to qualified buyers. However, an interested buyer, Lyle, would rather assume Tim and Carol's mortgage. To do this, Lyle would have to complete which of the following addenda to the TREC One to Four Family Residential Sales Contract (Resale)?
The Loan Assumption Addendum
Government-insured loans have an additional provision, which is described in paragraph D of the Third Party Financing Addendum to the TREC residential One to Four Family (resale) contract. Specifically, the buyer is not obligated to purchase the property unless the buyer is given a written statement containing what information?
The appraised value of the property or the reasonable value of the property
Seller receives the earnest money
The buyer does not provide credit documentation within the time frame and terminates the contract within seven days of the expiration of the time for delivery.
The Loan Assumption Addendum requires some information about the seller's mortgage, including the name of the lender, interest rate, and any loan assumption fee, monthly payment, and ______.
Unpaid principal balance of the loan
Seller Financing Addendum
Used for a loan from the seller to the buyer for a portion of the purchase price.
Third Party Financing Addendum
Used for any type of new financing done by anyone other than the seller or the buyer.
Loan Assumption Addendum
Used for the possibility of the buyer taking over the seller's mortgage loan.
A _____________ is a financial guaranty from the government to repay a portion of the home mortgage in the event of default.
VA entitlement
Which information is required in the Deed of Trust paragraph in the Seller Financing Addendum?
Whether or not consent to property transfer is required
Toby Blackwood is a veteran seeking VA-guaranteed financing to purchase a home. Which addendum will he need to add the TREC residential One to Four Family (resale) contract?
Third Party Financing Addendum
Zelda is a Texas licensee working with a buyer and she's explaining the Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement. Which of the following explanations accurately describes what restoration of seller's VA entitlement means?
"A VA entitlement is a financial guaranty from the government to repay a portion of a VA loan in the event of default. Because the VA entitlement is a specific amount, the parties may apply to have the VA entitlement restored once the loan is assumed."
Since Angela plans to assume Robert's loan, she'll need to include the Loan Assumption Addendum. Paragraph A of that addendum is where she agrees to provide the seller with documents that will prove her creditworthiness. Let's say that Angela has agreed to provide the documents within seven days of the effective date of the contract. Which of the following items might she provide to show her creditworthiness?
-Credit report -Verification of employment -Verification of funds on deposit in financial institutions -Current financial statements -Personal references
Besides competent parties, a legal description, and consideration, a valid real estate contract requires three more elements.
-Mutual agreement -Lawful objective -In writing and signed by the parties
Let's take another example. The buyer wants to offer $150,000 with a $30,000 cash down payment. The remaining $120,000 will be financed with a $100,000 VA loan and $20,000 from a loan from the seller. Check any and all addenda required to complete paragraph three in the TREC sales contract.
-Seller Financing Addendum -Third Party Financing Addendum
Other Names for the Sales Contract
-The offer -Offer to purchase -Contract of purchase and sale -Purchase agreement
The buyer will assume the seller's $500,000 mortgage and finance the rest with a loan from a family member. What addenda will be required for this transaction?
-Third Party Financing Addendum -Loan Assumption Addendum
Items that aren't attached permanently to the real property but are assumed to belong to the house, such as draperies, fireplace inserts and screens, and above-ground swimming pools, are referred to in the Property section of the TREC residential One to Four Family (resale) contract as ______.
Accessories
When a sales contract doesn't cover the terms needed by the parties, which of the following actions is a licensee allowed to take?
Add a standard addendum using standard language.
Nikola is a seller who agrees to allow the buyer to assume his mortgage loan. What addendum will he need if he wants to terminate the contract if his application for release of liability is not approved by closing?
Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement
Roseanne is a seller who agrees to allow the buyer to assume her VA loan. What addendum will she need if she wants to indicate that she does not want the closing to be delayed if restoration of her VA entitlement is not approved by the closing date?
Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement
Toby is a seller who is willing to allow the buyer to assume his mortgage. In addition, to the Loan Assumption Addendum, what other addendum might Toby consider using if he'd like to limit his responsibility if the buyer defaults on the loan?
Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement
All financing
Amount of loan Period of loan Interest rate
FHA/VA Financing
Appraised value of the property
Hilda is a buyer who has gathered her financial statements, proof of employment, and credit report to show the seller that she can be relied upon to pay back a loan from the seller. Where in the Seller Financing Addendum is this information required?
Credit documentation
Valid real estate contracts must be in writing and signed by parties, contain a legal description, consideration, a lawful objective, mutual agreement, and ______.
Competent parties
In paragraph 3 of the TREC One to Four Family Residential Sales Contract (Resale), the______ plus the sum of all financing will equal the sales price offered.
Cash down payment
Veronica is completing her Third Party Financing Addendum with her agent's help. Although she is applying for a conventional loan, she is able to go through with the purchase if she does not get the loan. How should she indicate this on the addendum?
Check the box on the addendum that makes the contract not subject to buyer obtaining buyer approval.
In which section of the TREC residential One to Four Family resale contract do buyers indicate the price they're offering for the property?
Sales price section
If the noteholder fails to consent to the assumption of the loan, either party may terminate the contract by notice to the other party and the ______________ will be refunded to the buyer.
Earnest money
Okay, let's say that the loan being assumed is a VA loan, and that Wayne is a veteran. He would like to have his VA benefit restored but is willing to close even if that does not happen. Which of the following should be selected under B) Restoration of the Seller's VA Entitlement for VA Loan?
Failure to obtain restoration approval will not delay closing.
Georgie Banker is the widow of the late Gordon Banker. How should Georgie be listed as a party in a TREC sales contract regarding a property that Georgie owns?
Georgie Banker, an unmarried person
Vinnie is a seller who is considering financing a loan to a potential buyer. In the Seller Financing Addendum, Vinnie agreed to a delivery date five days after the effective date of the sales contract. The buyer delivered the documentation on time, but Vinnie doesn't approve the buyer's credit. What must Vinnie do to terminate the contract?
Give notice to the buyer that the contract is terminated within seven days of the date of delivery of the credit documentation.
Chandra is a seller who is considering financing a loan for a buyer. According to the Seller Financing Addendum, the buyer agreed to deliver credit documentation within five days of the effective date of the contract. That time has passed, and Chandra has not received the credit documentation, so she decides to terminate the contract. What must Chandra do next?
Give notice to the buyer that the contract is terminated within seven days of the expiration of the delivery date.
Buyer's Credit Approval
Gives the seller right to terminate if documentation is not provided on time or if seller does not accept buyer's creditworthiness.
FHA/VA Required Provision
If government financing is involved, the buyer must be given a written statement from the Federal Veterans
If buyers are identified as "Kathleen Leary and Trent Carpenter, as tenants in common," which of the following is true?
Kathleen Leary and Trent Carpenter are unmarried persons buying a property together
Texas buyer Jessie does not need to take out a loan to purchase the property she wants to buy. How should she indicate this in paragraph 3B) Sum of All Financing of the TREC residential One to Four Family (resale) contract?
Leave each box unchecked and write "N/A" in the blank.
Buyer Dee Dee Warren has found the perfect home. She's offering $304,000, with $74,000 in cash paid at closing, and wants to assume the sellers' mortgage loan of $230,000. To do this, she'll need to complete which of the following addenda to the TREC One to Four Family Residential Sales Contract (Resale)?
Loan Assumption Addendum
Buyer Nick is making an offer to purchase a home for $250,000. He's paying $50,000 of that in cash as closing, and would like to assume the sellers' mortgage loan of $200,000. Which addendum to the TREC residential One to Four Family (resale) contract will Nick need to complete?
Loan Assumption Addendum
What other addendum is required if the Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement is used with the TREC residential One to Four Family (resale) contract?
Loan Assumption Addendum
When a buyer takes over the seller's mortgage loan, which of the following addenda must be checked on the TREC One to Four Family Residential Sales Contract (Resale) to indicate this?
Loan Assumption Addendum
Carol and her husband, Mick, have decided that instead of taking out a loan to help finance their property purchase, they are going to take up where the seller left off on the seller's current mortgage. What type of financing is this?
Loan assumption
Here are two different ways to describe the property that the Haleys are interested in purchasing. Which one is considered the legal description?
Lot 14, Block 5, Greenland Hills Subdivision, Dallas
What does it mean that Peter Hubble is identified as a party to a sales contract as "Peter Hubble, as separate property?"
Peter is married, but his spouse is not joining in the conveyance of the property.
Government insured financing
Mortgage loans guaranteed by FHA, USDA, or VA
Blake, a licensee, has copied down the street address of a property from the MLS. Is this a legal description of the property?
No, a street address is not a legal description. He needs the information from a recorded plat or a metes and bounds description of the property.
If the buyers wished to purchase some personal property from the seller, where can this be addressed in the sales contract?
Non-Realty Items Addendum
Items of personal property included in a Texas sale are considered ______ and can be negotiated in an addendum of the same name.
Non-realty items
If Alex, a seller, approves of the buyer's credit documentation, which the buyer delivered on time according to the terms of their Seller Financing Addendum, what must Alex do to show his approval of the seller financing?
Nothing; the buyer's credit is deemed approved if the seller does not terminate the contract within seven days of the date of delivery of the credit documentation.
What paragraph of the TREC residential One to Four Family (resale) contract contains the promise to sell and the promise to purchase, known as the consideration, of the contract?
Parties
Release of liability
Parties can request a __________ from the lender so that if the buyer defaults, the seller is not responsible for the loan.
Tax and Insurance Escrow
Protects both parties. If deficient, seller pays. If overpaid, buyer reimburses the seller for overage.
Loan Assumption Terms
Protects the buyer if the lender charges an assumption fee or interest rate more than agreed to.
Consent by Noteholder
Protects the buyer if the lender does not consent to the assumption.
Seller's Liens
Protects the seller in the event the lender does not release the seller from liability.
Reggie has thoroughly reviewed the sales contract with his clients, the Arnolds, and has confirmed that they understand all of the terms and provisions. What should Reggie do next?
Recommend that the Arnolds review the sales contract with an attorney before signing it.
If the Texas buyer does not need any financing, then in the TREC residential resale contract, the Cash Portion of the Sales Price will be the same as the ______.
Sales price
What does it mean when a buyer assumes the seller's mortgage loan?
The buyer is allowed to take over the seller's mortgage and make mortgage payments.
Credit Documentation
The buyer must deliver items within a certain time period to the seller to show creditworthiness.
In the Loan Assumption Addendum, when does the buyer agree to pay the initial payment toward the loan?
The first payment due after closing
Reverse mortgage financing
The lender makes payments to the homeowner for a specified period of time and gains corresponding ownership.
Release Information
The parties agree to furnish and disclose information related to the status of the approval for the financing.
The Loan Assumption Addendum ends with two notices. The first cautions the buyer to examine the notes and deeds of trust before signing the contract.The second cautions the seller to use the TREC Release of Liability Addendum if needed. Unless the note holder approves a release of liability, who is liable to pay the notes the buyer has assumed?
The seller
What information is required to complete the Promissory Note paragraph in the Seller Financing Addendum to the sales contract?
The terms for repayment of the loan
When a buyer assumes the seller's existing loan, what happens if the buyer defaults on mortgage payments after the transaction is completed?
Unless the lender approved a release of liability for the seller, the seller remains liable for the loan.
Alex and Olivia Benson are buying a home using an FHA loan. What type of financing addendum will they need to check in the Sales Price section of the TREC residential One to Four Family (resale) contract?
Third Party Financing Addendum
Buyers Joe Matheson and Antonio Rubes want to offer $200,000 on the property they've just found. They're making a $50,000 cash payment, and the rest will be financed with a VA loan. Which of the following addenda must be checked in paragraph 3 of the TREC One to Four Family Residential Sales Contract (Resale)?
Third Party Financing Addendum
Finn Tutul is applying for FHA financing. Based on this, you know that he will need to use which addendum to the TREC residential One to Four Family (resale) contract?
Third Party Financing Addendum
Kay Waters is seeking first and second mortgage loans from her bank and a mortgage broker in order to finance the purchase of a property. When she completed the TREC sales contract, which addendum will she use to describe her financing?
Third Party Financing Addendum
Rusty is getting a conventional loan from his bank to finance the purchase of his house. When he completes the TREC sales contract, which addendum will he use to describe his financing?
Third Party Financing Addendum
Veteran Shirley Beckles is seeking VA-guaranteed financing to purchase a three-bedroom, two-bath home in Dallas. Which addendum will she need to include in the TREC residential One to Four Family (resale) contract?
Third Party Financing Addendum
Sylvester is a first-time home buyer who needs to take out a conventional loan to help finance his purchase. What type of financing addendum will Sylvester need to check in the Sales Price section of the TREC residential One to Four Family (resale) contract?
Third party financing addendum
The Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement notifies the buyer of what will happen to the contract if the release of the seller's liability has not been approved by the closing date. For example, if a seller, Wayne Edgerton, would like to be released from liability on the loan and is not willing to close unless that can happen, which of the following should be selected under A) Release of Seller's Liability of Loan to Be Assumed?
This contract will terminate and the earnest money will be refunded to the buyer.
Approval of Financing
This is deemed to have been obtained when buyer approval and property approval are obtained.
What is the purpose of the Credit Documentation paragraph of the Seller Financing Addendum?
This paragraph is the buyer's agreement to deliver documents that show creditworthiness within a certain time period.
Security
This states that each note for financing described must be secured by vendor's and deed of trust liens.
What options does the Addendum for the Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement give the seller if the restoration of VA entitlement is not approved by closing?
To terminate the contract or not delay the closing
In the Loan Assumption Addendum to the TREC residential One To Four Family (resale) contract, paragraph (C) states if the ______ of all assumed loans varies in an amount greater than $500, either party can terminate the contract.
Total principal balance
The Loan Assumption Addendum states, "If the __________________ of all assumed loans varies in an amount greater than $500 at closing, either party may terminate this contract and the earnest money will be refunded to buyer unless the other party elects to pay the excess of variance."
Total principal balance
Mortgage liability
Unless the bank approved the transfer of the ___________, the seller is still responsible for the loan.
Lloyd wonders if the gazebo in the backyard of a property is included with the purchase. The gazebo is permanently attached to the property with the supporting poles sunk into a concrete base. Will the gazebo be included in a sale of the property?
Yes, the gazebo is an improvement and will remain with the property