Promulgated Contracts: Chapter 5 Closing, Possession, and More
For a valid option to exist, the following are required:
1. All of the blanks in Paragraph 23 must be filled in. 2. The option fee must be paid within three days after the effective date of the contract. 3. Buyer must pay the option fee directly to Seller or the listing broker. NOTE: The option fee may or may not be credited to the sales price at closing.
Title company performs 2 primary functions:
1. Escrow services 2. Title Insurance
In the event of default by the buyer, the seller has several options, which include:
1. Liquidated Damages 2. Monetary Damages 3. Specific Performance
Funds held by a third party until performance of a contract.
Escrow
XXXXXXX XXXX are performed when something of value, such as a deed, money, or written instrument, is put into the custody of a 3rd person to be retained until the occurrence of a contingency or performance of a contract.
Escrow services
Upon signing by all parties, the contract is know as an XXXXXXX from the effective date of the contract through the date of closing.
Executory Contract
XXXXXX is a contract that is binding on the parties, with one or more of the parties having contractual duties that have not yet been performed.
Executory Contract
In the event of default by the Seller, Buyer becomes the injured party. Buyer has the following options:
1. 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. 2. Monetary damages 3. Specific performance
XXXXX does not in any way imply a waiver of the right to file a suit if a party is unhappy with the results of XXXXXXXX
Mediation
In addition to specific performance, the injured party may "seek such other relief as may be provided by law," which would be an award of XXXXXX damages by the court. Because the court awards monetary damages, one never knows what they will be until the court rules.
Monetary Damages
Either Seller or the listing agent may sign acknowledging receipt of the XXXXXXX
Option Fee Receipt
XXXX is the time allowed for inspections that Buyer may want.
Option period
All XXXXXXXX are voluntary and do not become binding until committed in writing.
Oral negotiations.
and all costs of such proceedings are recovered by a party to prevails in any legal proceeding related to this contract. This includes buyer, seller, listing broker, other broker or escrow agent.
Paragraph 17. Attorney's fees: Attorney's fees
The escrow agent is not a party to the contract, and has not liability for the performance of either party.
Paragraph 18.A. Escrow
Expenses Paragraph?
Paragraph 18.B. Expenses
Select this option if the selling agent is not representing Buyer under an agency agreement.
Represents Seller as Listing Broker's Subagent
Select this option if Buyer has not entered into an agency relationship with the broker.
Represents Seller only as Seller's agent
This lease is used when the seller remains in the property after closing, and is the form referred to in Paragraph 10 of the contract. Paragraph 10 stipulates that the buyer is to receive possession of the property on closing and funding, or according to a temporary lease.
Seller's Temporary Residential Lease
Buyer's and seller's expenses and XXXXXXX costs are stated
Settlement
XXXXXXXX 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 forms.
Special Provisions
When pursuing XXXXXXXXXXX, 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 result in the full execution (closing) of the transaction.
Specific Performance
When the last party signs and acceptance has been communicated to the other party's agent, the date of final acceptance is filled in.
The execution date follows Paragraph 24
T or F If the 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.
True
T or F Proration is the process of dividing ongoing expenses between the buyer and the seller at closing.
True
T or F The closing date is a date agreed to by the seller and the buyer.
True
T or F Two possible types of sales exist, cooperative sale and in-house sale.
True
The cost of mediation
is shared equally between Buyer and Seller
Select this option if both Seller and Buyer have entered into an agency agreement with the broker.
Represents Seller and Buyer as an Intermediary
XXXXX is applied first to the cash down payment and then to Buyer's expenses. Any excess is refunded to Buyer.
Earnest Money
_____ is the process of dividing ongoing expenses between the buyer and the seller at closing.
Proration
If signed by both parties, a(n) _____ becomes a change to the existing contract and must to be submitted to the title company.
Amendment
lease is used when the buyer moves before 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 before closing, resulting in a buyer who is unable to close.
Buyer's Temporary Residential Lease
XXXXXXXX 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 terminiate if repairs are not done in the allotted time.
Casualty loss
XXXXX date is agreed to by the seller and the buyer. It is an "on or before" date, and may be moved up if all parties are ready to proceed to closing.
Closing
The escrow agent will fill out this part of the form when title is "opened" by the delivery of the contract to the title company. Either agent may deliver the contract to the title company. It is the title company representative that effectively "opens title" to the property.
Contract and Earnest Money Receipt
A sale is a(n) _____ sale if one firm has listed the property and another firm is working with the buyer.
Cooperative
A sale is a XXXXXXXXXX sale if one firm has listed the property, and another firm is working with Buyer.
Cooperative (co-op)
A sale is a(n)_____ sale if the same broker is representing the seller and is also working with the buyer.
In house
A sale is an XXXXXX sale if the same broker is representing the seller and is also working with Buyer. Because it is an XXXXX sale, there is no "other broker," and the "other broker" information is left blank.
In-House Sale
TREC rules prohibit real estate license holders from giving
Legal advice
Seller can choose to accept Buyer's earnest money as XXXXXXXX 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.
Liquidated damages
Select this option if Buyer has entered into an agency agreement with the selling broker
Represents Buyer only as Buyer's agent
Amendment: If this box checked, the closing date of sale is changed.
PARAGRAPH (3):
Amendment:This change indicates that Seller will pay some or all of Buyer's costs. In some cases, Seller is willing to contribute to Buyer's closing costs as a part of the negotiated deal. In other cases, Buyer may be obtaining a loan that stipulates that Buyer cannot pay certain costs.
PARAGRAPH (4):
Amendment: Lender requires repairs and treatments as itemized on an attached list paid by Seller (amount indicated on the blank line), and if requested, an amount indicated on blank line to be paid by Buyer. Lender required repairs generally come from the appraisal report if the appraiser cites deficiencies that affect the value of the property or that are a danger to the health and safety of an occupant.
PARAGRAPH (5):
Amendment: Seller has agreed to extend the original option period specified in Paragraph 23. For such an extension to be valid, the buyer must pay an additional option fee. Enter the amount paid, the number of days, and whether or not the fee will be credited to the sales price at closing.
PARAGRAPH (6):
Amendment: Buyer waives the unrestricted right to terminate the contract.
PARAGRAPH (7):
Amendment: Seller is granting Buyer additional time to obtain approval according to the Third Party Financing Addendum.
PARAGRAPH (8):
Amendment: Only insert factual statements and business details that apply to this sale.
PARAGRAPH (9):
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.
PARAGRAPH 10. POSSESSION
Amendment: Buyer and Seller agree to amend Paragraph 3 of the contract. A change might be made to reduce Paragraph 3.C to match an appraisal that values the property at less than the original sales price. The cash portion(down payment) and financing will be altered accordingly.
Paragraph (1)
Amendment: Seller has agreed, at Seller's expense, to complete the listed repairs and treatments. This change is often made as a result of Buyer's inspection of the property.
Paragraph (2)
special provisions 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 forms. License holders must take special care when adding anything in Paragraph 11, as doing so could put them at considerable risk of being engaged in the unlawful practice of law. Much of the litigation surrounding this contract involves poorly constructed provisions in this paragraph.
Paragraph 11. Special Provisions
is the process of dividing ongoing expenses between the buyer and the seller at closing. XXXXX are generally calculated though 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.
Paragraph 12. Proration: Proration is
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
Paragraph 12. Settlement and other Expenses
Shows the typical seller's expenses at or prior to closing.
Paragraph 12.A(1)(a)
Expenses the seller is willing to pay n the buyer's behalf. Buyer is not allowed to pay on certain government loan programs or simple expenses Seller and Buyer have negotiated that the Seller will pay on the behalf of the Buyer.
Paragraph 12.A(1)(b)
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 the buyer
Paragraph 12.A(2)
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.
Paragraph 12.B
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.
Paragraph 14 Casualty loss
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." When a party is in default or breach, the other party is known as the "injured party." In responding to the default, the injured party has a number of options available to them. The options are somewhat different depending on whether the buyer or the seller is in default.
Paragraph 15. Default
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
Paragraph 16. Mediation
Either party or the escrow agent may send a release of earnest money to each party. If either party fails to execute a release of earnest money, either party may make a written demand for the earnest money. If the escrow agent does not receive a written objection to the demand within 15 days, the escrow agent is authorized to release the earnest money to the party making the demand, minus allowable deductions for expenses.
Paragraph 18.C. Demand
If a party wrongfully refuses or wrongfully fails to sign a release, the party entitled to the earnest money is entitled to damages, and earnest money, plus attorney fees and court costs.
Paragraph 18.D. Damages
Notices are effective when sent to the addresses in Paragraph 21.
Paragraph 18.E. Notices
All representations survive closing. If any representation is untrue on the closing date, the seller will be in default. The Seller may continue to show the property, receive, negotiate, and accept back up offers.
Paragraph 19. Representations
A seller who has no social security card or green card is considered a foreign person. The escrow agent will withhold from the sales proceeds an amount sufficient to comply with applicable tax law and deliver the same to the IRS. The contract says the buyer has an obligation to do this, but in reality, the escrow agent provides this service
Paragraph 20. Federal Tax Requirements
Notices are to be in writing. Faxed notices are effective as well as hand-delivered or mailed notices, and email notices are acceptable. Agents must ensure that the escrow agent has proper contact information for Buyer and Seller through the date of closing.
Paragraph 21. Notices
Check the applicable addenda that should be a part of this agreement. All of the addenda listed in this paragraph are TREC-promulgated forms.
Paragraph 22. Agreement of the Parties
Paragraph XXXX requires strict compliance with the time allowed for the option because of the "time is of the essence..." language. "Time is of the essence" means that all requirements under this paragraph must be performed strictly on time.
Paragraph 23
While no mention is made of inspections in this paragraph, the option period is the time allowed for inspections that Buyer may want. Recall that in Paragraph 7.D Buyer is purchasing the property "as is." Because of this, the Buyer is strongly urged to obtain inspections. Based upon the inspection findings, Buyer can simply proceed to closing, attempt to negotiate repairs with the seller, or terminate the contract. If Buyer chooses to terminate under the option, they will receive a refund of earnest money, but will not receive a refund of the option fee. The option fee is the consideration paid to Seller for taking the property off the market for a period of time while Buyer decides whether or not he or she wants to finalize the purchase of the property
Paragraph 23. Termination Option
is a date agreed to by the seller and the buyer. it is an "on or before" date, and may be moved up if all parties are ready to proceed to closing. The closing date may be extended up to 7 days, when necessary, after curing objections to the commitment or survey. If either party fails to close by the closing date, the non-defaulting party may exercise the remedies in Paragraph 15.
Paragraph 9.A. Closing: The closing
Seller is to convey the title with a general warranty deed
Paragraph 9.B.(1)
Buyer is to bring "good funds" to closing. Is described as a cashiers check or wire transfer. Title companies may accept a small personal check from a buyer.
Paragraph 9.B.(2)
Seller and Buyer agree to execute notices and documents reasonably required of them to complete the transaction.
Paragraph 9.B.(3)
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
Paragraph 9.B.(4)
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.
Paragraph 9.B.(5)
The One-to-Four Family contract stipulates that the buyer is to receive _____of the property on closing and funding, or according to a temporary lease
Possession
XXXXXXX should be given to Buyer upon closing and funding. Funding does not necessarily immediately follow closing
Possession
The Seller shall deliver the property in its _____ condition , ordinary _____ and _____excepted.
Present, Wear and Tear
XXXXXXXXXXXis the process of dividing ongoing expenses between the buyer and seller at closing. XXXXXXX are generally calculated through the day of closing for taxes, maintenance fees, and rends, if any that the seller pays for on the closing day.
Proration
XXXXXXXX can be used for many purposes. If signed by both parties, it becomes a change to the existing contract and must to be submitted to the title company
The Amendment
XXXX is responsible for ensuring that the effective date is filled in.
The Broker
XXXXXX is the escrow agent, the trusted 3rd 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.
The Title Company
T or F Either the Seller or the listing agent may sign acknowledging receipt of the option fee.
True
T or F If signed by both parties, the amendment becomes a change to the existing contract and must be submitted to the title company.
True
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.
In the event of _____ by the buyer, the seller can choose to accept the buyer's earnest money as liquidated damages, which releases both parties from any further obligation under the contract.
default
When a party to a contract fails to perform under the contract, they are in
default
The _____ is not a party to the contract, and has no liability for the performance of either party.
escrow agent
In a closing, _____ are described as a cashier's check or wire transfer.
good funds
Buyer and Seller agree to XXXXXXX in the event that the parties have a dispute that cannot be settled through informal discussion.
mediate
A(n) _____ gives the Buyer the unrestricted right to terminate the contract within the option period.
option
