Section 6: Closing, Possession, and More in Texas Contracts

The Lees and the Wongs are closing on a transaction. However, the Wongs, who are selling, must delay closing by two days. In order to do this, what must happen?

The parties must agree to and sign an Amendment to Contract form, changing the closing date.

Let's think about what would happen to the earnest money that has already been shelled out by the buyer, if that buyer were to be in default of the contract. Who would receive the earnest money?

The seller

When referring to paragraph 19 of the TREC One to Four Family Residential Contract (Resale), what is the definition of "representations"?

The statements included throughout the sales contract

Which of the following might you see in the Special Provisions paragraph of the sales contract?

"Additional sellers include..."

Your client asks you, "What does 'buyer possession' mean in the sales contract?" What do you say?

"The date the buyer takes possession"

Closing is June 23. Annual taxes are $2,200. How much does the seller have to pay at closing if using a calendar year, assuming the seller has not yet paid any taxes?

$1,049.22

Sorting out the Truth

A closing date may be automatically extended by up to seven days when objections to the loan commitment and/or the survey have been resolved.

You're helping your buyer client complete a Buyer's Temporary Residential Lease form for a transaction. Closing is set for January 5. Which of the following lease terms falls outside the maximum term allowed under the provisions of the Buyer's Temporary Residential Lease?

A lease beginning Oct 2

Which of the following is a true statement about the Special Provisions section of the TREC One To Four Family Residential Contract (Resale)?

It may not be used to cover a situation for which a promulgated form exists.

What is an advantage to using mediation as a problem-solving tool in a contract dispute?

It offers a win-win solution because both parties come out with satisfactory results.

The Powers need to move into the property they are purchasing 10 days prior to closing.

Seller shall deliver possession of the property to buyer according to a buyer's TREC-promulgated temporary lease form.

You're working on a transaction in which the seller can't move out until several days after closing. Which form covers this situation?

Seller's Temporary Residential Lease

How would a delay in closing be handled within a transaction?

The parties can complete and sign an Amendment to the Contract form.

When does buyer possession usually occur?

After closing and funding

Let's challenge your comprehension (and no peeking this time). Under normal circumstances, when must the buyer's agent deposit the earnest money and other applicable funds with the escrow or title company?

Before the end of business on the third day following the effective date of the contract

Escrow

Explanation of the escrow agent's role in the transaction

With which type of buyer financing is a seller likely to pay higher fees?

Gov

You're helping your buyer client, Bertha, complete the sales contract. Bertha would like to move into the house prior to closing if the seller is okay with that arrangement. How will you convey Bertha's request?

Help Bertha complete the Buyer's Temporary Residential Lease form and attach it to the sales contract

Demand

How the escrow funds will be released in the case of a terminated contract

Why do government loans limit the amount of fees a buyer pays?

To make buyer qualification easier

Explaining "Unallowables"

Unallowables are fees that the borrower is not allowed to pay, so the seller is responsible for paying those fees.

Using the information from our previous problem (closing is on June 23, annual taxes are $2,200, the seller hasn't paid any of the taxes, and you're to use a calendar year calculation), what is the daily rate the seller will pay?

$6.03

Take Note of the Requirements for Notices

-Are effective when mailed -Must be in writing -Are effective when hand delivered -Must include the buyer's information -Must include the seller's information

The Provisions in the Buyer's Temporary Lease

-Buyers will be required to pay rent from the day they move in until the day of closing. -The deposit will be refunded at the time of funding and closing, if the tenant adheres to the terms of the contract.

Unallowable Fee

-Commission -Additional inspection fees

Allowable Fee

-Escrow fee -Title insurance -Recording fees

You will likely work with a number of escrow agents throughout your career as a real estate licensee, so it's important to know their role in the transaction. Meet Heathrow, an escrow agent. Based on this, you know that which of the following apply to his role?

-Not liable for the interest on the earnest money. -Able to release the earnest money when certain conditions are met. -Not a party to the contract.

Can you identify the important items contained in the Possession paragraph of the TREC One to Four Family Residential Contract (Resale)?

-Possession according to the terms of a temporary lease -Consulting with an insurance agent -Possession upon closing and funding

The Truth about "On or Before"

-The parties of the transaction have agreed that closing will occur on the date agreed upon in the closing paragraph or beforehand, should both parties agree on an earlier date.

Let's consider a case of a terminated contract. As you may have deciphered, the Demand sub-section comes into play when the contract is terminated. The demand for funds has been sent to the escrow agent. How many days are allowed for the non-requesting party to respond before the funds are released to the requesting party?

15

Paragraph 10 deals with time of possession. When completing the contract, Alex and Keira check the first box of paragraph 10A, which states that Alex will take possession at what point in the transaction?

Alex will take possession of the property upon closing and funding.

The Seller's Rights under Representations

Unless another agreement is drafted prohibiting it, the seller has the right to continue to show the property to interested parties as well as receive and negotiate other offers that serve as back-up throughout the contract period until the closing date.

On which buyer-financing transaction might a seller pay higher fees?

Gov loans

On which type of real estate transaction would the buyer's lender most often disallow certain expenses related to closing?

Government

The FHA loan program would be most likely to disallow a(n) __________ fee.

Real estate commission

The closing date is set for August 10, but the seller can't move out until August 31. What can the parties do?

Require the seller to pay rent to the buyer under a seller's temporary residential lease

You're helping your client Scot with the purchase of a ranch home. Scot wants to bring his cattle over, so he's asked for early possession. The transaction is scheduled to close on July 15, and Scot needs to move his cattle in on February 1. What form should you help Scot complete?

There's no form for this.

You've helped your buyer prepare a temporary residential lease and have just learned that the lease must be extended beyond 90 days. What should you do?

Consult your broker

You're posting a new listing on the MLS and ask your seller what type of buyer financing the seller prefers. You'd most likely hear "__________."

Conventional or cash only, because I don't want to pay higher fees

The Hindermans are selling their property to the Browns. However, the Hindermans need to stay in the home four days after the two parties close on the property.

Seller will deliver possession of the property to buyer according to a seller's TREC-promulgated temporary lease form.

Bobby is buying Tandra's property. They have a closing date of October 3. Bobby will move in early on September 15, and pay rent to Tandra, who is moving out September 12. What date should be listed as "buyer possession" in the sales contract?

September 15, when Bobby moves in

What is the purpose of the Special Provisions section of the sales contract?

To clarify facts already noted in the contract

You're assisting your client, Jarvis, who's buying May's townhome. May will remain in the townhome 10 days after closing. What form must the parties complete?

Seller's Temporary Residential Lease

Expenses

What the earnest money must be applied to first and thereafter

Jimmy is excited to move into the downtown loft the Mullens are selling. They have an agreed-upon closing date of June 27 in their sales contract. Both the buyer and the seller have met their obligations for closing early, and agree to move the closing date up by 10 days. Is this permissible?

Yes

This section may be used to clarify facts of the contract. It's not to be used in place of a promulgated form, if one exists, to cover the situation. Contingencies are covered elsewhere in the contract.

Special Provisions

Raymond, a new sales agent, is doing his best to provide detailed statements regarding the provisions his client wants captured in the Special Provisions section of the sales contract when he realizes he's going to run out of space. What should he do?

Stop, consult his broker, and recommend to his client that she consult an attorney.

Have you heard about what must be completed on page nine of the TREC sales contract? Do you know what is not required? Read each of these options, and decide what needs to be completed, and what does not, on the final page of the sales contract.

-Information about brokers who are parties to the transaction -The name of the brokerage that was represented in the transaction -Information about the broker's responsibility -Information about payment to broker

Any addenda to the contract must be included with the TREC One To Four Family Residential Contract (Resale) documents and ______.

Checked off in the Agreement of Parties section of that contract

Earnest money

Classified as liquidated damages

Resolving a specific issue by a specified deadline

Classified as specific performance

What happens if, during a sales transaction process, the property that is under contract is damaged or destroyed? Which party is responsible for keeping the property insured until the buyer takes possession?

The seller

Your buyer client, Millicent, is closing on a property on January 3, but she has a February 15 date of possession. Which of the following is likely true about this situation?

The seller is paying rent

Why might a seller balk at a buyer who's obtaining a government loan?

The seller may have to pay higher fees.

Closing has occurred and the seller is not vacating the property for another 15 days. The seller no longer owns the property, and yet he remains there. The seller and buyer have completed the Seller's Temporary Residential Lease form. Who would be considered the landlord in this circumstance?

The buyer

Fiona Gilroy moved to Austin for a business opportunity nearly two years ago. Unsure how long she'd stay in Texas to give her business a go, she decided to purchase a home. She was shocked to realize, two years later, that she'd become so successful she could move back to Ireland and run her business from there. She is still considered a foreign person under federal tax regulations. What must her buyer do in order to comply with paragraph 20, Federal Tax Requirements? Read each of these statements and determine whether this is something the buyer of Fiona's house would have to do.

-The buyer must withhold sufficient money to be in compliance with the federal tax laws. -The buyer must send the withheld money to the Internal Revenue Service.

Seller Fault

-Failure to provide the loan pay-off information or any other necessary document the title company required -Failure to vacate the property on the agreed-upon date -Failure to provide information proving that the leak under the master bathroom toilet was remedied as required within the contract

Buyer Fault

-Failure to remove a contingency by the agreed-upon date -Failure to return the signed copy of the seller's disclosure of property condition within the agreed-upon time frame

Let's go through the steps for calculating the proration amount.

1. Calculate the daily rate using the calendar days 2. Identify the number of days in the proration period 3. Multiply the number of days in the proration period by the daily rate

Marcus, a buyer, learns that he can't close by the contracted date, but can close a week later. As his agent, you prepare a(n) ______.

Amendment to Contract

Your buyer client, Gloria, is moving to Austin for a new job opportunity. You were both surprised and thrilled when she fell in love with the second home she saw. The seller accepted her offer without countering, and everything seemed set in stone ... That is, until her new boss contacted her and asked if she could start work two weeks early. What can she do? Which form should you use?

Buyer's temp residential lease

Notices

Considered effective when sent and received by an escrow agent

Advantages of Mediation

-Mediation is considered private because it's between the involved parties and an unbiased third party. -Mediation costs less than arbitration or litigation. -Mediation allows both parties to arrive at a satisfactory agreement, which can be considered a win/win. -Mediation is generally quicker than the other two options.

Demand: The Sequence of the Release of Earnest Money

1. Either party can send a written demand for the release of the earnest money to the escrow agent. 2. The escrow agent must send a copy of the demand letter to the other party. 3. The escrow agent must receive an objection from the other party within 15 days. 4. The escrow agent does not receive an objection letter from the non-requesting party. 5. The escrow agent is able to release the earnest money to the requesting party. 6. Any expenses incurred by the receiving party will be withheld from the earnest money.

Your clients, the Wentworths, have prevailed in the lawsuit with a buyer who skipped out on the sales transaction. You understand what a victory this is, knowing how much money they spent to fix the roof and the foundation issues discovered during the home inspection. Throw in the attorney fees over the year-long battle, and the price tag for this ordeal has cost the Wentworths nearly $28,000. Finally, it's over! Given the provisions of paragraph 17, what are the Wentworths entitled to because of this victory?

The cost of the attorney's fees as well as the cost of the legal proceeding.

Under what circumstances would a seller pay rent to the buyer?

When the seller must remain in the property after closing

The Provisions in the Seller's Temporary Lease

-The seller must pay the buyer the full amount of the daily rent—plus the security deposit—at the time the sale closes and is funded. -Paragraph four of the seller's temporary lease states that the tenant will not be refunded the pre-paid rental cost, regardless of the reason. -The tenant is entitled to a refund of the security deposit.

Knowing the Buyer's Options in the Case of Casualty Loss

-Terminating the sales contract and receiving the earnest money back. -Extending restoration date, resulting in the closing date being pushed back by up to 15 days, so the seller can restore the property to its original state. -Purchase the property as-is, under the condition that the buyer will restore the property to its original condition. -Receive the proceeds from the seller's insurance, and a credit from the seller for the insurance deductible that the buyer will have to pay to repair the property.

Once the Owner, Now the Tenant

-The Seller's Temporary Residential Lease is used when the seller needs to stay in the property past the closing date. -The Possession paragraph of the TREC One to Four Family Residential Contract (Resale) will need to be correctly marked when there is a temporary lease between the buyer and seller of the property.

The Four Requirements of an Executed Contract

-The agreement is clear to all parties. -The agreement is in writing, and it must be signed by all parties. -All changes within the agreement are initialed by all parties. -The contract is accepted by both parties and is communicated to each other or their agents.

Closing is June 23. Annual taxes are $2,200. How much does the seller have to pay at closing if using a calendar year, assuming the seller has not yet paid any taxes? For how many days will the seller be responsible?

174 days

You are working with clients who have requested the release of the earnest money. You've gone through some ups and downs throughout the contract process with the seller, including some issues with the seller procrastinating when it's time to return required documents. It is now day five, and you and your clients are awaiting the return of the signed release of the earnest money request. How many more days before the deadline has come and gone, leaving the seller liable for damages?

2 If the seller fails to return the signed release required by the escrow agent within seven days of receiving the notice, the seller is liable for the damages, including earnest money, attorneys' fees, and all costs for a lawsuit.

The maximum term that a Texas buyer may lease from a seller under the buyer's temporary residential lease is ______.

90 days

The parties are moving the closing date back by four days, so instead of occurring on March 24, the closing will occur on March 28. What form must be completed and signed?

Amendment to Contract

So, every "I" is dotted, every "T" is crossed and now your client, Mrs. Jackson, wants to make one last change. What is a licensee to do?

An amendment is necessary, and all parties to the transaction must acknowledge, agree to, and sign that form.

Ramon and Sylvia are buying their first house. Closing is set for April 10. Their lender gets their loan approved in record time, and it turns out they can actually close on April 5. What needs to happen for the closing date to change to April 5?

Both parties must agree to the earlier date and must have met all other terms of the contract.

You're assisting a Texas buyer who needs to move in 15 days before closing. If the seller agrees, what form must both parties sign?

Buyer's Temporary Residential Lease

Damages

Earnest money, attorney fees, and other costs associated with the failure to comply with the release of escrow funds

Which of the following is an appropriate use of the Special Provisions section of the TREC One To Four Family Residential Contract (Resale)?

Expanding on statements presented elsewhere in the contract

Let's pretend you're already a licensee, and one of your colleagues—who is newly licensed—comes to you for guidance on filling in the Special Provisions section of the sales contract.

Factual clarifying statements

If buyers _________________, they are defaulting on the contract and could lose their earnest money deposit to the seller.

Fail to remove a contingency before closing

Marking the applicable addenda used in the agreement under paragraph 22, Agreement of Parties, is optional, because the addenda are already attached. This paragraph can be used for a quick reference, but it is not required.

False -This paragraph is not used as an optional quick reference. We are almost through all 24 paragraphs of the TREC sales contract. We only have two more to go! Three cheers for you!

Maura is representing three buyer clients and there is only room enough in the Parties section of the TREC One To Four Family Residential Contract (Resale) to list two of the three names. Where should she note the name of the third buyer?

In the Special Provisions section

Which of the following is a true statement about the date of buyer possession, as specified in the TREC resale sales contract?

It can vary, depending on the agreement between the parties.

Jackie Johnson is your buyer client who is looking for options ... literally, as it turns out. She wants to know if she can have the exclusive right to purchase a property she's interested in, because she doesn't want to lose the house to another buyer. Because she's not 100% sure she wants to commit to this property, though, she wants to be able to get out of the agreement without any legal snares or further obligations. This is your cue to review the Termination Option of the TREC sales contract with her. This paragraph is used when buyers, for some reason, wants to reserve the property for their exclusive option to purchase it for a specific period of time. Of the following options, which of the following accurately describes paragraph 23 of the TREC sales contract?

Jackie and the seller can agree to an option fee that Jackie will pay to the seller within three days. In addition, they can agree on the option period, which is the time frame in which she will decide whether she'll move forward with purchasing the property or not, in which case she'll terminate her right to the property. As incentive for taking the house off the market, the seller will keep the option fee if Jackie decides to terminate.

Joanna has been looking forward to closing on her new home and plans to move in as soon as the paperwork is signed.

Joanna has been looking forward to closing on her new home and plans to move in as soon as the paperwork is signed.

Roberto is closing on a condo on May 1. The seller is staying in the home until May 8. The seller will then have the unit cleaned, and turn the keys over to Roberto on May 10. Roberto will move in on May 11. What is the date of buyer possession, as it should be listed on the sales contract?

May 10, when Roberto gets the keys

The parties were scheduled to close January 15, but now wish to close January 10. What Texas form must be completed and signed?

No form is needed, as long as the parties agree and have met all of their contractual obligations

Which of the following statements regarding sales contracts is true?

Once the sales contract is fully executed by all parties, it can no longer be changed.

You are representing Emilio, who is closing on two properties on the same day. On the first property, he is the seller of a two-bedroom condo in Dallas. On the second property, he is the buyer of a single-family house. Emilio just learned that the closing on the second home will be delayed by four days, because the lender has encountered an issue with the loan. Luckily, the buyers of the first property can't move into the condo until a week after closing. Which temporary lease will Emilio need to remain in the condo longer?

Seller's temp residential lease

Your buyer needs to lease the property he's purchasing for six months before he can close. You notice that the Buyer's Temporary Residential Lease allows a term of up to 90 days. What should you do?

Suggest that your client have an attorney prepare the temporary lease.

If a buyer will move in before closing or a seller will remain after closing, what form must be prepared?

Temp lease

In buyer Brenda's TREC One To Four Family Residential Contract (Resale), her offer states that her closing fees may not exceed $3,800. If her closing fees turn out to be $5,000, Brenda can _______.

Terminate and get her earnest money back

Your buyer client, Herman, is pleading with you to extend his closing date, even though the contract has been executed already. What can you do to make this a reality?

The closing date can be extended if you complete the Amendment to Contract form, and both parties to the transaction agree to and sign this amendment.

What is meant by "buyer possession" in the sales contract?

The date the buyer may move into the property

In what situation must a Seller's Temporary Residential Lease be completed?

When the seller will remain in the property after closing

Maggie, a buyer, and Wayne, a seller, enter into a TREC One To Four Family Residential Contract (Resale). Two weeks prior to closing, Wayne's Yorkie-Poo, Pumpkin, knocked over a heater in the garage and burned the house down (don't worry, Pumpkin and Wayne got out fine). Whose insurance will be responsible for the repairs?

The seller

What's the purpose of the Special Provisions paragraph of the One To Four Family Residential Contract (Resale)?

To clarify facts found in the contract

You are probably aware by now that TREC has a lot of rules you're required to follow. Do you remember TREC Rule 537.11 regarding promulgated forms? To jog your memory, subsection (g) of this rule states that a licensee may not add factual statements or business details for which a contract addendum, lease, or other form has been promulgated to a promulgated contract form. Identify which of these is how you would follow TREC Rule 537.11 (g).

You know that because you've already completed a TREC-promulgated addendum for the seller's request to retain oil and mineral rights on the property, this can be left out of paragraph 11, Special Provisions.

If It's Emphasized, It Matters!

You're working with your buyer clients and as you complete the sales contract, specifically paragraph 10, which deals with possession, you read your clients the statement that is emphasized. This statement asks your clients to consult with their insurance agent to ensure they understand their coverage. Both the buyer and the seller need to understand the importance of this clause, as a lapse in insurance coverage could mean a financial loss to either party without the proper coverage when possession of the property changes hands.