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1 to 4 family explained


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1 to 4 family explained

  1. 1. 1-4 Family Contract and Addenda Explained Paragraph-by- Paragraph Rick Tankersley 1
  2. 2. Table of Contents 1. 1-4 Family Contract and Addenda Paragraph-by-Paragraph 2. Table of Contents 3. Paragraph 1: Parties 4. Paragraph 2: Property 5. Paragraph 3: Sales Price 6. Paragraph 4: License Holder Disclosure 7. Paragraph 5: Earnest Money 8. Paragraph 6A: Title Policy and Survey 9. Paragraph 6A: Title Policy and Survey (continued) 10. Paragraph 6B: Commitment 11. What is a Title Commitment? 12. Paragraph 6C 13. Paragraph 6D: Objections 14. Paragraph 6E: Title Notices 15. Paragraph 6E: Title Notices (continued) 16. Paragraph 6E: Title Notices (continued) 17. Paragraph 6E: Title Notices (continued) 18. Paragraph 7: Property Condition 19. Texas Property Code 5.008 (e): Seller Disclosure 20. Paragraph 7: Property Condition (continued) 21. Paragraph 7: Property Condition 22. What is Earnest Money? 23. Paragraph 7: Property Condition 24. Paragraph 8: Brokers Fees 25. Paragraph 9A: Closing 26. Paragraph 9B: At Closing 27. Paragraph 10: Possession 28. Paragraph 11: Special Provisions 29. Paragraph 12A (1): Settlement and Other Expenses 30. Paragraph 12A (2): Settlement and Other Expenses 31. Paragraph 12B: Settlement and Other Expenses 32. Paragraph 13: Prorations 33. Paragraph 14: Casualty Loss 34. Paragraph 15: Default 35. Paragraph 16: Mediation 36. Paragraph 17: Attorney’s Fees 37. Paragraph 18: Escrow 38. Paragraph 18: Escrow 39. Paragraph 18: Escrow 40. Paragraph 19: Representations 41. Paragraph 20: Federal Tax Requirement 42. Paragraph 21: Notices 43. Paragraph 22: Agreement of Parties 44. Paragraph 23: Termination Option 45. Paragraph 23: Termination Option 46. Paragraph 23: Termination Option 47. Paragraph 24: Consult an Attorney 48. Execution and Signatures 49. Page 9: Broker Information 50. Page 10: Receipts 51. Third Party Finance Addendum 52. Third Party Finance Addendum (page 1) 53. Third Party Financing Addendum (page 1) 54. Third Party Finance Addendum (page 2) 55. Third Party Finance Addendum (page 2) 56. Third Party Finance Addendum (page 2) 57. HOA Addendum 58. HOA Addendum 59. What is Lead Based Paint? 60. Lead Based Paint Addendum, Paragraph A 61. Lead Based Paint Addendum Paragraph B 62. Lead Based Paint Addendum, paragraph C 63. Lead Based Paint Addendum, Paragraph D 64. Lead Based Paint Addendum, Paragraph E 65. Mineral Rights Addendum 66. Amendment to Contract 67. Contingency 68. Seller Finance Addendum: Paragraphs A and B 69. Seller Finance Addendum, Paragraph C 70. Seller Finance Addendum, Paragraph D 2
  3. 3. Paragraph 1: Parties • Parties (Sellers and Buyers) Also referred to as “principals” • Make sure to verify seller info by searching the address on the county appraisal district website 3
  4. 4. Paragraph 2: Property A. Complete Legal Description: Lot, Block, Subdivision as found in County Appraisal District Website B. Defines Included Improvements C. Accessories that STAY with the property unless excluded D. This is where exclusions are written in E. Any mineral rights reservations must be in an addendum 4
  5. 5. Paragraph 3: Sales Price A. Down Payment B. Sales price minus down payment. (make sure to check box for type of financing. C. Full Sales Price 5
  6. 6. Paragraph 4: License Holder Disclosure • Disclose if the agent is the seller or buyer or related to the seller or buyer. (example: Buyer is a licensed real estate agent) 6
  7. 7. Paragraph 5: Earnest Money • Blank 1 = Amount of earnest money to be deposited, blank 2 = Title company, blank 3 = address of title company, blank 4 = any additional earnest money to be deposited later, blank 5 = how many days until addt’l EM is deposited • 3 Business days to deliver EM • If not deposited within 3 days, seller may terminate • Time is of the essence! 7
  8. 8. Paragraph 6A: Title Policy and Survey Check the box indicating who pays for title policy In the blank, name the title company (not the escrow officer) that will issue policy 8
  9. 9. Paragraph 6A: Title Policy and Survey (continued) • The paragraph continues to specify what items the title policy does not cover. These items will again be reflected for review in the title policy. • Section 6.A.8 is the most recent change to the title policy, allowing buyers to gain additional protection for themselves by amending the title policy to include covering certain survey issues. It is very popular and generally a good idea to check box “ii”, “will be amended”. • It is common in the for the seller to pay that cost, which is usually under $100 x 9
  10. 10. Paragraph 6B: Commitment When a title company agrees to issue a title policy, they issue a title commitment (see explanation on next slide)…agreeing to issue the policy, which often comes after the sale of the home. This section gives the title company twenty days from the execution of the contract to get these documents to the buyer (and includes an automatic extension of this time for an additional fifteen days or three days prior to closing, whichever is earlier). If the seller (via the title company) fails to furnish these documents, the buyer may terminate the contract and receive their earnest money back. 10
  11. 11. What is a Title Commitment? • Title commitment is, basically, an offer from the title company to issue a title policy along with an overview of the important parts of the policy in question. • A commitment is not always searched back to the original owner. Consequently, a clean commitment does not always ensure that the buyer will never have title problems, only that he will have coverage if problems do arise. • There are four title commitment sections for clients called “schedules” which provide information in an easily understandable standard format. • Schedule A - Basic information about the transaction such as the effective date; policy coverage amount; the legal name of the current record title owner and a legal description of the property. Problems will arise if this information is incorrect. • Schedule B - Contains a pre-printed list of standard exceptions that the title policy will not cover. Most importantly it will also list matters specific to the transaction that could impact the usefulness of the property, i.e. restrictive covenants, easements, and rights-of-way. • Schedule C – VERY IMPORTANT TO REVIEW - lists the requirements that must be satisfied for the issuance of the title policy. Examples include information on marital status, updated surveys, liens, judgments, lawsuits etc. Generally, the seller is responsible for resolving discrepancies identified in Schedule C. • Schedule D - discloses the total policy premium, along with an explanation of how the premium is divided among the various parties who may be responsible for examining title and issuing the policy. 11
  12. 12. Paragraph 6C There are three choices in this section. (1) is for when there is an existing survey. If there is one and both parties check this off, then within the specified amount of days, the seller must provide the survey (along with a Notarized T-47 Affidavit) to the buyer. There are also checkboxes for whether the seller or buyer will pay for a new survey if the title company or buyer’s lender deem the survey not acceptable. It is important to note, that regardless of which box is checked (buyer pays or seller pays), if the seller does not provide the survey to the buyer in the agreed upon time in this section, the buyer may order a brand new survey at the seller’s expense. When there is no survey available and you are opting to order a new survey: (2) at the buyer’s (3) – the seller’s expense . 12
  13. 13. Paragraph 6D: Objections Allows the buyer to object to items that would affect the title policy. The buyer may object to anything that may prohibit the use or activity written in the space provided. This section gives a time frame for the buyer to make objections after receiving the title commitment, exception documents, and the survey. WRITE IN the number of days buyer has to object after receiving title commitment in the field provided. 13
  14. 14. Paragraph 6E: Title Notices (1) Abstract or Title Policy – A buyer does not have to get a title policy, although it is a very good idea. This advises that if they choose not to, it is advised that they have an attorney review the chain of title for any issues that may affect their ownership. (2) Membership in a Property Owners Association – is a notification that the title commitment will address whether or not the home is in an HOA and ensure the buyer knows that failure to pay HOA fees can result in liens and foreclosure. 14
  15. 15. Paragraph 6E: Title Notices (continued) (3) Statutory Tax Districts – a notice that the buyer should ensure they’ve been informed by the seller of any special tax districts the property is apart of, like MUD (Municipal Utility District, not currently prevalent in the South Region Area). (4) Tide Waters – This is for coastal properties. There is an additional notice for coastal properties that the buyers need to review. 15
  16. 16. Paragraph 6E: Title Notices (continued) (5) Annexation – This notifies the buyer that the home may eventually be annexed into a city’s limits if it is not within them already. (6) Property Located in a Certificated Service Area of a Utility Service Provider – this applies to areas that are serviced not exclusively by a municipality’s utilities, but a private utility, usually away from the city. There may be additional costs to a property and utilities if this is the case, hence the notice if applicable 16
  17. 17. Paragraph 6E: Title Notices (continued) (7)Public Improvement District – like historic districts for example, there may be other costs, regulations or restrictions related to living in certain neighborhoods. (8) Transfer Fees – as of 2012, there cannot be transfer fees related to the property transaction, however agreements predating the change may still be in effect. The seller is obligated to notify the buyer of any such requirements. (9) Propane Gas System Service Area – The seller must notify the buyer if the property is located in a propane gas system service area. (Use Required Addendum) (10)Notice of Water Level Fluctuations. If you’re next to a lake, the water level can change. 17
  18. 18. Paragraph 7: Property Condition A. Access, Inspections and Utilities THE SELLER MUST HAVE THE UTILITIES ON DURING THE ENTIRE CONTRACT PERIOD! …At their own expense. B. Seller’s Disclosure. In most cases, the Seller is legally obligated to provide the buyer with a Seller’s disclosure which lists any issues about the property of which the seller is aware. Often, the listing agent will have the disclosure immediately filled out and available on the MLS for the buyer’s agent. If not, you can check box 2 and specify when they would like the disclosure by (example “3” days). If box 2 is checked, this is another rare but possible “out” the buyer has from the contract if the seller and their agent are not prompt C. Lead Based Paint Disclosure. In addition to the general disclosure discussed above, this two page additional disclosure must be attached, filled out by the seller, if the home was built prior to 1978. 18
  19. 19. Texas Property Code 5.008 (e): Seller Disclosure of Property Condition Most every seller must provide a Seller Disclosure. There are only 11(eleven) exemptions. 19
  20. 20. Paragraph 7: Property Condition (continued) The paragraph can cause some confusion for the buyer. Often the property will be accepted “as-is”, understanding that you will later have the option to renegotiate repairs during any option period to which you and the seller agree in Paragraph 23. If you already know of a specific repair or treatment you would like done, you can check box 2 and specify it up front. 20
  21. 21. Paragraph 7: Property Condition E. Lender Required Repairs and Treatments: According to the contract, neither party (buyer or seller) is responsible for paying for lender required repairs. If the buyer and seller cannot come to agreement as to who will pay for these repairs, the contract can be terminated and the buyer will receive their earnest money back. The buyer may also terminate and receive their earnest money back if the total cost of lender required repairs exceeds 5% of the sales price. F. Completion of Repairs and Treatments Repairs must be made by someone licensed to do such work or, in the case where a license is not required, someone who does those types of repairs commercially (i.e., not your cousin who knows a few things about the repair, but does not work in that field). This section also states that all permits shall be obtained to do such work, that any transferable warranties will go the buyer at their expense, and if the seller fails to complete the repairs before closing, the buyer may elect to extend the closing date up to five days or seek remedies found in Paragraph 15 of the contract. 21
  22. 22. What is Earnest Money Earnest money is money put up by the buyer showing evidence of their seriousness (earnestness) to proceed with the offer and contract. If a buyer were to default on the contract, this money would be in jeopardy and possibly retained by the seller for the buyer’s non-performance according to the terms of the contract. Once a contract is executed by all parties, the title company will sign in order to receipt the contract and the earnest money. They will deposit the earnest money check into an escrow account (so yes, prepare for it to be cashed) where it sits through closing. If everything goes as planned, the earnest money will show up as a credit to the buyer at closing. If the contract does not make it to closing, the earnest money is at risk. If a buyer terminates the contract during the option period or for reasons clearly permitted by the terms of the contract, the buyer should be able to receive the earnest money back. (If the buyer defaults on the contract however, the funds should be released to the seller. ) A written authorization signed by both buyer and seller has to be sent to the title company requesting the release of funds to the buyer. Title companies cannot legally release funds without the permission of all parties. 22
  23. 23. Paragraph 7: Property Condition G. Advises the buyer about environmental matters that may affect the buyer’s intended use of the property. Items such as wetlands, toxic materials, and endangered species can affect the way a property is handled in the future, so buyers are given notice here. H. Buyer may ask the seller to pay for a residential home warranty (service contract) 23
  24. 24. Paragraph 8: Brokers Fees • This short paragraph states that “All obligations of the parties for payment of brokers’ fees are contained in separate written agreements; Listing agreement and Buyer Rep Agreement 24
  25. 25. Paragraph 9A: Closing Here you fill in the closing date. This depends a lot on the lender and they type of financing. Cash deals can close in a week or two. 6 weeks is a reasonable time to expect for most financed deals. 25
  26. 26. Paragraph 9B: At Closing (1) ….seller shall give the buyer a general warranty deed to the property and show tax statements that there are no delinquent taxes, (2) buyer must pay the sales price in good funds that are accepted by title company (3) both parties agree to sign and deliver any documents necessary required for title policy and the closing of the sale, (4) that there will be liens or assessments against the property that are not paid off at or before closing (5) if there is a current lease associated with the property, all security deposits will be transferred to the buyer and the buyer will deliver to the tenant a signed statement acknowledging receipt of those funds and that they are responsible for the return of the security deposit 26
  27. 27. Paragraph 10: Possession A. Buyers Possession: Two checkboxes here to pick from – either the buyer takes possession of the property upon closing and funding or the timing of possession goes according to a temporary residential lease. The paragraph also notes that the parties should consult with their insurance agent regarding any temporary leases as they can affect insurance coverage. B. Leases: The section states that a seller may not enter into any lease agreement after the effective date of the contract and that if there is a current lease, the seller must deliver to the buyer copies of the residential lease and the property condition and move-in form. 27
  28. 28. Paragraph 11: Special Provisions • Special Provisions are for any arrangements between buyer and seller that are NOT covered already in the contract or in a promulgated TAR/TREC Addendum available to Realtors. • Use caution when adding anything to special provisions because it can be difficult not to appear to be “practicing law” by writing contractually obligating language into a contract. • Sometimes agents use the special provisions to include anything that doesn’t fit elsewhere on the form (e.g. the legal description in Paragraph 2. They might write “See Special Provisions” instead). It is advisable to reference a separate addendum instead of referencing Special Provisions. However, the legal description is a factual statement that meets the standards of being included in Special Provision 28
  29. 29. Paragraph 12A (1): Settlement and Other Expenses (A) States what seller is required to pay at closing. Basically, anything that releases existing liens and seller loan liability (B) The buyer can ask for the seller to pay closing costs. The amount is negotiable. It is limited by the loan program. VA, FHA and Conventional programs all have specific limitations concerning how much a seller can contribute. Consult the buyer’s lender before filling in this amount. 29
  30. 30. Paragraph 12A (2): Settlement and Other Expenses (2) These are fees that buyers are responsible for at closing. Very important that the buyer reads the contract carefully to understand what may be required. 30
  31. 31. Paragraph 12B: Settlement and Other Expenses READ CAREFULLY! If any expense exceeds an amount expressly stated in this contract for such expense to be paid by a party, that party may terminate this contract unless the other party agrees to pay such excess. Buyer may not pay charges and fees expressly prohibited by FHA, VA, Texas Veterans Land Board or other governmental loan program regulations. 31
  32. 32. Paragraph 13: Prorations • Taxes are prorated – and they can make a huge difference on closing costs. The OWNER pays taxes in October for the entire year, January 1st to December 31st. If you buy a home in September, you are about to get taxed for the whole year, including 9 months you didn’t even own it. Except the seller will pay the prorated tax amount at closing for the months they owned it. • If you are buying in November, the seller has already paid the taxes for the whole year, meaning the BUYER OWES the seller money for the two months they’ve already paid your taxes. • The closing costs are lowest for buyers in September and before taxes are paid in October, and highest in the months after until the new year. 32
  33. 33. Paragraph 14: Casualty Loss The inspection goes great, the buyer terminates the option period early, is ready to close, and … the house burns down , floods, is vandalized, etc., the day before closing. Now what?? The seller is obligated to fix (restore) the home to previous condition before closing. If not then the buyer can terminate and get the earnest money back. (Sellers need to keep insurance on the property all the way through closing! Buyers must conduct a final Buyer’s Walk-through a day or two before closing, to make sure the property is still in the original condition. The walk-through is particularly important if the seller moved out since you last saw the property. They may have accidentally damaged the property on the way out, or taken something they shouldn’t 33
  34. 34. Paragraph 15: Default Are you the buyer? Do you want your earnest money back? Don’t default on the contract! The seller can either sue you to force you to buy the house or the seller can just keep your earnest money. Are you the seller and change your mind about selling? If the seller defaults, the buyer can sue the seller to force them to sell the house or get their earnest money back and walk. 34
  35. 35. Paragraph 16: Mediation If there is a dispute, the parties agree to try mediation through a service or provider to try to avoid litigation. This paragraph does not preclude a party from filing a lawsuit. 35
  36. 36. Paragraph 17: Attorney’s Fees If there are legal proceedings of any kind, the loser pays attorney fees and all costs of the proceeding. 36
  37. 37. Paragraph 18: Escrow (A) Escrow: The escrow agent is not liable for anything in the contract, nor the earnest money they are holding if the bank they use fails. (B) Expenses: Authorizes the earnest money to be applied toward the buyer’s closing costs. It also states a title company can require a release signed by all parties as well as deduct expenses from Earnest Money. 37
  38. 38. Paragraph 18: Escrow C. DEMAND -- What if the contract is terminated, but there is a dispute over who gets the earnest money? The buyer does not need the seller’s signature to terminate a contract. They just sign and send the termination notice. But they do need the seller’s signature (and agents’ signatures) on the Release of Earnest Money form (TAR-1904). If the seller refuses or ignores it, the buyer can ask the title company to send a notice to the seller. If the seller doesn’t respond to the written notice in 15 days, the title company will release the earnest money to the buyer without a signature. If the seller does respond and protests.. Then….(See Next Paragraph 18.D) 38
  39. 39. Paragraph 18: Escrow (D) Damages: Parties can be liable for “damages” for not signing an earnest money release when they are supposed to. Withholding your signature out of spite or principal can hurt you in court. (E) Notices: This just specifies where notices are to be sent and when they are considered “effective”. 39
  40. 40. Paragraph 19: Representations The seller promises that everything agreed to in this contract will be resolved by close of escrow. **Non-disclosure of any liens or material defects can and will come back to haunt you! Also, the seller CAN continue showing the property to buyers and negotiate back up offers even while under contract (unless expressly prohibited in writing) 40
  41. 41. Paragraph 20: Federal Tax Requirement There are tax implications to selling a home if the owner is not American. There could be holdback of proceeds to comply with the IRS. This is an issue the title company should resolve, ensuring that the seller is American and, if foreign, making the necessary tax accommodations. 41
  42. 42. Paragraph 21: Notices Throughout the contract, there are several instances in which notices are required to be delivered. Here is where both buyer and seller officially state where they can be reached. Please note: Title company must have this information in order to send notice of demand for earnest money release. 42
  43. 43. Paragraph 22: Agreement of Parties Changes to a contract must be in writing through an attached addendum, here, or later with an amendment. These addenda become a part of the contract once signed by all parties. Verbal agreements count for nothing. • The most common addendum is the Third Party Financing Addendum. • Many of these addenda are “area specific” like the Addendum for Coastal Area Property or the Propane Gas System Service Area • If the home was built prior to 1978, then the Lead Based Paint Disclosure should be marked and included here. • Although not listed, Non-Realty Items Addendum is a common addendum. That is the Non-Realty Items Addendum. Do you want the refrigerator (or anything else that is not attached? Use a non-realty items addendum . Check the “other” box and list it here. 43
  44. 44. Paragraph 23: Termination Option This covers the “Option Period”. Which is negotiable length of time during which the buyer can walk away for ANY reason, whatsoever. It’s purpose is to give the buyer an opportunity to do their due diligence – inspect the property to make sure it is in satisfactory condition. The option fee is what the buyer pays out of pocket to “purchase” the option period. You must check whether it will be refunded at closing or not. Otherwise, it is NOT refundable, even if buyer withdraws from the contract for a valid reason. 44
  45. 45. Paragraph 23: Termination Option If the option fee is not received by the seller within 3 days, the buyer does NOT get an option period, even if the seller agreed to one. It is voided! The buyer is still under contract, however, obligated to buy the house. It is extremely important the option fee (and earnest money) be deposited on time. 45
  46. 46. Paragraph 23: Termination Option It is VITALLY IMPORTANT to have the seller’s agent/broker receive and receipt the option with the time restraints. It is not the Title Company’s obligation to receive or receipt option money. Nor will they take any liability if not delivered to seller on time. This is YOUR RESPONSIBILITY! Don’t blow it!! 46
  47. 47. Paragraph 24: Consult an Attorney You are (most likely) NOT an attorney. An agent should be able to explain promulgated forms thoroughly. However, for questions about non-promulgated amendments, “what-if” scenarios, legal implications of certain actions, or if there seems to be a general uneasiness or lack of understanding, always recommend speaking to an attorney. Although, most often left blank, this is a section to include the buyer and/or seller attorney info. 47
  48. 48. Execution and Signatures All parties must initial every previous page and place full signatures here. Both electronic and “wet” signatures are acceptable Last party to sign should fill in execution date. “Executed” means all parties have signed and the clock is ticking on timelines. 48
  49. 49. Page 9: Broker Information Fill in ALL information and double check for accuracy. Make sure to include commission amount in the blank at the bottom of the page. 49
  50. 50. Page 10: Receipts • Sellers agent receipts the option fee • Title Receipts the Earnest Money • Title Receipts the Contract • Title will receipt any additional Earnest Money throughout the process. 50
  51. 51. Third Party Finance Addendum • The Third Party Financing Addendum is an addendum to the One to Four Family Residential Contract that covers the financing of the home. In a cash deal, it is not needed. If financing is involved, must be completed and submitted with the Purchase Contract. 51
  52. 52. Third Party Finance Addendum (page 1) The first section of the form lays out the type of financing the buyer is seeking of obtain and requires the buyer to apply for such financing promptly. The next sections of the paragraph outline the various types of financing: 1. Conventional Financing, 2. Texas Veterans Loan, 3. FHA Insured Loan, 4. VA Guaranteed Financing, 5. USDA Guaranteed Financing, and 6. Reverse Mortgage Financing. Each loan type requires the buyer to outline the basic criteria for the loan they are seeking – the amount of financing, how many years the loan will be, the interest rate, and origination fees (the money a lender charges to make the loan). 52
  53. 53. Third Party Financing Addendum (page 1) There are two types of approval: buyer approval and property approval. Buyer Approval gives a negotiable amount of days in which the buyer must obtain their approval. If the buyer cannot obtain the loan approval in time, they will need to give the seller written notice and terminate the contract and will receive their earnest money back. Property Approval means the property must be acceptable to the lender and meet all underwriting requirements, INCLUDING APPRAISAL. If the buyer can not obtain property approval from the lender, they may terminate and keep their earnest money. 53
  54. 54. Third Party Finance Addendum (page 2) C. SECURITY: Each note for the financing described above must be secured by vendor’s and deed of trust liens. All loans must be secured by vendor’s and deed of trust liens. When you take a loan on a house, the lender will place a lien on the home, securing their interest in the property. Should anything happen and you need to sell it, you can not sell it without satisfying the obligation to the mortgage company by paying off the remaining balance of the loan. 54
  55. 55. Third Party Finance Addendum (page 2) 4. FHA/VA Required Provision When getting an FHA or VA loan, the appraised price of the property must be equal to (or more) than the sales price listed in the contract. If the appraised value comes in lower, the buyer may either pay the difference themselves (the lender will not loan more than the appraised amount) or the buyer and seller can come to an agreement to lower the price. Both loans involve the federal government, so the language here is required to notify both parties of the potential issues and outcomes. 55
  56. 56. Third Party Finance Addendum (page 2) E. AUTHORIZATION TO RELEASE INFORMATION The last paragraph gives authorization to the lender, title company, and escrow officer to release pertinent information to the seller and buyer as well as their representatives (your real estate agent and their broker) and to give copies of the new closing disclosures to those parties. Without this authorization, they cannot provide this information to all of the parties. 56
  57. 57. HOA Addendum The mandatory homeowners association addendum covers many topics and just one is getting copies of the deed restrictions. Of course, this is important for a Buyer to understand the rules of the community. When purchasing in a community managed by an HOA, they agree to follow all of the rules. Best to know those rules before you purchase! Also included in these documents is the resale certificate. This tells a Buyer what the dues are per year, if there are any special assessments and if the current homeowner (Seller) is behind in any way. It also discloses if there are any lawsuits against the HOA which your Buyer would be part of if they own a home there 57
  58. 58. HOA Addendum • Fill Top Section entirely • Subdivision Information (4 Choices) • (most common) Seller pays for and delivers info within time allowed. – Check box and fill in # of days • Buyer Pays and obtains info • Buyer Has received Info • Buyer does not require info • Material Changes – if there are changes info, buyer can terminate and receive EM refund • Fees – must fill in the amount but pays “not to exceed” • Deposits for Reserves – buyer will pay any required deposits for reserves at closing • Authorization – seller authorizes release of information – if info is required by title , choose which party (buyer/seller) will pay title company (usually the seller) 58
  59. 59. What is Lead Based Paint? The lead in lead based paint is highly toxic and has been found to cause many health issues, particularly in children. When ingested or absorbed into the body, lead can cause brain damage as well as kidney, nerve, and blood issues. Lead is also linked to behavioral problems, learning disabilities, seizures, and death in children and infants. You can learn more about both the dangers of lead as well as some of the ways you can help protect you and your family from lead in the informational brochure, Protect Your Family From Lead in Your Home (PDF). 59
  60. 60. Lead Based Paint Addendum, Paragraph A Like most forms, the first section provides the groundwork of the form, in this case explaining why the form exists and what its purpose is. This section sets forth the requirement of disclosure of lead based paint and gives a basic warning about why lead is dangerous. It also recommends the buyer conduct a risk assessment or inspection for lead based paint hazards prior to purchasing the home. As with anything in bold on a contract form, it is important to note the last line, which states that any inspector must be properly certified as required by federal law. Remember, the law behind this disclosure is on the federal level and as such, the inspectors involved in the process must meet federal certification standards (i.e. your Uncle Bob is probably not qualified to tell you if there are lead based paint hazards in the home). 60
  61. 61. Lead Based Paint Addendum Paragraph B B. Seller’s Disclosure This section covers the seller’s knowledge of lead based paint hazards in the home. Section B.1, the seller should choose either (a) or (b) indicated whether they have any knowledge of lead based paint hazards. If the seller selects (a) they will need to provide an explanation of what they know. Section B.2 covers any reports or records (such as previous inspections or lead abatement information) the seller might have. If the seller has any records, they would check box (a) and then be required to list those items and provide them to the buyer. If the seller has no knowledge of lead based paint hazards in the home, they would check box (b) as they would not have any records. 61
  62. 62. Lead Based Paint Addendum, paragraph C C. Buyer’s Rights This section is to be filled out by the buyer and indicates whether they want to have an inspection for lead based paint done on the property. If they check the first box, they are deciding not to conduct such an inspection. Checking the second box, gives buyer 14 days with which to inspect the property and determine whether or not they want to proceed with the purchase. If they decide to terminate the contract within those 14 days, they will receive a refund of their earnest money. This notification must be in writing and it is suggested that the buyer use the Notice of Buyer’s Termination of Contract form along with a Release of Earnest Money form 62
  63. 63. Lead Based Paint Addendum, Paragraph D D. Buyer’s Acknowledgement This section is to be filled out by the buyer. If the seller indicated there were any reports or records available, the buyer should receive copies of those items and check the first box. The buyer should check the second box once they have received the pamphlet Protect Your Family from Lead in Your Home, which we provided a link to earlier in this post. This box should always be checked as the buyer should be given this information by the sellers when buying any property built before 1978. 63
  64. 64. Lead Based Paint Addendum, Paragraph E E. Broker’s Acknowledgement This section is for the brokers, who also have to sign the form – both the seller’s broker and the buyer’s broker. Broker/Agent acknowledges a. provide Buyer with the federally approved pamphlet on lead poisoning prevention b. complete this addendum c. disclose any known lead-based paint and/or lead-based paint hazards in the Property d. deliver all records and reports to Buyer pertaining to lead- based paint and/or lead-based paint hazards in the Property; e. provide Buyer a period of up to 10 days to have the Property inspected; f. retain a completed copy of this addendum for at least 3 years following the sale. Brokers are aware of their responsibility to ensure compliance. 64
  65. 65. Mineral Rights Addendum Used only if any Mineral Right are being retained by seller. If no addendum, all mineral rights convey Section A – Explains mineral rights Section B – Does seller want ALL or PERCENTAGE of rights? Section C - Does seller retain rights to access and obtain minerals 65
  66. 66. Amendment to Contract The only acceptable way to alter the contract Amendment Items 1. Sales price 2. Repairs - Write in specific, non-ambiguous statements 3. Change Paragraph 9 (closing date) 4. Then amount in Paragraph 12A (closing Costs) 5. Lender Required Repairs 6. Extend Option Period 7. Waive option period 8. Extend Finance Addendum Date 9. Other Modifications – Use only factual statements for items not listed. Do not practice law: no what ifs, TBD, “if that happens then this…” 66
  67. 67. Contingency When making an offer on a property when your client must sell another property. This will protect them in that they are not forced to purchase if first property has not sold. A. Write in the Address of the property your client must sell. Then fill in the required date field. If property is under contract, use the closing date in this blank. If not yet under contract, use a date as far out as possible not exceeding the closing date on purchase of the new home. B. If the seller of the new property accepts an offer, your buyer can drop (waive) the contingency or terminate. This blank gives the # of days to decide whether client will waive the contingency. (Recommend No more than 3) C. Fill the blank with the amount of additional earnest money your client will deposit for right to waive contingency D. Nothing to fill in but acknowledge if your client waives the contingency but cannot close, they will be in default. E. Time is of the essence 67
  68. 68. Seller Finance Addendum: Paragraphs A and B A. Credit Documentation – buyer is give 3- 5 days (negotiable) to provide documentation checked off or written into the blanks B. Buyer’s Credit Approval - If buyer fails to deliver documents within agreed time, seller may cancel and keep earnest money. If documents are provided and seller deems credit unacceptable, seller may terminate and refund the EM to buyer. 68
  69. 69. Seller Finance Addendum, Paragraph C Paragraph C. Promissory Note - gives three options for the terms of the promissory note after entering the annual interest rate. There is no prepayment penalty and there is a late fee for delinquent payments. First blank is the amount to finance from 3B of the contract . Second blank is for the interest rate the buyer is offering to pay. Three Options for Promissory Note Terms 1. Note is payable in one payment “so many days” after the date of the note, with interest payable as noted. Write into blank how many days before one-time pay off and check off the preferred option for paying interest 2. The note is paid in monthly installments of “so many dollars,” including interest or plus interest, beginning on a “specific date” or the “first day of 2nd month” after the date of the note. The payments continue for a “given number of months” when the balance of the note becomes due. Write in first blank the monthly payment and if it includes interest or not, second blank is date of first payment, third blank is the # of months until entire balance is due (balloon note) 3. The note is payable in interest-only payments for the first “so many months” and thereafter in installments of “so many dollars”, including or plus interest, beginning on a “specific date” after the date of the note and continuing for “a certain number” of months when the balance becomes due. Write in first blank the number of months to pay interest only. Second blank How much the principle payment is (including or plus interest.) Third blank is date the payments begin. Fourth blank is number of months until entire balance is due. BEST PRACTICE: CONSULT WITH TITLE COMPANY AND/OR AN ATTORNEY THAT UNDERSTAND SELLER FINANCE 69
  70. 70. Seller Finance Addendum, Paragraph D D. Deed of Trust– choose if buyer wants consent to sell or lease without permission from the seller. 70