The One to Four Family Residential Contract (Resale) and Buying a Home
We’re back again with Part III of our series on the One to Four Family Residential Contract (Resale) – we’ve covered a lot of ground, but we still have a lot more left. If you need a refresher, you can go back and read Part I or Part II. If you’re ready to learn more about the process of buying a home, sit back, pour yourself a cup of coffee and let’s dive right back in where we left off on our last post.
Paragraph 11. Special Provisions This paragraph always the agents and clients to insert any “factual statements or business details” into the contract. This section must be used with care by agents as they are not lawyers and therefore cannot practice law. Writing in the wrong thing in this section could cause them to be seen as doing so. Items listed here should never be covered in the contract or in any addenda available to the agents. The most common items that should be seen in this section is that the seller or buyer is a licensed agent (this must be disclosed) or that they are related to their agent. If you want anything inserted into this section, you should consult with an attorney for the wording and usage.
Paragraph 12. Settlement and Other Expenses This paragraph defines the expenses payable by the seller (Section A.(1)) and the buyer (Section B.(2)) at or before closing. Section B allows for the contract to be terminated if any expense exceeds the amount stated in the contract and notes that the buyer cannot pay any fees prohibited by FHA, VA, Texas Veterans Land Board, or other governmental loan programs.
Paragraph 13. Prorations Because many items in real estate are paid yearly (or semi-annually), they must be prorated. The easiest way to look at this is that the seller pays for the time they lived in the house and the buyer pays for the time they will live in the house. In the case of interest on the loan, since most buyers don’t close exactly on the first day of the month, that also must be prorated based on the number of days in a given month that they will own the home. If you move in 15 days before the end of the month, you would owe those 15 days up front.
Paragraph 14. Casualty Loss When buying a home, everyone hopes nothing bad will happen to the property, but sometimes it does. The casualty loss paragraph covers this by stating that if the property is damaged or destroyed by fire or other casualty, the seller must return the home to its previous condition before the closing date. If the seller doesn’t, the buyer has three options; terminate the contract and receive their earnest money back, extend the closing date by fifteen days to allow the seller more time to complete their obligations, or accept the property in its damaged condition with proceeds from the seller’s insurance assigned to them and a credit of the seller’s deductible.
Paragraph 15. Default Default occurs when one or more of parties in the transaction fail to do something spelled out within the contract. There are many ways a buyer or seller can default on the contract, so great care must be taken to be sure they meet their deadlines and perform as instructed to by the contract. In the case of default by the buyer, the seller may enforce specific performance, which means that the buyer must buy the home regardless of the reason they are in default. The seller may also sue and terminate the contract and receive the earnest money as damages. If the seller is found to be in default, the buyer may also seek the same remedies.
Paragraph 16. Mediation In the past, this paragraph had two checkboxes, allowing buyers and sellers to chose whether or not they would use mediation if a dispute arises. Recently, the contract was changed to require mediation. The cost of mediation will be split equally between the parties.
Paragraph 17. Attorney’s Fees This paragraph gives the prevailing party to a lawsuit the right to seek attorney’s fees from the other party. Basically, if you lose the court battle, you can be made to pay the winner’s court fees and attorney costs. You can ask Denver area drug defense lawyers if you need more information on the same.
Paragraph 18. Escrow This paragraph has a few items of note. First off, in Section A, it releases the escrow agent from liability for several items (default, interest earned on earnest money, and liability for the a bank or financial institution going under while it is holding money in escrow). Section B covers how the earnest money is applied to funds owed by the buyer (cash down portion first, then any expenses of the buyer…any remaining portion is to be refunded to buyer). It also lays out the process of post-settlement funding service along with the refunding the earnest money if the transaction does not close (a written request must be made and signed by all parties and any expenses may be deducted from the earnest money). Section C talks about demand of the earnest money. Either party may make a demand, and the other party will be notified by the title company. If no written objection is received by the title company within fifteen days, the title company can disburse money to the party making the claim. Section D is important as we often see buyers and sellers get into disagreements over who is owed the earnest money upon termination. When this happens, it is important to still comply with the release as any party that refuses to sign the release within seven days can be found liable for three times the amount of the earnest money, the earnest money itself, attorney’s fees, and any costs associated with a lawsuit to claim the earnest money. Section E states that notices are effective when sent from the title company to the party as laid out in Paragraph 21 and objections are effective upon receipt by the title company.
Paragraph 19. Representations All convenants, representations, and warranties in the contract continue past the closing. If a representation is made, it must still be true after the closing. Simply put, don’t lie on the contract. This paragraph also gives the seller the right to show the property, negotiate contracts, and receive backup offers.
Paragraph 20. Federal Tax Requirements If the seller is a “foreign person” as defined by law, there are certain extra steps that must be taken to comply with tax law and the IRS.
Paragraph 21. Notices This is where all notices will be sent for the buyer and seller. The title company uses this section for contact information for the two parties so that they may deliver things like the title commitment and earnest money if need be.
Paragraph 22. Agreement of the Parties This paragraph is used to add addenda which become a part of the contract. This paragraph has a list of the most common addenda that are added to contracts and any that are not listed can be added by writing them in the “Other” section.
Paragraph 23. Termination Option We’ve covered the option fee and option period on the site before and we recommend you read this post about the option period for a good explanation of what it is and how it works.
Paragraph 24. Consult an Attorney Before Signing As you are about to sign a legally binding contract, the Texas Real Estate Commission recommends you to contact an attorney if you have any legal questions. As real estate agents are not lawyers, they cannot provide you with legal advice. There is a section for the buyer and seller to fill out the contact information for their attorney.
This last page also has signature lines for the buyer and seller and this is where the broker fills in the executed date once all parties agree to the contract.
Page 9 Page 9 of the contract contains the information for the brokerages involved in the transaction as well as commission information. It also has two sections, one for the receipt of the option fee (to be signed and dated by the listing agent or seller) and one for the receipt of the contract and earnest money (to be signed and dated by the title company).
So there you have it. As you can see there’s a lot going on in the One to Four Family Residential Contract (Resale) used when buying a home here in Texas. As always, we’ve tried to give you the basic rundown of the contract, but there are a lot of nuances to making an offer, so if you have any questions, contact us and we’ll be glad to help you.