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Things Every Realtor Should Know About the New TREC Forms

February 28, 2012

Our TREC Lawyer-Broker Committee has approved a new set of contract/addenda forms which become mandatory for use as of March 1, 2012, despite the fact Zipforms may not have them up yet. In case you haven’t had time to check them line by line and word for word, I have done it for you.

First, the easy stuff. Although there is actually a new form with a new date of 12-05-2011, the following new forms have absolutely nothing changed:

TREC No. 38-4 Notice of Buyer’s Termination of Contract………………………………NO CHANGE

TREC No. 39-7 Amendment to Contract………………………………………………………..NO CHANGE

TREC No. 40-5 Third Party Financing Addendum For Credit Approval…………..NO CHANGE

TREC No. 11-7 Addendum For “Back-Up” Contract………………………………………..NO CHANGE

TREC No. 10-6 Addendum for Sale of Other Property by Buyer………………………NO CHANGE

TREC No. 45-1 Short Sale Addendum…………………………………………………………….NO CHANGE

TREC No. 44-1 Addendum for Reservation of Oil, Gas & Other Minerals…………..NO CHANGE
Next, the very slight changes with little or no effect on the meaning of the Contract:

TREC Nos. 15-5 and 16-5 Seller’s Temporary Lease and Buyer’s Temporary Lease; in paragraph 21 smoke “detectors” were replaced with smoke “alarms”.

TREC No. 37-4 Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owner’s Association; changed to carve out from the certifications the existence of a right of first refusal which has been prohibited by statute. (New Property Code Section 5.205-watch for discussion of this new law in future blogs)The purpose of any special assessment must now be disclosed. Tax suits are excluded from the certificate disclosing pending litigation. Transfer fees must be broken out individually and any other fees must be described in detail.
Interesting Forms we never have seen in use:

TREC No. RSC 1 Disclosure of Relationship with Residential Service Company. So far no realtor has turned one of these in on a contract our office has handled. But if an agent or broker owns an interest in a residential service company, and refers the Buyer to that company, if this form is not used, it is a violation of the Real Estate License Act, a RESPA violation, and may, in addition, be a criminal violation in Texas if no other means of disclosure to the Buyer is employed since the Buyers agent is a fiduciary to the Buyer. Referral fee payments from the service company to the agent also trigger the need to use this form and the same considerations and warnings apply.

TREC No. OP-C Notice to Prospective Buyer. This form was promulgated 10-10-2011 and contains notice that the Buyer should obtain either an abstract or a title policy, and notifies the Buyer of the existence of a Utility District, if applicable. Never have we seen this form used. The first provision duplicates the language already contained in paragraph 6 E (1) of the TREC 20-11 One to Four Family Residential Contract and seems unnecessary. The utility district notice operates to satisfy the requirement to give notice which is referenced in paragraph 6 E (6) of the TREC 20-11 One to Four Family Residential Contract in cases where there is a utility district, and does serve that purpose where it is applicable.
Important Changes to Note:

TREC 20-11 One to Four Family Residential Contract (Resale):

6 B. Paragraph 6 B has the following new sentence: “ If, due to factors beyond Seller’s control, the Commitment and Exception Documents are not delivered within the time required , Buyer may terminate this contract and the earnest money will be refunded to Buyer.” Kind of puts some more pressure on the title company to do our job on time.

6 C (3). Paragraph 6 C (2) now provides “Buyer is deemed to receive the Survey on the date of actual receipt or the date specified in this paragraph, whichever is earlier”. True survey objections are quite rare, but practitioners should be careful with this change because if there is a deadline date filled in on paragraph 6 D. for the last day to raise objections, the right to raise survey objections could expire before the survey is actually received. We are seeing more frequently contracts where there is no date filled in the blank in 6 D. so the Buyer will have all the way up to closing to raise any objections to title or survey.

6 E. (2) The existing boldface warning about HOA liens and their foreclosure has been underlined. And the following has been added: “Section 207.003, Property Code, entitles an owner to receive copies of any document that governs the establishment, maintenance or operation of a subdivision, including, but not limited to, restrictions, bylaws, rules and regulations, and a resale certificate from a property owner’s association. A resale certificate contains information including, but not limited to, statements specifying the amount and frequency of regular assessments and the style and cause number of lawsuits to which the property owner’s association is a party, other than lawsuits related to unpaid ad valorem taxes of an individual member of the association. These documents must be made available to you by the property owner’s association or the association’s agent on your request.” This new paragraph explains current practice with regard to HOAs and resale certificates.

6 E.(8) has been added as follows:” TRANSFER FEES: If the Property is subject to a private transfer fee obligation, Section 5.205, Property Code, requires Seller to notify Buyer as follows: The private transfer fee obligation may be governed by Chapter 5 , Subchapter G of the Texas Property Code.” This Property Code Section invalidates certain transfer fees and so the Buyer, his/her agent and attorney and the title company will need to review the transfer fee restriction and Property Code Section 5.205 to make that determination.

7 A. Access, Inspections and Utilities. This paragraph now makes it mandatory for the Seller to turn on and keep on all utilities during the pendency of the Contract.

7 F. COMPLETION OF REPAIRS AND TREATMENTS. The new contract provides that if the Seller agreed to make repairs prior to closing, but fails to do so, Buyer may either extend the closing for up to 15 days OR immediately declare the Seller in default and exercise any and all remedies under Paragraph 15. No more option for Buyer to complete the repairs. We never saw that option used anyway.

13. PRORATIONS. The previous new contract form added the following sentence: “If taxes are not paid at or prior to closing, Buyer shall pay taxes for the current year.” This circumstance applies to the first 10 months of every year, and the new sentence merely clarifies the fact that the Buyer actually ends up paying the taxes for the entire year of closing, having received a credit at closing for the Seller’s share. It should not be read to contradict the first sentence of the paragraph which states that taxes are to be prorated as of the closing date.

15. Default. This paragraph has been cleaned up and simplified so that there are no special exceptions for “factors beyond Seller’s control” or other arguable and subjective considerations.

TREC No.30-10 Residential Condominium Contract (Resale). The new condominium contract follows the same changes as the One To Four Family Contract reviewed above, except that there is no survey provision, so those changes do not appear, and the new HOA language is not contained in the condominium contract, presumably because Buyers are assumed to already know they have an HOA in a condominium community.
That’s it. Now you know everything you need to know about the new forms. I invite your comments and questions about these changes or any other questions or comments on the wording, meaning or common practices in DFW in administration or problem-solving situations under these contracts. Be looking for my next piece covering the changes to the New Construction contracts, which I omitted here.

Have your best year ever in 2012!!!


©Copyright Christopher Sharp 2012
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