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Texas Register Preamble


The Texas Real Estate Commission (TREC) adopts amendments to §§537.11, 537.22, 537.43, and 537.47, and adopts new §537.49, concerning standard contract forms, with changes to the proposed text as published in the October 31, 2003, issue of the Texas Register (28 TexReg 9386).

The amendments and new section would adopt by reference four revised contract forms to be used by Texas real estate licensees. The contract forms are published by TREC and available at the TREC web site (www.trec.state.tx.us) or at the Texas Real Estate Commission, P.O. Box 12188, 1101 Camino La Costa, Austin, Texas 78711-2188. The effective date for mandatory use of the adopted contract forms is April 1, 2004; however, the forms may be used by licensees on a voluntary basis prior to the effective date. Changes were made to the text of the contract forms in response to comments as described further below. The text of §537.11(a) was revised to correct typographical errors to reflect current form numbers for TREC Nos. 15-3 and 16-3.

Texas real estate licensees are generally required to use forms promulgated by TREC when negotiating contacts for the sale of real property. These forms are drafted by the Texas Real Estate Broker-Lawyer Committee, an advisory body consisting of six attorneys appointed by the President of the State Bar of Texas, six brokers appointed by TREC, and a public member appointed by the governor.

The amendment to §537.11 renumbers the revised forms promulgated by TREC.

The amendment to §537.22 adopts by reference Standard Contract Form TREC No. 11-5, Addendum for "Back-up" Contract. The addendum is revised to clarify paragraph B regarding the contingency date and paragraph E regarding the time for giving notice of termination. Under paragraph B, if the first contract terminates, the effective date of the Back-Up Contract automatically changes to the date the buyer receives notice of termination of the first contract or the contingency date, whichever is earlier and is called the Amended Effective Date. The time for giving notice of termination in paragraph E is clarified to conform to the changes in paragraph B.

The amendment to §537.43 adopts by reference Standard Contract Form TREC No. 36-3, Addendum for Property Subject to Mandatory Membership in an Owners' Association, a form that a seller may use to provide certain statutory notices regarding membership in an owners' association. Paragraph A.3. is changed to delete the language which states that buyer waives the right of termination under the addendum if buyer does not require delivery of the subdivision information.

The amendment to §537.47 adopts by reference Standard Contract Form TREC No. 40-1, Third Party Financing Condition Addendum. The form is revised to clarify that "every reasonable effort to obtain financing approval" includes but is not limited to furnishing all information and documents required by lender for approval. The sentence in the introductory paragraph regarding the date by which the buyer must obtain financing approval is revised for buyer to provide written notice to seller within a stated period of days after the effective date if buyer cannot obtain financing approval within the time period. If buyer gives notice within the time period, the contract will terminate and the earnest money will be refunded to buyer. If buyer does not give the notice within the time period, the contract will not be subject to buyer financing approval as described in the addendum. The revised form deletes the options in subparagraphs A.1. and A.2. as to whether the loan will or will not include private mortgage insurance (PMI). The revised form delete the second part of paragraph C. of the current addendum to avoid a potential conflict between the language in the first part of paragraph C regarding the appraised value of the property.

New §537.49 adopts by reference Standard Contract Form TREC No. 42-0, Notice Pursuant to Third Party Financing Condition Addendum. The form provides a notice to seller that the buyer is unable to obtain financing approval according to the terms of the Third Party Financing Addendum.

Drafts of the contract forms were released for comment and displayed on the TREC web site during the notice and comment period after posting in the Texas Register. Approximately 20 comments were received and considered by the Commission during this period, and some changes were made in the drafts as a result of the comments. The Greater Dallas Association of Realtors (GDAR) commented on the proposed forms.

The Commission has made typographical corrections to the forms adopted by reference, and other changes were made to the text of the forms in response to one comment and review by the Broker Lawyer Committee. The commenter recommends that the last sentence in the first paragraph of the Third Party Financing Condition Addendum should be bolded. In addition the Broker Lawyer Committee recommends that the first paragraph of the Third Party Financing Condition Addendum include an additional bolded sentence at the end of the paragraph, to read as follows: "For purposes of this paragraph, time is of the essence; strict compliance with the times for performance herein stated is required." The Commission agrees to these changes to the Third Party Financing Condition Addendum.

A number of comments did not result in changes to the text of the forms. The comments and Commission responses to those comments are summarized as follows.

Comment: Several commenters express approval of the revisions.

Response: The Commission appreciates the comments in support of the changes.

Comment: One commenter requests that the Commission include a blank line in the Third Party Financing Condition Addendum to identify the type of Texas Veteran financing involved in the transaction.

Response: The Commission has determined that it is unnecessary to include another blank line in the addenda for that purpose.

Comment: One commenter suggests additional verbiage in the Third Party Financing Condition Addendum to state that if the buyer does not receive financing approval and fails to notify the seller, the seller is paid the earnest money.

Response: The Commission believes that the public interest is best served by the proposed text of the forms without the suggested change because under the terms of the Third Party Financing Condition Addendum, the contract continues but will no longer be subject to buyer being approved for the financing described in the addendum. Also, paragraph 15 of the One to Four Residential Contract form sufficiently addresses default remedies.

Comment: One commenter suggests that TREC No. 20-6 (One to Four Residential Contract) should be revised to remove all financing contingencies, the Third Party Financing Condition Addendum should be revised to eliminate the financing contingencies, and paragraph 23 (the Termination Option) of TREC No. 20-6 be used for all contingencies, including financing and loan approval.

Response: The Commission appreciates the commenter's suggestions and concerns; however, it believes that the public interest is best served at this time by the proposed text of the forms without the suggested changes as it would require additional changes to contract forms not currently under revision.

Comment: One commenter suggests that the Third Party Financing Condition Addendum should be revised to include language in a previous iteration of the One to Four Residential Contract that required buyer to apply for financing within a specific number of days.

Response: The Commission determined that the proposed change was unnecessary and the public interest was best served by the proposed text of the forms without the suggested change.

Comment: One commenter suggests that a buyer should have to supply the seller with documentation such as a rejection letter along with the Notice to Seller (TREC No. 42-0).

Response: The Commission determined that the proposed change was unnecessary and the public interest was best served by the proposed text of the forms without the suggested change.

Comment: One commenter proposes that the Commission make grammatical changes to two of the contract forms.

Response: The Commission determined that the suggested changes are stylistic preference and therefore unnecessary.

Comment: The Greater Dallas Association of Realtors suggests that the verbiage: "Failure to give written notice with in the time allowed does not affect the provisions in paragraph 4A" be added to the end of the first paragraph in the Third Party Financing Condition Addendum. They also suggested that the verbiage "and assumes full responsibility for the information contained therein" be added to the end of A(3) in the Addendum for Property Subject to Mandatory Membership in an Owners' Association.

Response: The Commission declined to make the suggested changes as it is sufficiently clear from the text of the financing paragraph of the TREC contract forms (4A) and the proposed revisions to the Third Party Financing Condition Addendum that even if the Buyer fails to provide the written notice that financing cannot be obtained, the contract continues to be subject to the Property satisfying the lender's underwriting requirements for the loan. The Commission also has concluded that the public interest is best served by the proposed text of the Addendum for Property Subject to Mandatory Membership in an Owners' Association forms without the suggested change.

Comment: One commenter suggests that the Commission should revise paragraph A in the Third Party Financing Condition Addendum to further clarify that the buyer remains subject to the terms of the contract in situations where the buyer is approved for a loan at the interest rate in the addendum but chooses not to lock the loan and later tries to terminate the contract because the interest rate is no longer available.

Response: The commission declines to further revise the Third Party Financing Condition Addendum as the revised form sufficiently addresses the concerns raised. It is clear from the terms of the revised addendum that if the buyer chooses not to lock the loan by the time he must give notice to the Seller regarding financing approval, and does not give the notice to terminate the contract, the contract will no longer be subject to the financing described in the addendum, which includes the stated interest rate.

Comment: Several comments raised concerns or suggestions about other contract forms not currently subject to revision.

Response: The commission appreciates the input on the contract forms in general and has forwarded the comments to the Broker Lawyer Committee for possible action in the future.

Adoption of these amendments is necessary for TREC to update the contract forms used by Texas real estate licensees when negotiating the sale of real estate and to modify the forms to reflect changes in the real estate market and the law. The actions also are necessary for TREC to comply with the mandate in Texas Occupations Code, §1101.254, for the Broker-Lawyer Committee to revise forms to expedite real estate transactions and reduce controversies to a minimum while safeguarding the interests of the principals to the transaction.

The amendments are adopted under Texas Occupations Code, §1101.151, which authorizes the Texas Real Estate Commission to adopt and enforce rules necessary to administer Chapters 1101 and 1102; and to establish standards of conduct and ethics for its licensees to fulfill the purposes of Chapters 1101 and 1102 and ensure compliance with Chapters 1101 and 1102; and Texas Occupations Code, §1101.158 which authorizes the commission to adopt rules and regulations requiring real estate brokers and salesperson to use contract forms which have been prepared by the Texas Real Estate Broker-Lawyer Committee and promulgated by the commission.

The statute affected by this proposal is Texas Occupations Code, Chapter 1101. No other statute, code or article is affected by the proposed amendments.



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