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Texas Register Preamble


The Texas Real Estate Commission (TREC) adopts amendments to 22 TAC Chapter 537, §§537.20, 537.28, 537.30 - 537.33, 537.37, 537.39, and 537.45 - 537.47, Professional Agreements and Standard Contracts, with changes to the proposed amendments as published in the September 4, 2015, issue of the Texas Register (40 TexReg 5717). The changes are to the proposed forms adopted by reference in the amended rules.

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

The reasoned justification for the amendments is conformity with statutory changes, greater clarity and consistency in the contract forms.

The BLC recommended revisions to the contract forms adopted by reference under the proposed amendments to Chapter 537 in order to align the contracts with federal rule changes promulgated by the CFPB in the TILA-RESPA Disclosure Rule (TRID), which are effective October 3, 2015; and with state statutory changes enacted by the 84th Legislature in House Bill 1665, Senate Bill 1367, and Senate Bill 1168, which are effective September 1, 2015.

Additional revisions to the contracts were recommended by the BLC to address issues that have arisen since the last contract revisions or due to recent case law.

The revisions to the contract forms adopted by reference in the rules as adopted do not change the nature or scope so much that the rules and contract forms as adopted could be deemed a different rule or form. The rules or contract forms as adopted do not affect individuals other than those contemplated by the rules as proposed. The rules and contract forms as adopted do not impose more onerous requirements than the proposed rules and contract forms.

One hundred and forty-eight commenters weighed in on the proposed contracts, two of whom were trade associations. One hundred and nine commenters, including both trade associations, did not want the automatic 10 day extension of closing to accommodate TRID. Most believed that this automatic extension would be abused by lenders and some buyers. Instead they preferred to handle any extension that may be needed through a negotiated amendment. The BLC agreed to remove that provision.

Nineteen comments, including both trade associations, were received on the Third Party Financing Addendum and Paragraph 3 of the contracts, asking for an option for when a buyer does not want the contract subject to credit approval, terminology revisions to be consistent with TRID, a clarification that the property approval can be given up to the closing and doesn't end the day before since the buyer's termination right extends to closing, and an authorization by the parties to title companies and lenders to release closing disclosures to their respective agents. The BLC made revisions to the contract forms to address these comments. One commenter wanted the addendum to address the situation where the property appraises for less than the contract price but the lender still approves the financing and two other commenters wanted the contracts to set out the amount of time a lender had to complete the property appraisal or grant property approval. The BLC did not think these situations should be addressed in the contract forms since there are many variables, including that the purchase price was negotiated and differing lender requirements and timeframes. Three commenters wanted the Third Party Financing Addendum and Paragraphs 3 and 4 of the contracts to remain as they currently are written and one commenter wanted instructions that multiple boxes could be checked in paragraph 3. The BLC declined to reverse the amendments and thought the instruction was unnecessary given the current wording.

Nine commenters were in favor of the change to a 5 p.m. end time for the option period in Paragraph 23, while four were against it. Three additional comments were received on this paragraph asking for greater clarification. The BLC left the 5 p.m. deadline in but clarified the language.

Five commenters requested that the order of the Associate and Associate's Licensed Supervisor be reversed so the consumer could find their agent's information more easily. The BLC agreed to make this change.

Four comments were received on Paragraph 6. One thought the Water Fluctuation Notice was ridiculous; however, since it is a statutory requirement, no change was made by BLC. One requested that the language in the Water Fluctuation level more closely track the statutory language and the other wanted a check box beside the HOA disclosure. The BLC agreed to the first request but thought the second request did not work with disclosure provisions in the contract. The last commenter wanted the contracts to more clearly reflect that the owner's title policy was optional. The BLC did not think such a change was necessary.

One commenter objected to the new requirement regarding hydrostatic testing in Paragraph 7 while another commenter wanted it expanded to include more tests. The BLC declined to make any changes based on these comments.

Two comments were received regarding the need for fax and phone numbers in Paragraph 21. The BLC will look at this issue in future contract proposals.

Single comments were received on Paragraphs 5, 6(A), 15, and 18D, none of which dealt with the current proposals so the BLC deferred action on the issues raised until its next meeting.

Based on discussion of these comments, the Broker Lawyer Committee made the following changes to the contracts as proposed. The changes listed below apply to all contract forms unless specified otherwise. Paragraph numbers referenced are from the One to Four Family Residential Contract (Resale).

Paragraph 6E(10), Title Notices, Notice of Water Fluctuations, was retitled "Notice of Water Level Fluctuations" and minor technical revisions were made to more closely follow the statutory language.

The proposed language in Paragraph 9A., Closing, allowing a ten-day extension of closing if the buyer's lender is required to provide additional disclosures mandated by TRID was removed and that paragraph will remain as it is in the current contracts.

In Paragraph 12 A.(2), the word "adjusted" was removed before "origination" since this term is no longer used under TRID.

In Paragraph 23, Termination Option, language was added to clarify that notice must be given at 5 p.m. local time "where the Property is located."

In the Broker Information Section, the order of the Associate's and Licensed Supervisor of the Associate's information was reversed and made consistent for all contracts to facilitate ease of use of contact information for consumers and license holders.

The proposed new Third Party Financing Addendum was revised to: remove the word "adjusted" before "origination" wherever it occurred since this term is no longer used under TRID; change "Credit Approval" to "Buyer Approval" to reflect the more encompassing nature of that approval; add an option in the addendum for a party to opt out of "Buyer Approval"; allow Property approval to be given up until closing instead of the "day before" closing; reordered subsections D. and E. so that Authorization to Release Information comes last; and expanded the Authorization to Release Information section to include the parties' authorization to lenders, title companies and escrow agents to release the closing disclosure to the parties' respective agents.

The proposed Seller's Financing Addendum and Amendment forms were revised to be consistent with changes to the contract forms and Third Party Financing Addendum and to add a reference to the amount of the loan in Paragraph 3B to the Seller's Financing Addendum.

The Commission agreed to adopt the revised proposed contracts presented by the Broker Lawyer Committee for voluntary use immediately and mandatory use beginning January 1, 2016, with the exception of the Condominium Resale Certificate, which is effective 20 days after submission to the Texas Register.

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 license holders to fulfill the purposes of Chapters 1101 and 1102 and ensure compliance with Chapters 1101 and 1102.

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



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