The Texas Real Estate Commission (TREC) adopts amendments to §§537.11, 537.21, 537.22, 537.28, 537.33, 537.37, 537.41, 537.45, and 537.46, and new §537.47 and §537.48, concerning standard contract forms, without changes to the proposed text as published in the September 28, 2001, issue of the Texas Register (26 TexReg 7417). These amendments and new sections adopt by reference ten new or revised contract forms developed by the Texas Real Estate Broker-Lawyer Committee (Broker-Lawyer Committee) and promulgated by TREC for use by Texas real estate licensees. A number of changes were made to the text of the contract forms in response to comments.

The amendment to §537.11 renumbers the revised forms and adds them to a list of the forms promulgated by TREC.

The amendment to §537.21 adopts by reference Standard Contract Form TREC No. 10-4, Addendum for Sale of Other Property Belonging to Buyer, an addendum creating a contingency for the sale of other property belonging to the buyer. The form has been modified to delete reference to an inapplicable paragraph number so as to permit its use with the revised one-to-four family residential resale contract form.

The amendment to §537.22 adopts by reference Standard Contract Form TREC No. 11-4, Addendum for "Back-Up" Contract, an addendum for use with a contract that is contingent upon the termination of a prior contract between the seller and another buyer. The form has been modified to clarify that the second contract is the "back-up" contract and to permit its use with the revised one-to-four family contract by deleting a reference to an inapplicable paragraph number.

The amendment to §537.28 adopts by reference Standard Contract Form TREC No. 20-5, One to Four Family Residential Contract (Resale). The form has been revised to permit its use as a contract in all residential resale transactions, other than condominium transactions, by use of addenda for various kinds of financing. The contract form also has been modified to reorganize the list of improvements or accessories included in sale. The revised form permits a buyer who has already qualified for a loan to make the contract subject only to the property satisfying lender's loan underwriting requirements. Other changes permit the buyer to have survey exception to title policy deleted at the buyer's expense and rely upon the seller's existing survey in lieu of having a new survey. The parties may agree when the buyer must be furnished or obtain a new survey and the period of time for the buyer to make title objections. Financing conditions, seller financing details and loan assumption provisions would be moved to new addenda. A provision has been added for payment for a residential service contract. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements has been eliminated as unnecessary. The revised form also clarifies when the buyer takes possession. Closing cost provisions are combined for conventional and FHA/VA transactions. A blank has been added for the seller to pay a portion of the buyer's expenses. The revised form also permits the parties to agree to mediate their disputes without using an addendum for that purpose. A list of contract addenda has been added along with boxes to indicate which addenda have been made part of the contract. An option clause has been moved to a new paragraph and made applicable only if all blanks have been filled in and the option fee has been paid. A receipt has been added for the option fee. Office addresses and facsimile numbers have been added to the contract for listing and selling associates.

The amendment to §537.33 adopts by reference Standard Contract Form TREC No. 26-4, Seller Financing Addendum. The form is an addendum used to create an agreement between the buyer and the seller in a seller-financed transaction to establish the provisions of the promissory note and deed of trust. A provision has been added to the form to list the documentation the buyer will supply the seller to establish the buyer's creditworthiness. Previously, this information has been contained in the main contract between the parties.

The amendment to §537.37 adopts by reference Standard Contract Form TREC No. 30-3, Residential Condominium Contract (Resale). The form has been revised to permit its use as a resale contract for a condominium unit involving all cash, third party financing, FHA/VA loans, assumptions or seller financing, combining two prior contract forms in the same manner and with most of the text changes proposed for the revised TREC residential resale contract form. References to survey have been removed from the form, since surveys are rarely performed in connection with the purchase of a condominium unit.

The amendment to §537.41 adopts by reference Standard Contract Form TREC No.34-1, Addendum for Property Located Seaward of the Gulf Intracoastal Waterway. The form has been modified to include a statement required by a 1999 amendment to the Natural Resources Code that the buyer should determine the rate of shoreline erosion in the vicinity of the property.

The amendment to §537.45 adopts by reference Standard Contract Form TREC No. 38-1, Notice of Termination of Contract, a form which a buyer may use to terminate the contract under an option clause contained in the contract. The form has been modified to eliminate a reference to a specific paragraph of the contract, because the option clause may be in different paragraphs of the various TREC contract forms once the revised contract forms are adopted.

The amendment to §537.46 adopts by reference Standard Contract Form TREC No. 39-3, Amendment, a form used by the parties to amend a contract. The form has been revised to eliminate references to a specific paragraph containing the option clause, since the paragraph number may vary in the TREC contract forms, and to clarify that the amount of expenses that the seller may agree to pay for the buyer is in addition to the amounts which Seller is obligated to pay under the provisions of the main contract.

New §537.47 adopts by reference Standard Contract Form TREC No. 40-0, Third Party Financing Condition Addendum. The new form contains those provisions concerning a contingency for the buyer to obtain a loan which have been removed from the main TREC contract forms and placed in the addendum primarily to save space in the main contract. The addendum would be used if the contract is to be contingent upon the buyer obtaining approval for conventional financing, a Texas Veterans' Housing Assistance Program Loan, FHA insured financing, or VA guaranteed financing.

New §537.48 adopts by reference Standard Contract Form TREC No. 41-0, Loan Assumption Addendum. The new addendum contains provisions relating to the assumption of an existing loan by the buyer previously contained in the TREC main contract form.

Successive drafts of the proposed forms were released for comment and displayed on the TREC web site for several months prior to the filing of the formal rulemaking proposal to adopt them. Nearly 200 comments were received and considered by the Broker-Lawyer Committee during this period, and a number of changes were made in the drafts as a result of the comments. After the proposals appeared in the Texas Register, 25 comments were received regarding the content of the proposed contract forms.

Additional changes were made to the text of the proposed forms in response to comments. In response to a question raised by the Texas Society of Professional Surveyors regarding possible copyright infringement if the seller provides a copy of an existing survey to the buyer, the Broker-Lawyer Committee modified the language in Paragraph 6 of form TREC No. 20-5 to cause the original survey, not a copy, to be provided, and the commission concurred with the change. Two comments suggested that a late fee be added to the Seller Financing Addendum, form TREC No. 26-4, to avoid disputes at closing as to whether an addition of a late fee to the promissory note would be permissible under the terms of the addendum. The Broker-Lawyer Committee added a provision for a 5% late fee, an amount typically used as a late fee, and the commission concurred with the change. Three comments were received suggesting that if the seller pays any portion of the buyer's expenses at closing, the contract should specify how the amounts paid by the seller will be allocated. The Broker-Lawyer Committee modified Paragraph 12A(3) of form TREC No. 20-5 and form TREC No. 30-3 to allocate such payments to buyer's expenses that FHA/VA prohibits the buyer from paying, then to buyer's prepaid items, and lastly to other buyer's expenses; the commission concurred with the change. One comment suggested that to put the contract execution date and instructions for dating the contract in bold language would help brokers avoid overlooking the provision. The Broker-Lawyer Committee made the suggested change, and the commission concurred with the change.

A number of comments did not result in changes to the text of the proposed forms. The Texas Association of Realtors (TAR) and the Texas Land Title Association (TLTA) suggested that a definition of "good funds" be provided in the contract forms to facilitate the buyer's compliance with the escrow agent's requirements for closing. The Broker-Lawyer Committee determined that the definition offered by TAR and TLTA did not include all permissible kinds of "good funds" and that such matters should be left to the individual escrow agent. TAR and TLTA also suggested that the contracts be modified by adding a provision under which both parties consented to release of information that might be held by lenders and title companies, so as to avoid the burden of multiple releases that might otherwise be required to comply with the Gramm-Leach-Bliley Act, Pub. L.106-102. The Broker-Lawyer Committee determined that the consent provision was overly broad and that the individual institutions charged with protecting nonpublic personal financial information under the Gramm-Leach-Bliley Act should obtain the consents appropriate under that law for the kind of transaction and information sought. Individual commenters suggested changes to cause copies of any notices to be sent to the parties' brokers; to restore an automatic extension for closing to satisfy the lender's closing requirements; to eliminate any reliance on a seller's affidavit to verify an existing survey so as to discourage possible unauthorized practice of surveying; to restore a specific time for applying for a loan; to eliminate the buyer's choice of making the contract subject only to the lender's underwriting requirements, as opposed to the buyer qualifying for financing; to permit the buyer to pay for a residential service contract; to delete any specific amount of private mortgage insurance (PMI) premium as too difficult to establish at the time of contract; to permit the owner to make minor repairs; to eliminate the maximum for loan costs for the buyer in the Third Party Financing Addendum; to address transactions in which the property has been left unclean or personal property has been left by the previous owner; and to use larger fonts in the forms. The Broker-Lawyer Committee reviewed and discussed each of these suggestions and determined that the public interest was best served by the proposed text of the forms without additional changes and that the proposed changes either were unnecessary or would eliminate protections for the parties established in the proposed text. The commission concurred with the Broker-Lawyer Committee.

Adoption of these amendments and new sections 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 Civil Statutes, Article 6573a, §16, 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 and new sections are adopted under Texas Civil Statutes, Article 6573a, §5(h), which authorize the Texas Real Estate Commission to make and enforce all rules and regulations necessary for the performance of its duties.