The Texas Real Estate Commission (TREC) proposes amendments to §§537.11, 537.20, 537.28, 537.30, 537.31, 537.32, 537.37, 537.43, and 537.46, concerning standard contract forms. These amendments and new sections would adopt by reference six revised contract forms and two addenda to be used by Texas real estate licensees.

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 and six brokers appointed by TREC.

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

The amendment to §537.20 would adopt by reference Standard Contract Form TREC No. 9-5, Unimproved Contract Form. The form would be revised to permit a prequalified buyer to make the contract subject only to the property satisfying lender's loan underwriting requirements. The paragraph regarding Earnest Money would be modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes would permit the buyer to have the survey exception to title policy deleted at the buyer's expense. The form would provide that the parties could agree on the period of time for the buyer to make title objections and would clarify the time period to cure objections. Title defects to which buyer can object would be rewritten for clarity and propose to include an objection for any part of the property lying in a flood plain. The form would be revised to add title notices for property located in a certificated service area of a utility service provider and a Texas Agricultural Development District. Financing conditions, seller financing details and loan assumption provisions would be deleted and existing separate addenda used. The form would add sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements would be eliminated. The revised form would clarify when the buyer takes possession. Closing cost provisions would be combined for conventional and FHA/VA transactions. A blank would be added for the seller to pay a portion of the buyer's expenses. The revised form would permit the parties to agree to mediate their disputes without using an addendum. A list of contract addenda would be added along with boxes to indicate which addenda would be made part of the contract. An option clause would be 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 would be added for the option fee. Office addresses and facsimile numbers would be added to the contract for listing and selling associates.

The amendment to §537.28 would adopt by reference Standard Contract Form TREC No. 20-6, One to Four Family Residential Contract (Resale). The form would be revised to clarify the time period to cure objections. The paragraph regarding Earnest Money would be modified to measure the deposit date for additional earnest money from the effective date of the contract. Closing cost provisions would be clarified by combining buyers expenses into one paragraph rather than two separate subparagraphs for conventional/FHA financing and VA financing. The modified form proposes to delete the "not to exceed" blank for PMI, VA loan funding fee and MIP, which fixed a maximum on the amount of such fees to be paid by buyer, and replaces the blank with a clause that states that buyer shall pay such fees as required by lender.

The amendment to §537.30 would adopt by reference Standard Contract Form TREC No. 23-5, New Home Contract (Incomplete Construction). The form would be revised to permit a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. The paragraph regarding Earnest Money would be modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes would permit the buyer to have the survey exception to title policy deleted at the buyer's expense. The parties could agree on the period of time for the buyer to make title objections. Financing conditions, seller financing details and loan assumption provisions would be deleted and existing separate addenda used. The revised form would provide that change orders to the construction documents must be in writing and a decrease in costs resulting from change orders and unused allowances would reduce the sales price and proportionately adjust the cash portion of the sales price and the amount financed as required by lender. The construction commencement date would be measured from the effective date of the contract rather than from the date of loan approval. The form would add sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements would be eliminated. The revised form would clarify when the buyer takes possession. Closing cost provisions would be combined for conventional and FHA/VA transactions. A blank would be added for the seller to pay a portion of the buyer's expenses. The revised form would permit the parties to agree to mediate their disputes without using an addendum. A list of contract addenda would be added along with boxes to indicate which addenda have been made part of the contract. An option clause would be 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 would be added for the option fee. Office addresses and facsimile numbers would be added to the contract for listing and selling associates.

The amendment to §537.31 would adopt by reference Standard Contract Form TREC No. 24-5, New Home Contract (Complete Construction). The form would be revised to permit a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. The paragraph regarding Earnest Money would be modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes would permit the buyer to have the 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 could 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 deleted and existing separate addenda used. The form would add sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements would be eliminated. The revised form would clarify when the buyer takes possession. Closing cost provisions would be combined for conventional and FHA/VA transactions. A blank would be added for the seller to pay a portion of the buyer's expenses. The revised form would permit the parties to agree to mediate their disputes without using an addendum. A list of contract addenda would be added along with boxes to indicate which addenda have been made part of the contract. An option clause would be 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 would be added for the option fee. Office addresses and facsimile numbers would be added to the contract for listing and selling associates.

The amendment to §537.32 would adopt by reference Standard Contract Form TREC No. 25-4, Farm and Ranch Contract. The form would be reformatted and revised to divide the property description into four major parts: land, improvements, accessories and crops. The form would be revised to permit a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. Financing conditions, seller financing details and loan assumption provisions would be deleted and existing separate addenda used. The paragraph regarding Earnest Money would be modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes would permit the buyer to have the survey exception to title policy deleted at the buyer's expense. The parties could agree on the period of time for the buyer to make title objections measured from receipt of the commitment, exception documents and survey. Title defects to which buyer can object would be rewritten for clarity and propose to include an objection for any part of the property lying in a flood plain. The reference to the TREC Addendum for Abstract of Title would be deleted. Blank lines would be provided for the seller to list exception documents and surface leases; the form would clarify that exception documents and leases will be permitted exceptions in the title policy and will not be a basis for objection to title. The form would add sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. The form would be revised to add title notices for property located in a certificated service area of a utility service provider and a Texas Agricultural Development District. The modified form would provide blanks for seller to identify governmental programs that the property is subject to and would provide for allocation or proration of governmental program by separate agreement. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements would be eliminated. The revised form would clarify when the buyer takes possession. Closing cost provisions would be combined for conventional and FHA/VA transactions. A blank would be added for the seller to pay a portion of the buyer's expenses. The revised form would provide for proration of unknown rentals such as those related to crop production once such rentals become known. The revised form would permit the parties to agree to mediate their disputes without using an addendum. A list of contract addenda would be added along with boxes to indicate which addenda have been made part of the contract. An option clause would be 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 would be added for the option fee. Office addresses and facsimile numbers would be added to the contract for listing and selling associates. The revised form would provide an agreement for payment of broker's fee; the parties would indicate whether the buyer or seller will pay the listing/ principal broker and whether the buyer or seller will pay the Other Broker; the parties would select the amount and type of payment (cash fee or % of total sales price) to listing/principal broker and other broker. The form would provide a notice in bold font that broker's fees are negotiable and not controlled by TREC and would provide for separate signatures by buyer and seller to indicate their agreement for payment of broker's fees.

The amendment to §537.37 would adopt by reference Standard Contract Form TREC No. 30-3, Residential Condominium Contract (Resale). The form would be revised to clarify the time period to cure objections. The paragraph regarding Earnest Money would be modified to measure the deposit date for additional earnest money from the effective date of the contract. Closing cost provisions would be clarified by combining buyers expenses into one paragraph rather than two separate subparagraphs for conventional/FHA financing and VA financing. The modified form proposes to delete the "not to exceed" blank for PMI, VA loan funding fee and MIP, which fixed a maximum on the amount of such fees to be paid by buyer, and replaces the blank with a clause that states that buyer shall pay such fees as required by lender.

The amendment to §537.43 would adopt by reference Standard Contract Form TREC No. 36-2, 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. The form would be modified to add a provision to clarify that if the buyer terminates the contract pursuant to the provisions of the addendum, the earnest money will be refunded to buyer.

The amendment to §537.46 would adopt by reference Standard Contract Form TREC No. 39-4, Amendment, a form used by the parties to amend a contract. The form would be revised to change a reference to a specific paragraph in item number 5 since the paragraph number has changed in the TREC contract forms.

Loretta R. DeHay, General Counsel, has determined that for the first five-year period the sections are in effect there will be no fiscal implications for the state or for units of local government as a result of enforcing or administering the sections. There is no anticipated impact on small businesses, micro-businesses or local or state employment as a result of implementing the sections.

Ms. DeHay also has determined that for each year of the first five years the sections as proposed are in effect the public benefit anticipated as a result of enforcing the sections will be the availability of current standard contract forms. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed sections, other than the costs of obtaining copies of the forms, which would be available at no charge through the TREC web site, and available from private printers at an estimated cost of $7.50 per set of 50 copies.

Comments on the proposal may be submitted to Loretta R. DeHay, General Counsel, Texas Real Estate Commission, P.O. Box 12188, Austin, Texas 78711-2188.

The amendments and new sections are proposed 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. The statute which is affected by this proposal is Texas Civil Statutes, Article 6573a.