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Changes to TREC Contracts – Effective January 1, 2016
Introduction
Several updates and revisions to various TREC contracts were adopted at the Commission’s
meeting on November 2, 2015. Some of the changes were adopted to align the forms with the
new TILA/RESPA Disclosure rules that were promulgated by the Consumer Financial Protection
Bureau (CFPB). Other changes were made to bring the forms into compliance with laws enacted
by the Texas Legislature in HB 1665, SB 1367 and SB 1168 (all of which were effective September
1, 2015). Additional updates were made to address other important issues that have been
brought to the TREC Broker-Lawyer Committee since the last contract revisions.
Note: Use of these revised forms became mandatory on January 1, 2016.
Highlights of Changes
Note: The noted changes apply to all contract forms unless specified otherwise. Paragraph
numbers referenced are from the One to Four Family Residential Contract (Resale). A copy of
the Final Redline version of the One to Four Family Residential Contract (Resale) is attached to
this paper for your review and information.
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A. Paragraphs 3 and 4
1. Because the relationship between credit approval and property approval and when a
buyer may terminate the contract has always been a source of confusion, TREC
attempted to clear up this confusion by moving the financing information to a new
“Third Party Financing Addendum.”
2. Paragraph 3, Sales Price, now references all of the financing addenda previously
contained in paragraph 4 of the old versions, and now contains checkboxes for the
addenda related to third party financing.
3. Reverse mortgage loans are also addressed in this addendum so form OPN - Reverse
Mortgage Financing Addendum - is repealed.
4. A new paragraph 4 is added regarding license holder disclosure. This paragraph is where
a license holder will disclose that he or she is a party to the transaction or related to a
party that requires disclosure under the law
5. Here’s how these paragraphs look in the redline copy of the 1 to 4 Family Contract:
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B. The Third Party Financing Addendum – See Attached Copy of this Addendum
1. This form replaces the “Third Party Financing Addendum for Credit Approval.”
2. This new form contains the provisions previously listed in Paragraph 4, and reverse
mortgage language.
3. The “Reverse Mortgage Financing Addendum” was repealed effective January 1, 2016
and should no longer be used after that date.
4. Revisions to the Third Party Financing Addendum include:
a. Remove the word “adjusted” before “Origination” wherever it occurred since this
term is no longer used under TRID;
b. Change “Credit Approval” to “Buyer Approval” to reflect the more encompassing
nature of that approval;
c. Add an option in the addendum for a party to opt out of “Buyer Approval;”
d. Allow Property Approval to be given up until closing instead of the “day before”
closing;
e. Reordered subsections D. and E. so that Authorization to Release Information comes
last; and
f. 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.
5. As noted immediately above at 4.f., new “Authorization to Release” language was added
to this Addendum due to many lender and title company concerns over Privacy Act
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violations that may arise when the TRID Closing Disclosure form is delivered to the
Realtor of one of the parties to the transaction. This language was taken from the TAR
form. As a result, TAR will be pulling this form from their library and it should no longer
be used after January 1, 2016. Here is the wording in the addendum:
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C. Notice of Water Fluctuations
1. A new paragraph 6.E.(10), Title Notices, Notice of Water Fluctuations, is added to add
new statutory notice requirement regarding the fluctuation of the level of certain
impoundments of water that adjoin a property.
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2. During the last legislative session a law was passed that said that sellers of properties
near certain types of bodies of water would be required to put buyers on notice of the
possible fluctuations of those water levels. The contracts are changed to protect sellers
from having to determine if their properties are near one of these types of bodies of
water (by having this notice in ALL contracts). This shifts the burden to the buyer to
consider the potential of residing in one of these designated areas.
D. Provision Regarding “Hydrostatic Testing”
1. Paragraph 7A, Property Condition, Access, Inspections and Utilities, is amended to add a
provision that hydrostatic testing must be authorized by the seller in writing.
2. This provision was added to address the issue of buyer’s performing hydrostatic tests on
plumbing systems which have a potential for causing harm to pipes.
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E. Automatic ten day extension of Closing Date NOT Approved
a. The following proposed language was the most controversial of the proposed changes
and it ultimately failed and was NOT included in the revised TREC contracts.
2. A majority of the comments about this proposed wording were against the creation of
the 10 day automatic extension due to fear of abuse.
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F. Notice to Tenant
1. A minor clarification to paragraph was made to Paragraph 9.B.(5), which now reads as
follows:
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2. This paragraph was amended to conform the language with a statutory change to the
Property Code, noting that the buyer has to acknowledge to a tenant that the buyer
has acquired the property and is responsible for the return of the security deposit.
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G. Paragraph 14 – Casualty Loss
1. This paragraph was amended to make it clear that an insurance company must permit
insurance proceeds to be assigned to the buyer before the buyer can use this option
after a casualty loss.
2. Here’s the new wording:
H. Paragraph 18 D – Escrow
1. As a result of recent case law, the right to treble damages was removed as a
consequence of refusing to sign a release acceptable to a title company:
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2. There were many Realtors “for” this change, and “many against.” Those against argued
that without the potential of treble damages, the party who wrongfully refuses to sign a
release has no real monetary motivation to sign the release.
Paragraph 21 – Notices
A few minor clerical changes were made to this paragraph as follows:
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Paragraph 23 – Termination Option
1. The termination option period now ends at 5:00 pm local time on the day designated in
the contract. Here’s the new wording:
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2. Thus, the notice to terminate will now have to be given by 5:00 pm on the last day of
the option period. This will prevent buyers from waiting until the last minute (like 11:45
pm) to give the required notice.
K. Additional Clerical Changes
A few additional clerical changes were made to this paragraph as follows:
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L. Broker Information
1. A place for sales associates’ names license numbers was added to the Broker
Information Section above the licensed supervisors’ blanks.
2. License numbers are added to the Broker Information Section to facilitate compliance
with the TILARESPA Integrated Disclosure Rule.
3. Also, the order in which the associates and supervisor’s names appear is reversed on the
last page of the contract, as follows:
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M. Residential Condominium Contract
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1. Effective September 1, 2015, language was added to Paragraph A to address rights and
responsibilities where a right of first refusal exists on the property.
2. The new language specifically addresses where a Condo Association has the first right of
refusal and when a buyer has the ability to exercise a right to terminate a contract
based on notice of that right.
3. Here’s that wording of new paragraph 2.D.:
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N. Farm and Ranch Contract
1. The wording in Paragraph 13. B. was amended to make it clear that assessments
imposed due to the seller’s use or change in use of the property are the seller’s
responsibility.
2. The new wording reads as follows:
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As you can see, there were numerous revisions to the various TREC contracts, and these revised
contracts became mandatory for use after January 1, 2016. Know these changes – understand
them – and be prepared to advise your customers and clients accordingly.
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