What to do with Harvey-affected transactions already under contract
If any part of the property is damaged or destroyed while under contract, Paragraph 14 deals with casualty loss. The Casualty Loss paragraph will require the seller to restore the property to its previous condition as soon as reasonably possible. Under the circumstances, that may not be feasible. If that is the case, this paragraph provides the buyer with three options:
- Terminate and receive a refund of the earnest money.
- Extend the time for performance up to 15 days, which extends the closing date.
- Accept the property in its damaged condition with an assignment of insurance proceeds, if permitted by the insurance carrier, and receive a credit from the seller at closing in the amount of the deductible.
Keep in mind that the property will still need to meet the lender’s underwriting requirements for the loan if the contract is subject to the Third Party Financing Addendum. If so, the lender may require re-inspections, re-appraisals, or repairs.
Under the Third Party Financing Addendum, if the property approval is not obtained, the buyer may terminate the contract by providing notice to the seller before closing and the buyer will receive a refund of the earnest money. If the closing is approaching, but the property has not yet met the lender’s underwriting requirements, the buyer will need to consider whether to terminate the contract or submit an amendment to delay the closing. The buyer is obligated to make every reasonable effort to communicate with their lender regarding the status of the loan.
Paragraph 12 of the One to Four Family Residential Contract (Resale) provides that appraisal fees, loan-related inspection fees, final compliance inspection, repair inspection, and expenses incident to any loan are expenses payable by the buyer. However, the parties may have agreed for the seller to pay up to a certain amount of the buyer’s expenses.
The lender may require certain repairs to be completed prior to approving the loan. Under Paragraph 7E of the One to Four Family Residential Contract (Resale), neither party is obligated to pay for these repairs unless they have agreed otherwise in writing. If that is the case, the contract will terminate and the buyer will receive a refund of the earnest money. In addition, if the cost of the lender required repairs exceeds 5% of the sales price, the buyer may terminate and receive a refund of the earnest money.
In most cases, delays with performance and closing may occur. It is important for the agents to communicate with all those involved in the transaction, including the other agent, the title company, the lender, and the parties’ attorneys.
If the parties are not using a TREC or TAR contract and the contract does not expressly provide for the rights and duties when all or a material part of the property is destroyed without fault of the parties, theTexas Vendor and Purchaser Risk Act will apply. The act protects the purchaser of real estate when there is a binding contract and the property is destroyed before the purchaser has taken legal title.
Information provided by Texas Association of Realtors website 8/30/2017