By Dawn Ferreiro - Supreme Lending, NMLS #514152 and member of CCAR REALTOR®/Lender Committee
TREC made several changes to the 1-4 Residential Single Family Contract in November of 2018. This article specifically addresses changes made to the "Third Party Financing Addendum (40-8)" article 2, paragraph B as well as the addition of the "Addendum Concerning Right to Terminate Due to Lender’s Appraisal (49-1)."
Due to the changes to Addendum 40-8, buyers with conventional financing may terminate and receive a refund of their earnest money if the seller is notified of a low appraisal or other collateral deficiencies no later than 3 days before the closing date.
A noteworthy change, as the appraisal of the purchase property for the minimum value that is equal to the contract purchase price is the most common underwriting/lender requirement.
Typically, lenders can decline the loan up until closing, but the change to Addendum 40-8 will require an adjustment on the part of lenders and REALTORS®. It is no longer advisable to receive the appraisal at the tail end of the transaction, potentially risking the earnest money for the buyer/borrower, and is imperative that communication between the parties is ongoing regarding the appraisal.
Also demanding increased communication between lenders and REALTORS® is the addition of the "Addendum Concerning Right to Terminate Due to Lender’s Appraisal (49-1)" and subsequent changes to the TREC Contract.
Addendum 49-1 can be used to create a special contingency based on the appraisal performed by the lender, and when the associated box is checked allows a buyer to:
- Release their right to terminate the contract if the appraisal comes in too low and agree to produce extra cash to satisfy lender requirements
- Release their right to terminate the contract if the appraisal comes in too low and agree to produce extra cash to satisfy a lender requirement up to a certain amount
- Create an unequivocal right for the buyer to terminate the contract if the appraisal falls below a certain amount.
These changes mandate REALTORS® and lenders work together in tandem on behalf of your buyer or borrower to ensure timelines are met going forward in regards to the delivery of the appraisal report.
If you have questions regarding the impact of Addendum 40-8 or 49-1 on your transactions, please contact CCAR’s REALTOR®/Lender Committee at email@example.com.