MOST SIGNIFICANT CHANGE IN FAR / BAR UPDATE ? FINANCING CLAUSE
BY MARCIA TABAK
The real estate industry changes , and when it does , the Florida Realtors ®/ Florida Bar contract gets updated . The next version of the Florida Realtors ®/ FloridaBar Residential Contract and its As Is companion debuted April 4 , 2017 . A redline version of the contract changes ( additions in blue , deletions in red ) is posted on the Florida Realtors ® website along with an explanation of the revisions .
Some changes are housekeeping tasks . Some require a bit more study , and a future article will focus on those . For now , however , the new version of Paragraph “ 8 ( b ) Financing ” clause deserves your focus . You need to understand what has changed .
CHANGES PROMPTED BY LENDING INDUSTRY
There are several reasons for the financing change , in part because the lending industry itself has changed . The contract no longer mentions “ Loan Commitment ,” for example , because the lending industry has largely dropped the term . It ’ s been replaced by the term “ Loan Approval ,” and the term “ Loan Commitment Period ” has become “ Loan Approval Period .”
In addition , the default time for “ Loan Approval Period ” has also changed back to 30 days from 45 days . This change was made because loan approvals are no longer being slowed down by TRID ( TILA / RESPA Integrated Disclosure Rule ), the financial regulations that went into effect in the fall of 2015 .
Finally , a requirement in the old version of the contract – “ this contract is contingent upon buyer obtaining a written loan commitment ,”– has been changed , and the “ written ” component has been deleted .
CHANGE IN PHILOSOPHY REGARDING BUYER ’ S RIGHT TO CANCEL
In general , many members feel parts of the financing clause were confusing . In particular , Florida Realtors ® received many questions about either party ’ s right to cancel the contract up to seven days prior to closing when a buyer didn ’ t timely obtain a loan . The new version of the contract scraps this concept in favor of a new approach . As always , the devil is in the details .
The new financing clause requires a buyer to promptly notify a seller , in writing , when a Loan Approval is obtained . If a buyer does not obtain Loan Approval within the Loan Approval Period , then the buyer may notify the seller – again , in writing – and elect to either terminate the contract or waive Loan Approval . However , the buyer no longer has a unilateral contractual right to terminate the contract for failure to obtain Loan Approval after the Loan Approval Period .
Further details : If a buyer doesn ’ t give the seller any kind of written notification during the Loan Approval Period , new language specifies Loan Approval will be considered obtained . This results in the buyer ’ s deposit being at risk if he fails to close unless the buyer ’ s failure is caused by items set out in Paragraph 8 ( b )( vii ).
There is an exception to the contract going forward if a seller has received no written notification at all – either that a loan has been obtained or the buyer cannot get one . The seller may unilaterally cancel the contract by giving the buyer written notice within a three-day period after the buyer ’ s Loan Approval Period has expired . But if the seller does nothing during the three-day period following the Loan Commitment Period , the seller has no further unilateral opportunity to terminate the contract based on the buyer ’ s failure to obtain Loan Approval or failure to provide the seller a written notice .
Other highlights of 8 ( b ) Financing clause changes 1 . If the lender requires that a buyer sell an existing property , this will not be considered Loan Approval .
2 . When applying for a loan , what is a “ diligent effort ” on the buyer ’ s part ? New language now specifies this requires the buyer to “ timely ” provide documents , information , payment of fees and charges per lender requirements .
3 . An additional clause authorizes the closing agent to share the settlement statement and Closing Disclosure with the seller and real estate brokers . Note , however , that this doesn ’ t obligate the closing agent to share the documents and it might violate the lender ’ s closing instructions .
4 . What if the buyer finds that he can ’ t secure Loan Approval before the Loan Approval Period expires ? This caused some confusion in the past , but no longer . A buyer who has used due diligence but is unable to obtain Loan Approval can notify the seller in writing at any time before the Loan Approval Period ends .
5 . One clause , 8 ( b )( vii ), about returning deposits when a deal doesn ’ t close because of a lender ’ s “ financial failure ” was removed from the new version .
Marcia Tabak is Deputy General Counsel of Florida Realtors ® © 2017 Florida Realtors ®
RPCRA . ORG | MAY / JUN 2017 11