Brian Watts, attorney at Hexter Fair Title Company, spoke to the agents in the Dallas North office of Keller Williams this morning. His topic was Lease/Purchase, Leases and Negotiating Contract Extensions. According to Brian, lease purchase is "a stupid idea" and recommended that we steer our buyers and sellers away from this.
Brian outlined the 3 methods of lease/purchase:
- contract for deed - the buyer takes possession and makes payments to the seller and when the final payment is made, the buyer gets the deed. It's kind of like seller financing, but without the approval of the seller's lender (because the seller's lender would NOT approve).
- lease purchase - two contracts, one for the initial lease and another for the purchase, usually a year down the road. This is essentially one contract on two forms because one wouldn't stand without the other.
- executory contract for the sale of real property - an executory contract is one that has yet to be completed. In 2005 the statute under the property code was amended and many restrictions were added. The statute applies when the deed is delivered more than 180 days after the contract is executed, so a One to Four Family Resale Contract doesn't fall into this category because the deed must transfer within 180 days.
He also shared some tips about contract extensions (extending the closing date). If you use the TREC form, don't just put in the new closing date. Include "time is of the essence" language and use the extension as an opportunity to make the buyer commit:
- Make the buyer waive all contingencies
- Use "time is of the essence" to terminate immediately if the closing date is not met
- Get the buyer to make a financial commitment by 1) releasing the earnest money immediately, 2) asking for additional earnest money, or 3) asking the buyer for an extension fee. All to be applied as credits towards the sales price at closing.
Finally, Brian reviewed the new Notice of Buyer's Termination of Contract form (TREC #38-2). The buyer unilaterally terminates with this form. There are check boxes for the reasons for termination:
- Within the option period
- Buyer cannot obtain Financing Approval
- Property doesn't satisy the lender's underwriting requirements
- Buyer elects to terminate subject to mandatory membership in HOA
- Buyer elects to terminate relating to the delivery of the seller's disclosure notice
- Other (title commitment, survey, etc.)
There is also a new Short Sale Addendum, but due to lack of time, it was only mentioned.
It's always a treat to hear from David Fair or Brian Watts, those at the helm of Hexter Fair Title Company!