BELOW ARE A SERIES OF BLOGS FROM THE TEXAS ASSOCIATION OF REALTORS THAT MAY BE HELPFUL TO OUR NEIGHBORS ON THE TEXAS COAST. OUR HEARTS GO OUT TO ALL OUR FRIENDS DOWN THERE!
Thousands of clients are in limbo due to the devastation left by Hurricane Harvey. And while every situation is different, here are sections in the TREC One to Four Family Residential Contract (Resale) and related addenda that might apply to transactions affected by this disaster. The TAR commercial contracts and other TREC contracts have similar provisions.
Please call the TAR Legal Hotline (800-873-9155) for additional help understanding how you and your clients can proceed.
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, the
Texas 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.
If you are under a temporary lease agreement, review the following provisions regarding repairs:
- Paragraph 14, Repairs and Maintenance, provides that “Except as otherwise provided in this Lease, Tenant shall bear all expense of repairing and maintaining the Property…unless otherwise required by the Texas Property Code.” However, the Texas Property Code requires a landlord to make a diligent effort to repair and remedy a condition if the condition materially affects the physical health of safety of an ordinary tenant as long as other conditions are met.
- Under a Buyer’s Temporary Residential Lease, Paragraph 18, Termination, the lease may terminate if the contract terminates prior to closing.
You can share with your clients that State Bar of Texas legal hotline (800-504-7030) will answer their basic legal questions and connect them with local legal aid providers. And NAR has published “Transaction Guidance After Natural Disaster,” which contains additional tips.
Again, call the TAR Legal Hotline (800-873-9155) for help understanding how you and your clients can proceed.
Paragraph 25 of TAR’s Residential Lease deals with casualty loss, which includes a loss due to weather events, such as Harvey.
If the property is deemed partially or completely uninhabitable, Paragraph 25 references the Texas Property Code Section 92.054 for guidance, which provides the following:
- For damage resulting from an insured casualty loss, the period for repairs doesn’t start until the landlord receives the insurance proceeds;
- If the damage from the casualty loss renders the property “totally unusable for residential purposes” and the tenant doesn’t cause the loss, either the landlord or the tenant may terminate the lease by giving written notice to the other party prior to the completion of the repairs. The tenant would be entitled to a prorated refund of rent from the date the tenant moves out, and the security deposit would be accounted for or refunded to the tenant pursuant to the relevant sections of the Property Code; and
- If the casualty loss renders the property “partially unusable for residential purposes” and the loss isn’t caused by the tenant, the tenant is entitled to a reduction of rent in an amount proportionate to the extent the property is unusable, but only upon a county or district court judgment. The landlord and the tenant may agree otherwise in a written lease.
Paragraph 25 also clarifies that any proceeds paid in connection with the casualty loss is the property of the landlord.
TAR’s Residential Leasing and Property Management Agreement also includes provisions related to casualty loss. Paragraph 4E prohibits a broker from filing a casualty loss claim with the carrier insuring the property but allows a broker to communicate with the carrier to facilitate the landlord’s casualty loss claim. Additionally, if the landlord requests that the broker coordinate or communicate with the insurance carrier, paragraph 11G authorizes the broker to receive compensation for such services in an amount agreed upon by the parties.
Members of the Texas Association of REALTORS® can call the TAR Legal Hotline at 800-873-9155 with questions about the law and related matters. Your prospects and clients can access legal resources related to Harvey from the State Bar of Texas at texasbar.com/disasters.
Important information for landlords considering raising rents in counties designated as disaster areas
With high demand for shelter in areas of Texas affected by Hurricane Harvey, some landlords are considering raising rent for intact properties. However, raising rents on current or prospective tenants may be considered price gouging, which is illegal.
Section 17.46(b)(27) of the Texas Deceptive Trade Practices-Consumer Protection Act says it’s a false, misleading, or deceptive act or practice to take advantage of a disaster declared by the governor by selling, leasing, or demanding an exorbitant or excessive price for items like fuel, food, medicine, or another necessity. Rental housing would likely be considered a necessity under this law.
In addition, if a landlord is using TAR’s Residential Lease, he or she would be prohibited from raising rent during the primary term of the lease, and any increases during a renewal period must not be exorbitant or excessive.
Members of the Texas Association of REALTORS® can call the TAR Legal Hotline at 800-873-9155 with questions about the law against price gouging and related matters. Your prospects and clients can access legal resources related to Harvey from the State Bar of Texas at texasbar.com/disasters.