Arizona Association of REALTORS® Form Revisions
K. Michelle Lind
The Arizona Association of REALTORS® (“AAR”) anticipates the release of several new and revised forms in February 2011. Form revision and development is within the purview of the AAR Risk Management Committee (“RMC”). If a form revision request is approved by the RMC, a chair is selected and a work group is formed to draft the language to implement the requested change. Once the workgroup finalizes the draft form, it is submitted for approval by the RMC. Once approved by the RMC, the forms are submitted for final approval by the AAR Executive Committee. AAR’s form revision and development process may sound unduly burdensome. However, the process is intended to ensure that the forms are fully vetted, practical for use by the members
and legally sound.
AAR member volunteers have collectively invested hundreds of hours of their time in the creation of these forms. AAR owes a debt of gratitude to all of the members involved and a special thanks to 2010 RMC Chair John Foltz, Residential Forms Workgroup Chair Jim Sexton and Miscellaneous Forms Workgroup Chair Martha Appel.
The following summarizes the expected form revisions slated for release in February 2011. A word of caution: At the time of this writing, the forms have not received final approval, and the terms discussed herein may change.Residential Resale Real Estate Purchase Contract - Prequalification Form - Loan Status Update
The Residential Resale Real Estate Purchase Contract (“Contract”), Pre-qualification Form and Loan Status Update were revised/developed due primarily to changes in the Real Estate Settlement Procedures Act (“RESPA”) rules regulating the issuance of a Good Faith Estimate (“GFE”) to a buyer. The RESPA reforms require a property address before a GFE may be provided by a lender and encourages the buyer to “shop” for lenders. There have been numerous other changes in the lending industry as a whole. As a result, the primary substantive changes are concentrated in the financing section of the Contract.
The Pre-qualification Form, which is designed to be completed by the lender, was developed to provide information on the buyer’s ability to qualify for a loan without a GFE. Therefore, the new form is not property specific but does provide more information than provided on the current Loan Status Report. The form sets forth the loan amount for which the buyer can prequalify, assuming a stated maximum monthly housing payment. The Contract does not require the buyer to submit a Pre-qualification Form with the offer because there are circumstances in which the buyer may wish to submit an offer prior to consulting with a lender.
The Contract provides that the buyer’s obligation to complete the sale is contingent upon the buyer obtaining loan approval without Prior to Document (“PTD”) conditions no later than three days prior to the close of escrow (“COE”) date. If the loan contingency is not fulfilled by that date, the buyer has no obligation to close escrow, and the Contract is cancelled. Thus, the Contract requires the buyer to sign loan documents or deliver a notice of the inability to obtain loan approval no later than three days prior to the COE date. The loan contingency was changed to expire three days prior to COE rather than on the actual COE date to increase the probability that the seller will be informed prior to the COE date whether or not the buyer will be able to qualify for the loan and close escrow.
To obtain loan approval without PTD conditions, the buyer must submit all necessary documentation, the appraisal must have been completed, any appraisal conditions met and the loan underwritten all as set forth in the revised Loan Status Update (“LSU”). The remaining prior-to-funding loan condition requirements, such as approving the pre-audit and receiving the signed loan documents are unrelated to the buyer’s ability to qualify for the loan.
The buyer is obligated to deliver the revised LSU to the seller five days after Contract acceptance. The LSU is required at this point in the transaction to establish that the buyer intends to proceed with the lender indicated in the LSU on the terms described. The LSU also allows the seller and listing broker the opportunity to begin “tracking” the progress of the buyer’s loan.
AAR is developing a webinar discussing the Contract changes in detail and a “Frequently Asked Questions” article to answer anticipated questions. There will undoubtedly be numerous classes offered on the Contract revisions, so make sure to attend one as soon as possible.
Five other forms are anticipated to be approved for release in February as well. These forms include the Multiple Offer/Counter Offer form, Multiple Counter Offer form, Counter Offer form, Residential Buyer’s Inspection Notice and Seller’s Response form and the Short Sale Addendum to Residential Resale Real
Estate Purchase Contract.
The Multiple Offer/Counter Offer form is a new form that essentially mirrors the Multiple Counter Offer form. This form is intended for use by buyers making offers on multiple properties. The Multiple Counter Offer form was revised to clarify when the seller was agreeing to the terms of the Multiple Counter Offer or submitting an additional counter offer. The Counter Offer form, which has remained unchanged since 1996, was revised for consistency with the Multiple Offer/Counter Offer and Multiple Counter Offer forms. The acceptance language in all three forms now references the notice section of the Contract (Section 8m) for acceptance delivery purposes. The Residential Buyer’s Inspection Notice and Seller’s Response form was expanded to three pages by adding additional lines. The additional lines were added to respond to members comments that more space was needed for a seller to respond to a buyer’s notice of items disapproved. A small but significant revision was made to the Short Sale Addendum to Residential Resale Real Estate Purchase Contract. The line in the Short Sale Addendum requiring the buyer to pay all loan costs was removed because it is becoming more common that the seller will pay some loan costs in a short sale transaction. As a result, the parties responsible for paying loan costs in a short sale transaction will be as set forth in the Contract. As an aside, a short sale workgroup will be formed in the near future to again discuss AAR’s short sale forms, as well as other issues arising from this type of transaction, and recommend any actions that AAR might take to make a positive impact on the industry in this regard.
AAR continually strives to provide its members with the best real estate forms available so that they can achieve the association’s vision: REALTORS® . . . the best prepared real estate professionals with the highest standards.
AAR General Counsel Michelle Lind is a State Bar of Arizona board certified real estate specialist and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.
This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.